Waterberg region to significantly boost SA’s coal reserves as deadline for depletion looms

1st September 2008 By: Esmarie Iannucci - Creamer Media Senior Deputy Editor: Australasia

Of the initial 55-billion tons of coal reserves, South Africa has an estimated 30-billion tons of proven coal reserves left, which would only offer supply for the next 40 to 50 years, said senior coal analyst Xavier Prevost on Monday.

South Africa was producing between 260-million tons and 280-million tons of coal a year but, discounting the Waterberg area, the country's coal resources were quickly being depleted, Prevost said.

However, South Africa could significantly expand its coal reserves and could double its output with new discoveries in the Waterberg region, where diversified miner Exxaro Resources was currently developing the Grootegeluk mine, to supply power utility Eskom's Medupi plant.

"Exxaro is the most promising of all the coal companies in the country. At the moment, it is not the largest producer, but there is nothing to prevent them from getting there," Prevost noted.

Earlier this year, Exxaro CEO Sipho Nkosi said that the Waterberg region had sufficient reserves to host eight power stations.

The country's central coal basin, where most of the coal mining operations were, was on the brink of decreasing production owing to the fact that most of the operations have been mined successfully and were now seen as ‘middle-aged' operations, with only an estimated 20 years of operational life left.

"There is a general picture of gloom in that area," said Prevost.

Although general production has decreased, there were possibilities of coal reserves elsewhere. Owing to the demand for thermal coal, new mines were being investigated in previously unmined areas.

"The reserves are being increased because we need more power generation coal, there will be more power stations and there will be more mines. As a result, the reserve figures of what used to be called the northern Transvaal coals are increasing."

However, Prevost noted that not all the projects would take place or would create new mines. Although the coal explorers were boasting significant reserves in this area, some 80% of those reserves were likely to consist of thermal coal, he said, adding that this caused something of a dilemma, as the thermal coal required a market.

"The new companies do not have a market for thermal coal because they do not have a contract agreement and they also do not have a possibility of selling to a power station," said Prevost.

As the power stations were far removed from these coalfields, transportation costs would have a significant effect on the price of this coal. "So they need a power station near the mine, and that is not, at the moment, being contemplated." Until power stations were built in the area, those projects would remain on the back burner.