Exxaro: A youthful company fuelling power for a nation

Mining in Southern Africa has undergone tumultuous change in recent years, which in turn has led to the creation of a new of new businesses. Within the coal mining and heavy minerals sector, Exxaro has quickly made its mark.

Exxaro came into being as a result of an empowerment transaction involving the unbundling of Kumba Resources’ iron ore assets and the relisting of Kumba as Exxaro in November 2006.

Just over ten years later, Exxaro is one of the largest and foremost black-owned, South African-based diversified resources companies, with current business interests in South Africa, Europe and United States of America.

Although a relatively new entity, the company’s pedigree and skills were built over decades as a company rooted in South Africa and respected by its peers for its innovation, ethics and integrity.

Two companies emerged from the original transaction: Exxaro – focused on coal, mineral sands and base metals and industrial minerals; and Kumba Iron Ore, which as the name suggests, has focused on iron ore.

“The primary rationale behind the unbundling was to create a new generation South African company and to broaden the spread of shareholders in both companies to people from previously disadvantaged backgrounds, employees and communities in proximity to the company’s operations,” explains the company website.

Kumba Resources itself was unbundled from its parent, Iscor Limited (which became Mittal Steel South Africa in 2005 and now known as ArcelorMittal) in 2001, and listed on the JSE Limited in November of the same year. Iscor, initially a government-owned corporation, has been the major integrated South African steel producer for more than 70 years and its mining division, Iscor Mining, had provided a secure supply of iron ore and other raw materials for its steel mills. At the time of the Iscor unbundling, the mines it had developed for coal, zinc, mineral sands and certain industrial minerals used in steel production, together with its two iron ore mines and mineral sands interests, became part of Kumba Resources.

In just a few years, Kumba Resources built a portfolio of world-class assets in Africa, Asia and Australia to become a prominent force in its selected commodities and a respected global participant for its governance standards and business approach based on sustainable development.

Prior to merging with Kumba, Eyesizwe Coal was South Africa’s fourth-largest coal producer with a production capacity of about 25Mtpa. Eyesizwe Coal assets consist of four operating mines.

This is the legacy Exxaro takes with it in its new form.

Exxaro operates six managed coal mines, with combined production of 39Mtpa of power station, steam and coking coal. Most power station coal is supplied to the national power utility, Eskom.

The company also produces semi-coke and related products for the growing ferroalloys industry.

Exxaro’s Grootegeluk facility is one of the most efficient mining operations in the world, and runs the world’s largest coal beneficiation complex. It is the only producing mine in the coal-rich Waterberg, adjacent to Eskom’s existing Matimba and new Medupi power stations.

The Arnot mine is located south of Middelburg and supplied thermal coal to Eskom until December 2015.

Located approximately 80 kilometres south-east of Pretoria in South Africa’s Mpumalanga province, Leeuwpan employs about 600 employees excluding contractors and produces 3.65Mtpa of thermal coal. It is a conventional open-pit mine using modified terrace configurations and truck and shovel operations. Coal is processed using dense medium separation for the top coal layer (seam 4) as well as the bottom coal layer (seam 2).

The principal domestic markets for production are the metals and power-generating industries. Leeuwpan has a coal reserve base of about 99.17Mt and a resource (inclusive) of about 150.35Mt.

Also located in Mpumalanga, some 20 kilometres west of Kriel, is the Matla facility, which comprises of three mines producing 14Mtpa of power station coal with a workforce of over 2,500 (permanent employees and contractors). It is a fully mechanised underground mine employing continuous mining and shortwall methods. The thermal coal is supplied to Eskom’s Matla power station in terms of a cost-plus agreement, reviewed annually, with a variable return payable by Eskom for any excess tonnage produced. According to the website, the mine has a coal reserve base of 224,3Mt and a resource (inclusive) of 1 008Mt.

The company’s North Block Complex is also situated in the same province, just outside of the town of Belfast. NBC Coal consists of the Glisa and Eerstelingsfontein operating mines, as well as the Belfast coal project. NBC produces 3.1 Mtpa of thermal coal for the domestic markets. The mine reportedly employs 181 employees and 1,130 contractors and makes use of an open-pit strip mining method with continuous rehabilitation. As at 31 December 2015, NBC has a resource base of 23,4Mt with a reserve base of 9,2Mt in run of mine and 7,3Mt in salable product.

Exxaro’s portfolio is completed by the Tshikondeni site 140 kilometres east of Musina in the Limpopo province. This underground mine produced premium hard coking coal but according to the website, production ended in 2014 and rehabilitation and reclamation is currently underway.

Of course mining is an inexact science, with the need to constantly seek out new opportunities.

Last October Exxaro was delighted by an announcement by the Minister of Energy that the Thabametsi Power Project had been selected as a preferred bidder in terms of the first bid window of South Africa’s Coal-Baseload Independent Power Producer Procurement Programme (“CBIPPPP”).

The coal-fired power station will be built near Lephalale, Limpopo Province, adjacent to Exxaro’s existing Grootegeluk Complex. It will produce 557.3MW (net) of electricity for the national grid from coal supplied by Phase 1 of Exxaro’s planned Thabametsi Mine. Exxaro will only be responsible for the supply of coal for a contractual period of 30 years.

Thabametsi Mine Phase 1 will be developed at an approximate cost of R3 billion to supply approximately 3.9 million tons of coal per year at full capacity. The new mine is scheduled to produce its first coal in Q2/2021 (and ramp-up until end 2022), in line with the development ramp-up schedule of the power station, which is expected to be operational in 2021. Thabametsi’s development creates opportunities to supply coal to other coal IPPs in the Waterberg that could bid in Window 2, as well as the mining of high value coal seams for the export market.

Mxolisi Mgojo, Chief Executive Officer of Exxaro Resources commented. “This is an exciting milestone for Exxaro and in realising our vision of creating jobs and powering economic development in South Africa. As the largest supplier of coal to Eskom, we are already integrated in South Africa’s energy value chain and look forward to being able take advantage of the opportunities provided by current regulatory developments in the mineral and energy sectors to develop a coal mine that can supply new power-generating capacity. We have played to our strength of coal production and partnered with competent entities such as Marubeni and KEPCO for the development of the power plant. We anticipate working closely with all the relevant authorities to make this project a success for the benefit of all in South Africa.”

Exxaro says it has a robust pipeline of greenfield and expansion projects, including the commissioning of a R3.8 billion Belfast mine, which at full capacity is set to deliver around 2,2Mtpa of export steam coal and 500ktpa of power station coal.