[miningmx.com] – ESKOM may help finance Anglo American’s proposed
15 million tonne/year (Mtpa) New Largo coal mining project which would see the
parties return to a fixed cost structure in order to pay for the R10bn to R12bn venture.
In terms of the financing structure, which still has to be settled, Eskom will pay a
small percentage above the cost of production to Anglo American for coal from New
Largo. Many coal mines throughout Mpumalanga province were financed in this way in
the past, but it has become unpopular lately as margins are low for miners and gives
them little to no marketing flexibility.
“We are working with Anglo regarding New Largo but we will probably revert to a cost
plus structure,” said Brian Dames, CEO of Eskom, in an interview today. “We need the
support of the shareholder [Government] as this is a new business model … but the
thinking is that,” he said.
The structure is far from ideal for Eskom either because the cost of coal is out of
Eskom’s hands. In addition, mining companies deploy the best mine managers at
higher margin mines, such as export operations, said Dames.
However, this financing option is thought necessary as Eskom badly needs the coal for
its Kusile power station, a 4,800MW operation the first unit of which is due in 2014.
For Anglo American’s part, New Largo is but one of a host of new projects on its
boards globally. Its shareholder base is dominated by foreign investors not tied to the
South African national interest.
Eskom CFO, Paul O’Flaherty revealed that while mining companies seek a return of
between 15% to 20% on mining projects, Eskom has to settle for a return in the low
single digits. “We have not seen the investment in new mines,” O’Flaherty added when
asked to comment on the continuing risk Eskom could be short of 40Mtpa of coal
supply by 2018/19.
“Kusile is not just supplied from New Largo though,” said Dames who added that
Eskom had meanwhile locked in supplies for the power station from other sources.
