[miningmx.com] – ESKOM said it and Anglo American were due to sign
a supply agreement from the mining group’s proposed 12 million tonne per year
(Mtpa) New Largo coal mine – a project that would cost up to R20bn – to Eskom’s
Kusile power station.
“That’s the vicinity it’s in,’ said Brian Dames, CEO of Eskom, of the mine’s projected
R16bn to R20bn capital spend forecast. The proposed mine and the power station
are located in Mpumalanga province.
New Largo will supply thermal coal to the R118.5bn Kusile power station for 40 to
50 years. First production will be for commissioning of Kusile’s first unit scheduled
for 2014. Anglo’s total supply to Eskom will increase to 44Mtpa as a result of New
Largo’s production.
Speaking at an investor presentation in London today, Norman Mbazima, CEO of
Anglo Thermal Coal, said that a coal supply agreement from New Largo to Eskom’s
Kusile power station had been “… in lengthy discussion, but [it] is coming to an
end’. Mining licences for New Largo had also been submitted to the South African
government, Mbazima said.
Miningmx reported on May 8 that the two sides were edging towards
building a cost plus coal mine as a means of structuring the capital expenditure.
It now appears as if approval for the mine is sealed. This is despite comments by
Anglo American CEO, Cynthia Carroll, last week that a new tax regime for the
mining industry, as described in the ANC’s State Intervention in Mining (Sims)
report, would make South African mining uncompetitive.
“They have to give their final approval and we have to as well, but it’s basically
there,’ said Dames.
Dames alluded to the issue of the mine’s competitiveness in explaining why a cost
plus structure was being used to finance it. “The capital contribution is controlled by
overall unit price versus expectations of returns that are prevalent in the mining
industry,’ he said.
Dames added that the cost plus structure was the best means by which Eskom could
control the cost of coal which, in commenting on the market in general, he said was
a major problem for the utility.
In terms of the cost plus structure, Eskom will pay Anglo American a few percentage
points above the cost of production. This helps provide Eskom with certainty and
protects it against price volatility in the coal market, but it must pay for the mine
and hope Anglo Thermal Coal contains its costs.
Dames was commenting amid the release of Eskom’s full-year results presentation in
which the company posted a net profit of R13.2bn compared to R8.4bn in the
previous financial year. The improvement was largely based on higher electricity
tariffs. Group revenue was a quarter higher at R114.8bn year-on-year.
Commenting on coal costs, Dames said the utility was keen on having inflation kept
to single digit figures. Eskom was working with the coal industry to contain costs
which account for about half of the 41c/kWh Eskom incurs producing electricity.
“Whatever happens to coal costs falls straight into the tariff. The management of
coal cost is crucially important. We are looking for single digit coal increases and
working with mining industry on that,’ said Dames.
The average cost of coal in the 2012 financial year was R230/t.
