Xceed Resources (ASX: XCD) has received South African Government approval for the acquisition of a 70% interest in each of the Roodepoort and Bankfontein thermal coal projects, located within a region that produces the majority of South Africa's coal.
Increasing the potential of the projects is that the Roodepoort project straddles Universal Coal's (ASX: UNV) 82.8 million tonne Roodekop project.
Xceed Resources managing director Ian Culbert told Proactive Investors today that Universal is drilling on the boundary to the Roodepoort project with coal known to extend into the licence, as has been proven with drilling by Xceed.
"I know that we're looking at something not dissimilar to Roodekop in terms of a mixture of export quality coal and domestic coal and it will be an open cut operation," he said.
Drilling undertaken by Xceed on these projects as part of the company's due diligence confirms potential for export grade resources to be developed.
Significantly, both the Roodepoort and Bankfontein thermal coal projects can be developed as open cut operations, improving the economics of the projects.
"The acquisition of these strategically located projects greatly increases our presence on the Witbank/Ermelo coal fields and provides us with a good pipeline of new exploration targets which will be advanced to follow on the development of the company's Moabsvelden Thermal Coal Project," Culbert said.
"Our recent drilling on Roodepoort and Bankfontein confirm the presence of near surface, high grade coal which will now become the focus of further drilling campaigns aimed at Resource definition."
The Roodepoort project is situated in the middle of the Witbank coal field and is nearby the Matla and Kriel coal fired power stations.
Xceed drilled a total of four diamond holes on the project during the quarter as part of its due diligence investigation.
These holes correlated well with the historical holes they were intended to twin and suggest at this stage that open cast resources with a combination of export grade as well as domestic grade coal may potentially be developed through further drilling and testwork.
The area tested by the due diligence drilling is in the eastern half of the project area, adjacent to the Roodekop project, suggesting that there is a continuation of the same coal formations from the one project to the next.
Geological consultant Gemecs have recommended that Xceed undertake a drilling program of 35 shallow holes with an average depth of 35 metres to define possible Resources.
The Bankfontein project is located in the Ermelo coal field nearby Xstrata's Spitzkop and Tselentis collieries.
This is an area where players like Coal of Africa and Continental Coal (ASX: CCC) are currently focused.
"The type of coal there is quite different, it is very high grade, it tends to be narrower and deeper," Culbert said.
Xceed drilled a total of four diamond holes on the property during the quarter. Correlation with historical drilling was generally poor, however this was not unexpected as historical drilling was carried out by several different parties over a lengthy period.
Drilling undertaken by Xceed, however, indicated that there is potential to firstly develop some open cast resources and secondly seam thicknesses may support underground mining off the pit high wall.
This is significantly more economic than having just an underground operation as it is prohibitively expensive to develop underground shafts.
Culbert said it is more economic to begin with an open pit operation, where you are extracting coal as you develop the operation, and then drive in horizontally off the exposed surface face into an underground operation.
"This is the target we we're looking for and our drilling indicates that we have the potential to do that," he said.
During the December 2011 quarter Xceed executed definitive agreements with Hampfuna Mining & Exploration to acquire the right to purchase a 70% equity interest in each of the Roodepoort and Bankfontein coal projects.
Xceed will settle the deal through a combination of project development expenditure and vendor payments to be made when certain milestones - namely, Resource definition, mining rights and the start of mining - are achieved.
The company has now satisfied the two substantive conditions of Ministerial approval of the transaction and completion of due diligence and will go ahead with the acquisitions.
Xceed's priority will be Roodepoort where it will begin a drilling campaign in the next couple of weeks.
The company then plans to move onto Bankfontein with the aim of defining a JORC Resource for both projects in the next four to six months.
Cash-backed Coal Developer
Xceed has received a buy recommendation from a U.K. broker and a target price of A$0.22, more than double the last traded price of $0.10.
The company is working towards bringing its flagship Moabsvelden thermal coal project into production by late 2013 producing 3 million tonnes per annum run of mine coal for sale to the domestic, industrial and export markets in South Africa.
Importantly, as it advances towards this goal, these two new project acquisitions provide Xceed with more than a single project, it provides the company with a pipeline of potential coal targets.
With the increase in exploration activity the market cannot expect more news over the coming months from Xceed.