Overview of Coal mining in South Africa

a) GENERAL OVERVIEW

In 2003 South Africa produced 237,544,908 t of Bituminous and 1,206,105 t of anthracite, however, the rand’s strength against the dollar resulted in sharp cuts in rand profits and revenues for South Africa's coal producers.

Ready availabilty of coal on world markets affected South Africa’s export mines until late 2002. South Africa’s coal industry is the second biggest mining sector after gold, with sales contributing 16% of export revenue in 2003 (ZAR 20 billion in 2000) to South Africa’s mineral sales and 4% to the GDP.

Coal production for 2003 was estimated at at 232.9 million tons compared with 220.2 million tons in 2002. Coal sales for 2003 were estimated at 26.86 billion. South Africa's coal production rose 6% in 2003 but despite this the 18% decrease in the rand price of coal meant a decrease in coal revenues. During 2003 the average price received for a ton of South African thermal coal was R187,70 a ton down from R258,40 in 2002.

South Africa is the world’s second largest coal exporter, after Australia, as well as second lowest cost producer, after Indonesia. Approximately 64 Mt of coal was exported in 2001 out of a total production of 225 Mt.

Bituminous or steam coal remains South Africa’s main export coal, with anthracite having to be imported, due to diminishing reserves. 60% of South Africa's coal exports are currently destined for the European market.

Most of the coal produced is consumed locally, with the power generation using 41% of total production. Out of the 150 - 160 Mt of coal produced for the domestic market, Eskom helped itself to 92 Mt and Sasol 51Mt (2000). The remainder is used in the metallurgical industry and for domestic use.

Mostof South Africa’s export coal is dispatched through the Richards Bay Coal Terminal (RBCT) on the Kwazulu Natal north coast.

RBCT has an expansion programme which should result in its annual handling capacity being increased by 10 Mt by 2006 Two thirds of this expanded capacity is to be allocated to smaller producers. The South Dunes Coal Terminal (SDCT) is also planned to accommodate smaller exporters, being able to handle 12 Mt/year.

The Maputo Port (Mozambique) has also began to be used for export purposes with 2Mt being shipped in 1999. Durban's Matola facility hopes to increase export capacity to 6.5 Mt per year, up from the present 1.5 Mt.

South Africa has limited coal reserves.

An estimated 34 billion tons remain, and based on present consumption rates, South Africa could have a mere 7 billion tons remaining by 2040.

(In 1982, reserves were estimated at 50 billion tons). South Africa’s coal reserves are hosted by Karoo age sediments, which cover most of Southern Africa and are responsible for the coal deposits mined at Wankie in Zimbabwe and Maamba in Zambia.

South Africa’s coal mines are situated in the Mpumalanga, Free State, northern Kwazulu – Natal and Northwest provinces. Most collieries are concentrated around the towns of Witbank, Ermelo and Secunda.


B) MARKET STRUCTURE

As in the South African gold industry, the coal sector has undergone similar mergers, acquisitions and name changes over the past few years.

What has emerged are three major coal producers and exporters, viz. Anglo American Coal (Anglo Coal), Ingwe (a BHP Billiton subsidiary) and Xstrata (previously Duiker, with Swiss Glencore International as a major shareholder).

The entrance of a black consortium Eyesizwe Coal was pre empted by Ingwe and Anglo Coal, involving several properties. Eyesizwe will be producing coal for the local market, producing 18Mt annually, with resources of 4 – 5 billion tons, representing 8% of South Africa’s resources and making it South Africa's fourth largest producer.

Eyesizwe’s major coal producer is the Matla Colliery, which produces 12Mt / year, most of which supplies the nearby Matla Power station. Other collieries include New Clydesdale, Glisa, and the underground operation of Arnot.

Although traditionally seen as an electricity generator and distributor, Eskom may be entering the local and export coal market. Based on its extensive stockpiles (estimated at 20Mt) as well as interests in a developing coal mine located at Usutu on the border between Mpumalanga and KZN, Eskom could become South Africa's latest producer. Eskom has signed an agreement with Dutch based Anker to develop a small high grade export operation near Usutu.
The unbundling of Iscor's steel and mining divisions into separate companies has resulted in the formation of Kumba Resources that operates three facilities in South Africa. Kumba are in talks with Eyesizwe regarding synergies between the two companies.

In 2003 the owners of Kangra, a privately owned coal-mine operator, sold 25% of their interest to MCI Resources a black empowerment company. Other sales to black empowerment firms were: BHP’s sale of the Delmas colliery Anglo American$#146;s sale of its entire Kwazulu Natal reserves.

In 2003 Spoornet announced rail tarrif of 60% for deliveries to the Maputo and Durban harbours. This resulted in the closure of some smaller export mines that could not handle the increased costs. However Metorex quadruppled its coal exports to 500 000 t/y through Maputo.
In 2003 Xstrata spent US$60.1 million on developing its properties in South Africa.