JOHANNESBURG (miningweekly.com) – Diversified miner Anglo American was continuing its power discussions with South Africa's State utility, Eskom, on the possibility of a power plant being built that would make use of Anglo's discard coal.

Anglo Thermal Coal has large volumes of discard coal, much of it buried under rehabilitated dumps.

"We've been talking to Eskom about the possibility. There's some potential, if not massive. We certainly won't be investing in power generation, but there are ongoing discussions," Anglo American CEO Cynthia Carroll told Mining Weekly Online.

A request for a proposal for the building of a $600-million, 300-MW 
 power plant using Anglo discard coal may be invited this year or early 
next, Anglo Thermal Coal 
CEO Norman Mbazima has told Mining Weekly Online.

The plan is for an independent power producer (IPP) to own the power plant and for Anglo to enter into a power purchase agreement with the IPP, which would use Anglo's discard coal as fuel.

While Anglo had no intention of entering the business of power generation, security of supply of electricity was crucial to the company, which had prompted it to appoint consultant Mott MacDonald as technical adviser to deal with the plan to self-generate.

Anglo, which does not anticipate having to finance it, expects it to be built and operated independently.

But Anglo would have to make it happen to add to base-load electricity security for other group operations in South Africa.

Given the phased increases in electricity prices over the next three years, Mbazima said that he expected Anglo to be able to produce the electricity more cheaply than the price at which Eskom would be selling it.

But cost is not the main issue for Anglo Thermal Coal itself, as power currently represents 3% of its costs with the chance of that rising 
to 4%, but the crux of the matter is that it needs electricity to mine.

Anglo Thermal Coal has enough discard coal for a long-life 
power station of from 40 years to 50 years.

Eskom has reportedly responded positively to the Anglo plan, which is likely to be included in South Africa's proposed integrated resource plan.

Anglo would also have to feed into
the transmission grid currently owned 
and operated by Eskom and would have 
to agree commercial terms with Eskom.

Some envisage the discard coal power plant being located between Anglo's Kleinkopje and Greenside collieries in Mpumalanga province.

A modular approach is possible, which may result in three 300-MW power plants being built.

Xstrata Coal is also said to be mulling a 600-MW self-generation plant in Mpumalanga.

Corporate Governance

On the perceived corporate-governance breach of Carroll chairing Anglo Platinum, Carroll said that Anglo was well aware of the King 3 code of corporate governance, which was why it had appointed Valli Moosa as Anglo Platinum's independent deputy chairperson.

"I am regularly in communication and in meetings with the Anglo Platinum team in terms of driving the value of that business and working with Anglo to create value," Carroll commented to Mining Weekly Online on the motivation for he appointment as chairperson, which has been sharply criticised as a King 3 breach by shareholder watchdog Theo Botha, as well as mining analysts.

Kumba/Arcelor dispute

On the impact of the mining rights dispute between Kumba Iron Ore, ArcelorMittal South Africa and Imperial Crown Trading on South Africa as an investment destination, Carroll said that the dispute had in no way influenced the positive way in which Anglo saw South Africa as an investment destination.

"Absolutely not. We are committed to South Africa. We are performing in our businesses exceptionally well. We continue to invest in South Africa and we see considerable growth opportunities in South Africa for the long term," Carroll added.

Minas Rio Overruns

Fully eclipsing the South African mineral-rights dispute are the potential cost overruns of Anglo's Minas Rio iron-ore project in Brazil, which is experiencing permitting delays.

"There are a number of key regulatory approvals outstanding and these will impact on the timing and capital cost of the project," Carroll said.

Mining, which was expected to begin in 2011, will now take place in 2013, at the earliest.

"We have secured 23 out of the 33 critical licences. We are looking for the second phase of our installation licence, which will allow us to commence construction around the mine as well as the beneficiation plant.

"We also are looking for land access approvals to allow us to proceed to deposit some of the earthworks around the pipelines as well as the beneficiation plant.

"We're also looking for releases on some of the areas where we've discovered some caves around the beneficiation plant and we are also looking to complete the registration of land around the beneficiation plant.

"We have begun the laying of the pipeline on spread three and we have moved considerably in terms of land access," Carroll said.

In January this year it had 54% access and currently it had 84%, but the timeframe was "somewhat of a moving target".

"We can't give an absolute timetable. We are looking at 27 to 30 months, once we get all of the permits and licences, and we're expecting to do that in the next nine months or so," she said.

There were no issues with Brazil-based diversified miner Vale, which had signed off on Anglo being given access to the land owned by it.

"There is no intention whatsoever to divert the pipeline because of land access issues. We are very confident that access does not represent a bottleneck for us," she said.

Costs might rise by 20% because of delays in getting permits. Licensing and design changes would add $210-million in costs, while another $18- million a quarter might be incurred from "schedule-related costs" incurred over nine months.

Both the delay and the $750-million cost overruns have been widely anticipated in the media.

Anglo bought Minas Rio at the top of the commodity cycle for $5,5-billion and now the development of the mine might rise to $4,55 billion, based on the increased costs.

Some 26,5-million tons of iron ore are scheduled to be produced in Minas Rio's first phase.

In February, Anglo estimated the cost of the project at $3,8-billion, up from an earlier figure of $2,7-billion.

Anglo, after an 18 months delay, has resumed dividends, which it hardly failed to pay religiously over a 60-year stretch.

Liberum Capital failed to be assured by "the tone of progress at Minas Rio".

Analysts Sanford C Bernstein noted that Anglo lacked certainty on when construction could begin.

Credit Suisse AG claimed that Minas Rio has been a problem ever since it was bought in 2008 Minas Rio, first being bought at the peak and now being caught in delays and cost overruns.

Carroll is selling zinc, steel and phosphate assets to focus on iron-ore and copper.

Anglo agreed this year to sell its zinc mines for $1,34-billion, parts of its Tarmac construction materials unit for $400-million and Australian coal assets for about $450-million.

The disposals are expected to realise from $6-billion to $8-billion and, coupled with a possible selling of part of Minas Rio to a partner, a further $2-billion to $3-billion could raised, to take the total to $10 billion, Credit Suisse has estimated.

De Beers

Carroll said that Anglo had no intention of hiving off diamond-company De Beers in a relisting.

"Our focus is very much on driving the business for value. The business is on very solid ground with the recent refinancing and we continue to regard De Beers as a core business, " she said.

Diamond production was up by 134%, sales were up by 84% and costs were being contained.

"We have a very close relationship with the De Beers management, which probably came about through the challenges around the refinancing that we had earlier. We are very well connected."

On the stepping down of De Beers CEO Gareth Penny, Carroll said that Penny had been with De Beers for 22 years, the last five as CEO, "and he simply elected to do something else".