Coal news and updates

Exxaro to increase higher-margin coal exports

Diversified miner Exxaro is set to ramp up higher-value coal exports from its Grootegeluk mine after amending its agreement with Eskom over Grootegeluk’s supply to the delayed Medupi power station.

Almost all Exxaro’s coal is currently sold to Eskom on contract but it is keen to increase coal exports, at better margins. One of the constraints has been limited access to the Richards Bay Coal Terminal (RBCT).

Exxaro has tackled that issue with the $472m acquisition three weeks ago of the Total Coal mines around Witbank, which included a 4.1-million-tonnes-a-year allocation to export coal through RBCT. Exxaro’s capacity to export through RBCT is now 10.3-million tonnes a year, assuming the port was able to export at its full capacity of 91-million tonnes a year. Transnet Freight Rail’s current annualised coal railings to RBCT are only about 65-million tonnes.

Exxaro has committed R10.2bn to the Grootegeluk Medupi Expansion Project to supply Medupi, Eskom’s newest power station, which is at least three years behind schedule. The first unit is due to come on line only by the end of this year.

Though Medupi has started to take delivery of coal from Grootegeluk, it is taking far less than originally agreed.

Exxaro chief financial officer Wim de Klerk said at a presentation on the group’s interim results on Thursday that the agreement with Eskom meant the utility would only take 3.1-million tonnes of the originally contracted 6.2-million tonnes of coal to be delivered this year. Exxaro would be paid its fixed costs (but not its variable costs), plus a profit margin for the other 3.1-million tonnes, which it will not produce.

Eskom will pay over several years for a total nondelivered tonnage of about 15-million tonnes. Not producing Eskom coal will free Grootegeluk’s capacity to produce coal for export.

Though rail capacity from the Waterberg to export markets is restricted, Mr de Klerk said Transnet Freight Rail had significantly increased the number of trains from Grootegeluk this year. The transport parastatal has also committed to expanding capacity on the current line to 23-million tonnes a year, and in the longer term to replace the line with a heavy-haul line capable of carrying 60-million tonnes a year.

The distance from the Waterberg to Richards Bay is far longer than from Witbank and Transnet’s tariff will be crucial. Asked about the costs, Exxaro executive head of coal Mxolisi Mgojo said: “Leave that up to us. We will not do these exports in an uneconomical manner.”

In the six months to June Exxaro reported R5.7bn of impairments, mostly on its Mayoko iron ore project in the Republic of Congo. Diluted headline earnings, excluding one-off items, rose 11% to 790c a share.

Exxaro abandoned Mayoko because it failed to secure a commercial agreement on rail and port from the Congolese government and studies showed grades from the mine would be lower than expected.

Exxaro CEO Sipho Nkosi said the group had set aside R300m for Mayoko to discharge its commitments to employees, contractors and the community.

Exxaro’s permit for Mayoko had been extended by 24 months and that would allow the group to continue looking at ways to make the project viable.

Stanlib head of resources Sholto Dolamo said Exxaro’s diversification strategy remained unclear and still posed risks from the perspective of shareholder returns in the longer term.

Source: BD Live