Sekoko’s really big deal at a propitious time

IWAS nonplussed when I wrote about this in 2011, and I am nonplussed now. Timothy Tebeila, a former schoolteacher with zero knowledge of the mining industry, had managed to secure a memorandum of understanding with Eskom that would permit his company, Sekoko Resources Group, to supply up to 10-million tons of coal to Eskom-designated power stations.

Tebeila pulled off deals with Australian- and JSE-listed Firestone Energy which, with a cash underpin from Eskom, would supply the capital required to bring the mine to production. Fights developed and it looked as though it had stalled.

Then, out of the Aussie shadows emerged Garrison Capital and its Mongolian partner Hunnu Coal. It raised A$20m to develop a coal project in Mongolia, and Hunnu’s shareholders have been offered A$500m cash after just 18 months. Garrison is the same party behind ASX-listed Range River Resources, which has announced a transaction with Sekoko Resources. The latter is the majority shareholder in Firestone Energy, which holds 60% in the Waterberg Coal Project.

The Industrial Development Corporation, which bankrolled and warehoused the project, has been settled through the use of the A$35m funding package provided by Standard Bank, which also holds the mandate to secure the A$400m (R3.75bn) needed to bring the project on-stream. Range River has made an offer to all Firestone shareholders to acquire their shares on terms and conditions that will equate with the value of the deals struck with Sekoko. The aim is that Sekoko will remain holding a 30% stake in the company as the black economic empowerment-compliant partner.

This is a really big deal at a propitious time. Just when SA was being written off as a country in which to do mining business, along comes this new project. The Waterberg deposit is contiguous to Exarro’s Grootgeluk mine. Its commitment to deliver to Eskom will be on a cost plus basis and Eskom will require delivery at any one of its power stations, probably those in Mpumalanga.

Waterberg Coal Company executive director Stephen Miller says the company’s due diligence examination is at an advanced stage. The coal it produces is likely to fill “holes” in Eskom’s current delivery patterns, holes that must be catered for if the dangerously delicate balance between electricity demand and supply is to be maintained satisfactorily. The coal is likely to be transported to Eskom stations by Transnet.

Tebeila’s stake through Sekoko isn’t getting a free ride. Sekoko will have to pay for its share of the capital costs out of its portion of profits.