JOHANNESBURG – South Africa’s power utility plans to transfer assets at coal mines it helped to pay for onto its own balance sheet, which will involve a “painful process” of discussions with companies including  Anglo American and Exxaro Resources, an executive said.

Lawyers for Eskom, South Africa’s biggest coal buyer, reviewed coal mines in the country and concluded the utility has “substantial” assets, Matshela Koko, executive head of generation, said after the Johannesburg-based utility’s full-year earnings presentation on Tuesday.

He declined to comment on details or an overall value of the assets.

Eskom’s plans to lay claim to some of the assets at mines it subsidised to help bring them to life comes as the company seeks to reduce what it pays for coal by re-evaluating supply partners and contracts. That reassessment threatens to derail efforts by some companies to sell mines to help return to profitability.

Anglo, formed in South Africa almost a century ago to benefit from Johannesburg’s gold-mining boom, is disposing of its coal and iron-ore businesses to save itself. Both units have operations in the country. The sale of the local coal mines will probably run into next year as bidders struggle with attempts by Eskom to transform its relationship with coal suppliers, two people with knowledge of the matter said in April.

TUTUKA COAL

Eskom hasn’t yet shared its position on the review of cost-plus assets, Anglo spokesman Moeketsi Mofokeng said by phone. The company supplies the utility with almost a quarter of its coal.

Eskom is paying Anglo R1 600 ($108) a metric ton for coal to fuel its 3 654-MW Tutuka plant in the Mpumalanga province, which is “unacceptable,” Koko said.

Anglo invoiced the utility an average of R668/t in the year through March 31, in line with the contract it has with the power company, Mofokeng said.

Coal leaving the country’s port of Richards Bay for export is at $61/t.

Exxaro is in talks with the utility for funds to develop the Matla coal mine, the Pretoria-based company said last month. Eskom in December didn’t renew a contract with the company’s Arnot mine, which supplied a power plant by the same name for 40 years.

“In relation to Arnot, we indicated that it’s a cost-plus asset that belongs to Eskom, given that they provided the capex to develop the mine,” Mzila Mthenjane, Exxaro’s head of stakeholder engagement, said in a text message.

It’s a step in the right direction and we anticipate engaging in this regard on all cost-plus assets.”