Juniors hold key to Eskom coal deficit

[miningmx.com] – UNLOCKING South Africa’s junior mining sector, which
could include consolidation among producers, was considered key to helping Eskom
fill a 40 million tonne (Mt) shortfall in domestic supply forecast for 2018.

Dan Marokane, Chief Commercial Officer at Eskom, said the shortfall remained an
urgent situation for the state-owned enterprise. “I think there has to be
improvements in the way the junior market develops,” he said. He was speaking on
the sidelines of the McCloskey Coal Conference in Cape Town.

Eskom is forecasting 2% growth in coal burn from 2006 to 2022. Coal consumption
for 2012 has been estimated at 126 Mt. “We need to unlock solutions now,” said
Marokane, who added that lead times were a major consideration in securing future
domestic supply.

Eskom had secured about 30% of its total coal consumption from junior coal miners,
equal to about 35 Mt as production from the cost-plus mines, owned by the major
mining companies, declined.

However, Marokane said Eskom was cooperating with the major miners in optimising
efficiencies from mature mines. “We are working with Anglo on mine efficiencies and
we will soon turn our attention to Exxaro [Resources],” he said.

One pressure Eskom is facing is relatively fresh demand for so-called ‘off-spec’, or
lower quality, coal. This coal would normally be exclusively supplied to Eskom and
other domestic users, but coal producers are finding better margins offshore,
especially in Asian markets. Some 44% of Richards Bay Coal Terminal exports were to
the Asia/Pacific region last year, Marokane said.

Last year, Eskom said it would motivate for an export quota for such coal grades; a
suggestion that drew the ire of the Chamber of Mines of SA. Marokane said Eskom’s
relationship had vastly improved over the last year, and that there are no plans to
impose a quota on exports.

Another possible route in securing supply would be to partially finance new coal
mining developments. Marokane said that Eskom was considering a number of
options, including the possibility it could become a direct equity investor in Anglo
American’s 15 Mt/year, R12bn New Largo mine development. New Largo will supply
Eskom’s planned Kusile power station.

“We are not an operator, but we are interested in securing supply,” said Marokane.
“We have held discussions,” he added, declining to provide more details.
Commenting on coal stockpiles at Eskom’s power stations, Marokane said Eskom had
an average 42 days of supply in January. This was despite significant rainfall in
Mpumalanga province during the month. “We’ve handled that situation much better,”
he said.