Mining reported that Exxaro has pulled out of the Igoda coal export JV with Sasol citing market conditions and capital expenditure commitments.
The JV was originally set up in 2006 as part of Sasol’s broad based empowerment strategy when Eyesizwe Mining now a subsidiary of Exxaro agreed to invest ZAR 25 million in return for a 35% stake.
Sasol Mining was to contribute a minimum of 3.6 million tonnes of export coal annually from its Twistdraai Colliery to earn the balance of the equity in the JV which it estimated had an enterprise value of ZAR 1.4 billion. Igoda would export the coal using Sasol Mining’s 5% entitlement in the Richards Bay Coal Terminal. Igoda was also intended to produce 4 million tones per year of middlings coal for Sasol’s Secunda synfuels plant.
According to Mr Sipho Nkosi CEo of Exxaro “Exxaro has reduced its project pipeline and will focus on the successful implementation of committed and board approved projects such as the expansion of the Grootegeluk mine to supply Eskom’s Medupi power station.”
Mr Hermann Wenhold MD of Sasol Mining said that “while it is disappointing that the partnership with Igoda Coal is no longer viable for Exxaro, we understand the impact of the tough market conditions and recognize many companies are facing difficult decisions regarding their future investment options.”
When Mr Nkosi presented Exxaro’s interim results on August 20 2009 he was downbeat on prospects for the rest of the year to end December warning about the impact of a slow global economic recovery on South Africa made worse by a strengthening rand. He also cautioned on the logistical constraints limiting coal export volumes.
The latter may be a key issue because of the huge gap between the Phase V throughput capacity of the RBCT and the ability of Transnet Freight Rail to supply the coal. The RBCT will be able to export at a rate of 91 million tonne per year when the Phase V expansion is commissioned at the beginning of October.
Mr Fuzile Magwa GM of TFR said the Coaltrans SA conference held in Sandton last week that TFR’s current capacity on the line was around 72 million tonne per year and its corporate plan was to get to 75 million tonne per year in its 2014 and 2015 financial year. TFR’s current capital budget only plans for an increase in coal rail capacity to 78 million tonne per year.
Mr Magwa told the conference a study to look at going to 81 million tonne per year had been approved. The shortfall in coal volumes to meet the new Phase V capacity triggered a dispute between the existing RBCT members and the Phase V newcomers over how to share out the available coal which has been rumbling away since late 2008. It was supposed to be resolved at an RBCT board meeting at the end of August but coal industry sources say the proposal put to the board by the sub committee dealing with the Phase V issue was rejected. The outcome now must be decided at a board meeting to be held in the last week of September given that the Phase V expansion is due to be commissioned on October 1st 2009.
The underlying threat is that the Phase V exporters which are members of the South Dunes Coal Terminal will take the issue to arbitration if the RBCT does not come up with an acceptable proposal.
According to coal industry sources the RBCT is playing for time and attempting to avoid going to arbitration by claiming they are still negotiating and therefore, there is no official dispute as yet.
Mr Nkosi said on August 20th 2009 that Exxaro had not yet taken legal action against the RBCT either directly or through the SDCT. If it comes to a legal crunch it seems only the SDCT will be able to challenge the RBCT decision. That’s because only the SDCT kicked in its share of the capital cost of the ZAR1.1 billion expansions upfront and signed a shareholders agreement with the RBCT. The other Phase V exporters opted to be subscription users which meant the existing RBCT shareholder funded their share of the capital cost on the basis that the money would be recouped through higher user charges. It is understood the subscription contract included a clause stating actual RBCT allocations would be subject to the availability of coal railed by TFR.
