Exxaro’s vantage point in the Waterberg, the future of South African coal production, places the group strongly to be at the vanguard of major developments in this sector, and it is planning accordingly; it is also positioning itself for the low carbon economy of the future.
The company that emerged from Kumba, which in turn emerged from the old Iscor group, established itself as a multi-mineral commodity producer, but is undergoing a dramatic shift. In fact, the company could just as much be an emerging energy sector play, with 36 million tonnes per annum (mtpa) of its 45 mtpa coal production being supply to Eskom; and the company is establishing a clean energy arm looking at wind power with two 100 MW projects being investigated, a 200 MW centralised solar power project being studied, and some 500 to 700 MW of co-generation options. The first of these co-generation options relates to off-gas from Exxaro’s Namakwa Sands operation.
It is also working towards establishing itself as the supplier of coal to a group of Independent Power Producers (IPPs) in the Waterberg that are looking at supplying large customers who wish to gain power supply without having to rely on or wait for Eskom to expand its capacity.
At the same time Exxaro is exiting its zinc business, which is up for sale, and announced earlier this year that it would not proceed with its Fairbreeze mineral sands mine in KwaZulu-Natal. Exxaro’s finance director Wim de Klerk said that the company will monitor the mineral sands sector over the coming years and this division’s long term future will depend on its ability to make a profit. While this in no way suggests an imminent exist, it does suggest that what was once seen as a promising growth area for Exxaro, particularly after the purchase of Namakwa Sands, is not seen in that light anymore.
Instead, Exxaro is looking at iron ore opportunities, and executive general manager for business growth, Ernst Venter, tells Mining Review Africa that though it is not ready to make any announcements to the market, it is looking at various tangible opportunities.
However, for many, Exxaro is seen as predominantly as a coal producer, and it does rank among South Africa’s top four in terms of volume. Many of its most exciting future projects lie in this area. The most imminent is the expansion of the company’s flagship Grootegeluk mine to supply coal to Eskom’s planned 4,800 MW Medupi power station. After a delay while Eskom reviewed its options, the contract with Exxaro to supply 14.6 million tonnes of coal a year for Medupi for 46 years has been signed.
The delay has seen the projected capital expenditure by Exxaro on this expansion increase by R500 million to R9.5 billion, but Venter says the company will now look at where costs can be saved. The expanded Grootegeluk mine will supply first coal to Medupi at the start of April 2012, with a six month ramp up. The six Medupi units will come on stream at six month intervals, thus the mine will be scheduled to supply the full amount of coal by April 2015. By that time it will have increased from its current 18 to 18.5 million tonnes a year capacity to 34 million tonnes a year, and the coal will be of the exact same specification as that which the mine currently supplies to the Matimba power station.
“Grootegeluk, which has six beneficiation plants will add more plants to process this coal and there will be semimobile in pit crushing as well as additional stockpiles,” Venter says. The mine will be a feature in South Africa for a long time, as it has the reserves to supply coal at the expanded rate for the next 200 years.
He takes it further, in pointing out that, “Over the next two decades the Waterberg will begin to supply some 20 to 40 mtpa to the power stations in Mpumalanga as the coal reserves in that area slowly dry up. The power stations will definitely outlive their captive mine supply options,” Venter says. “In addition, our plans are to increase our coal exports and we think over time that some 20 to 25 million tonnes a year of coal exported from South Africa will come from the Waterberg. However, we need to upgrade the whole railway line.”
Grootegeluk supplies 18 different types of coal and one of the plans is to expand the complex’s newly commissioned char plant from 140,000 tonnes a year to 280,000 tonnes a year over the next two to three years.
“South Africa imports some 1.8 million tonnes of reductants for its metallurgical sector and we believe we can meet a significant portion of that demand locally,” Venter says.
Exxaro’s underground Tshikondeni mine in northern Limpopo works a difficult undulating orebody full of dykes and which dips at an angle of 12O, but it is Africa’s only producer of hard coking coal. It is a mine that has been close to the end of its life for some years, but the price of its product, US$200/tonne, means Exxaro will keep it up and running for as long as it can. Tshikondeni produces between 300,000 and 380,000 tonnes of this coking coal a year and is scheduled to close in 2014, but a new reserve, Makanja, could extend the mine’s life by another three years. There are also some open pittable resources that Exxaro is getting the permitting to mine, and this could provide production for a year and a half.
“All told, while the base case sees closure of Tshikondeni in 2014, it could be possible to extend the life of the mine by another six or seven years,” Venter says. “We are also looking at ways of recovering coke from tailings at the operation.”
Grootegeluk and Tshikondeni are mines that originate from the Iscor mining division’s days, but more recent is Exxaro’s presence in Mpumalanga. As part of Kumba, Exxaro started the open pit Leeuwpan mine which lies on the edge of the Karoo basin. The mine produces a unique combination of low and high volatile coal. Out of the three mtpa of production two thirds goes to Eskom and the rest is metallurgical coal. “Some reductant processes require a low volatile product and this operation provides metallurgical product to Highveld, Mital and the ferroalloy producers.”
The mine has expanded over its life and, with an increase in tenements to include a resource known as Weltevreden, Leeuwpan now has a future life of mine of 23 years. The operation has also added jig and DMS plant as it has expanded. “It is a difficult orebody as well, and mine planning needs to factor in various cost and quality control factors, but if this is done well, it is a good operation, and at least unlike Tshikondeni it is an open pit operation making the all important issue of safety management easier to handle,” Venter says.
Even more recent in Exxaro’s life, is Inyanda, the greenfields operation the company opened in its present incarnation. Inyanda, located near Witbank, and a lowcost high-quality coal producer, was the first new Exxaro mine, and represents the company’s expanded ambitions to tap into the lucrative seaborne coal market. Inyanda produces 1.7 million tonnes a year, of which 80% is of a grade suited to export via the Richards Bay Coal Terminal (RBCT), and the remaining 20% is sized coal for the metallurgical sector. The life of mine is seven years, and Exxaro is trying to secure resources to extend this life for another seven or eight years.
Exxaro has a potential 6.3 million tonne export allocation at RBCT, but is unable to make full use of this due to Transnet constraints. “As a result, we will probably export little more than four million tonnes this year,” Venter says. This is down from the 4.8 million tonnes Exxaro exported in 2009. Exxaro is being proactive about alleviating a shortage of rolling stock, and is looking at investing in this itself. Exxaro is focusing closely on the issue of rail transport of coal, taking into account that it has in mind the expanded export of coal from Grootegeluk. Because of Grootegeluk’s distance from the RBCT, it requires 2.5 times more rolling stock compared with the operations in Mpumalanga to export the same volume of coal. “We are looking at ways of adding capacity to the rail system and are in negotiations with Transnet.”
With its BEE rating, Exxaro is constrained in terms of its capital raising options for major expansions. In particular, this limits its options in terms of rights issues as some of its BEE stakeholders will not be able to follow their rights. It would dilute their stake in the group, and if Exxaro is to remain a BEE group it cannot follow such a route. It means that for growth Exxaro has to look at mergers and acquisitions carefully, and one that has worked out successfully for all parties was the merger with Eyesizwe.
Exxaro’s three mine 14 million tonne a year Matla complex was an Eyesizwe operation and is a captive mine with a remaining 27 year life of mine that supplies the Matla power station. Two of the three mines in the Matla complex are long wall operations, and the other is a 2.5 to 3.5 million tonne a year conventional underground bord and pillar operation. “At Matla we are looking at Seam 5, which is usually left behind, but instead of sterilising this coal we are evaluating if we can use it,” Venter says.
Also part of the Eyesizwe acquisition, the Arnot mine, a 5.0 mtpa operation with two shafts, uses conventional underground coal mining. Venter describes this operation as having a more difficult orebody compared with the Matla complex, including some dykes. Overall however, this 30 year life of mine operation is easier to mine than Tshikondeni. “It does have a relatively high cost, and we are looking to do a lot to improve the cost of production.” As one of these measures the operation has started some open pit mining. In addition, the south Arnot prospect, as a new lease, could expand and extend the life of the operation further, and it could offer the coal to Eskom.
When Exxaro took over the North Block Complex (NBC), which includes the old Glisa mine, as part of Eyesizwe it was a 0.9 mtpa operation. “When we obtained this operation it looked like a dud, but it is now doing well,” Venter says. Since then Exxaro has opened up new sections and NBC now produces 3.0 mtpa of coal products. Some of this is supplied to Majuba, Arnot and Hendrina power stations. The NBC operation is installing a wash plant to produce a multi product option so that it can supply to the paper mills and other markets in the area.
At the New Clydesdale underground operation, Exxaro opened a new shaft, Diepspruit which has an 11 year life and is ramping up. It will export some 1.5 to 1.8 million tonnes of coal a year.
There is also the Mafube joint venture project located near Middleburg, commissioned in 2008, that Exxaro is involved in with Anglo American. This 40 year life of mine operation produces five mtpa of coal, of which 30% is power station coal and the rest export products.
Exxaro is already one of South Africa’s most significant coal producers, but its growth plans are exciting and dramatic. After Medupi it has three major growth projects in the planning phase, two of which are in South Africa. Its Thabametsi project, located three kilometres west of Grootegeluk will entail the supply of between nine and 16 million tonnes of coal to IPPs. The capital cost for Exxaro to establish the mine supply will be some R6 to R11 billion.
“This initiative commenced in January 2007 and is a part of the solution to the shortage of electricity. We are dealing with four IPP groups and will choose one or two that will generate 800 MW to 1,200 MW. With energy users who will pledge to uptake the power, we just need to establish a wheeling agreement with Eskom’s transmission grid, which in the future is likely to be an independent entity,” Venter says.
The second major new project being planned is the Mafutha joint venture with Sasol (Exxaro 51%, Sasol 49%), with the latter looking to produce 50,000 barrels of oil a day from a new coal to liquids plant. This joint venture project is undertaking its pre-feasibility study and if it comes to fruition would entail Mafutha producing 25 million tonnes a year of coal. “We are doing bulk sampling at the site, which is some 15 km west of Grootegeluk, and are confident it will be feasible. The project go-ahead will be determined by the government’s decision on the country’s future refining capacity. Though Mafutha would be the cheaper option for the country, if another option is chosen the timing of this project will be delayed,” Venter says.
The third of the Exxaro’s major new projects is in Australia, the Moranbah South project near its existing operation there. This mine is planned to produce 8.5 mtpa of hard coking coal and is planned for commissioning during 2013/2014.
Back to Mpumalanga, Exxaro has the Belfast project in the pipeline, which would start as an energy coal producer, but also forms part of the company’s plans to increase its exports to 12 mtpa over the next decade and a half. This reserve is adjacent to the NBC and comprises some 121 million tonnes of coal. About two to four million tonnes a year could be exportable from such an operation.
In all Exxaro will definitely become an even larger feature of South Africa’s coal sector than it already is.