150509Suppliers of construction materials into the building industry are taking strain because of the collapse of the residential housing market. Buildmax, which has been repositioned through two major acquisitions as an opencast coal mining contract and supplier of construction materials.photo Supplied

JSE listed Wescoal Holdings (WSL) on Monday announced an offer to acquire from HSTI 17 Proprietary Limited (HSTI), 51% of the issued ordinary share capital of Ezimbokodweni Mining Proprietary (EZIM) and 51% of EZIM's liabilities. The offer was accepted by HSTI.

EZIM owns the prospecting right in relation to Mineral Area 2 of the farm Geluk 276, Registration Division JS, Mpumalanga Province, measuring 919.0666 hectares; and the surface rights in relation to portion 2 of the farm Geluk 276, measuring 250 hectares, known as the Pegasus project.

The project was previously owned by BHP Billiton Energy Coal South Africa. The project is an undeveloped metallurgical and export quality thermal coal deposit with a measured resource of approximately 15 million tons and was situated 10km from Witbank contiguous to the Exxaro Inyanda colliery.

Pegasus is a shallow coal deposit with an average strip ratio of 1.46, comprising the number 2 upper, number 2 lower and number 1 coal seams of the Witbank coalfields.

“The acquisition of 51% of the Pegasus project is in line with Wescoal's stated goals of securing high quality coal resources that can be mined by the opencast method to increase production and sustainability,” said Andre Boje, CEO of Wescoal Holdings.

It is anticipated that Pegasus would come on stream during 2014 and would continue for eight to 10 years thereafter. The main product of the project would include a low-phosphorus coal that would be sold into the metallurgical industry. The ultra-low stripping ratio would result in low cost opencast mining and would ensure the project was at the low end of the cost curve.

“There was intense competition from local and international mining companies to secure the Pegasus project as the reserve is known industry wide as the last great coal resource available in the Witbank and Middelburg coalfields,” said Boje.

An independent high-level valuation of the Pegasus project commissioned by Wescoal and conducted by Mineral Corporation Consultancy. Mincorp, based on the Monte Carlo simulation indicated a current value range of R593 million to R946 million. The valuation further indicated that, with additional capital investment to bring the project into full production, the valuation as an operating concern could be significantly increased.

The transaction was a related party transaction, as Mr R Ramaite and Mr W Khumalo, who held the position of chairman and non-executive director of Wescoal respectively, had a financial interest in HSTI.

“We are excited about this project,” said Boje. “As Pegasus will contribute to the long term sustainability of Wescoal as we drive the business model of higher margins forward.

“We are assessing various other opportunities for which we remain under cautionary, however we remain driven by our focus to supply Eskom (utility) and elevate overall margins within Wescoal to a higher level,” Boje said. - I-Net Bridge