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NEWS - THIS MONTH IN COAL MAY 2017 • E&MJ; 27 www.e-mj.com Anglo Sells South African Coal Assets Just a few years ago South Africa's coal industry was on the up and up, shrug- ging off the malaise affecting the indus- try elsewhere. Now, many producers face closure in a stunning reversal of fortunes. As coal mines closed in the US, the UK and elsewhere, South Africa's mines appeared to thrive. The world's sixth larg- est exporter, the country's mines were however geared mostly toward a single local customer — state electricity utility Eskom. Only a third of South Africa's coal is shipped abroad. The rest is sent to a fleet of local power plants, mostly in Mpuma- langa province to the east of the country. More than 96% of Eskom's electricity came from coal. For producers such as Anglo American, BHP Billiton, Xstrata and others, it was a sweet deal with a guaranteed customer. According to Statistics South Africa, coal mining contributed approximately $3 billion to the economy in 1993, with gold contributing $8.5 billion. By 2013 the picture had changed, with coal's con- tribution nearly $4 billion compared with gold's $2.2 billion. In addition, Eskom had begun a new round of power station builds, including two of the world's largest dry-fired facil- ities in the north of the country. Each would consume 15 million metric tons per year (mt/y) for the next half a century at least. Now Eskom is looking to shut stations, not build them. In March Eskom interim CEO Matshela Koko said that five coal- fired power stations were earmarked for accelerated decommissioning. "Eskom trucks supply 40 million mt of coal to our power stations," Eskom spokesman Khulu Phasiwe said quoted in The Citizen. "We have already reduced that demand by 3 million mt and it will be further reduced to 15.6 million mt over five years in 2022." To be sure these are older plants dating back to the 70s but the speed at which Eskom is moving to shut them down has caught producers by surprise. In Early March hundreds of coal trucks blocked the freeways leading into Pretoria, the country's capital city. Their motivation was to protest the sudden cutting of con- tracts that threaten several thousand jobs and will leave truck fleets standing idle. Another indication of the turnaround is Anglo American's decision to dispose of its coal assets. Just four years ago it was planning a bid to set up at least one mine-energy plant combo, using revo- lutionary fluidized bed technology. Now Anglo wants out. In April Anglo sold its Eskom-tied domestic thermal coal op- erations to a local consortium for $166 million. The buyer, Seriti Resources, is a black owned firm, which fits with Es- kom's drive to source all its coal from majority black-owned suppliers. The mines included in sale are New Vaal, New Denmark and Kriel collieries, as well as four closed collieries. Seriti will become the second largest of thermal coal supplier to Eskom, fulfilling almost a quarter of Eskom's current annual coal requirements. The deal is expected to close by the end of 2017. "Eskom's current policy of 51% black owners and to discard cost-plus mines will create a very big obstacle for its future coal procurement," says Xavi- er Prevost, Senior Coal Analyst at XMP Consulting. "After 2020, most likely their supplies will dwindle to about 20%-25% of the required 120 million mt/y, not con- sidering the two new power stations." Prevost said Anglo's sale showed that the 'big four' producers, which also in- cluded South32, Glencore and Exxaro, in- dicated that the companies believed that they had little chance of being awarded future Eskom contracts. This was already filtering into the market. A sharp decline in new production was causing an artifi- cial rise in inland prices, by up to 30%. Last year Glencore sold its Optimum coal mine in a controversial deal at a rock bottom price after Eskom refused to rene- gotiate the price it paid for the commodity. Much of the problem also lies in Es- kom's shifting priorities. The utility is likely to commission a nuclear fleet build — as early as June this year reports say — which will reduce the need for long term coal projects. Eskom must also complete line connections to around 37 renewable projects, from which it will be obligated to buy electricity. These factors point to gloomy pros- pects for coal producers. Also, the chanc- A wheel loader dumps coal into a haul truck at the New Vaal colliery in South Africa, one of several coal assets sold to Seriti Resources.