Venturing into mining as a junior is not for the fainthearted. At present the coal market is depressed and the margins are small. The size of the South African domestic market is determined largely by the electricity generating sector, which demands vast quantities of low-cost, low-grade coal.
The lack of adequate electricity has been identified as one of the main constraints to economic growth.
‘Income Generation – Eskom versus export and other domestic uses’ indicates some of the issues to be addressed in the ninth Fossil Fuel Foundation’s Junior Coal Mining Venture series taking place on Friday 27 June at the Glenhove Conference Centre in Melrose, Johannesburg.
In spite of its permitted 8% tariff increase a year for the next five years, Eskom will still have a shortfall of about R190-billion. What is Eskom’s current shortfall and where will Eskom find money to keep the lights on? Does a possible solution to the problem lie in privatisation?
Not only could emerging coal miners ensure Eskom’s coal requirements are met in the short to medium term but could also supply coal for other domestic industries. Junior miners can exploit small deposits all over the country that larger coal mining companies would not consider suitable due to their high operating overheads.
Yet it has become evident that junior mining companies in South Africa are struggling to get their projects off the ground. The lack of technical expertise and financial backing result in parting with shares or selling off hard-worked production.
Kuyasa Mining CEO Ayanda Bam, one of the presenters at the JCMV IX conference, highlights this frustration, explaining that because many junior miners could not obtain funding to start coal projects, they sold their long-awaited mining licenses.
Added to this mix is the challenge of limited access to rail and infrastructure to export thermal coal. Discussions are under way between the Richards Bay Coal Terminal (RBCT), Transnet and RBT-Grindrod regarding future port developments for emerging black junior coal miners. An inland coal hub could enable junior miners to consolidate their volume in a cooperative fashion to enable those with low production to access export markets and exploit economies of scale as a collective.
What other uncontrollable challenges face the intrepid junior miner?
There is general uncertainty around the implications of the Mineral and Petroleum Resources Development Act (MPRDA) Amendment Bill and its implications on domestic coal pricing. Will coal be declared a strategic mineral?
Is nuclear energy making a comeback? China certainly thinks so. According to the World Nuclear Association, mainland China has 20 nuclear power reactors in operation, 28 under construction, and more about to start construction. The nuclear option is now a certainty as a means to alleviate the country’s energy shortage, says Energy Minister Tina Joemat-Pettersson. She said electricity was a problem as “Eskom is the only company in the world that has to discourage people from buying its product”.
Eskom is already rationing electricity supplies to the mines and to big industrial users and relief is needed sooner rather than later. Does ‘sooner’ mean gas-powered power stations coming on line? Certainly capital costs are much lower and they could be built in two to three years compared with eight to ten for nuclear power stations says Janine Myburgh, president of the Cape Chamber of Commerce and Industry .
Will renewable energy play a significant role in the global market’s demand for coal?
According to the South African Coal Roadmap, the development of new mines is fundamental in ensuring existing coal-fired power stations remain in operation. It is therefore to be hoped that while some emerging black junior coal miners may disappear as a result of the tough economy and future uncertainty, many will survive and be the stronger for it.