Coal mining company Canyon Coal, a Menar group company, is prepared to offer coal to State-owned electricity utility Eskom at a cheaper price on an open-book basis from two new projects.
The Menar group, which does not supply coal to Eskom at present, employs 3 500 people on a R7-billion asset base that includes Canyon Coal, Kangra Coal and Zululand Anthracite Colliery (ZAC).
With the projects it has in the pipeline, the group expects to double its employment to 7 000 in the next three years. (Also watch attached Creamer Media video.)
“Security of power supply is critical. We see what happens when there’s load-shedding. It’s a mess. If Eskom fails, South Africa will fail, so we have to do everything we can, in our capacity as a coal supplier, to see how we can help Eskom.
“I can be transparent from the beginning and I’m in the game to supply Eskom at a cheaper price from these two new operations and set a good example in the market by doing so,” Menar MD and Canyon Coal executive chairperson Vuslat Bayoğlu said in an interview with Mining Weekly Online.
His group has acquired mines from majors, including BHP Billiton and Rio Tinto, and he points out that coal majors had a history of supplying coal to Eskom at highly competitive delivered prices.
The Menar group bought loss-making ZAC from Rio Tinto in 2016 and turned it around in one month. The 1 500-employee ZAC, started originally by BHP Billiton, is a prime anthracite producer, with its biggest customer being Samancor.
The group’s latest acquisition is the 1 300-employee Kangra, which has a large infrastructure including a 6 km overland conveyor that takes the coal to the 1 000 t/h plant. A handover ceremony is scheduled for April 4 and this is also going to be the first fruit of the new Mining Charter, with a 5% free-carried shareholdings going to workers and another free-carried 5% going to the community.
Bayoğlu expressed the strong belief that, at this time of intense Eskom difficulty, coal producers should come together to discuss the supply of coal to the State utility at the cheapest possible prices.
Eskom, in turn, should work with the industry to create a transparent index pricing regime for all spot contracts, to minimise potential corruption.
Eskom has three types of coal supply contracts – cost-plus contracts, which should ensure low priced coal; fixed-term contracts, which again should be on the low side of the price curve; and spot-price contracts, where the utility buys coal on a spot basis for power stations that do not have a direct mine feed.
“The problem starts with the spot contracts,” said Bayoğlu, who added that Eskom’s payment of different prices for the same quality of coal was in need of addressing.
“If you buy a tonne of coal at Richards Bay Coal Terminal free on board, there’s a price for it. If you do that at Newcastle, Australia, there’s a price for it. If you do that in Amsterdam or Rotterdam or Antwerp, there’s a delivered price for that coal,” he said in advocating the creation of an Eskom coal index price, to delink prices from personal negotiation power.
“You have to have transparency. There’s no other way. You can’t have a situation where nobody knows about the prices and then you find out after five years that the Gupta’s were paid R22.50/GJ. We don’t want to have another commission in five years’ time. We need transparency.”
Bayoğlu is willing to offer full transparency in selling coal to Eskom at cheaper prices from his group’s Ukufisa Phase 1 project in Springs, which is already operational, and from the Springfield project in Vereeniging, a 300-million-tonne opencast deposit that is also close to being able to supply Eskom. Both have the capacity to produce seven-million tonnes of coal a year.
Menar invests in controlling and managing shareholders in private and listed companies and allocates capital to selected projects and companies actively involved in mining and resources. The group has a 74% shareholding in ZAC, a 37% shareholding in Canyon, a 56% shareholding in Kangra and an 80% shareholding in Sitatunga Resources, which will start building its first manganese mine in the Northern Cape this year.
Canyon is targeting an output of 20-million tonnes a year by 2020 from seven mines.
“We don’t have historical rehabilitation issues. We’re doing concurrent rehabilitation and we’re complying with the laws of the country according to environmental authorisation that we get and according to the water use licence. Not having an historical rehabilitation liability is a very competitive edge. It’s a very lean company and that also helps us to survive during dark times. When the coal price is low, we carry on mining because our costs are very low and even if the coal price goes to $50/t we carry on. The reason why we don’t close shop during low-price times is because we run very lean operations,” Bayoğlu outlined to Mining Weekly Online.
“Our funding comes from our own operations. We don’t distribute dividends. Instead, we use that money in the business to create new mines. We started with small deposits and if you don’t get a large deposit, then you don't have a long-life mine. All the cash generated within the business is channelled back into the business to create new projects.
“We don’t raise money in the market and sometimes I’m asked if I am going to list the business, and I say, not really. People are not really interested in investing in coal but coal is a need,” he said.
While the use of coal in Europe is declining, he said coal-fired power development in Asia was continuing, along with the new technologies to deal with pollution control.