EXXARO Resources CEO, Mxolisi Mgojo, put a pragmatic spin on the firm’s topsy-turvey relationship with Eskom, the South African power utility, saying that he intended to “ride the waves of the relationship” as in a marriage.
Eskom buys about 9 million tonnes/year (mtpa) of coal from Exxaro on a long-term contract basis, but the utility has been critical of these contracts because it believes the coal is too expensive.
As a result, it has refused to invest in new mine developments to extend long-term coal contracts. This has resulted in the recent closure of the Arnot mine.
In addition, some R1.8bn in short-term funding for extensions to Exxaro’s Matla mine has yet to be approved by Eskom. Total capital required for Matla, the contract for which expires in 2023, is up to R3bn in the long-term.
Mgojo said his company had 40-year contracts with Eskom for coal in mines in the Limpopo province’s Waterberg coalfields which were unlikely to be changed whilst it was prepared to bid for short-term coal supply in Mpumalanga province.
“Put it this way: I always say when your intention is to stay married, you ride the waves of the relationship. As long as we continue to provide Eskom with the coal we will continually ensure that we perform in all aspects,” he said.
“I certainly believe that this would not cause Eskom to [want to cease] … doing business with us. I am very confident that when opportunities do come for us to supply Eskom we would be able to do that,” Mgojo said.
Nombasa Tsengwa, head of Exxaro’s coal business, said it made sense for the group to contract with Eskom in the Waterberg because its coal reserves there were, cost-wise, a shoo-in for supply to Eskom’s Medupi power station.
“But in Mpumalanga there is a lot of competition with a lot of juniors so the best way to play with them [Eskom] is [the] spot [market]. We will play there on spot because the risk is low,” said Tsengwa.
If supplying Eskom from its Mpumalanga-based mines dried up Exxaro said it was equally content to exploit the export markets, especially Asia which was increasingly becoming its major offshore market. “We can move some of the power station coal to export as it is shown that it is possible to move this coal elsewhere,” she said.
Some 2mt of coal produced at Exxaro’s newly acquired ECC mines in Mpumalanga province was exported in the six months ended March. Whilst this had lowered the overall quality of the group’s exports, and its revenue, the addition of coal from new contracts in the years ahead, would re-balance the export portfolio, she said.
Mgojo added, however, that one of the advantages of building the rapid loadout station at Grootegeluk, the large mine in the Waterberg, is that it could help supply Eskom power stations elsewhere in the country.
“We are building the loader today because there’s a good chance that it will be possible for Eskom to take the coal from the Waterberg. They have tested and found that it is possible to do that,” he said.
