Exxaro and Eskom have been in discussion for the last two years (since 2013) in relation to the CSA in terms of which Exxaro has been supplying coal from the Arnot Mine to the Arnot Power Station in Mpumalanga.
Due to a disagreement between Exxaro and Eskom on the expiry date of the CSA, a Memorandum of Understanding (“MoU”) was concluded whereby both parties would jointly optimise Arnot mine operations for the supply of coal beyond 2015.
However, on 08th September 2015, whilst in discussions as per the MoU, Eskom advised Exxaro that the CSA will terminate on 31 December 2015 and instructing Exxaro to start the process of closure of the Arnot Mine. Following the receipt of such correspondence from Eskom, the parties have subsequently had exhaustive engagements seeking clarity on the continuation of the relationship at Arnot Mine as well as the closure process and procedures moving into 2016 and beyond.
At a high level meeting between senior executives of the parties on 30th November 2015, Eskom confirmed verbally that they will no longer be off-taking any coal from Arnot Mine after 31st December 2015.
Exxaro will therefore have to initiate appropriate activities occasioned by this decision from Eskom. Further, as a captive (cost plus) mine, Exxaro is only a mining right holder and Eskom owns the Arnot Mine movable and immovable assets and therefore Eskom will ultimately be liable to defray all costs related and incidental to the closure of the Arnot Mine.
For illustrative purposes, the pro forma impact on Exxaro’s coal portfolio would have been as follows, based on performance for the FYE31 December 2014: –
1) Coal production would have been lower by ca1,4m tonnes; and
2) Profit before tax would have been lower by R17,1m.
The financial information contained in this announcement has not been reviewed or reported on by the company’s auditors.
Shareholders will be informed by way of an update announcement of any developments.
We are continuing our discussions with Eskom to reach a joint closure solution as prescribed in the CSA. We are conscious and concerned about the potential for negative consequences on Arnot mine employees.
Exxaro is one of the largest South African-based diversified resources companies, with interests in the coal, titanium dioxide, iron ore and energy commodities. www.exxaro.com
Executive Head: Strategy & Stakeholder Engagement
Tel: +27 12 307 7393
Mobile: +27 83 417 6375
Absa Bank Limited (acting through its Corporate and Investment Banking Division)
30 November 2015