Local collieries hit 'rich seam' in SA
Mbongeni Mguni | Friday September 27, 2019 11:42
Minergy’s Masama Mine, which went commercial in September, this week put the final touches on a P240 million, three-year deal with an SA producer for the supply of about a third of its 70,000 tonne per month production.
Minergy expects to pump up to 1.2 million tonnes per annum (mtpa) into South Africa from next year when it ramps up its production to 100,000 tonnes. Morupule Coal Mine (MCM), meanwhile, expects to be sending through one million tonnes per annum to SA from March 2021 when it completes the ongoing expansion of its mine near Palapye.
“We are inundated with calls from the SA market, saying please supply us,” Minergy CEO, Morne du Plessis told BusinessWeek on Wednesday.
“The demand in SA is extremely strong.”
MCM business development manager, Matthews Bagopi separately explained why the SA market was ripe for the taking. Morupule Coal is finalising an expansion programme to tap into the South African market, where in 2018 it sealed a contract with a PPC Ltd.’s slurry plant near Zeerust.
“Some of their (South Africa) known resources are winding down and there has not been investment to expand mines,” he told BusinessWeek.
“That has left a gap in terms of supply and that leaves an opportunity for coal from Botswana, whether MCM or Minergy.
“The key thing with all of that is the issue of logistics and to get to a point where even if the demand is 20mtpa, Botswana coal can move in, stop that gap in SA and even take some of that offshore.”
On Tuesday, Mineral Resources, Green Technology and Energy Security minister, Eric Molale told a conference of miners and investors that the key 60-kilometre Mmamabula–Lephalale rail link would be started in 2021.
The link is crucial for local sea-bound coal exports, as it taps into the greater Richards Bay Coal Terminal logistics network in South Africa, which has a capacity of 91mtpa.
Minergy, however, is not banking solely on the rail link. The company’s CEO explained that as a start, Masama Coal was targeting a market that did not necessarily connect to rail.
“The 1.2mtpa is not rail, it’s on road,” du Plessis said. “We are looking at rail but the challenge is to find customers that have rail access.
“Unfortunately in SA a lot of customers have closed down their rail facilities because the local rail agency has actually become uncompetitive and they have closed their sidings and are just accepting road now. “Rail is about whether your end user can accept a load. Your end user will have to have a bunker, facilities to tip and others and that’s a capital expenditure that only the big industrial facilities will have. “We will first make sure we have our road clientele sorted before proceeding with rail.”
Masama Coal is targeting an industrial market in SA consisting of actors such as cement, brick and steelmakers. Du Plessis said that market had enjoyed compound annual growth rate of 17% over the last four years and represented about 30 million tonnes.
“We are only targeting 18mtpa of that and we will push in 1.2mtpa into that 18 million market,” he said. “The industrial market we want to serve sort of gets the back end of excess coal in SA.
“The larger coal producers will dump some of their product when export prices are low, then when they rise, they retract the product.
“The industrial market is therefore continually swapping supply and that’s the last thing that a producer wants. “If he runs a boiler he wants certain settings for that to get maximum energy value from it. Coal from different collieries, washed differently, has different characteristics; they want stability and they are not getting that.
“They have to chop and change and get from someone else, but we are coming to the table to say, our coal is of a stable quality, with the volumes you want on a consistent basis and that is quite appetising for them. “The fact that we have now this new offtake agreement is testament to the fact that it works in their facilities and they want to secure it and stop flip flopping.”
Morupule Coal, meanwhile, is targeting ‘boutique’ customers, besides its ambitions of exporting through Richards Bay.
“In the coal market, you get customers like power stations who want everything you produce and use all of that,” Bagopi explained.
“There are other customers who cannot and only need a certain portion of the coal.
“These are called sized markets or boutique who will say we want coal of this size from this range to this range. “It’s customised to the customers’ needs. “We are in the process of finalising agreements and negotiations are going towards offtake agreements.” The latest developments in the local coal sector are a far cry from years ago, when the absence of viable coal export routes and Eskom offtake agreement, led to a period of stagnation and disinvestment.