JOHANNESBURG (miningweekly.com) – The coal-mining unit of diversified resources group Exxaro Resources announced on Wednesday that it has signed a "definitive" coal supply and offtake agreement with Eskom for the 4 800-MW Medupi power station, which is being developed in South Africa's Limpopo province.

The revised agreement will see delivery of first coal during the second quarter of 2012, with ramp-up to full production by 2015. However, a stockpile would be developed, as from September 2011, ahead of Medupi's start-up and would comprise material from Exxaro's existing Grootegeluk mine, as well as some material from the new Grootegeluk-Medupi expansion.

Under the initial agreement, signed in September 2008, Exxaro Coal was meant to supply an average of 14,6-million tons a year to the power station, with delivery planned from the fourth quarter of 2011, ramping-up to full production by 2014.

However, in December last year, Eskom requested Exxaro to review certain of the commercial terms of the agreement, which led Exxaro to temporarily suspend project funding for the R9-billion Grootegeluk-Medupi expansion project.

"This ramp-up is now in line with the commissioning and commercial operation date of the first unit of the power station," Exxaro's Ernst Venter said.

He described the final pricing deal struck between Eskom and Exxaro as favourable to South African electricity consumers, primarily owing to the fact that future price escalations had been moderated under the reviewed deal. However, he stressed that Exxaro had also secured agreements that would enable it to "derisk" the capital escalation portion of its own project.

He told Mining Weekly Online that the funding programme for the coal project, which is now likely to cost between R9,2-billion and R9,4-billion, owing to the delay, had been re-initiated.

It would probably be structured on a two-tier basis with the first R4,5-billion to be raised on the basis of commercial debt, with the balance being project financed.

Venter said that the placement of additional contracts for the expansion had also resumed, with requests for quotations having been issued for the coal plant, the in-pit crusher and the raw-material bunker. About 65% of the project's overall value still had to be let, but Venter said that the bulk of the contracts would have been placed by year-end.

The coal conveyor between the mine and the power station was currently being prioritised so as to ensure that a coal stockpile could be developed well ahead of the power station's commissioning date.

Exxaro would supply an average of 14,6-million tons yearly to the R120-billion base-load power station for a period of 40 years.

The State-owned power utility confirmed with Mining Weekly Online during March, that power from the first Medupi unit was still scheduled to come onstream in the first half of 2012 and that there had been no material delay to the construction schedule.

Serious questions had been raised about whether or not the project remained on schedule, with equipment suppliers and contractors having indicated that they had been experiencing significant scope changes and delays at the project site.

The Department of Energy's integrated resources plan, which was published on December 31, 2009, indicated that the first 738 MW from Medupi will be introduced in 2012, with the second 738 MW entering a year later.

Exxaro said that the agreement was subject to the fulfillment of certain suspensive conditions, including board sanction from the respective companies and on Exxaro securing the required funding.

Venter told Mining Weekly Online that Exxaro's fundraising would not be directly affected should Eskom fail to secure a $3,75-billion World Bank loan next week.

However, he said that, should Eskom's funding problems lead to a scaling back of Medupi, its capital and funding programmes would then be affected.

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