Company announcements

Quarterly activities report for the period ended September 2009

30 October 2009

Firestone Energy Limited is pleased to report that during the quarter ended September 2009 substantial progress has been made in the development of the Waterberg Coal JV project in Lephalale, Limpopo Province, South Africa.

Highlights for the quarter

  • A$25m capital raising completed to fund BFS
  • Second JV underway with a significant increase to coal resource in addition to first 2 farms and J/V.
  • New Chairman and Managing Director appointed
  • PFS and new resource calculation near completion
  • Mining Permit for Small Scale mine approved 100% strike rate of Coal in all 122 holes drilled

Northern Territory - Australia

  • The two exploration licenses (ELs 7810 and 10166) near Tennant Creek in the Northern Territory which have been managed by Emmerson Resources Ltd, on behalf of the Company are to be relinquished.

Exploration

  • Prior to the establishment of the second joint venture, Firestone Energy's joint venture partner, Sekoko Coal has drilled 122 bore holes on the six farms bringing the total of drilled holes to 163 holes. All the holes drilled intersected coal and were logged and sampled by suitably qualified geologists. The diameter of the core holes drilled by Sekoko is 86mm. The results from the laboratories have been expedited and an updated resource classification will be published within the next quarter.
  • The Board has approved a contract for the Infrastructure Engineering and Design for the mine. It is estimated that this will be completed by mid 2010.
  • Firestone and its JV partner, Sekoko, have made tremendous progress with the pre-feasibility study and all indications are that this will be completed by the end of this calendar year.

Overview

While global financial and commodity conditions remained challenging during the September 2009 Quarter, Firestone Energy Limited was active on a number of fronts.

The main focus of activity was completing preparations and compilations of various supporting documentation and/or report for the Mining Right Application.

Pre-feasibility Study

Work is progressing on schedule in most of the areas of the PFS with many sections nearing completion. Pre-Feasibility Study approaches completion with draft reports being currently reviewed.

Firestone Energy's joint venture partner, Sekoko Coal has been advised by the municipal authorities that these Waterberg new coal projects are highly regarded as important future contributors to the local economy and are a key part of the regional development strategy. This very strong local support from the Lephalale Local Municipality and the Waterberg District Municipality is expected to assist in expediting the Permitting issues and the Mining Right Application approval.

Potential Markets

Firestone Energy is also looking to capitalise on the current power crisis in South Africa. Firestone Energy/Sekoko JV properties are strategically located power stations with Exxaro's Grootegeluk Colliery in close proximity to two of Eskom's coal-fired power stations, Matimba and Medupi (currently under construction and expected completion in 2011), may make transportation costs from the mine attractive to Eskom.

Corporate

During the reporting period, the Company announced that joint venture partner, Sekoko Coal Pty Ltd, has been granted mining approval from the South African Department of Mining and Energy (DME) to commence an initial small scale mining operation from the company's Waterberg coal project in South Africa. Permits are also in place to construct a box-cut/small-scale mine and develop a trial open cut and underground mining operation. It is planned to commence mining operations by beginning of 2010 and will eventually build up to a rate of 60,000 ROM tonnes per month, which after washing would yield approximately 30,000 tonnes per month of saleable coal. The small scale mine will be low cost open cut mining and mining contractors will be used for the operations. The Company continues to work towards securing an off-take sales agreement with South African State owned power utility, Eskom.

The Company also received shareholder approval for a milestone transaction acquiring a 2.9 billion tonne additional resource. As announced on 3 July 2009, the second JV agreement with Sekoko Coal is over four farms - Smitspan 306LQ, Hooikraal 315LQ, Minnasvlakte 258LQ, and Massenberg 305LQ - with an estimated combined coal resource tonnage of 2.9Bt (1,122.8Bt of saleable coal after washing). Under the terms of the Joint Venture Agreement, approved by Shareholders, Firestone's wholly joint venture whereby Lexshell will now earn an initial 30% interest in the Properties in consideration for:

  • the issue to Sekoko of new shares in Firestone in the amount of ZAR293 million (approximately A$43.4 million) at an issue price of A$0.05 per share, which amounts to approximately 868,176,563 Firestone shares (as approved by Shareholders today);
  • a reimbursement of expenses to Sekoko of up to ZAR 32.99 million (approx A$5.1 million) which has been spent by Sekoko in the exploration and development of the Properties; and following the approval of the Bankable Feasibility Study (“BFS”) and decision to mine by the Management Board of the joint venture, a management fee of ZAR50 million (approximately A$7.41 million) be paid to Sekoko (or its nominee) over a 7 year period from the date of commercial production.

Firestone has the opportunity to earn a further 30% interest (for a total of 60%) upon expenditure of ZAR 50 million (approximately A$7.41 million) to complete a Bankable Feasibility Study enabling the establishment of a future commercial mining operation.

Funding

During the quarter, the Company received A$2.68 million of funding through convertible loans from sophisticated and professional investors. Interest of 9% per annum was payable on the loans. The lenders agreed to apply the proceeds of repayment of the loans to subscribe for fully paid ordinary shares in Firestone at a price of A$0.04 per share. This also occurred during the quarter and 67 million ordinary shares were issued. The funds were applied for progressing the Company's Waterberg Coal joint venture with Sekoko Coal (Pty) Ltd and for other short term working capital requirements.

In addition, during the quarter the Company announced that it had executed binding documentation for a fully underwritten $25m capital raise involving the issue of convertible notes with a conversion price of A$0.04 cents per share. BBY Limited is the Underwriter to the entire Issue.

Firestone intends to allocate the net proceeds of the raising towards:

  • The Bankable Feasibility Study for a large scale 18Mt per annum coal mining operation at the Company's Waterberg coal project in South Africa.
  • Meeting all financial commitments due to its Joint Venture partner, Sekoko Coal (Pty) Limited.
  • Additional working capital requirements.

Key terms of the Convertible Note

The following is a summary of the key terms of the Convertible Notes.

IssuerFirestone Energy Limited
SecurityUnsecured
Issue PriceA$500,000 per Convertible Note
Interest Rate10% p.a. payable semi-annually
Term3 years from the date of issue
Issue SizeUp to A$25 million
Conversion ProcessHolders of Convertible Notes may elect to convert them at any time prior to 2.00pm AWST on the last day of the term.
Conversion FactorOn conversion, each Convertible Note will convert into 12.5 million fully paid ordinary shares (at an effective issue price of A$0.04 per share). The shares will rank equally with the existing fully paid ordinary shares in Firestone except in respect of the restrictions on transferability noted below.

Board Appointments

During the reporting period, the Company announced the appointment of Colin McIntyre, who is a is a highly experienced and credentialed mining engineer, mining manager and company director, bringing to the Firestone Board 35 years experience in the mining industry, including fourteen years with Western Mining Corporation.

The Company also announced that John Dreyer, a current non executive Director of the company, had accepted the role as non executive Chairman. Mr Dreyer's leadership and considerable mining and corporate experience will be invaluable as Firestone Energy continues to develop its South African projects. Mr Dreyer is a lawyer by profession and has held a number of senior executive positions through his career, including the position of an Executive Director of Anglo American Platinum, Corporation. In 2004 Mr. Dreyer retired from Anglo Platinum and joined Pangea Diamond Fields as a director and shareholder. He was instrumental in the listing of that company on AIM (LSE). Prior to joining Anglo, Mr. Dreyer was Chief Executive Officer of Tavistock and JCI Coal, and was previously Managing Director of Shell South Africa. He is also a former Director of the Richards Bay Coal Terminal Company.

Following the resignation of Mr Garth Higgo, the Company has been fortunate to secure the services of Mr John Wallington as Managing Director from 1 November 2009. Mr Wallington, who is based in Johannesburg, brings a wealth of coal experience to this new executive position. For the last 11 years of his 27 years with Anglo Coal, he has held senior executive positions in Anglo Coal including Senior Vice President (1997 - 2001) and CEO (2001 - 2008). A mining engineer by profession, Mr Wallington has extensive practical, technical and corporate experience that is necessary to oversee the implementation and final development of the BFS for FSE's coal assets in the famous Waterberg Coal Region located at the north end of South Africa.

For further information please contact:

Mr. John Dreyer
Chairman
Tel: +61 8 9381 2755
Fax: +61 8 9381 4799
Email: enquiries@firestoneenergy.net

Coal Resource

The resource has been estimated in accordance with the SAMREC and JORC codes and the SANS 10320:2004 (South African National Standard) method of classification of thick inter bedded coal deposits using some 136 boreholes of which 95 were recently drilled by Sekoko. All recent boreholes intersected coal and were logged and sampled by suitably qualified independent geologists. The recent borehole data, together with the historic data, have been used to create geological models and allow estimation of the coal resources. The total coal resource estimate based on the data available at June 2009 (Venmyn Rand) is tabled below whilst coal quality by resource category and farm is tabled at the end of this announcement.

FarmGTIS Zone Tonnage1 Total MtGTIS Coal Tonnage2 Inferred MtGTIS Coal Tonnage2 Indicated MtGTIS Coal Tonnage2 Total Mt
Smitspan 306LQ1,850.3150.2541.2691.4
Hooikraal 315LQ136.574.321.095.3
Minnasvlakte 258LQ736.6225.951.1277.0
Massenberg 305LQ187.645.014.159.1
TOTAL2,910.9495.4627.41,122.8

1 Waterberg coal typically occurs interlaminated with shale which for the most part cannot be mined separately from the coal and thus the zone gross in situ tonnage is the tonnage of coal and shale.
2In the interest of balanced reporting it is the Company's intention to also report the gross in situ tonnage of coal rather than the tonnage of coal and shale. In order to estimate the gross in situ tonnage of coal in each zone, rather than the zone tonnage including the rock, each zone tonnage was discounted by the percent yield at a relative density of 1.9gm/cc (in effect removing the influence of the shale) to derive an estimate of the coal tonnage.

Information in this report that relates to exploration results, coal resources or reserves on the properties Smitspan 306LQ, Hooikraal 315LQ, Minnasvlakte 258LQ and Massenberg 305LQ is based on information compiled by Ms Catherine Telfer who is employed by Venmyn Rand (Pty) Ltd and is a member of The Australian Institute of Mining and Metallurgy and The South African Institute of Mining and Metallurgy. Ms Telfer has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which she is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Ms Telfer consents to the inclusion in the report of the matters based on her information in the form and context in which it appears.

Coal Resource Estimate Gross Tonnes In Situ
Inferred MtIndicated MtTotal Mt
Vetleegte 304LQ170.4458.9629.3

Information in this report that relates to exploration results, coal resources or reserves is based on information compiled by Mr Dawie van Wyk who is employed by GeoCoal (Pty) Ltd and is a member of the South African Council for Natural Scientific Professions. Mr van Wyk has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2004 Edition of the “Australasian Code for the Reporting of Exploration Results, Mineral Resources and Ore Reserves”. Mr van Wyk consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

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