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Johannesburg - Nonkululeko Nyembezi-Heita, chair of the JSE and former CEO of ArcelorMittal SA, is the major mover and shaker in the fragmented world of South Africa’s emerging coal mining companies.
Since early last year, she has been at the head of Ichor Coal, a Netherlands-registered, German-listed and now Johannesburg-based group trying to cobble together a 20 million-ton-a-year coal group largely focused on Eskom contracts.
At 20 million tonnes a year, the relatively obscure Ichor Coal could soon rival the likes of Exxaro as Eskom’s biggest supplier.
To date, the company has spent “just over R1 billion” on buying coal assets in South Africa, Nyembezi-Heita told City Press this week.
Most of that was spent on buying assets from the little-known Mbuyelo Group, founded by Rirhandzu Owner Siweya.
The spree has rapidly made Ichor the golden thread between a large chunk of Eskom’s coal supplier list.
Before 1994, Eskom’s coal supplier list comprised established mining companies, supplying Eskom on cost-plus and fixed-price contracts.
In the midst of the load shedding crisis, Eskom started sourcing new coal suppliers and, starting in 2009, a flurry of medium- and short-term contracts were signed – some of these contracts went to established players, but many were signed with smaller mines and so-called value-adding traders.
City Press this week received the latest list of Eskom coal contracts after an application in terms of the Promotion of Access to Information Act.
Half of the 33 contracts are with the five major companies and make up 80% or so of annual purchases by volume: Exxaro, Anglo American, BHP Billiton (South32) and Glencore.
The list also confirms that the Gupta family-owned company Tegeta Exploration and Resources received a contract to start supplying Eskom in April.
Of the 16 smaller medium-term contracts that Eskom issued between 2009 and 2015, eight are tied to either Ichor or three interlinked coal investors: Siweya, Mojalefa Landlord Mbethe and Pius Mokgokong.
Mbethe is largely known for having a 16.67% holding in Imperial Crown Trading 239, the company that snatched a stake in the Sishen iron ore mine from Kumba.
Mbethe and Mokgokong are co-directors in Liketh Investments – the only Eskom supplier that does not have any mines registered under its name.
Liketh has two contracts with Eskom – one signed in 2009 and one in 2011.
“Eskom is very careful not to create a secondary market wherein traders or brokers simply act as vendors and there is no value-add. This would eventually only add cost, but no value,” Eskom said last week.
Mbethe and Mokgokong crossed paths with Sewiya in the mid-2000s, when the three men acquired the mining rights for the notorious Usutu coal mine.
Usutu was developed on the doorstep of Camden Power Station in Mpumalanga, but in 2007 Eskom was incredulous when it discovered that its application for new order mining rights had been acquired out from under it by Vunene Mining, owned by Sewiya, Mbethe and Mokgokong.
Vunene ended up exporting Usutu’s coal, while Eskom was forced to truck in coal for use at Camden from elsewhere.
The fight between Eskom and Vunene was resolved after Ichor bought a 74% stake in Vunene. Sewiya, Mbethe and Mokgokong have since resigned from Vunene.
Sewiya appears to have profited handsomely off flipping mining rights in this manner.
His company website boasts how, in 2004, “Mr Siweya and his crew went on a mission to apply for as many mining rights as possible – even those that were deemed ‘far-fetched’ as they intersected portions belonging to some well-established mining houses”.
Sewiya describes how he and his then fiancée sat in internet cafés and “unceasingly applied for prospecting rights” – “a satisfactory number of mining rights were caught in the net, although many fell through”, his website says.
The resulting company, Mbuyelo Coal, has made Sewiya a major player in the coal industry, as Ichor moved in and bought substantial stakes in many of Sewiya’s companies.
This is set to increase as the Medupi and Kusile power stations, in Limpopo and Mpumalanga, respectively, come online, creating a “coal gap”, which Eskom wants to fill with majority black-owned suppliers.
Until recently, Eskom was the poor cousin of the coal market, with far better prices available in the export market and all producers jockeying for the limited allocations at the Richards Bay Coal Terminal.
The preference for exports had become a major concern for government, leading to proposals to declare coal strategic and force discounted local sales.
This dynamic has now completely reversed because of plummeting international coal prices.
The World Bank forecasts that coal prices will stay below their 2014 levels until about 2023.
Nyembezi-Heita described the coal sector as having a missing middle.
“We have the top five, then nothing, then the minions. We want to fill that gap,” she said.
While making sure to acquire export allocations for future use, Ichor is mostly Eskom focused.
That’s the selling point – as long as the option to export is open if and when prices recover.
Ichor’s major shareholder, Sapinda, is controlled by Lars Windhorst, a German celebrity businessman celebrated in his youth as a “wunderkind”, launching successful enterprises in his teens and, according to legend, trading stocks long before that.
He was meant to join the Ichor board last year, along with the appointment of Nyembezi-Heita, but the plan was canned.
But still having Mbuyelo as a partner also means that a large part of Ichor’s portfolio is set to meet Eskom’s black-ownership criteria.
“The 51% black ownership rule is not retrospective, so Ichor’s 26% black-owned Usutu is still supplying Eskom. An underground expansion at the same mine will eventually require more black ownership to make a deal with the power company,” said Nyembezi-Heita.
Eskom is “fairly intent” on this procurement rule and applying it to all comers, she said.
As part of that deal, it got the Penumbra project. It had been planned by Continental Coal, recently bought out by Ichor, as an export mine, but Ichor will be selling its coal to Eskom at first.
If Ichor cracks 20 million tons a year and sells it all to Eskom, it will be in the big league. Some of that would likely be going elsewhere, however, said Nyembezi-Heita.
“Lots of juniors have the same ambition. There is a race to be the consolidator. We all accept that consolidation is needed in this down cycle.”
The plan is to have attributable production of 15 million tons a year by 2017, which will require more acquisitions above and beyond the developments Ichor has already acquired.
Correction: The original story incorrectly identified 11 of the 16 contracts as being connected to Siweya, Mbethe or Mokgokong – it is in fact eight of the contracts that are connected to Ichor, Siweya, Mbethe or Mokgokong. We regret the error.
