Overview of SA coal mining 2014

From challenges and issues, to opportunity and highs

(Published in Mining magazine December 2014 )

By Stef Terblanche

Coal mining in South Africa – as is the case worldwide – experienced both highs and lows during the past year. Going forward into 2015, the prognosis remains much the same as the industry marches into a future filled both with challenges and promise.

The South African coal mining industry continues to be the country’s most valuable and most strategic mining segment. In 2012 it occupied top spot with sales of R96.1-billion, relegating gold to second place with sales of R76.8-billion and platinum group metals to third place at R69.2-billion.

In 2013 the industry notched up sales of R101.3-billion. Coal sales in 2013 were well balanced between export earnings at 51.1%, and domestic sales at 48.9%. Coal revenue was forecast to slide somewhat to R99.5-billion in 2014 due to the weak coal prices, having slumped to a four year low below US$70 per ton in August. But before that, data from Statistics South Africa showed that for the year to June 2014 the coal sector generated 29%, or R101.4-billion, of total mining revenue of  R351.3-billion for this period.

The continued strategic importance of South Africa’s coal is also quite evident. The country produces between 85% and 90% of its electricity and about 30% of its liquid fuel from coal sold into the domestic market, meeting about 70% of its total energy requirements from coal.

South Africa, one of the world’s top 5 coal exporters, produces in excess of 258 million tonnes of coal per year (2012 estimate). It has an estimated 32-billion tonnes of coal reserves, but that figure has been substantially revised upwards in a new study by the Council for Geoscience (CGS) yet to be released by government. (See sidebar.)

Challenges

In the 2013 annual report (released in 2014) of Coaltech Research Association, a collaborative research and development initiative set up by the industry, the then outgoing Coaltech chairman Gerhard Jonck listed what he saw as challenges for the industry, among them:

-          depleting coal deposits especially in Mpumalanga province,

-          a decline in the quality of the remaining coal deposits,

-          CO2 emissions, water shortage and acid mine drainage,

-          railway capacity constraints,

-          growing discard stockpiles and slimes dams,

-          the issue of carbon taxes being introduced and forced reductions in greenhouse gases,

-          the lack of adequate infrastructure to underpin new mining developments in South Africa’s major Waterberg and Soutpansberg coal basins, and

-          more difficult geological conditions and lower grades of coal deposits in these two regions.

But Jonck also foresaw some positive developments for the industry, among them that demand for South African coal was set to grow in future, especially from China and India, and that Eskom’s expansion drive was stimulating the development of new mines and technologies.

He also said the focused development in the Waterberg and Soutpansberg regions posed the opportunity to create much more value by more than doubling high value metallurgical coal production to 12 million tons per annum by 2020. New technologies could advance safety, help reduce water consumption and contribute to much more environmentally friendly power generation, he said.

Supplying Eskom

Dick Kruger, deputy head of techno economics at the Chamber of Mines, believes one of the biggest challenges for the coal mining sector going forward is delivering sufficient supplies of the right quality coal to Eskom.

“This relates to wet coal. We are in a rainy season where this becomes a big problem. All coal mines with a continuous miner will have 20% fines. If your stockpiles are wet, this goes to the bottom and you sit with the fine slurry only.”

Another problem is getting the coal quality right for power stations that were built 40 or 30 years ago, he says. Due to their age, these stations now “need slightly better coal”, while the mines providing the coal are still geared up for the original specifications.

Kruger also says “getting the balance right between export coal and supplying Eskom” is another major challenge. At present some 25% of the coal going to Eskom is of the same quality that the Asian markets, especially India, require at very good prices, thus tempting miners to export. Kruger says this conflict of interests will have to be resolved between the mining industry and Eskom before 2018 when Eskom’s existing supply contracts expire.

Reducing coal reliance

Stakeholders and other interested parties may be at odds over Eskom’s exact coal supply needs and related issues. But despite this government has stated its goal of drastically reducing South Africa’s reliance on coal for electricity generation from the current  85% to 90% to below 60% by 2030, as set out in its Integrated Resource Plan for Electricity 2010-2030 (IRP2010). 

But experts like Kruger and Ian Hall, who chaired the steering committee responsible for drafting South Africa’s Coal Roadmap, believe coal is still going to be South Africa’s biggest primary fuel for electricity generation for several decades, with sufficient coal reserves at current production levels for at least another fifty years.

Environment

In recent years fighting acid mine drainage (AMD) has become a big and costly issue for government and the mining industry, also directly affecting the coal sector. Johan Beukes, executive director of Coaltech, singles out environmental issues, particularly mine water treatment, as among the biggest achievements of the coal mining industry over the past year or more.

In Mpumalanga Anglo American joined forces with BHP Billiton and the eMalahleni Municipal Council in the development of a water reclamation plant treating acid mine water from four mines. Beukes says the reclaimed water has been rehabilitated to such a level that it is supplied as drinking water to the town of Witbank, with similar plans for Middelburg, Hendrina and other towns.

“We are also busy developing water treatment methods that completely eliminates waste water and the need for brine ponds,” says Beukes. “Mine and water rehabilitation cost billions, but it has become an integral part of the business strategy of all the large mining groups.”

Clean coal technologies

In tandem with these environmental issues and Eskom’s continued reliance – for now at least - on coal for electricity generation, the past year was also marked by much debate around clean coal technologies. This topic is bound to continue attracting much interest going forward in 2015.

The Fossil Fuel Foundation says coal is too valuable a commodity to simply abandon, especially for South Africa with its heavy reliance on it for energy. Clean coal technology offers an alternative.

Various methods and technologies to mitigate these negative impacts have been developed, including underground coal gasification (UCG); the capture of emitted particulate matter and gases; rehabilitation of mined areas; and sealing of waste dumps to prevent spontaneous combustion with concomitant huge gas emissions. Developing technologies such as UCG and Carbon Capture and Storage (CCS) are currently being developed and tested globally and also in South Africa.

However, the Academy of Science of South Africa (ASSAf), recently released a study showing that  clean coal technologies were not sufficiently funded in South Africa and that carbon capture and storage research programmes were insufficient.

Underground coal gasification

However, Eskom has already been developing UCG technology at a cost of R1bn for the past decade. In 2007 Eskom commissioned a pilot plant that successfully proved the technology concept qualitatively at its Majuba power station in Mpumalanga. Eskom is now entering the final five years of the research and trial phase at a further R1bn cost and hopes thereafter to start rolling it out in commercial operation. But even if successful, it will take up to eight years to get the first commercial plant operational.

Dr Mark Van der Riet, Corporate Specialist for Research, Test and Development at Eskom’s Sustainability Group says benefits are that “it will enable South Africa to access the unminable three-quarters of our coal resources that conventional coal mining ignored”.

Infrastructure

According to the CGS’ report, the Coal Resources and Reserves Assessment of South Africa (CRRSA), the biggest portion of South Africa’s remaining coal resources and reserves are found in the Waterberg region. Yet infrastructure and water requirements pose challenges for developing the Waterberg coalfields.

Some other coalfields face similar problems and Kruger points out that inland more than 30-million tonnes of coal is transported annually to Eskom power stations by road instead of rail, taking a heavy toll on these roads.

To meet the rising market demand and shift the focus from roads to rail, Transnet has committed to spending R312-billion over the next 7 years to upgrade services, boost track capacity and acquire new locomotives. Some contracts have already been signed. Over the 7 years, 49% will be spent on expansions and 51% on sustaining and maintaining current infrastructure. Of Transnet Freight Rail’s (TFR) total investment, 71% will be spent on rolling stock acquisitions and 26% on ports. A significant part of the investment will go towards export coal.

In November Transnet said it will invest nearly R1-billion towards increasing the coal export volumes from the Waterberg to 26-million tons between 2015 and 2019. Transnet said it already had commitments  totalling 16-million tons and that further memorandums of understanding had already been signed with a number of coal miners in the Waterberg.

Coal export terminals

Plans by Transnet to build a new coal export terminal at a cost of R15-billion to complement the existing Richards Bay Coal Terminal (RBCT) were put on hold late last year (2014). This followed  an agreement reached with industry majors to provide some 15-million tonnes extra capacity to emerging black-owned miners. But logistics company Grindrod is continuing with the phased expansion of its Navitrade coal terminal from 3.5-million tonnes to 20-million tonnes.

Last year the RBCT for the first time shipped more than 70-million tonnes of coal although it has capacity for 91-million tonnes. Coal miners have long been blaming the under-utilisation and poor coal export performance on Transnet’s failure to expand capacity and improve efficiency.

Transnet on the other hand blamed coal exporters for delaying a proposed new "take or pay" rail tariff agreement which it wanted in place before investing in increased rail capacity. Under the agreements Transnet will provide trains for which the mining companies will pay regardless of whether they have coal to ship by rail or not. However, late last year (2014) Transnet signed such an agreement with BHP Billiton for R24-billion and said further agreements with some 30 mining companies were in the pipeline.

Meanwhile if all three current projects – the RBCT phased expansion, the Transnet terminal and Grindrod’s Navitrade expansion -  went ahead, they could increase the Richards Bay coal export capacity from its current 91-million tonnes to 162-million tonnes per annum.

Safety and health

Safety and health is another sphere in which the entire mining sector, and especially the coal sector, has been shining,  and making remarkable progress towards the goal of zero harm.

The establishment in 2012 of the CEO Elimination of Fatalities Team by a group of chief executives of major South African mining companies is a global trend-setter. In its first six months it reported  a 50% reduction in the leading cause of mining fatalities, falls of ground.

Already before the establishment of the CEO team the mining industry as represented by the Chamber of Mines, together with other stakeholders, had launched various initiatives leading eventually to the establishment of the Mining Industry Occupational Safety and Health (MOSH) Learning Hub in 2009 and the launch of  the Centre of Excellence (CoE) in November 2014.  MOSH looks for and adopts leading practices already available in the industry, while the CoE researches and looks for new technologies and practices. (See our feature elsewhere in this edition.)

These safety developments have been very successful  when comparing the 1,214 mining fatalities of 1960 with the 93 in 2013. For South Africa’s coal sector the major achievement has been that it is now regarded as being considerably safer than its counterpart in the United States.

New rescue drill

Another coup for safety in the coal mining industry in 2014 was the acquisition at a cost of R69-million of a new rescue drill and ancillary equipment for underground rescue operations in coal mines. The selection and purchase involved an extensive collaborative effort by the Chamber of Mines, its Collieries Committee and coal mining members, a specially established Task Team, the and the Mines Rescue Service (MRS).

In February last year it was unveiled by the the Colliery Training College together with the Mines Rescue Service, using the newly acquired Schramm T130XD and Schramm T685WS drills, winders, rescue capsule and ancillary equipment in a successful simulated rescue operation.

“At present we have the best and the most modern rescue equipment available in the world,” said Christo de Klerk, general manager of MRS.

Labour relations

Unlike the platinum sector, the coal mining sector was spared major labour upheavals in 2014 largely because a two-year wage deal between the coal mining companies and unions had been signed in September 2013. However, new wage negotiations are due later this year.

Overall the labour relations environment has been volatile. This led to a Labour Relations Indaba being convened late last year under the auspices of the National Economic Development and Labour Council (NEDLAC) and chaired by Deputy President Cyril Ramaphosa. The social partners – business, government and labour  – launched a process to try and resolve issues and problems while a national minimum wage also featured prominently.

Overall the mining industry has been shedding jobs, with some analysts saying as many as 20,000 jobs in the 12 months to June 2013 alone and that the trend that could continue in 2015 unless conditions improve.

Policy & regulatory environment

The wholesale nationalisation of South Africa’s mines was rejected at the governing African National Congress’ 2012 national conference and replaced with proposals amounting to resource nationalism, including new forms of mining taxation. However, policy and regulatory uncertainty still prevailed for much of last year, directly affecting the coal sector.

The controversial Mineral & Petroleum Resources Development Act (MPRDA) amendment bill, passed by both houses of Parliament last year but still awaiting the president’s signature, was singled out as a major culprit. The bill’s major implication for the coal mining sector were the proposed ministerial powers to declare coal, and other minerals, a strategic mineral and the related pricing issues. The issue had frequently been raised in the recent past in respect of Eskom’s future security of coal supplies.

The Chamber of Mines was extensively involved in the deliberations around the bill. After it was passed in March 2014 the Chamber stated it “generally welcomes and supports” the bill as passed and that significant progress had been made in addressing the mining industry’s concerns. The chamber said it is supportive of a more partnership-driven approach which will include consultation and ministerial determination.