South Africa has significant coal resources, which are yet to be explored, particularly in Limpopo. This should indicate a promising future for the industry; however, there are significant challenges facing the coal mining industry, says minerals industry consultant Venmyn Rand.
South Africa mainly produces low-grade thermal coal, a limited amount of export-grade thermal coal and small amounts of coking coal, which is primarily for use in the domestic market.
However, the development of the Waterberg and Soutpansberg coalfields in Limpopo may result in larger volumes of coking coal being produced for metallurgical use and increased volumes of low-grade thermal coal for use in the power generation sector, notes Venmyn Rand director Neil McKenna.
“Currently, South Africa’s coking coal production is on the increase, with the country starting to export it once more. The development of the Limpopo coalfields might enable South Africa to become self- sufficient in terms of metallurgical coal production, which is used in steelmaking, and, as a result, the country may also produce a valuable export-grade steel product.”
Low-grade thermal coal, mainly used by State-owned power utility Eskom, and known as Eskom-grade coal, is also in demand by local coal-fired power stations. Increasing the production of this coal type could provide a valuable feedstock for the utility and other Southern African electricity parastatals.
McKenna says the use of low-grade thermal coal is also becoming increasingly acceptable in other countries, such as India, where furnace technology enables India-based firms to use low-grade coal for power generation that would not necessarily have been bought by Eskom.
The development of this furnace technology is, therefore, creating additional market opportunities for South Africa’s low-grade thermal coal producers and influencing the sale of local coal to inter- national markets, he points out.
“Higher export prices gained for low- grade coal are discouraging local producers from selling their coal to Eskom. This has increased the prices that Eskom is willing to pay to secure local coal supply,” says McKenna.
The major challenge faced by South Africa’s coal mining sector is the prevailing inadequate rail, port and road infrastructure. Efficient infrastructure is needed to support the development of and investment in the industry.
Venmyn reports that it has been involved in numerous promising coal projects, but their development is hampered by a lack of infrastructure, particularly railway lines and water supplies.
The Waterberg and Soutpansberg coal- fields are located in areas that are remote, with little water, rail and electricity infrastructure.
The areas are also characterised by high levels of unemployment and poverty to which mining could make a meaningful difference.
In response to this challenge, during his State of the Nation address earlier this year, President Jacob Zuma announced a multibillion-rand public infrastructure programme, which comprises five geographically focused projects aimed at unlocking key mineral resources and promoting exports in the country’s mining sector.
One of the five projects is aimed at developing and integrating rail, road and water infrastructure in the Waterberg, and Steelpoort, in Mpumalanga, to unlock coal, platinum, palladium, chrome and other mineral reserves, as well as accelerating the beneficiation of minerals.
McKenna says, while these are positive steps, South Africa is still five to ten years away from reaping the benefits of this – that is, if the development plans affecting the mining sector materialise.
Concerns about the wholesale nationalisation of mines, as put forward by the ruling party African National Congress’s (ANC’s) Youth League, have mostly disappeared, says McKenna.
Mining Weekly reported in July that libe- ration struggle veteran Andrew Mlangeni condemned nationalisation at the ANC’s National Policy Conference.
Mlangeni was adamant that the nationalisation debate had finally been “laid to rest” and was unlikely to resurface again in any meaningful way for some time.
“I haven’t seen nationalisation being a success in major industries, such as mining, anywhere in the world,” said Mlangeni.
McKenna says frustration about inequality, lack of service delivery and high unemployment levels continue to place pressure on government to consider a means of State control over mining and resources in an attempt to accelerate wealth distribution.
He notes that, instead, alternative initiatives to large-scale nationalisation are being considered, such as classifying certain resources, like coal, as strategic minerals.
This entails imposing penalties or taxes on companies that export strategic minerals in an attempt to encourage local beneficiation and establish State-owned mining company the African Exploration, Mining & Finance Corporation on a firmer footing, which will enable it to have more control over the country’s strategic resources.
While these initiatives may aim to secure local supply of minerals, they may also discourage coal sector investors.
Investors may not view this favourably because these initiatives – particularly higher taxes and penalties – erode the profitability of future projects and increase the difficulty of raising capital to develop new mining operations.
The issue of an unfavourable mining policy is linked to resource nationalism, as con- cerns about nationalisation and mining policy have an effect on South Africa’s credit rating, says McKenna.
Despite government’s attempts to create more clarity about South Africa’s mining policy, there is still much uncertainty about potential policy changes and their impact on the mining industry.
Meanwhile, credit rating agencies Fitch and S&P have downgraded South Africa’s credit rating from stable to negative over the last six months, citing the threat of political interference and social pressure in policymaking.
Ratings agency Moody’s has reported that it is also considering downgrading the country’s credit rating.
McKenna emphasises that if this takes place, the interest on loans is likely to increase, making South Africa’s ability to deliver on its infrastructure commitments more challenging.
As a result, the development and estab- lishment of new and expanded mining operations will be hampered, limiting employment opportunities and decreasing coal production capacity.
Edited by: Tracy Hancock
Creamer Media Deputy Editor Online
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