Earlier this month BHP Billiton Energy Coal president Mike
Oppenheimer indicated that the global company hopes, in time, to
reduce its reliance on its South African arm, Ingwe.
Other operations, such as those in Colombia and Australia, will be geared up to increase their portion of Energy Coal's earnings.
Ingwe currently produces 55-million tons a year of the group's output of 96-million tons.
Oppenheimer's announcement follows a long period of restructuring for the company, as well as attempts to cut cash costs, as part of a process towards improving global competitiveness.
"We saw a decline in production due to the portfolio restructuring, but will again see an increase as new projects come on line," he says.
Several of these projects are located in South Africa, which means it is not all bad news for the country.
Ingwe COO Eddie Scholtz confirms his company will, in future, represent a smaller proportion of Energy Coal's earnings, although this will not spell smaller returns in absolute terms.
To the advantage of black economic empowerment, Ingwe gave up its rights to the potential Phase Five expansion of the Richards Bay Coal Terminal (RBCT), which is still scheduled to proceed this year despite several delays – the latest resulting from a disagreement between the ports authority and the RBCT shareholders over third-party access to the terminal.
Ingwe has about a 37% shareholding in RBCT's current capacity of 72-million tons of coal a year.
"Our exports will not grow beyond the entitlement," says Scholtz.
Is the South African coal industry then losing out to the Colombians? Ingwe's repositioning is much in line with what Department of Minerals and Energy chief mineral economist coal and hydrocarbons Xavier Prevost told Mining Weekly late last year.
"South Africa's importance as a world player is decreasing.
"As companies are becoming globalised, they can find coal elsewhere, cheaper," said Prevost.
He emphasised that South Africa especially may be set to lose out on markets to Australia and Colombia.
Colombia, for example, is the world's tenth-largest coal producer, with annual output of 37,1-million tons in 2000, but with production forecast to grow rapidly.
Prevost said that the South American country will, in the near future, be a more competitive coal supplier to Europe than South Africa.
Scholtz says BHP Billiton's Cerrejon Coal in Colombia can ship coal at $2/t cheaper than South Africa can, while it also produces better-quality coal.
However, Ingwe's mining costs are lower, which enables South Africa to compete.
"With the production cuts due to market conditions, Colombia suffered more severe cutbacks than we did, indicating that BHP Billiton did not favour Colombia over Ingwe," maintains Scholtz.
"There is room for both countries in Europe," he adds.
Energy Coal marketing director John Dudas says the choice between either Colombia or South Africa servicing the European market hinges on quality, customer demands, freight costs and availability.
The current seven-million-tons-a-year Colombian production is all exported to Europe, with Australia and South Africa exporting both to the Asian and European markets.
Europe receives the bulk of Energy Coal's exports, namely 70%, while Asia is a growing market, says Oppenheimer.
He adds that the global grouping wishes to increase exports from the current 46% to 50% in 2007.
Eventually, production will also grow to 130-million tons a year, mainly due to new projects.
So far projects worth $700-million have been approved, these include the San Juan underground mine in New Mexico, US, the development of Mount Arthur North, in the Hunter Valley, Australia, as well as the Boschmanskrans and Kwagga projects in South Africa.
Colombia will also receive a significant cash injection.
Mount Arthur North is scheduled to produce 12-million tons a year, of which eight-million tons is scheduled for the export market.
Pillars at an old underground mine will be exploited by truck-and-shovel strip-mining at Boschmanskrans, which is a 130-million-ton reserve with a 20-year life.
The 6,5-million-tons-a-year production this year is aimed at both the export and local markets.
The Kwagga expansion into the adjacent Optimum reserves will make use of draglines to mine a 197-million reserve with a 15-year life.
Production at ten-million tons a year, again for the export and local markets, is due to start next year.
The Klipspruit project, close to the existing Khutala mine and Kendal power station, in Mpumalanga, is in its final feasibility stage, and is being planned as a stand-alone export mine.
However, Ingwe also saw mines, such as Rietspruit Colleries, close this year due to the depletion of reserves.
Energy Coal chief development officer John Smith says exploration is not an important issue for the company at the moment.
The energy coal market has to compete with natural gas, which is perceived as a cleaner fuel – although the company remains positive about the future of energy coal.
World energy coal demand is forecast to grow 1,3% a year between 2000 and 2020 compared to growth of 0,7% over the last decade.
The current coal market has also been adversely affected by factors such as warm winters in the US and Europe, low gas prices and a simultaneous slowdown in US and European growth.
For once, overproduction played no significant role in the price downturn. Scholtz believes the market may have reached its turning point, but adds there will be difficulties until the end of the European summer.
"Coal stocks are low, and there is not enough gas available, although priced lower.
"I believe a market upswing is possible when the European winter sets in," he states.
Other operations, such as those in Colombia and Australia, will be geared up to increase their portion of Energy Coal's earnings.
Ingwe currently produces 55-million tons a year of the group's output of 96-million tons.
Oppenheimer's announcement follows a long period of restructuring for the company, as well as attempts to cut cash costs, as part of a process towards improving global competitiveness.
"We saw a decline in production due to the portfolio restructuring, but will again see an increase as new projects come on line," he says.
Several of these projects are located in South Africa, which means it is not all bad news for the country.
Ingwe COO Eddie Scholtz confirms his company will, in future, represent a smaller proportion of Energy Coal's earnings, although this will not spell smaller returns in absolute terms.
To the advantage of black economic empowerment, Ingwe gave up its rights to the potential Phase Five expansion of the Richards Bay Coal Terminal (RBCT), which is still scheduled to proceed this year despite several delays – the latest resulting from a disagreement between the ports authority and the RBCT shareholders over third-party access to the terminal.
Ingwe has about a 37% shareholding in RBCT's current capacity of 72-million tons of coal a year.
"Our exports will not grow beyond the entitlement," says Scholtz.
Is the South African coal industry then losing out to the Colombians? Ingwe's repositioning is much in line with what Department of Minerals and Energy chief mineral economist coal and hydrocarbons Xavier Prevost told Mining Weekly late last year.
"South Africa's importance as a world player is decreasing.
"As companies are becoming globalised, they can find coal elsewhere, cheaper," said Prevost.
He emphasised that South Africa especially may be set to lose out on markets to Australia and Colombia.
Colombia, for example, is the world's tenth-largest coal producer, with annual output of 37,1-million tons in 2000, but with production forecast to grow rapidly.
Prevost said that the South American country will, in the near future, be a more competitive coal supplier to Europe than South Africa.
Scholtz says BHP Billiton's Cerrejon Coal in Colombia can ship coal at $2/t cheaper than South Africa can, while it also produces better-quality coal.
However, Ingwe's mining costs are lower, which enables South Africa to compete.
"With the production cuts due to market conditions, Colombia suffered more severe cutbacks than we did, indicating that BHP Billiton did not favour Colombia over Ingwe," maintains Scholtz.
"There is room for both countries in Europe," he adds.
Energy Coal marketing director John Dudas says the choice between either Colombia or South Africa servicing the European market hinges on quality, customer demands, freight costs and availability.
The current seven-million-tons-a-year Colombian production is all exported to Europe, with Australia and South Africa exporting both to the Asian and European markets.
Europe receives the bulk of Energy Coal's exports, namely 70%, while Asia is a growing market, says Oppenheimer.
He adds that the global grouping wishes to increase exports from the current 46% to 50% in 2007.
Eventually, production will also grow to 130-million tons a year, mainly due to new projects.
So far projects worth $700-million have been approved, these include the San Juan underground mine in New Mexico, US, the development of Mount Arthur North, in the Hunter Valley, Australia, as well as the Boschmanskrans and Kwagga projects in South Africa.
Colombia will also receive a significant cash injection.
Mount Arthur North is scheduled to produce 12-million tons a year, of which eight-million tons is scheduled for the export market.
Pillars at an old underground mine will be exploited by truck-and-shovel strip-mining at Boschmanskrans, which is a 130-million-ton reserve with a 20-year life.
The 6,5-million-tons-a-year production this year is aimed at both the export and local markets.
The Kwagga expansion into the adjacent Optimum reserves will make use of draglines to mine a 197-million reserve with a 15-year life.
Production at ten-million tons a year, again for the export and local markets, is due to start next year.
The Klipspruit project, close to the existing Khutala mine and Kendal power station, in Mpumalanga, is in its final feasibility stage, and is being planned as a stand-alone export mine.
However, Ingwe also saw mines, such as Rietspruit Colleries, close this year due to the depletion of reserves.
Energy Coal chief development officer John Smith says exploration is not an important issue for the company at the moment.
The energy coal market has to compete with natural gas, which is perceived as a cleaner fuel – although the company remains positive about the future of energy coal.
World energy coal demand is forecast to grow 1,3% a year between 2000 and 2020 compared to growth of 0,7% over the last decade.
The current coal market has also been adversely affected by factors such as warm winters in the US and Europe, low gas prices and a simultaneous slowdown in US and European growth.
For once, overproduction played no significant role in the price downturn. Scholtz believes the market may have reached its turning point, but adds there will be difficulties until the end of the European summer.
"Coal stocks are low, and there is not enough gas available, although priced lower.
"I believe a market upswing is possible when the European winter sets in," he states.
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Edited by: Irma Venter
Creamer Media Senior Deputy Editor
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