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Eskom plans fund to boost mining juniors

Johannesburg, South Africa — 11 December 2012 – In a move aimed at securing future coal supplies for its power plants, South African national power utility Eskom plans to set up a fund to assist black-owned junior coal producers in developing new mines.

Reporting this development here, Fin24 reveals that Eskom is keen to diversify its supply base away from majors such as BHP Billiton, Xstrata and Anglo American, and to buy more product from black-owned firms, in line with government policy to redress apartheid’s legacy.

“We would want to see that more than the majority of our suppliers would be black-owned companies,” said Eskom chief executive Brian Dames.

South Africa produces around 25Mtpa of coal, with 130M of that amount procured by Eskom. More than 60% of that coal is bought from mining majors. Meanwhile, junior mining companies in South Africa have struggled to get their projects off the ground, lacking technical expertise and capital.

Eskom has an urgent need to spur development of new mines, with 85% of the electricity it generates coming from coal-fired plants. The utility has already contracted 80% of the coal it needs up to 2018, but there is a major shortfall after that.

“We have a shortfall, particularly from 2018 onwards, that is significant,” Dames said. “To have the new mines operating by 2018 we need to start immediately.”

The utility will work with development financing institutions to set up the fund and hopes for some consolidation in the industry to create new mines of scale.

Eskom is also collaborating with logistics group Transnet to develop railway links to the Waterberg coal fields, touted to become the country’s key coal hub as reserves in the Witbank area east of Johannesburg are nearing depletion.

In the past, Eskom has complained about the quality of coal received from mining companies, saying producers had been favouring more lucrative exports over supplies to the utility. Eskom says this hurts its performance.

South Africa suffered a major power crisis in 2008, which shut mines and smelters for days, costing the economy billions of dollars in lost output. Eskom’s push to secure long-term coal supplies is part of its desire to avoid a repeat of that shutdown.

Source: Fin24. For more information, click here.