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South African, Botswana coal producers outline prospects for the industry

Monday, February 3rd, 2020

Coal producers and market players have outlined risks and opportunities for the year ahead as more short-term contracts have been signed with Eskom, junior miners try to carve out a viable way forward and some of the major coal players disinvest from coal assets.

While business with Eskom has become much more complex, it should still be a key part of the market strategy of South Africa coal producers, said Octagon Minerals MD Waheed Sulaiman.

He said while there was an increase of 14.1% in the average coal price over the 2019 financial year, the average mix of volumes was similar to the previous year. Higher prices were mainly from short and medium term contracts issued to new suppliers.

“Short-term contracts make up half of Eskom’s spend. That is a warning sign for Eskom and the industry, because you need a sustainable procurement model for the industry to survive,” he cautioned during the IHS Markit Southern African Coal Conference in Cape Town.

 Eskom’s 2019 Annual Report indicated that 41 new coal contracts had been concluded since January 2018. This had boosted coal stock levels.

For several of the majors, the export market is becoming more attractive than in the past as producers have found other outlets for their low-grade coal.

“The majors are disinvesting. The profile of customers and the balance sheet are going to look very different moving forward,” suggested Divyesh Kalan, CEO of Orevest Supply Chains and Advisory and business director at Makoya Group. He said South Africa needed to improve its logistics and streamline the rail network.

He said coal exports had been “stuck” at an average of 75-million tonnes over the past few years, mainly due to markets, weather issues and challenges experienced by Transnet. But it had the potential to improve.

Opportunities could also come from Botswana in future.

Minergy Group CEO Morne du Plessis, outlined the potential in Botswana, which he said was sitting on 200-billion tonnes of coal.

Minergy, which is listed on the Botswana Stock Exchange, is developing its 100% owned 390-million-tonne Matsama coal project in Botswana’s Mmambula area. It hopes to be a key player in Southern Africa in coal mining and trading.

“We are close to our target markets, just 60 km north-east of Gaborone. We have consistent qualities of coal. We also have opportunities to go outside the domestic market.”

For landlocked Botswana, an exciting prospect is to export to South AfricaBotswana Railways has said it intends to start construction of a coal railway line, the Mamamabula-Lephalale line in 2021. It would take several years to build.

“The link between South Africa and Botswana in four years time will take a significant number of kilometres out of the transport loop and make Botswana coal more affordable,” said Du Plessis.

It would be a gateway to South African ports for the coal market and link Botswana mines to the Transnet Freight Rail network.

“At the moment, there’s a lot of goodwill in Botswana from the Botswana Rail Agency which supports building a link. It would be a game changer for Botswana. The memorandum of understanding has been signed between governments and partners. At this stage, they are trying to raise funding.”

The Botswana government has appealed to prospective investors with a set of attractive features, including its politically stable economy, a strong currency and zero tolerance for corruption.

http://www.miningweekly.com/article/south-african-botswana-coal-producers-outline-prospects-for-the-industry-2020-02-03/rep_id:3650
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