Company announcements

Quarterly Activities Report and Cashflow

26 July 2010

The Board of Firestone Energy Limited (ASX/JSE: FSE) is pleased to provide Shareholders with its Quarterly Activities Report for the 3 month period ended 30 June 2010.

Highlights

  • First appraisal of DFS completed with positives for a robust case for the establishment of the first stage open cast which can be expanded to meet market demand;
    • Establishment of 1.5mtpa standalone mine viable;
    • NPV @ 10% A$234.2 million (ZAR 1,499million) $1AUD=ZAR6.4, and IRR (post tax) of 25%;
    • 120.8 million tonnes of saleable product;
    • Very low waste/coal strip ratio at Smitspan and top coal within 28 vertical meters of the surface; and
    • Additional reserves underneath the Swanepoelpan and Duikerfontein farms not yet valued.
  • Drilling program (12 boreholes) on Smitspan completed;
  • 5 boreholes drilled on Vetleegte and 2 boreholes drilled on Massenberg;
  • The marketing activities of the Waterberg Colliery product are in progress and ongoing;
  • The Mining Rights Application was lodged and accepted by the Dept of Mineral Resources (DMR) in early July 2010; and
  • The laboratory analysis results are being received and modeled.

Operational developments

Exploration

The drilling programme was completed on the Smitspan farm, a total of 12 boreholes were drilled, and all holes were logged and sampled and sent to laboratories for analysis. As at 30 June 2010, results for 3 PQ (85mm diameter) boreholes and six large (153mm diameter) boreholes were expected from the laboratories. The results of these boreholes were key for the following reasons:

  • Completion of the BFS;
  • Update of the Resource Statement; and
  • Compilation of the customer bulk sample.

Drilling was also completed on Vetleegte (5 boreholes) and Massenberg (2 boreholes). One hole had no coal intersection but on the remainder, zones 1, 2 and 3 were intersected at expected thicknesses with generally less than 30 metres of overburden cover. These coal zones have been sampled and results are due shortly from the laboratory.

The Vetleegte area has been identified as a potential low volume producer of high grade, low phosphorous coal suitable for use in the local metallurgical market. The laboratory analysis results are being received and the results are being modelled within a geological data base as the key input into the mine planning effort. It is expected that the geological data modelling will be completed during the third quarter of 2010.

Marketing

During the quarter ended 30 June 2010 the Company’s coal marketing and fuel activities focused on key factors such as the reliability and consistency of potential coal supply quantity, quality, price, coal supply contract terms, and transportation options:

  • Commercial and technical negotiations with potential off-takers continued. It is hoped that an off-take agreement subject to conditions precedent relating to the compliances to all Acts and mining regulations can be finalised in due course. Management will report on progress achieved during the Q3 of 2010.
  • The intention is to secure long term agreements, with the first expected delivery of coal toward the end of 2011.
  • The Company continued to engage metallurgical industry players and they have shown interest on our low phosphorus coal. The low phosphorus market has a potential of both supplying coal to their furnaces and also construction of beneficiation plants at mine-mouth to improve supply to this under-serviced market. The Company has agreed to prepare and submit samples of low phosphorus coal as per their request.
  • Discussions are ongoing with infrastructure providers to ensure access for initial anticipated coal production in mid to late 2011. Transnet Freight Rail (TFR) has completed a draft pre-feasibility study of the rail connection from Waterberg to Witbank that is likely to further improve the supply of both power station and premium coal to the Witbank market. The Company has a mutually beneficial relationship with TFR where regular updates occur on the status of both the coal mine development and the rail line upgrade programme.
  • The current capacity of 91mt in Richards Bay Coal Terminus (RBCT) is not fully utilized leaving a huge appetite for leasing by current RBCT users.
Mining Rights Application

The application for Mining Rights for the Waterberg Colliery submitted by the Company’s Black Economic Empowerment partner was accepted by the Department of Minerals and Energy (DME) in July 2010. The Mine Works Program has been recommended by the DME and work continues on the Social and Labour Plan and completion of an Environmental Impact Assessment.

The consultation process continues to ensure that all parties are involved, including local communities, farmers and authorities. Final approval of the Mining Right is contingent on acceptance of a Mine Works Programme, Environmental Impact Assessment (EIA)/Environment Management Plan (EMP), Social and Labour Plan.

Feasibility Studies

The initial draft of the Definitive Feasibility Study (DFS) was completed during the June quarter 2010. Management is in the process of reviewing the draft DFS with a view to further develop cost estimates and sensitivity analyses for the project as the basis for detailed engineering and project financing.

Corporate

Cornerstone Investor

A number of potential cornerstone investors accessed the Company’s data room and the process of identifying long term investors for the project is ongoing. The Company will update investors at the end of the third quarter 2010.

Expenditure

During the June quarter A$1.3mln was spent on exploration activities and A$300k was expended on administration costs by the Company.

Directors

Mr. John Wallington stepped down as Managing Director on 14 June 2010, he remains a Non-Executive Director of the Company and he is still actively involved in driving the BFS process through to completion.

Outlook

The evaluation of the Waterberg Coal Project will continue with a view to receiving necessary regulatory approvals. Negotiations with potential developers, financiers and off-take parties will be progressed as the final Feasibility Study is advanced.

For further information see Appendix 5B – Mining exploration entity quarterly report (PDF - 162KB)

For further information please contact:

Mr. John Dreyer
Chairman

Mr. Jerry Monzu
Company Secretary

Tel: +61 8 9381 2755
Fax: +61 8 9381 4799

Competent Persons Statement

Information in this announcement that relates to exploration results, coal resources or reserves on the properties Smitspan 306LQ, Hooikraal 315LQ, Minnasvlakte 258LQ and Massenburg 305LQ is based on information reviewed by Mr James Andrew Johnson who is employed by Sekoko Resources (Pty) Ltd and is a fellow member of The South African Institute of Mining and Metallurgy. Mr Johnson 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” (The JORC Code). Mr Johnson consents to the inclusion in the announcement of the matters based on his information in the form and context in which it appears.

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