LEPHALALE (miningweekly.com) – The JSE-listed diversified mining company Exxaro on Thursday took its coal business downstream in a move that has the potential to match the current earnings of its flagship Grootegeluk coal mine in the next five years.

In opening its R300-million, 140 000-t/y char plant in Lephalale, Exxaro CEO Sipho Nkosi told Mining Weekly Online: “We are today satisfying the South African government’s great passion to go downstream with locally mined products, to add value and to provide jobs in this country.”

Exxaro GM business growth Ernst Venter told Mining Weekly Online that char would add three times the value of coal and the company’s later envisaged move into market coke would add five times the value.

By 2014, going downstream would, in terms of earnings before interest and tax, equal what Exxaro currently achieved at Grootegeluk in the Waterberg coalfield.

Exxaro GM coal Mxolisi Mgojo said at the opening that the char would be sold to South Africa’s large ferrochrome market, which used a mixture of reductants, including coal, char and anthracite.

“By supplying reductants to the ferrochrome industry, we are supporting a key export market,” Mgojo told Mining Weekly Online.

The Lephalale mayor, Rosina Mogotlane, told Mining Weekly Online that most of Exxaro Grootegeluk’s 2 700-strong workforce came from communities in Lephalale.

“Conservatively, this means that more that 10 000 people benefit each month,” Mogotlane said, adding that mining had been the single biggest source of transformation in South Africa.

Venter said that the company envisaged doubling its char production to 280 000 t/y in 2011 and producing 500 000 t/y of higher-value market coke by 2012, which would itself be further doubled to a million tons of market coke a year.

Merrill Lunch resources analyst Shaylen Trikamjee approved of Exxaro's decision to go downstream.

"Using their strength in coal to access their downstream markets is very positive," Trikamjee told Mining Weekly Online.

Another analyst, who as also part of the large contingent of media and analyst personnel on a visit to Exxaro's Waterberg coal operations, said he had come on the visit opposed to Exxaro wanting to go downstream, but was returning home enthusiastically in favour of the idea.

"I calculate that the downstream investment will pay for itself in three years," he said, adding that the business case was compelling.

Another analyst said that the company's growing investment in coal could signal that it was ready to shed its struggling stakes in zinc and mineral sands and use those funds to optimise its position in coal.

Exxaro would be spending at least R30-billion-plus in a development plan for the Waterberg coalfield, which would include the building of three new coal mines, two of them greenfield projects and one in joint venture with Sasol, which intends building the large fuel-from-coal Mafutha project in the area.

Eskom is investing R120-billion in the new Medupi power station, to which Exxaro will supply 14,9-mllion tons of coal a year as part of a R9-billion Grootegeluk Medupi coal expansion.

Exxaro also has plans to cogenerate its own electricity in order to protect itself from the rise in the power price.