Glencore details $1bn SA coal investment

[miningmx.com] – GLENCOREXSTRATA is building new coal production in South Africa worth $1bn in investment which would supply nearly 60 million tonnes a year (mpta) of production to Eskom and the export market.

In a presentation to analysts, the Swiss headquartered mining and commodities trading company indicated that the first production from the project pipeline – 17.2mpta – was ‘being implemented’ while the balance of new production would come on-stream between 2015 and 2021.

The disclosure, to sell-side analysts in South Africa, comes several days after GlencoreXstrata debuted on the Johannesburg Stock Exchange in a high profile secondary listing. Ivan Glasenberg, CEO of GlencoreXstrata said the listing was apposite given the group’s track-record of investment in Africa.

New projects include bolt-on developments such as the $94m Wonderfontein project which will effectively extend the life of Umcebo, a property GlencoreXstrata bought in 2011. The bulk of capital expenditure, however, is the enormous $823m investment in Tweefontein, an operation in which GlencoreXstrata has an effective 79.8%. The mine would add 13.6mtpa run-of-mine production from the fourth quarter of 2014.

In the presentation to analysts, GlencoreXstrata showed how it had upped its presence in South Africa’s coal market from about 2010 taking saleable coal volumes from 5mtpa to about 45mpta today of which 20mtpa was by dint of Glencore’s merger with Xstrata.

Including managed tonnes, total saleable coal in 2012 was 49mt. GlencoreXstrata also disclosed it was a 31.7% shareholder in the 91mtpa Richards Bay Coal Terminal.

If anything, the disclosure gives context to Glasenberg’s comments to media last week that what he sought most from host governments was regulatory certainty. The South African government is proposing amendments to mining legislation that could affect the economics of the country’s coal sector.

Commenting on the coal market, GlencoreXstrata said: “Current demand remains strong, although oversupply has impacted pricing. Current price levels are unsustainable in the medium-term with close to 30% of seaborne thermal production being cash cost negative”.