Eskom must pay for mine – Exxaro

LISTED diversified mining company Exxaro has demanded that Eskom pay for the operations and closure of Arnot mine in Mpumalanga.

Arnot mine supplied coal to Eskom’s Arnot Power Station in Rietkuil for 40 years, but the contract came to an end in December when the power utility said it was seeking coal bids for its 2 100MW plant and notified Exxaro that it would not automatically renew it.

Yesterday Exxaro broke its silence on the stand-off, charging that the mine still had approximately 70 million tons of coal.

“Arnot mine was developed as a tied mine… Therefore, in terms of the coal supply agreement, Eskom is required to provide the capital to fund sustaining and expansion expenditure to the mine,” Exxaro said.

“This includes making available sufficient reserves to ensure the supply of coal for the life of the power station.

“Further, the coal supply agreement holds that upon termination of the agreement Eskom should pay all costs associated with closure of the mine and making good the deficit in the rehabilitation trust fund.”

Exxaro said should Eskom proceed with the closure, the utility would also be obliged to cover the retrenchment costs.

Exxaro chief executive-designate Mxolisi Mgojo said: “To us it is clear. That is how cost plus works. It is their property.”

Mgojo said Exxaro was only a mining rights holder at Arnot and Eskom owned the mine’s assets. He said the company had previously shared compre- hensive plans with Eskom.

“Of course we will send them a letter with a graph, because they have the information,” Mgojo said.

But Eskom group executive for generation Matshela Koko said Exxaro had the option to continue with the mine without an Eskom contract, a move that would save jobs.

Koko said Eskom’s finances were under pressure and the utility had been reviewing its contracts in order to contain its primary energy costs. “We will retain those that make financial sense and disinvest in those that no longer give value to Eskom,” Koko said.

“Exxaro’s revised coal-supply agreement contract that was submitted to Eskom in February 2016 promises to halve the costs per ton for Eskom, but lacks substance and commitment on their part. Eskom has responded to this proposal and awaits a more substantive proposal from Exxaro.

“It is, therefore, not in Eskom’s interest to make a multibillion-rand decision based on a graph in a letter that excludes detail on capex (capital expenditure) costs and a proper life of mine plan.”

Meanwhile outgoing Exxaro chief executive Sipho Nkosi said the company would consider buying Kumba Iron Ore after Anglo American’s decision to sell non-core business as it battled a commodity plunge.

“The announcement came out last week. We are busy with results. We have not engaged with Anglo. It is true that we have a relationship with Anglo. If they are exiting Kumba, we need to sit down with them.”

Exxaro shares on the JSE yesterday closed 2.63 percent higher at R73.04 a share. She said de-stocking was also evident, with stocks of purchases recording a marginal acceleration in contraction.

“Notably, despite the weak currency, new export orders also swung into contractionary territory in February.”

She said: “Inflationary pressures may start to erode some of South Africa’s competitive advantage; the rise in input prices, particularly purchase prices, attributed to the exchange rate and staff costs, resulted in companies increasing their selling price by one of the fastest rates recorded over the past two years.”

The PMI followed weaker demand and as companies scaled back their buying activity during the month.

However, the pace of decline was only marginal overall. Consequently, pre-production inventory holdings also fell.

It said companies signalled ongoing space capacity in February, as highlighted by the sharpest reduction in business outstanding in eight months.

Nevertheless, companies added to their payrolls for the first time since August. The rate of job creation was marginal, however.

Standard Bank said exchange rate factors and higher prices for certain raw materials had led to sharply rising input costs in February.