Peet Meyer from PC Meyer Consulting highlights some of the major changes in the country and coal industry the past three years:
- South 32 is now truly entrenched as a spin-off from BHP Billito
- Anglo American Energy Coal has been sold to a consortium known as Seriti
- Glencore sold Optimum Coal Mines to Tegeta and through that opened up the whole Gupta-debacle and exposed state capturing
- Mining Charter 3 introduced
- Eskom exposed and not being efficiently run and management changes a regular occurrence
- Devaluation of the Rand due to Cabinet reshuffles
- Worldwide geo-political changes
The coal industry has benefited enormously from the devaluated Rand. For the past few months the export RB1 coal prices are steady above US$ 80 per ton which equates to more than R 1 100/t.
These are Rand-prices never experience before and on can see the effect on the volumes of coal being exported which Richards Bay Coal Terminal hitting new monthly records.
Unfortunately, some very low grade coal (4 800 Kcal) are also being exported and although its price is much lower than RB1, these exports still make economic sense due to the exchange rate and the volume of this coal that is available.
It is my view that this coal should be earmarked for Eskom consumption only as the utility struggles to get sufficient, and at the correct quality, coal for its Highveld power stations.
The dedicated Eskom coal mines are ageing and production is not where it once was.
Therefore, Eskom is buying in coal to sustain its feed levels.
Kusile still does not have a dedicated coal source and will have to buy in coal for the foreseeable future.
Mining will still be challenging with the Highveld deposits being depleted and external pressures placed on the industry.
There is enormous pressure to comply with environmental regulation and due to this some surface mining projects need to cut down on aerial extent and some mines might not even open.
Examples of these pressures are CoAL’s Vele and Atha’s Yzermyn underground coal mine.
There has also been focus on Carte Blanche on the ARM-Glencore operations near Ogies.
There are still large deposits in the Highveld Coalfield but these are very deep and will most probable not be extracted through normal mining.
Underground coal gasification is a sure way of unlocking these resources but the technology is still in its infancy in South Africa. Similarly are there large deposits in the Free State and Waterberg that will not be mined through conventional methods.
A big weight on the development of new coal mines is the imported cost of capital.
Underground equipment still need to be partly sources from overseas and similarly that for surface mining. Large machinery are imported as a whole and not manufactured locally.
Since most of the large Highveld underground coal mines are ageing and mining in areas that were not historically regarded as economic or “easy”, these mines encounter more geological problems than some decades ago.
Similarly are new underground mines mining in areas that were not regarded as high-production areas due to geological features.
These features include dolerite dykes and sills, seams pinching out against basement highs and poor coal qualities.
There is still space for underground mining but it will be more focused and thin seam and low production rates. In Kwazulu-Natal there might be potential for another few small underground mines but the glory days for that coalfield is over.
In Ermelo there is still potential for a few small, thin seam open pit mines and maybe one or two thin seam underground mines.
Some of the current large opencast mines, like Optimum and Middelburg Mines, still have long lives and will be around for the next 2 to 3 decades.
Some mines are dedicated to ageing power stations, like Kriel. At this stage, it is not clear if Eskom will refurbish such a power station or replace its electrical output with the upcoming nuclear programme.
Kusile and Medupi will provide more than enough electricity which may negate the need to refurbish Kriel Power Station or to keep the re-introduced old ones alive.
The Waterberg can easily host another coal fired power station if the choice is to stick to coal as source of energy.
Some of the perceived threads to the coal industry are:
Nuclear: it is the view of the author that nuclear is the best alternative to coal as source of energy.
These are small units, not taking up much space, can be located all along the coastline and is very environmental friendly.
People opposing nuclear have no idea about the advantages of this source of electricity and mainly protest because of the believe that it will lead to more corruption.
At the same time, these people oppose coal mining but still want a reliable source of electricity. It is a fantastic government initiative to create work opportunities and boost the economy.
Renewables: the most unreliable source of electricity.
Solar is only available in day time and cannot be stored in the national grid.
Wind energy is rarely available in large parts of the country, unsightly and totally unreliable.
Both require a backup baseload for night time and wind-still days which comes from expensive and environmentally unfriendly diesel generators.
Both source requires mining of rare earths, bauxite for aluminium and the production of vast quantities of electricity for the production of aluminium metal for their pylons and photo-voltaic cells. This still requires coal.
Carbon tax: this is a very unnecessary tax and will have a devastating impact on the coal and subsidiary industries.
There is no scientific proof that human activity promotes global warming.
It is the view of the author that the current period of global warming is caused by magnetic activity from the sun and is a cyclic occurrence that will disappear.
What happened to Y2K?
Can we really believe the proponents of global warmth if their theories are based on assumptions and emotions and not on hard scientific facts.
Lack of exploration: exploration has died a slow death the past few years due to the lack of funding and international interest in new projects.
Due to the depth of remaining coal resources locally, exploration has become expensive and companies are not prepared to risk money on expensive projects in an uncertain investor’s environment and dooming Mining Charter 3.
In our neighbouring counties of Botswana, Zimbabwe and Mozambique there is still some exploration taking place but the big boom of 2006-2010 is over.
Some projects are starting up again but there is a little appetite to go big. The impact is that few replacement projects are in place when some of the older mines are closing.
Botswana: Mmamabula is still on hold although it is a far advanced project.
Mamantswe is still talking about selling electricity to South Africa but currently Eskom is producing excess power and exports the surplus to its neighbours.
The author is not sure if this project will come off the ground soon.
The Seschaba Project will be a small 300 MW powerstation with a very small mine to supply coal to this captive market.
The owners, Shumba Energy, holds vast resources and quotes the billions of tonnes of but very little is known about the mineability thereof (read: reserves).
Very little exploration is taking place in Botswana due to the lack of international funding and reliable markets for the coal.
It the author’s view that there is very little chance of any coal project entering production within the next five years, if ever.
Mozambique: only Vale is producing and is constantly increasing production.
Minas Moatize are in liquidation while Ncondezi Energy is still battling to fund their project. ENRC’s Chitima project is on halt and one rarely receive news from this once prominent Mozambican project.
Jindal’s was on halt but now mines small tonnes which are trucked to Tete for export. Arcadia Minerals are currently doing exploration on their Que3 project near Chitima but very little exploration takes place and the main focus of the drilling is around the Vale resource and on-mine.
The once “second Bowen Basin” has come to a crunching halt due to the lack of infrastructure and international funding of projects.
Zimbabwe: Hwange Coal has rumoured about expansion projects for the past 10 years but nothing has come from it to date. The mine will run out of reserve within the next few years but replacement coal has not yet been defined and drilled out.
Tanzania: Edenville Energy has opened their Rukwa Mine and is producing small tons for the local market.
Kibo Resource will follow suit. There are lots of uncertainty about the mining industry as the current government has clamped down on the mining sector for the non-payment of royalties and taxes.
Looking at the future
The author is much more positive about the future of coal than in 2014.
Export prices, in conjunction with the weak Rand, have helped the commodity industry to become profitable again.
The push for coal from Pres. Trump has helped to return confidence in the commodity and created a much more positive outlook.
Coal is not as dirty as it is made out to be by the environmentalists and coal miners bend backwards to mine responsibly and environmentally friendly.
The need for coal will never disappear as coal is still a major requirement and component in steel manufacturing and a cheap, abundant source energy.
Unfortunately, South Africa has become less investor friendly through uncertain policies and uncontrollable corruption which has deterred international investments in our industry and forced the withdrawal of major international companies from the coal sector.
The good news is that many small mines are opening that supply Eskom and some do even have export quality coal.
Many of these cheap to operate mines will still open as large mines close and some of their, in their view, unmineable corners and pillars become available for mining by Juniors under Mining Permits.
Fortunately Eskom nowadays pays good prices for their buy-in coal which makes these small scale mine economically viable and sustainable.
Then there is the Waterberg …..
Feature image credit: www.123rf.com