"On the production side, South Africa is very competitive thanks to shallow and high-quality deposits, but on the logistics side, rail shortfalls are a big impediment."

Vuslat Bayoglu

MANAGING DIRECTOR, MENAR

August 08, 2023

Could you provide an operational update since last year?

2022 was a very strong year for us. At our open-cast thermal coal mines we produced 2.5 million t run of mine (RoM) from Khanye Colliery and 1.7 million t RoM from Phalanndwa. Canyon Coal mines collectively achieved over 5,200 fatality-free days. Kangra, our thermal coal mine in Piet Retief, also reached its production targets and we added two shafts called Udumo and Belgarthen to ramp up production. Meanwhile, the Zululand Anthracite Colliery has a difficult geology presenting various challenges, but we benefited from the high demand following the supply cut-off from Siberian Anthracite, a Russian player and the largest anthracite producer globally. Finally, our East Manganese mine is also producing in line with our guidance, but manganese prices have flattened out. Coal prices have also come down dramatically from their peak at over US$400/t in September 2022 to about below US$100/t, and this is because the European winter turned out to be quite mild, leaving significant volumes of coal and gas in stock. 

What are the main updates at Menar’s development assets? 

We started mining at our 200,000 RoM t/month Gugulethu mine, and by October this year, we expect to have the first washed coal after some delays on the civil work due to very heavy rains. Our teams are currently working on the box cut. By the time we reach the second phase of operations an estimated 430 jobs would have been created. The mine has a LOM of 7 years open cast + 20 years underground. Our flagship and first mega-project 600,000 t/m (RoM) is Bekezela, where we are waiting for the final Water Use License as well as working with Transnet to build the siding on the property to minimize both transportation costs and the CO2 footprint associated with trucking. We are already in discussions with a potential offtaker, ready to push the button on production as soon as we have the license. Thuso, our third development asset, is fully licensed, but given that this is an underground project with higher operating costs, we will watch the market conditions closely before bringing it into production. 

What would you say is a realistic timeline for the phase-out of coal from the energy mix?

It is difficult to talk about a timeline, but what I see is that coal is needed because it provides baseload capacity to enable renewables. While solar energy may be enough to power a household, it does not have the industrial-scale capacity to power an entire nation. This is why countries like Germany are opting for a renewables-plus-gas solution. In South Africa’s case, the baseload generator can be either imported gas, nuclear or coal. The government is looking at a combination of fossil fuels and renewables, for which there are ongoing energy bids to create renewable energy capacity in the Northern Cape. That said, bringing that energy to major centres like Cape Town, Durban or Johannesburg will again require significant capital investment in transmission lines, which is another challenge. China takes a very pragmatic approach to the matter: keep whatever is working unless one can prove that the alternative will also work. Ironically, China’s grid is heavily dependent on burning coal, but the country is also the largest exporter of solar panels that the entire world buys – solar panels produced using power generated from coal. Given the incapacity of renewables to provide baseload, and the fact that gas is not enough for all the countries in the world, I believe South Africa will continue using coal until resources are depleted. The July 2023 G20 meeting in India underlined the difficulty of setting timelines. This group of countries couldn’t agree on the best approach to balance the ideals of decarbonisation and specific-country realities of the need for baseload power generated by coal.

How competitive are South Africa’s thermal coal and anthracite on international markets? 

Production costs and logistics are the two main items that impact the competitiveness of energy coal. On the production side, South Africa is very competitive thanks to shallow and high-quality deposits, but on the logistics side, rail shortfalls, especially in terms of the availability of locomotives, are a big impediment. Anthracite deposits sit close to the port; our Zululand operation is just 80 km away from Richards Bay. 

Given South Africa’s diverse mineral and metals base and rich mining history, what commodities do you think are the most promising for the country’s future? 

In the last few decades, the world has been mining iron ore, chrome, copper-cobalt, manganese, nickel, and coal primarily for China, which had been growing at a very accelerated pace. China’s GDP growth slowed down, and without another supernation coming close to that kind of growth, the construction and infrastructure-related commodities will see a weaker demand in the years to come. At the same time, power and battery metals are becoming the favourite because of this large market. This gives South Africa an opportunity, especially in PGMs used for clean technologies, but also in coal and manganese (80% of the world’s manganese resources are sitting in South Africa). The country has a very rich mineral endowment, as well as good infrastructure in terms of roads, rail, power, banking and judicial system, and, importantly, a very talented workforce: everywhere you go in West, Central, or East Africa, you will find highly educated South African engineers. Investors looking to develop new resources will probably look at the low-hanging gold exploration projects with a low-strip ratio, whereas South Africa’s gold sector is quite mature and the ores rather deep, but in PGMs, manganese, chrome, coal, and vanadium, the country offers a clear competitive edge at low capital risks. 

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