Bloomberg News

Anglo Says Cerrejon Coal Expansion May Cost Up to $5 Billion

March 27, 2012

Anglo American Plc (AAL) and partners BHP Billiton Ltd. (BHP) and Xstrata Plc (XTA) may spend as much as $5 billion on a second-phase expansion of their Cerrejon project in Colombia, the head of Anglo’s power-station coal division said.

“We’re meeting again in April to talk about it,” Anglo’s Norman Mbazima said in an interview in Johannesburg today. The project is “several years down the line” and final costs, which could range from $3 billion, would be determined after detailed studies, he said.

Anglo is looking to grow production, betting demand for the fuel burned in power plants will rise. Thermal coal’s share of the global energy mix increased to 29.6 percent in 2010, the highest since 1970, from 25.6 percent in 2001, Anglo says on its website, citing BP Plc (BP/)’s 2011 Statistical Review of World Energy.

Mbazima may submit a proposal for the New Largo thermal coal mine project in South Africa to Anglo’s board for approval in the third or fourth quarter of this year, and for the Elders multi-product coal project late next year “at the earliest,” he said.

The second phase expansion at Cerrejon could increase output to about 60 million metric tons a year, Mbazima said. Anglo owns a third of the mine.

Indian Market

“We’re fairly advanced with it, therefore by the end of the year, we should be saying ‘Are we going ahead?’” Mbazima said. “That’s when it will go into feasibility” studies, he said. An expansion is underway to boost capacity to 40 million tons a year.

Anglo’s coal exports to India from South Africa, where it has most of its thermal coal mines, could rise to at least 6 million tons this year, he said. Anglo shipped 4.9 million tons to India in 2009.

“I’d expect to do not less than 6 million to India now every year, and growing, out of the 16 million or so,” he said. Indian demand for South African coal “is back” after dipping in the middle of last year, he said.

South African coal producers’ exports have been constrained by rail utility Transnet SOC Ltd.’s limited capacity from the main coal fields in the east of the country, to Richard Bay Coal Terminal, which handles more than 90 percent of the nation’s coal exports.

Railways, Ports

It may be possible for Transnet to carry 70 million tons this year, Mbazima said, adding that the rail operator increased the pace at which it shipped coal in late 2011. “People thought it might be a flash in the pan, but it has been sustained.”

Anglo would have sufficient rail and port allocation to increase exports from South Africa to about 17 million tons from a little more than 16 million last year, should Transnet transport 70 million tons, he said.

“Maybe for the first time we’ll have a situation where we’re wondering where to get coal from, and that’s a fantastic problem for me,” Mbazima said.

New Largo, which will supply coal to the Kusile power station state utility Eskom Holdings SOC Ltd. is building, could produce 13 million tons annually starting 2017, Anglo said in February. Elders could add 3 million tons a year from 2019. Its Zibulo project, completed late last year, will add 6.6 million tons a year once it’s reached full output.

Production at the Kleinkopje mine will be restricted to 1.2 million tons a year from 2 million tons previously, to meet targets on returns, Mbazima said. There are no current plans to revive efforts to sell the mine, after an earlier unsuccessful attempt, he said.

To contact the reporter on this story: Carli Cooke in Johannesburg at clourens@bloomberg.net

To contact the editor responsible for this story: John Viljoen at jviljoen@bloomberg.net


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