Resource Generation Ltd (ASX:RES) (JSE:RSG) appears to be on the cusp of overcoming seemingly insurmountable odds and achieving a major milestone that will potentially unlock massive value for loyal and long-standing shareholders.
On Monday, June 3, the emerging coal miner released an announcement in relation to the funding status of its Boikarabelo coal mine, in South Africa’s northern province of Limpopo.
This confirms that Resgen has received formal participation (credit approval) from the second member of a proposed three-party lending syndicate, which the company said should facilitate completion of the project finance.
Shares up around 100%
Financing the $550 million mine has been a long and arduous task for Resgen and shareholders celebrated the news with enthusiasm as the stock rallied more than 20% higher.
Year-to-date, Resgen shares are up around 100% with shareholders expecting the good times to continue as full project funding becomes a reality.
The story so far …
Arguably one of the largest coal mining projects of the modern era, Boikarabelo, meaning ‘to be responsible’ in local language, is a world-class deposit.
The proposed mine sits amid the vast, largely untapped yet resource rich Waterberg coalfields; an area containing around 40% of the country’s remaining coal resources.
Resgen holds the mining licence over an area containing 267.1 million tonnes of probable coal reserves.
In addition is the imminent licensing of Waterberg One, Resgen’s other coal asset which adjoins Boikarabelo and will more than double probable coal reserves and extend mine life beyond four decades.
After a two-year construction period, stage I of production will deliver 6 million tonnes per annum of high-quality coal to local and overseas customers.
Further upside is likely with plans to ramp-up production to 18 million tonnes per annum. The timing of this will coincide with the completion of upgrades to South Africa’s heavy-haul rail infrastructure being implemented by Transnet.
The importance of opening up the Waterberg region to coal mining was highlighted in a 2012 government policy document entitled, the National Development Plan 2030 (NDP).
In particular, the NDP identified a need to ensure security of domestic coal supply, invest in upgrades to the heavy-haul rail infrastructure to the Waterberg, and expand export capacity to the Richards Bay coal terminal.
These objectives align seamlessly with Resgen’s own plans to supply much needed coal to the domestic market (ie Eskom) as well as building a 40-kilometre rail link that will join Boikarabelo to the country’s existing rail infrastructure.
Resgen will then have sufficient access to Richards Bay where coal will be shipped to customers in India under existing offtake contracts.
Opportunity also exists to supply the growing South East Asian market where approximately 100 gigawatts of new coal-fired capacity is expected to come online by 2040.
Resgen is a tightly held stock with the Top 20 shareholders owning approximately 75% of the company.
State-owned entity, the Public Investment Corporation of South Africa (PIC), on behalf of the Government Employees Pension Fund, is Resgen’s largest shareholder with a 19.49% stake while Altius Investment Holdings, a Black Economic Empowerment (BEE) investment company focused on commodities, holds 10.69%.
Additionally, strong support has been shown by a number of Resgen’s other major shareholders including the recently restructured global commodities trader Noble Group (13.69%), India’s third largest power producer, Calcutta Electric Supply Corporation (5.24%), and special purpose investment vehicle, Valu Investments (3.91%), all of whom have signed offtake contracts with Resgen for the total combined output of stage I production.
Under the radar
Simply put, Boikarabelo is a massive, low-cost, open-cut mine with a 40-plus year mine life.
Shareholders have good reason to be excited about the future and believe their company will soon be worth many multiples of its current $100 million market capitalisation.
All things considered, Resgen is flying well under the radar of many investors.
With full funding being imminent, the project will be significantly de-risked and is expected to be the catalyst for a major rerating of the share price.