Wescoal buys 51% stake in Pegasus

Intense competition from local and international coal-mining companies to secure Pegasus project, the last big coal resource available in the area

Tuesday, November29, 2011

WESCOAL , which is fighting off liquidation applications in a long-running feud with a disgruntled contractor, unveiled a R102m deal yesterday to buy a 51% stake in a sought-after metallurgical coal deposit near Witbank.

The all-share transaction will give Wescoal a controlling stake in the undeveloped Pegasus deposit owned by BHP Billiton Energy Coal SA. Wescoal will issue 140-million shares at 73c each to HSTI, a shelf company set up to house the asset.

It will cost up to R250m more to bring an opencast mine into production there to supply South African users of metallurgical coal such as the ferrochrome industry as well as the export market, CEO Andre Boje said.

"This is very exciting and it will put us into a different league," Mr Boje said.

"You’ll notice we are still trading under a cautionary notice, so there are other deals we are doing," he said.

The deposit has a measured resource of 15-million tons and should be in production from 2014, with low costs due to a low stripping ratio of 1,46, which means there is relatively little waste to move for each ton of coal dug out of the mine, a big cost factor for coal miners.

"There was intense competition from local and international coal-mining companies to secure the Pegasus project, as the reserve is known industry-wide as the last great coal resource available in the Witbank and Middelburg coalfields," Mr Boje said.

An independent assessment had put the value of the deposit at between R593m and R946m, Mr Boje said.

Wescoal made the offer to buy the 51% last Friday from HSTI. It hopes to announce the owner of the remaining 49% in December or January and it is this partner that could be a source of finance to build the mine.

The full deal is expected to be concluded before June next year.

As part of the transaction, Wescoal will pay Bisischi Mining R54m in cash once the licence is transferred, of which the new partner will be liable for 49%. UK-listed Bisischi was one of the former owners of the Pegasus property in an empowerment transaction that went sour.

The transaction, along with a number of others Wescoal is working on, will go some way to offset the risk that has blown up around the Khanyisa colliery, where the owner of the mining right has filed for liquidation of Wescoal for nonpayment of royalties. Wescoal is opposing the application and has said the VAT number provided by owner did not exist.

(sourced BusinessDay)