The four new coal mines being developed by energy and chemicals company Sasol are highly likely to succeed as a result of two fundamentals: reserves and market, says mining and project finance evaluator XMP Consulting chairperson Xavier Prevost.

In an overview discussion of South Africa’s coal industry with Mining Weekly, it became clear that Prevost, one of South Africa’s leading coal analysts, holds Sasol’s projects in high regard and that he believes that these are among the most feasible new coal projects in South Africa.

As some of its current mines are reaching their end-of-life, Sasol is undergoing a R14-billion intense capital replacement programme that comprises the development of the Impumelelo replacement coal project and the Shondoni, Thubelisha and Tweedraai projects, all in the Highveld coalfield.

These four projects will replace Sasol’s long-serving Bosjesspruit, Twistdraai, Brandspruit and Middelbult operations, as well as part of the Syferfontein project, all in Mpumalanga.

Sasol converts coal to gas and uses this gas to either produce liquid petroleum or petrochemicals, plastics, fertilisers and many other products. Therefore, Sasol is essentially the end-user of the coal it produces, explains Prevost. In addition, Sasol’s gasifiers do not require coal to be of particularly high quality.

The seam that Sasol mines in the Highveld coalfield is comparatively thick – between 4 m and 6 m – and of relatively uncontaminated coal. Therefore, for the process of gasification, the coal does not need to be beneficiated, and only destoning is required to remove some rock coming from the roof or the floor of the seam.

Sasol’s Secunda mines are the largest coal producers in the country – the coal reserves in the Secunda area are the biggest in the country – and, given the new mine buildup, can still last the company for about 200 years, says Prevost. Each of the underground mines in the Secunda area is designed to produce about 10-million to 12-million tons a year.

In addition, Sasol has extensive funds to supply these new operations without needing to source capital, states Prevost.

He believes that Sasol’s projects face comparatively fewer problems than other South African coal projects under development, especially mines that are being developed in the Waterberg coalfield, which face high costs and complicated geological, mining and logistics factors.

Prevost asserts that projects in the Waterberg, apart from the Exxaro, Sasol and Anglo American ones, currently, do not have a nearby market, and rail costs from the Waterberg to where the markets are make coal costs too high to produce profits. Further, this is a water-scarce region, says Prevost.

Moreover, as thin seamlets are intercalated with rock layers, in the Waterberg coalfield, mining operations only become viable when the whole sequence, including the rock, is mined. Subsequently, extensive beneficiation is needed to remove the unwanted rock, before the coal can become saleable, adding further costs to the operation.

Prevost argues that because of a lack of an offtake for future production, projects currently under development in the Waterberg coalfield, cannot have the same success as coal producer Exxaro’s Grootgeluk mine.

Grootgeluk mine, the only and biggest mine in the Waterberg, supplies coal to multiple markets, he adds. Eighty per cent of Grootgeluk’s coal is thermal coal, most of which is transported along a 7 km conveyor belt to State-owned power utility Eskom’s Matimba power station, in Limpopo. The remaining 20% is metallurgical and other coals, mostly exported and supplied to iron producer ArcelorMittal South Africa, at a higher price than thermal coal, for feeding into blast furnaces.

Prevost points out that when reserves are similar to those of the Waterberg – comprising 80% thermal coal and 20% of other niche products – there needs to be a significant, close-by, market for the thermal coal.

Prevost further states that unless there is a power station near the coal mine, mining in the Waterberg – where the majority of coal reserves are thermal coal – is not viable. Eskom has shown no plans for developing any new coal-fired power stations after Medupi and Kusile. To deal with this problem there have been suggestions that Waterberg coal can be railed to power stations in the Central basin, but railing steam coal from the Waterberg, to the Central basin, where most of the power stations are, will make this coal much more expensive than coal mined in the Central basin, explains Prevost.

He reiterates that promising projects must have sound financial support, as well as reserves and a suitable market where the mined coal can be sold.

Prevost highlights Exxaro’s Belfast project as an example. The project is part of a small block called the North Block Complex, in the Ermelo coalfield, where the company successfully operates the Glisa and Strathrae coal mines and it is proven that it is financially viable to mine in this part of the coalfield.

He cites global mining major Glencore’s Tweefontein coal optimisation project in the Central basin, in Mpumalanga, as another example. Four mines are operating in the area, each producing about 4.5-million tons a year. Prevost says that project is set to increase coal production from the area, which has reserves of about 680-million tons.