[miningmx.com] – SHARES in Exxaro Resources have been under pressure since October – down nearly 13% at the time of writing – which may be connected with the time taken to secure regulatory approvals for its iron ore project – Mayoko-Lekoumou in the Republic of Congo (RoC).
The South African group, and its Australian rival in the RoC’s nearby Mayoko-Moussandji iron ore prospect, Equatorial Resources, had in October been assured by the RoC government of access to a 465km railway linking their projects to the country’s nearest port, Pointe Noire.
Even before that reassurance, Sipho Nkosi, CEO of Exxaro Resources, had said a “mining convention’ was imminent. RoC officials had been in Pretoria, where Exxaro is headquartered, and the signs were promising, he said. That was more than six months ago.
According to a report by Macquarie Research, the “requisite documentation’ is still “at the mercy of politicians’, adding that there was a special sitting of parliament before year-end. “It still expects to be able to start construction on the $230m, two million tonne a year (mtpa) project by March 2014,’ Macquarie said.
Exxaro Resources spokesperson, Hilton Atkinson, confirmed the company was waiting on a special sitting of parliament in the ROC, but declined to comment further. “We would prefer to not comment until there are more developments to reflect on, in the first quarter of 2014,’ Atkinson said.
In truth, a mining convention is not like bidding for an South African mining permit as it includes not just an investment agreement, but deals on rail access and a rail upgrade agreement. The rail route to be shared with Equatorial Resources, for instance, has a current capacity of 5 million tonnes a year (mtpa), but needs to go up to 15mtpa. So it’s complex.
Certainly, Exxaro’s share performance seems to be discounting an additional R1.5bn in penalties due from Eskom for a shortfall in coal supply in the 2014 financial year of some 10mtpa. This is coal from Exxaro’s special purpose Grootegeluk Medupi Expansion Project (GMEP) to Eskom’s 4,750MW Medupi power installation.
Delays at Medupi this year meant that Eskom had already agreed to pay Exxaro about R1.4bn in penalties in terms of a take-or-pay agreement between the parties. Some 8.8mt should have been delivered in the current financial year increasing to 14mtpa in the 2014 financial year.
According to Macquarie Research, supply from GMEP will only be 4mt in the 2014 financial year – about 90,000 tonnes per month – which accounts for the R1.5bn in penalties due for the 10mt shortfall.
