JOHANNESBURG (miningweekly.com) – Top South African coal analyst Xavier Prevost has come out in strong support of power utility Eskom buying coal previously exported from Glencore’s Optimum colliery, which is earmarked for closure.

XMP Consulting’s Prevost told Creamer Media’s Mining Weekly Online that selling appropriately priced coal to Eskom at the specification required made a lot of sense and would also de-risk the jobs of 1 000 employees and 500 contractors.

“I’m all for it. I think it’s a wonderful idea, for Eskom, Glencore and the workers,” South Africa’s former Mineral Bureau chief mineral economist commented.

Optimum produces 10-million tons of saleable coal a year from opencast and underground mines, half of it already bought domestically by Eskom and the other half exported.

Creamer Media's Mining Weekly Online can report that Optimum has more than enough coal beneficiation infrastructure to process the raw, run-of-mine coal previously washed as export coal, to the lower specifications required by Eskom - at a much cheaper price.

Eskom is understood to have been in discussion with Optimum for some time as owner Glencore saw no real long-term prospect for Optimum as a producer of export coal.

Faced with a potential coal shortage, Eskom would have the advantage of being able to procure coal that would otherwise not be produced and to have it specifically processed to the required quality for specific power stations.

Also, power stations that receive the optimal coal quality can operate with less downtime and at higher load factors.

The well-established, long-standing Optimum colliery, which already supplies Eskom’s Hendrina power station, is also strategically positioned to supply a number of other power stations in Mpumalanga province.

“We would welcome anything that Glencore can do to save jobs at Optimum. Our concern is about more than 1 000 workers who are going to lose their jobs if that mine is closed down,” National Union of Mineworkers spokesperson Livhuwani Mammburu commented to Mining Weekly Online.

Any transaction clinched with Eskom would have to be in line with the utility¹s normal procurement process.

Mining Weekly Online understands that the bulk of the coal in the Mpumalanga coalfields can either be processed to the prime grades required for the export market, processed to a lesser extent or sold raw for use domestically.

Much depends on what makes the most economic sense; logistical and infrastructural capacity must be available, which is the case at Optimum, where Eskom has the opportunity to take full advantage.

A rate of R400/t is possible for Eskom.

Mining Weekly Online has been told that the R700/t to R800/t rate, or $63/t – which is the current free on board Richards Bay price for the premium grade RB1 coal – has been emphatically ruled out.

Glencore said in a media release in late January that Optimum had informed the Department of Mineral Resources of the potential closure and had entered into a Section 189 process with the recognised unions and employees to determine the settlement for all affected employees.

In addition, the colliery would ensure that the employee engagement process was conducted in line with applicable labour legislation as well as put in certain support services for affected employees and their families.

In the January release, Glencore said that it was experiencing ongoing financial hardship at Optimum arising from difficult market conditions and the continued deterioration in the export coal price.

The London-, Hong Kong- and Johannesburg-listed diversified mining company assured at the time that it intended retaining Optimum's underground mining operations and sufficient processing capacity to ensure the continued supply of coal to Eskom's Hendrina.

The affected operations were to be placed on care and maintenance and consideration would be given to reopening the operations should economic conditions improve.