Sipho Nkosi, CEO Exxaro Resources
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» We'll get slightly higher prices for coal to Eskom - Sipho Nkosi, CEO, Exxaro
» Coal to buoy Exxaro in 2008

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Helping Eskom out of a hole
Brendan Ryan
Posted: Thu, 01 May 2008

[miningmx.com] -- EXXARO has offered to supply 13.5 million tonnes of the 45 million tonnes of additional coal Eskom wants to add to its stockpiles over the next two years.

Announcing this in the company's annual report, Exxaro CEO Sipho Nkosi said contracts have already been agreed for the supply of 9.6 million tonnes of that coal to the utility.

It was just one of a number of significant developments for the group's coal business over the past year on both the export and domestic fronts.

Exxaro increased its export allocation through the Richards Bay Coal Terminal to 6.3 million tonnes/year effective from end-2009 and also secured the supply contract for the first phase of Eskom's Medupi power station.

Nkosi said the Eskom contract is "the first major building block of our Waterberg development strategy". As a result, Exxaro's capital budget for its coal business is shooting up and will hit R1.47bn this year against R876m last year and R465m in 2006.

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Breaking the 2008 capex estimate down, shows that R1.2bn will be spent on expansion projects, with R239m earmarked for sustaining existing mines; R56m will go to safety, healthcare and the environment.

Coal was by far the largest contributor to Exxaro's revenues in 2007, accounting for R5.1bn - 50% - of total revenues of R10.2bn. Coal was also the largest contributor to net operating profit at R885m.

However, Exxaro's most profitable operation was its base metals division: the Zincor zinc refinery near Springs, which is fed with concentrates from the Rosh Pinah lead/zinc mine in Namibia. The division reported a margin of 25% compared with 17% for coal.

Exxaro is due to divest 43.8% of its holding in Rosh Pinah in the first half of this year to "Namibian shareholder groupings". That will leave Exxaro owning 50.04% of the mine but retaining management control.