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Kendal Coal Mine, Witbank, South Africa

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Key Data

Full specifications

Producer Of CoalLocation 100km east of JohannesburgOwnership Homeland Mining & Energy SA (Pty) and GMR

Group (74%), and BEE partners (26%)Geology Type Permian to Jurassic coal measures of the

Witbank coalfieldMineral Type Multiple shale/sandstone interbedded seamsReserve Base Total measured, indicated and inferred

resources of 34.6MtAnnual Production About 1.8Mt (RoM)

Homeland Mining & Energy SA (Pty) Ltd, a subsidiary of Canadian mining companyHomeland Energy Group Ltd, received the mining licence for its Kendal opencast coalmine in Witbank from the South Africa Department of Minerals and Energy in March2008. Witbank is about 100km east of Johannesburg and the mine is 6km west of thetown of Ogies, in the Mpumalanga province, and about 2km north-east of state utilityEskoms Kendal Power Plant.

Homeland continued building the mine infrastructure throughout the applicationprocess, and in March 2008 awarded the mining contract to Moolman Mining andEnergy SA (Pty), an operating group within The Aveng Group. Production began inJuly 2008, following commissioning of the on-site crushing and screening plants andthe wash plant. The anticipated mine life at Kendal is more than 12 years.

Investment

Homeland Energy owns 74%of the Kendal project, withthe remaining 26% owned bytwo local Black EconomicEmpowerment partners local entrepreneurs whoheld the prospectinglicences for the Kendalproperty who will be paidback out of dividends fromthe producing mine. Also, inMay 2008, Homeland Energy

sold an additional 5% stakein its South Africansubsidiary to GMR Group for$15m, bringing the Indiancompany's stake in

Homeland SA and Kendal to 10%.

The total capital cost for Kendal is about $10m to the point of production. At theanticipated rate of production, payback is expected to be about five or six monthsfrom the point of full production. Funding was raised privately through privateequity without using a banking or brokerage partner.

Expand ImageThe Kendal plant will

recycle as much of the

processing water as

possible, after around 40%

of coal is washed beforedelivery.

Expand ImageThe Kendal plant is designed

to handle about 6,000t ofcoal per day.

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the state is the custodian of these resources, proposes to impose a revenue-basedroyalty on South African mining companies, payable to the South African government.Homeland would therefore be liable to pay royalties to the state of 1% or 3%,depending on the coal's ash content from 1 May 2009 if the bill is enacted in itspresent form.

In September 2008 Homeland announced the first formal sales contracts, of about500,000t of thermal coal, for delivery between October 2008 and September 2009,

and priced at about US$88/t.

Geology

The Kendal project lies within the Witbank Coalfield, situated in the Northern KarooBasin, stretching from Springs in the west to Belfast in the east, and Middelburg inthe north to Rietspruit in the south. There are five major coal seams S1 to S5 inthe coalfield, named from the base upwards.

The project itself is in the far west-central region of the coalfield. Here, the pre-Karoo basement consists mainly of dolomites, cherts and quartzites of the MalmaniGroup (Transvaal Supergroup). The period of Dwyka glaciation, coupled with the factthat the glaciated surface is largely a dolomite sequence, resulted in a highlyirregular and undulating basement onto which the Karoo sediments were deposited.

The resultant seam thicknesses and seam distributions are highly influenced by thispalaeotopography, especially the lower seams, S1 and S2.

All five Witbank coal seams are present to a greater orlesser degree within the project area. Not all seams arealways present at any one locality and the distributionof the seams is strongly influenced by the present-dayerosional surface, as well as by the palaeotopography ofthe original surface of accumulation.

The target coal seams are discrete coal seams boundedabove and below by clastic sedimentary rocks. Withinthe seams, however, there are almost always present anumber of intra-seam clastic partings consistingpredominantly of mudstones and minor siltstones.

Production

Total measured, indicated and inferred resources are 34.6Mt.

Kendal is a simple operation in terms of processing. All the coal will be crushed andscreened, generating the run-of-mine product.

About 40% of that coal will also be washed before delivery, offering a higher qualityproduct for the domestic market.

As of October 2008, the mine was ramping up to full production of 150,000t permonth, which is expected to be achieved by the first quarter of 2009. Of this, about30,000tpm will go to Eskom while most of the production will go to South Africanmarkets such as the paper and chemicals industries.

Kendal consists of a single boxcut, with a second boxcut expected to start productionby December 2008 and a third expected to start by the end of 2009.

There are relatively few Homeland Energy employees engaged on the project,although Moolman has 175225 people working there.

Power is su lied from the main ower rid, and there is also a Genset diesel

"The target coalseams arediscrete coalseams boundedabove andbelow by clastic

sedimentaryrocks."

plant will begin as soon as

the commissioning of the

crushing, screening and

washing facilities is

complete.

Expand ImageAround 74% of the Kendal

project is owned by

Homeland Energy Group.

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generator as a back-up. Clean water comes from a large stream that runs through theproperty. The plant is recycling as much of the processing water as possible and aholding tank has been built for returned water from the slurry dump.

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