Keaton to supply 16.5mt of coal to Eskom

[] — Energy company Keaton Energy Holdings said on Tuesday that its 74%-held subsidiary Keaton Mining has concluded negotiations with South African power utility Eskom to supply 16.5 million tonnes of steam coal from Phase 2 of its new Vanggatfontein Project near Delmas in South Africa’s Mpumalanga Province.

The No 2 and No 4 seam coal will be mined from an open pit for a seven-year period beginning in April 2011 and will be supplied to various Eskom power stations. Production will start at 50,000 tonnes per month (tpm) and ramp up to 200,000 tpm by July 2011, Keaton said.

Last month Keaton Energy announced its intention to spend around R158m inclusive of surface right acquisitions on the immediate development of Phase 1 of Vanggatfontein to produce up to 30,000 tpm of sought-after, high-quality No 5 seam metallurgical coal from October 2010 for the domestic market.

“The offer to supply Eskom, which remains conditional on the conclusion of a Coal Supply and Off-Take Agreement between both parties, means we can also proceed with the development of Phase 2 of Vanggatfontein at a cost of some R180m,” said Keaton Energy MD Paul Miller.

“We expect to achieve our targeted sales of two million tonnes of coal a year from the Vanggatfontein Project in 2012.”

Miller added that while Keaton Energy had sufficient funds to develop Vanggatfontein Phases 1&2, the company would seek to raise “some” debt finance in order to reduce the overall cost of capital of the Vanggatfontein Project and to continue with the exploration programme and feasibility studies at its second long-term project Sterkfontein, also in Mpumalanga.