JOHANNESBURG (miningweekly.com) – State-owned freight logistics group Transnet expects to haul between 73-million and 75-million tons of export coal during its 2012/13 financial year, notwithstanding softer market conditions for the energy mineral.

CE Brian Molefe said on Tuesday that the group would have breached the 70-million-ton level in 2011/12 had it not been for the fact that a number of trains had been cancelled by miners during the period. In the event, Transnet Freight Rail (TFR) moved 8.8% more export coal in the year to March 31, 2012, resulting in volumes rising to 67.7-million tons from 62.2-million tons in the prior year.

The performance consolidated a turnaround in the Ermelo-to-Richards Bay corridor, which began during the 2010/11 period. Prior to that, the line had repeatedly reported declining volumes, which slumped to 61.8-million in the 2009/10 financial year.

TFR CE Siyabonga Gama said it had not yet seen a fall-off in demand from coal mining customers during the current financial year, which would run until March 31, 2013, despite some price weakness.

Coal prices had been recovering recently and were trading at around $90/t. However, during the early parts of 2011, the price of South Africa thermal coal was trading at above $125/t before retreating to below $90/t in June.

Gama said TFR anticipated that it would rail 7.7-million tons during July, well above the tempo required for the corridor to meet it volumes target for the year as a whole. But he stressed that the line’s performance was never “linear”, as it was prone to seasonal factors.

Nevertheless, Molefe said that it was not “unthinkable” for the corridor to meet its budget for the year.

STRATEGIC RESOURCE?

Molefe was also not overly concerned by the current discussion about declaring coal a “strategic mineral” in the interest of shoring up domestic supply for Transnet’s fellow State-owned company, Eskom.

Eskom had signalled its concern about a growing competition for coal that had previously been designated as ‘Eskom-grade’. There was demand for such low-quality material particularly from Indian utilities, which had reduced Eskom’s bargaining power and had led the utility to suggest that some coal resources should be declared ‘strategic’ so that it could be dedicated to the development of the local power generation market.

The utility wanted first right of refusal on coal that would previously have been considered domestic grade and there were even some suggestions of asking government to hold back Transnet in developing additional export capacity until such guarantees had been secured.

However, South African coal miners continually warn that any move to restrict exports could have adverse consequences on domestic supply security, owing to the fact that the incentive to develop such capacity was based on their ability to earn a higher return through exports.

Molefe was sanguine, saying South Africa could not consume all the coal it mined, “particularly if you take the Waterberg [coal resources] into consideration”.

He was, thus, aiming to directly influence the current policy debate, stating that Transnet’s role was to adjust to the policy of the day. “If the volume of coal comes down, we will have to adjust our business plan”.

But Gama stressed it was not an “either or” situation when it came to the issue of export and domestic coal. He said the power stations were effectively a “trash can” for the consumption of lower-quality coal and would continue to unlock export-quality resources. “You have to move both,” he averred.

WATERBERG PLAN

For that reason, TRF was pushing ahead with plans to provide the rail capacity required to unlock domestic and export coal resources from the Waterberg region of the Limpopo province, as well as resources that could be mined in neighbouring Botswana.

It was planning a phased introduction, with the first phase likely to facilitate the movement of 23-million tons and later phases raising overall capacity to as much as 80-million tons.

But the immediate priority was to reduce congestion at Ermelo by diverting general freight through Swaziland, studies for which were progressing.

To open up the Waterberg, Transnet will first aim to maximise the use of its existing assets by adding some new link lines, before pursuing major new line development plans.

The Waterberg developments are part of the group’s R300-billion, seven-year capital expenditure plan. But studies are still needed to determine the precise timeframes associated with the introduction of new capacity from the region.
 

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