Waterberg bounty makes miner a target
Eskom is a likely customer for abundant coal resources, writes Monde Maoto
THE growing attraction of the development of coal projects in the Waterberg region of Limpopo to supply Eskom’s power stations has turned ASX-and JSE-listed fledgling miner Firestone Energy into a potential takeover target.
The Waterberg has been identified by Eskom as a source of supply for its coal-powered stations, and the parastatal has signalled its intention to support emerging miners. Over the past three years, Firestone and black economic empowerment partner Sekoko Resources have been developing coal assets in the region.
Australian miner Range River Gold — a subsidiary of venture capital group Garrison Capital — is preparing to table a third supplementary bid for Firestone’s shares it does not own.
This comes after the board of directors of the company rejected advances from the suitor, since the company showed its intent to acquire Firestone after completing its acquisition of Ariona Company SA. Ariona had entered into an investment agreement to finance the development of the Waterberg coal project with Firestone Energy.
Yesterday, Range River completed the $A35m ($36.8m) drawdown under its convertible facility agreement with Standard Bank, which it said was in line with terms of the share purchase agreement between Ariona and Sekoko Coal Resources. This means Range River — through Ariona — has acquired a 10% interest in the Waterberg project, along with 480-million ordinary shares in Firestone Energy from Sekoko Resources, which will now hold 30% in the joint venture.
It said it was now preparing a third supplementary bidder’s statement to acquire Firestone.
Firestone’s board advised shareholders on two occasions to decline its off-market offers.
Initially, Australian miner Range River offered Firestone share- holders one Range River share for every two Firestone shares held, a 25% premium to the company’s closing price at the time the deal was announced.
While Range River has revised its offer, the board of directors at Firestone rejected the offer as “inadequate and opportunistic”.
The company said that it did not compensate shareholders for the value of the assets, and that it diluted the holdings of Firestone shareholders.
The R270m offer was subsequently raised to 1.25 Range River shares for every two Firestone shares, on March 27.
On April 5, the board said that the offer did not compensate shareholders for the inherent value of the coal assets, that Range River was paying a significantly higher price for its interest for Firestone and Sekoko assets, and that the offer would dilute the effective ownership in the company.
Firestone chairman — and also CEO of Sekoko — Tim Tebeila said in an interview with Business Day that the Firestone board had commissioned an independent advisory to give recommendations on the bid.
He stated that the deal was in two forms, namely Range River’s acquisition of Sekoko’s stake in the project, which it has completed, as well as that of Firestone.
“The Firestone board is now waiting for the findings from our advisers regarding the decision to take to the deal, which was expected to be finalised in the short term,” he said, refusing to comment further.
Firestone has since commissioned advisory group Venmyn Deloitte to conduct an updated, independent competent person’s report on its coal projects, which are close to diversified resources mining giant Exxaro’s Grootegeluk mine, in the Waterberg region.
Resources Generation is the other miner that has commenced construction in the Waterberg — of its Boikarabelo mine.
According to the updated competent person’s report, Firestone’s projects hold 1.4-billion tons in situ in the measured, indicated and inferred categories, with an intrinsic value of R1.3bn.
Firestone said the findings confirmed the company’s view it would be able to supply Eskom with 10million tons of coal a year.
It has also concluded a rail haulage contract with Transnet, with a confirmed allocation to meet export and domestic sales requirements for stage one of operations and a port access contract that is sufficient for export requirements.
Transnet Freight Rail is in the process of expanding its rail infrastructure through a R7bn investment, which will link the Waterberg to Witbank in Mpumalanga and the Richards Bay Coal Terminal in KwaZulu-Natal.
Meanwhile, Firestone last week notified investors that it was in discussions to arrange alternative funding sources, after talks — expected to have taken place on March 28 — relating to the second tranche of the restated investment agreement with Ariona were terminated.
Despite this turn of events, Firestone will, however, still be able to draw down on the A$2m facility from BBY Nominees, also a signatory to the agreement, to meet its short-term funding needs.
Trade in the shares in the company remain on hold at 70c a share on the JSE, after the company requested a voluntary suspension.