Fin24

Eskom mulls new Exxaro coal supply deal

2012-08-01 09:40

Johannesburg – Exxaro Resources [JSE:EXX], the R60bn diversified mining company, said Eskom was considering a fresh coal supply contract for its Medupi power station with Exxaro's Grootegeluk Medupi Expansion Project (GMEP) scheduled to deliver a lower 160,000 tonnes this calendar year.

Exxaro was commenting on the fraught coal supply contract in its interim results in which it posted an 11% increase in headline share earnings of 1,162 cents year-on-year.

The results were heavily skewed by the sale of Exxaro's mineral sands assets into the newly created New York-listed Tronox, and divestment from its zincor operation. All in all, Exxaro earned R4.1bn from these transactions, reported Miningmx.com’s David McKay.

Amid expectations that the second half of the year would be "solid", despite lower coal and zircon prices, the company paid an interim dividend of 350c, 17% higher than the comparable period of the previous financial year.

From a cash flow perspective, some R1.1bn flew out of the business leaving cash on hand and equivalents at R2.1bn. This was owing to the purchase of its shares in the African Iron prospect Moyoko in the Republic of Congo (RoC). Gearing was 4% only.

GMEP, which is on target to come in at R9.5bn total committed capex, is designed to supply 14.6 million tonnes/year (Mtpa) of steam coal to Medupi, the 4,800MW power station in the Limpopo province that has been delayed, partly owing to boiler construction glitches.

Exxaro said it had delivered its first coal from GMEP in the period on a revised ramp up schedule. "The new agreement is still subject to the approval of the Eskom board in early August 2012, failing which the terms of the current coal supply agreement will apply," Exxaro said.

"In terms of the revised agreement, 160kt of coal will be delivered during 2012 for the commissioning of the respective coal handling systems while the coal supply ramp-up up will commence during March 2013 and endure until mid-2016," it added.

Commenting on the coal market, Exxaro said export coal prices would remain under pressure for the remainder of the financial year while domestic prices would be at "marginally higher" levels.

"Overall coal production volumes are expected to be higher in the second half but are likely to be offset by weaker international coal prices," Exxaro said following a first six months in which production interrupted as its Eskom-dedicated Matla and Arnot mines while Grootegeluk also experienced problems.

 –  Miningmx.com

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