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Arm Coal mulls 20 coal prospects as Eskom seeks 45Mt more
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20th February 2008
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Apart from the 3,5-million tons that Arm Coal and Xstrata Coal would supply to embattled power utility Eskom once the R3,2-billion Goedgevonden joint venture was at full production in 2011, some 20 other prospects would be interrogated to potentially augment that supply, Arm CEO Andre Wilkens told Mining Weekly Online exclusively.

Coal-hungry Eskom announced last week that it was going to procure an additional 45-million tons of emergency coal over the next two years to increase stockpiles at its power stations to at least 20 days.

The utility's stockpiles had fallen to an average of below ten days, which, together with quality problems, had led to material load losses in January. This, combined with scheduled summer maintenance and unplanned events, resulted in the unavailability of up to 25% of Eskom's generation capacity, forcing the utility to resort to an unpopular load-shedding regime.

Speaking with Mining Weekly Online following the release of stronger financial results, with Arm's interim headline earnings rising 35% to R741-million, Wilkens revealed that the coal partnership was in receipt of 20 new prospecting licences and that the properties could now be studied.

The diversified miner's coal interests are housed principally through its 51% interest in Arm Coal which, in turn, has a 20% equity participation in the 12 operating collieries operated by Xstrata Coal South Africa, which itself owns the remaining 49% of Arm Coal. Further, ARM Coal had a 51% direct interest in the Goedgevonden coal project, which, once fully established, had been configured to export 3,2-million tons yearly through the expanded Richards Bay Coal Terminal (RBCT) and sell the 3,5-million ton balance domestically.

"Our first step is the Goedgevonden project, which is designed to supply 3,5-million tons to Eskom. [But] the orebody has the potential to do better if we can find offtake for that," Wilkens asserted.

"[Then] we have approved more than 20 new prospecting licences, where we, together with Xstrata, will focus on how we increase our capacity out of that," he explained, adding that he, therefore, did not foresee a situation whereby Arm Coal would need to reduce its export tons to divert supply to Eskom.

He stressed, too, that many of the properties could be brought into production fairly quickly once offtake agreements had been reached.

"Once we have completed the drilling and done feasibilities, some of these projects can be brought on-line fairly quickly. Coal is not like a gold mine that takes many years to get into production. You can probably, once you start a mine, get into production in two-and-a-half to three years."

Logistically, too, he was confident of meeting Eskom's requirements, noting that Goedgevonden was being developed alongside the existing rail infrastructure, giving it the flexibility to supply four power stations.

The key to unlocking this and other coal, though, would hinge on Eskom's price appetite. The utility had already acknowledged that it would need to pay considerably more for new and additional coal than it did currently under its long-term contracts.

It is understood that some of these contracts enabled Eskom to buy coal at as little as R52/t, while the average price had increased to between R90/t and R110/t, owing to the fact that it was having to buy more coal at spot pricce as it ran its plants harder and longer to keep pace with demand.

But given the strong demand for seaborne steam coal, and even for the lower grade 15 MJ/kg to 22 MJ/kg consumed by Eskom's plants, the new domestic price is likely to be far higher.

In fact, Arm confirmed that the R150/t to R200/t range being mooted was probably more realistic given the tight market conditions.

"We have not finalised the contract rates [with Eskom], which we want to do closer to the time of delivery, with the intention of trying to get as close to spot prices as possible," Wilkens concluded.

Edited by: Creamer Media Reporter


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Arm CEO Andre Wilkens in conversation with Mining Weekly's Terence Creamer about prospects for additional coal supply to Eskom from its Arm Coal unit. Cameraperson: Danie de Beer. Video Editing: Darlene Creamer.
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