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FSE
FSE
FSE - Firestone Energy Limited - Quarterly activities report for the
period to 30 September 2011
FIRESTONE ENERGY LIMITED
(Incorporated in Australia)
(Registration number ABN 058 436 794)
Share code on the JSE Limited: FSE
Share code on the ASX: FSE
ISIN: AU000000FSE6
(SA company registration number 2008/023973/10)
("FSE" or "the Company")
QUARTERLY ACTIVITIES REPORT FOR THE PERIOD TO 30 SEPTEMBER 2011
The Board of Firestone Energy Limited (ASX/JSE: FSE) ("Firestone" or the
"Company") is pleased to provide shareholders with its Quarterly
Activities Report for the 3 month period ended 30 September 2011.
HIGHLIGHTS
* Appointment of the Chief Executive Officer (CEO) to be dedicated to
the project in South Africa
* Mining Right approval and execution by DMR giving the project 30
year licence to mine four properties, being Smitspan, Minnasvlakte,
Hooikraal and Massenberg
* Firestone agrees to re-negotiate the MOU with Eskom in order to
secure increased tonnages and an extended supply period
* Exclusivity agreement signed with major, multinational listed
mining and power company to carry out due diligence on the project
* Linc Energy acquires a strategic equity stake in Firestone
OVERVIEW
This quarter has been significant primarily because of the occurrence of
four major events:
* appointment of David Knox as CEO of Firestone;
* approval of the mining rights and execution of the mining right
licence by DMR in respect of four (of the seven) project
properties, being Smitspan, Minnasvlakte, Hooikraal and Massenberg;
* agreement to renegotiate the Eskom MOU; and,
* awarding of an exclusive due diligence period to a major,
multinational listed mining and power company with a view to such
company providing Firestone with a development proposal.
The appointment of the CEO has been a primary focus for the directors
for most of the year. Given the early stage of development of our
Smitspan project, and the particular requirements of our joint venture,
the Company has not found it easy to attract the right resources. The
Board considers that David Knox has the right mixture of talents
required at this time and is pleased to report that he has settled into
South Africa and has assumed day-to-day responsibility for the Company.
The approval of the mining right application and the execution of the
mining right licence in August 2011 were significant steps for the
project, despite being later than anticipated.
While each of the renegotiation of the Eskom MOU and the awarding of the
due diligence period to a major, multinational listed mining and power
company have been previously announced, neither matter has progressed to
a level which has allowed the Company to provide further information.
Your directors consider the renegotiation of the Eskom offtake MOU to be
attractive and potentially beneficial to Firestone because it may lead
to increased tonnages and an extended supply period - two factors which
heavily impact upon the economics of the project. In addition,
directors consider that the parameters now being discussed with Eskom
will provide a much stronger and more rewarding long-term relationship
with Eskom.
Similarly, the awarding of a due diligence period to a major,
multinational listed mining and power company with the intention that at
the end of that period that company will present a firm development
proposal to Firestone, provides an exciting prospect. However, the
quality of any such proposal will not be known until sometime following
the end of the due diligence period which is towards the middle of
November.
The combined effect of these two significant events has meant that
development work which might otherwise have been pursued following the
approval of the mining right application and the execution of the mining
right licence in August, has not taken place. Each of the negotiations
includes the possibility of producing an operating environment
significantly different to that incorporated in the assumptions
underpinning the current mine plan. Progressing development on the
basis of the current mine plan could have resulted in wasted effort and
expense in the event that the Board is able to achieve a desired outcome
in relation to one or both of the negotiations. As a consequence, the
Company is no longer intending to produce coal in the first quarter of
2012. Further market updates will be announced in due course.
REGULATORY APPROVALS
The mining right approved on the 3rd of August 2011 was signed by the
Minister and registered at the end of August 2011. However, the
Minister signed the mining right licence with respect to four (of the
seven) properties only, being Smitspan, Hooikraal, Massenberg and
Minnasvlakte. This is a correction to the announcements made by the
Company in relation to this matter. At that time it was thought that
the mining right licence applied to all properties which had been
included in the mining right application. In its final analysis, the
DMR decided to award and execute the mining right with respect to only
those (four) properties which house the current project. These mining
rights will be transferred to the designated joint venture company by
way of a new section 11 application which is expected to be submitted
during the December 2011 quarter.
The other properties, being Duikerfontein, Olieboomfontein and
Swanepoelpan, continue to be subject to prospecting rights. An
application can be made for conversion of those prospecting rights to a
mining right at a time when a specific project is identified for those
properties and the relevant environmental impact and other assessments
are undertaken. The prospecting rights which relate to these properties
will also be transferred to the relevant joint venture company by way of
a new section 11 application which is expected to be submitted during
the December 2011 quarter.
The prospecting right of Vetleegte, the property containing shallow
resources of metallurgical coal, is a separate prospecting right
relating only to that property. It is intended that this prospecting
right be transferred to the relevant joint venture company by way of a
new Section 11 application which is expected to be submitted during the
December 2011 quarter.
LOGISTICS
The Company has continued its discussions with Transnet Freight Rail on
tonnages, tariff structure including take or pay fees, the requirement
for Public Private Participation (PPP) and implementation dates. These
discussions are being conducted on a cooperative basis. As yet no
agreements have been entered into.
FUNDING
During the quarter the Company completed the Share Purchase Plan
commenced in the previous quarter in relation to its South African
shareholders, raising approximately $240,000 before costs. In addition,
the Company raised A$1.8m by way of a placement of approximately 150
million shares at A$0.012 per share, under the Company`s 15% issue
capacity, to ASX listed global energy company Linc Energy Limited
(ASX:LNC). Following the placement, Linc Energy holds approximately
9.6% of Firestone`s issued capital.
The funds have been allocated towards Firestone`s general working
capital requirements for the development of the Smitspan project.
PUBLIC INVESTMENT CORPORATION (PIC)
During the quarter PIC issued a draft non-binding project finance terms
sheet and commenced due diligence on the project to develop a mine on
the Smitspan farm. In view of the material changes which may arise from
the current negotiations referred to above, this project finance
facility will not be advanced until the outcome of those negotiations is
known.
PROJECT FUNDING
As at 30 September 2011 the A$25m convertible note facility was almost
completely drawn down, with only A$300k of the facility remaining.
MARKETING
Eskom MOU
As noted above the Company agreed with Eskom this quarter to renegotiate
its MOU in order to seek improved tonnages and to extend the supply
period. The Board and Eskom`s designated project team are working to
finalise a revised MOU, during Q4, 2011.
In addition it is anticipated that successful negotiation of the
arrangements referred to above with a major, multinational listed mining
and power company will incorporate an offtake agreement.
CORNERSTONE INVESTOR
The joint venture with Sekoko Resources (Pty) Ltd has granted an
exclusive period with a major, multinational listed mining and power
company to conduct due diligence on the project. As stated above, it is
intended the company will present a firm development proposal to
Firestone at the end of its due diligence process and further
announcements will be made in due course.
CORPORATE
The Board appointed Mr David Knox as its Chief Executive Officer
effective 20 September 2011. Mr Knox will be located in Johannesburg
working alongside the joint venture partner, Sekoko Resources, and will
be responsible for Firestone`s overall operations. Mr Knox has extensive
experience in project development, financing and banking and has had
particular high-level experience in Africa in the energy and resources
sectors. The appointment considerably strengthens the Board`s knowledge
in the areas of public administration and the development of its coal
resources in South Africa.
Changes in the Board include the appointment of Morore Benjamin (Ben)
Mphahlele as non-executive director to replace Mr Peter Tshisevhe who
resigned in June 2011. Mr Kobus Terblanche has also been appointed as
non- executive director to the Board as a nominee of Linc Energy. Mr
Sizwe Nkosi has terminated his executive role with the joint venture and
Firestone to take up another senior executive role. Mr Nkosi has
agreed to continue as a non-executive director for the immediate future.
OUTLOOK
The immediate outlook for the Company is to focus upon successfully
concluding the renegotiation of its Eskom MOU and the achievement of a
satisfactory outcome with the proposed cornerstone investor. In advance
of those decisions, the Company is focusing on keeping costs to a
minimum while at the same time advancing the regulatory and structural
issues which are referred to above and which remain outstanding.
Firestone Energy Limited
David Perkins
Chairman
www.firestoneenergy.com.au
About Sekoko Resources
Sekoko Resources (Pty) Ltd is a South African-based black-owned energy
and minerals company developing the coal, magnetite iron ore and PGMs
Projects in the Limpopo Province of South Africa. This includes a
significant exploration program and development of the Waterberg Coal
Joint Venture Project based on significant Coal Zone Resources. Sekoko
is targeting to commence operations in 2012, thus forming the basis for
developing a global coal business.
About Firestone Energy
Firestone Energy Limited is an independent, Australian exploration and
development company listed on the Australian Stock Exchange Ltd (ASX)
and the Johannesburg Stock Exchange (JSE). Firestone Energy has entered
into a Joint Venture with Sekoko Resources (Pty) Ltd through which
Firestone Energy has acquired the right to 60% participation interests
in the Waterberg Coal Project located in Lephalale area, Limpopo
Province, South Africa.
The first stage of the project is to develop the Smitspan mine which has
a substantial measured thermal coal resource and to develop the
Vetleegte mine which is a substantial metallurgical coal deposit.
Firestone Energy is committed to becoming a profitable independent coal
and energy producer at its projects in South Africa, thereby making a
substantial contribution to the social and economic development of the
Lephalale area and South Africa.
Corporate Details
ASX: FSE
JSE: FSE
Issued Capital:
2,959 million ordinary shares
Major Shareholders:
Sekoko Resources (Pty) Ltd
Linc Energy Ltd
BBY Nominees Pty Ltd
Bell Potter Nominees Ltd
Directors and Officers
Non Executive Directors:
David Perkins (Chairman)
Dr Pius Kasolo
Colin McIntyre
Ben Mphahlele
Kobus Terblanche
Sizwe Nkosi
Company Secretary:
Jerry Monzu
Contact:
Suite B9, 431 Roberts Road
Subiaco, Western Australia 6008
Tel: +61 (08) 9287 4600
Pretoria
31 October 2011
Sponsor
River Group
Date: 31/10/2011 11:22:36 Produced by the JSE SENS Department.
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