ABOUT ARM COAL. AFRICAN RAINBOW MINERALS 2007 Annual Report

Transcription

1 ABOUT ARM COAL ARM Coal was created in July 2006 following a transaction with Xstrata valued at some R2.4 billion. ARM Coal is 51 percent held by ARM and 49 percent by global diversified mining group Xstrata. On 1 September 2006 ARM acquired an additional 10 percent stake in Xstrata s South African existing coal operations, giving ARM an effective 20.2 percent holding in these assets ARM Coal holds the following coal interests: a 20 percent equity-based participation in Xstrata s South African coal assets; comprising 12 operating coal mines located near the towns of Witbank, Middelburg and Ermelo in Mpumalanga; 51 percent joint ownership of the Goedgevonden Coal Project, near Ogies, also in Mpumalanga; and access to Xstrata s 20.9 percent interest and allocation in RBCT; an export allocation of 3.2 million tonnes per annum in the RBCT Phase 5 expansion which is due to be commissioned in the first half of 2009, which will be utilised by the Goedgevonden Coal Project. 40

2 COAL DIVISION Middelburg Douglas Waterpan Boschmans Goedgevonden Johannesburg Witbank Bethal Belfast Machadodorp Swaziland Ermelo Maputo ATCOM Witcons Tselentis ARM COAL South Witbank Richards Bay Coal Terminal Spitzkop Durban Coal Terminal Company Tavistock Limpopo North West Gauteng Mpumalanga ATC Northern Cape Free State Lesotho KwaZulu- Natal Phoenix Western Cape Eastern Cape RBCT allocation 41

3 GOEDGEVONDEN COAL PROJECT 42

4 Coal Division MANGISI GULE CHIEF EXECUTIVE: ARM COAL OVERVIEW OF XSTRATA COAL SOUTH AFRICA S EXISTING OPERATIONS ARM s ECONOMIC INTEREST: 20.2 percent MANAGEMENT: LOCATION: GEOLOGY: DESCRIPTION OF ASSETS: CAPACITY: Xstrata manages 10 of 12 mines Witbank, Middelburg and Ermelo in Mpumalanga Province. The coal deposits are contained within the Karoo Sequence which unconformably overlies rocks of the Basement Igneous Complex. The stratigraphy of the Karoo Sequence consists of the Dwyka Formation at the contact with the Basement Igneous Complex, overlain by the Vryheid Formation. Formerly known as the Middle-Ecca-Stage, this fluvio-deltaic formation consists of a cyclic series of upward-coarsening sedimentary units, each capped by a coal seam. The coal seams are numbered from No. 1 seam at the base to No. 5 seam at the top of the sequence. Xstrata Coal South Africa (XCSA) operates 10 mines in South Africa. It also has a 16% interest in the Douglas Tavistock Joint Venture (DTJV) with BHP Billiton. Four mines are open-cast mines and the balance are underground mines. Xstrata owns 20.9 percent of RBCT. Sales in the order of 22 million tonnes per annum with approximately 60 percent exported. About 59 percent of production is from underground operations. NUMBER OF EMPLOYEES: LIFE OF MINE: Economic life of eight to 28 years. A highlight for the division in the past financial funded through a project finance facility year was the release of the Goedgevonden from Xstrata. Production from the project. On 1 January 2007 XCSA s holding in Goedgevonden Coal Project is likely to the ATC and ATCOM collieries increased to translate into sales of 6.7 million tonnes per 100 percent. The acquisition of the remaining annum, with similar portions allocated to the 50 percent stakes in these mines previously domestic power generating industry and the held by Total Coal South Africa, secures full export thermal coal sector. ownership, thereby contributing also to their enhanced efficiency, benefiting ARM Coal. As the majority shareholder in the Goedgevonden Coal Project, ARM Coal has For a new division within the broader group, the majority representation on the project ARM Coal s results for the year reflect a steering committee, although XCSA provides creditable performance from the division. the management in terms of a service Consolidated production and sales tonnes agreement. The conversion for the disclosed relate to 100 percent of the XCSA Goedgevonden Coal Project new order mining operations. Attributable production and sales right has been finalised. The company has relate to the ARM Coal share, being applied for a new order mining right in respect 20 percent of XCSA and 51 percent of the of the Zaaiwater property and is in Goedgevonden Coal Project, and ARM s discussions with the DME in this regard. direct 10 percent of XCSA. (Refer to table on page 44.) ARM Coal s application for an allocation of 3.2 million tonnes of export allocation in First production from Goedgevonden Coal the RBCT phase 5 expansion was successful. Project is expected in 2009, building up to ARM Coal s share of the expansion is steady state levels in Total capital for estimated to cost R314 million and should the project is estimated at R2.9 billion, to be be commissioned during the first half of Coal mined from the Goedgevonden Coal Project will be exported through the new facility. COAL MARKETS Thermal coal prices have benefited from the continued increases in demand for energy. Demand has also emanated from China, where the state has implemented measures to ensure safer mining, resulting in lower Chinese production. This demand, coupled with low supply levels from both Australia and Indonesia and ever-growing requirements from the subcontinent, has fuelled the demand for alternative sources of coal and South Africa has benefited from this situation. At the same time, import growth from Japan and India remains strong. This position is likely to persist in the short to medium term, as suppliers work towards bringing new production on stream. Apart from Indonesia, coal producers world-wide have been affected by infrastructure constraints, supporting our view that the strength in prices is anticipated to be sustained. The South African market remained firm, with the tight availability of ARM COAL 43

5 Coal Division continued high-quality coal leading to increased domestic prices. GOING FORWARD ARM Coal s growth is inextricably linked with that of our partner, XCSA, and we have a right of first refusal on any new projects they may enter into. In the year ahead our major focus will be on: Consolidating GGV and meeting the various target dates leading up to the commissioning while remaining within budget; Maximising production by increasing operational efficiencies; Continued focus on costs; and Exploring further growth prospects with our partners, having secured 18 prospecting rights in the surrounding areas. ARM COAL OPERATIONAL STATISTICS Units F2007 F2006* % change Consolidated saleable production Mt Export thermal coal sales Mt Domestic thermal coal sales Mt Attributable saleable production Mt Export thermal coal sales Mt Domestic thermal coal sales Mt Average received coal price Export (FOB) US$/t Domestic (FOR) R/t (15) On mine saleable cost R/t Cash operating profit Consolidated Rm Attributable Rm 268 Headline earnings attributable to ARM Rm 1 0 * For comparison purposes only, transaction effective 1 July 2006 OVERVIEW OF GOEDGEVONDEN COAL PROJECT ARM s ECONOMIC INTEREST: percent MANAGEMENT: LOCATION: GEOLOGY: DESCRIPTION OF ASSETS: CAPACITY: The project is managed by a Project Steering Committee on which ARM has majority representation. The mine is operated by XCSA on behalf of the joint venture partners. The mine is situated near the town of Ogies in Mpumalanga. Goedgevonden Coal Project is located near the southern margin of the Witbank Coalfield which is clearly defined by pre-karoo granite and felsite hills. All five coal seams present in the Vryheid Formation are developed within the Goedgevonden Colliery Project Area. The Number 1 seam at the base is of poor quality and only developed in the paleo low areas. The No. 2 seam is the most extensively developed seam and consists of a basal bright band overlain by lustrous to dull lustrous coal with thin bright bands. The thin uneconomic No.3 seam is developed between the No. 2 and No. 4 seams. The No. 4 seam, being closer to surface is more influenced by weathering and is subsequently not as extensively developed as the No. 2 Seam. The No. 4 seam consists of a basal bright band overlain by a zone of dull and dull lustrous coal with thin bright bands and carbonaceous shale/mudstone partings. The No. 5 seam is preserved as erosional remnants on the higher ground and consists of a bright, well-banded, vitrain rich coal. An opencast mine. At full production the mine will produce 6.7Mtpa by means of a single dragline. Full production is expected to be reached during the 2011 calender year. Total sales will be 6.7Mtpa at full production of which 3.5Mtpa will be sold on the domestic market and the balance will be exported. NUMBER OF EMPLOYEES: 18 (at full production the complement will be approximately 250). LIFE OF MINE: 33 years. 44

6 ARM COAL COAL LOADING 45