Home » Logistics Hinder Survival of South Africa’s Junior Coal Miners

Logistics Hinder Survival of South Africa’s Junior Coal Miners

Rail Access and High Costs Challenge Junior Coal Miners' Survival

by Adenike Adeodun

Logistics inefficiencies in South Africa have emerged as the single biggest threat to the survival of junior mining companies, according to mid-tier coal producer Ndalamo Resources. During a panel discussion at the Joburg Indaba on May 21 and 22, Ndalamo CEO Shammy Luvhengo highlighted Transnet’s inefficiency as a significant imbalance in the system, which is adversely affecting junior coal miners.

Luvhengo explained that while major coal mining companies or other entities have access to rail, they often do not have enough coal. Conversely, junior miners have ample coal supplies but lack access to rail transport. Even when junior miners do gain access to rail capacity, the cost is prohibitively high compared to road transport alternatives.

Despite strong local demand for coal, such as Ndalamo’s six-million-tonne annual supply to state-owned coal-fired power generator Eskom, the export market holds greater value. “There are those who have the means to transport coal to the coast but lack the coal, and those who have the coal but cannot access transport to the coast,” Luvhengo pointed out.

Afrintransit CEO Denga Kwinda echoed Luvhengo’s concerns, describing the environment for junior coal miners as tough and challenging, starting from the funding stage. National banks are moving away from investing in coal, making cheap funding less accessible. As a result, junior coal miners must rely more on private sector funding, which is often more expensive.

“A lot of junior coal miners are in an attractive market but have to sacrifice selling prices to move their product,” Kwinda said. Junior coal miners typically pay double or triple for logistics at smaller ports and for trucking. However, there is some positive momentum within Transnet, as the utility begins to recognize the contributions of small coal miners to the economy.

To mitigate logistics issues, many junior coal mining companies are acquiring assets closer to ports, such as in Piet Retief and Newcastle, to bypass complex logistics. Kwinda noted, “We see junior mining companies applying at premium ports but with minimal volumes.”

To manage their operations, junior coal companies often start by selling to major coal miners to generate cash flow before entering the international market. “Successful coal trading requires a strong balance sheet, even if it means selling coal at a discount,” Kwinda pointed out. Larger companies are often aware that junior companies need to turn over their capital quickly and may not have the capacity to negotiate for extended periods, which can work to the advantage or disadvantage of the smaller companies.

Botswana-based coal miner Minergy Coal’s acting CEO Matthews Bagopi emphasized that logistics issues are not confined to South Africa but affect the entire Southern African region. Bagopi expressed confidence that the development of key logistics corridors like the Lobito Corridor and the Lephalale railway line would enable more producers to move their products across the region. Due to logistics strains in South Africa, Botswana-based producers are exploring opportunities at ports in other countries, such as Walvis Bay in Namibia, where transport and exporting costs are lower, even when coal is trucked by road.

Bagopi commented on the progress of the Lobito Corridor and Lephalale railway line projects, noting that both are advancing through agreements between heads of state, but progress has been slow. Once completed, these projects will facilitate a shift from road to rail for various mineral producers, including coal.

The junior coal mining sector in Southern Africa faces significant logistical and financial challenges. However, strategic initiatives like acquiring assets closer to ports and leveraging emerging logistics corridors offer potential solutions. Collaboration between government and private sector entities is crucial to addressing these challenges and ensuring the sustainability of junior coal miners.

The ongoing dialogue at industry forums like the Joburg Indaba highlights the need for continued efforts to improve logistics infrastructure and support the growth of junior mining companies. As regional and international demand for coal continues, addressing these logistical hurdles will be vital for the sector’s future success.

The commitment to improving logistics and funding mechanisms for junior coal miners will be essential in sustaining their operations and enabling them to compete effectively in the global market. With appropriate support and infrastructure development, junior coal miners can overcome current challenges and contribute significantly to the region’s economic growth and energy security.


Source: Mining Weekly

You may also like

Leave a Comment

The African Miner is the vanguard of the mining industry, delivering world-class insight and news.

Latest Stories

© 2024 The African Miner. All Rights Reserved.