Talks held with Eskom after coal deposits found

Eskom is battling to meet the country's energy demands

Mining company Rio Tinto Limited says it has begun talks with Eskom and other stakeholders following its discovery of significant coal deposits.

The coal, which totals over one billion tonnes, has been found at their Chapundi mine in Limpopo. Rio says the bituminous thermal coal is suitable for generating electricity. It says preliminary studies have shown that up to 40% of the resource at their mine may be recoverable. Tinto says it is in talks with South Africa's state utility Eskom as well as other independent power producers to discuss the feasibility and economics of commercialising the project.

Chief executive of Rio Tinto Energy and Minerals Preston Chiaro says that the project's potential to produce thermal coal for electricity generation comes at a time when South African needs to rapidly increase its generation capacity. Coal shortages, broken power plants and summer maintenance in South Africa have led to a severe power crisis in the country, forcing many major mining firms, such as BHP Billiton Limited and Anglo American to shut down their operations.

Economic growth damaged
Economic analysts say South Africa's power crisis has already damaged economic growth, even though the country's mines have bounced back, after electricity shortages brought production to a halt. Bureau for Economic Growth economist Pieter Laubscher says Eskom's failure to boost energy output for industry means that 2007 could have marked the end to four years of brisk economic growth. South Africa recorded around 5% growth last year.

South Africa's gold and platinum mines, the lifeblood of the economy, stopped work for five days last month as Eskom imposed rolling power cuts across the country. Many economists have already factored the impact into their forecasts of gross domestic product growth. Even if mines make up for lost output, Eskom's plans to ration power could cut 2008 growth down to 4% at most.

Last week, Reserve Bank Governor Tito Mboweni said risks to growth appeared on the downside, with the global slowdown threatening a spillover effect on South Africa. He said this was likely to be reinforced by the prevailing electricity supply disruptions.