[miningmx.com] – WESCOAL Holdings said it had formed a 50.1%-owned black-controlled special purpose vehicle (SPV) that would secure the contract supplying coal from its 2.4 million tonnes/year (mtpa) Elandspruit project to Eskom.
Roughly half of Elandspruit’s 200,000 tonnes/month production would be sold to Eskom which has demanded, in terms of black economic empowerment legislation (BEE), that new coal suppliers must be 50% plus one share black-owned.
“The demand for black-controlled suppliers only applies to new contracts,” said Andre Boje, CEO of Wescoal. “But I would like to see what happens in the future when there is no coal to fill the supply cliff that is coming,” he said.
Boje was referring to the expected coal supply deficit that faces Eskom from about 2018, according to some calculations. The implication is that Eskom may be forced to sacrifice its BEE plans just to secure new coal.
“The SPV just secures the Eskom contract,” said Boje. “For the 50.1% you get a price premium. Eskom and shareholders don’t suffer,” he said. Wescoal also brings into the SPV its 34% BEE at the corporate level.
This corporate level BEE is in compliance with the Minerals & Petroleum Resources Development Act (MPRDA). The requirement to be black-controlled for new coal contracts to Eskom is in terms of the Black Broad-Based Economic Empowerment Act which falls under the Department of Trade and Industry as well as the Public Enterprises Department to which Eskom reports.
Anglo Thermal Coal, a division of Anglo American, is currently negotiating the supply of coal from its New Largo project to Eskom’s Kusile.
Negotiations have been far from smooth, however, with Eskom chairman, Zola Tsotsi, saying there was a disconnect between CEO, Mark Cutifani’s willingness to negotiate, and his management reports in Anglo Thermal.
Commenting on Elandspruit, Boje said the project represented the future of Wescoal in terms of the group’s ambition of becoming a 4mtpa coal producer by its 2017 financial year. Wescoal sells the majority of its coal to Eskom and the premium domestic industrial market. About 200,000 tonnes is sold to the export market through Glencore, said Boje.
Shares in Wescoal Holdings reached their highest level since mid-July after the company unveiled a 55% improvement in interim profit to R28m, largely driven by the R79m acquisition of the MacPhail Distributors, announced in June 2013.
Wescoal’s mining division – which consists of the Khanyisa and Intibane colleries – booked a R67.8m contribution to operational pre-tax profits compared to R48.9m in the interim period of the previous financial year.
The firm’s trading division reported an operational pre-tax increase of R20m compared to R3.6m previously. “We are very pleased with strategic decision to buy Macphail coal,” said Boje.
Including exceptional items, Wescoal reported a decline in interim profits year-on-year to R28m from R76.7m previously which included the sale of the Vlaklaagte prospecting right.
Boje said he was hopeful Wescoal could replicate its profit performance for the second half of the financial year. “We hope to get close,” he said.
