JOHANNESBURG (miningweekly.com) - Coal would in time need to be railed from the emerging Waterberg coalfield to power stations in the depleting Witbank coalfield to ensure South Africa's energy security, diversified resources company Exxaro executives said on Thursday.

At a media roundtable after Exxaro reported an 8%-higher headline earnings a share and declared an interim dividend of 100c a share, Exxaro CEO Sipho Nkosi, who is also president of the Chamber of Mines, said that the Waterberg was poised to become the most economically viable source of coal for the power stations in Mpumalanga once it was no longer viable to source coal from Mpumalanga itself.

South Africa's coal-fired power stations have traditionally been built in Mpumalanga and many mothballed stations have been returned to service there in recent years.

From an energy security point of view, Exxaro GM Coal Mxolisi Mgojo said that more than 30-million tons of coal a year from the Waterberg into the Mpumalanga area would be needed to feed current power stations once coal sources in Mpumalanga were depleted.

A rail corridor from the Waterberg, through Mpumalanga to the Richards Bay Coal Terminal in Kwazulu-Natal was a critical element that needed to be established, Mgojo said.

"The life of the power stations would be longer than the availability of coal," Exxaro GM business growth Ernst Venter said.

While there would still be coal in Mpumalanga, Nkosi said that it would be scattered in a manner that would make it costly to supply to the power stations and that it would be more economically viable for coal to be railed in from the Waterberg coalfield, where there were large deposits.

Exxaro is currently the single biggest supplier of coal to both State-owned power utility Eskom and the domestic metallurgical market and the company intends to increase its coal production to 100-million tons a year by 2017, an increase of 50-million tons from its current production level.

The Exxaro executives also made the point that the future of South Africa's coal exportation would also be largely Waterberg based, giving any rail line built a twin purpose of providing both energy security as well as a rail corridor to the Richards Bay export terminal in Kwazulu-Natal.

The coal terminal would soon have a capacity to export 91-million tons of coal.

"We're very bullish on export coal," Nkosi told Mining Weekly Online.

"The market is not only in Europe, where we are now supplying, but is also in the Far East, where we are now opening up new markets. The whole issue is going to be logistics," he said.

The company aims to increase its coal exports to 12 million tons a year of coal by 2014, from its current total of five million tons a year.

It has long-term plans of 26-million tons a year of coal export potential, but for that to be possible, it will have to overcome rail constraints.

The company is working with rail operator Transnet Freight Rail on logistical solutions as well as with a private-sector consortium, which is discussing the feasibility of establishing an alternative coal-export rail alternative through the Kalahari to Southern Africa's west coast.

"If there can be collaboration between various Southern African governments and institutions like the International Monetary Fund and the World Bank, I'm sure that project could go ahead.If it were to happen, it would unlock a lot of value for Botswana, South Africa and Southern Africa," Nkosi said.

Eskom business is stable for Exxaro, with its expanding Grootegeluk mine as part of a contract to supply 14-million tons of coal a year to Eskom's new Medupi power station that is under construction in the Waterberg. The second phase of the project, formerly known as Grootegeluk West but now called Thabametsi, is expected to produce an additional 16-million tons of coal a year, for both the energy-coal and the metallurgical-coal markets.

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