Universal Coal pitches for Eskom business

[miningmx.com] — ASX-LISTED Universal Coal is pitching to supply coal from its planned Kangala mine to Eskom’s Kusile power station, despite the fact that Anglo American Coal holds the contract to supply Kusile.

Kusile is a 4,800MW power station situated near Delmas which will burn around 17 million tons of coal annually with the first generating set due to be commissioned by the beginning of 2015.

According to information on the Eskom website, “Anglo Coal South Africa has committed, in a letter of intent, to supply the 17 million tons (mt) of coal over a period of 47 years through its empowerment subsidiary Anglo Inyosi Coal.”

Eskom indicated the coal would come from the New Largo reserve with supporting production from Zondagsfontein.

Yet, Universal CEO Tony Harwood told financial media at a briefing in Johannesburg on Wednesday that his company was in off-take discussions with Eskom to supply coal from Kangala to Kusile.

Asked about the situation regarding Anglo Coal holding the supply contract Harwood replied: “Yes, I also thought Anglo Coal had the Kusile contract tied up, but the situation is that Eskom is keen to talk to us about accessing coal from Kangala.”

Universal is currently optimising the bankable feasibility study (BFS) for Kangala and a contract to supply Eskom would have major impacts on the cost of the mine and its level of production.

Kangala is being planned as an operation which would produce 2.5mt run-of-mine (ROM) annually.

Actual sales production from that ROM output could vary between 2.2mt/year and 1.6mt/year depending on the product quality required. Greater volumes of lower grade coal would be supplied to Eskom compared with lower quantities of the higher-grade, washed coal demanded by foreign customers.

Harwood estimated the cost to Kangala at around A$60m (about R500m), if a dual washing plant was needed to supply both the export and domestic markets, and at around A$35m (R292m) if it supplied only Eskom.

He added the optimised BFS should be completed by the first quarter of next year, which was also by when Universal expected to receive its mining right along the necessary environmental permits and water use licence.

Although Kangala was likely to be the first mine that Universal would bring into production, Harwood said the group’s flagship project was the Berenice-Cygnus coking coal project in Limpopo Province.

This was a coking coal deposit with JORC compliant resources of 1.32 billion tons (bn t) situated immediately north of the Soutpansberg mountains and west of Coal of Africa’s (CoAL) Makhado project.


Universal also holds the rights to the smaller Somerville-Donkin project situated west of the Mapungubwe National Park and located in the environmental buffer zone for the proposed Limpopo Transfrontier Conservation Area centred on Mapungubwe.

Harwood did not necessarily agree that Somerville-Donkin sat in the buffer zone, which meant any plan to develop a mine there would incite furious reaction from the environmentalists who have bitterly opposed development of CoAL’s Vele coking coal mine.

CoAL has now entered into direct negotiations with the coalition of non-governmental organisations opposing Vele, even though Vele does sit outside the buffer zone and has received all the required mining and environmental permits.

A Coalition spokesperson said in November: “We are very aware of the other threats to the region. Mining developments falling within the Mapungubwe buffer zone will be contested heavily.”

Said Harwood: “We are looking into the issue of the buffer zone.”

Harwood stressed that Universal was still at the prospecting stage on these properties.

“We intend learning from the mistakes made by CoAL. We are a responsible company. We will engage with stakeholders and we will do nothing about mining any of these projects until we have all the necessary permits and licences in place,” he said.

The viability of the mines proposed by CoAL and Universal for Limpopo rests on getting the coal exported through the port of Maputo which will require a major upgrade by Transnet of the existing railway line.

Universal business development director Shammy Luvhengo was upbeat on the prospects for this infrastructure being put in place.

He was optimistic despite Transnet’s poor delivery record so far and the demands being made for expansions on other lines such as from the Waterberg to Witbank and on the Richards Bay line.

“Transnet is putting in a lot of effort,” said Luvhengo. “They have a dedicated team working on this project. You have to engage with Transnet to realise just how realistic it is that this expansion (on the Maputo line) will happen.’