HCI frets over expiry of Kusile coal supply deal

Investment holding group Hosken Consolidated Investments (HCI) is concerned about the time it takes to conclude a coal supply agreement with Eskom, saying the future of its junior coal mining outfit, HCI Coal, is in peril as its contract to supply coal to the Kusile power station is set to lapse.

“Our current eight-year contract with Eskom comes to an end this year and the future of the mine is largely dependent on its timely renewal on reasonable terms,” HCI CEO John Copelyn told shareholders in a letter published in the group’s annual report.

“While we know we have been an exemplary supplier with a high BEE score and have every expectation we will succeed in such renewal ... Eskom is a most complicated company to contract with and there is every reason to be nervous it could fail to close on a new contract without lengthy delays that will cause severe damage to the mine, its employees, contractors and transporters in the period between one contract ending and another commencing.”

HCI Coal owns and operates the Palesa colliery in Bronkhorstspruit, Gauteng. The primary consumer of coal from the mine is Eskom.

The 2023 calendar year was a big one for Palesa Coal with the commencement of the Rooipoort extension project, which will add 32.2-million tonnes of coal reserve to Palesa Coal and extend the life of the mine.

Copelyn said that despite the subsequent fall in the price of coal, its coal operations had a productive financial year to end-March. The year under review was the first in which HCI Coal produced more than 4-million tonnes of coal and ended with headline earnings of R226.8m.

“The mine continues to be run very efficiently despite many pressures from surrounding communities whose desperation always involves the few businesses that continue to function in the area,” Copelyn said.

“Even when the cause of dissatisfaction is the failure of the Bronkhorstspruit municipality to maintain its water purification works, and its consequential inability to supply running water to local townships for weeks on end, it becomes our responsibility to fix the problem if we want our coal trucks to be able to pass protesters and head to the Kusile power station.

“There is, however, a joy in fixing such problems and over time it is a role we have come to accept we must play if we want to operate in that area,” he said.

HCI said it still backed the prospects of the platinum industry, despite a drop in prices for platinum group metals (PGM) over the past two years. The group has exposure to the industry through its stake in Platinum Group Metals Ltd.

“We continue to hold our 26% stake in this company. Its potential development as a huge, low-cost PGM mine with a multidecade life in Limpopo remains exciting even though our hopes have been somewhat dampened by the reduction in the commodity price of its basket of minerals,” Copelyn said.

“The central obstacle to its progress has been the lack of a solution about how its concentrate is to be smelted. Hopefully, either government will permit it to move its concentrate to Saudi Arabia for processing or, alternatively, large SA miners will stop prevaricating on committing to processing it in SA.”

khumalok@businesslive.co.za