Anglo American said that any intervention by the state to curtail coal exports is likely to damage the coal sector and could negatively affect Eskom in the long term.
The company also argues that there is enough coal to supply the power utility as well as export markets and that miners need to generate profit for future investments.
Anglo said in a document submitted to the ANC in response to Sims, that 30% of Eskom's coal needs were supplied by its Anglo thermal coal division via long term, cost plus contracts. These sales made up about two thirds of Anglo Thermal Coal's total sales. It added that "It is Anglo American's view that the Sims proposals have, to a degree, misunderstood the nature of the coal market."
The Anglo document said that there is enough coal to supply both Eskom and the export markets, warning that the overseas market could be damaged if prices increased from SA. A 12% increase in coal costs could result in a 34% drop in exports. It added that "The cumulative cost impact of Sims interventions are likely to snowball with a severe impact on the prospects of exportable coal."
Anglo said that coal exports were generally of a higher quality which Eskom did not use and these exports at higher prices than domestic sales were critical to give coal miners the profit needed to invest in new projects. It added that "As there is not a shortage of coal in SA, such multi grade mines can supply both domestic and export markets as long as coal mining continues to expand. Anglo American therefore asserts that coal exports are not a threat to domestic supply. On the contrary, exports are critical in ensuring national supply because they incentivise sustained and healthy production. Exports generate revenue for mines to produce cheaper coal of a higher ash content for Eskom. Even if the export market increasingly demands lower grade coal, the sufficiency of coal resources in SA means that supply to both markets can be achieved as long as coal mining expands."
Anglo's comments were in response to a study commissioned by the African National Congress on the state's role in the mining sector.
The government is pushing to declare coal a strategic mineral, concerned that producers are selling lower grade coal used by Eskom to buyers in India, threatening the country's power generation.
In June 2012, public enterprises minister Mr Malusi Gigaba said that coal should be classified as a strategic mineral to protect Eskom from rising prices and deteriorating quality. He also said the government wanted to secure energy supplies to drive industrial growth and job creation.
The ANC study was commissioned ahead of the party's policy conference last week. The resulting document, the State Intervention in the Mineral Sector report, has drawn criticism from the mining sector and the Department of Mineral Resources, which rejected many of its recommendations. Among the Sims proposals for the coal sector are that mineral rights for coal be made conditional on supplying Eskom ahead of sales to other customers, and that export tariffs be applied for exports to the East. It also wants the National Energy Regulator of SA to regulate sales to Eskom at a cost plus level or a margin of about 15%.
About 95% of SA's electricity comes from coal fired power stations and Eskom is building more on the largely untapped Waterberg coalfields near the Botswana border.
Source - Business LIVE
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