Johannesburg - Exxaro Resources [JSE:EXX] is in talks with South Africa’s power utility to obtain more funds to further develop its Matla coal mine after the electricity provider changed the model it uses to obtain the fuel for its plants.
Large capital projects at Matla in the country’s eastern, coal-rich Mpumalanga province “remain unfunded” by Eskom Holdings, Exxaro said in a statement Tuesday. While the operation’s first mine has been idled because of a lack of funds, its second and third shafts will probably produce 8.5 million metric tons in the year ended June 30, less than the 10.1 million tons the utility contracted.
“We continue to engage Eskom to provide the required capital funding and are considering available recourse” in terms of the coal-supply agreement, it said.
State-owned Eskom is the country’s biggest coal buyer and uses the fuel to generate 83% of the power it produces for the continent’s most-industrialised economy. The utility developed many of the country’s mines using a so-called cost-plus model, in which it would pay for the cost of mining operations run by companies, plus an agreed profit margin. The electricity producer is looking to reduce the cost of coal and is re-evaluating supply partners and agreements.
Eskom didn’t renew a contract with Exxaro’s Arnot mine, which supplied a power plant by the same name for 40 years, at the end of December, and is using short-term supplies that are providing the fuel for less than what was stipulated in the agreement.
The loss of the contract affects about 1 800 employees, and the company expects to complete talks on job cuts in the third quarter, it said. All production has ceased and the mine equipment has been recovered from underground, Exxaro said.