Coal advisory firm XMP Consulting senior coal analyst Xavier Prevost says the coal industry in South Africa could collapse if coal is classified as a strategic resource under the auspices of the amendments made to the Mineral and Petroleum Resources Development Act (MPRDA).

This collapse could be as a result of several reasons, including, but not limited to, labour unrest and government legislation, or lack thereof. As such, new coal projects in resource-rich coalfields, such as those in Limpopo, the Free State and the South Rand in Mpumalanga, will not be feasible, unless South Africa attracts capital investments again, states Prevost.

If passed into law, the MPRDA Amendment Bill would enable Mineral Resources Minister Susan Shabangu to determine the regulations of the Act and the decision to declare a resource as strategic would rest solely with her.

“The Minister should not be able to dictate the operation and marketing of coal mines. That could destroy the opportunities the coal mines have to increase their profits,” says Prevost.

Further, he notes that, by declaring coal as a strategic resource, government would restrict coal exports. However, exports will not be affected if low-quality coal is declared as strategic.

But, “if anything above 5 500 kcal/kg is, the impact could be enormous”, adds Prevost.

“Coal of export quality needs to be exported as there isn’t a market, in size or quality, for it inland. “Export coal promotes the production of Eskom coal middlings. Both are different, but come from the same source,” Prevost asserts.

By maintaining coal exports, the market enables Eskom to receive the cheaper thermal coal it uses for power generation.

Prevost believes that the ideal outcome for the coal industry is to have multiproduct mines producing several products, such as coking coal, thermal coal and, if possible, metallurgical coal. An example is coal mining company Exxaro’s Grootegeluk mine, in the Waterberg area, Limpopo, which has a total proven and probable reserve of 2.96-billion tons.

At the IHS McCloskey South African Coal Exports Conference in January, Shabangu announced that coal ought to be declared as a strategic resource to ensure that Eskom could meet the power generation needs of the country.

The fear is that, with an increased demand for coal from countries that, like South Africa, rely on coal-burning facilities for power generation, such as India and China, Eskom coal will come under threat.

Imports Impossible

“South Africa cannot import thermal coal from anywhere,” says Prevost in response to whether South Africa would ever import coal from emerging competitors, such as Botswana or Mozambique, to meet the country’s power generation needs.

He explains that transportation costs would be the greatest challenge, as they would not allow for any profits unless that coal is sold at a premium price, which, in turn, would increase the cost of power generation.

Currently, South Africa imports coking coal because it does not produce enough tonnage or enough quality. However, import tonnages are small as the price of coking coal is much higher.