Challenges Emerging Miner Strategy Nqabakazi Tetyana 23 January 2013
TABLE OF CONTENTS Introduction Incorporating Emerging Miners in the Eskom Coal and Limestone procurement process Request for information Supplier pre-qualification process Challenges Defining the Black Emerging Miner Technical challenges Financial challenges Business challenges Recommended solutions Conclusion and discussion 1
INTRODUCTION Security of coal supply and Development of Black Emerging Miners 1 2 3 4 5 Mine Development Fund Coal Trading as an option to secure coal supply Increase Black Ownership from 26% to 50%+1 share to transform the industry Utilise commercially acceptable levers such as blending and briquetting Consolidation of smaller Black Owned mining resources The Emerging Miner Strategy can be summarised using these five pillars. Each pillar is a separate project, and contributes to Eskom s goal of procuring more Primary Energy from Black Owned entities. 2
INCORPORATING EMERGING MINERS The incorporation of Emerging Miners must take place within the following: Eskom procurement policies and procedures Constitution, PFMA and the PPPFA Amendments require extensive consultation prior to approval Request for information (RFI) Not a procurement process Completed and analysed Data gathered used as the basis for Eskom's plans Ongoing interaction with respondents, growing database Supplier pre-qualification process Used to assess the supplier and the product Covers all the information that Eskom needs to do a basic assessment Sets the basis for Eskom to initiate a formal due diligence 3
COAL: ESKOM S PRIMARY INGREDIENT Eskom s procurement process aims to obtain the most reliable sources of coal This influences the stringency of the due diligence that Eskom undertakes in considering coal supply offers Once contracted, coal supply is incorporated into the official burn plan Failure to supply after contracting is detrimental to Eskom s performance 4
CHALLENGES Defining the Black Emerging Miner (50% + 1 share black owned) A diverse group of entities Black shareholding diluted for several business reasons Technical challenges Lack of appropriate information Quality and integrity of information submitted (e.g. not SAMREC compliant) Technical expertise in meetings with Eskom Size of resources often presented by Emerging Miners Challenges with obtaining some of the licenses required to operate mines Environmental constraints (e.g. wetlands, farming land) 5
CHALLENGES Financial challenges Lack of funds to embark on required exploration work (e.g. Drilling, Feasibility Studies, etc.) Maintaining black ownership vs. diluting for cash injections Cashflow challenges during start-up and ramp-up periods (payment terms) Lack of financial history in new entities Business challenges Requirements for assistance and type of support highly variable General administration requirements (required certificates) Shareholders not sharing the same vision Procurement should always be aligned with Eskom s main objectives Safety, reduced environmental footprint, security of coal long-term, transformation, etc. Reputational risk management for Eskom 6
TRADERS CHALLENGES Several offers of the same coal lead to duplicate efforts by Eskom technical personnel Some Traders are not interested in developing own mines Value-add requirement not met Access to required information from the source (mine owners) difficult Off-take agreements: Several business arrangements are presented to Eskom, but often do not offer the level of security of supply that Eskom requires. 7
RECOMMENDED SOLUTIONS Eskom-led mine development fund To alleviate a portion of the funding challenge Follow the MPRDA guidelines The information that Eskom requires is very similar to that which should be submitted to the DMR in terms of the MPRDA Employ technical expertise if the project owner is not a mining expert Seek Eskom advice on technical issues prior to submitting a coal supply proposal The Primary Energy Division has a technical services department and they are willing to advise Emerging Miners on projects. Traders must draft their off-take agreements to ensure access to information required by Eskom Emerging Miners must consider consolidating small resources to benefit from economies of scale 8
CONCLUSIONS 1. Eskom is committed to the Emerging Miner Strategy implementation 2. Feel free to speak to us about your challenges 3. You may contact Eskom on the following details: coal@eskom.co.za Nqabakazi Tetyana (N.T.) Tetyann@eskom.co.za 011 516 7373 9