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01/02/2013 (On-The-Air)

safm1feb2013

1st February 2013

By: Martin Creamer

Creamer Media Editor

  

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Every Friday morning, SAfm’s AMLive’s radio anchor Xolani Gwala speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly.  Reported here is this Friday’s At the Coalface transcript:

Gwala: A massive drive is underway to keep enough coal in the country for the benefit of Eskom, which is heading for a worrying coal shortage.

Creamer: Coal has always had a twin-track business plan.  The bad coal went to Eskom and the good coal was exported.  Exports have been fantastic and we’ve earned R88-billion last year. 

What is happening now is that there is also a demand in the world, particularly Asia, for the low-grade coal that Eskom uses and this is pushing up the price because the demand is there. 

So, at the McCloskey conference speaker after speak said that there is a very serious lack of supply looming for Eskom.  We see Eskom going around forming pacts with various people, but the government clearly has taken a decision in principle to declare this a strategic mineral, which means that South Africa’s interests have got to come first. 

Where are South Africa’s interests in this?  As the Mineral Resources Minister Susan Shabangu says, she feels like a trapeze artist, because you’ve got to keep the exports going.  This was the biggest export earner in mining and at the same time you have got to keep South Africa’s lights on and this balance is now being worked out. 

The Council for Geosciences is looking at where all our coal is at moment, which is a very important thing, because Eskom which gets 80% of its coal from four big suppliers, now wants to spread that supply particularly to black-controlled coal mining entities. 

The report coming through from Geoscience is going to be key, because where those exploration activities take place and the futures mines come they must also have logistics.  One of the keys is in the low-price of our coal to Eskom is that it goes from the mine on conveyor belt into the station. 

If you’ve got poor logistics it is going to put upward pressure on prices. There is a fund coming through, its imminent and it will support new black-miners into it.  The Council for Geoscience also doing a big study and all coming together, but a lot of nervousness, because even Eskom says they will be having a shortfall from 2018.

Gwala: Talking about logistics.  The Richards Bay Coal Terminal (RBCT) is going to be expanded for the sixth time in order to accommodate the new black junior coal exporters you were talking about.

Creamer: That just shows you how well we’ve done with coal exports.  These exporters coming through from a smaller kind now also have to be accommodated and although there is 91-million ton capacity there, it has been expanded five times now, and now they are looking at a sixth time. 

They want to take that 91-million tons to 110-million tons and that is going to be it, there is going to be no more land after that.  We know the situation is that the ownership of the RBCT is in the hands of the private sector. The ownership of the rail, which feeds that, is in the hands of the State. 

Now we have had a mismatch for some time, because even last year we only exported 68-million tons.  We did more then that in 2005.  I can see a great optimism now coming through from Transnet talking about 77-million tons coming through, but it is still not the 91-million tons. 

The coal conference said to RBCT why are you jumping so far ahead and they said that they just don't want to be behind the curve.  When these junior miners come in they want to have that infrastructure in there already.  So, a lot of emphasis now on the development of junior miners in the coal space.

Gwala: It is going to be interesting to watch, because yesterday we spoke again to the Eskom CE Brian Dames about the problems that you mentioned earlier on about the shortage of coal at Eskom, and he is very worried about these issues.

Gwala: A groundswell of pressure is building up now for South Africa to adopt the Canadian way of hosting junior miners.

Creamer: Junior miners have really been not a great play in South Africa, but if you look at Canada, the way they develop those junior miners have been fantastic. 

It has been through the flow-through share scheme.  Trevor Manuel, when he was still Minister of Finance, actually looked at that scheme very carefully and we thought we were going to get it. 

A lot of people that go Toronto say look at these big buildings here, where does it all come from, this comes from mining, where does all the mining activity come from, from the flow-through share scheme. 

That flow-through means that the exploration tax breaks flow-through to the investor who buys the shares on the stock exchange, and people go for those shares and it helps the whole mining arrangement. 

We haven’t had anything similar.  So Trevor Manuel in 2008/9 was supposed to introduce this and finally the Treasury said no it is too administratively complex.  Demand is up now, complex or not, this must come through because what Trevor Manuel put in its place instead on July 1, 2009, has been an abject failure. 

Treasury said this would be better than the flow-through scheme and there hasn't been one taker that I know of.  So it has been totally ignored, because it has been parsimonious in the extreme and far too narrow.  People are saying shake the dust off this and let’s get back to the flow-through share scheme. 

Build junior mining space out of this and those juniors don't stay juniors forever.  We know the story of Exxaro, which started off as Eyesizwe.  Look at it today, it is a massive big player.  A lot of these juniors coming through for coal there will be a consolidation process and there could be another Exxaro coming out of that. 

They are saying let’s do this now and make sure that we have this flow-through scheme so that we can give an impetus to our junior miners in the same way Canada has done so successfully.

Gwala: Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly, he’ll be back with us at the same time next week.

 

Edited by Creamer Media Reporter

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