Optimum RBCT coal exports to fall

David McKay | Thu, 09 Feb 2012 10:39

[miningmx.com] – OPTIMUM Coal Holdings, South Africa’s fourth-largest coal exporter, said volumes through Richards Bay Coal Terminal (RBCT) would fall to 6.5 million tonnes (Mt) owing to disruptions at its key Optimum Collieries.

The company, which is subject to a takeover by Glencore International and businessman, Cyril Ramaphosa, said saleable exports from its Optimum Collieries business unit would decline to between 4.6 Mt to 4.8 Mt owing to a combination of salary-related industrial action and the relocation of certain draglines.

“We are not happy with this performance,” said Mike Teke, CEO of Optimum Coal Holdings, which posted a 45.9% decline in earnings to R148m for the six months ended December. The company passed the interim dividend.

Shares in Optimum Coal gained 1.4% to R37 by mid-morning trade on the JSE. Glencore, which now owns 67.77% of Optimum Coal, said it would bid not less than R38/share for the remaining shares in the company.

The transaction partly turns on an investigation by the Competition Commission into the combined unit's coal trading dominance in South Africa.

Teke said that the commission would not finish its investigation before the end of the first quarter of 2012, but added he was unconcerned about progress. “I think they are asking the right questions and doing a thorough job. I’m not concerned,” he said.

On the positive side, Transnet Freight Rail had far improved the tempo of its performance on the Richards Bay coal line, with Optimum Coal's inventories falling to 105,000 tonnes from 503,00 tonnes. Teke said that with production ramping up at its Kwaggafontein project, he did not expect Optimum to struggle to fill TFR trains. Planned maintenance of the rail by TFR in May would also assist in helping Optimum rebuild its inventory, Teke said.

MARKET

Commenting on market prospects for coal, Teke said that Optimum had seen export prices soften to $105/t owing to the ongoing European recession, “although likely inventory re-stocking is expected to be supportive for near term API 4 pricing”.

“With Lunar New Year approaching at the end of January 2012, buying interest is expected to be somewhat muted, although medium to long-term pricing will continue to depend on economic growth developments in critical locations, notably India, China, Korea as well as the European Union,” he said.

For its part, Optimum said its average selling price for the interim period had been R785/t from R648/t during the first half of the previous financial year. However, the company's 1Mt fixed-price supply agreement to BHP Billiton Energy South Africa – which fixed export prices at $87/t – had come to an end, providing Optimum with exposure to the floating spot prices.

Commenting on Eskom, Teke said the company was engaged in several new supply agreement negotiations. One included the supply of 1 Mt to Eskom’s Komati power station from Optimum Coal’s Koornfontein colliery.

Teke has been critical of Eskom’s pricing in the past, however with a shortfall of some 40 Mt of coal to Eskom expected by 2018, it’s understood the electricity utility is more flexible on competitive pricing.