Coal pro­duc­ers turn away from Eskom

THE PROB­LEM IS THAT NEW BLACK ECO­NOMIC EM­POW­ER­MENT LAWS, WHICH DE­MAND 50% PLUS ONE SHARE EM­POW­ER­MENT FOR NEW PROJECTS AND SUP­PLIES OF COAL, JUST MAKE EX­PAN­SION UN­WORK­ABLE FOR MIN­ING FIRMS.

Finweek English Edition - - INSIDE - BY DAVID MCKAY

Sup­ply­ing coal to Eskom ought to be good busi­ness, but that doesn’t seem to be the view of some of the coun­try’s largest coal pro­duc­ers with BHP Bil­li­ton and An­glo Amer­i­can quit­ting the sec­tor.

A t hird coal pro­ducer, Exxaro Re­sources, has made it plain that it doesn’t want any more ex­po­sure to Eskom, adding that Eskom will have to do all the run­ning if the paras­tatal wants to se­cure the fu­ture of the Arnot col­liery.

The way coal sup­ply to Eskom works is largely dom­i­nated by the so-called ‘cost plus’ mines, which were fi­nanced by Eskom and op­er­ated by the min­ing firms on the ba­sis of a fixed mar­gin.

An­glo Amer­i­can an­nounced i n Fe­bru­ary that it wanted to exit all its cost plus Eskom mines, in­clud­ing a yetun­built project – New Largo – while BHP Bil­li­ton has al­ready an­nounced plans to de­merge its South African coal as­sets into South32, a com­pany that will be listed in Perth, Lon­don and Jo­han­nes­burg. Asked if Exxaro might be an in­ter­ested bid­der for t he coal mines An­glo Amer­i­can wants to sell, Mx­olisi Mgojo, head of Exxaro’s coal busi­ness, said noth­ing could be fur­ther from the truth.

“The ques­tion is, strate­gi­cally, would I want to put all my eggs in one bas­ket?” said Mgojo. “His­tor­i­cally, we said that when we want to in­vest in coal, it is for ex­ports, or to grow the Water­berg [busi­ness], and to in­crease our in­ter­na­tional foot­print or build our ex­ist­ing prod­ucts,” he said. “None of those four points talks to in­creas­ing ex­po­sure to Eskom.”

There also ap­peared to be some ret­i­cence to breathe new life into Arnot, a cost plus mine that sup­plies Eskom and which is head­ing to­wards the end of its mine life. Said Mgojo: “Eskom has got to make land and cap­i­tal avail­able to de­velop Arnot out fur­ther as a cost plus mine.

“They will have to make a de­ci­sion on the cost of min­ing and whether it’s worth con­tin­u­ing (with a 4mtpy [mil­lion tons per year] con­tract). They may pump other mines harder in­stead. Arnot tech­ni­cally has a life to 2023. They will have to make calls on de­vel­op­ing it.”

The prob­lem is that new black eco­nomic em­pow­er­ment laws , which de­mand 50% plus one share em­pow­er­ment for new projects and sup­plies of coal, just make ex­pan­sion un­work­able for min­ing com­pa­nies. For An­glo Amer­i­can, it makes a solid an­nu­ity busi­ness ex-growth in a heart­beat.

Un­less, of course, you’re Glen­core. One of the rea­sons Glen­core is ne­go­ti­at­ing hard on a take-or-pay agree­ment (see box) with Transnet is be­cause it stops Glen­core di­vert­ing un­prof­itable ex­port coal to Eskom. “We don’t want to be in a sit­u­a­tion as in Australia in which we sign ‘take-or-pays’ and then find we have a bet­ter out­let in the lo­cal mar­ket, but we can’t ac­cess it as we have to pay $15/t [in penal­ties],” said Ivan Glasen­berg, CEO of Glen­core.

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.