Helen Reid, Nelson Banya

JOHANNESBURG (Reuters] – South Africa’s mining firms have resorted at times to hauling coal to ports, in an attempt to cope with a spike in European demand following the start of the war in Ukraine. They bypass the deteriorating infrastructure and lost billions in revenue.

Transnet has been experiencing problems with its freight rail service, including poor maintenance and a shortage of spare parts. Cable theft and vandalism are all factors that have caused the company’s decline in exports of iron ore, as well as coal, to drop.

Transnet declared force majeure over contracts with producers in April. However, with record coal prices, Glencore (OTC-:) has turned to trucks as a solution, according to one source. Glencore declined to comment.

Miner Menar estimates that trucking coal can cost four times as much as rail. The company has already started to use trucks but Menar stated that high prices for coal means miners can bear the costs.

Clifford Hallatt (chief operating officer, Canyon Coal), a joint venture of Menar, commodity trader Mercuria and Canyon Coal said, “The entire industry is on its knees.”

Canyon Coal’s Khanye Colliery is located 90km (55 miles), from Johannesburg. It takes approximately 80 trucks, each with 34 tonnes, to replace an average Transnet train. This makes it financially unsustainable, increases emissions, and slows down traffic.

However, the company insists that it is limited in its options.

It was loaded five to six Transnet trains per week from Khanye one year ago. Hallatt stated that this number has fallen to two or three, with its coal stockpiles increasing.

COAL PRICES ROCK

The war in Ukraine has seen a rise in demand. European Union announced that they would ban Russian coal mining in South Africa and are currently receiving calls from European countries seeking imports.

The prices of thermal coal in Australia were at $80 per ton at the beginning 2021. The prices of Australian thermal coal futures shot up to $440 a tonne one week after Russia’s invasion of Ukraine. They now trade at $326 a troy

Hallatt stated that Menar transports around 120,000 tonnes per month of coal and has plans to double this number to 200,000 tonnes.

South African coal miners, in total, are driving around 400 trucks per day and hauling approximately 6 million tonnes annually, according to an industry source.

Sizakele Mzimela, Transnet Freight Rail’s Chief Executive, stated that he was aware of an increase in coal trucks entering the ports. This is not a good situation.

Transnet delivered 58.3 Million tonnes of coal last year to Richards Bay Coal Terminal, which was 24% less than its annual production of 77,000,000 tonnes. Transnet anticipates this year’s increase in coal delivery to 60 million tonnes.

According to South Africa’s Minerals Council, bulk commodity exporters lost at least 35 million rand ($2.2B) in revenue last year due to limited rail capacity.

Mzimela of Transnet said that state-owned Transnet feels industry pain.

“The frustration lies more in the missed opportunity. Because of course, if they were to be more active, it would help them. She said, “We are bound at the hip.”

Transnet freight rail capacity constraints https://graphics.reuters.com/MINING-INDABA/LOGISTICS/myvmnqwqepr/chart.png

AUTOTHER OPORTUNITIES

Mzimela indicated that Transnet would allow miners to invest in rolling stock as well as private operators to operate on certain container routes. It does not intend to make its iron ore and coke lines available to the private sector.

It is not enough to meet the needs of mining firms that help to finance private security in order to prevent thefts along railroad lines.

Menar indicated that the company was pushing to purchase locomotives, wagons and rail lines from state-owned railroads in an effort to alleviate infrastructure problems.

Hallatt stated to Reuters, that Menar may also look into operating a section on the bulk commodities railroad lines. Transnet rejects this option.

Transnet reports that since the start of the security cooperation, drones have more than doubled the number monitoring the line between Mpumalanga and Richards Bay. In addition, incidents are down to 19 per week, compared to 35 before.

For example, copper cables that carry electricity to substations on the line are often stolen along with other metal parts.

In the Fraser Institute’s last-year mining industry survey, South Africa was listed as one of the 10 most unattractive jurisdictions to invest in mining.

Gabrielle Reid (associate director for strategic Intelligence at S-RM) stated that South African miners now have to consider other options for growing their business.

According to July Ndlovu (chief executive at Thungela Resources), the most recent experience with South Africa’s rail system makes for compelling diversification,” July Ndlovu told analysts during a March call.

“Given our geographic concentration and the risk concentrated associated with it, I believe we need to look for other possibilities.”