Transnet is falling well below its target of shifting 200 million to 220 million tonnes of freight a year, at which point — it is estimated — it will begin to make a meaningful contribution to the economy. Its current target is 170 million tonnes a year. Photo: (Karel Prinsloo/Bloomberg)
Mining stakeholders have been locked in weekly meetings to tackle Transnet’s failings, which have negatively affected the industry’s ability to take advantage of the commodity boom.
This is according to Thungela chief executive July Ndlovu, who in an interview with the Mail & Guardian said these discussions have involved identifying critical actions that will stabilise the country’s rail network.
As the man at the helm of South Africa’s largest coal exporter, Ndlovu is one of the five chief executives leading the charge in the Minerals Council South Africa’s engagements with Transnet. Ndlovu and other mining industry leaders have descended on Cape Town to participate in the Mining Indaba this week.
The Transnet talks come after a leaked letter laid bare the acrimonious relationship between the council, which represents employers in the mining industry, and Transnet.
In the letter, Minerals Council president Nolitha Fakude called for urgent action to arrest Transnet’s decline. Included in the interventions was the organisation’s call for the removal of Transnet chief executive Portia Derby.
At a crossroads
“My sense is that over the next few weeks we’ll be able to say what those are,” Ndlovu said regarding the meetings, noting that the people engaging with Transnet’s board are hard at work.
“The teams meet every week, to give you a sense of how urgent this is. And these are very senior people who are dedicating a significant amount of time to identify those areas where we can work together, those areas we need to escalate to government as a shareholder, those areas that Transnet should just do what they need to do and those areas where, as industry, we can bring our knowhow and skills to assist,” he added.
“But that work is in progress.”
On Monday, outgoing Minerals Council chief executive Roger Baxter said he was encouraged by discussions with the Transnet board. The council has declined to comment on the contents of the leaked letter, underlining that it was marked as confidential.
Mineral Resources Minister Gwede Mantashe had a similarly restrained response to the quarrel, acknowledging the efforts by the Minerals Council to work with Transnet.
“I think that is the correct route. We can all get on our podiums and insult one another, but the solution is working together,” Mantashe said. “The Minerals Council is prepared to invest resources to resolve the problems. So, we’re hoping for a solution on that. There’s no need for me to step in. We must allow the council to resolve it themselves.”
The controversy surrounding the leaked letter was a distraction, Ndlovu said.
“We all need to fix the rail, so I’m not going to wade into things that don’t particularly fix rail. Here are the facts. Do we have deteriorating performance from rail? The answer is yes. Should we work together to do something about it? The answer is yes. The rest is just a distraction.”
Transnet’s problems do not fall on the state utility’s shoulders alone, he added. “The reason we let Eskom get to where it got is that I think we got to a point as a country where we forgot we could all play a role,” he noted.
“I think we are at that crossroads again. We can either say: ‘This is a Transnet problem. They’ve got a contract. They must fix it.’ Or we must accept that this is bigger than any one entity. As a country, it is in our best interest that we bring our very best people to tackle these challenges and resolve them.”
According to the Minerals Council, logistical constraints induced by Transnet’s challenges have cost the industry R51 billion in exports.
The council estimates that mining production fell by about 6% in 2022 compared to the year before. This means the volume of mining sector production is now, on average, below pre-pandemic levels as a result of structural constraints.
While export values grew to R878 billion in 2022 from R856 billion the year before, according to the Minerals Council this was purely because of commodity prices improving by 70% year-on-year. Export volumes were stagnant, growing by just 0.2 % in the 12 months to end October 2022 versus the same period in 2021.
The investment dilemma
Troublingly, according to the Minerals Council’s presentation, higher commodity prices have not resulted in more fixed investment by miners. This is because of “the structural domestic constraints and uncertainty over the durability of elevated commodity prices”.
Thungela recently announced its decision to fork out R4.1 billion to acquire a majority stake in Australia’s Ensham coal mine, a move that will give it a leg up on its efforts to diversify geographically.
The acquisition is a good one for a number of reasons, according to Ndlovu. “From day one, when we delisted, we said, ‘We’re in a single country, with a single commodity and heavily reliant on a single piece of infrastructure.’ But we also said that we want to reinvest in our portfolio and grow its life, because we think that coal has still got use.”
Coal miners have come to the Mining Indaba triumphant after the Russia-induced shocks to the energy market sent coal prices soaring. A year ago, their specific commodity would have been far less attractive considering the transition towards green energy.
Speaking at a media briefing about the future of coal in the wake of the energy transition, Seriti chief financial officer Doug Gain said: “Until this year, coal has very much been a pariah. And what we have all come to realise — much to our satisfaction, as somewhat unpopular coal miners — is that coal remains relevant and important, both domestically and internationally.”
Thungela’s decision to buy a stake in an existing mine allows the company to continue to invest in coal, without increasing the number of carbon units. “This is like, left pocket, right pocket … If you think about point-of-use carbon units, we’re not increasing carbon units.”
Australia is also an attractive jurisdiction to invest in, because it will give Thungela greater access to the Asian market, Ndlovu noted.
Last year, the International Energy Agency forecast that the largest increases in coal burn from 2022 to 2025 will be by China, India and Southeast Asia.
“We think that’s an important market to feed … You can’t wish away the most affordable source of energy,” Ndlovu said.
The Ensham acquisition also gives Thungela the opportunity to invest in a jurisdiction that doesn’t face the same structural constraints commodity exporters have had to deal with in South Africa.
South African miners have underinvested in the past, a fact that has helped keep prices buoyant. According to Ndlovu, coal investments have faced two major headwinds: The drive towards environmental, social and governance (ESG) investing and the country’s infrastructure woes.
“It is not only ESG. It is the fact that you have no power, you have no rail. It is just the perfect mix, or rather imperfect mix, for not making investment decisions.”
On Thungela’s geographical diversification, Ndlovu said: “Some of my investors may be very critical of that decision.” But he noted that Thungela has continued to invest in South Africa through its life extension projects.
“So it is not a vote of no confidence in South Africa per se. We believe working together with the government and Transnet, we will probably find solutions to some of these structural problems. But it’s going to require commitment from everybody.”
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