South32 mine could solve Kusile hurdle
Klipspruit extension project set to produce enough coal to help supply Eskom’s new power station
South32’s $265m Klipspruit Extension Project, which recently received the go-ahead from the Department of Mineral Resources, will unlock a huge coal resource that can assist with the as-yet unresolved long-term supply needed for Kusile power station.
On August 30 the first unit of Kusile came into full commercial operation, adding 800MW to the grid. It will need about 16-million tonnes of coal a year when all six units are operating, which is expected by 2022.
Eskom and Anglo American, which owns the closest coal deposit at New Largo, have been locked in discussions for at least four years over a supply contract without making any progress.
Anglo American will not put billions of rand into developing a mine until it has an offtake agreement with Eskom, but New Largo does not have the 50% plus one empowerment that Eskom requires in its coal suppliers.
In April Anglo announced an agreement to sell all its Eskom-supplying coal mines in SA to Seriti Resources, excluding the New Largo project.
In the short term, Eskom is buying coal on the spot market for Kusile and diverting some from Exxaro’s Grootegeluk mine in the Waterberg, but this is costly and will not provide the volumes the power station will need at full operation. It will need to source coal from several large suppliers.
Mike Fraser, South32’s vice-president and chief operating officer for Africa, told media at a briefing on Wednesday that the group’s investment in Klipspruit Extension will unlock a huge resource of about 600-million tonnes.
This is intended to be an export coal mine but there is flexibility to sell to Kusile. Eskom has asked for expressions of interest in a five-year supply agreement, with another five-year renewal, and South32 has participated in the first round.
Fraser said Eskom was running short of coal and margins on supplying to Eskom in future could become more attractive than exporting coal.
"The most successful coal companies in SA will be those that can manage the arbitrage between domestic and export prices," he said.
South32 was compelled to take the Department of Mineral Resources to court earlier this year to obtain permission under section 102 of the Mineral and Petroleum Resources Development Act (MPRDA) to incorporate ground it already owned within the Klipspruit mining right.
It had faced two years of delays in obtaining this relatively minor bureaucratic stamp.
South32’s Klipspruit mine, which exports coal, will reach the end of its life in 2019, so it became increasingly urgent to get permission to begin work on the extension project to protect investment and jobs, Fraser said.
He said it was difficult to explain how the delay had arisen.