Resgen’s R4.2bn Boikarabelo coal project on the rocks as IDC pulls financial support

THE Industrial Development Corporation (IDC), a state-owned finance development institution, has pulled its support for Resource Generation’s (Resgen’s) R4.2bn Boikarabelo thermal coal mine project planned for South Africa’s Limpopo province.

Resgen said in an announcement to the JSE today that following a meeting of its special credit committee, the IDC had declined to extend an agreement to invest in the project, and had cancelled “… all previously approved facilities under the Mine Funding Package”.

“[M]arket conditions under which the Boikarabelo Coal Project would operate have deteriorated materially,” said Resgen citing reasons provided by the IDC for its withdrawal from the project.

Boikarabelo is expected to produce 6.5 million tons a year (Mt/y) of thermal coal with a second phase of 18Mt/y in the offing, pending development of rail infrastructure.

The development is a hammer blow for Resgen which has been working on Boikarabelo’s development for at least ten years. Without the IDC, the remaining investors are the Public Investment Corporation (PIC), the government-owned asset manager, and Noble Group, a trading company based in Singapore.

A funding agreement consisting of senior and mezzanine debt as well as equity investments was signed between the parties and Resgen in December.

The structure was for R2.34bn in senior debt of which the PIC and the IDC were to provide R950m and R540m respectively. Noble Resources was to provide the balancing R850m as well as a further R750m as part of its commitment to R1.63bn in mezzanine debt. The PIC and IDC were to provide R550m and R360m respectively in the mezzanine loan funding.

In terms of equity loans, the PIC and the IDC were to provide R100m each with Noble Resources providing R30m.

The IDC said on Monday that it was tightening its investment criteria in its current financial year after recording heavy losses for the 2020 financial year.

It reported a R3.8bn loss for the 2020 financial year partly owing to losses incurred by Foskor, a phosphate producer. The IDC said it was seeking a strategic partner for Foskor to limit its downside risk. It also cited the loss of dividend flow from Sasol and said that impairments had been high whilst the value of its investments in companies such as Kumba Iron Ore had been volatile.

Tshokolo Nchocho, CEO of the IDC, said the organisation would be measured in its investment approach in respect of its role in South African president, Cyril Ramaphosa’s proposed economic development plan. “We have given a lot of thought to our role in the economic development plan,” he said in response to a question. “The answer is that our investment choices will be made on a strong financial and development basis.”

The Boikarabelo is situated in the Waterberg coal fields which is estimated to contain about 40% of South Africa’s total thermal coal. It is also an element of the government-backed National Development Plan in terms of unlocking the Northern Mineral Belt.

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