Transnet contract to delay mine's production

"The reluctance of TFR's task team to commit to a rail haulage contract will delay the mine's initial production until the first half of 2014, assuming an acceptable contract is agreed by the end of 2011 and funding is obtained," said Resource Generation managing director Paul Jury.

"We are confident of achieving a contract with TFR eventually and believe the delay is related to process and timing, rather than inability to provide haulage," Jury said.

Providing an update on the Boikarabelo project, Resource Generation said capital expenditure for construction of stage one of the mine is now AU$750 million.

This includes a mid-range cost estimate of AU$100 million for construction of a 40MW power station, and increased construction costs, particularly for the coal handling and washing facilities.

The company said it was considering the possibility of segregating debt funding for the power station from the project facility for the mine.

Having completed detailed mining fleet and engineering designs for the mine, the company is in a position to fast track construction once funding is secured.

Boikarabelo has probable reserves of 744.8 million tonnes of coal - just on the 35% of the tenements controlled by the company.

The company is in discussions with Eskom for supply of coal to the Mpumalanga power stations.

Meanwhile, the company awaits the award of two major licence approvals.

The first, under the National Environment Management Act, will enable construction of the mine and the rail link to begin and the second is the Integrated Water Use Licence from the Department of Water Affairs, which will enable the use of water from the borefield on the company's properties, which will provide sufficient water for stage one of the mine's operations.

Both licence approvals are expected during the final quarter of 2011.

The Department of Mineral Resources (DMR) has notified the company's subsidiary, Ledjadja Coal, that an appeal has been lodged regarding the granting of the Boikarabelo mining right.

"The appeal does not suspend the mining right, which remains valid," the company said.

The statutory appeal process is now underway and Ledjadja has provided its formal response to the DMR but the company is confident that the mining right will be confirmed and is continuing its normal activities to develop the mine.

"We are proceeding with development activities and, after completing the sale of our Tasmanian tenements last week, have over AU$25 million in cash available. These funds are sufficient to enable us to continue normal operations for the foreseeable future," said Jury.