Exit of major thermal coal miners opens opportunity for local companies

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By 2030, almost 60% of South Africa's electricity will still be generated from coal, down from 77%.
By 2030, almost 60% of South Africa's electricity will still be generated from coal, down from 77%.
  • The flight of major thermal coal producers is not a uniquely South African problem, but a global phenomenon.
  • Companies are not fazed by a future where coal will have a lesser role in power generation.
  • By 2030, almost 60% of South Africa's electricity will still be generated from coal, down from 77%.

The recent flight of major international thermal coal producers from South Africa must not be seen as a bad sign for the industry, but an opportunity for local companies to play a meaningful role in the sector. This according to the bosses of the country’s newer coal companies, who reiterated that the carbon-intense resource still had a significant role to play in the energy sector. 

Diversified miner South32 is the most recent company to sell its coal assets in South Africa, following the 2017 sale of Anglo American's mine Seriti Resources, a black-owned mining firm, for R2.3 billion. As a person heading one of the entities that has significantly benefitted from the flight, Seriti chief executive Mike Teke said the exit of these companies presented "a good opportunity for South African investors" to enter this sector of the economy.

"I see this as an opportunity for us to grow businesses as owners and shareholders and meaningfully participate in the economy."

Taking over the operations of South32's assets in May was not the first time that Seriti had acquired a major coal firm. The cluster of assets it snapped up from Anglo - which included the of New Vaal, New Denmark and Kriel collieries, as well as four closed collieries - were considered to be a goose that would lay golden eggs for the firms due to their ties with Eskom.

"We are serious miners," said Teke, dismissing the contention that as newer entrants into the sector they are regarded as "junior miners". He told delegates at the Coal Industry Day on Tuesday that, since taking over the South32 assets, the company now employs more than 20 000 workers. 

"We are seeing a representation of South African shareholders who are taking these assets and [who] have [an] interest in growing them and the economy of the country and the region."

As the country's major source of energy, the dominance of the resource will be slightly reduced in future as government is gradually on-boarding renewable sources of energy. About 28% of production is exported, according to the department of mineral resources and energy.

July Ndlovu, the CEO of the newly formed Thungela Resources, a spin-off of Anglo American, said the flight of major thermal coal producers was not a phenomenon unique to South Africa, but a global trend.

He said locally, the exit of major coal companies creates opportunities for other players to grow and consolidate, as there is value in thermal coal.

"We are going to see new major players beginning to emerge. This is simple economics."

Since listing on the JSE on 7 June, Thungela has seen its stock price accelerate sharply from its debut price of R25 to as much as R41.98 earlier this month, driven by the upward trend in commodities. The company's market capitalisation sits at R5.5 billion.

Base-load source

The Integrated Resource Plan of 2019 projects that, by 2030, almost 60% of SA electricity will still be generated from coal, down from the current 77%. Teke argues that the reduction will not make coal insignificant, as it will remain a base-load resource.

"As coal producers, we embrace the new forms of power; in fact, some of our projects at the mines run on solar [power] to ensure the reduction of carbon emissions.

"As we progress and reduce the reliance on coal, we embrace wind energy, solar and other technologies, but coal will remain a base-load source, said Teke.

According to End Coal, the resource - which is found in abundance in South Africa - is responsible for 46% of carbon dioxide emissions worldwide and accounts for 72% of total greenhouse gas emissions from the electricity sector.

The South African government's energy plan states that by 2030, solar energy will supply 7% of electricity, hydro plants will contribute 8%, nuclear 4.5%, and the rest will come from gas and diesel.

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