South Africa’s FirstRand Bank is set to finance 65% of the Kangala thermal coal project sponsored by Universal Coal.

Subject to final approvals, FirstRand’s investment banking arm, Rand Merchant Bank (RMB), will provide a R270mn (US$32.7mn) 6.5-year loan for the project, with the first drawdown scheduled in early 2013.

Universal initially expected Kangala to be funded on a 50% debt and 50% equity basis. After concluding a project finance tender process involving seven banks and finance institutions, the company chose RMB for its “inclusive” proposal for a long-term partnership to fund not only Kangala, but other projects in the future.

Located 65 km east of Johannesburg, the Kangala project consists of three properties and contains thermal coal suitable for the domestic market. A coal supply agreement has been signed with South African power utility, Eskom, with execution expected in mid 2012.

RMB’s head of resource finance, Henk Deist, says: “The strength of the offtake contract with Eskom has enabled the bank to put forward a finance proposition we believe is competitive and will assist Universal put this project into production expeditiously.”

Universal’s head of commercial and corporate affairs Anthony Ward adds: “As we transition from an explorer and developer of coal projects to a producer, having a pro-active bank working with us at multiple levels is important, and we look forward to a long-term relationship with RMB.”

Mine development at Kangala will start in the second half of 2012 and Universal expects to deliver the first saleable coal during the second half of 2013.