Exxaro allows BEE holding to fall
EXXARO may allow its black empowerment shareholding to fall below 50%, even though this will mean it will not meet Eskom’s requirements for new coal supply contracts.
EXXARO may allow its black economic empowerment (BEE) shareholding to fall below 50%, even though this will mean it will not meet Eskom’s requirements for new coal supply contracts.
The company said on Tuesday in a market update that it wanted to balance its requirements for a replacement empowerment deal with the cost to its minority shareholders. Empowerment group Main Street 333 holds 52% of Exxaro through a geared structure that expires in November.
“The replacement transaction needs to balance our requirement for continuous BEE shareholding and cost of implementation to minority shareholders. As a result, Exxaro is exploring various alternatives for the replacement transaction, including potentially implementing a transaction that will be less than 50% BEE,” Exxaro said.
Exxaro is Eskom’s biggest supplier of coal at present, but it wants to diversify its markets.
Meanwhile, arbitration between Eskom and Exxaro over responsibility for the closure costs of Arnot coal mine was set down for early 2017, Exxaro executives said on a conference call, also on Tuesday.
Arnot is a tied mine that used to supply Arnot power station. Eskom owns the resource, and Exxaro was paid to mine it. It closed in December when Eskom refused to renew the supply agreement. Arnot’s costs had climbed because Eskom refused to invest more capital in developing the resource.
Separately, it has emerged that Eskom is paying the Guptaowned Optimum mine to supply Arnot on a short-term contract at a higher price than Optimum is paid to supply the nearby Hendrina mine, but at less than Eskom was paying Exxaro for coal from Arnot.
In a market update ahead of Exxaro’s June interim report, departing finance director Wim de Klerk said a joint committee had been formed with Eskom over Arnot. The retrenchment of 1,800 employees was being negotiated, and the two parties were discussing the costs of closing and rehabilitating the mine.
Exxaro executive head of coal, Nombasa Tsengwa, said Eskom had accepted responsibility for retrenchment costs. It understood the mine closure costs and timing, but there were still areas of disagreement.
Exxaro and Eskom are discussing a 10th addendum to the contract which will apply in 2017-18 to supply Medupi power station with coal from Grootegeluk mine. Exxaro invested heavily to expand Grootegeluk to supply Medupi, but the power station is several years behind schedule, so it requires less coal than Eskom anticipated.
De Klerk said the discussions on amendment 10 were about reducing Eskom’s take or pay obligation, either through stockpiling up to 4-million tonnes of coal on Exxaro’s site, or railing it to other Eskom power stations in Mpumalanga.
Coal railed for Eskom would not diminish Exxaro’s ability to export coal from Grootegeluk for other customers. Exxaro is also waiting for an agreed payment of R1.8bn from Eskom to develop Mine One at Matla.
De Klerk said Exxaro’s current financial year was expected to be stronger than last year because of stable domestic markets, the inclusion of Exxaro Coal Central (the former Total Coal assets), and because increased sales from Grootegeluk and Matla mines would offset the loss of sales from Arnot and Inyanda.