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On-The-Air (03/10/2014)

3rd October 2014

By: Martin Creamer

Creamer Media Editor

  

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

Kamwendo: You have water?

Creamer: We have water and electricity, but still no post. People are phoning and saying our magazines are just piling up. We are really worried, because we have to pay in advance, but then they don't deliver. So what do you do if you a weekly publication you just keep delivering and the publications are not going out.

Kamwendo: Martin, I hate to be the bearer of bad news, but it seems as though that situation is not abating, in fact, in Cape Town and certain other parts, Post Offices have actually been closed of intimidation.

Creamer: I really think someone at the top needs to do something about this.

Kamwendo: High South African rail tariffs are threatening to stifle a new R5-billion coal investment in Limpopo province.

Creamer: Coal of Africa Limited, which is listed in London, Sydney and Johannesburg wants to roll out a R5-billion investment in coal in Limpopo province. Very important coal because this is hard coking coal, which goes into the steel industry. But it is finding that the rail tariffs are really expensive. Its mining costs are about R200 per ton for not only mining but also processing, but the transport costs on rail to get it to the coast is something like R400 per ton.

This seems out of kilter and we should benchmark against best practice globally. We have a monopoly situation with rail. Also, rail wants to secure its own finances, so we see Transnet Freight Rail going out now and securing take-or-pay deals. In other words, you either have that coal ready for us or you still pay for that coal. That is a two-edged sword, because if Transnet doesn't arrive they also get penalised. Coal of Africa CEO David Brown is saying that he thinks there needs to be a national debate around the actual cost of the rail, because it is wonderful to have access to rail, but it has to be at competitive prices otherwise you are stifling your businesses and threatening your investments.

He has got quite a lot of investment planned in that area and we know that the South African government is encouraging a very big new steel project in Limpopo with Hebei Iron of China. That is going to need this hard coking coal. He is saying that he can lower the input costs of your steel making because he is nearby and it will be a great benefit for Coal of Africa because the steel plant will be in a 100km radius. Even Transnet’s internal rail, not talking export, the general freight rail, is exceedingly expensive and once Eskom hits that situation where its power stations in Mpumalanga haven’t got coal nearby anymore, they are going to have to have coal railed as well. Unless we can start looking at the costs of this, we are going to pay a lot more for electricity.

This company is also supplying thermal coal, of course, and coking coal. We must look at the coking coal side because it is going to be a great resource to have this hard coking coal, because it fetches a much higher price. He has also got allocation at Maputo port so he wants to export as well. He is saying that a national debate is needed on this, the whole country needs to look at the lack of competitiveness.

Kamwendo: It is a very important issue this rail discussion looking at what government is doing around this, there is a massive infrastructure development and investment roll-out in rail, because this is meant to be the backbone of not only goods, but also passenger rail, which is meant to link up so many of the areas that we have been struggling with. I would agree that there needs to be much greater debate, because how is that infrastructure development going to affect that very pricing that you are talking about.

Creamer: Exactly, we have heard these stories of it costing more to rail from Johannesburg to Durban than to ship from Durban to China. That seems out of kilter for me as well. So we need to benchmark against global best practice and see whether we are competitive or not. If we are not competitive, then we have to move to become competitive.   

Kamwendo: Broke junior mining companies are tumbling under the force of the huge headwinds confronting them.

Creamer: The junior mining space is in trouble at the moment. It is not only in South Africa, we saw it again in Canada and Australia where any company that is in exploration could not get funds and were beginning to get delisted and they couldn’t even pay their salaries. Now it has hit Johannesburg as well and we see that the shares of Miranda Coal, they’ve asked the Johannesburg Stock Exchange to suspend them.

They say that they can’t honour their financial obligations and that they need to shut-up shop, which they have actually done. They are appealing for business rescue. I can remember when that was listed, journalists were all taken down to Newcastle and said this was going to revive the coalfields of Newcastle and in fact, even the President was so excited that he had a cavalcade meet all the investors at the airport and had an escort to the mine areas saying that this is what Newcastle needs. This company is now wanting business rescue so it shows you how bad things are.

Also, in platinum, with Bauba Platinum, they have told the Johannesburg Stock Exchange that they are not going into any new exploration investment until they get more money. So, it is all a question of funding and at the same time it is the outlook for their products. The headwinds hitting them are not only the fact that the prices of these commodities are really down and nobody wants to invest in them, but in South Africa you have also got this red tape and a rigmarole of laws that people just can’t understand. They are starting to just back off.

Now, if you don’t have these exploration companies doing this, when you need those minerals and metals in time to come, you are not going to have them and when you do get them they are going to be very expensive. That is not the sort of thing that you should put off, you should enable these smaller mines but they are falling like ninepins.

Kamwendo: That is not a good thing as you said everybody was excited about what this could potentially mean and do and now look at where we are at.

The Zambian government’s refusal to repay VAT claims back to mining companies is bringing new investment to a standstill.

Creamer: This is a shock, R7-billion equivalent in VAT refund sitting there and the Zambian government is refusing to pay this back. The mining companies are saying that they really need that cash because they are expanding. The copper price is not as great as it used to be and the mining companies say they will have to put expansions on hold.

They are reminding the Zamiban government of the employment situation and that they may have to retrench people. So, this also affects South Africa, because amongst the contractor’s working there are South African companies. They are sinking the shafts and doing all the work. So if they stop investing it is going to hit us and South Africa’s Murray and Roberts is working there and that could be affected if there is an investment standstill.

Kamwendo: 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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