Eskom bonus for black mining firms

Dec 16 2012 14:27
André Janse van Vuuren, City Press

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Johannesburg - Black mining companies hit pay dirt this week when Eskom announced a new policy to source coal from the Waterberg in Limpopo. And to qualify, companies must be majority black.

The contract will boost black mining power while the coal rush will boost development in the region. The power utility, together with the public enterprises department, announced earlier this week it would contract the supply of more than 1.3?billion tonnes of coal from black-controlled mining firms over the next four decades.

The criterion for qualifying companies is black ownership of 50% plus one vote, almost double the existing Mining Charter’s black ownership criterion of 26%.

Eskom currently spends R28bn per year on sourcing coal, of which R19bn goes towards existing mining houses such as Anglo American [JSE:AGL], BHP Billiton [JSE:BIL], Xstrata and Exxaro Resources [JSE:EXX], which is already under black control.

As for emerging black-controlled companies, their existing slice of the pie is R2bn.

The utility has already secured more than 80% of its coal needs until 2018, and has a shortage of 2.1?billion tonnes for the period after that, until 2049.

Eskom chief executive, Brian Dames, confirmed this and said: “We have a shortfall, particularly from 2018 onwards, that is significant. That provides a significant opportunity for us to see to the development and transformation of the mining industry.”

The strategy would, however, require the opening up of the Waterberg coalfields, an area in the west of Limpopo that houses more than 50% of South Africa’s coal reserves. The potential of the area has been known for decades, but has largely remained undeveloped due to a lack of rail infrastructure and water shortages.

Dames further said: “We will have to look at opening up new coalfields in the country, in particular the Waterberg coalfields, and when it gets done we have to ask how we can shape an industry that is representative of the aspirations we have as a country.”

The majority of coal in South Africa is mined in Mpumalanga and northern KwaZulu-Natal, regions whose resources are nearing depletion.

Consolidation of smaller players

Part of the strategy would entail the creation of a mine development fund for the capital needs of emerging miners, while the power utility would also assist in the consolidation of smaller, black-owned mining resources.

Beneficiaries would also have to commit to supplying Eskom with coal at so-called developmental prices, as opposed to higher prices paid by foreign customers.

Eskom said: “It (the strategy) seeks a framework which will balance the need for domestic security of coal supply with the need for the coal-export industry to thrive.”

A number of black-controlled companies already own the mineral rights to significant coal deposits in the Waterberg.

Exxaro Resources, which operates Grootegeluk Colliery (the sole existing coal mine in the region) is 52% owned by a BEE consortium, which includes the group’s CEO Sipho Nkosi.

Located near Grootegeluk are properties owned by Sekoko Resources and its Australian-listed partner, Firestone Energy.

The partners are in the planning stages of building a mine, and earlier this year signed a memorandum of understanding with Eskom to supply the utility with 10?million tonnes per year, for 30 years, from 2019.

For Timothy Tebeila, the chairperson of both Sekoko and Firestone, Eskom’s announcement came “as music to (his) ears”.

He said: “The only issue we really need to sort out is around water. With Eskom on board it can help us put everything together.”

Sekoko owns a second tenement where exploration work is currently ongoing. “We’re expecting to advance that project next year,” said Tebeila.

Namane Resources, a black-controlled entity founded by well-known entrepreneur Anna Mokgokong, also owns a property in the region through its subsidiary, Timo Coal.

Timo’s operational head, John Schoeman, said: “We like Eskom’s initiative and we’re already positioning ourselves to benefit from that.”

Elsewhere in the Waterberg, Australian and Johannesburg Stock Exchange-listed company Resource Generation is due to start developing its Boikarabelo coal mine early next year.

The company boasts a 26% BEE stakeholding through Fairy Wing Trading 136, an entity that includes among its directors Debbie Ntombela, a former chief director of mining regulation at the mineral resources department.

The group’s initial production is mostly destined for exports.

Shanduka Coal, which is part of Cyril Ramaphosa’s Shanduka Group, also trades in the coal space, although its properties are mostly based in Mpumalanga.

The chairperson of the SA Mining Development Association, Peter Temane, said assistance with the consolidation of smaller mines would go a long way towards helping emerging miners compete with established miners on even footing.

He said: “Where you have three or four small mines near each other, you may now see that they’ll share the cost of a washing plant, for instance.”

Temane said the creation of a new funding mechanism was also necessary to bring more black miners into the industry, as most new entrants sell their prospecting rights to established players due to a lack of development capital.


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