Exxaro’s Grootegeluk Medupi expansion project to start production in latter half of 2012

Diversified miner Exxaro Resources is eyeing its next major coal project as it forges ahead with bringing home the Grootegeluk Medupi expansion project (GMEP), in Limpopo.

CEO Sipho Nkosi says the company has spent considerable time and effort on the GMEP, which is on course to start production during the second half of next year, with first delivery of coal to Eskom expected soon thereafter.

“The company obviously has a good skills set coming out of GMEP, which will be used on future expansion projects. The obvious first choice is Thabametsi, which is also situated in the Waterberg region; however, the company is considering its options,” says Nkosi.

One such option is developing a coal project in Mozambique, which the company is contemplating. However, Nkosi warns it is still too early a stage to firmly commit to this.

In addition, the company is developing a mega- mine in Australia, called Moranbah South, which has the capacity to produce 12-million tons of hard coking coal a year.

The GMEP will be the exclusive supplier of coal to Eskom’s Medupi power station, which is to be ramped up in stages, starting next year. Exxaro executive GM Ernst Venter reports the company has signed a coal supply agreement with a smaller independent power producer which will be supplied from the Thabametsi project. And the majority of Exxaro’s exports from South Africa and Australia will be on a passage to India.

“In the past, 70% of the company’s coal exports were Europe-bound, with the remainder going to Asia. However, owing to India’s signifi- cant coal demand, over the next five years, the company will be gearing its exports in such a way that 70% will now be Asia-bound, with the ‘lion’s share’ going to India, while 30% will be bound for Europe,” says Venter.

This could be a significant cash generator for the company, considering India’s and China’s seemingly insatiable demand for infrastructure-related projects.

But Exxaro will be facing stiff competition from the likes of Indonesia, which has seem- ingly captured a significant portion of that market, with 275-million tons of export coal a year, overtaking Australia, which only exports 141-million tons a year.

“The competition from Indonesia is stiff; however, clients like to put their eggs in many baskets to spread the risk. Exxaro is in consultation with a major Chinese power company to supply between 30-million and 40-million tons a year to it,” says Nkosi.

The better part of this would be exported out of Australia as Exxaro only has a 40-million- ton-a-year export allocation out of the world’s second-biggest coal export terminal, the Richards Bay Coal Terminal (RBCT). Coupled to this is the added frustration of transport impediments on the Transnet Freight Rail line to the terminal. Nkosi adds that, although this is seemingly improving, the company needs to look at other options.

Venter points out Exxaro is part of the consortium bidding to be part of the proposed Trans-Kalahari coal line, which would run from Botswana through Namibia all the way to Walvis Bay.

It also seems that Exxaro is eager to receive word on this as Venter reports that, should the company receive word tomorrow that it will be part of the development of that line, it would be able to mobilise itself to concentrate on that project.

He says that, for that line to be sustainable, it would need to transport no less then 40-million tons a year and the company’s basket of projects in the Waterberg will be able to supply the line with about 10-million tons, 12-million tons or even 20-million tons a year.

“This company is focused on growth. But the key is not to grow the company to death. What Exxaro is doing is taking an excessive long-term view on the situation, asking what will happen after 2050 when the majority of the company’s current projects will be long dead and buried,” concludes Nkosi.