Hi allI have been thinking of this lately, if we are to be a...

Hi all

I have been thinking of this lately, if we are to be a stand alone Coal company in SA, we need to get the finance sorted out ASAP, and also get the mine up and running ASAP

Now at the moment with what's happen in SA, as well as the market condition worldwide, do you think that PJ and RES can pull it off ??.......I know that it feels like only yesterday when I first got into CDS/RES, I had a look at my records when I first brought into CDS/RES January 08 almost 5 years, and I think that it will be another 18 months away. (wife's not happy lol)

Anyway I have been doing some research on who is who (coal companies in SA) and think that if RES cannot stand alone by herself........ then this could happen (takeover) I might be wrong on it all, and RES will become a Coal company in SA which will make me very HAPPY !

Sorry about the long post..... but we need to look at all options for the future of RES and for us its shareholders.

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I’m thinking that it would have to be someone that is doing business in SA already, as they know how to move around the Government departments in SA, out of the top 5 coal companies in SA doing business these are the top three in SA, companies in the top 3 which are #1 Xstrata Coal, #2 Sasol Mining and #3 Anglo Coal.


The market cap of each company is as follows.


Xstrata Coal....... $ 29.35 Billion.


Xstrata Coal is the world’s largest producer and exporter of thermal coal and has operations in Australia, South Africa, Colombia and Canada. Xstrata’s South African coal production in 2008 was around 20 Mt of which 12.3 Mt where exports.
Xstrata’s Impunzu underground mine has now been closed, while the new Goedgevonden opencut thermal mine has been commissioned and is increasing production.
Black empowerment company African Rainbow Minerals (ARM) has a 10% direct interest in Xstrata Coal South Africa (XCSA). ARM also owns 51% of its subsidiary, RM Coal, which in turn holds a 20% interest in XCSA.20 ARM’s overall economic interest in XCSA thus amounts to 20.2%.21
Xstrata Coal plans to invest US $2 billion to develop four local projects in the next five years, including the Goedgevonden expansion (6.8 Mt + 4.5 Mt), optimisation of Tweefontien & Atcom East (2 Mt) and a new mine, Zonnebloem
(7-12 Mt).

Xstrata Coal South Africa holds a 20.9% interest in the Richards Bay Coal Terminal Company Ltd (RBCT).



Sasol Mining....... $ 27.18 billion.


Sasol’s coal-to-liquids and chemicals processes consume about 44 Mta of coal. This is supplied mainly by its subsidiary company, Sasol Mining (Pty) Ltd, now South Africa’s third largest coal producer, after Anglo Coal and Exxaro, with production capacity of 43-46 Mtpa, although total production has been lower - about 39 Mt in 2009. The vast majority of Sasol Mining’s coal production is from its mines in the Highveld coal field which supply its Secunda CTL and associated power plants. In addition, its Twistdraai mine, and the Igoda Coal subsidiary with Eyesizwe, also in the Highveld coalfield, supply export coal (up to 3.6 Mtpa). The production ratio at Twistdraai is roughly 40% export (washed) coal, 40% middlings for synfuels and 20% fine, discard coal. The new Thubelisha shaft in the north-east of the Secunda complex will replace the depleting Twistdraai operation. Another new mine—Impumulelo—is being established in the south-western portion of the Secunda complex to replace the Brandspruit mine.



Anglo Coal...... $ 22.98 Billion.


Anglo American is South Africa’s largest coal producer. It is also one of the world’s largest diversified mining groups. Its Anglo Coal Division has operations in South Africa, Australia, South America and Canada. It owns and operates eight mines in South Africa. Four are in the Witbank coal field (Goedehoop, Greenside, Kleinkopje and Landau) and these supply some 20 Mtpa of predominantly thermal coal, mainly for export markets, but also smaller amounts to local industries. These mines also produce about 1 Mta of metallurgical coal for export. In addition, Anglo operates a number of dedicated mines for Eskom. The Kriel and New Denmark (Tutuka) mines in Mpumalanga Province, and the New Vaal (Lethabo) mine at Vereeniging, have cost-plus, long-term contracts with Eskom, while the Mafube (Arnot) mine, also in Mpumalanga, is 50% owned with Eyesizwe9, and has a long term indexed-price Eskom contract. Anglo’s Isibonelo mine supplies a relatively small portion of Sasol’s needs on a long term fixed (indexed) price contract.



Exxaro....... $ 7.31 Billion.


Exxaro is a South African-based, majority black-owned, mining group with a coal production capacity in 2008 of around 48 Mta. It has consolidated its position through mergers and acquisitions and in 2008 it produced a total of 45 Mtpa which included 36.3 Mt for Eskom and 3.3 Mt for export markets. It has an export entitlement at Richards Bay of 6.3 Mtpa.
In addition to its mines in the Witbank field, Exxaro is currently the one large operator in the Waterberg, where different qualities of coal are found. Semi-soft coking coal is present in an upper 60m thick sequence of intercalated mudstone and coal bands (the Grootgeluk Formation) and steam coal is found in a lower 55m thick portion of discrete seams (the Vryheid Formation). This is high ash coal and requires washing before supply to Eskom’s power plants (typically 60% down to 35% ash). Further washing would be required for exports.

Exarro has signed a 40 year coal contract to supply 14.6 Mtpa to Eskom’s new coal fired plant, Medupi, from a R9 billion expansion of its Grootgeluk mine.


There are serious constraints on rail infrastructure out of the Waterberg. Exxaro would like to see rail capacity from the Waterberg increased to 40 Mtpa – with about 20 Mtpa for exports and 20 Mtpa for Eskom’s Mpumulanga power plants.


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Eskom’s performance

In recent years, Eskom has not been able to meet fully the demand for electricity in South Africa and there have been a number of blackouts. In the period 1999-2004, the government was considering unbundling Eskom and introducing a competitive electricity market. Private investment in generation was encouraged, and Eskom was prohibited from building new power stations. The reforms were part of a wider effort to improve efficiencies in state-owned enterprises and the overall competitiveness of the economy. However, by 2004 the design of the new market had not yet been approved (partly because of insufficient political buy-in and union resistance, and partly because of tacit resistance by Eskom). Contracting arrangements for Independent Power Producers been not been put in place. With no new private investment, government backtracked on its market reforms and once again charged Eskom with responsibility for generation expansion planning and new investments (although it is still government policy that independent power producers (IPPs) may provide up to 30% of electricity generation).

The consequence of this policy detour was Eskom falling four years behind in terms of power station investments. Growing demand soon out-stripped supply and blackouts began to be experienced from 2006, first in the Western Cape, and then later nationally. The situation was exacerbated by poor operating performance of Eskom’s existing plant and the run-down of its coal stockpiles, in part because of higher burn rates, un-seasonal rain and supply problems, but also because Eskom’s financial managers were pushing for lower inventory costs. In January 2008, Eskom load-shed large energy users such as mines and minerals beneficiation industries in order to avert a total system collapse. Although, these users resumed operations a week later, they were subjected to electricity consumption quotas which lasted until late 2008 when demand fell away as the global recession impacted the South African economy.


Eskom’s CEO failed to act on these warnings and the 2008 blackouts ensued, induced in the end by insufficient coal for Eskom’s power stations. Ultimately, Eskom’s CEO was sacked and a new executive team is seeking to restore supply security. Coal stockpiles were rebuilt to an average of about 42 days (although recently these have declined to about 36 days). The level of coal stockpiles differ from power station to power station: Matimba, which is supplied reliably by an adjacent mine, has a stockpile of around 20 days; the more vulnerable Majuba station has a stockpile of about 75 days.


However, supply and quality problems remain. Only three of Eskom’s power stations, Kriel, Matla and Matimba are currently supplied entirely by conveyor systems from adjacent mines. Conveyor supplies to the Lethabo, Hendrina, Kendal, Duvha, Tutuka and Arnot power stations have to be supplemented by road deliveries of coal. The Camden power station is entirely supplied by road and, as previously mentioned, Majuba is supplied by both road and rail. The World Bank loan to Eskom, announced in 2010, includes funding for the development of a heavy haul coal line to Majuba. Deteriorating coal quality at Duvha, Matla and Tututka, in particular, have lead to these power stations operating well below their rated capacity resulting in annual losses of about R1 billion.



New investment

The electricity supply/demand situation remains tight and Eskom is now playing catch-up. It has embarked on a massive investment programme which will see its capacity increased by about 12000MW over the next 10 years. The planned capex programme over the next five years amounts to close to R400 billion (US $53 billion).
Much of Eskom’s new generation capacity will be coal-fired. It has brought back into service three old coal stations (Camden, Grootvlei and Komati) and is currently constructing two new coal fired power stations: the 4764MW Medupi24 plant in the Waterberg (to be supplied by Exxaro) and the 4800MW Kusile plant in the Witbank coalfield (to be supplied mainly by Anglo Coal’s New Largo colliery). These new power stations will use supercritical technology. Medupi, situated in the remote Waterberg coalfield, will not initially have flue-gas desulphurisation (FGD), while Kusile, located in the more densely settled Mpumalanga Province, will have FGD fitted upfront. Both will evidently be ?carbon-capture ready? – i.e. they could be retrofitted with this technology at a later stage.
Investment decisions have not yet been made beyond the Kusile plant. Earlier plans envisaged the construction of two further mega coal power stations by Eskom but, as we shall see later, environmental concerns now make this unlikely. Quotes for a new nuclear power station turned out to be very expensive and beyond Eskom’s means to finance from its balance sheet. South Africa has insufficient natural gas and hydro capacity and other renewable energy resources, such as wind, have not yet been exploited on a large scale.



Sasol

Sasol operates the only commercial coal-to-liquids fuel production facilities in the world. Its Secunda plants produce around 160,000 barrels per day of petroleum (just over a quarter of South African consumption) as well as a range of petro-chemical products. It is also one of the largest single sources of carbon emissions in the world. It consumes around 44 Mtpa of high ash (35%) and low calorific value (less than 5000 kcal/kg) coal, amounting to about a fifth of domestic coal use. Sasol’s total greenhouse gas emissions total 72.7 Mt CO2 equivalent per annum.25 While synfuel production at Sasol’s existing Secunda plant will increase by up to 20% by 2015, it will not require much additional coal production; additional feedstock will be natural gas from Mozambique and coal fines from stockpiles.

Sasol is currently undertaking a pre-feasibility study for a new US $5-7 billion, 80,000 barrels per day, CTL plant called Mafutha in the Waterberg coal field. It has signed a joint venture agreement with Exxaro to explore the feasibility of a coal mine which would supply 25 Mtpa to the new Sasol plant. While Sasol staff are optimistic regarding the viability of this investment, government departments are more cautious, both in terms of the tax and fiscal support measures being sought by Sasol and also the impact Mafutha will have on South Africa’s greenhouse gas emissions.

As previously mentioned, Sasol’s coal is supplied almost entirely by its subsidiary, Sasol Mining from adjacent mines, through an internal transfer price which is not publicly disclosed. According to Sasol’s 2008 annual report, Sasol Mining earned R5 billion from ?inter-segment? turnover which would imply a price of less than R120/tonne (US$15/tonne). DMR data for 2008 indicates an average price of R127/tonne for coal for synfuels production. Data derived from Sasol’s 2009 Annual report indicate that internal coal prices for its synfuel operations are less than R150/tonne (US$20/tonne). Sasol Mining also exports small amounts of high value coal which contribute about a third of its coal revenue.


Coal rail infrastructure


The Waterberg field is 1050km from the coast and does not yet have a dedicated coal rail link to Richards Bay. Currently, small amounts (less than 1 Mtpa) are railed from the Waterberg via the existing Transnet Freight Rail network


Expansion of coal production will be driven primarily by domestic power demand


The major driver in the development of domestic coal markets is undoubtedly Eskom’s investments in further coal-fired plant. In 2008, Eskom has estimated that it would need around 200 Mtpa of coal by 2018 and that South Africa would need 40 more coal mines at an investment of R100 billion. A number of old mines are nearing the end of their useful life and, according to Eskom estimates, new mines will have to contribute around 180 Mtpa within 10 years to meet Eskom, Sasol, other domestic and export demand.
Eskom’s estimates are definitely on the high side. Electricity demand fell in 2008/9 as a result of the recession and their forecasts have since had to be revised downwards. The author’s own modelling (Figure 14) suggests that Eskom’s coal demand will peak at a little over 155 Mtpa in around 2021, provided South Africa commits to CO2 emission caps, as discussed in the next section.
The large Medupi and Kusile coal power stations will come on line between 2013 and 2020 and will increase domestic coal demand by around 30 Mtpa. Long-term contracted coal supplies to Eskom’s existing power stations will also need to be supplemented with medium to short term contracts as plant is run at full capacity and adjacent mines struggle to meet demand. Private power plants (IPPs and self-generation) could add another 15 Mtpa by 2025. Overall coal consumption for power production will decline from 2021 when some of Eskom’s oldest coal-fired power stations will need to be decommissioned. Between 2021 and 2030, approximately 10GW of coal-fired capacity will be taken out of service.


While Eskom will account for the majority of growth in domestic demand for coal, Sasol’s plans to build another CTL plant might result in a step change in demand in the course of the next decade. If the proposed Mafuta plant is built, Sasol’s existing demand of around 44 Mtpa could increase to around 70 Mtpa. However, there is still a degree of uncertainty as to whether this investment will actually materialise; acceptance of CO2 caps will make this CTL investment unlikely.


What is clear from this analysis is that Eskom’s coal needs will continue to dominate the development of South Africa’s coal industry in the next decade, accounting for about two thirds of domestic demand.39
Exports could rise to 105 Mtpa by 2020, provided a number of dormant mining investment plans are revived, existing rail constraints are tackled and RBCT proceeds with its next expansion (rail constraints on exports are discussed in greater detail in later sections).


In contrast there is no evidence today of the state focussing on the potential for growth in coal exports. And there is no coordination between the investment plans of coal miners, Transnet rail infrastructure and RBCT port expansion. The latter have bravely proceeded with expansion, but Transnet remains a bottleneck. And coal companies face challenges around investment decisions to expand mining production to meet domestic demand while weighing uncertainties around what might be possible in terms of expanded exports.

This situation is exacerbated by the progressive mining-out of the central basin (South Africa’s most favourable export coal resource) and the shift to develop the more remote and challenging Waterberg field with its high ash and lower yield coals. The Waterberg is remote from industrial centres.


The link below is worth the read as it is 48 pages long.


http://iis-db.stanford.edu/pubs/23082/WP_100_Eberhard_Future_of_South_African_Coal.pdf



Good luck to all that hold RES