OCTOBER 2010
PROSPECTS FOR THE SOUTH AFRICAN COAL INDUSTRY
Presentation by Sipho Nkosi
CEO, Exxaro Resources
Coaltrans Europe 2010, Amsterdam
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.
Content
• Whither the SA coal industry?
Covering some of the background and history of the SA
coal industry, The growth of the industry players,
aspects of the MPRDA and the Mining Charter and the
introduction of BEE players.
• Investment and development in South
African coal industry
Hopefully shedding light on rail and port status, the
future of logistics/infrastructure, the attractiveness of SA
as an investment destination, some comments on skills.
• Whither Exxaro?
Where is Exxaro growing to?
2
Whither the SA coal industry?
3
SA - rail and port
RBCT port
1972 - TCOA contract with JSM - 27 Mt of coal over 10 years
1976 - RBCT Commissioned – 12 Mt/a (rail 4.2 Mt/a)
1979 - Phase II Expansion - 24 Mt/a
1984 - Phase III Expansion - 44 Mt/a
1991 - Phase III Upgrade - 53 Mt/a
1995 - Capacity enhancements - 63 Mt/a
1999 - Brownfields expansion - 72 Mt/a
2008 - Official design capacity increase – 76 Mt/a
2010 – (1 May 2010) design capacity increased – 91 Mt/a
TransFreightRail (TFR) – coal line
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Approx 2 000 employees operating rolling stock of 7 400 wagons and 235 locomotives
Average distance from the Witbank / Middelburg coalfields to RBCT is 600 km
TFR contracted in 2010 for 10yrs @ 81MT
TFR’s estimation to achieve rail capacity of 91 Mt/a by 2014/15
Capital investment required of approx. US$ 2.8 bn
2009 tariff increase average of 38% (back-dated to July 2008), 2011 similar increase to cover
increased capital costs
Source RBCT website and Mining Weekly - 3 September 2010, TFR industry presentation
4
Basic description of SA coalfields
WATERBERG
WITBANK
Limpopo province 75.7Bt or more than
Witbank, main coal producing
Coalfield in SA
Majority of the export quality coal is
produced here
40%
40% of South Africa’s coal resources
of remaining reserves
Significant coal deposit with good quality
power station and metallurgical coals
Exxaro is the only company mining in this
area. With LOM: > 75 years
Medupi is currently being constructed, one
of the first such new power stations
Challenges – infrastructure, environmental
stewardship
KWAZULU-NATAL
Historically a thriving anthracite & coking
coal mining area.
Currently contains reserves which are
small, of generally lower quality and
ERMELO
Variable coal seam thickness and
quality
Not significant volumes is of export
quality.
SOUTPANSBERG
Potential high quality coal reserve
BUT
Highly disturbed which leads to
difficult mining
are difficult to mine.
HIGHVELD
Hosts the world’s largest CTL
complex, Producing fuels and
petrochemicals.
SA has the potential to remain in coal exports into the future
SA coal – 2000 to Date
Please note: 85% of Domestic sales prices are driven by domestic power coal (+/- 4000kCal)
6
SA coal – 2000 to Date
Saleable production per company (2009)
Total Coal, 0.84
Sudor, 1.19
Kangra, 1.25
Vulna, 1.39
Stuart, 0.75
Delmas Coal, 0.67
NuCoal, 0.65
Others (24), 3.24
Umcebo, 2.45
Shanduka, 3.74
Anglo, 24.39
Optimum Coal, 4.50
Xstrata, 7.20
Exxaro, 17.45
BHP Billiton, 14.58
Sasol, 15.72
Source:
DME 2009
Source
XMP consulting
2009 saleable production ~ 249.7 mill tons
Anglo, Exxaro, Sasol, BHP Billiton & Xstrata = 79% of the coal saleable production
SA Coal - BBBEE entry in South Africa
Early empowerment period (1994 – 2000), characterised by: •
Ad-hoc transfer of equity
•
Indications of wide-scale privatisations
•
National Empowerment Fund
•
Private sector schemes encouraging broad-based black participation.
Focused empowerment (2000 – present), more formalised approach, characterised by: •
Broad Based Black Economic Empowerment Act
•
The development of industry-specific charters
•
The DTI Codes of Good Practice
•
BEE scorecards
•
Mining Charter (2002)
–
min black ownership 15% by 2009 and 26% by 2014
–
Limited time for old to new conversion else the mining rights revert back to the State
–
Mining Charter – requirement that ownership measured by attributable units of production.
–
The offset of Historically Disadvantaged South Africans ownership commitments
8
SA Coal - BBBEE entry in South Africa
(cont)
Between 1997 & 2009 up to 100 BEE companies attempted to enter the
coal industry in any one year.
However, success was not as easily attained, mainly due to: 1.
Accessibility to coal reserves
2.
Funding
3.
Mining and operating skills
4.
Marketing skills
5.
Coal expertise
6.
Legislation
7.
Economic and logistical conditions
Source XMP consulting 2009
9
SA Coal - BBBEE entry in South Africa (cont)
0.77%
0.75%
Exxaro
0.70%
0.88%
Shanduka
0.62%
Leeuwfontein Colliery
0.60%
0.50%
0.51%
1%
1%
Elcoal Mining
Halfgewonnen Colliery
1%
Delmas Coal
0.34%
0.34%
0.26%
0.02%
1.0%
1.1%
2%
0.002%
3%
Koornfontein Mines
NuCoal
Polmaise Colliery
Mmakau Mining
Riversale
Sumo
4%
Eastside Coal Company
Springlake Colliery
4%
65%
4%
Black Wattle Colliery
DelmasColiery - Stuart
Groenvallei Colliery
7%
Magdalena & Aviemore
leeuw Vallkrantz
Mashala Resources
increasing production fragmentation
Ilanga Coal Mines
Coastal Fuel
Umlabu Colliery
Source: DME 2006
Nkomati Anthracite
Mining Contractors Vryheid
10
SA Coal - BBBEE entry in South Africa (cont)
How did it go?
•
In 2002 only two BBBEE companies produced 10% of SA coal (increased to 29 in 2008
resp. for almost 50%)
What drove them?
•
Changes in the mining legislative framework
•
The nature of coal mining in South Africa - MPRDA's use-it-or-Iose-it principle.
•
The pre-requisite 26% BEE ownership of mining companies for the conversion of oldorder mining rights to new-order mining rights.
•
The granting of prospecting and mining rights for new projects
Were they successful?
Yes, especially when considering the community involvement, employment and benefits
emanating from well-structured corporate social responsibility programmes
But what do you see in your own BBEEE counter-parties
11
Investment and development in South African coal industry
12
SA - rail and port
SA - rail and port
So where is the coal ?
The mines are there and waiting in terms of
potential and actual production capacity
The ports are built and waiting (RBCT, TCM,
BC) – RBCT specifically 91Mt installed
capacity
But….. Rail (TFR guarantee’s 65Mt for 2010)
We are limited!!
14
SA – rail and port constrained?
So what does the future have in store?
Increased capacity on RBCT Coalline
Increased capacity in RBCT above 91MT
Coega and IDZ – Port Elizabeth
Trans-Kalahari rail corridor initiative
Upgrade of rail from Limpopo to export line
Maputo Corridor development
Mozambique ports (Beira – refurbish & rebuild,
increase capacity @ Maputo, new port along
south Moz’ coast)
Increased Saldanha line capacity
15
Investment in SA mining industry?
16
Investment in SA mining industry (last 5yrs)
Coal
•
Optimum Coal – $1,2 billion listing on JSE
•
Anglo - Zibulo = $0,5 billion; New Largo = $1,7 billion (Mining Weekly)
•
BECSA – DMO = $0,975 billion; Klipsruit (Phola) = $0,5 billion
•
Sasol – Thubelisha project = R4,5 billion & Impumulelo = R1,5 billion
•
Riversdale – Mozambique Benga Coal Project = $0,27 billion
•
Vale – Mozambique Moatize = $1,3 billion
•
CoAL, Shanduka
….but its not only in Coal ….
You don’t need to look far to recognise continued confidence in the SA mining industry
17
Skills in the SA mining industry
WHAT’S THE WORRY?
•
The required skills are being lost/diluted due to: –
Reduced investment, competing international markets and exchange rates
–
Legislation, environmental concerns and skills
–
Increased international commodity and energy demand
–
the SA ‘Brain drain”
•
Exxaro and the industry is in the midst of a ‘skills war”
•
The third biannual Mining Survey by Landelahni Business Leaders in South Africa
indicated that
–
the SA mining industry faces serious skills shortages
–
1998 to 2008, passing degree and diploma graduates totaled 13.7% of enrollments
–
These results not even speaking of the artisan skills required in the industry.
SO WHAT
•
CSR and governance requirements.
•
The availability of skills facilitates proper operation of assets.
The future of the industry is at stake!!
18
SOUTH AFRICA – whither EXXARO
19
Exxaro growth and expansion
Carbon
• Expected level of 80 million tons a year to 90 million tons a year in the next 10 to
15 years
– Grootegeluk Medupi Expansion Project
– Pre-feasibility studies to continue in 2010 (Thabametsi, Mafutha, Belfast and market
coke
– Char production – Phase 2
– Moranbah South (Australia)
Energy
• Wind and solar - renewable energy, gas
– Solar power station
– Wind project (West coast of SA and Tsitsikamma)
– Coal Bed Methane (Botswana)
20
Exxaro growth and expansion
Ferrous
• Iron ore
• AlloyStream™
Base metals and mineral sands
• Bankable feasibility study will be undertaken on the Fairbreeze project at KZN Sands
• Optimisation of assets - during the envisaged 2011 divestment
21
The Waterberg … SA’s coal-fired future?
Exxaro’s development plan
Phase 1: Grootegeluk Mine
Phase 2: Thabametsi Mine
• Completed GG6 plant in 2006 -720ktpa to other
markets
• Greenfields development - new open pit coal mine
and beneficiation complex and a new coal-fired
(clean technology) power station
• Brownfields expansion of Grootegeluk coal mine
near Lephalale with Medupi power station
(4 800MW)
(5 000MW)
– 16Mtpa to power station (PF)
– 14,6Mtpa to Medupi power station
– 2,5Mtpa to other markets
– Time-frame: 2009 to 2015
– Time-frame: 2014 to 2017
Other downstream opportunities
Phase 3: Exports / Synfuels
• Char plant
• Greenfields coal mine
– Phase 1 in operation
– 10 Mtpa for exports
– Phase 2 in planning
– Time-frame: 2015 to 2018
• Market coke
–
Feasibility study in progress
• Electricity generation
– Including co-generation
22
Concluding remarks
• Yes! Exxaro is a large, exciting and
expanding company but we are part of an
exciting and stable country – South Africa
• Continued and new investment in the
South African coal industry will sustain
South Africa’s enviable position of being
able to supply both the East and West of
the globe with a significant commodity
and mineral range of products
We are proud to be South African and
look forward to your business!
23
Concluding remarks
Recall the World Cup?
And expectations?
… WAIT …
There is more…..
24
www.exxaro.com
THANK YOU