Johannesburg — EXXARO , one of the biggest suppliers of coal to Eskom, has signed a joint venture agreement with Sasol Mining that could lead to the development of a mine double the size of Exxaro's Grootgeluk coal mine.

Exxaro financial director Wim de Klerk said Project Mafutha, which would supply Sasol Mining's new planned coal-to-liquid project, would be a huge project, producing 20-million to 30-million tons of coal a year. The coal-to-liquid project is intended to produce about 80000 barrels of fuel a day.

Grootgeluk produces 18,6-million tons of coal a year, almost half of the group's total production of 45-million tons, but is being expanded to be able to supply Eskom's nearby Medupi power station with 14,6-million tons a year. This expansion will come on line in the last quarter of 2011.

The mine employs about 1800 people, according to the group's website, and 550 permanent jobs will be created after its expansion.

De Klerk said at this stage there was no final estimate of the costs involved in Project Mafutha. The project was at prefeasibility study stage and it was hoped that by the end of this year there would be more clarity on the project timeline and the associated costs.

If the prefeasibility study was positive, a bankable feasibility study could begin next year, which gives more financial certainty than a prefeasibility study.

Sasol Mining partnered with Eyesizwe Coal in 2005 on the project. Eyesizwe's coal assets were merged with those of Kumba Resources in 2006 to form Exxaro.

Exxaro and Sasol Mining said Project Mafutha would be located in the northwestern part of Limpopo to access the substantial coal reserves in the Waterberg region. It would probably be an opencast mine, using trucks and shovels, a mining method in which Exxaro was an expert.

By the end of the year the mine should be at the bulk-sampling stage and would have mined about 170000 tons of coal for testing at the Sasol Synfuels Secunda plant.

The partners said the development should help to meet SA's growing shortfall in domestic fuel production, especially in diesel and petrol. SA has been importing refined fuels in recent years to supplement local production.