Seriti Resources has mined itself into a corner by sinking more than R400m into a new mining operation that is now sitting with over half-a-million tonnes of coal because Eskom is stalling on signing a long-awaited agreement to supply the adjacent Kusile power station.
Seriti, the black-owned miner that is set to be one of Eskom’s biggest coal providers after buying South32’s SA business, began work on the western limb of its New Largo resource 12 months ago, a project undertaken on the understanding that it would provide Kusile, one of Eskom’s two long-delayed and over-budget coal-powered stations.
The pit was the first to be developed because, as luck would have it, it bordered on a neighbouring coal operation that had come to an end.
Seriti brokered a deal with the contractors to move their equipment across to New Largo.
The operation is now “coal bound” with 600-million tonnes covering the site. Drill rigs, excavators and other yellow vehicles stand idle as Seriti, run by CEO Mike Teke, waits for a coal supply agreement with Eskom.
From inception, Kusile was intended to take New Largo’s coal and was intentionally located next to the sizeable resource, which was previously owned by Anglo American and acquired by Seriti in 2018.
The Kusile project officially hit the halfway mark on Wednesday when its third power generation unit reached commercial operation.
The project has been riddled with cost overruns and delays and is now subject to modifications to fix defects in the design. On completion, now aimed for 2023, the power plant is expected to contribute 4,800MW to SA’s power supply.
Truck queue
The mine plan sees New Largo producing coal from several pits to supply Kusile’s anticipated coal requirements until its decommissioning in 2069. But New Largo now sits coal bound, and Eskom uses coal trucked by multiple suppliers using about 450 trucks a day, which queue as far as the eye can see along a road behind the Mpumalanga plant.
Teke said Seriti started mining without a contract “to show intention and to be proactive, in the belief that the mine is in the proximity of Kusile”.
The ramp-up of New Largo includes a conveyor belt to ferry the coal. Eskom has publicly stated that its preference is for coal supply by conveyor belt as this is cost effective and reliable.
Trucking of coal can add significant costs, yet only three of the utility’s 15 coal-fired power plants — Matimba, Lethabo and Medupi — receive coal exclusively by conveyor. Coal from one source is also preferable as variable coal quality has proved a key factor in poor plant performance, a major reason behind load-shedding.
Eskom said negotiations with New Largo have progressed but parties are yet to agree on the final terms. It also said the process is being driven by demand.
Inundated
Part of the problem is that Eskom is inundated with coal. With an average 50 days of stockpiles across operations, low Eskom demand in recent months has taken its toll on domestic coal producers, many of which have reduced output or left their mines on care and maintenance.
Exxaro Resources, at its recent results presentation, said it had been unable to get Eskom to put pen to paper on two long-term coal supply agreements.
Eskom said Treasury rules require that all procurement be subjected to an open tender process, regardless of the proximity of any potential supplier.
“We were never under the illusion that we would be the only supplier,” Teke said. “The argument is we started mining, we have coal on the ground, but we don’t have a contract.”
Eskom would not comment on how the cost of the trucked coal compared with coal over the fence as the various agreements are “commercially sensitive”, nor could it say how Kusile’s coal costs compare with those of other power stations because stations require different grades of coal, which has an effect on market prices.
The utility did disclose that the lengths of the existing supply contracts to Kusile range between three and 15 years.
While Teke said Seriti still hopes New Largo will be a supplier to Kusile, “if it happens that we reach a stage that we don’t envisage or we don’t wish for, we would then end up exporting the coal or sending it to other power stations”.
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