As the Chairman has stated, 2007 was an excellent year for Bisichi Mining PLC in
South Africa. Our direct mining asset, the Black Wattle Colliery, had its most profitable year ever, supported by strong domestic and international coal markets, as well
by
improved yields and product quality as a result of investments we have made in
our washing plant. We are hoping to commence open cast operations at Black Wattle,
having recently received permission from the Department of Minerals and Energy (DME)
to do so. The DME have recently concluded a compliance audit at the mine, as part
of a nationwide Presidential audit of all operating mines, and Black Wattle received
a favourable rating.
Production
The two conventional sections and the single continuous miner underground section performed well in 2007. Despite minor disruptions to our
power supply, these
had no impact on the mine's overall monthly production or sales contracts. Run of
mine production was 1.33 million tonnes in 2007, an increase of 10.9% over 2006.
We will increase production and yields at the mine once opencast operations commence.
After nearly four years of operation, the continuous miner needs a major overhaul.
We will carry out this work once the open cast section is operating so that any
lost tonnage can be easily replaced.
Markets
2007 witnessed an unprecedented strengthening of the coal market, a trend driven
by growth in global demand, infrastructure constraints within the major coal basins,
a high freight basis, weakening of the US dollar and substantial increases in the
prices for competing fuels. At the beginning of 2007, the average weekly price for
Free-on-Board (FOB) Coal from Richards Bay Coal Terminal (API4) stood at approximately
US$50.00 per tonne. By
the end of 2007, this price had nearly doubled. Obviously,
this trend has had a major impact on the prices Black Wattle receives for both its
steam and low phosphorous metallurgical coal products. On top of the strong price
increases we benefited from in 2007, we have successfully negotiated a 64% increase
in price from Q2 2008 to Q1 2009 for our steam coal, and a 42% increase in price
from Q1 2008 to Q3 2008 for our metallurgical coal. The price increases should enhance
substantially our profitability for the duration of 2008.
Memorandum of Understanding (MOU) with Barclays Capital Commodities Principal Investment
Area (Barclays Capital CPIA)
As the Chairman has stated, the signing of the MOU with Barclays Capital CPIA in
December 2007, for the acquisition and development of coal reserves within the Black
Economic Empowerment (BEE) framework in South Africa, represents a major step forward
for Bisichi. Barclays CPIA was established in 2006 with a mandate to invest in commodity-based
projects and companies worldwide. Barclays CPIA is funded solely by Barclays and
to date has made direct equity investments totalling circa US $650 million in coal
mining, gold mining, oil & gas and biofuels. We expect to announce our first
BEE transaction in partnership with Barclays CPIA in the near future.
Acquisition of Coal Reserves
We have seen a marked increase in the number and quality of coal reserves
that have become available following the implementation of the Mineral and Petroleum
Resources Development Act (MPRDA) of 2004. The team in our Middelburg office is
reviewing a long pipeline of opportunities and, in consequence, we are in the process
of acquiring another drill rig to support our prospecting efforts in the area.
There is nothing further to report concerning the Pegasus Reserve other than that
constructive discussions between all parties concerned are continuing.
Community Support and
Social Development
Black Wattle is committed to improving the living conditions of its employees
and the residents of the local community. We have been actively involved in the
provision of various municipal services to our surrounding community, including
waste removal, road repair, free bus services and emergency water supply assistance.
In support of the creation of sustainable local industry, Black Wattle is establishing
a brickmaking facility on the mine's property which will employ local residents
who will be engaged in the production of bricks and blocks for sale to the local
housing industry. Black Wattle will be providing assistance in the provision of
raw materials including sand, water and electricity and will also be providing the
initial capital equipment required for this facility. We hope that this local industry
will be expanded as the market for bricks and blocks increases and Black Wattle
will assist it with any expansion plans.
Procurement
Black Wattle has implemented a BEE-focussed procurement policy which strongly encourages
our suppliers to establish and maintain strong BEE credentials. We monitor
closely our monthly BEE expenditure and encourage potential BEE suppliers to compete for equipment
and service contracts at Black Wattle. We are also actively engaged
in the sale of our products to BEE enterprises, as is evidenced by our long term sales agreement
with a BEE company for the purchase of our discard product for on-sale
to Eskom.
Employment Equity
Bisichi takes its Employment Equity responsibilities at Black Wattle very
seriously. At present, over 12 percent of the workforce consists of women, including
those serving as artisans and electricians. Black Wattle's Workplace Skills Plan
and Annual Training Report has been approved by the Mining Qualifications Agency.
Skills Training
Black Wattle has constructed a computer-equipped training centre which
is currently carrying out
Adult Basic Education Training (ABET), HIV/AIDS education
and other training activities for the mining workforce. It is Black Wattle's intention
to extend these training activities into the local community as soon as possible.
People
In order to take advantage of the many opportunities becoming available in South
Africa, we are strengthening Bisichi's management team. Robert Grobler, who has
served as General Mine Manager at Black Wattle for over 8 years, has been promoted
to Director of Mining and joins the Bisichi Board of Directors. In addition to overseeing
all of our operations in South Africa, Robert will be leading the expansion of our
presence in the coal sector there. As a result of this promotion, we are currently
interviewing for a replacement mine manager at Black Wattle. We have also recently appointed a Group Finance Manager, who will be based in London.
Prospects
When the opencast mining begins, it will have a dramatic effect on Black Wattle's
mining operations, mining yield and profitability. With historically high prices
being achieved for our products and new
prospects becoming available for acquisition,
I am confident that 2008 will be a successful year for our South African operations.ANDREW HELLER
Managing Director
Bisichi Mining Plc
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