SOUTH32 may sell its shares in the Eagle Downs metallurgical coal project in Australia after deciding today to put its development on hold, said Reuters.
The company, which owns the project along with Chinese steelmaking giant China BaoWu Steel Group Corporation, said development was halted as “expected returns (from the project) do not currently support the allocation of capital.”
Commenting in its December quarterly report, representing the second quarter of its financial year, the company also said it had conducted “advanced discussions” with Eskom regarding the transfer of a coal sales agreement to Seriti Resources.
It didn’t provide more details. The transaction, which will see South32 quit thermal coal production in South Africa, received approval from the country’s Competition Commission and was earmarked for completion in the third quarter. Seriti, a private company specialising in coal production, won the bidding for South32’s coal assets in mid-2019.
On a half-yearly basis, production of South African thermal coal fell 5% to 11.2 million tons (Mt) following reduced demand from Eskom, South32 said. Export sales were also lower owing to an earlier decision to shut loss-making pits in response to market conditions.
South32 said in its first quarter report that thermal coal production from its South African assets would be at the lower-end of its previously guided 10.5 to 12.5 Mt for this year. It added today that operating costs would be 10% above the top end of the $39/t guidance range in the half year as a result of the stronger South African rand.
The world’s largest manganese ore producer said output of the commodity reached about 1.5 million tons (Mt) in the December quarter, compared with about 1.4Mt a year earlier.
At its South African manganese operations, in which it has a 60% stake, South32 was considering the continued use of higher cost trucking options despite the ramp-up of capacity at Transnet, the state-owned rail and logistics company, post the country’s Covid-19 related national lockdown.
There was no production from its manganese alloy facilities which remain on care and maintenance. South32 has said in the past it is considering the sale of the assets which were shut as power costs supplied by Eskom were excessively high.
A new tariff supplied by Eskom to South32’s South African aluminium facilities in KwaZulu-Natal was under consideration by the National Energy Regulator of South Africa (Nersa). The structure of the tariff is that it would be for 10 years and denominated in South African rands. Eskom has supported the proposal.