An overarching challenge to businesses of all sizes in South Africa is the lack of reliable and competitive power, says South32 COO Mike Fraser.

The reliable and competitive supply of power, he adds, “is critical” to the country’s future industrial growth and the creation of jobs.

Speaking at the 2019 edition of the Joburg Indaba, in Sandton, last week, Fraser stated that the financial challenges facing State-owned power utility Eskom were “a key risk facing the economy”.

South32 believes drastic action needs to be taken to ensure the embattled entity’s future sustainability.

In this respect, Fraser noted that South32 agreed that the proposed unbundling of the utility into three divisions “makes sense” and that the power generation division needed to become competitive by ensuring a more appropriate coal procurement process.

South32 was a significant supplier of coal to Eskom and Fraser told delegates that “the best way” to reduce the cost of coal to the utility would be through transitioning back to long-term contracts that would enable a reduction in the transport of coal by road.

While “there is space” for a smaller spot market, he added that, in the long term, it would be more beneficial for Eskom if coal volumes were delivered to its coal-fired power stations from nearby coal mines using conveyors.

Manganese
Turning to manganese, Fraser said “there is no doubt” that there had been growth in manganese ore volumes over the last five years in the Kalahari, in South Africa.

This growth had mainly been driven by year-on-year demand increases in China, which imported manganese primarily to replace its domestic volumes, which had “dropped quite considerably”.

This has boosted export volumes out of South Africa over the last five years, he pointed out.

According to Fraser, South Africa had “a competitive advantage” when it came to manganese, considering that the country hosted about 80% of the world’s known resources of manganese.

“While China is already dependent on imports, we do anticipate that India’s imports will also continue to increase over time as that economy continues to grow,” he commented.

However, notwithstanding South Africa’s significant resource endowment and its competitive advantage, Fraser lamented that the country’s logistics costs still placed it relatively high on the cost curve.

Fraser said South32 would look into investing in rapid rail development, which was expected to debottleneck rail transport and reduce costs.

However, to ensure that South Africa could compete globally for mining investment, he said, challenges that disrupted local operations – like unreliable and expensive power supply, low productivity, organised protest action and illegal mining – had to be addressed.