Seven Key Trends to Watch for Southern Africa’s Coal Sector in 2013

Jan. 10, 2013 - PRLog -- Market watchers keeping tabs on South Africa’s coal supply will find exogenous factors related to Government policy dominating the sector in 2013. Those concerns are not just limited to South Africa, however, as they have relevance to the sub-Saharan Africa.

Here are seven things to watch out for in the region’s coal industry this year.

1.   Government regulation stemming South African supply.

South African’s ruling party, the African National Congress (ANC), concluded at its national conference in December that state intervention in selected mineral industries was required in order to accelerate the industrialisation of the country.

Expect, then, the possibility of tax imposts on coal exports which would secure coal for Eskom as it seeks to power downstream businesses. State intervention may even extend to partial nationalisation of some assets, although the ANC seems to have rubbed wholesale nationalisation out of its dictionary.

2.   SA to stimulate junior coal mining industry

A government-backed fund is being established to finance black-owned, start-up coal ventures, as well as take equity positions in newly consolidated companies.

The aim is once again to secure coal for Eskom, but the initiative may also accelerate public-private partnerships in South Africa’s coal sector as the country's government has stated it cannot single-handedly revive and grow the junior coal mining industry.

3.   Asia in Africa

The dip in internationally traded coal prices has forced coal explorers to seek equity capital to stay afloat: think, Coal of Africa and Continental Coal. These were companies established during the zenith of the supercycle and which are now seeking funds or face going out of business.

Asian companies such as Beijing Haohua Energy and Jindal Steel & Power bid US$100M and $116M respectively for CoAL and CIC Energy, while JSW Ltd and Indian iron ore company, NMDC, have an established interest in Mozambique’s coking coal sector.

In addition to Continental Coal, UK-listed firm, Ncondezi Coal, is seeking an Asian partner for its power project in Mozambique.

4.   Transnet Freight Rail, the little trains that could (maybe)

Although the state-owned transport utility declared a 85Mtpa capacity on its Mpumalanga province to Richards Bay coal line, expect the South African firm to struggle throughout 2013.

Current expectations are that 68Mt will be shifted on the line in TFR’s 2013 financial year (ended March). There will be progress, but it won’t be linear.

5.   Green power

The Save the Mapungubwe Coalition has formally withdrawn from a memorandum of understanding with Coal of Africa on the development of the Vele mine in South Africa’s Limpopo province.

The coalition has since called on the South African government to declare the region 'a no-go' for mining, potentially putting the brakes on a forecast 10Mtpa in coking coal production from the region.

Fears that Eskom does not have enough water to run its power stations and continued worries about the number of mines operating in South Africa without a water licence means the coal versus ecology debate will continue to hog the headlines, if not intensify, throughout 2013.

6.   Mozambique infrastructure logjams

The infrastructural limitations in South Africa are just the tip of the iceberg for sub-Saharan coal supply.

Mozambique’s transport utility CFM has already missed its second deadline on extending the Sena line to 6.5Mtpa. While the line will be completed in 2013, coal suppliers in the region could see themselves pulling back on production targets.

7.   Botswana repositions coal industry

Botswana is hoping to commission at least 300MW of power this year but has plans to install at least 900MW more between now and 2020 as it cedes participation in the export coal markets – owing to a stalled rail expansion – in favour of becoming sub-Saharan Africa’s power hub.

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