State mining company opens coal mine, declares oil-from-coal intent

26th February 2011 By: Martin Creamer - Creamer Media Editor

JOHANNESBURG (miningweekly.com) – South African President Jacob Zuma launched the new ‘competitive’ State mining company, which will produce 800 000 t/y of energy coal at its first mine and synthetic crude oil from another in 2013.

President Zuma turned the first sod at the new R130-million 120-employee Vlakfontein coal mine, which is situated 100 km east of Johannesburg and 10 km northwest of the town of Ogies, the first venture of the State-owned African Exploration Mining & Finance Corporation (AEMFC), which envisages being a top-five coal producer by 2020.

Zuma says that the role of the State will not be confined only to regulation of South Africa's R18-trillion worth of mineral resources, and that the State “must actively participate in the mining industry to ensure that our national interest is protected and advanced.

“Our policy is to build a strong mixed economy in which the State and the private sector complement each other to achieve shared and inclusive economic growth.

“Government policy on minerals and mining does not make provision of the nationalisation of mining assets, but it does not prevent the State from participating actively, and competing with other companies,” Zuma says, adding that mining continues to be a key component of the Johannesburg Stock Exchange, accounting for 35% of the value of the exchange.

AEMFC CEO Sizwe Madondo tells Mining Weekly Online that discussions with State electricity utility Eskom indicate that the Vlakfontein coal, which will be produced at an initial rate of 800 000 t/y, will be competitively priced.

Eskom, which will be the buyer of the Vlakfontein coal, currently burns 115-million tons of coal a year, and expects to be burning 250-million tons a year by 2018.

Former Department of Trade and Industry director-general Zavareh Rustomjee, who is on the AEMFC board, assures Mining Weekly Online that even though the new Vlakfontein coal mine will supply only the domestic market and will not export any coal, it has a solid business case.

Coal from the 15-year life-of-mine Vlakfontein has calorific values (CV) of between 19 and 22 and not at the higher export coal CVs of 26 and 27.

The State-owned Central Energy Fund has supplied the equity capital for the Vlakfontein mine, and Madondo does not anticipate obtaining any financial assistance from National Treasury.

AEMFC has reached bankable feasibility on its second coal/synthetic oil T Project, also in Mpumalanga near Bethal, for which equity capital from the State-owned Industrial Development Corporation is a possibility.

Madondo says that AEMFC hopes, from the third quarter of 2013, to be employing 1 000 people in the production of between 10 000 barrels a day and 15 000 barrels a day of synthetic crude oil from coal.

AEMFC intends to commence new coal, limestone and uranium exploration programmes in this financial year.

In Africa, it is targeting Zimbabwe, Mozambique, Liberia, Guinea and Sudan a potential investment destinations.

Energy Minister Dipuo Peters says that the State mining company needs to accelerate the acquisition of energy-related minerals in particular, to ensure that South Africa has energy security for private-sector companies investing in mining.

“Of particular interest to me is the proper allotment and management of our coal resources, further exploration and optimal production of other energy resources like shale gas, uranium, thorium and coal-bed methane.

“While we want to make sure that the State mining company is on a level field with private sector players, it would also be wrong of us not to have any particular bias towards a State-owned mining company with a motive to ensure that the country has energy,” Peters adds.

AEMFC is targeting large, long-life, quality minerals assets as well as beneficiation.

Mineral Resources Minister Susan Shabangu assures Mining Weekly Online that the industry regulating Department of Mineral Resources (DMR) has given no preference whatsoever to AEMFC.

“It has applied for its right in the right way and I must also reveal that it has also not been awarded all the rights that it applied for, either because of noncompliance, or because of those rights having been awarded to private-sector companies,” she says.

AEMFC, which has been granted 27 prospecting rights in South Africa, is currently taking steps to obtain prospecting rights for platinum group metals and base metals.

The DMR, Shabangu says, will make sure that the company remains competitive and follows all the laid-down procedures.

The main motivation for the establishment of AEMFC is to provide security of supply to Eskom.

“We want to make sure that, for now and into the future, there is sufficient coal for our economy to continue to grow. The issue of South Africa’s recent energy crisis was lack of coal supply, because of the long-term contracts of the private-sector coal companies into export markets,” Shabangu adds.

South Africa’s Chamber of Mines CE Bheki Sibiya says that the chamber has deliberated on the issue of the State mining company to the highest executive council level, and is cooperating with the formation of the State-owned mining company.

“In fact, I am here to recruit AEMFC as a chamber member,” Sibiya tells Mining Weekly Online.

“We do hope and wish, though, that the State mining company is made to operate on the same basis as all other mining companies, and we have been assured of that by the Director-General of Mineral Resources.

“We believe that there should be equality before the mining law and therefore the State mining company needs to meet all the safety, environmental, exploration, community, mining and mine closure requirements, so that there is little or no difference between the State mining company and private sector mining companies,” says Sibiya.

On the potential risk of dependence on the taxpayer for funding, the chamber CE adds: “On its formation, the shareholder, in this case the State, has to fund it. However, we would expect that once the founding capitalisation has been done, the State mining company should not depend on the taxpayer on a year-to-year basis. If that happens, the playing field will no longer be level.

“We would hope that, until the company reaches steady state, its dividends are not declared to the State, but rather used for the further capitalisation of the company,” Sibiya adds.

Samda CEO Aubrey Lekwane tells Mining Weekly Online that the junior miner body also supports the creation of AEMFC, which he sees as providing a useful opportunity to compare the performance of State-owned mining companies with that of private-sector mining companies.

“We have always said that we hope the State mining company will be treated like all other companies that participate in the mining sector, and that it will also comply with the regulatory requirements, like any other company,” Lekwane says.

Samda, he assures, will continue to keep an eye on the manner in which AEMFC is funded. He sees funding as one of AEMFC’s challenges.

Both the Chamber and Samda serve as advisory organisations to the DMR.

Historically, AEMFC arises out of the apartheid government’s sanctions-busting SFF, a subsidiary of the Central Energy Fund, which once acquired mines in the area to store crude oil.