Coal Age

MAY 2018

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Page 11 of 51

10 May 2018 news continued Amid Scandal, South African Power Generator Faces Coal Shortages As of press time, South Africa had little more than 30 days of coal stocks as the country goes into winter peak demand, a situation com- plicated by the legal troubles of one of its largest producers. Supplies at six power stations in the Mpumalanga province, where most of the generation occurs, are especially low, raising the possibility of load shedding-controlled blackouts hitting the country. National utility Eskom regularly has to run emergency diesel turbines to meet height- ened demand, costing millions of dollars in fuel each month. Coal still accounts for more than 90% of the country's energy generation, state figures show. "The latest coal supply reports sug- gest that Eskom's current coal supply problems are as serious‚ if not worse‚ than those that existed in South Africa shortly before the load shedding of 2008‚" said Chris Yelland, an energy expert. At least three of the Mpumalanga stations are supplied by Tege- ta Exploration and Resources, an entity belonging to the Gupta broth- ers. The three Indian-born siblings had, over the past decade, come to dominate the local mining industry, thanks to their influence over former President Jacob Zuma. Until recently, the Guptas influence extended to the hiring and firing of senior officials, including the mines minister and senior Es- kom executives. A parliamentary investigation is now under way to discover the extent of their grip on state assets, which they used to secure lucrative state contracts for their expanding business empire. Tegeta's prize asset is the Optimum coal mine, which it acquired under dubious circumstances from Swiss-based Glencore in 2015. At the time, Glencore had little option but to sell the operation after Es- kom hit it with around $200 million in penalties for quality issues. Eskom also refused to renegotiate purchases contracts that resulted in Optimum selling its coal to local power stations below cost. The Guptas swept in and bought Optimum, and soon after, Es- kom waived the penalties it had issued against the company. Eskom also renegotiated the price it was paying for Optimum coal upward, ensuring the mine was once again profitable. It has since emerged that the Gupta's included several of Eskom's board, including ex-Chairman Brian Molefe within their circle of friends. However, the fortunes of the Guptas began to swiftly unravel after Cyril Ramaphosa won the presidency of the ruling African Na- tional Congress at its elective in December last year. By March, he was president of South Africa as well. Ramaphosa has since replaced the country's mining minister — also part of the Gupta inner circle — and appointed the respect- ed technocrat Pravin Gordhan to administer state operations such as Eskom. Gordhan in turn has taken the ax to the Eskom board, booting Gupta supporters out the door. The Guptas themselves have fled to Dubai, and will likely be the subject of an international arrest warrant as local crime fighters build a case against them. Meanwhile, their company Tegeta has filed bank- ruptcy, which has severely hampered operations at its mines including Optimum. "Other coal supply challenges at Eskom's Arnot‚ Hendrina and Komati power stations arise from the dysfunctional Tegeta coal mining operations‚ that have left Eskom high-and-dry in the months prior and subsequent to the Gupta mines filing for business rescue in February 2018," Yelland said. With new management at Eskom trying to clean itself up after years of corruption — while still trying to balance its books and keep the country's lights on — treasury officials said they have given per- mission to waive normal tender procedures. This will allow Eskom to source coal wherever it can find it and ignore rules that require it to buy from mostly black-owned companies. South Africa's bankruptcy process is similar to that of the U.S., and Tegeta together with its assets will be administered by court ap- pointed officials, whose job includes keeping the mines functioning. With the Guptas in the wind, administrators are now looking for new owners. Glencore, essentially swindled out of its prized South Af- rican coal asset by the Guptas together with Eskom, may bid to retake Optimum. Administrators for Tegeta told parliament recently that they are seeking alternative funding for the mines, to keep them and the 1,500 or so employees working. It won't be easy. State rail operator Transnet has suspended ser- vices to Optimum, costing it around 350,000 tons a month in exports. Rivals such as Exxaro have said they will try and acquire Optimum's export quotas, although not the mine itself. Should Optimum fail to keep up production it is likely that coal resources will drop further, and South Africa could once again experi- ence cold hard winter of regular power cuts. Two of the three Gupta brothers, Atul (left) and Ajay, all of whom fled South Africa after the recent elections. was sorted by size, and under-sized and oversized pieces of coal were considered unsellable. Outsized coal was then put into on- site storage over a period of decades to create large boundaries of very low-cost coal. American Resources is working with the state of Kentucky and Wayland to mine the coal and reclaim the land to benefit the local community. The company estimates the Wayland pro- ject contains approximately 1 million tons of coal. The company plans to truck the coal to either its Mill Creek prep plant in Letch- er County, Kentucky, or its Supreme Energy prep plant in Knott County, Kentucky, to commercially reprocess the coal. Through Quest Energy, the company has secured addition- al key pieces of underground mining equipment that will allow the company to expand its existing coal production at several select mining operations. The equipment includes continuous miners, shuttle cars, and other support equipment that will be put into production immediately at Quest Energy's various un- derground mines. "We are very pleased to have obtained this equipment to al- low us to increase production at our Deane Mining and McCoy Elkhorn subsidiaries," said Mark Jensen, CEO of American Re- sources. "Our team has worked hard and diligently to expand the production capabilities at several of our key mining operations in advance of receiving this equipment, and we are now able to im- mediately and significantly increase our coal production to meet our growing customer demand." by gavin du venage, south african editor

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