Sibanye secures coal supply before building power plant

Coal mining. (Picture: Shutterstock)
Coal mining. (Picture: Shutterstock)
Shutterstock[http://www.shutterstock.com]

Johannesburg - Sibanye Gold [JSE:SGL], the biggest producer of South African bullion, agreed to invest in the Waterberg Coal Group to secure coal supplies and allow the company to generate its own electricity.

Sibanye will buy a convertible note from Waterberg’s lenders for A$22.5m ($16m) and inject A$8.5m of working capital into the mining project in South Africa’s Limpopo province, the company said on Thursday in a statement. Sibanye has the right to build a 51% shareholding in the venture in the 18 months after the deal closes.

Waterberg "has the potential to be a medium- to long-term sustainable power solution for Sibanye," chief executive officer Neal Froneman said in the statement. "This will facilitate Sibanye securing a reliable energy supply while simultaneously having a greater control over energy costs."

Power costs in South Africa have almost quadrupled since 2008 as state-owned supplier Eskom Holdings struggles to build plants and fix old ones after more than a decade of under investment in generation.

READ: Eskom in R200m nuclear waste storage deal

Intensive electricity users such as Sibanye are required to cut usage by as much as 20% when the utility is short of power and implements managed blackouts, which have happened on 100 days so far this year.

Waterberg Coal Group comprises Waterberg Coal and Firestone Energy, as well as Sekoko Resources Pty and Sekoko Coal. The shares of both Waterberg and Firestone have been suspended since March as they tried to restructure debt.

The group has a coal mineral resource of 3.4 billion metric tons and hasn’t yet started mining. It comprises three projects: exporting high-grade coal, selling the thermal variety to Eskom, and using discarded coal to generate its own power.

Sibanye, which agreed to buy three deep-level platinum mines from Anglo American Platinum [JSE:AMS] for $331m September 9, wants to build a power plant of 200 megawatts to 600 megawatts to reduce reliance on “inconsistent and increasingly expensive” electricity, it said February 19.

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