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Eskom plans fund to boost mining juniors

Dec 10 2012 17:50 Reuters

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Johannesburg - Power utility Eskom plans to set up a fund to assist black-owned junior coal producers develop new mines to secure future supplies for its power plants, it said on Monday.

Eskom is keen to diversify its supply base away from majors such as BHP Billiton, Xstrata and Anglo American and to buy more product from black-owned firms, in line with government policy to redress apartheid's legacy.

"We would want to see that more than the majority of our suppliers would be (black-owned) companies," Eskom Chief Executive Brian Dames said.

South Africa produces around 250 million tonnes of coal each year, with 130 million of that procured by Eskom. More than 60% of that coal is bought from mining majors.

Junior mining companies in South Africa have struggled to get their projects off the ground, lacking technical expertise and capital.

Eskom has an urgent need to spur development of new mines, with 85% of the electricity it generates coming from coal-fired plants.

The utility has already contracted 80% of the coal it needs up to 2018, but there is a major shortfall after that.

"We have a shortfall, particularly from 2018 onwards, that is significant," Dames said. "To have the mines operating by 2018 we need to start immediately."

The utility will work with development financing institutions to set up the fund and hopes for some consolidation in the industry to create new mines of scale.

Eskom is also collaborating with logistics group Transnet to develop railway links to the Waterberg coal fields, touted to become the country's key coal hub as reserves in the Witbank area east of Johannesburg are nearing depletion.

In the past, Eskom has complained about the quality of coal received from mining companies, saying producers had been favouring more lucrative exports over supplies to the utility. Eskom says this hurts its performance.

South Africa suffered a major power crisis in 2008, which shut mines and smelters for days, costing the economy billions of dollars in lost output.

Eskom's push to secure long-term coal supplies is part of its desire to avoid a repeat of the shutdown.
eskom  |  coal  |  coal miners
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