JOHANNESBURG (miningweekly.com) – JSE-listed Exxaro has maintained steady overall coal production during the first half of 2015; however, the diversified miner’s exposure to State-owned power utility Eskom, both as a supplier of steam coal and as an electricity consumer, has emerged as a material risk.

In a first-half preclosing statement, the company said the ramp-up of the Medupi power station had pushed coal production and sales volumes of the first six months of the year slightly higher than that recorded in the corresponding period the year before.

However, output for the remainder of the year would be marginally below that of the second half of 2014 owing to lower production at Exxaro’s Eskom-tied operations.

The diversified miner’s coal export sales for the six-month period under review were expected to be lower than the first half of 2014, on the back of the near-term closure of the Inyanda mine and lower volumes from Grootegeluk as production was reprioritised to deliver power station coal to Eskom’s Medupi and Matimba.

Meanwhile, domestic sales were expected to be lower than both the first and second halves of last year, owing to limited available product from Inyanda, lower steam coal production at Leeuwpan and the Majuba breakdown.

“The integrity of coal-handling infrastructure at the Majuba power station remains a key risk to Exxaro and this situation has resulted in reduced offtake from Eskom in the first half of 2015, impacting negatively on our Leeuwpan operation,” the company pointed out.

Further, negotiations were under way for a new three-year supply agreement for coal from Leeuwpan after the existing coal supply agreement for Majuba power station expired at the end of the first quarter. Supply continued under a temporary agreement.

The group was establishing a “mutual relationship of trust and ongoing communication” with the parastatal to ensure reliable coal supply and offtake; however, Exxaro remained open to broadening its customer base.

To date, the ramp-up of Grootegeluk coal supply to the Medupi power station had progressed as planned while the station’s Unit 6 was being commissioned. Stockpiles were being built up.

“We continue to engage with Eskom regarding the announced later dates for the remaining units to understand any impact this may have on the coal supply and offtake agreement,” Exxaro noted.

Exxaro and the Independent Power Producer (IPP) project company intended concluding a coal supply and offtake agreement from the Thabametsi mine prior to the IPP submitting a bid under the Department of Energy’s Coal Baseload IPP Procurement Programme, the request for proposals of which was delayed until the end of August.

Meanwhile, as downward longer-term weakened commodity prices and rising labour and electricity costs bite, a renewed focus on operational efficiencies and cost management was set into action.

“We continue to critically assess growth projects, taking cognisance of the timing of cash flow in order to prioritise capital accordingly,” the company said.

Some coal projects, including phases 5 and 6 of the semicoke retort, Moranbah South and Mafube Nooitgedacht, were delayed amid the current unfavourable economic climate and subdued outlook.

The group’s capital expenditure (capex) for the 2015 financial year was expected to decrease to around R3.1-billion – below the previous guidance of R3.5-billion – with the overall ratio of sustaining to expansion capex expected to be about 70:30.