The Perth-based company said the total in situ, JORC-compliant, indicated and inferred resources of 2.9 billion tonnes would result in about 1.12Bt of saleable coal after washing.

The explorer noted that Waterberg coal typically occurs interlaminated with shale that for the most part cannot be mined separately from the coal.

Firestone said the resource was contained within a maximum of 130m from the surface, allowing for an open pit operation.

This recent upgrade excludes the 629 million tonnes of in situ coal resources from the company’s Vetleegte property, announced last month.

The addition of the four farms to its portfolio has not only boosted resources, but has led to Firestone negotiating changes with its joint venture partner, Sekoko Resources subsidiary Sekoko Coal, for the Waterberg project.

“The resource upgrade for the four farms that comprise the second agreement is the result of a change to the method in which the tonnage of coal in each zone is estimated. Applying a discount yield factor to the tonnage, rather than the volume of coal and shale in each zone, results in an increase in the resource estimate by around 12 per cent,” Firestone chief executive Garth Higgo said.

“As a consequence and in fairness to our joint venture partner, it was necessary to renegotiate the principal commercial terms of the second agreement.”

New JV conditions

Under the revised agreement, Firestone’s wholly owned South African subsidiary, Lexshell, will establish a joint venture with Sekoko.

Through the subsidiary, Firestone will earn an initial 30% interest in the properties of the project for a cash payment of 13.5 million rand ($A2.13 million), the issue of R293 million of Firestone shares at 5c per share, and another R19.49 million ($A3.08 million) to reimburse Sekoko for exploration expenditure.

Once the bankable feasibility study is complete and a decision to mine is made, Sekoko will also receive a management fee of R50 million ($A7.9 million) to be made over a seven-year period from the start of commercial production.

Firestone can earn an extra 30% interest by spending R50 million on successfully completing the BFS to lead to mining.

Project development

Sekoko expects to receive a government mining approval by mid-August, while Firestone said the JV would plan to start a small-scale operation at the end of the year, targeting 30,000 tonnes per month of thermal coal production for potential sale to domestic utility Eskom.

Firestone said Sekoko had also approached the Development Bank of South Africa for R100 million to fund the small-scale mining operation, noting the “loan approval process is at an advanced stage”

Higgo said he was excited with the progress.

“The planned small-scale mining operation will provide the joint venture partners with a starter pit for the large-scale mining operation we plan to commence in 2011, capable of producing a minimum of 18 million tonnes of saleable coal,” he said.

“As well as providing us with an early revenue stream, the works and activities associated with the starter pit will help fast-track, and provide greater confidence in, the BFS.”

Firestone shares are up 2.8% this morning to A3.7c.