Wrap Text
Independent Specialist Valuation Report
FIRESTONE ENERGY LIMITED
(Incorporated in Australia)
(Registration number ABN 058 436 794)
Share code on the JSE Limited: FSE
Share code on the ASX: FSE
ISIN: AU000000FSE6
(SA company registration number 2008/023973/10)
("FSE" or "the Company")
About Firestone Energy
Firestone Energy Limited is an
21 February 2013
independent, Australian exploration and
development company listed on the
Australian Stock Exchange Ltd (ASX) and
Independent Specialist Valuation Report the Johannesburg Stock Exchange (JSE).
Firestone Energy has entered into a Joint
Venture with Sekoko Resources (Pty) Ltd
through which Firestone Energy has
Firestone Energy Limited (ASX/JSE: FSE) (the “Company” or “Firestone”) is
acquired the right to 60% participation
pleased to announce the release of an Independent Specialist Valuation Report in
interests in the Waterberg Coal Project
relation to the coal assets of the Company’s Waterberg Coal Project Joint Venture located in Lephalale area, Limpopo Province,
with Sekoko Resources. South Africa.
The Company engaged VenmynDeloitte to prepare the Independent Specialist The first stage of the project is to develop the
Valuation Report and Venmyn Deloitte was instructed by Deloitte Corporate Smitspan mine which has a substantial
Finance Pty Limited (“Deloitte Corporate Finance”). Deloitte Corporate Finance measured thermal coal resource and to
has been separately engaged by the Company to prepare an Independent Expert’s develop the Vetleegte mine which is a
substantial metallurgical coal deposit.
Report in relation to the off-market takeover offer from Range River Gold Limited
(ASX: RNG) to acquire all of the shares in the Company for consideration of 1 Firestone Energy is committed to becoming a
share in RNG for every 2 shares in the Company (“Offer”) to opine on whether the profitable independent coal and energy
Offer is fair and reasonable to the Company’s shareholders. producer at its projects in South Africa,
thereby making a substantial contribution to
The Deloitte Corporate Finance Independent Expert’s Report will take into the social and economic development of the
consideration the Independent Specialist Valuation Report and both reports will Lephalale area and South Africa.
accompany Firestone’s Target’s Statement.
Corporate Details
ASX: FSE
All Firestone announcements are available on the Company’s website JSE: FSE
on www.firestoneenergy.com.au and via www.asx.com.au. Issued Capital:
3,549 million ordinary shares
Yours sincerely,
Major Shareholders:
Sekoko Resources (Pty) Ltd
Linc Energy Ltd
BBY Nominees Pty Ltd
Bell Potter Nominees Ltd
David Knox
Chief Executive Officer Directors and Officers
www.firestoneenergy.com.au
Non Executive Directors:
Tel: Australia (+61 08 9287 4600)
Mr Tim Tebeila (Chairman)
South Africa (+27 11 706 3548) David Perkins (Deputy Chairman)
Dr Pius Kasolo
Ben Mphahlele
Competent Persons Statement Kobus Terblanche
David Hillier
Information contained in the attached report that relates to Exploration results and Mineral Resources and is based on Oren Zohar
Jack James
information compiled by Mr Neil McKenna who is employed by Venmyn Deloitte and is a member of the Australasian
Institute of Mining and Metallurgy and has sufficient experience which is relevant to the style of mineralisation and Officers:
type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as Mr David Knox CEO
defined in the 2004 Edition of the “Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ms Amanda Matthee CFO
Mr Jerry Monzu Company Secretary
Ore Reserves” (The JORC Code). Mr McKenna consents to the inclusion of the attached report with this
announcement of the matters based on his information in the form and context in which it appears.
Contact:
Suite B9, 431 Roberts Road
Subiaco, Western Australia 6008
Independent Specialist Valuation Report
on the Coal Assets of the Sekoko Coal (Pty)
Limited (Sekoko Coal) – Firestone Energy Limited
(Firestone) Joint Venture
(Sekoko Coal – Firestone JV)
at their Waterberg Coal Project, South Africa
N. MCKENNA (COMPETENT EXPERT)
M.Sc. (Geol), Pr. Sci. Nat (400199/04)
MAusIMM (309030), MSAIMM, MGSSA, M. Inst. D.
DIRECTOR
J.A. MYBURGH
B.SC. (Mathematics)
MINERAL PROJECT ANALYST
Reference No.:- VMD1393R
Effective Date :- 21st January 2013
Final Report Date : 14th February 2013
14th February 2013
Independent Specialist Valuation Report
on the Coal Assets of the Sekoko Coal (Pty)
Limited (Sekoko Coal) – Firestone Energy Limited
(Firestone) Joint Venture
(Sekoko Coal – Firestone JV)
at their Waterberg Coal Project, South Africa
Deloitte Corporate Finance Pty Limited
Woodside Plaza
Level 14
240 St Georges Terrace
Perth WA 6000
Synopsis
Venmyn Deloitte was instructed by Deloitte Corporate Finance Pty Limited (Deloitte), an Australian company that holds
an Australian Financial Services Licence, to prepare a Specialist Valuation Report on certain of the coal assets
(contributing properties) of the Joint Ventures (JV) between Sekoko Coal and Firestone Energy Limited (Firestone) at
their Waterberg Coal Project (Sekoko Coal – Firestone JV), located in the Limpopo Province, South Africa. Venmyn
Deloitte understands that Deloitte will use this Specialist Valuation Report for the purposes of compiling an Independent
Experts Report in relation to a proposed acquisition of 100% of the shares in Firestone by Range River Gold Limited.
To this end, Venmyn Deloitte has independently assessed the mineral assets and the results have been incorporated
into this Specialist Valuation Report.
The valuation considers the Fair Value of the coal assets of the T1, T2 and T3 agreements properties (the contributing
properties or the Waterberg Coal Project) on a 100% attributable basis. No assessment is made with respect to the
relative values attributable to either Firestone or Sekoko Coal, nor is any opinion expressed regarding the proposed
transaction.
The contributing properties are situated less than 5km to the west of the Grootegeluk Colliery mining lease boundary,
approximately 240km northwest of Pretoria (Tshwane) and 70km south of the border with Botswana. The area is
accessed via the tarred R517 between Modimolle (formerly Nylstroom) and Lephalale. The railway line from Thabazimbi
terminates immediately north of Grootegeluk Colliery and power lines from the Matimba Power Station traverse the area.
Approximately 1.4 billion TTIS (Total Tonnes In Situ) of coal has been classified into the Measured, Indicated and
Inferred categories for the contributing properties. These JORC compliant Coal Resources form the basis of the valuation
of these properties, reported herein.
The mineral assets of the contributing properties were valued on the basis of available historical and recent exploration
data and current Coal Resources, using methods appropriate for the development status of the project. Venmyn
Deloitte?s valuation considered the prospectivity of the project and attached a value range consistent with that
assessment. The methods applied are accepted industry methods which aim to reduce subjectivity by assessing the
relevance and effectiveness of exploration work.
This report has been prepared for Deloitte in compliance with, and to the extent required by, the Australian Code for the
Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for Independent Expert Reports
(VALMIN Code, 2005). Consistent with the VALMIN Code, in this report Fair Value is considered to be comprised of the
„Intrinsic? or „Technical? value and a premium or discount relating to market, strategic or other considerations.
14th February 2013
For the purposes of this valuation, Venmyn Deloitte have assumed that Sekoko Coal (and the JV) have secure tenure
over all contributing properties.
To assess the Intrinsic/Technical Value, both the Cost and Comparable Transactions valuation approaches were utilised.
These assessments resulted in an Intrinsic or Technical Value range of between ZAR1,247m and ZAR1,437m, with a
preferred value of ZAR1,344m for the mineral assets of the contributing properties.
Our assessment suggests that it would be appropriate to apply a discount to the Intrinsic/Technical Value of the mineral
assets, in terms of the requirements of VALMIN, 2005 in assessing Fair Value. In this case, Venmyn Deloitte consider
that a discount of 21% is appropriate.
INTRINSIC OR TECHNICAL VALUE
COMPARABLE FAIR
COST PREFERRED DISCOUNT
FARM TRANSACTION TOTAL VALUE
APPROACH VALUE (%)
APPROACH (ZARm) (ZARm)
(ZARm) (ZARm)
(ZARm)
Olieboomsfontein 220 LQ 1.0 N/A 1.0
T1 122.3
Vetleegte 304 LQ 116.6 126.0 121.3
Minnasvlakte 258 LQ 10.1 77.3 43.7
Smitspan 306 LQ 1,056.3 1,108.0 1,082.1
T2 1,173.2 21% 1,067.8
Massenberg 305 LQ 29.3 31.4 30.3
Hooikraal 315 LQ 14.6 19.5 17.1
Swanepoelpan 262LQ 19.2 71.6 45.4
T3 48.0
Duikerfontein 263LQ 0.0 2.6 2.6
TOTAL 1,247.1 1,436.5 1,343.6 1,343.6 21% 1,067.8
Note: Rounding may result in computational discrepancies
This results in a Fair Value of ZAR1,068m. If a value range is required, we would consider it appropriate to apply the
~21% discount to the technical valuation range which would provide a value range of ZAR991m and ZAR1,142m.
The valuation of exploration assets is, by nature, subjective and uncertain. The placing of a specific monetary value on
historical exploration can be misleading, and the reader is advised to consider the full ranges in which each property has
been evaluated, and to further consider the technical merits of each project area and form an opinion regarding its
prospectivity on the basis of the data presented in this report.
Disclaimer and Risks
Venmyn Deloitte has prepared this Specialist Valuation Report and, in so doing, has utilised information provided by
Sekoko Coal and Firestone as to its operational methods and forecasts. Where possible, this information has been
verified from independent sources with due enquiry in terms of all material issues that are a prerequisite to comply with
the JORC and Valmin Code. Venmyn Deloitte and its directors accept no liability for any losses arising from reliance
upon the information presented in this report.
The authors of this Specialist Valuation Report are not qualified to provide extensive commentary on legal issues
associated with Sekoko Coal?s right to the mineral properties. Sekoko Coal and its attorneys have provided certain
information, reports and data to Venmyn Deloitte in preparing this Specialist Valuation Report which, to the best of
Sekoko Coal?s knowledge and understanding, is complete, accurate and true and Sekoko Coal and Firestone
acknowledge that Venmyn Deloitte has relied on such information, reports and data in preparing this Specialist Valuation
Report. No warranty or guarantee, be it express or implied, is made by the authors with respect to the completeness or
accuracy of the legal aspects of this document.
Operational Risks
The businesses of mining and mineral exploration, development and production by their natures contain significant
operational risks. The businesses depend upon, amongst other things, successful prospecting programmes and
competent management. Profitability and asset values can be affected by unforeseen changes in operating
circumstances and technical issues.
Political and Economic Risks
Factors such as political and industrial disruption, currency fluctuation, increased competition from other prospecting and
mining rights holders and interest rates could have an impact on Sekoko Coal and/or Firestone's future operations, and
potential revenue streams can also be affected by these factors. The majority of these factors are, and will be, beyond
the control of Sekoko Coal and/or Firestone or any other operating entity.
Forward Looking Statements
This report contains forward-looking statements. These forward-looking statements are based on the opinions and
estimates of Venmyn Deloitte and Sekoko Coal and Firestone at the date the statements were made. The statements are
subject to a number of known and unknown risks, uncertainties and other factors that may cause actual results to differ
materially from those forward-looking statements anticipated by Venmyn Deloitte and Sekoko Coal and Firestone.
Factors that could cause such differences include changes in world coal markets, equity markets, costs and supply of
materials, and regulatory changes. Although Venmyn Deloitte believes the expectations reflected in the forward-looking
statements to be reasonable, Venmyn Deloitte does not guarantee future results, levels of activity, performance or
achievements.
Independent Specialist Valuation Report
on the Coal Assets of the Sekoko Coal (Pty)
Limited (Sekoko Coal) – Firestone Energy Limited
(Firestone) Joint Venture
(Sekoko Coal – Firestone JV)
at their Waterberg Coal Project, South Africa
List of Contents
1. Introduction ................................................................................................................................................................. 1
2. Scope of the Opinion ................................................................................................................................................... 1
3. Statement of Independence ........................................................................................................................................ 4
4. Competent Persons Declaration ................................................................................................................................. 5
5. Site Visits .................................................................................................................................................................... 5
6. Sources of Information ................................................................................................................................................ 5
7. THE WATERBERG COAL PROJECT......................................................................................................................... 6
7.1. Location ........................................................................................................................................................ 6
7.2. Accessibility .................................................................................................................................................. 6
7.3. Climate and Vegetation ................................................................................................................................ 6
7.4. Local Resources ........................................................................................................................................... 6
7.5. Infrastructure................................................................................................................................................. 6
7.6. Topography................................................................................................................................................... 7
7.7. Legal Tenure................................................................................................................................................. 7
7.7.1. Mineral Rights Summary.............................................................................................................. 7
7.7.2. Effective Ownership of the Waterberg Coal Project ..................................................................... 8
7.8. GEOLOGICAL SETTING .............................................................................................................................. 8
7.8.1. Regional Geological Setting......................................................................................................... 8
7.8.1.1. The Volksrust Formation ........................................................................................ 10
7.8.1.2. The Vryheid Formation ........................................................................................... 12
7.8.1.3. Grootegeluk Colliery ............................................................................................... 12
7.8.2. Local Geology ............................................................................................................................ 13
8. Geological Modelling ................................................................................................................................................. 13
9. Reporting and Classification of Coal Resources ....................................................................................................... 15
10. Mineral Asset Valuation............................................................................................................................................. 17
10.1. Technical or Intrinsic Value of the Mineral Assets ...................................................................................... 19
10.1.1. Cost Approach ........................................................................................................................... 20
10.2. Comparable Transaction Approach ............................................................................................................ 22
10.3. Intrinsic value Summary ............................................................................................................................. 25
10.4. Implied Value of the Mineral Assets............................................................................................................ 27
10.5. Fair Value of the Mineral Assets ................................................................................................................. 27
10.6. Valuation Summary .................................................................................................................................... 27
10.7. Key Assumptions ........................................................................................................................................ 28
10.8. Key Risks .................................................................................................................................................... 28
11. Conclusions............................................................................................................................................................... 30
12. Global Coal Market Review ....................................................................................................................................... 31
12.1. Reserves .................................................................................................................................................... 31
12.2. Supply......................................................................................................................................................... 32
12.3. Demand ...................................................................................................................................................... 34
12.4. Future Demand ........................................................................................................................................... 34
12.4.1. Thermal Coal ............................................................................................................................. 34
12.4.2. Coking Coal ............................................................................................................................... 36
12.5. Future Supply ............................................................................................................................................. 36
13. South African Coal Mining Industry ........................................................................................................................... 37
13.1. Reserves .................................................................................................................................................... 37
13.2. Supply......................................................................................................................................................... 37
13.3. Demand ...................................................................................................................................................... 37
13.3.1. The Export Market ..................................................................................................................... 38
13.3.2. The Domestic Market ................................................................................................................. 38
13.4. Prices .......................................................................................................................................................... 39
13.4.1. Thermal Coal ............................................................................................................................. 39
13.4.2. Coking Coal ............................................................................................................................... 40
13.5. Outlook ....................................................................................................................................................... 40
13.5.1. Sales to Eskom .......................................................................................................................... 41
13.5.1.1. The Impact of the SAPP ......................................................................................... 41
13.5.2. Export Sales .............................................................................................................................. 42
14. References ................................................................................................................................................................ 43
15. Certificates of Competent Persons ............................................................................................................................ 44
List of Figures - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS BELOW
Figure 1 : Locality of the Coal Assets in Relation to South African Coalfields ..................................................................... 2
Figure 2 : Location of the Contributing Properties of the Waterberg Coal Project ............................................................... 3
Figure 3 : Corporate Structure and Participation Interests of the Joint Venture .................................................................. 9
Figure 4 : Regional Geology.............................................................................................................................................. 11
Figure 5 : Stratigraphy of the Waterberg Coal Zones and Grootegeluk Colliery Mining Benches ..................................... 14
Figure 6 : Project Lifetime Value and Valuation Methodology Curve for Mineral Resource Projects ................................ 18
Figure 7 : Valuation Curve for South African Coal Projects ............................................................................................... 23
Figure 8 : Global Coal Reserves (end 2011) ..................................................................................................................... 31
Figure 9 : Coal Global Production 1981 – 2011 (Mt) ......................................................................................................... 33
Figure 10 : Coal Global Production 1981 – 2011 (Mtoe) ................................................................................................... 33
Figure 11 : Coal Consumption 2000-2011......................................................................................................................... 34
Figure 12 : Projected Demand for Energy ......................................................................................................................... 35
Figure 13 : Coal Price History from July 2002 to March 2011 (USD) ................................................................................ 40
List of Tables
Table 1 : Sekoko Coal-Firestone JV Agreements ............................................................................................................... 1
Table 2 : Legal Tenure Summary for the Contributing Properties. ...................................................................................... 7
Table 3 : SANS Classification of Coal Resources ............................................................................................................. 15
Table 4 : Coal Resources of the Contributing Properties (Venmyn, August 2010) ............................................................ 16
Table 5 : Valuation Approach and Methodologies ............................................................................................................. 17
Table 6 : Coal Prospect Exploration Phase Classification and the Corresponding PEM ................................................... 21
14th February 2013
Table 7 : Cost Approach Valuation .................................................................................................................................... 22
Table 8 : Summary of the Results of the Comparable Transaction Valuation. .................................................................. 25
Table 9 : Intrinsic Value Summary .................................................................................................................................... 25
Table 10 : Comparative Valuation Based on Venmyn Deloitte Resource Estimates ......................................................... 26
Table 11: Summary of Valuation Results .......................................................................................................................... 27
Table 12 : Global Coal Reserves (end 2011) .................................................................................................................... 31
Ta le 13 : elected Coal Producers 2011 Production ..................................................................................................... 32
Table 14 : Predicted World Coal-fired Generating Capacity by Country and Region (GW) ............................................... 35
Table 15 : Electricity Generation Mix in Selected Southern African Countries (MW) ........................................................ 38
Table 16 : Weighted Coal Qualities by Sector ................................................................................................................... 39
14th February 2013 1
1. Introduction
Venmyn Deloitte was instructed by Deloitte Corporate Finance Pty Limited (Deloitte), an Australian company that
holds an Australian Financial Services Licence, to prepare a Specialist Valuation Report on certain of the coal
assets (contributing properties) of the Joint Ventures (JV) between Sekoko Coal and Firestone Energy Limited
(Firestone) at their Waterberg Coal Project (Sekoko Coal – Firestone JV), located in the Limpopo Province, South
Africa. Venmyn Deloitte understands that Deloitte will use this Specialist Valuation Report for the purposes of
compiling an Independent Experts Report in relation to a proposed acquisition of 100% of the shares in Firestone
by Range River Gold Limited.
The Sekoko Coal-Firestone JV encompasses three separate agreements between Sekoko Coal and Firestone:-
Table 1 : Sekoko Coal-Firestone JV Agreements
SEKOKO
FIRESTONE
COAL
SIGNATURE CURRENT
AGREEMENT PROPERTIES CURRENT
DATE EFFECTIVE
EFFECTIVE
INTEREST
INTEREST
Olieboomsfontein 220LQ
T1 12/06/2008 40% 60%
Vetleegte 304LQ
Minnasvlakte 258LQ
Smitspan 306LQ
T2 01/03/2009 40% 60%
Massenberg 305LQ
Hooikraal 315LQ
Duikerfontein 263LQ
T3 02/02/2010 40% 60%
Swanepoelpan 262LQ
To this end, Venmyn Deloitte has independently assessed the mineral assets and the results have been
incorporated into this Specialist Valuation Report. This valuation considers the Fair Value of the coal assets of the
T1, T2 and T3 agreements properties (the contributing properties or Waterberg Coal Project) on a 100%
attributable basis. No assessment is made in this report with respect to the relative values attributable to either
Firestone or Sekoko Coal, nor is any opinion expressed regarding the proposed transaction. This valuation is
therefore an assessment of the total Fair Value of the mineral assets only.
2. Scope of the Opinion
This valuation considers the Fair Value of the coal assets of the T1, T2 and T3 agreement properties (the
contributing properties or Waterberg Coal Project).
In the execution of the mandate, Venmyn Deloitte have considered the strategic merits of the contributing
properties and defined the valuation outcomes on an open and transparent basis. Venmyn Deloitte's mineral
asset valuation (MAV) has been carried out using industry accepted methods being mindful of the development
status of each property.
The MAV included in this report has been prepared in compliance with and to the extent required by The Code
and Guidelines for Assessment and Valuation of Mineral Assets and Mineral Securities for Independent Expert
Reports 2005 (VALMIN Code), prepared by the VALMIN Committee, a joint committee of The Australian Institute
of Mining and Metallurgy (AusIMM), the Australasian Institute of Geoscientists and the Mineral Industry
Consultants Association with the participation of the Australian Securities and Investment Commission, the ASX,
the Minerals Council of Australia, the Petroleum Exploration Society of Australia, the Securities Association of
Australia and representatives from the Australian finance sector.
These guidelines are considered by Venmyn Deloitte to be a concise recognition of the best practice valuation
methods for this type of mineral asset and accord with the principles of open and transparent disclosure that are
embodied in internationally accepted Codes for Corporate Governance.
Figure 01
Firestone Energy
LOCALITY OF THE COAL ASSETS IN RELATION TO SOUTH AFRICAN COALFIELDS
LOCALITY WITHIN SOUTH AFRICA
AREA OF INTEREST - PLEASE REFER TO WEBSITE FOR ALL MAPS
This Specialist Valuation Report considers the Fair Value of the coal assets of the contributing properties at the
effective date (21 January 2013). This Specialist Valuation Report has been compiled based on information
available up to and including the effective date of this report. The valuation is therefore only valid for this date and
may change over time in response to economic, market, legal or political factors, in addition to changes in the
Coal Resources and their classification as a result of further exploration.
The valuation of the mineral assets has been conducted on a 100% attributable basis. All monetary values
included in this report are expressed in South African Rands (ZAR), unless otherwise denoted.
In the execution of the mandate, Venmyn Deloitte undertook a technical assessment of the contributing assets
and also considered the strategic merits of each of the mineral assets. This work has been based upon technical
information which has been supplied by Sekoko Coal and Firestone, and which independent review has been
performed by Venmyn Deloitte, where possible. Sekoko Coal and Firestone have warranted in writing that they
have openly provided all material information to Venmyn Deloitte which, to the best of their knowledge,
understanding, and belief is complete, accurate and true, having made all reasonable enquiries and has not
omitted anything likely to affect its import.
Venmyn Deloitte has prepared this Specialist Valuation Report in accordance with and to the extent required by
the Code for Technical Assessment and Valuation of Mineral and Petroleum Assets and Securities for
Independent Expert Reports, as amended (the Valmin Code, 2005).
Venmyn Deloitte consents to the inclusion of this Specialist Valuation Report in Deloitte's Independent Experts
Report in relation to a proposed acquisition of Firestone shares, and to reference any part of this report, provided
that no portion is used out of context or in such a manner as to convey a meaning which differs from that set out
in the whole report.
Venmyn Deloitte reserves the right to, but will not be obliged to, revise this report or sections therein, and
conclusions thereto, if additional information becomes known to Venmyn Deloitte subsequent to the date of this
report.
This Specialist Valuation Report provides a detailed description of each asset, which includes reference to its
tenure, status of development, recent exploration and production, resources and reserves, method of valuation,
valuation assumptions and valuation results. Venmyn Deloitte has also included a review of the Global and South
African coal industry (in Sections 12 and 13).
3. Statement of Independence
Neither Venmyn Deloitte nor its staff have, or have had, any interest in the contributing properties capable of
affecting their ability to give an unbiased opinion and, have not received, and will not receive, any pecuniary or
other benefits in connection with this assignment, other than normal consulting fees. Neither Venmyn Deloitte nor
any of its personnel involved in the preparation of this Specialist Valuation Report have any material interest in
either Sekoko Coal or Firestone.
Venmyn Deloitte has carried out the valuation in accordance with the relevant provisions of ASIC Regulatory
Guides (RG), in particular RG111.99 and RG112 (Section E) and Venmyn Deloitte is independent under ASIC RG
112.
Venmyn Deloitte was remunerated a fixed fee amount for the preparation of this report, with no part of the fee
contingent on the conclusions reached, or the content. Except for these fees, Venmyn Deloitte has not received
and will not receive any pecuniary or other benefit whether direct or indirect for or in connection with the
preparation of this report.
Venmyn Deloitte have conducted other valuations for Firestone in the past two years, the most recent previous
public valuation being in May 2012, which was used by BDO Corporate Finance (WA) (Pty) Ltd in the preparation
of an Independent Experts Report at that time. In January 2013, Venmyn Deloitte conducted a valuation for
Firestone, which was not made public. This report represents an update of the January 2013 report.
4. Competent Persons Declaration
Venmyn Deloitte?s professional advisors and directors are Independent Experts as defined by the JORC Code,
2012. They are also members of the Australasian Institute of Mining and Metallurgy (AusIMM) which embodies
the JORC Code and the Valmin Code. The Competent Person involved in the preparation of this report is a
member in good standing with his professional institutions, and has the required qualifications and experience as
defined in the JORC and Valmin Codes to conduct this valuation.
Venmyn Deloitte is an independent advisory company. Its consultants have extensive experience in preparing
competent persons', technical advisers' and valuation reports for mining and exploration companies. The authors
to this report are qualified to express their professional opinions on the values of the mineral assets described. To
this end, Competent Persons? Certificates are presented in Section 15.
5. Site Visits
The Valmin Code requires that site visits be conducted to each asset being valued. A site visit to the contributing
properties was conducted by the authors of this report in July 2010 in preparation of a resource assessment and
MAV at that time.
Since no material exploration or in-field developmental work has occurred on the contributing properties since this
site visit, it was not considered necessary, by Venmyn Deloitte, to visit the site again for the purposes of the MAV
reported herein. In addition, Venmyn Deloitte is fully familiar with the geological and operating environment in
which the contributing properties occur, having conducted numerous techno-economic evaluations of other
projects within the Waterberg Coalfield.
6. Sources of Information
Venmyn Deloitte has based its assessment of the contributing properties, reported herein, on information
provided by Sekoko Coal and Firestone, along with technical reports by its contractors and associates and other
relevant published data. Drafts of this report have been provided to Sekoko Coal and Firestone in order to identify
and address any factual errors or omissions prior to finalisation.
The report has been prepared based on exploration information available up to and including the 21 January
2013.
In broad terms we have relied upon, but were not restricted to, the following principal sources of information: -
- current corporate structure and ownerships;
- exploration expenditure data as at 31 December 2012;
- the Firestone website as at 21 January 2013;
- the Firestone Quarterly Report of 30 September 2012;
- the Mineral Resources Statement, prepared by Venmyn (now Venmyn Deloitte), as at August 2010;
- the Mineral Asset Valuation Report, prepared by Venmyn (now Venmyn Deloitte) in May 2012;
- publicly available information relating to the coal exploration and mining sector, as detailed in Section 15;
- the current Venmyn Deloitte coal transaction and valuation databases;
- the memorandum of understanding with Eskom for a 30 year coal supply agreement; and
- publicly available information relating to Sekoko Coal and Firestone that we deemed to be relevant,
including:-
- share price movements;
- company announcements; and
- media articles.
7. THE WATERBERG COAL PROJECT
7.1. Location
The contri uting properties are situated less than 5km west of Exxaro's Grootegeluk Mine oundary,
240km northwest of Pretoria ( outh Africa?s capital) and 70km south of the order with Botswana (Figure 2).
7.2. Accessibility
The properties are well placed with regards to the local infrastructure, located approximately 20km from
the railway line that runs from Lephalale to Pretoria, and extends to Maputu, Richards Bay and Saldana
Bay (Figure 2). The railway line terminates immediately north of the Grootegeluk Mine (Figure 2).
The road network in the area is well established, with the tarred D1675 within 10km from the contributing
properties.
7.3. Climate and Vegetation
The climate of the area is warm, which ensures that exploration and mining can take place throughout
the year. Summers are hot (averaging highs of 35ºC) with occasional thunder storm activity. The winters
are mild (averaging highs of approximately 20ºC) and generally dry.
The Waterberg is generally dry, with an annual average rainfall of 450mm, and prone to drought.
The vegetation of the area consists of sparse Bushveld, with the main land use being for game farming.
The Waterberg Coal Project properties are all currently being utilised as game farms.
7.4. Local Resources
The nearest town is that of Lephalale (Figure 2), which is located approximately 40km east of the
contributing properties. The town is a regional centre and provides modern conveniences, including
accommodation and services. The town is also a source of fuel and la our. The town services Eskom?s
Matim a Power tation as well as Exxaro's Grootegeluk Coal Mine among other industries.
Lephahale is approximately 3.5 hours drive from Pretoria ( outh Africa's capital) and Johannes urg
( outh Africa's economic hu ) on good tarred roads and is also connected by a well established rail
system.
7.5. Infrastructure
National infrastructure, including Transnet?s Railway line (which terminates at the Grootegeluk Mine) and
Eskom?s power distri ution network lie within 20km southwest of the contributing properties (Figure 2).
Eskom's existing 3,900MW Matim a Power tation is located adjacent to the Grootegeluk Mine,
approximately 15km west of the contri uting properties. Eskom's planned 4,800MW Medupi Power
Station is located approximately 10km south of the Waterberg Coal Project properties, and is expected to
be commissioned during 2014. Eskom plans to build at least one additional power station in the
Waterberg. This together with Medupi will require an additional 30mtpa of coal.
In 2012, the South African government made a number of pronouncements on infrastructure (particularly
water and rail) improvements in the Waterberg Coalfield region of South Africa.
The rail division of Transnet has undertaken to spend ZAR7b on rail upgrades in the next five years to
increase coal exports from Limpopo as well as to ensure that coal from the region can reach South
Africa?s existing power stations in Mpumalanga, efore their traditional feeder mines in Mpumalanga are
depleted. Phase one includes an upgrade of the existing route from the Waterberg to Ermelo via
Rustenburg and Pyramid South and includes the construction of passing loops and the increase in the
axle loads capacity (Smith, 2012). Phase two of the investment programme is not on the capital
expenditure schedule for the next seven years.
This involves the expenditure of ZAR31bn on a 450km line from south of Thabazimbi to
Broodsnyersplaas, north of Ermelo, as well as the upgrading of the existing line between Thabazimbi
and the Waterberg (Smith, 2012)
7.6. Topography
The topography of the contributing properties is generally a flat plain, with small undulations over the
project area. The elevation varies between ~860m above mean sea level (amsl) to ~900mamsl. The
topography dips gently to the north and west towards the Limpopo River valley.
The Limpopo River, which forms the border between South Africa and Botswana in this area, is a
perennial river, and is located approximately 15km from the contributing properties.
7.7. Legal Tenure
7.7.1. Mineral Rights Summary
The contributing properties are tabulated in Table 2 and illustrated in Figure 2, respectively:-
Table 2 : Legal Tenure Summary for the Contributing Properties.
SURFACE MINERAL RIGHTS STATUS OF EXPIRY
AGREEMENT FARM NAME
AREA (ha) HOLDER MINERAL RIGHT DATE
Uzalile Property Services
Granted New Order
(Pty) Ltd (60%) and Sekoko
Vetleegte 304LQ 1,134 Prospecting Right No. 12/11/2011*
Resources (Pty) Ltd (40%)
651/2006, on 19/10/06
T1 JV
Granted New Order
Olieboomsfontein 220LQ 1,092 Sekoko Coal (Pty) Ltd Prospecting Right No. 12/10/2010*
681/2007, on 13/10/05
SUB TOTAL 2,225.9
Minnasvlakte 258 LQ 1,023
Granted New Order
Smitspan 306 LQ 1,166
T2 Sekoko Coal (Pty) Ltd Mining Right No. 16/09/2041
Massenberg 305 LQ 1,217
22/2011, on 17/09/11
Hooikraal 315 LQ RE 955
SUB TOTAL 4,360.6
Duikerfontein 263LQ 501 Granted New Order
T3 Sekoko Coal (Pty) Ltd Prospecting Right No. 12/10/2010*
Swanepoelpan 262LQ 911
681/2007, on 13/10/05
SUB TOTAL 1,411.9
TOTAL 7,998.4
* Sekoko Coal has applied for an extension to the prospecting rights.
Table 2 shows that Sekoko Coal has been granted a New Order Mining Right over
Minnasvlakte 258LQ, Smitspan 306LQ, Massenberg 305LQ and Hooikraal 315LQ.
Over Vetleegte 304LQ, Sekoko Coal has applied for a renewal of their expired New Order
Prospecting Right. Sekoko Coal have informed Venmyn Deloitte that the DMR have
acknowledged receipt of the renewal documents but still need to issue the formal renewal.
The DMR had an inspection at Vetleegte in early November 2012, and advised that the PR
renewal would be issued upon compliance with their instructions. Venmyn Deloitte has been
advised that Sekoko Coal have complied with the instructions and are now awaiting the
renewal to be issued.
For Olieboomsfontein 220LQ, Duikerfontain 263LQ and Swanepoelpan 262LQ, while Sekoko
Coal applied for a renewal over these properties (under DMR reference number: LP
30/5/1/1/2/137PR), the DMR incorrectly granted a renewal over the farms Minnasvlakte
258LQ, Smitspan 306LQ, Massenberg 305LQ and Hooikraal 315LQ, for which they already
have a separate Mining Right. Sekoko Coal's legal department have informed the DMR of the
error, however to-date the DMR have not responded nor rectified the error. Sekoko Coal have
subsequently decided to amend the existing Mining Right to incorporate Olieboomsfontein
220LQ, Duikerfontain 263LQ and Swanepoelpan 262LQ, so as to have one mining right that
contains all 7 farms.
Sekoko Coal are of the opinion that their tenure over the contributing properties is secure,
based on, inter alia:-
- their view that Section 18(5) of the MPRDA applies in that, where a renewal
application has been submitted, despite its expiry date, the licence shall remain in
force until the renewal application has been granted or denied;
- Sekoko Coal applied for the renewal of Swanepoelpan, Duikerfontein,
Olieboomsfontein and Vetleegte with the DMR within the prescribed time frame;
- at this point in time, their application has not been renewed nor rejected, accordingly,
and as per the MPRDA they consider that their Prospecting Right over the farms is
still valid and in full force; and
- to further strengthen their tenure on Swanepoelpan, Duikerfontein and
Olieboomsfontein:-
- Sekoko Coal have also applied for a Section 102 to amend the Mining
Right to include the aforementioned farms; and
- Sekoko Coal is also in the process of drafting a new Prospecting Right
Application for the farms Swanepoelpan, Duikerfontein,
Olieboomsfontein as a pre-emptive action.
In view of the above, and based on various legal opinions offered to Sekoko Coal with regard
to the aforementioned farms, Sekoko Coal have informed Venmyn Deloitte that they are
confident that their tenure over the farms is secure, and have done, and are currently in the
process of securing full and final ownership of same.
Venmyn Deloitte are not qualified to provide extensive commentary on legal issues associated
with Sekoko Coal or Firestone?s right to the mineral properties. ekoko Coal, Firestone and its
attorneys have provided certain information, reports and data to Venmyn Deloitte in preparing
this Specialist Valuation Report which, to the best of their knowledge and understanding is
complete, accurate and true and Sekoko Coal and Firestone acknowledge that Venmyn
Deloitte has relied on such information, reports and data in preparing this Specialist Valuation
Report. No warranty or guarantee, be it express or implied, is made by the authors with
respect to the completeness or accuracy of the legal aspects of this document.
For the purposes of this valuation, Venmyn Deloitte have assumed that Sekoko Coal (and the
JV) have secure tenure over all contributing properties. However, the unresolved issues
detailed above are a significant project risk and may have a significant effect on the value of
the assets should Sekoko Coal not retain the mineral rights to the T1 and T3 properties, for
whatever reason.
7.7.2. Effective Ownership of the Waterberg Coal Project
Sekoko Coal, a wholly-owned subsidiary of Sekoko Resources (Pty) Limited (Sekoko
Resources), has entered into three separate JV and "Farm-In" agreements (Table 1) with
Firestone, through various wholly owned outh African su sidiary companies. Firestone?s
participation interest increases as various milestones are reached. At the effective date of this
Specialist Valuation Report, the effective participation interests of Sekoko Coal in the
Waterberg Coal Projects are graphically presented in Figure 3.
7.8. GEOLOGICAL SETTING
7.8.1. Regional Geological Setting
The Water erg Coalfield reportedly accounts for over 45% of outh Africa?s unmined coal
inventory. It is considered a strategic coalfield in light of outh Africa?s (and southern Africa?s)
current energy crisis, with Eskom as well as mining and exploration companies presently
investing heavily in this coalfield.
The Waterberg Coalfield is rapidly becoming as important as the better known Witbank,
Highveld and Ermelo Coalfields which currently supply the vast majority of Eskom?s coal
power stations. It?s importance is set to surpass these other coalfields within the next 20 to 30
years as many of the more established coalfields become progressively more depleted, and
as Eskom begins to increase its footprint in the Waterberg, away from the concentration of
power stations in Mpumalanga in a bid to redistribute their impact on the environment and to
satisfy the developmental needs of the Limpopo Province.
CORPORATE STRUCTURE AND PARTICIPATION INTERESTS OF THE JOINT VENTURE - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
The Waterberg Coalfield is currently host to (Figure 2):-
- Exxaro Resources Limited?s (Exxaro) 19mtpa Grootegeluk Coal Mine;
- Eskom's 3,700MW Matimba Power Station; and
- Eskoms planned Medupi Power Station which is currently under construction.
The Waterberg Coalfield is currently being explored and developed by a number of
exploration and mining companies (Figure 2):-, including inter alia:-
- Sekoko Coal, Firestone Energy, Resource Generation and Namane
Resources for steam coal and coking coal;
- Sasol and PetroSA for various coal-to-liquids and gas-to liquids projects; and
- Anglo Coal and Iscor Ltd (Iscor) with Batepro Limited for coal bed methane
gas.
The Waterberg Coalfield extends for approximately 85km in a westerly direction from
Lephalale and has a 40km north-south extent. The coalfield extends westward into Botswana
where it is known as the Mmamabula Coalfield.
The coalfield is fault-bounded along the southern and northern margins by the Eenzaamheid
and Zoetfontein faults respectively (Figure 4), creating a "horst" structure. The Daar fault,
with a displacement of between 250m and 400m, divides the coalfield into a shallow
opencastable western area and a deep northeastern area, where coal occurs at a depth of
between 200m and 400m below surface and may only be extracted by underground mining.
The major coal bearing horizons of the Ecca Group of the Karoo Supergroup, in the
Waterberg are:-
- the Volksrust Formation, which consists of 55m of intercalated mudstones and
coal, and
- the Vryheid Formation, which incorporates four major discrete seams of
approximately 1.5m, 3m, 9m and 4m, respectively.
Coal measures occur over a stratigraphic interval between 90m – 110m thick, characterised
by 11 discrete coal zones, with the upper zones (Zone 6 – Zone 11) holding the highest
commercial value (including semi-soft coking coals).
The Waterberg Coalfield does not exhibit a noticeable increase in rank (carbon/energy
content) with increasing depth. The air dried volatile content of the coal remains at 35% – 36%
from the sub-outcrop to a depth of 400m.
Only a few dolerite dykes outcrop in the southeastern portion of the Waterberg Coalfield and
no sill features have, to-date, been encountered in any exploration borehole.
7.8.1.1. The Volksrust Formation
The Volksrust Formation differs from that of the main Karoo Basin by being
dominantly carbonaceous where it is represented by intercalated carbonaceous
shale and mudstone, and bright coal. The Volksrust Formation consists of cyclical
repetitions of mudstone and coal with an average thickness of approximately
60m, and comprise the upper seven zones (identified as Zones 5 to 11) that can
be correlated across the coalfield.
The Volksrust Formation coals are classified as a thick interbedded seam type
deposits in terms of the SANS 10320:2004 guidelines.
There is a decreasing ratio of bright to dull coal from the top to the bottom of the
succession, with the proportion of semi-soft coking coal greatest in Zones 6 to 11.
The best quality coals are within Zones 8 to 11 over the majority of the coalfield.
These zones are characterised by the highest yields and the presence of both
bright and vitrinite coals.
REGIONAL GEOLOGY - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
The vitrinite content of the coal towards the top of the Volksrust Formation leads
to the upper zones having a semi-soft coking coal yield as well as thermal coal.
The remainder of the Volksrust Formation yields low grade thermal coal for power
station consumption.
Each zone is typically characterised with bright coal at its base, with the ratio of
coal to shale decreasing from the base in an upward direction. It follows therefore
that the ash content of the zones increases upwards from approximately 20% to
45%.
The coal succession requires beneficiation or up-grading, to produce an
acceptable coal quality for the market, which varies from semi-soft coking coals to
internationally traded and local power station coals.
7.8.1.2. The Vryheid Formation
The Vryheid Formation coal seams are composed of predominantly dull coal with
minor carbonaceous mudstone intercalations, mined as thermal coals. The coal
seams are identified as Zones 1 to 4 from the base of the Formation. These coals
occur over a stratigraphic interval of approximately 40m. The coal seams vary in
thickness between 1.5m and 9m.
The Vryheid Formation coals are classified a multiple seam deposit type
according to the SANS 10320:2004 guidelines. These are not unlike the coalfields
in Mpumalanga.
While the majority of the coal seams or zones consist mainly of dull coal or
inertinite-rich coal, some bright coal is developed at the base of zones 2, 3 and 4.
This coal is suitable for steam-raising, gasification or as a direct-injection coal in
the metallurgical industry. It requires limited or no beneficiation to up-grade the
coal quality parameters.
Due to lateral facies changes and changes in the depositional environment, these
zones are characterized by a large variation in thickness and quality.
Zone 3 is the best-developed dull coal zone and reaches a maximum thickness of
9m. The basal portion yields a small fraction with semi-soft coking coal properties.
Zone 2 is on average 4m thick and reaches a maximum thickness of 6m in the
Grootegeluk lease area. The basal portion also yields a fraction with semi-soft
coking coal properties. Zone 1, the basal Vryheid coal zone, has an average
thickness of 1.5m.
7.8.1.3. Grootegeluk Colliery
Exxaro?s Grootegeluk Colliery is the only presently operating mine in the
Waterberg Coalfield. This opencast mine commenced production in 1980
primarily as a source of coking coal for Iscor?s steel works with a middlings
fraction from the beneficiation process suited to power station consumption.
Saleable products currently include semi-soft coking coal, metallurgical coal and
thermal coal, with the latter predominating as a dedicated supply to the Matimba
Power Station. Metallurgical coal is primarily supplied to ArcelorMittal Steel, with
semi-soft coking coal exported via the Durban and Richards Bay ports.
Grootegeluk currently has a 14Mtpa supply agreement with Eskom?s
neighbouring Matimba Power Station.
The coal strata extracted at Grootegeluk is roughly 110m thick (Figure 5). The
upper 60m consists of intercalated bright coal and carbonaceous shale of the
Volksrust Formation, whilst the bottom 50m consists of well-defined dull coal
seams separated by shale and sandstone interburden of the Volksrust Formation.
The deposit is mined selectively using a parallel bench advance approach, with
benches extracted individually or in planned combination to satisfy specific end-
product specifications. In addition, run-of-mine (ROM) from the various benches
is blended to allow the washing plants, in turn, to supply a consistent product to
the end-user.
Grootegeluk's export coal is railed via Tha azim i to Rustenburg and on to the
Gauteng area. From there it is railed on the general-freight lines to destinations
such as Saldanha or Durban. Some export coal is railed via general freight to
Middelburg and onto the coal link line to the Richards Bay Coal Terminal (RBCT).
Exxaro's Grootegeluk Coal Mine produces Eskom coal, soft coking coal and
export steam coal.
7.8.2. Local Geology
The contributing properties are superimposed over the regional geology of the western half of
the Limpopo Province (Figure 4). The Goedgedacht/Swartrand, Endragtpan and Greenwich
Formations form part of the Karoo Sequence and consist of shales, sandstones, mudstones
and coal occurrences. Both the Upper and Lower Coal Sequences are present within the
Sekoko Coal-Firestone JV Waterberg Project area.
Structurally, the stratigraphy, especially in the area of the contributing properties appears to
be significantly faulted, generally in an east-west orientation, and increasing in intensity to the
south. There is a dominant east-west fault direction with fault throws varying from 10m in the
north to as much as 130m in the south.
Understanding the structural-geological environment is, arguably, more important than
understanding the distribution of the coal quality characteristics. The presence of the various
coal zones is directly related to the faulting and subsequent erosion of the upper zones in the
southern properties.
While the northern properties comprise all the coal zones (Zones 1 – 11), Massenberg 305LQ
only has Zones 1 -9 in the north and Zones 1 – 4 in the south, and Hooikraal 315LQ only has
Zones 1 – 4.
It is generally believed that the geological and structural environment, due to its relatively
close proximity to Grootegeluk, should be similar to the geological and mining-geological
conditions encountered at that mine. However, since Grootegeluk was established in the most
favourable mining-geological environment, areas in close proximity to the mine may not
necessarily experience such favourable conditions, due to the presence of fault structures.
8. Geological Modelling
In August 2010, Sound Mining Solutions (Pty) Ltd (SMS) undertook geological modelling under the direct
guidance of Venmyn Rand (Pty) Limited (now Venmyn Deloitte).
Orebody modelling was carried out using recent boreholes to derive the 3D geological and structural model. Coal
zone roofs and floors were constructed on an inverse distance method using Micromine Version 11.0.5 Build
1134. The zone surfaces were cut on fault boundaries, received from Lexshell and also based on interpretations
from the data where there were sudden changes in zone elevations. Where holes were drilled short, the zones
were extrapolated using surrounding holes and fitting within the interpreted fault blocks. A wireframe for each
zone was created separately per farm. A wireframe for each zone was created and in-filled in Datamine to form a
block model. The block size was set at a maximum of 100m x 100m x zone height. The volumes, densities (at a
wash of RD=1.9t/m ) and quality data (at a wash of RD=1.9t/m ) was modelled over the properties. A cut-off of
0.5mm minimum thickness limit was applied.
STRATIGRAPHY OF THE WATERBERG COAL ZONES AND GROOTEGELUK COLLIERY MINING BENCHES - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
9. Reporting and Classification of Coal Resources
All Coal Resources were categorised, in August 2010, by Venmyn Rand (Pty) Limited (now Venmyn Deloitte), in
accordance with both the SAMREC and JORC codes. Consistent with the Australian Guideline for Estimating and
Reporting of Inventory Coal, Coal Resources and Coal Reserves, the resources were classified according to the
distances between points of information. According to section 4.3 of this guideline, “...Coal Resources should be
estimated and reported for individual seams or seam groupings within a deposit. They should also be subdivided
and reported on the basis of key variables, such as thickness, depth range, strip ratio, coal quality parameters,
geographic constraints and geological or technical considerations. The key variables and assumptions for each
deposit should be clearly stated in order to ensure clarity and transparency of the report.” Neither the guidelines
nor the JORC Code prescribes how this should be undertaken, merely that resources should be quoted as
Measured, Indicated and Inferred and reserves should be quoted as Proved and Probable.
Taking this requirement into account, the resources have been reported in a stepwise process demonstrating the
application of each of the technical parameters listed in section 4.3 of the guideline. The SAMREC Code which
embodies the South African National Standard: South African guide to the systematic evaluation of coal resources
and coal reserves (SANS10320:2004) outlines a standard method of reporting of coal resources and coal
reserves through the application of the various technical parameters described above in the Australian Guideline.
This standard is typically applied to South African coal deposits in order to demonstrate the effect of applying
each of these parameters to the resources and reserves. Coal resource and reserves are reported in this way to
fully demonstrate clarity and transparency and enable comparisons to be made between projects.
Venmyn Deloitte believes that this method provides the reader with a full understanding of the resources and
reserves quoted.
The SANS 10320:2004 (SANS) method of classification (stipulated in the SAMREC Code) for thick interbedded
coal deposits was preferred, as it requires closer drill hole spacing than the JORC Code stipulates, and is
specifically applicable to these types of South African coal deposits. The SANS scheme utilises the distance
between boreholes as the primary defining factor between the classification of Measured, Indicated and Inferred
resources and Reconnaissance/Exploration Target occurrences, as per Table 3 below:-
Table 3 : SANS Classification of Coal Resources
FOR THICK INTERBEDDED SEAM FOR MULTIPLE SEAM DEPOSIT
DEPOSIT (<65% Ash) (<50% Ash)
MAX MAX
CATEGORY
DISTANCE NO. B/H PER DISTANCE NO. B/H PER
BETWEEN AREA BETWEEN B/H Ha
B/H (m) (m)
Measured Resource 350.00 8 b/h per 100ha 350.00 8 b/h per 100ha
Indicated Resource 1,000.00 1 b/h per 100ha 500.00 4 b/h per 100ha
Inferred Resource 3,000.00 1 b/h per 1,000ha 1,000.00 1 b/h per 100ha
Reconnaissance/ Exploration Target 4,000.00 1 b/h per 1,600ha 2,000.00 1 b/h per 400ha
NB. Boreholes are required to have quality data.
In accordance with SANS, the coal resources have been reported according to the following definitions:-
- each coal zone was "washed" at an RD=1.9 to "remove' the rock fraction from the coal fraction and
to calculate the volume of coal in the interlaminated sequence;
- the zone tonnage was multiplied by the percent yield (by mass) to derive the coal tonnage. Note
that the coal tonnage has a lower RD than the zone tonnage.
- this coal tonnage was then reduced by the geological losses to obtain Total Tonnes In-Situ
(TTIS);
- geological losses were selected based on the density of the drilling and the structures in the area;
and
- the classification was based strictly on the radii from boreholes according to the SANS
specifications.
Table 4 summarises the Coal Resources of the contributing properties, defined by Venmyn (now Venmyn
Deloitte) in 2010. The resources are presented in the following standard manner:-
- Gross Tonnes In Situ (GTIS), application of mineral tenure boundaries, an RD of 1.9, and a 0.5m
seam thickness cut-off. This is the simplest form of resource declaration; and
- Total Tonnes In Situ (TTIS), application of geological losses to GTIS.
Table 4 : Coal Resources of the Contributing Properties (Venmyn, August 2010)
AIR DRIED Q UALITIES AT RD = 1. 9
RES O URCE / CO AL TO TAL
CO AL G RO S S S ULP H. MO IS T.
FARM NAME & NO . O CCURENCE ZO NE TO NNES IN CV (MJkg) AS H (% ) V O L. (% )
TO NNES IN S ITU (% ) (% )
CATEG O RY S ITU
Indicated All 26,507,000 21,201,000 21.59 29.51 27.24 0.94 2.61
Minnasvlakte 258 LQ
Inferred All 230,687,000 173,012,000 21.56 29.58 27.51 0.94 2.54
TO TAL / AV E MINNAS V LAKTE 2 5 7 , 19 4 , 0 0 0 19 4 , 2 13 , 0 0 0 2 1. 5 6 29.57 27.48 0.94 2.55
Measured All 238,667,800 214,800,600 20.74 31.14 25.69 0.89 2.84
Smitspan 306 LQ
Indicated All 475,844,000 380,671,000 21.49 29.52 26.50 0.98 2.78
TO TAL / AV E S MITS P AN 7 14 , 5 11, 8 0 0 5 9 5 , 4 7 1, 6 0 0 2 1. 2 2 3 0 . 10 26.21 0.95 2.80
Indicated All 20,797,000 16,635,000 19.60 33.70 22.12 0.71 2.77
Massenberg 305 LQ
Inferred All 109,539,000 82,148,000 21.04 29.79 22.09 0.69 2.96
TO TAL / AV E MAS S ENBERG 13 0 , 3 3 6 , 0 0 0 98,783,000 20.80 30.45 2 2 . 10 0.69 2.93
Indicated All 7,282,000 4,366,000 22.56 25.89 26.64 1.00 3.11
Hooikraal 315 LQ
Inferred All 155,491,000 77,742,000 22.38 26.63 25.19 0.83 2.78
TO TAL / AV E HO O IKRAAL 16 2 , 7 7 3 , 0 0 0 8 2 , 10 8 , 0 0 0 22.39 26.59 25.27 0.84 2.80
Measured All 1,224,000 1,040,300 25.99 16.60 24.27 0.98 3.20
Vetleegte 315 LQ Indicated All 204,499,000 143,146,000 21.37 28.22 24.71 0.75 3.53
Inferred All 17,893,000 11,090,000 22.61 24.81 23.89 0.66 3.67
TO TAL / AV E V ETLEEG TE 2 2 3 , 6 16 , 0 0 0 15 5 , 2 7 6 , 3 0 0 2 1. 4 9 27.90 24.65 0.75 3.54
Indicated All 1,072,000 853,000 21.49 29.83 25.12 0.82 3.34
Swanepoelpan 262 LQ
Inferred All 378,227,000 283,666,000 21.60 28.52 26.65 1.14 3.35
TO TAL / AV E S WANEP O ELP AN 379,299,000 2 8 4 , 5 19 , 0 0 0 2 1. 6 0 28.52 26.65 1. 14 3.35
Duikerfontein 263 LQ Inferred All 13,949,000 10,457,000 21.98 27.17 25.44 0.78 4.20
TO TAL / AV E DUIKERFO NTEIN 13 , 9 4 9 , 0 0 0 10 , 4 5 7 , 0 0 0 2 1. 9 8 2 7 . 17 25.44 0.78 4.20
TO TAL / AV E RES O URCE FO R WATERBERG P RO JECT 1, 8 8 1, 6 7 8 , 8 0 0 1, 4 2 0 , 8 2 7 , 9 0 0 2 1. 4 2 29.27 25.96 0.94 2.98
Venmyn Deloitte understand that no additional resource drilling has been conducted over the resource area since
the August 2010 resource estimate, and since no mining has taken place, Venmyn Deloitte consider Table 4
represents the Coal Resources as at the effective date of this report. On this basis ~1.4 billion TTIS of coal has
been classified into the Measured, Indicated and Inferred categories for the contributing properties.
Venmyn Deloitte note that in September 2010, Parsons Brinkerhoff (PB) conducted a Definitive Feasibility Study
for Sekoko Coal. As part of their report, PB reported certain Coal Resource estimates over the T2 properties and
Vetleegte 315LQ, based on their own geological modelling. While full details of the calculation of the Coal
Resources over Smitspan 306LQ were provided, there is no detailed Coal Resource reporting for any of the other
T2 farms or Vetleegte 315LQ. Furthermore, the PB reports do not consider the Coal Resources of the T3
properties or Olieboomsfontein 220LQ.
The Venmyn Deloitte estimates can be considered fully JORC compliant. In addition, the Venmyn Deloitte
estimates detail the Coal Resources over all the contributing properties, while the PB estimates only considered
certain selected properties for the purposes of their Definitive Feasibility Study.
For the purposes of this valuation, only the Venmyn Deloitte Coal Resource estimates have been considered.
Venmyn Deloitte have a high degree of confidence in the quality and reasonableness of these estimates, and they
have been reported in compliance with the JORC Code.
10. Mineral Asset Valuation
Most of the international mineral asset valuation codes set out clear approaches and methodologies for the
valuation of mineral assets, except for the VALMIN Code, with confidence in the Mineral Resource and/or Ore
Reserves estimates being the primary value lever. In the Australian context, the JORC Code governs Mineral
Resource and Ore Reserve classifications on the back of demonstrated confidence in the estimates achieved
through the exploration process. With regard to valuation methodology, the VALMIN Code 2005 states “The
Expert and Specialist must make use of valuation methods suitable for the Mineral or Petroleum Assets or
Securities under consideration. Selection of an appropriate valuation method will depend on such factors as:-
(a) the nature of the Valuation;
(b) the development status of the Mineral Assets; and
(c) the extent and reliability of available information.
The VALMIN Code further defines the various categories of Mineral Assets as follows:-
- Exploration Areas – properties where mineralisation may or may not have been identified, but
where a Mineral or Petroleum Resource has not been identified;
- Advanced Exploration Areas – properties where considerable exploration has been
undertaken and specific targets have been identified that warrant further detailed evaluation,
usually by drill testing, trenching or some other form of detailed geological sampling. A resource
estimate may or may not have been made but sufficient work will have been undertaken on at
least one prospect to provide both a good understanding of the type of mineralisation present
and encouragement that further work will elevate one or more of the prospects to the resource
category;
- Pre-Development Projects – properties where Mineral or Petroleum Resources have been
identified and their extent estimated (possibly incompletely) but where a decision to proceed
with development has not been made. Properties at the early assessment stage, properties for
which a decision has been made not to proceed with development, properties on care and
maintenance and properties held on retention titles are included in this category if Mineral or
Petroleum Resources have been identified, even if no further valuation, technical assessment,
delineation or advanced exploration is being undertaken.
- Development Projects – properties for which a decision has been made to proceed with
construction and/or production, but which are not yet commissioned or are not yet operating at
design levels; and
- Operating Mines – mineral properties, particularly mines and processing plants that have been
commissioned and are in production.
The VALMIN Code is not prescriptive as to valuation methodology; however, the Code provides that the decisions
as to the valuation methodology or methodologies to be used are solely the responsibility of the Expert and must
not be influenced by the commissioning entity. Venmyn Deloitte has opted to use provisions in the other
internationally accepted mineral asset valuation codes for guidance from the CIMVAL Code from Canada and the
SAMVAL Code from South Africa. Table 5 summarises the valuation approaches and the underlying
methodologies as stipulated in the CIMVAL Code and the SAMVAL Code:-
Table 5 : Valuation Approach and Methodologies
DORMANT PROPERTIES
VALUATION VALUATION EXPLORATION DEVELOPMENT MINING DEFUNCT
APPROACH METHODOLOGY AREAS PROPERTIES PROPERTIES ECONOMICALLY PROPERTIES
UNVIABLE
VIABLE
Various DCF
Cash Flow N/A P1 P1 P1 NA NA
methods
Sales Comparable
P1 P3 P2 P2 P1 P1
Comparative transactions
Asset Recognition
Cost P2 NA NA NA P3 P2
and Impairment Test
P1 = Most acceptable method and widely used
P2 = Acceptable approach and quite widely used
P3 = Less acceptable approach, less widely used and poorly understood.
Figure 06
PROJECT LIFETIME VALUE AND VALUATION METHODOLOGY CURVE FOR MINERAL RESOURCE PROJECTS - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
Any decision to apply a valuation technique depends on:-
- the nature of the valuation;
- the development status of the mineral assets;
- the stage at which the project has been developed;
- the geological confidence;
- the extent and reliability of available information; and
- the potential of the mineral asset to satisfy the requirement for reasonable prospects for
eventual economic extraction.
Changes in value of a mineral asset are associated with increasing confidence through increased knowledge, as
well as the greater degree of probability of it being brought to account. As the confidence in mineral resource
estimates is increased, i.e. from Inferred Mineral Resources to Indicated Mineral Resources and Measured
Mineral Resource, so is the veracity of the valuation. An appropriate valuation recognises these possibilities.
The contributing properties are at different stages of development ranging from early to advanced stage
exploration projects. Different valuation approaches and methodologies have consequently been used in the
valuation of these individual mineral assets on a case by case basis.
At the exploration phase, coal projects are valued dependent upon prospects for eventual economic extraction. A
seller's view may not necessarily match that of a potential uyer?s, and the transaction price is usually a
compromise.
The valuations presented in this document, aim to identify the mineral asset values on an asset-by-asset basis as
a means of identifying the value contribution of each individual asset to the total asset value of the company as at
the effective date of this report. Each asset has been valued according to the development stage in which it fits
within the different phases in the mining and development cycle. Figure 6 graphically illustrates the different
approaches and methodologies that are applicable to different mineral assets at each stage in the mine
development cycle.
Venmyn Deloitte has valued the contributing properties in compliance with the VALMIN Code, 2005. Consistent
with the VALMIN Code, in this report Fair Value is considered to e comprised of the "Intrinsic" or "Technical" value
and a premium or discount relating to market, strategic or other considerations.
10.1. Technical or Intrinsic Value of the Mineral Assets
There are three generally accepted approaches for establishing the Technical Value of mineral assets.
These are the:-
- the Cost Approach or Multiples of Exploration Expenditure (MEE);
- the Market Approach or Comparable Transaction Value Method; and
- the Cash Flow (DCF) Approach.
Where insufficient confidence exists in the technical parameters of a mineral deposit, or mineral asset, to
classify resources, valuation methods mainly rely on the principle of historical cost. This implies that a
mineral asset's value is related to the money spent on its acquisition, plus a multiple of the exploration
expenditure, depending upon the degree to which its prospectivity has been enhanced by exploration.
Once resources have been classified, then market comparisons are made on a monetary value per unit
of mineralisation (ZAR/t).
Once technical studies establishing the basis for future economic exploitation have been carried out,
discounted cash flow (DCF) methods are applicable and all the methods used to identify a reasonable
transaction value. Given that a feasibility study is still in preparation, a DCF valuation has not been
considered appropriate at this time.
The contributing coal assets can be defined as early to advanced stage exploration projects, with JORC
code compliant Measured, Indicated and Inferred Coal Resources. Therefore, all the contributing
properties were valued using both the historical cost method and comparative sales transaction valuation
method.
It is important to note that this valuation has utilised the Venmyn August 2010 Coal Resource Statement
(Table 4), as this is considered the current compliant resources estimate for the Waterberg Coal Project.
The effective date of the valuation is 21 January 2013.
10.1.1. Cost Approach
The Cost Approach or MEE Method is based upon the principle of past exploration
expenditures where some expenditures will have added value, and others not. Through the
introduction of a prospectivity enhancement multiplier (PEM), a premium (or discount)
multiplier can be applied to the total cost of exploration to-date, depending on whether the
exploration expense being considered has relatively enhanced the prospectivity of the target
or not.
The subjectivity of the method is reduced by addressing specific expenditures with reference
to the relevance of the type of mineralisation being considered and the effectiveness of the
exploration. A measure of the effectiveness of a historical exploration programme is the
confidence that can be ascribed to the resultant mineral resource estimate.
Exploration expenditure does not only include the costs of physical in-field exploration, but
also the costs incurred to make it possible to carry out the exploration, for example, the costs
of aerial or other surveys and transportation costs, etc. The value of the resulting asset is not
measured by the value of new deposits discovered by the exploration but by the value of the
resources allocated to exploration during the period.
The Waterberg Coal Project can be considered as an early to advanced stage exploration
project with varying degrees of historic and recent exploration and analytical data available on
the various properties. Firestone have provided Venmyn Deloitte with all available acquisition
and exploration cost data for the contributing properties and, where historical exploration data
was available, Venmyn Deloitte assessed its relevance and effectiveness and estimated the
cost of replicating that data.
Venmyn Deloitte have considered the prospectivity of the respective coal properties according
to the classification of exploration phases illustrated in Table 6.
This table represents Venmyn Deloitte?s standard PEM schedule for coal deposits. The
magnitude of the PEM is determined by the level of sophistication of the exploration for which
positive exploration results, applying the concept of successful efforts, have been obtained. In
Venmyn Deloitte?s opinion, these PEM values reflect fair and reasona le multipliers ased
upon on the amount of work associated with and/or development status of any particular
project.
In order to establish an appropriate PEM, each property was classified with respect to Table 6
knowing that each new exploration phase was carried out contingent upon the successful
outcome of the preceding phase. In addition, the PEM selected, was reviewed taking into
consideration proximity to well understood resource areas, drillhole density and a qualitative
assessment of the prospects for eventual extraction.
To-date ~ZAR72.2m of expenditure can be allocated to the acquisition of the prospecting
rights, prospecting and current economic studies over the contributing properties, according to
information provided by Firestone to Venmyn Deloitte. These costs include geological
modelling and resource definition, as well as other project related expenditures.
14th February 2013 21
Table 6 : Coal Prospect Exploration Phase Classification and the Corresponding PEM
EXPLORATION PEM VALUE
PHASE EXPLORATION ACTIVITY
PHASE UPPER LOWER
Exploration Project about which nothing is known, but which
0 0 0
Concept has potential on a conceptual basis.
Historical and literature study, records or
1 Desktop Study 1 0 evidence of coal findings in the area. Historical
mining data, if any.
Geological mapping if terrain is suitable. Palaeo
2 Reconnaissance 1 1 topographical mapping. Historical drilling with
intercept data, no laboratory assay.
Detailed outcrop mapping, identification of coal
hosting strata, coal seam outcrop mapping.
Ground Follow-
3 1 1 Sampling of exposed coal seams where available.
up
Historical drilling data with intercept and analyses,
but of questionable authenticity.
Ground geophysics, remote sensing techniques.
Ground Follow-
4 2 1 Reliable historical drilling, but correlations difficult
up
due to density of drilling.
Large diameter core drilling, widely spaced grid
First-phase
5 5 2 with preliminary coal analysis. First-pass tonnage
Drilling estimate. Inferred coal resource.
Resource In-fill drilling, detailed coal analysis and
washability test work. Established coal qualities,
Drilling and
6 11 5 market potential, detailed resource tonnage
Laboratory estimation, washabilities. Advanced Inferred and
Testwork Indicated Coal Resource classification.
Previous commercial production, establishing
reliable and well documented quality, tonnage,
7 Historic Mining 20 11
washability etc. Measured Coal Resource
classification.
Complete feasibility assessment, establish
Reserve
8 >20 20 economics and design a mine of an appropriate
Classification nature. Classification of Coal Reserves.
Venmyn Deloitte have analysed and rated the contributing properties according to the results
achieved from historical and recent exploration activities as well as the success these
activities have had on the classification of coal resources over the various properties.
The expenditures have een multiplied by the following PEM's:-
- PEM's of 1.0 – 2.0 for Olieboomsfontein 220LQ;
- PEM's of 11.0 – 20.0 for Vetleegte 304LQ;
- PEM's of 11.0 – 20.0 for Smitspan 306LQ;
- PEM's of 5.0 – 11.0 for Minnasvlakte 258LQ; Massenberg 305LQ, Hooikraal
315LQ, and Swanepoelpan 262LQ; and
- PEM's of 2.0 – 5.0 for Duikerfontein 263LQ
Smitspan 306LQ has received high PEMs since a significant amount of drilling and sampling
has been carried out on this property relative to the other properties. While a previous
Feasibility Study has been completed on this property, a revised Feasibility Study is underway
to meet the requirements of the recently signed MoU with Eskom. Clearly Smitspan 306LQ is
the "stand-out" property and is considered highly prospective by Venmyn Deloitte.
Consequently Venmyn Deloitte has selected the maximum PEM of 20.0 to reflect the
advanced nature of this property in terms of its level of exploration and development as well
as the fact that a revised Feasibility Study is underway.
Vetleegte 304LQ has received a preferred PEM of 12. While significant drilling and sampling
has been conducted and Measured Resources classified, this property has not undergone the
same level of technical investigation and economic studies as Smitspan 306LQ.
Minnasvlakte 258LQ, Massenberg 305LQ, Hooikraal 315LQ and Swanepoelpan 262LQ have
received preferred PEM?s of 8.0 to reflect the classification of Indicated Resources. However,
unlike Smitspan 306LQ, these properties are generally lacking in the Upper Coal Sequence
coals and are structurally very complex or have significantly deeper coal, and are therefore
considered significantly less prospective than Smitspan 306LQ.
Duikerfontein 263LQ has received a preferred PEM of 4, reflecting the very limited exploration
work, and very limited Coal Resources (at low levels of confidence) over this property.
Olieboomsfontein 220LQ has received a preferred PEM of 2, reflecting the very limited
exploration work, and the absence of declared Coal Resources over this property.
Based on the principles discussed above, PEM values of between 2.0 – 20.0 were allocated
to the various properties, with respect to the present value estimates of historical exploration
expenditure. This reflects the relative enhancement in the prospectivity that has been
achieved on each property as a result of the historical exploration.
The various costs, multiplied y their allocated PEM?s (Table 7) have then been added to
derive the Cost Approach valuation for each property. This methodology has resulted in a
preferred Cost Approach valuation of ZAR1,247m for the contributing properties.
Table 7 : Cost Approach Valuation
TOTAL MIN MAX PREFERRED
ATTRIBUTED LOWER UPPER PREFERRED PROJECT PROJECT PROJECT
FARM
EXPENDITURE PEM PEM PEM VALUE VALUE VALUE
(ZARm) (ZARm) (ZARm) (ZARm)
Olieboomsfontein 220 LQ 0.5 1.0 2.0 2.0 0.5 1.0 1.0
T1
Vetleegte 304 LQ 9.7 11.0 20.0 12.0 106.9 194.4 116.6
Minnasvlakte 258 LQ 1.3 5.0 11.0 8.0 6.3 13.9 10.1
Smitspan 306 LQ 52.8 11.0 20.0 20.0 581.0 1,056.3 1,056.3
T2
Massenberg 305 LQ 3.7 5.0 11.0 8.0 18.3 40.2 29.3
Hooikraal 315 LQ 1.8 5.0 11.0 8.0 9.1 20.1 14.6
Swanepoelpan 262LQ 2.4 5.0 11.0 8.0 12.0 26.4 19.2
T3
Duikerfontein 263LQ 0.0 2.0 5.0 4.0 0.0 0.0 0.0
TOTAL/ WT. AVE 72.2 10.2 18.7 17.3 734.1 1,352.3 1,247.1
10.2. Comparable Transaction Approach
The compara le transaction value method is ased upon other, preferably recent, arm's length
transactions of a similar nature, which determines a monetary value per unit of resource (ZAR/t).
Since Coal Resources have been classified for the contributing properties, Venmyn Deloitte was able to
carry out a comparable transaction valuation on the basis that recent market valuations of a similar
nature provide the proxy for value. In order to arrive at a reasonable value with which to compare the
respective projects, appropriate recent and historical transactions must form the basis.
To this end, Venmyn Deloitte maintains a database of coal projects, coal resources and reserves,
production statistics and financial information of listed coal mining and exploration companies on the
various international stock exchanges. Venmyn Deloitte consolidates this information into coal valuation
curves using internally developed algorithms to attribute a company's enterprise value to its various
projects taking cognisance of the following factors:-
- level of confidence in the Mineral Resource;
- strategic value of the commodity; and
- geological setting.
Based on pre-determined weights for each of these factors, the implied enterprise value per resource is
determined. Similarly, recent transactions and compliant public valuations are also analysed and
presented on the curves.
Venmyn Deloitte has graphically plotted recent transactions of a similar nature in relation to their specific
stage of exploration in order to make the necessary comparisons. Figure 7 illustrates Venmyn Deloitte's
current Coal Valuation Curve, which represents the coal transaction database for coal projects with
mineral resources. This is used for valuations based on a monetary value per unit of resource (ZAR/t).
VALUATION CURVE FOR SOUTH AFRICAN COAL PROJECTS - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
Venmyn Deloitte's outh African coal data ase comprises 194 data points (98 market comparative
points each representing a mine/mining project, 52 transactions and 44 valuations). This covers over 200
South African coal projects and over 30 listed companies. Of the 98 market comparison points, 18
represent projects located in the Limpopo Province of South Africa.
Given that Venmyn Deloitte's coal data ase represents actual transactions and company/project
valuations, Venmyn Deloitte have a high degree of confidence in using this data in order to benchmark
the mineral assets of the contributing properties with regards to establishing appropriate mineral asset
values using the Market Approach.
While Venmyn Deloitte have considered the entire coal transaction database, we have paid particular
attention to the Limpopo Coalfields data sub-set within our database and on the coal curve for these
valuations. Venmyn Deloitte has also taken into account the following recent transactions/valuations
within the Waterberg Coalfield:-
- the valuation by SRK Consulting (South Africa) (Pty) Limited (SRK) in June 2006, of
the Grootegeluk Colliery ahead of the merger of Eyesizwe and Kumba (now Exxaro) –
Eyesizwe/Kumba Grootegeluk transaction;
- the joint venture transaction between Sekoko Coal and Firestone Energy, in July 2009,
concerning the farms Minnasvlakte 258LQ, Smitspan 306LQ, Massenberg 305LQ and
Hooikraal 315LQ in the Waterberg;
- the joint venture transaction between Sekoko Coal and Firestone Energy, in February
2010, concerning the farms Swanepoelpan 262LQ and Duikerfontein 263LQ in the
Waterberg;
- R V Enco's valuation of Resource Generation?s project in the Water erg in July 2010;
and
- IDC's ZAR249m funding of the development of ekoko Coal and Firestone Energy's
Waterberg Coal Project, resulting in the IDC owning 33.3% of Sekoko Coal's equity in
the Waterberg Coal Joint Venture.
These transactions represent recent transactions of a similar nature, and have been used, together with
enterprise values of listed companies with projects in the Waterberg, to define a Waterberg Coal
Valuation Curve.
It is clear, in Figure 7, that the Waterberg Coal Valuation Curve, informed by the above
transactions/valuations define a less variable range of values than that defined by the entire dataset, and
falls within the middle-lower portion of the greater coal curve.
As discussed in 7.8.2, the presence of the various coal seams differs across the properties. At Hooikraal
315 LQ and Massenberg 305LQ, for example, the preferred (higher quality) Upper Coal Sequence coal
zones (zones 5 – 11), are largely absent. These properties are also associated with a more structurally
complex environment. As a result, Venmyn Deloitte considers these properties of lower prospectivity and
has allocated unit values that are significantly lower than for the highly prospective Smitspan 306LQ
property.
Similarly, while Minnasvlakte 258LQ has both Upper Coal Sequence and Lower Coal Sequence coal
zones present, the coal is deeper in this region, and consequently Venmyn Deloitte have adjusted the
unit values downwards to reflect that this property has a lower prospectivity than Smitspan 306LQ, but
higher prospectivity than those properties absent in Upper Coal Sequence coal zones.
The comparable transaction value range selected for the valuation of the contributing properties has
considered the nature of this valuation and the risk factors.
Venmyn Deloitte is of the opinion that the ranges defined are reasonable in light of transactions of a
similar nature and consideration of the following:-
- the opencastability of the resources;
- the presence of commercially valuable coal zones;
- the range of potential coal qualities;
- the magnitude of the classified Coal Resource;
- availability of infrastructure and logistics; and
- the timing of potential exploitation.
The range of values generated, based upon all TTIS coal quantified for the contributing properties of the
Sekoko Coal-Firestone JV Waterberg Coal Project, are summarized in Table 10 based on the most
recent Venmyn (now Venmyn Deloitte) estimates (we note that these have not changed since May
2012). The valuation range was calculated from the range of unit values as defined by the Comparative
Transaction Valuation method. The value range reflects the level of confidence attached to the
respective Coal Resources and the probability of their being brought to account. The population of
historic market transactions provides an indication of reasonability.
Table 8 summarises the results of the Compatible Transaction valuation approach.
Table 8 : Summary of the Results of the Comparable Transaction Valuation.
TOTAL COMPARABLE TRANSACTION VALUE
RESOURCE MIN MAX PREFERRED
FARM (Total PROJECT PROJECT PROJECT
Tonnes in- VALUE VALUE VALUE
situ) (Mt) (ZARm) (ZARm) (ZARm)
Olieboomsfontein 220 LQ - - - -
Vetleegte 304 LQ 155.28 103.5 148.6 126.0
Minnasvlakte 258 LQ 194.21 62.3 92.4 77.3
Smitspan 306 LQ 595.47 810.3 1,405.7 1,108.0
Massenberg 305 LQ 98.78 25.6 37.2 31.4
Hooikraal 315 LQ 82.11 15.2 23.8 19.5
Swanepoelpan 262LQ 284.52 57.3 86.0 71.6
Duikerfontein 263LQ 10.46 2.1 3.1 2.6
TOTAL/ WT. AVE 1,420.83 1,076.3 1,796.7 1,436.5
Venmyn Deloitte's preferred value is the mean value derived from the unit value ranges per category.
This results in a preferred full Comparable Transaction Value of ZAR1,437m for the contributing
properties of the Sekoko Coal-Firestone JV Waterberg Coal Project, and equates to a unit value of
~ZAR1/TTIS. Approximately 80% of the value of the contributing properties is made up from the coal
assets at Smitspan 306LQ.
10.3. Intrinsic value Summary
Table 9 summarises the results from the various valuation methods used in establishing the
Intrinsic/Technical Value of the mineral assets of the contributing properties:-
Table 9 : Intrinsic Value Summary
INTRINSIC OR TECHNICAL VALUE
COMPARABLE
COST PREFERRED
FARM TRANSACTION TOTAL
APPROACH VALUE
APPROACH (ZARm)
(ZARm) (ZARm)
(ZARm)
Olieboomsfontein 220 LQ 1.0 N/A 1.0
T1 122.3
Vetleegte 304 LQ 116.6 126.0 121.3
Minnasvlakte 258 LQ 10.1 77.3 43.7
Smitspan 306 LQ 1,056.3 1,108.0 1,082.1
T2 1,173.2
Massenberg 305 LQ 29.3 31.4 30.3
Hooikraal 315 LQ 14.6 19.5 17.1
Swanepoelpan 262LQ 19.2 71.6 45.4
T3 48.0
Duikerfontein 263LQ 0.0 2.6 2.6
TOTAL 1,247.1 1,436.5 1,343.6 1,343.6
The table above demonstrates general agreement between the values derived from the various valuation
methods, however the Cost Approach results in lower values in all cases.
26
Table 10 : Comparative Valuation Based on Venmyn Deloitte Resource Estimates
THE MARKET AP P RO ACH
INFERRED CO AL RES O URCE INDICATED CO AL RES O URCE MEAS URED CO AL RES O URCE P RO JECT V ALUE
V ENMY N V ENMY N V ENMY N
TO TAL LO WER UP P ER TO TAL LO WER UP P ER TO TAL LO WER UP P ER MIN MAX P REFERRED
MEAN MEAN MEAN
FARM INFERRED UNIT UNIT INDICATED UNIT UNIT MEAS URED UNIT UNIT P RO JECT P RO JECT P RO JECT
V ALUE V ALUE V ALUE
RES O URCE V ALUE V ALUE RES O URCE V ALUE V ALUE RES O URCE V ALUE V ALUE V ALUE V ALUE V ALUE
(ZARm) (ZARm) (ZARm)
(Tota l Tonne s (ZAR/ t) (ZAR/ t) (Tota l Tonne s (ZAR/ t) (ZAR/ t) (Tota l Tonne s (ZAR/ t) (ZAR/ t) (ZARm) (ZARm) (ZARm)
in- situ) (Mt) in- situ) (Mt) in- situ) (Mt)
Olieboomsfontein 220 LQ - 0.20 0.30 - - 0.70 1.00 - - 1.00 2.00 - - - -
Vetleegte 304 LQ 11.1 0.20 0.30 2.8 143.1 0.70 1.00 121.7 1.0 1.00 2.00 1.6 103.5 148.6 126.0
Minnasvlakte 258 LQ 173.0 0.25 0.35 51.9 21.2 0.90 1.50 25.4 - 1.50 2.50 - 62.3 92.4 77.3
Smitspan 306 LQ - 0.30 0.40 - 380.7 1.00 2.00 571.0 214.8 2.00 3.00 537.0 810.3 1,405.7 1,108.0
Massenberg 305 LQ 82.1 0.15 0.25 16.4 16.6 0.80 1.00 15.0 - 1.50 2.00 - 25.6 37.2 31.4
Hooikraal 315 LQ 77.7 0.15 0.25 15.5 4.4 0.80 1.00 3.9 - 1.50 2.00 - 15.2 23.8 19.5
Swanepoelpan 262LQ 283.7 0.20 0.30 70.9 0.9 0.70 1.00 0.7 - 1.00 2.00 - 57.3 86.0 71.6
Duikerfontein 263LQ 10.5 0.20 0.30 2.6 - 0.70 1.00 - - 1.00 2.00 - 2.1 3.1 2.6
TO TAL/ WT. AV E 638.1 0.26 16 0 . 2 566.9 0.99 737.7 2 15 . 8 1. 7 5 538.6 1, 0 7 6 . 3 1, 7 9 6 . 7 1, 4 3 6 . 5
The Cost Approach defines the bottom (ZAR1,247m) of the value range identified, while the Comparative
Transaction Approach defined the top (ZAR1,437m) of the value range identified. The preferred
Intrinsic/Technical Value is considered to be represented by the mean of the two valuation approaches,
and results in a value of ZAR1,344m.
10.4. Implied Value of the Mineral Assets
Venmyn Deloitte consider that the Market Price of Firestone implies a value of the mineral assets, as the
contributing properties are the principal mineral assets of Firestone. Since Firestone currently have a
60% interest in the mineral assets, the current Market Price of Firestone, adjusted for net debt, could be
considered to represent 60% of the value of the mineral assets. On this basis, the Implied Value of the
contributing properties can be calculated on a 100% attributable basis. On this basis Venmyn Deloitte
have assessed the current Implied Value of the mineral assets to be ZAR792m.
Venmyn Deloitte notes the relatively small volume of trade in Firestone shares and also considers that
delays in project development and challenges with respect to financing may be contributing to the
relatively low Market Price. It is noted further that the Intrinsic Value is based on past transactions, and
that the current state of the coal market and future outlook for the coal market are less favourable than
when the transactions occurred. This might also have led to the Implied Value of the mineral assets
being lower than the Intrinsic Value.
10.5. Fair Value of the Mineral Assets
The assessment above suggests that it would be appropriate to apply a discount to the
Intrinsic/Technical Value of the mineral assets, in terms of the requirements of VALMIN, 2005 in
assessing Fair Value. In this case, Venmyn Deloitte consider that a discount of 21% is appropriate.
This results in a Fair Value of ZAR1,068m. If a value range is required, we would consider it appropriate
to apply the ~21% discount to the technical valuation range which would provide a value range of
ZAR991m and ZAR1,142m.
10.6. Valuation Summary
The results of the valuations carried out by Venmyn Deloitte are given in Table 11:-
Table 11: Summary of Valuation Results
INTRINSIC OR TECHNICAL VALUE
COMPARABLE FAIR
COST PREFERRED DISCOUNT
FARM TRANSACTION TOTAL VALUE
APPROACH VALUE (%)
APPROACH (ZARm) (ZARm)
(ZARm) (ZARm)
(ZARm)
Olieboomsfontein 220 LQ 1.0 N/A 1.0
T1 122.3
Vetleegte 304 LQ 116.6 126.0 121.3
Minnasvlakte 258 LQ 10.1 77.3 43.7
Smitspan 306 LQ 1,056.3 1,108.0 1,082.1
T2 1,173.2 21% 1,067.8
Massenberg 305 LQ 29.3 31.4 30.3
Hooikraal 315 LQ 14.6 19.5 17.1
Swanepoelpan 262LQ 19.2 71.6 45.4
T3 48.0
Duikerfontein 263LQ 0.0 2.6 2.6
TOTAL 1,247.1 1,436.5 1,343.6 1,343.6 21% 1,067.8
Note: Rounding may result in computational discrepancies
Our assessment determined that the Implied Value is significantly lower than the Intrinsic/Technical
Value of the mineral assets. In terms of the requirements of VALMIN, 2005, Venmyn Deloitte considers it
appropriate to apply a discount to the Intrinsic/Technical Value of the mineral assets in estimating the
Fair Value. In this case, Venmyn Deloitte consider that a discount of ~21% is appropriate.
In Venmyn Deloitte?s opinion the current Fair Value of the Contri uting Properties of the Water erg Coal
Project, given their current state of development and current market conditions is ZAR1,068m.
The valuation of exploration assets is, by nature, subjective and uncertain. The placing of a specific
monetary value on historical exploration can be misleading, and the reader is advised to consider the
ranges in which each property has been evaluated, and to further consider the technical merits of each
project area and form an opinion regarding its prospectivity on the basis of the data presented in this
report.
The reader should note that a transaction involving the assets in question will rely on a willing-buyer
willing-seller arms length transaction which will need to consider other strategic considerations, such as
the relative scarcity of South African coal projects.
10.7. Key Assumptions
We arrived at our opinion of value based on the following assumptions: -
- that all information provided to Venmyn Deloitte, by Sekoko Coal and/or Firestone can
be relied upon;
- that the valuation is with respect to the face value of the mineral assets only;
- that the valuation was conducted on a 100% attributable basis;
- that the legal status of the mineral rights and statutory obligations were fairly stated;
- that the prospecting licences will be kept valid and that they can be converted to
Mining Licences in the future;
- that expired Prospecting Rights will be successfully renewed;
- that the Mining Right will be kept valid;
- that all other regulatory approvals for exploration and mining will be timeously obtained;
- that the corporate structures and ongoing activities were fairly presented;
- that reliance can be placed on the exploration expenditures provided by Sekoko Coal
and/or Firestone;
- that reliance can be placed on the Financial Statements provided by Firestone;
- that reliance can be placed on the current Mineral Resource Statement;
- that the coal quality lends itself to the production of a suitable thermal coal product
after washing;
- that Sekoko Coal, Firestone and their subsidiaries would continue as going concerns
and would continue to be fully funded; and
- that Sekoko Coal and/or Firestone would be able to secure markets and off-take for
any future operations.
Venmyn Deloitte made due enquiry into these issues to be satisfied of the potential impact on the
mineral asset valuation.
We have relied upon and assumed the accuracy of the information provided to us in deriving our opinion.
Where practical, we have corroborated the reasonableness of the information provided to us for the
purpose of our valuation, whether in writing or obtained in discussion with management of Sekoko Coal
and/or Firestone, by reference to publicly available or independently obtained information.
Our valuation is based on current economic, regulatory, market as well as other conditions. Subsequent
developments may affect this valuation, and we are under no obligation to update, review or re-affirm our
valuation based on such developments.
10.8. Key Risks
The contributing properties represent early- to advanced-stage projects, and are therefore, inherently
exposed to normal operational risks associated with exploration and development projects.
The success of the projects depend largely on successful prospecting programmes and competent
management. Profitability and asset values can be affected by unforeseen changes in operating
circumstances and technical issues.
While the contributing properties are located in an emerging coal exploration and mining hub, there are
significant infrastructural challenges to overcome. Lack of adequate water and rail infrastructure are
identified as major challenges to the future development of the region.
Certain licences have expired and renewals have been applied for. There is no guarantee that these will
be awarded in their entirety or in part, and licence applications and renewals are currently experiencing
considerable delays. Sekoko Coal are however confident that their tenure over the farms is secure, and
have done, and are currently in the process of securing full and final ownership of same.
The coal qualities are amenable to the production of large quantities of coal that could meet power
station specifications. However any successful coal operation in the Waterberg Coalfield would be highly
dependent on its ability to supply existing and future power stations in the area, and securing take-off
agreements with such power stations or other external markets. In this regard a memorandum of
understanding (MoU) with power utility Eskom on a 30-year supply agreement has recently been signed.
In terms of the MoU, the project would commence delivering 2Mtpa of coal to Eskom in 2014, to be
ramped up to 10Mtpa by 2019.
Factors such as political and industrial disruption, currency fluctuation and interest rates could have an
impact on future operations, and potential revenue streams can also be affected by these factors. The
majority of these factors are, and will be, beyond the control of any operating entity.
The Going Concern assumption is the assumption that an entity will continue to operate for the
foreseeable future. Where there is a reasonable expectation that a company will be unable to meet its
current obligations as they become due, the Going Concern assumption may not apply. The ability of
Sekoko Coal and Firestone to continue operations as going concerns and the recoverability of their
respective retained losses are dependent upon the existence of economically recoverable reserves in
the future, and continued support from the respective parent companies and/or investors and/or
financiers. It is assumed that sufficient working capital will be obtainable from internal and/or external
financing to meet their respective companies liabilities and commitments as they ecome due, however
there is a risk that additional financing will not be available on a timely basis or on terms acceptable to
the respective companies.
The valuation presented herein represents the mean values achieved through the combination of value
ranges within each method applied. The valuation of exploration assets is, by nature, both subjective and
uncertain. The placing of a specific monetary value on historical exploration can be misleading, and the
reader is advised to consider the full range in which each mineral asset has been evaluated, and to
further consider the technical merits of each mineral asset and form an opinion regarding its prospectivity
on the basis of the data presented in this report.
It must be noted that this valuation has been carried out based on an assessment of values that could
reasonably be expected in view of recent market comparisons and valuations placed on coal producers
and explorers by the market. Venmyn Deloitte have provided their view on the unit comparisons having
performed a review of the contributing mineral assets. Valuations that consider the timing of extraction,
exchange rates fluctuations and views on market trends may arrive at materially different values.
This report contains forward-looking statements. These forward-looking statements are based on the
opinions and estimates at the date the statements were made. They are subject to a number of known
and unknown risks, uncertainties and other factors that may cause actual results to differ materially from
those anticipated in the forward-looking statements. Factors that could cause such differences include
changes in world coal markets, equity markets, costs and supply of materials relevant to the projects,
and changes to regulations affecting them. Although Venmyn Deloitte believes the expectations reflected
in its forward-looking statements to be reasonable, Venmyn Deloitte does not guarantee future results,
levels of activity, performance or achievements 30
11. Conclusions
This report has investigated the techno-economic merits of the contributing properties of the Sekoko Coal-
Firestone JV Waterberg Coal Project. A full range of values was calculated, but this report fully describes each
coal asset so as not to be misleading.
Venmyn Deloitte established an Intrinsic/Technical Value range of between ZAR1,247m and ZAR1,437m, with a
preferred Intrinsic/Technical Value of ZAR1,344m.
Our assessment suggests that it would be appropriate to apply a discount to the Intrinsic/Technical Value of the
mineral assets, in terms of the requirements of VALMIN, 2005 in assessing Fair Value. In this case, Venmyn
Deloitte consider that a discount of 21% is appropriate.
This results in a Fair Value of ZAR1,068m. If a value range is required, we would consider it appropriate to apply
the ~21% discount to the technical valuation range which would provide a value range of ZAR991m and
ZAR1,142m.
The prospectivity of the Sekoko Coal-Firestone JV Waterberg Coal Project is enhanced by its proximity to the
operating Grootegeluk Colliery as well as its proximity to water, electrical, road and rail infrastructure. Furthermore
the coal is thick, relatively shallow and is considered opencastable. Notably, the Waterberg Coal Project is also
within 40km of Eskom?s Matim a Power tation.
This valuation has been carried out as an indicative assessment of values that could reasonably be expected in
view of recent market comparisons and valuations placed on the coal resources by the market. Venmyn Deloitte
has its view on the unit comparisons having performed a high level review of the contributing properties.
Valuations that consider the timing of extraction, exchange rate fluctuations, and views on the coal markets may,
therefore, arrive at different values depending on the purpose of the valuation and prevailing market conditions.
This valuation is dated to the extent that it is valid at that time and will change if more information is made
available or market conditions change.
The valuation of exploration assets is, by nature, both subjective and uncertain. The reader is advised to consider
the full ranges in which each property has been evaluated, and to further consider the technical merits of each
project area and form an opinion regarding its prospectivity on the basis of the data presented in this report.
12. Global Coal Market Review
Coal is mined commercially in over 50 countries and used in more than 70 countries worldwide. Coal is readily
available from a wide variety of sources in a well-supplied worldwide market and it can be transported to demand
centres quickly, safely and easily by ship and rail. A large number of suppliers are active in the international coal
market, ensuring competitive behaviour and efficient functioning.
12.1. Reserves
Venmyn Deloitte is not aware of any calculation of global coal resources. British Petroleum (BP) provides
a list of coal reserves globally (Figure 8, Table 12), although whether these reserves are defined in terms
of the Committee for Mineral Reserves International Reporting Standards (CRIRSCO) Codes is
uncertain.
Figure 8 : Global Coal Reserves (end 2011) - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
Table 12 : Global Coal Reserves (end 2011)
ANTHRACITE & SUB-BITUMINOUS
TOTAL
REGION/COUNTRY BITUMINOUS & LIGNITE R/P RATIO
(Mt)
(Mt) (Mt)
US 108,501 128,794 237,295 239
Canada 3,474 3,108 6,582 97
Mexico 860 351 1,211 77
TOTAL NORTH AMERICA 112,835 132,253 245,088 228
Brazil - 4,559 4,559 *
Colombia 6,366 380 6,746 79
Venezuela 479 - 479 55
Other S. & Cent. America 45 679 724 *
TOTAL SOUTH & CENTRAL AMERICA 6,890 5,618 12,508 124
Bulgaria 2 2,364 2,366 64
Czech Republic 192 908 1,100 19
Germany 99 40,600 40,699 216
Greece - 3,020 3,020 53
Hungary 13 1,647 1,660 174
Kazakhstan 21,500 12,100 33,600 290
Poland 4,338 1,371 5,709 41
Romania 10 281 291 8
Russia 49,088 107,922 157,010 471
Spain 200 330 530 81
Turkey 529 1,814 2,343 30
Ukraine 15,351 18,522 33,873 390
United Kingdom 228 - 228 12
ANTHRACITE & SUB-BITUMINOUS
TOTAL
REGION/COUNTRY BITUMINOUS & LIGNITE R/P RATIO
(Mt)
(Mt) (Mt)
Other Europe & Eurasia 1,440 20,735 22,175 238
TOTAL EUROPE & EURASIA 92,990 211,614 304,604 242
South Africa 30,156 - 30,156 118
Zimbabwe 502 - 502 202
Other Africa 860 174 1,034 *
Middle East 1,203 - 1,203 *
TOTAL MIDDLE EAST & AFRICA 32,721 174 32,895 126
Australia 37,100 39,300 76,400 184
China 62,200 52,300 114,500 33
India 56,100 4,500 60,600 103
Indonesia 1,520 4,009 5,529 17
Japan 340 10 350 275
New Zealand 33 538 571 115
North Korea 300 300 600 19
Pakistan - 2,070 2,070 *
South Korea - 126 126 60
Thailand - 1,239 1,239 58
Vietnam 150 - 150 3
Other Asia Pacific 1,583 2,125 3,708 88
TOTAL ASIA PACIFIC 159,326 106,517 265,843 53
TOTAL WORLD 404,762 456,176 860,938 112
Source: BP Statistical Review of World Energy 2012
Notes: Proved reserves of coal – Generally taken to be those quantities that geological and engineering information indicates
with reasonable certainty can be recovered in the future from known deposits under existing economic and operating
conditions.
Reserves-to-production (R/P) ratio – If the reserves remaining at the end of the year are divided by the production in that year,
the result is the length of time that those remaining reserves would last if production were to continue at that rate.
Although coal deposits are widely distri uted, 75% of the world?s recovera le Coal Reserves were
located in five countries at the end of 2011: the United States (27.6%), Russia (18.2%), China (13.3%),
Australia (8.9%) and India (7.0%).
Anthracite and ituminous coal accounted for 47% of the world?s estimated recovera le coal reserves
(on a tonnage basis) in 2011, while sub-bituminous and lignite accounted for 53% in 2011.
Regionally, Europe and Eurasia, with 35.4% of recoverable coal reserves, accounted for the largest
quantity of proved coal. The Middle East, with the world?s largest oil deposits, contains the least coal
reserves in the world (0.1%). Africa, meanwhile, accounts for 3.7% of recoverable coal reserves (Table
12).
12.2. Supply
The most significant producers of coal in 2011 are shown in Table 13, which indicates that China was the
largest coal producer in 2011 by tonnage, followed by the US, India, Australia, Indonesia and Russia
(BP, 2012).
Table 13 : 2011 Production
COUNTRY PRODUCTION (Mt)
China 3,520
US 993
India 588
Australia 415
Russian Federation 334
Indonesia 325
South Africa 255
Source: BP Statistical Review of World Energy 2012
The Asia Pacific region was the largest coal producing region in 2011 and accounted for 5Bt of coal
produced, or ~68% of coal produced (Figure 9 and Figure 10). China, India, Australia and Indonesia
were the dominant producers, but China was the most significant producer, producing more than 70% of
Asia Pacific coal in 2011.
Several countries production was influenced y floods and heavy rains, among other factors. The Asia-
Pacific countries that showed a drop in coal production in 2011 as compared to the previous period
included Australia, New Zealand and Pakistan. Heavy rains at the beginning of 2012 had again resulted
in coal mine closures, with four Australian coal mines closed in eastern Australia in March 2012 (The
Huffington Post, 2012).
After the Asia Pacific region, North America produces the next highest amount of coal by energy value,
although it produces less coal in volume terms than Europe and Eurasia. Africa, South and Central
America and the Middle East are the next largest coal producers by volume and energy values. This
pattern is observed in consolidated global figures for 2011 (Figure 9 and Figure 10).
Figure 9 : Coal Global Production 1981 – 2011 (Mt) - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
Figure 10 : Coal Global Production 1981 – 2011 (Mtoe) - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
34
Coal production quantities in North America and Africa had not significantly changed between 1981 and
2008, but production dropped in 2009 in every region, except in the Asia Pacific and Middle East regions,
reducing by 9.1% in North America, 7.1% in Central and South America, 6.9% in Europe and Eurasia,
and 0.7% in Africa. All regions reversed this trend between 2009 and 2010, and are again increasing
their coal production volumes.
12.3. Demand
2011 has shown a global increase in demand for coal. Among the most significant users of coal was
China, which increased its year-on-year consumption (in energy terms) by 9.7%, and India, which
increased its consumption by 9.2% (BP, 2012).
In line with this increased demand from China and India, as well as other emerging Asian nations, Asia
Pacific demand is growing, whilst growth in coal demand from other regions, and particularly from the
US, is subdued or even negative.
The Asia Pacific region accounted for the bulk of coal demand by energy value in 2011, with 69%, or
2,553Mtoe, of global consumption stemming from this region in 2011 (Figure 11).
Figure 11 : Coal Consumption 2000-2011 - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
North America was the next largest contributor to consumption by region, at 14.3%, or 534Mtoe, of
global demand, followed by Europe and Eurasia, at 13.4% of global demand, or 499Mtoe, in 2011. All
regions, with the exception of the Middle East and Asia Pacific, experienced a drop in coal consumption,
in energy terms, in 2009, but all of the regions showed an increase in consumption, in energy terms,
between 2010 and 2011 (Figure 11).
12.4. Future Demand
The demand for thermal coal in the future will largely depend on the extent of global reliance on coal for
electricity production, while the demand for coking coal will depend on the growth in steel production.
12.4.1. Thermal Coal
Thermal coal demand is expected to increase significantly, especially on the back of increases
in power and industrial production (Figure 12).
Figure 12 : Projected Demand for Energy - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
While coal's share of glo al electricity generation capacity is expected to grow (in terms of the
number of kWhs or GWs produced (Figure 11 and Figure 12)) in most regions, in some
regions, notably Europe, there will be a reduction in the amount of electricity produced by
coal, because of environmental concerns. The predicted coal-fired generating capacity by
region is shown in Table 14.
Unsurprisingly, given many of the Asian countries high future coal-fired electricity
consumption levels (Table 14) and limited domestic supplies of coal, many of the top
importers of thermal coal are expected to be from the continent in future.
Table 14 : Predicted World Coal-fired Generating Capacity by Country and Region (GW)
AVERAGE
HISTORY PROJECTIONS ANNUAL %
REGION / COUNTRY
CHANGE
2007 2015 2020 2025 2030 2035 2007-2035
NORTH AMERICA 340 345 346 347 352 363 0.2
United States 313 325 326 327 330 337 0.3
Canada 21 14 14 14 15 16 -0.8
Mexico 7 6 6 6 7 10 1.4
OECD EUROPE 200 189 182 176 174 177 -0.4
NON-OECD EUROPE AND EURASIA 98 97 95 96 103 118 0.7
Russia 44 44 44 44 50 61 1.1
Other 54 52 51 51 53 57 0.2
ASIA 729 859 990 1,170 1,381 1,622 3.7
Japan 45 42 41 40 39 39 -0.5
South Korea 23 22 23 27 33 41 2.1
Australia/New Zealand 31 30 31 31 32 33 0.3
China 496 625 750 901 1,062 1,233 3.3
India 84 86 89 98 113 135 1.7
Other Asia 50 53 57 72 102 141 3.8
MIDDLE EAST 6 5 5 5 5 5 -0.4
AFRICA 41 41 43 47 56 70 1.9
CENTRAL AND SOUTH AMERICA 10 10 9 9 9 11 0.1
Brazil 2 2 2 2 2 3 0.8
Other Central and South America 8 8 7 7 7 8 -0.1
TOTAL WORLD 1,425 1,545 1,671 1,849 2,080 2,366 1.8
Note: Totals may not equal sum of components due to independent rounding.
Sources: History: Derived from EIA, International Energy Statistics database (as of November 2009), web site
www.eia.doe.gov/emeu/international. Projections: EIA, Annual Energy Outlook 2010, DOE/EIA-0383 (2010) (Washington, DC, April 2010),
AEO2010 National Energy Modelling System, run AEO2010R.D111809A, web site www.eia.doe.gov/oiaf/aeo; and World Energy Projection
System Plus (2010).
14th February 2013 36
However, coal's share of net electricity generation stood at 40% globally in 2008, ut will
decrease to 35% of world electricity generation by fuel by 2020 only to increase to 37% by
2035 (Figure 12). This is according to the EIA (2011b), which has predicted that the share of
net electricity generation by fuel type of various other energy fuels will increase. The EIA
anticipates that renewables will increase their share of net electricity generation by fuel from
19% in 2008 to reach a high of 25% in 2020, followed by a reduction in share of net
generation by fuel in 2035 to 23%. The EIA anticipates that natural gass share of net
electricity generation by fuel will similarly increase, rising from 22% in 2008 to 24% in 2035.
Coal?s significant share of net electricity generation y fuel, as well as expectations that other
energy fuels will not increase their share of net electricity generation so dramatically, suggests
that coal's future is secure. Indeed, even if coal?s share of electricity generation by fuel falls, in
volume terms coal demand is likely to increase.
Predictors of the eventual demand for various fuel types typically have a reference case and
then various other cases, and the influence of the green economy and environmental
concerns is an important differentiator between the various energy futures that are being
outlined y analysts. Coal's future, as a result, might not look so positive if there is a more
wide-scale embracing of alternative energy types.
12.4.2. Coking Coal
Those that have been traditionally large consumers of coking coal, including Japan, the
European Union (EU) and Korea, are likely to continue to be so, and their year-on-year
imports are expected to grow significantly as will India and China's imports (Metalreal, 2010).
Lower-than-expected growth levels out of various countries, however, suggest that coking
coal demand will be more subdued than it would have been had economic growth been
higher.
12.5. Future Supply
Coal supply currently appears to exceed demand, in line with:-
- a reduction in GDP growth and growth expectations in China and India;
- the debt crisis in the Eurozone; and
- changes to substitute fuels in the power generation market.
The reduction of once-anticipated GDP growth in China and India has had the most significant impact on
the global coal market since it has resulted in a supply glut as coal producers had been producing coal
that could not be consumed at current levels of growth.
This had led to power plants and other consumers in China, in particular, not accepting any more coal,
despite there sometimes being "take-or-pay" agreements in place, and cargoes eing left at Chinese
ports. It had also led to the situation that Chinese power plants were reported to have full inventories and
that coal traders were wary of buying coal, since they were uncertain that the price would not fall further
(Cooper, 2012).
The Eurozone debt crisis also continues to affect global demand for coal, since growth from this region
has become sluggish. The reduced demand for coal from the Eurozone was not considered significant
when China and India?s growth was at a high; however, the Eurozone crisis is exacerbating the situation
of reduced growth from India and China and contributing to depressed coal prices.
Other regions that are contributing to a coal supply glut are those in which coal is being replaced by
substitute energy fuels in power stations. Such is the case in the US, where natural gas power plants are
being built and coal-fired power plants are being converted to gas plants, leading some to prophesy that
it is the end of King Coal (Balassi, 2012). US coal producers have responded by redirecting their coal to
other regions of the world, contributing to the supply glut and the lower coal prices, or by closing their
operations.
However, some believe that the global supply glut will end, as more marginal producers stop production
due to the lower prices that they have to be content with obtaining and as they accept the lower growth
forecasts for China and India do not support the significant increases in coal production.
13. South African Coal Mining Industry
South Africa has a well-established, low-risk coal mining industry, which has reputable participants, including
Anglo Coal, BHP Billiton Energy Coal South Africa (BECSA), Xstrata Coal, Exxaro Resources, and Sasol Mining.
There are also an increasingly large number of junior mining companies as a result of their investing in greenfield
projects and brownfield projects, divested by the larger mining companies wishing to secure BEE credits and to
sell mines that do not fit into their coal portfolios (Ryan, 2011).
Coal is one of outh Africa?s most important export minerals. The ulk of the exports, particularly when freight
charges are low, go to Asia (Economist Intelligence Unit, 2010).
South Africa was the seventh-largest global producer of coal in energy and volume terms in 2011. outh Africa?s
coal reserves rank ninth in the world with a reported 30.2Bt of economically recoverable coal reserves. The
country has historically been known for its low-cost, readily-available coal, which makes it a very competitive
industry.
13.1. Reserves
The country is currently implementing a review of the national resources and reserves and hopes to have
a firmer foundation for national estimates of coal resources and reserves. This should assist in reducing
the doubt that surrounds estimates of South Africa?s coal reserves. In the current outh African Minerals
Industry (DMR, 2010a) Handbook, the Department of Mineral Resources (DMR) states that the 2007
South African reserves total 27.9Bt. This contrasts with a higher estimate, given by BP in its 2012
Statistical Review of World Energy, of 30.2Bt of reserves, and the much lower estimate implied by US
geologist Mr King Hubert, who estimates that the whole continent of Africa has ~15Bt (Hartnady, 2009).
13.2. Supply
The South African coal-mining industry is highly concentrated, with three companies, namely BECSA,
Anglo Coal and Exxaro Resources Limited (Exxaro), dominating production.
South Africa's coal production accounted for 95.2% of Africa's coal production in 2011 (BP, 2012). outh
Africa's coal sales have been increasing since 1900, but this pattern was broken in 2009, when South
Africa's sales dropped from 254.9Mt to 245.2Mt etween 2008 and 2009. South Africa's export
tonnages, similarly, dropped in 2009, to 60.4Mt, as a result of shortfalls in delivery from Transnet Freight
Rail (Ryan 2010, DMR, 2010b and 2010a).
In 2011 South Africa produced 255.1Mt of coal and thus passed 2008 year-on-year production levels. Of
this production, 65.7Mt were exported from the Richard Bay Coal Terminal (RBCT) in 2011, marking a
significant improvement on 2009 export tonnages (RBCT, 2011).
There are numerous South African coalfields, with the Witbank and Highveld Coalfields being the most
economically important, as they produce the highest percentage of South Africa's saleable coal.
However, given that these have been mined for many decades, many are looking to the Limpopo
Province for outh Africa?s future production.
13.3. Demand
According to South African Minerals Industry (DMR, 2010a), the main markets for South African coal
are:-
- the export market, which took up ~24% of total production in 2009; and
- the domestic market, which consists of:-
- electricity generation, which consumes 63.7% of coal in the domestic market;
- petrochemical companies, primarily Sasol, which consume 17.8% of coal in
the domestic market;
- general industry, which consumes 7.5% of coal in the domestic market;
- metallurgical industry, primarily ArcelorMittal, Highveld Steel and Columbus
Steel, which consumes 4% of coal in the domestic market; and
- about 6.8% of coal for the domestic market which is purchased by merchants,
and sold locally for the household market or exported, among other users.
13.3.1. The Export Market
South Africa has the capacity to export 91Mt of coal from the Richards Bay Coal Terminal
(RBCT), but it is exporting significantly lower volumes, having exported slightly more than
60Mt in 2009. There has since been an increase in exports, however, with exports reaching
66.4Mt in 2010 and 65.7Mt in 2011 (DMR, 2011; RBCT, 2011).
An alternative option for exporting South African coal is to export via the Matola Coal
Terminal, in Maputo, Mozambique.
Another alternative is the Durban Bulk Connection (DBC), which currently has a capacity of
2Mtpa for sized coal exports.
13.3.2. The Domestic Market
South Africa dominates the subregion in its maximum electricity demand, its total electricity
capacity and its proportional dependency on coal as part of the possible electricity generation
mix that is available to it (Table 15) – and this has significant implications for its current and
future use of coal, which finds its dominant domestic use in electricity production.
Table 15 : Electricity Generation Mix in Selected Southern African Countries (MW)
MAXIMUM
CAPACITY BY TYPE (MW)
COUNTRY DEMAND TOTAL
(MW) COAL DIESEL GAS HYDRO NUCLEAR CAPACITY
Botswana 434 132 132
Mozambique 285 127 2,385 2,512
South Africa 33,461 39,863 296 342 600 1,840 42,941
Swaziland 172 10 41 51
Zimbabwe 2,066 1,225 750 1,975
Source: Zhou et al (2009)
This is for a number of reasons, including that:-
- South Africa is the regional economic superpower, and its electricity
consumption per capita reflects this dominance;
- South Africa's power stations have een uilt on the ack of the
country?s a undant coal resources;
- South Africa's power stations were uilt in the country's apartheid era,
which required the country to attract investors into its mining, chemical
and agricultural sectors using low-cost power which was created through
significant investment into coal-fired power stations capacity
(Malzbender, 2005).
Because of its heavy dependence on coal-fired electricity, every year South African State
electricity parastatal Eskom consumes more than 60% of domestically-sold coal from which it
provides more than 90% of the country?s electricity capacity.
Eskom?s power stations have een specifically designed to urn low-grade coals which are
abundant in South Africa (Table 16).
Table 16 : Weighted Coal Qualities by Sector
VOLATILE
Ash
SECTOR COAL TYPE CV (MJ/kg) MATTER
(%)
(%)
Electricity generation Bituminous 21 25-33 20
Synfuels Bituminous 20-22.64 20-29.7 21-26.9
Source:- Steyn, M, et al (2010)
There are, however, other uses of coal domestically, as already indicated.
Sasol, for instance, consumes approximately 17.8% of outh Africa?s annual domestically-
consumed coal and operates coal mines to provide feedstock for synthetic fuels and chemical
plants. The company primarily uses the coal mined by Sasol Mining to produce petrol, diesel
and petrochemicals and power generation at the chemical plants.
Approximately 6.8% of local consumption also goes to the household market, with the
suppliers largely being coal traders in formal and informal residential areas.
The metallurgical sector, in addition, consumes about 4% of the local coal production, with the
major players in the industry including ArcelorMittal, Columbus Stainless and Highveld Steel.
Cement manufacturers have also emerged as significant consumers in the medium-term as
infrastructure developments in southern Africa have gained momentum, creating demand for
cement-based products.
Coking coal, meanwhile, has historically played a minor role in the South African coal industry.
In 2006, less than 4Mt of coking coal was produced y Exxaro?s Grootegeluk and Tshikondeni
Collieries, the former for export and the latter for ArcelorMittal?s steel works in Vanderbijlpark.
In 2010, less than 3Mt was sold by South African producers, and all of this was for domestic
use but in 2011 exports of coking coal did occur. The lack of development historically has
largely been a function of the Witbank/Highveld Coalfields? lower qualities which have een
better suited to thermal applications.
13.4. Prices
13.4.1. Thermal Coal
The South African export prices of steam coal are determined by their calorific value. The
typical export specification for South African coal, RB1, varies between 5,850kcal/kg and
6,000kcal/kg (Steyn et al, 2010). INet Bridge also supplies prices for steam coal described as
Coal 5900, Coal 6000 and Coal 6200. The number in the label refers to the number of kcal/kg,
with Coal 6000 referring to a coal with a CV of 6,000kcal/kg or 25MJ/kg on a net as received
(NAR) basis (or 27.5MJ/kg on a gross specific energy basis) (Steyn et al, 2010). Figure 13
shows prices for Coal 5900, Coal 6000 and Coal 6200.
Prices as at the end of June 2012 demonstrated a low point for month-end coal prices, with
coal grade prices ranging between USD85.87/t for Coal 5900 and USD87.3/t for Coal 6200.
By the end of October coal grade prices ranged between USD93.17/t for Coal 5900 and
USD97.32/t for Coal 6200.
Coal prices have shown a generally decreasing price trend in 2012 although it must be
acknowledged that there has been a slight uptick in prices between since June 2012.
However, the generally decreasing prices observed 2012 do not bode well for South African
coal exporters who, at present, are also faced with a challenging labour environment, which
has seen labour unrest, calls for above-inflation wage increases and damage to mine
property, in some cases. This has resulted in costs increasing while the price obtained for coal
has been generally showing a decreasing price trend.
40
Figure 13 : Coal Price History from July 2002 to March 2011 (USD) - PLEASE REFER TO WEBSITE FOR ALL DIAGRAMS
In the South African market, low grade coal is predominantly used in Eskom operated power
stations. Low grade coal prices are based on contracts and are rarely reported in the public
domain. The pricing mechanism is usually based on a cost plus basis, where the price of the
coal covers cost plus a margin. However, Eskom is considering a new pricing model for its
purchases of coal, called the efficiency-cost-plus-fair-return model. Venmyn Deloitte is
uncertain what this model will involve but analysts believe that this will increase the price paid
for coal by the utility (Creamer, 2011).
13.4.2. Coking Coal
South Africa did not export coking coal in 2009, but did sell ~1.9Mt in 2009 domestically at an
average local coking coal price of ZAR871/t (DMR, 2010b).
In 2010, South Africa, similarly, did not export any coking coal, but did produce ~3.4Mt locally
and sell 2.4Mt of bituminous coking coal to the domestic market. The average unit value of
domestic coal sales for 2010 was ZAR764/t.
Between November 2010 and October 2011, South Africa sold 2.3Mt of bituminous coking
coal locally and exported 474,223t. The average unit value of domestic bituminous coal sales
ranged between ZAR785/t and ZAR1,020/t over this period, while the average unit value of
export sales ranged between ZAR512/t and ZAR1,161/t.
The DMR has not provided Venmyn Deloitte with monthly provisional mineral production and
sales statistics for December 2011 or for the months that follow.
13.5. Outlook
Export sales and sales to Eskom are the most important sources of demand, and the outlook for these
sales avenues are the most important to consider for any new entrant into the coal sector.
13.5.1. Sales to Eskom
South Africa?s energy resource ase is dominated by coal. Approximately 93% of South
Africa's primary energy needs are provided by coal. This is unlikely to change significantly in
the next two decades, owing to the relative lack of suitable alternatives to coal as an energy
source.
The State utility has re-commissioned three mothballed power stations and has constructed or
is constructing additional power stations. Eskom predicts a requirement of 141Mt of coal to
feed its power stations by 2018. Some analysts believe that there is not enough coal in South
Africa to meet this demand while others believe that the industry is still growing and has not
reached peak coal growth.
The Water erg is key to many of Eskom's plans. It is currently constructing the Medupi power
station, which was to become operational in 2012. Medupi Phase 2 is intended to expand the
new power station by an additional 2,100MW, and this power is expected to come on stream
by around 2016.
However, while coal will remain an important fuel source in South Africa it is likely that its
share of the electricity generation market will drop if the Integrated Resource Plan for
Electricity 2010, which was approved by Cabinet in March 2011, takes effect.
This is ecause it is proposed that coal will provide the feed for 15% of South Africa's new
power stations coming on stream in the next 20 years, compared to renewable energy and
nuclear energy, which will supply 42% and 23%, respectively, of outh Africa?s electricity that
comes from new power stations (Reuters and Sapa, 2011).
However, it is known that there is a large gap between South African electricity policy and how
it is implemented, and it is possible that there will not be as significant a change in the
electricity supply mix as policy documents suggest, owing to the historical poor
implementation of infrastructure-related policy.
13.5.1.1. The Impact of the SAPP
Southern Africa continues to develop the Southern African Power Pool (SAPP), a
community of 12 countries which were to sell surplus electricity to each other
(Musaba, 2010). Historically, the DRC and Zambia, Zambia and Zimbabwe, and
Mozambique and South Africa have had transmission lines linking the countries,
but the intention is to invest USD5.6b in transmission projects to construct
transmission networks between several countries which have not had
transmission networks linking them in the past(Musaba, 2010).
This bodes well for those in the energy sector that can produce electricity for the
region, whose electricity demand is growing at an average of 3% a year.
In the north of the SAPP community, hydropower dominates the energy supply
mix, with Tanzania, Angola, Zambia, Zimbabwe, Malawi, Mozambique and, most
importantly, the DRC having considerable hydropower potential. In the south of
the SAPP community, meanwhile, thermal power is integral, with Namibia,
Botswana, South Africa, Lesotho, Swaziland and arguably also Mozambique, in
the next few years, increasingly building coal-fired power stations or being
dependent on them for a large portion of their energy production (Musaba, 2010).
The SAPP community has the potential to change the way that power is
generated and transmitted throughout the region and could offer the opportunity
for a diverse array of generating possibilities, including additional hydropower and
coal-fired generation possibilities for private or national investors. This could
result in an increase in the number of coal-fired generators that exist in the sub-
region or, if the massive Inga hydropower project, in the DRC, takes off, result in
imported hydropower-derived electricity being the dominant form of power
generation in the whole SAPP community.
However, the timeframes for the introduction of various power initiatives is still
uncertain as is the likely power supply mix for the sub-region in the medium and
long term. This indeterminate future for the SAPP community is underscored by
the fact that the Inga Project has yet to get off the ground because of its
significant cost of USD8bn to USD10bn and its battle to get an anchor project in
the DRC to use its electricity, with BHP Billiton indicating in February 2012 that it
has decided to abandon its plans for an aluminium smelter (Legalbrief, 2012;
Reuters, 2012).
13.5.2. Export Sales
Some 65.7Mt of coal was exported from South Africa from the RBCT in 2011, with additional
coal tonnages from South Africa having gone through the ports of Durban and Maputo.
Export tonnages through RBCT are said to be limited by a lack of rail capacity and operational
underperformance, which has included derailments in the past. Exports through the Matola
Coal Terminal, meanwhile, have also not been helped by limited rail infrastructure, increasing
freight tariffs, and lower throughput capacity through the Matola Terminal (McKay, 2012).
South African rail utility Transnet is considering large infrastructure projects in the Limpopo
Province to increase rail capacity for coal produced in the Waterberg and Limpopo regions. It
is undertaking a pre-feasibility study for the upgrade of the ZAR8bn line between Groenbult
(60km north-east of Polokwane) and the Mozambican port of Maputo and considering a new
line between Groenbult and the Waterberg. From Lephalale via Groenbult, the rail distance to
Maputo is approximately 148km less than to RBCT. These projects, if they are completed,
bode well for the exporting of coal from the Waterberg.
However, the costs of freight rail remain an obstacle. Freight charges, which became effective
on the 1st of April 2011, have resulted in increases of 30% and will increase the tariff from
ZAR90/t – ZAR100/t to ZAR117/t – ZAR130/t for exports on the Richards Bay line and
increases of 17% will increase freight tariffs from ZAR160/t to ZAR190/t on the Matola line to
Mozambique (Ryan, 2011b).
14. References
AUTHOR DATE TITLE SOURCE
Australian Bureau of
Agricultural and
2011 Australian Mineral Statistics 2011 http://adl.brs.gov.au
Resource Economics
and Sciences (Abare)
Balassi, J 2012 As gas heats up, coal sector burns less brightly http://in.reuters.com
BP 2010 BP Statistical Review of World Energy BP
BP 2011 BP Statistical Review of World Energy BP
BP 2012 BP Statistical Review of World Energy BP
Asian thermal coal prices collapse as demand, defaults weigh on
Cooper, M 2012 http://www.platts.com
market
Eskom wants government to intervene to shore up domestic coal
Creamer, T 2011 polity.org.za
supply
Department of Mineral
2010a South Africa's Mineral Industry 2009/2010 DMR
Resources (DMR)
Department of Mineral
2010b Information on Coal www.dme.gov.za
Resources (DMR)
Department of Mineral
2011 Provisional Mineral Production and Sales Statistics (November 2011) DMR
Resources (DMR)
Economist Intelligence
2010 World Coal: EIU Oct Coal Outlook http://Viewswire.eiu.com
Unit
Energy Information Accessed
Government website content www.eia.doe.gov/
Administration (EIA) 2010
Energy Information
2011a Short-Term Energy and Summer Fuels Outlook www.eia.doe.gov/
Administration (EIA)
Energy Information
2011b International Energy Outlook 2011 www.eia.doe.gov/
Administration (EIA)
Ernst & Young 2011 Business risks facing mining and metals 2011-2012 www.ey.com
Eskom Transmission Development Plans in the Waterberg Coal
Eskom 2008 Eskom
Fields Area 2008 to 2028
Hartnady, CJH 2009 outh Africa?s falling coal reserves (Review Article)
South African Coal Road Map – The SA Coal Industry: Present Coaltech Colloquium, Witbank
Hall, I 2011
Context and Preliminary Future Scenarios – 22 July 2011
Hall, J 2011 Anglo-American settles Apr-Jun coking coal at $330/mt FOB www.platts.com
Hellenic Shipping News 2012 Russian coal output rises in 2011 www.hellenicshippingnews.com
The Huffington Post 2012 Australia Flooding : Coal Mines Closed in Queensland www.huffingtonpost.com
Legalbrief 2012 Inga hydropower project battles to get off the ground www.legalbrief.co.za
The Oil Drum Europe
Low, D 2008 What future for Coal in South Africa
(www.theoildrum.com)
IBC Coal Markets Conference,
Lucarelli, B 2011 A tale of Two Steam Coal Industries
rolevaenergy.com
Paper for the Nordic Africa
Malzbender 2005 Domestic Electricity Provision in the Democratic South Africa Institute?s Conflicting Forms of
Citizenship Programme
McKay, D 2012 CoAL ends Mooiplaats strike, but market bites www.miningmx.com
Mining Exploration
2010 Chinese Coal Production and Supply Exceeds Domestic Demand www.paguntaka.org
News
Mining Review 2011 TFR rail costs may compromise Matola terminal expansion www.miningreview.com
Musaba, L 2010 The Southern African Power Pool www.sari-energy.org
RBCT 2011 Richards Bay Coal Terminal Operating Statistics December 2011 www.rbct.co.za
Reuters and Sapa 2011 SA to rely more on nuclear, green energy www.miningmx.com
Reuters 2012 BHP pull-out a problem for Inga project www.iol.co.za
Update 2- China power output to hit 2-yr low, slow coal production –
Reuters 2012b Af.reuters .com
NDRC Report
Ryan, B 2011 SA coal down in the dumps www.miningmx.com
Ryan, B 2011b Transnet hikes coal tariffs www.miningmx.com
Sethuraman, D 2012 India?s Nine-Month Coal Production Falls 2.7%, India Coal says http://mobile.bloomber.com
Smith,N 2012 Transnet to spend R7bn on Waterberg lines Businesslive.co.za
The Journal of the Southern
Steyn, M and Minnitt,
2010 Thermal coal products in South Africa African Institute of Mining and
RCA
Metallurgy
Telfer, CA, Njowa, G, Independent Competent Persons' Report on the Principal within the
Mc Kenna, N, Cronje, 2011 Soutpansberg Coalfield of Coal of Africa Limited (CoAL) by Venmyn
JCJ, Spicer, D Rand (Pty) Ltd (Venmyn)
Telfer, CA, Mc Kenna,
Independent Competent Persons' Report on Certain Coal Assets
N, Cronje, JCJ, Spicer, 2012 Venmyn
within the Soutpansberg Coalfield of Coal of Africa Limited (CoAL)
D
Trademark 2012 Fact ox: outhern Africa?s coal rail and port bottlenecks www.trademarksa.org
Wellstead, J 2012 Coal hits a wall in US market
Zhou,P; Yamba,FD;
Lloyd, P; Nyahuma, L;
Determination of regional emission factors for the power sector in Journal of Energy in Southern
Mzezewa, C; Kipondya, 2009
Southern Africa Africa
F; Keir, J; Asamoah, J;
Simonsen, H
14th February 2013 44
15. Certificates of Competent Persons
Name of Staff: Neil Mc Kenna
Position: Director – Mining Advisory
Name of Firm: Venmyn Deloitte, a subsidiary of Deloitte Consulting South Africa (Pty) Ltd
st
Address: 1 Floor, Block G, 173 Rivonia Road, Sandton, 2146
Profession: Geologist
Date of Birth: 05 June 1977
Years with Firm/Entity: 5
Nationality: South African
Membership in Professional Societies:
CLASS PROFESSIONAL SOCIETY YEAR OF REGISTRATION
Member Australasian Institute of Mining and Metallurgy 2011
Member Geological Society of South Africa 2002
Member South African Institute of Mining and Metallurgy 2007
Member South African Council for Natural Scientific Professions 2002
Member Investment Analyst Society of South Africa 2009
Member South African Institute of Directors 2009
Detailed Tasks Assigned:
YEAR CLIENT COMMODITY PROJECT DESCRIPTION
PriceWaterhouseCoopers Coal Valuation of a South African Coal Project
Coal of Africa Limited Coal Competent Persons Report and Valuation on their South African Assets
PriceWaterhouseCoopers Uranium Valuation of nickel assets in Burundi
Umcebo Mining Coal Valuation of certain South African coal assets
Miranda Minerals Coal Valuation of certain South African coal assets
Rio Tinto Exploration Coal Valuation of certain South African coal assets
Central Rand Gold Gold Competent Persons Report and Valuation on their South African Gold Assets
Gem Diamonds Diamonds Competent Persons Report and Valuation of their Principle Mineral Assets
Namakwa Diamonds Diamonds Mineral Reseource Update
2012 PriceWaterhouseCoopers Gold Valuation of certain African Gold Projects
Coal of Africa Limited Coal Valuation of certain South African coal assets
Coal of Africa Limited Coal Exploration Project Assurance for their GSP Project in South Africa.
Gold, Coal,
Kibo Mining Plc Competent Persons Report for Kibo Mining's Mineral Assets.
Uranium
Sekoko Coal Coal Valuation of Sekoko Coal's Mineral Assets
Gold, Base
Razita Mining Prospectivity reviews for Mineral Rights Applications.
Metals, Coal
Coal of Africa Limited Coal Technical Statement on the Coal of Africa's Greater Soutpansberg Project.
Metmar Coal Technical Due dilligence and Valuation of a Coal Project in Kwa-Zulu Natal.
Competent Persons Report and Valuation of Coal of Africa Limited's Coal
Coal of Africa Limited Coal
Assets.
Competent Persons Report and Valuation of Kibo's Mineral Assets in
Kibo Mining Plc Gold
Tanzania.
Due Diligence and Valuation of Continental Coal's Mineral Assets in South
Sishen Iron Ore Company Coal
Africa.
Tanzanian Royalty Exploration Updated Mineral Resource Statement for the Kigosi Gold Project in
Gold
Corporation Tanzania.
2011 Sew Trident Coal Technical Review and Valuation of the Ikoti Coal Project.
Sekoko Resources Coal Valuation of ekoko?s Coal Assets in the Thuli Coalfield of outh Africa.
Update of Competent Persons Report and Valuation on Namane?s
Namane Resources Coal
Waterberg Coal Project.
Competent Persons Report and Valuation of Gem Diamonds' Mineral
Gem Diamonds Diamonds
Assets.
Coal and
Mzuri Capital Competent Persons Report on the Mineral Assets of Pinewood Resources.
Uranium
Gem Diamonds Diamonds Mineral Resource update.
14th February 2013 45
YEAR CLIENT COMMODITY PROJECT DESCRIPTION
Mzuri Capital Limited Gold Mineral Assets Valuation of the gold assets of Morogoro Gold in Tanzania.
Competent Persons Report on the Gold Assets of Morogoro Gold in
Mzuri Capital Limited Gold
Tanzania.
Mineral Assets Valuation of Noordgrens Landgoed?s mineral assets foregone
Coal of Africa Limited Coal
in 2004.
Coal of Africa Limited Coal Mineral Asset Valuation of CoAL?s mineral assets within outh Africa.
Base Metals
Trafigura Mineral Asset Valuation of Proposed Greenfields project areas in Angola.
and Gold
ETA Star Coal Mineral Asset Valuation of certain Coal Assets in near Tete, Mozambique.
Namakwa Diamonds Diamonds Mineral Resource update for Global Operations
Competent Persons Report and Valuation on Namane?s Water erg Coal
Namane Resources Coal
Project.
Namane Resources Coal Techno-economic assessment of Namane?s Waterberg Coal Project.
2010
Sekoko Resources Coal Valuation of the Sekoko-Firestone JV coal assets in the Waterberg Coalfield
Resource update for the Sekoko-Firestone JV properties in the Waterberg
Sekoko Resources Coal
Coalfield.
Keldoron Mining Coal Valuation of Keldoron?s Amaju a District Coal Project in outh Africa
Nyota Minerals Gold Mineral resource estimation of the Tulu Kapi Gold Project in Ethiopia.
Competent Persons Report and Valuation on Namakwa Diamonds? Mineral
Namakwa Diamonds Diamonds
Assets.
Miranda Mineral Holdings Coal Techno-economic assessment of Miranda?s coal assets in outh Africa.
Nyota Minerals Nickel Mineral Experts Report on the Muremera Nickel Project in Burundi.
Gem Diamonds Diamonds Mineral Resource Estimation for the Gope Project in Botswana.
Gold and
Ernst & Young Jordan Valuation of Brinsley Enterprises Orshab Project in Sudan.
Base Metals
Gem Diamonds Diamonds Mineral resource reporting audit at the Letseng Mine in Lesotho.
Nyota Minerals Gold Scoping Study on the Tulu kapi Gold Project in Ethiopia.
Techno-economic assessment of the Kalagadi?s mineral assets in outh
Kalagadi Manganese Manganese
Africa in the form of a CPR.
VTB Bank Moscow Uranium Valuation of the Spitzkop Uranium Project in Namibia.
Nyota Minerals Gold Drilling ans sampling QA/QC audit at the Tulu Kapi Gold Project in Ethiopia.
Leeuw Mining Coal Due Dilligence and Vlaution of the Maloma Colliery in Swaziland.
Metorex Fluorspar Fairness opinion on Metorex's disposal of the Vergenoeg project.
Dwyka Resources Gold Valuation of the Otjikoto Gold Project in Namibia.
Peer review of the modelling and resource estimation of the Kitumba Copper
Mike Scott & Associates Copper
Project, Zambia.
Sylvania Resources Platinum Due Dilligence and Valuation of the mineral assets of Sylvania Resources.
Nyota Minerals Limited Gold Valuation of the mineral assets of the Otjikoto Gold Project, Namibia.
Coal of Africa Limited Coal Valuation of the coal assets of the Tshikunda Coal Project in South Africa.
Mineral Resource Modelling and Mineral Resource Classification of the
Rand Uranium Uranium
Cooke Dump.
Dwyka Resources Gold Prospectivity review of the Tulu Kapi Gold Project in Ethiopia
Northam Platinum Limited Platinum Valuation of Micawber 278 (Pty) Limited.
Herbert Agencies (Pty) Limited Coal Valuation of the coal assets of the Vischkuil Coal Project in South Africa.
2009
Valuation of the Coal Assets of the Makhado Land Swop Transaction with
Coal of Africa Limited Coal
Rio Tinto
Ernst & Joung Jordan Gold Valuation of the Gold Assets of Brinsley Enterprises in Sudan
Namakwa Diamonds Diamonds Mineral Resource and Mineral Reserve audit and update.
Valuation of the Coal Assets of the Sekoko Coal-Firestone JV Waterberg
Firestone Energy Limited Coal
Coal Project, South Africa
Valuation of the Diamond Assets of the Lower Orange River Operations,
Trans Hex Group Limited Diamonds
South Africa
Valuation of the Diamond Assets of the Savanna Diamond Project, South
Bonaparte Diamond Mines NL Diamonds
Africa.
Tanzanian Royalty Exploration A National Instrument (NI-43-101) Technical Report on the Kigosi Gold
Gold
Corporation Project, Tanzania.
Mvelaphanda Resources Limited Platinum Valuation of the PGE Assets of the Booysendal Project, South Africa.
Xstrata South Africa (Pty) Limited Coal Valuation of the Coal Assets of the Zonnebloem 1 Project, South Africa.
Anglo Platinum Limited Platinum Valuation of the PGE Assets of Micawber 278 (Pty) Limited.
Valuation Update of the Coal Assets of ekoko?s Water erg Coal Project,
Sekoko Resources Coal
South Africa.
YEAR CLIENT COMMODITY PROJECT DESCRIPTION
Fair and Reasonable Opinion on the Rights offer by Metorex in December
Johannesberg Stock Exchange Multi-
2008. This involved the creation and issue of 242,538,403 shares at an issue
Limited/ Metorex Limited Commodity
price of 200cps resulting in a cash consideration of ZAR485,076,806.
Competent Persons Report and Valuation of the Pering Zinc-Lead Mine, in
Minéro Mining Company Zinc-Lead
South Africa.
Gem Diamonds Diamonds Minerals Resource Update of all Gem Diamonds Mineral Assets.
BRC DiamondCore Diamonds Valuation of BRC DiamondCore?s ilverstreams Project in outh Africa.
Valuation of ekoko?s Coal Assets of the Water erg Coal Project in outh
Sekoko Resources Coal
Africa.
Prospectivity report on certain properties within the Tuli and Soutpansberg
Tata Steel Coal
Coalfields
Universal Coal plc Coal Valuation of the Coal Assets of the Elof Coal Project in South Africa
Anglo Platinum Platinum Valuation of The PGE Assets of the Booysendal Platinum Project
Resource Estimation and Update for Namakwa Diamonds South African and
Namakwa Diamonds Diamonds
DRC Projects.
Harmony Gold Mining Company Gold Resource Estimation and Classification of the Deelkraal Dump
Pioneer Coal Coal Competent Persons Report and Valuation of the Coal Assets of Pioneer Coal
Technical Statement on the Doornhoek Alluvial Diamond Property, South
2008 Namakwa Diamonds Diamonds
Africa
Prospectivity Review for Pioneer Coal?s outpans erg Coal Prospecting
Pioneer Coal Coal
rights.
Prospectivity Review of Varios Coal Properties in the Ermelo region of South
Target Coal Coal
Africa.
Lidongo Group Holdings Diamonds Prospectivity Review of Lidonga?s Riet River Prospecting Rights.
Technical Review of mineral resources and sampling programme at the
BRC DiamondCore Diamonds
Paardeburg East Diamond Project.
Technical Review of mineral resources and sampling programme at the
BRC DiamondCore Diamonds
Silverstreams Alluvial Diamond Project.
Namaqua Diamonds Diamonds Technical review of the London Project, North West, South Africa.
Competent persons Report and Techno-Economic Valuation of Trans Hex?s
Trans Hex Group Diamonds
Lower Orange River Mineral Assets.
Comparative Valuation of the Booysendal Platinum Project as part of the Fair
Ernst & Young Platinum and Reasonable Opinion on the Transaction between Northam and
Mvelaphanda.
Annual Mineral Resource and Mineral Reserve Review and Update.
Harmony Gold Mining Company Gold
Identification of Strateigic Opportunities at the Free State Operations.
Gem Diamonds Limited Diamonds Mineral Resources Review of Gem Diamonds? Glo al Operations.
Worldwide Coal Carolina (Pty)
Coal Techno-economic valuation of Worldwide Coal Carolina?s coal assets.
Limited
Ferro- National Instrument 43-101F technical Report on the Riders Ferro-
Apic Atoll (Pty) Ltd
manganese manganese Slag Dump, Pennsylvania, united States of America.
High level independent review of the coal resource, reserve and technical
Signet Mining Coal operating parameters of Tuli Coal (Private) Limited?s pecial Grant Area in
Southern Zimbabwe.
An independent comparable transaction valuation of the platinum group
Anglo Platinum Limited Platinum
element mineral assets of the Booysendal Project.
Gem Diamonds Limited Diamonds Techno-economic valuation of Kimberley Diamond Company NL
Gem Diamonds Limited Diamonds Mineral Experts Report on Kimberley Diamond Company NL
Gem Diamonds Limited Diamonds Competent Persons Report on the Go25 (Gope) kimberlite.
Assessment of the geological and resource/reserve data provided to the IDC
International Development Ferro-
on the Riders Ferro-magnesium Slag Dump, Pennsylvania, USA, by Apic
Corporation Magnesium
Toll Treatment (Pty) Limited as part of their application for funding.
Gold and Mineral Resource tatements for Harmony?s surface dump resources of the
2007 Harmony Gold Mining Company
Uranium Randfontein and Free State Operations in South Africa.
SAMREC compliant Resource and Reserve Statements for the mineral
Gem Diamonds Limited Diamonds assets of the Cempaka Diamond Mine in Indonesia for BDI Mining
Corporation (Subsidiary of Gem Diamonds Limited).
SAMREC compliant Resource Statement on the mineral assets of Gope
Gem Diamonds Limited Diamonds Exploration Company (Pty) Limited (Gope Project) (Subsidiary of Gem
Diamonds Limited)
Mintek/Department of Minerals Review and recommendations on the Kumba/Exxaro proposal for
N/A
and Energy Environmental Provisioning.
Rockwell Resources (Pty) Compilation of Technical Statement (NI-43101) for the Wouterspan
Diamonds
Limited Operation.
Gem Diamonds Limited Diamonds High level valuation of Cullinan Diamond Mine
JCI Limited Uranium Review of and Recommendations on JCI?s Laings urg Uranium Project
Harmony Gold Mining Company Gold and Sample trail Audit and Competent persons sign-off (SAMREC) on Dump
Limited Uranium Drilling and Sampling
Magnum Resources Limited Tantalum High Level Due Diligence of the Tantalite Valley Project, Southern Namibia
14th February 2013 47
A study of the Relationship Between the Micro- and Macro Diamonds from
De Beers Consolidated Mines Diamonds
Finsch Diamond Mine.
2004
A study of the Relationship Between the Micro- and Macro Diamonds from
De Beers Consolidated Mines Diamonds
Snap Lake Diamond Mine.
Employment Record:
POSITION COMPANY JOB DESCRIPTION DURATION
Formed after Venmyn was acquired by professional services firm Deloitte,
creating a new technical and economic minerals advisory business. The new
business builds on the two companies' successful track records in minerals
consulting, mining advisory services, audit, tax, risk advisory, consulting and
corporate finance services to the mining industry. Venmyn Deloitte leverages
Venmyn Deloitte November 2012 -
Director off the global Deloitte network to enable a global value proposition for
(Pty) Ltd Present
technical evaluation and the financial valuation of mineral assets.
Mr Mc Kenna's responsibilities continue to include mineral asset valuations,
mineral projects reviews, public reporting as well as strategic leadership for
the new business.
Venmyn Rand operated as a techno-economic consultancy for the resources
industry on a world wide basis. Responsibilities at Venmyn included:
• erving as Director of Venmyn and responsi le for the company?s strategic
process and management of internal functions and governance;
Venmyn Rand February 2009 -
Director • Providing hands-on services to all the company?s major clients;
(Pty) Ltd November 2012
• Providing minerals projects assessments; and
• Mr. Mc Kenna?s expertise in financial valuation was particularly appropriate
for ensuring market to market presentation of both the technical and financial
issues of resources projects.
Venmyn Rand operates as a techno-economic consultancy for the resources
Minerals industry on a world wide basis. Responsibilities at Venmyn include:
Venmyn Rand March 2006 – February
Industry • Compiling technical and geological information into reports which are
(Pty) Ltd 2009
Advisor compliant with the SAMREC and JSE listing rules.
• Production of techno-economic reports for clients.
Responsible for the Mineral Resource Evaluation Drilling of the Block 5
Extension of the Finsch Diamond Mine, Northern Cape. This role included
the following activities:
• Management of diamond core drilling for volume, geological, structural and
grade determinations.
• Co-ordination of drilling/sampling activities of four LM90 drill rigs on three
Project De Beers, underground levels (510, 650 and 888 levels). October 2006 – March
Manager Finsch Mine • Managing the capturing of all geological data in a Datamine drill-hole 2007
database.
• Responsi le for the managing of drilling contractors (Boart Longyear) and
maintaining project schedules.
• Responsi le for the supervision and mentorship of approximately 10
subordinates (including senior and junior geologists, geological officers and
geological assistants).
• Responsi le for routine reporting, and ad-hoc reviews and requests by
Group Managers Office.
• Corporate governance of Resource Delivery Group.
Technical De Beers Group
• Technical reviews of advanced stage projects and resource statements. 2005 - 2006
Assistant Exploration
• Compilation of position papers.
• Ad-hoc reports and resource reviews.
• Joint venture reporting.
• Responsi le for routine reporting.
• liaison etween field operations and la oratories.
• Ad-hoc technical reports and reviews.
Technical De Beers Africa • Corporate governance of Africa Management team and HOD committee.
2004 - 2005
Assistant Exploration • Active management of relationships and data for a Joint Venture in
Madagascar.
• Projects tracking.
• Business plan management.
• Industrial and exploration related diamond research
De Beers • Responsi le for diamond related service work and decision support
Senior
Geoscience • upervision and mentoring for diamond related projects. 2003-2004
Geologist
Centre • Providing exploration ventures with targeting and mineral chemistry
interpretations and decision support.
Exposure to various aspects of exploration and mining geology over a 13
month training period. Competencies gained include:
• diamond indicator mineral identification and interpretation.
De Beers Group • ulk sample evaluation.
Staff
Exploration • la oratory practices. 2002-2003
Geologist
Services • stream and loam exploration sampling (both reconnaissance and follow-up
sampling).
• Underground geological mapping, density measurements, waste control,
bulk sampling and grade determination studies.
14th February 2013 48
Languages:
English: Excellent
Afrikaans: Good
Certification:
I, the undersigned, certify that to the best of my knowledge and belief, these data correctly describe me, my
qualifications, and my experience.
Date: 14 February 2013
Full name of staff member: Neil Mc Kenna
14th February 2013 49
Name of Staff: Mr Iaan Myburgh
Position: Mineral Industry Analyst
Name of Firm: Venmyn Deloitte, a subsidiary of Deloitte Consulting South Africa (Pty) Ltd
st
Address: 1 Floor, Block G, 173 Rivonia Road, Sandton, 2146
Profession: Mathematician
th
Date of Birth: 31 December 1984
Years with Firm/Entity: 3
Nationality: South African
Membership in Professional Societies:
CLASS PROFESSIONAL SOCIETY YEAR OF REGISTRATION
Member Geostatistical Association of South Africa 2012
Member Investment Analyst Society of South Africa 2012
Detailed Tasks Assigned:
YEAR CLIENT COMMODITY PROJECT DESCRIPTION
2010 African Copper Copper Feasability Study
2010 Miranda Mineral Holdings Coal Independent Project Valuations
2010 White Water Resources Gold Independent Project Valuations
2010 Chrometco Limited Chromite Independent Project Valuations
2010 Sekoko Coal Independent Project Valuations
2010 West Wits Gold/Uranium Statistical Analysis
2010 Central African Gold Gold Statistical Analysis
2010 Worldwide Mineral Strategists Gold Statistical Analysis
2010 Rooderand Chromite Chrome Valuation Statement
2010 African Copper Copper Valuation Statement
2010 Sekoko Coal Valuation Statement
2010 Chrometco Chrome Valuation Statement
2011 Xceed Capital Coal Techno Economic Valuation
2011 PSIL Uranium Techno Economic Valuation
2011 Wesizwe Platinum Techno Economic Valuation
2011 Gem Diamonds Diamonds Independent Project Valuations
2011 Lesego Platinum Statistical Analysis
2011 Sephaku Fluorspar Independent Project Valuations
2011 Xceed Capital Coal Valuation Statement
2011 Wesizwe Platinum Valuation Statement
2011 Namane Elandslaagte Diamonds Valuation Statement
2011 PSIL Uranium Valuation Statement
2011 Sudor Coal Coal Valuation Statement
2011 Realm Resources Platinum Valuation Statement
2011 AEMFC Coal Valuation Statement
2011 Lodestone Namibia Iron Ore Valuation Statement
2011 African Copper Copper Valuation Statement
Power
2011 Karbochem Valuation Statement
Generation
2011 Miranda Minerals Coal Valuation Statement
2011 Anglo Namibian Prospects Base Metals Valuation Statement
2011 Umcebo Coal Valuation Statement
2011 Gem Diamonds Diamonds CPR
2011 Banro Gold CPR
2011 Sephaku Fluorspar CPR
2011 Platmin Platinum CPR
2011 Harmony Gold CPR
2011 Lodestone Namibia Iron Ore Valuation Statement
Power
2011
Karbochem Generation Valuation Statement
2011 Miranda Minerals Coal PEA and PFS
2011 Gravelotte Gold Valuation Statement
2011 Pan African Resources,BTRP Gold Fatal Flaws review
2011 Anglo Namibian Prospects Base Metals Valuation Statement
2012 Tanzania Royalty PEA PEA
2012 Frontier Rare Earths PEA PEA
14th February 2013 50
2012 Umcebo Coal Valuation Statement
2012 NMIC Gold PFS
2012 Andulela Kilken PGE Valuation Statement
2012 Chrometco Chrome Valuation Statement
2012 Central Rand Gold Gold CPR
2012 Coal of Africa Coal Corporate Model
Employment Record:
POSITION COMPANY JOB DESCRIPTION DURATION
Venmyn provides compliance and valuation reporting services to the
minerals industry.
Responsibilities at Venmyn include:-
Mineral - Compiling technical and geological information into reports which are
Venmyn Rand compliant with the SAMREC and JSE listing rules;
Industry 2010 – present
(Pty) Ltd
Analyst - High level research for multiple facets of mineral projects;
- Valuation of mineral projects; and
- Background research of information for CPR?s and Technical
Statements.
Languages:
English: Excellent
Afrikaans: Excellent
Certification:
I, the undersigned, certify that to the best of my knowledge and belief, these data correctly describe me, my
qualifications, and my experience.
Full name of staff member: Iaan Myburgh
Sponsor
River Group
Johannesburg
21 February 2013
Date: 21/02/2013 09:25:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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