Resources group faces 12-month wait for recapitalisation of Khutala Colliery

Kendal contract ends in 2033

RESOURCES group South32 hopes to hear from Eskom within the next 12 months about the recapitalisation and investment in the extension of its Khutala colliery that supplies the power utility’s Kendal power station, president and chief operating officer of the company’s Africa region Mike Fraser said yesterday.

Speaking on the sidelines of the Mining Indaba in Cape Town, Fraser said the cost-plus mine needed further investment to meet the volumes required. “We have been working with Eskom. They are funding the study cost for that project. We have been able to reduce costs out of that operation significantly. In our view, that still represents the cheapest source of coal for Kendal power station,” Fraser said.

South32’s contract to supply coal to Kendal ends in 2033.

“As we understand it, Kendal is going to be in the fleet for some significant time, even way beyond the 2033 contract. We have a very good working relationship with Eskom. We would like to think that, in the next 12 months, we will be able to get word from Eskom on the capitalisation and investment into the life expectancy of the project. At this stage we believe that things are going reasonably well,” he said.

Fraser said South32 intended to mine coal from the extended areas by 2021.

He said the company had reduced the costs at Khutala. “If you think about it, in a cost-plus operation there is a perverse incentive that, if you take out costs, you reduce your margins. But we know that is absolutely the right thing to do,” Fraser said.

Commenting on the company’s Klipspruit colliery, also in Mpumalanga, Fraser said the company would take its plans to extend the colliery to the board for a decision later this year. The colliery supplies the export market, as well as Eskom’s Duvha power station.

“We want to put new coal out of that extension by 2019. By that time we will be running out of coal in our existing mine. What we want to do is to continue to apply capital into that operator so that we can maintain our volumes to meet our commitments on the Duvha contract and the takeor-pay contract with Transnet for the export volumes. That is why we need to maintain the volumes profile,” he said.

Transformation Fraser added his voice to the wider issues affecting mining in South Africa.

He said the focus on radical economic transformation was not fully understood. “In South Africa we must be clear about how we deal with aspirations about economic transformation. We know that dialogue is happening, yet we do not have a common narrative about how we are going to get that done. That will scare many investors. Let us get the narrative absolutely clear,” he said. It did not help the various parties to criticise each other in public, Fraser said.