Exxaro looks at new coal mine

Johannesburg - Exxaro Resources is looking at construction of another coal mine on the Waterberg field in Limpopo Province adjacent its existing Grootegeluk operation.

In the group's results for the year to end-December, CEO Sipho Nkosi said, "A pre-feasibility study and geological exploration work on a potential greenfields mine adjacent to the Grootegeluk mine with the capability of supplying the market with power station and metallurgical coal is being progressed."

Should the mine go ahead, it will represent another major step in the development of the Waterberg coal field, which will take over as the country's dominant source of coal supply as the traditional coal fields around Witbank and Middelburg are mined out.

Grootegeluk is the largest multi-product coal mine in South Africa, supplying coking coal to the export and domestic markets as well as thermal coal to Eskom's adjacent Matimba power station.

Grootegeluk produces around 19 million tonnes (mt) a year of coal of which some 15.3mt is supplied to the Matimba station. The colliery is currently being expanded to supply an additional 14.6mt/year of coal to Eskom's new Medupi power station which is being built nearby.

The first coal for Medupi is expected to be supplied during the last quarter of 2011, with full production from 2014 onwards.

Exxaro management has previously stated that the Waterberg could supply up to another four Eskom power stations and that the group is keen to pitch for more of this business.

Plans are also to step up exports from the Waterberg from the current level of below 1mt/year to around 10mt/year, but this will require a major upgrade of the rail infrastructure linking the Waterberg to the start of the Richards Bay coal line near Witbank.

Nkosi said coal division revenues increased 78% to a record level of more than R9bn during 2008, due to higher international coal prices and higher domestic prices coupled to increased demand from major customer Eskom.

He said sales of power station coal to Eskom increased by 2mt to 36.3mt as a result of improved production at the tied mines, and demand from Eskom to increase its stock levels at various power stations.

Nkosi noted coking coal production dropped 402 000t during 2008 because of geological problems at the Tshikondeni mine and a decision to convert some of the plant at Grootegeluk from handling coking coal to supplying more power station coal to Eskom.

The other notable highlight of the results was a maiden profit contribution from Namakwa Sands which Exxaro bought from Anglo American in October last year for R2.8bn.

Namakwa Sands made a record net operating profit of R499m at an operating margin of 27% on the back of record production levels of zircon, titanium slag and pig iron.

Overall, Exxaro increased revenues to 36% to R13.8bn while attributable earnings were 154% higher at R3.4bn (1 002c a share) compared with R1.4bn (396c a share) in 2007.

A final dividend of 200c has been declared making a total of 375c for the year.

The only sour financial note is that net debt has shot up reaching R2.4bn at the end of 2008 from R483m at the end of 2007.

Nkosi said the market outlook for 2009 was uncertain and Exxaro's results would be driven by the extent to which global recessionary conditions impact on demand and prices for its commodities, as well as the trading levels of the South African and Australian currencies.

- Miningmx.com

For more mining sector coverage, visit miningmx.com.