On-The-Air (09/10/2015)

9th October 2015

By: Creamer Media Reporter

  

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Every Friday morning, SAfm’s AMLive’s radio anchor Sakina Kamwendo speaks to Martin Creamer, publishing editor of Engineering News and Mining Weekly.  Reported here is this Friday’s At the Coalface transcript:

Kamwendo: Analysts warned this week that South Africa’s Kumba Iron Ore would be the first big iron-ore miner to crash out of the global iron-ore market.

Creamer: This is Liberum Capital analysts in London doing calculations and looking forward into the iron-ore situation and coming to the conclusion that the iron-ore price in the next 12 months will fall to $35 per ton. That will put huge pressure on Kumba Iron Ore because they calculate that the breakeven of Kumba Iron Ore is $45 per ton.

This is hard on South Africa because previously Liberum Capital has indicated that it would be an Australian company, Fortescue, that would be the first casualty. Now, they calculate that Fortescue’s breakeven is below that of the South African company and they are forecasting bad time for Kumba Iron Ore and therefore bad times for Anglo American.

They advised all their clients to sell off the Anglo American shares, which isn’t a good thing for South Africa. It just shows you how things can change, because not long ago, in 2011, we can remember Kumba Iron Ore was flying high and turned 6 200 employees out in the Northern Cape into half millionaires pre-tax.

They paid out a lot of money in those share holdings that the staff have. In 2016 we were hoping that there would be a repeat of it and that these workers would actually become full millionaires pre-tax with the next payout, but that is not going to happen. It just shows you how things can change.

Obviously we hope that the iron-ore price won’t fall to that, but these warnings come to serve that we should be cutting our costs far lower. We are not competitive in the global market.

Kamwendo: Concern is growing that the low coal price will scuttle the rigid take-or-pay arrangements that Transnet has with coal exporters.

Creamer: Our coal exporters have got agreements with Transnet. Transnet has borrowed a lot of money internationally, R37-billion worth to expand the rail. In exchange they say to the coal miners that we have got to have some certainty, so let’s sign up these agreements. If our train arrives, you must fill it with coal, if you don’t and we go, you still pay us.

This is haunting the people of Australia as well. This take-or-pay agreement that they have got in Australia has put a lot of the coal companies under water with this. The idea is that it hurts the miners, but it also hurts Transnet. Senior Transnet General Manager talking in his personal capacity at the Fossil Fuel Foundation Divyesh Kalan said that perhaps they should come together early and decide that if the coal price drops to $45 a ton, let’s have something click in so that we can just keep things going so that production still takes place, so that South Africa and jobs are still benefitting.

Sometimes you find that mines will close, then the price of coal will go up again and you have this stop-start. He is calling for some sort of a bridging arrangement that could be a benefit to the State in terms of Transnet, also to preserve jobs and, of course, we need those coal exports. It is a very important commodity for us, but going through a very bad time. Kalan is talking $45 a ton, if it falls to that we should really have an alarm bell going. We saw that it actually fell to $49 tons this week, so it is pretty close.

Kamwendo: The City of Johannesburg plans to use its own bulk water system to generate its own electricity.

Creamer: This is something that happened in Portland Oregon in the US. They pioneered this idea that municipalities have got water going through pipes and these pipes have pressure.

This water moves with pressure and particularly when gravity plays a role and gives you that force of movement of the water that is being supplied by all the people in the municipal area, why not capitalise on that and put a turbine in place there and generate your electricity. It has worked very well in America and expanded to North America and Canada. Now, Johannesburg is saying that they are planning to invite tenders now to have this same concept introduced in Johannesburg where you have in-pipe power where you just remove a section of pipe and put in this proprietary pipe, which has a turbine and generator set on it.

They believe that in the first step of this, they could be generating something like 3 MW of power at competitive prices. They feel that they will be able to compete with Eskom and then go up to 10MW and further. We know that this water pressure is a big thing, because you have got to manage your pressure properly and this could also assist with that sort of pressure management at the same as generating electricity.

We know that the mines as well have been working on this because gravity in the deep-level mines there is huge power potential as the water falls down for cooling, you can actually put a Pelton wheel between that and generate electricity which will at least pay for the pumping of that water to go back up.

The crisis with electricity in South Africa has actually got people thinking a lot of innovative minds getting together, and Parks Tau of Johannesburg City Council has let it been known that he is preparing to issue tenders on this. He has seen all the reference sites and spoken to the National Energy Regulator of South Africa and the Department of Energy, so it seems as though it is fairly well in place.

Kamwendo: Thanks very much. Martin Creamer is publishing editor of Engineering News and Mining Weekly, he’ll be back with us at the same time next week.

 

Edited by Creamer Media Reporter

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