- State-owned company asked lawyers to examine coal-mine assets
- Talks to transfer value will be ‘painful,’ executive says
South Africa’s power utility plans to transfer assets at coal mines it helped fund onto its own balance sheet, which will involve a “painful process” of discussions with companies including Anglo American Plc and Exxaro Resources Ltd., an executive said.
Lawyers for Eskom Holdings SOC Ltd., South Africa’s biggest coal buyer, reviewed coal mines in the country and concluded the utility has “substantial” assets, Matshela Koko, executive head of generation, said after the Johannesburg-based utility’s full-year earnings presentation on Tuesday. He declined to comment on details or an overall value of the assets.
Eskom’s plans come as the company re-evaluates supply contracts to reduce what it pays for coal. The outcome of the assessment threatens to derail efforts by some companies to sell mines and return to profitability.
Anglo is disposing of its coal and iron-ore businesses after reporting four straight years of losses. The sale of the local coal mines will probably run into next year as bidders struggle with attempts by Eskom to transform its relationship with coal suppliers, two people with knowledge of the matter said in April.
Eskom hasn’t yet shared its position on the asset review, Anglo spokesman Moeketsi Mofokeng said by phone. The company supplies the utility with almost a quarter of its coal.
Eskom is paying Anglo 1,600 rand ($108) a metric ton for coal from its New Denmark mine to fuel the 3,654-megawatt Tutuka plant in Mpumalanga province, which is “unacceptable,” Koko said. That price for April and May this year is more than double the company’s average cost for the commodity and is “possibly one of Eskom’s most expensive coal contracts,” the utility said in an e-mailed statement Wednesday.
Anglo invoiced the utility an average of 668 rand a ton in the year through March 31, in line with the contract it has with the power company, Mofokeng said Tuesday.
This “would still be high as this is more than 70 percent above Eskom’s average price of coal,” the utility said, asking the producer to “radically change the performance of the mine to be in line with intended expectations.”
Coal leaving the country’s port of Richards Bay for export is at $61 a ton.
Exxaro is in talks with the utility for funds to develop the Matla coal mine, the Pretoria-based company said last month. Eskom in December didn’t renew a contract with the company’s Arnot mine, which supplied a power plant by the same name for 40 years.
“In relation to Arnot, we indicated that it’s a cost-plus asset that belongs to Eskom, given that they provided the capex to develop the mine,” Mzila Mthenjane, Exxaro’s head of stakeholder engagement, said in a text message. “It’s a step in the right direction and we anticipate engaging in this regard on all cost-plus assets.”