Exxaro Coal South Africa - Johan Myburgh Manager, Marketing & Commercial
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Johan Myburgh
Manager, Marketing &
Commercial
Exxaro Coal
South Africa
Disclaimer Opinions expressed herein are by nature subjective to known and unknown risks and uncertainties. Changing information or circumstances may cause the actual results, plans and objectives of Exxaro Resources Limited (the “Company”) to differ materially from those expressed or implied in the forward looking statements. Financial forecasts and data given herein are estimates based on the reports prepared by experts who in turn relied on management estimates. Undue reliance should not be placed on such opinions, forecasts or data. No representation is made as to the completeness or correctness of the opinions, forecasts or data contained herein. Neither the Company, nor any of its affiliates, advisors or representatives accepts any responsibility for any loss arising from the use of any opinion expressed or forecast or data herein. Forward-looking statements apply only as of the date on which they are made and the Company does not undertake any obligation to publicly update or revise any of its opinions or forward looking statements whether to reflect new data or future events or circumstances.
How to ensure a reliable supply of quality thermal coal to power stations Outline: • The problem with low grade coal • Background • Real problem with low grade coal • Quality is manageable • Reliable supply (volume) • Conclusion
Low grade coal – the perceptions • “Low grade coal fuels Eskom’s problem” • “Eskom is losing between 500 MW and 1,000 MW a day of generation capacity because of the exceptionally poor quality of the coal” • “Eskom is suffering because low-grade coal is being sold to India and China” • “…the quality of the coal it currently receives is too poor”
Background
• Emergency response 2008
• Volume – 13 million tons additional
• Time frame – within 6 months, for 2 year
period
• Late response – stocks already at crisis levels
• Contracting position
• Long term supply stagnant – could not
accommodate additional demand
• Percentage “imports” increased dramaticallyLow grade coal – the real problem • Delayed investment in capacity • Insufficient planning for demand • % “imports” • mix of short term vs long term • Old coal fields • The best has been mined • Reserves depleting • Lower grades • Higher costs • Pricing strategy • f(return) and not f(value) • New, inexperienced operators
Quality is manageable • Quality = function of • Time (planning) • Capital • Technology and cost (opex) • Price • Reputable operators
Planning • Years to do exploration • Years+ to get mining authorisation • Years++ to get environmental approval • Years+++ to get water license • Bankable feasibility, capital approvals, long lead time equipment, construction, commissioning… • …not 3 months’ notice!
Capital
• Need new capacity, new Global top 10 mining countries by growth
in mining value added (2001 - 2008 real
projects mining value
US$ added (2001-2008 real US$ terms)
terms)
Rank -5 0 5 10 15 20
• Washing plant needed to 1 China 19
control quality 2 Chile 12
• Operating cost 3 Russia 10
4 Indonesia 8
• Yield loss 5 India 7
• SA capital investment 6 Colombia 7
7 Australia
expanded by a factor of
7
8 Brazil 7
two from 2000 to 2009 9 Peru 6
compared to Australian 10 Venezuela 4
13 South Africa -1
factor of five Source: Global insightTechnology and cost Technology exists to control quality: • Dense medium separation • Coal scan • Etc Requires capital and opex – impact on price
Pricing • Historic low price base • Cost-plus operations • Power station coal seen as by-product • New reserves • Market related • Value of the product • Incentive pricing • False perception that Eskom is paying a high price for coal • Shareholder returns – projects with higher returns gets priority
Price - what the consumer sees
In 2009/10, the cost to Eskom of buying Exxaro coal was only 7.5cents per kWh
generated, prior to 2010 price increase
140
cents per kilowatt hour 120 VAT
100
Environmental levy
80
60 Eskom energy
40 charge
Coal
20
0
Businessrate Landrate 4+ Homepower
4 Standard 4
Typical residence, add
about R139/month Service
Typical small business, all Typical small farmer add
charge and Network charge
inclusive about R279/month Network
(retail tariff, before increase
charge
on 1 April 2010)Reputable operators • Experience in mining • Security of tenure • Economically sized blocks (not fragmented)
Reliable supply (volume)
• Coal reserves exist for long term supply
• With beneficiation, Eskom and exports can be
serviced (simbiotic relationship with
export)
• Rail logistics will be required for
transportation to existing Power Stations
• Planning of requirements:
• Existing capacity – renewal of long term coal
supply contracts
• New capacityBasic description of SA coalfields
WATERBERG WITBANK
Limpopo province 75.7Bt or Witbank, main coal
more than 40% of South 40% of remaining reserves producing Coalfield in
Africa’s coal resources SA
Significant coal deposit Majority of the export
with good quality power quality coal is
station and metallurgical produced here
coals
ERMELO
Exxaro is the only company Variable coal seam
mining in this area. With thickness and quality
LOM: > 75 years
Not significant volumes
Medupi is currently being is of export quality.
constructed, Challenges –
infrastructure,
SOUTPANSBERG
environmental
stewardship Potential high quality
coal reserve BUT
Highly disturbed which
KWAZULU-NATAL leads to difficult
Historically a thriving mining
anthracite & coking coal
mining area. HIGHVELD
Currently contains reserves Hosts the world’s
which are small, of largest CTL complex,
generally lower quality Producing fuels and
and are difficult to mine. petrochemicals.South African coal reserves (2009)
1.7% 0.8%0.5% 0.3%
1.7% 0.0%
2.3% Highveld
6.0% Witbank
30.0% Waterberg
Ermelo
14.0% Vrg.-Sasolburg
South Rand
Utrecht
Kliprivier
Soutpansberg
Kangwane
Vryheid
16.0%
Nongoma
27.0%
Total 32bn tons Source: XMP consultingReliable supply (volume)
• Coal reserves exist for long term supply
• With beneficiation, Eskom and exports can be
serviced (simbiotic relationship with
export)
• Rail logistics will be required for
transportation to existing Power Stations
• Planning of requirements:
• Existing capacity – renewal of long term coal
supply contracts
• New capacityThe coal coal-chain 2009
Stocks Local use Export
17Mt 20.5Mt 61.1Mt
177Mt “Washing”
63Mt 0.1Mt 15Mt
ROM Discards Synfuels Electricity
317Mt 67Mt 33Mt 118Mt
4Mt 32.9Mt 103Mt
140Mt “Screening”
Source: XMP consultingNOT solutions
• “Reserving” coal for Eskom
• Huge projects looking for power station off-
take as second product (Waterberg, Vele,
Makhado, Mozambique Tete province)
• Curtailing export
• Not the same product
• Huge loss to the economy
• Makes some reserves un-viableConclusions
• Eskom and coal industry is
interdependent
• Eskom quality coal is a
secondary product to exports
of future resources
• Reliable supply of quality coal
is manageable
• Rail logistics will increasingly
be required
• Pricing is one of the main
stumbling blocks Medupi:
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