Exxaro waiting on Eskom approvals after utility agrees to fund entire Matla expansion project

EXXARO Resources said it was waiting on Eskom to approve revised funding for the development of new coal resources at its Matla mine after it was decided the utility should cover all costs of the project.

Matla supplies Eskom’s Matla power station, but production has been on the wane for several years after previous management at the utility nixed re-investment. A figure of R1.8bn was finally agreed by Eskom last year, but Exxaro said today in an update that Eskom would pay for the whole development of new mining areas.

Exxaro said that the capital could not be optimised on Matla mine 1 “… without jeopardising deliverables under the coal supply agreement”.

“Eskom has therefore approved the capital funding for the full project and a revised application has been submitted for Eskom to request additional funding,” said Exxaro. The additional funding was for escalations, project delay costs and “current contractor market conditions”. South Africa’s mining contracting sector has been under pressure this year with a number of construction firm’s feeling margin pressure.

Exxaro said the initial funding for Matla mine 1 would be released but it was waiting on “… Eskom’s approval for the remainder of the funds” without providing details. “Once all the funds are received construction is expected to take 18 to 24 months,” Exxaro said.

Exxaro was commenting in its pre-financial close message in which it also published production performance for its 2019 financial year. There had been a 6% decline in coal to Medupi, Eskom’s 4,800MW power station project, but only an overall 2% fall in production owing to the accelerated development of Belfast, a thermal export mine, and other projects such as Dorstfontien in Exxaro’s ECC Mpumalanga operations.

Current production guidance for 2019 has been put at 43.7 million tons (Mt) which compares to 44.4Mt in 2018. Of this, 25.9Mt was produced by Exxaro’s Waterberg assets in the Limpopo province (2018: 27.4Mt) with the balance consisting of 11.96Mt (10.4Mt) from the Mpumalanga mines.

In terms of sales, supply to Eskom was, in fact, higher for the year: up 3% whilst export sales were 12% higher with Exxaro re-directing coal that would normally have been sold in the domestic thermal coal market. Domestic sales, therefore, fell some 34%.

Exxaro said it was also continuing to negotiate with Eskom in respect of Arnot, another victim of previous Eskom management’s decision not to reinvest in its fixed cost suppliers. Unlike Matla, funding for Arnot coal mine was not supplied resulting in a mine closure. A dispute over closure liabilities duly followed – which Exxaro won.

Arnot is since in the process of being sold to Wescoal Holdings, which is in joint venture with a company representing mine employees – a transaction unique in the sector.

Exxaro said arbitration proceedings on Arnot had been finalised but there was “… continuing action to resolve the outstanding payment from Eskom related to the management fee due and payable to Exxaro”. Exxaro was also in talks in respect of topping up the environmental rehabilitation trust as set down in the arbitration outcome.

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