Coal mines are being built close to power stations to increase their profitability, says consulting service XMP Consulting senior coal analyst Xavier Prévost.

Two such coal projects under development are diversified miner Anglo American’s New Largo project, in Mpumalanga, and mining company Exxaro’s Thabametsi coal project, in the Waterberg region of Limpopo. Prévost says such projects will be able to reduce electricity scarcity in Africa.

The New Largo project is key to the coal supply of power utility Eskom’s Kusile power station, north of the Kendal power station, in Witbank. Four to six companies are interested in developing the mine, as Anglo American is divesting its coal assets. The coal mine is currently owned by Anglo American Inyosi Coal, which is 73%-owned by Anglo American and 27%-owned by the Inyosi Consortium.

Prévost explains that it would be more expensive to supply Kusile from any other source because of the distance from these mines to the power station; these mines would likely increase the price of coal to cover transport costs.

“The planned New Largo mine will be close enough to Kusile to deliver coal using conveyor belts and it should be able to supply all the coal (12-million tons to 14-million tons a year) required by the plant,” he says.

In a report released in 2014, Anglo American explained that the New Largo resource would be capable of supplying the Kusile power station for 47 years, equating to 570-million tons of coal a year.

Whichever company buys the New Largo project will be tasked with building the mine and it is assumed that this company will have the required human and capital resources to produce coal that complies with the quality required by the power station, states Prévost.

Meanwhile, a report released by Exxaro in 2014 highlights that the Waterberg projects have the potential to supply Eskom and other markets with coal for several years. The Waterberg coalfield consists of 11 coal-bearing vertical zones, collectively exceeding 48-billion tons of coal resources and stretching through Limpopo and into Botswana, according to the latest ‘Coal Reserves and Resources of South Africa’ report.

There are currently two power stations located in the Waterberg coalfield, Medupi and Matimba, with Exxaro pushing to create more power stations near its Waterberg resources.

However, Prévost points out that the coal industry in South Africa is “under attack” by environmentalists, government and other entities because of the impact that they think coal mining and coal-fired power plants have on the environment.

The South African government has a clean-energy goal that will see the amount of electricity produced by coal-fired plants being reduced by 11 000 MW. The Department of Energy has also introduced plans such as the increased construction of solar power and wind plants to increase the electricity produced by these and other renewable resources to 20 000 MW by 2020.

“Without the coal mines, our current economy could not exist, as coal has been the main source of power for South Africa and, if we close the mines now, the country will probably disappear,” he declares.

However, Prévost warns that adequate research needs to be done before embarking on new coal mine projects, as some of the larger miners, such as South32, Glencore and Anglo American, are going to dispose of some of their assets in South Africa because their coal is sold for less than it costs to produce, owing to limited demand.

“Mining coal is easy. However, to make a profit, there needs to be a market,” he concludes.