Resource Generation (RES) is invested in coal and energy resource projects in the Waterberg coalfields (South Africa) Tasmania and Cameroon. RES’s primary focus is on the South African Waterberg project, which consists of 12 coal tenements. These are held via two joint ventures.
The group’s portfolio of resources already accumulated includes low overburden, inexpensive-to-mine coal deposits in South Africa and Australia, as well as potentially very low-cost uranium deposits in Cameroon.
RES has been one of the hot stocks recently, surging around 50% since mid-December 2010.
With cash on hand of $37 million, RES is well placed to take advantage of forecast demand for coal, particularly via its Waterberg project.
South African story
RES is on track for the development of a massive coal mine in South Africa, having recently lodged the mining rights application for the Boikarabelo mine in the Waterberg region.
RES is looking at the June quarter for approval of the application. The mine construction is slated to be completed in 2012, which will mark the year of the delivery mine fleet.
Waterberg constitutes 40% of South Africa’s remaining coal source. The Boikarabelo mine is a major 6.4 billion tonne resource, with current probable reserves of 745 million tonnes.
Infrastructure and transport solutions were completed in 2010.
Over the next 18 months, continued demand from emerging economies such as China and India is expected to drive growth in consumption of energy and minerals commodities.
Treasury official David Gruen noted that strong demand for Australia’s coal and iron ore from Asian heavyweights is expected to continue for at least the next 15 years.
Even though China and India have been growing rapidly for the past few decades, they remain at the early stages of economic development.
As such, it looks likely that Australia’s terms of trade will be significantly higher on average over the next couple of decades than before the current mining boom.
Resource Generation, with its dominant exposure to South African coal, is poised to meet coal supply shortages as global demand increases.
In the interim…
For RES’s December 2010 half, the group recorded a loss of $3.5 million.
Resource Generation attributed the result to the loss of interest income, share-based compensation costs, Tasmanian resource assessment expenses, listing fees (on the Johannesburg Stock Exchange) and net operating expenses.
In addition to listing on the JSE over the half (providing South African investors with easier access to participate in the project), in September RES secured its first coal off-take contract with Indian-based Integrated Coal Mining.
The deal involves RES selling coal for 20 years from Boikarabelo. December also saw RES signing a second coal off-take contract with Bhushan Steel to purchase coal for 20 years.
In November, RES issued an equity placement to raise $30 million in cash to use for rail link acquisitions. This was completed in December 2010 via a share purchase plan.
Though it is still in the development stages, RES’s Waterberg operation is looking highly prospective for coal production so it will be one of the stocks to watch in the coming months.
Resource and reserve upgrades for Waterberg were announced in October and December. Boikarabelo’s gross in-site resource base is 6.4 billion tonnes and 1.5 billion tonnes of inferred resource.
With probable reserves of 745 million tonnes, Boikarabelo (and RES’s other prospective projects) will see RES producing coal over the coming years to help meet the strong demand from Asian countries.