[miningmx.com] – DAYS after fending off questions about whether empowerment policies were hurting its ability to buy new supplies of coal, Eskom issued a statement that it had signed a memorandum of understanding (MoU) with Anglo American for coal from its proposed New Largo colliery.
The comment from Anglo American, however, was telling. The MoU affirmed both sides were “broadly aligned’ regarding Eskom’s empowerment imperatives, said Themba Mkhwanazi, CEO of Anglo Thermal Coal, the UK-listed group’s coal business.
However, Mkhwanazi added that “… we need to establish a framework within which we can co-operate and achieve a mutually beneficial outcome’, a clear statement that whilst there was political will on both sides to deal, a deal was still beyond their immediate grasp.
The issue of Eskom sourcing coal in long-term contracts is not the arcane mining matter it would at first appear: coal is the life-blood of the country’s power network without which the economy would disintegrate.
According to Eskom in comments it made more than two years ago, it expected to consume four billion tonnes of coal from now until 2040 in order to supply the electricity the economy needed. Of this consumption, roughly half was unsecured; that is, not yet contracted from coal producers.
Whilst South African has abundant coal, the investment in new projects has been slow to materialise. This is partly owing to the lack of infrastructure where new coal deposits are situated, but it’s equally contingent on new empowerment laws.
According to the Broad-Based Black Economic Empowerment (BBBEE) legislation of the Department of Trade and Industry (DTI), new suppliers of coal have to be 50% plus one share empowered. A new supplier can be any company with a new mine, Anglo American included.
Yet, the miners argue, they already comply with the empowerment regulations enshrined in the Minerals & Petroleum Resources Development Act which asks for the sale of 26% of units of production or shares in the case of equity-based BEE. The conflict between mining codes is an uncertainty that naturally frustrates the allocation of billions of rands in building new coal mines.
Said Graham Kerr, CEO-elect of the proposed BHP Billiton spinoff that will contain the group’s South African coal assets: “The current legislation is the mining charter (MPRDA) and we are compliant with that.
“We have divested businesses (to empowerment partners) and made resources available, so we consider ourselves to be compliant with the law and in the spirit of the law,’ he said. Quite whether this means the company will buy into Eskom’s empowerment legislation is not entirely clear.
Keaton Energy, a coal junior, is facing the same issues of concluding a coal supply agreement with Eskom ahead of building new production at the Moabsvelden prospect it recently bought. As with most new coal developments, Moabsvelden is situated in Mpumalanga province.
Mandi Glad, CEO of Keaton, contends that Eskom is flexible on how the BEE is structured. “If some value is added it [the transaction] doesn’t necessarily have to be ownership at mine level,’ Glad told Finweek.
“So we might do something at the washing plant or beneficiation level,’ she said. “We have got a number of ideas that we are looking at and when we do a formal deal, it will include a definite plan.’
In an interview following Eskom’s interim results last week, Dan Marokane, head of group capital at Eskom, said BEE involvement at the beneficiation level was the kind of deal the utility was seeking from new coal suppliers.
“Transformation can be along the value chain; in beneficiation such as the wash plant,’ he said. In theory, this would be a much easier deal for coal producers to structure than equity-level transactions.
Eskom needs progress on a New Largo coal supply deal pretty soon since its coal will be burned by Kusile, the 4,800MW power station that is planned to follow Medupi in 2017 supplying much-needed power to the grid.
The development of Kusile may already faced delays, however, as Eskom has been diverting skills from it in order to catch up on the commissioning of Medupi’s 800MW units. Following another weekend of load-shedding, the importance of avoiding any other delays in Eskom’s project build is obvious.
