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Resource Generation completes engineering designs for Boikarabelo mine in South Africa

Resource Generation (ASX: RES) continues to move the Boikarabelo mine in the Waterberg region of South Africa forward.

The latest achievement is the completion of detailed mining fleet and engineering designs for the mine.

Resource Generation said that the designs will enable the company to fast track construction once funding is secured, with designs for the 40MW power station required for stage one being finalised, with funding included in the mine’s capital estimate.

The significance of Boikarabelo is not just the Probable Reserves of 744.8 million tonnes of coal, but this is on just 35% of the tenements controlled by the company.

The mine has in total a major 6.4 billion tonne resource, which hosts 120 metre thick coal seams at shallow depths.

Stage one mine costs at Boikarabelo

Using the mid-range cost estimate of $100 million for construction of the power station, estimated capital expenditure for construction of stage one of the mine is now $750 million.

The company said that this is higher than originally estimated due to inclusion of the power station and increased construction costs, particularly for the coal handling and washing facilities.

Resource Generation said that the company is considering the possibility of segregating debt funding for the power station from the project facility for the mine.

Project funding

Resource Generation said that project funding is conditional on a rail haulage contract with Transnet Freight Rail (TFR).

To date, TFR’s task team negotiating with Resource Generation has declined to commit to a contract and the company has elevated the matter to Transnet’s group chief executive who in the past has indicated his support for the Boikarabelo project and for a rail haulage contract.

Paul Jury, managing director of Resource Generation, commented on the situation, "The reluctance of TFR’s task team to commit to a rail haulage contract will delay the mine’s initial production until the first half of 2014, assuming an acceptable contract is agreed by the end of 2011 and funding is obtained.

"We are confident of achieving a contract with TFR eventually and believe the delay is related to process and timing, rather than inability to provide haulage.

"We are proceeding with development activities and, after completing the sale of our Tasmanian tenements last week, have over $25 million in cash available.

"These funds are sufficient to enable us to continue normal operations for the foreseeable future."

Licence approval progress

In other news for Resource Generation, progress has been made in obtaining the two remaining major licence approvals.

The first, under the National Environment Management Act (NEMA), will enable construction of the mine and the rail link to begin which the company said would be as soon as received pre-construction works will commence.

The second is the Integrated Water Use Licence from the Department of Water Affairs, enabling the use of water from the borefield on the company’s properties, which will provide sufficient water for stage one of the mine’s operations.

Both licence approvals are expected during the December quarter of 2011.