David McKay | Thu, 04 Apr 2013 12:24
[miningmx.com] – A PROPOSAL by Eskom and the public enterprises department (DPE) last year to stimulate South Africa’s junior coal industry by injecting capital into the junior market may find private sector participation lacking.
According to Malusi Gigaba, public enterprises minister, the private sector had been “generally supportive” of Eskom and DPE plans to help finance the mines required to plug the 4 billion tonne coal supply deficit Eskom was facing from now until 2040.
Of the 4Bt supply deficit, some 1.97bt had already been contracted, but a further 2.1Bt was still to be secured. Of this, Eskom believes some 1.3Bt can be provided by new, black-owned companies.
“We have no option for any back-up plan to secure future coal,” said Brian Dames, CEO of Eskom at the time of the announcement on December 10. “We have to make sure new mines open and that more than the majority of them are by black-owned companies,” he added.
The evidence from junior mining companies already listed, however, is that financing is difficult and almost always ends up with having to part with shares, or sell large chunks of production and handing over marketing control.
This would mean Eskom and the developmental agencies that DPE also hoped would help with financing a new generation of black-owned mining companies – the IDC and DBSA – will have to supply a large part of the finance.
Resource Generation (Resgen) was the latest company to equity finance its mine, the Boikarabelo thermal coal mine in the Limpopo province’s Waterberg. It sold 7.5% of its shares raising $8.5m to the Noble Group, a Singapore-based trading which also snapped up Resgen’s marketing agreement over its coal.
On the same days of Resgen’s share sale announcement, another JSE-listed coal developer, Firestone Energy, announced its deal to have A$40m in debentures re-financed fell by the wayside. It turns out Firestone Energy was unwilling to support the takeover of the company by Range River Gold, an Australian-listed cash shell Firestone’s chief financier, Ariona Company, supported in its bid.
In March, Continental Coal, a junior miner listed in Australian but operating in Mpumalanga province, sold 19.9% of the company for R79m to Village Main Reef. A 24.9% stake in Coal of Africa (CoAL) was sold earlier this year to the Chinese Beijing Haohua Energy (BHE). It’s difficult out there.
The thermal coal price isn’t helping. According to Bevan Jones, GM of trading group London Commodity Markets in Johannesburg, the next technical support for thermal coal prices ex-Richards Bay is $75/t against current prices of $81/t.
Were that level to be breached, many of South Africa’s marginal thermal coal producers would go out of business, said Jones.
The outcome is that the state may have to carry the burden for South Africa’s new thermal coal mines and it perhaps explains why currently 61% of coal bought by Eskom was procured from eight mines belonging to the likes of Anglo American, BHP Billiton Energy South Africa, Xstrata and Exxaro Resources.
“From 2018, the shortfall is significant and allows a window for development, including the Limpopo and Waterberg coalfields. It is important to start the planning process now,” said Dames in December. “We would like to see its start as soon as possible so we can start implementation,” he added.
The latest word from Eskom is that a fund involving Eskom and development agencies is being designed. “But it takes time,” said Hilary Joffe, spokesperson for Eskom. “Since the supply of the coal that is financed would be to Eskom, it has to be done in a certain way,” she said.