Market welcomes news of Wescoal property acquisition

WESCOAL Mining’s shares jumped 7% to 90c yesterday after the company said Xstrata had sold it the mining rights to the Elandspruit properties in Middelburg, Mpumalanga, for R93.8m.

In return, Wescoal Mining has agreed to sell the mining rights for Vlaklaagte to Xstrata for R81m.

Vlaklaagte is situated 15km from Witbank and is contiguous to Xstrata’s Tweefontein Colliery.

The properties cover an undeveloped export-quality thermal coal deposit with a measured resource of about 25.5-million tons.

Wescoal, through its subsidiary Blanford, has entered into an agreement with Xstrata to buy the three properties that make up the bulk of the surface rights where the Elandspruit mining operations will be conducted, known as the Duiker Properties. Elandspruit had an existing mining right with a resource of 30.5-million tons. When mining begins in 2014, Elandspruit was expected to bring Wescoal a step closer to reaching its objective to produce 4-million tons of coal a year from its operations, Andre Boje, Wescoal’s CEO, said yesterday.

“The resource covered by the Vlaklaagte right is an underground resource that would require extensive capital expenditure to bring to full production which‚ in Wescoal’s instance‚ would be prohibitive,” the company said.

The sale of the mining right is in line with Wescoal’s stated goal of securing and retaining high-quality coal resources that can be mined by the opencast method to increase production and sustainability.

“As Vlaklaagte is contiguous to the Xstrata Tweefontein Complex‚ the most sensible economic model is for Xstrata to exploit the resource directly from its contiguous operations requiring minimal capital investment and infrastructure spend‚” the company said.

The transaction in line with Wescoal’s goal of securing and retaining high-quality coal resources is subject to conditions‚ including obtaining approval by the competition authorities and ministerial consent. Meanwhile, Wescoal ended talks on its proposed acquisition of a majority stake in the Pegasus project, the last known source of high quality metallurgical coal deposits in the Witbank area.

Mr Boje said talks ended after it became apparent too many “uncertainties” remained, but did not rule out the possibility of resuming negotiations once conditions regard- ing the sale improved. Wescoal was planning to acquire a 51% stake in the project from HSTI, in a deal valued at about R102m.

The transaction would give the miner access to an undeveloped‚ export-quality thermal coal deposit that has a measured resource of about 15-million tons.

Last month, Wescoal announced that it was courting three financial institutions in SA to raise R45m to finance development of the 1.2-million-ton-a-year Intibane Colliery on the Witbank coalfields.

Intibane is on the Vlakvarkfontein farm, which Wescoal had recently acquired, where Mr Boje said mine plans were at an “advanced stage”, and that mining operations were expected towards the end of this year.