Are we heading for the derailment of mining in 2024?

Many global economists have sounded a stern warning that 2024 will be a challenging year for many global economies, especially those that are not diversified and rely on commodity demand to drive economic growth.

Commodity demand is waning as many countries put infrastructure build programmes on hold. Further, the growing movement for countries to embrace clean energy has seen a sharp decline in coal demand.

This is bad news for South Africa, which is already struggling with internal challenges that impact mining production. What does the year hold for South Africa’s most important economic driver?

Trouble brewing

A News24 article points out that coal in South Africa, which has the largest proven reserves of the fuel on the continent, is at risk of becoming stranded following a plunge in prices and the collapse of the nation’s rail network.

Prices for the dirtiest fossil fuel have slumped about 70% after reaching a record in 2022. A train collision this week all but stopped supplies to the Richards Bay Coal Terminal for exports, adding to the struggles of freight operator Transnet. Plunging prices have narrowed the arbitrage of shipping the mineral to ports on trucks.

The article adds that the state-run company manually manages its network and doesn’t have enough wagons to transport coal. Lower exports have prompted miners to cut jobs.

Deliveries to Richards Bay Coal Terminal likely plunged for a sixth straight year in 2023 to the lowest in three decades. With rising stockpiles, smaller miners may choose to stop production.

Material impact

The News24 article points out that Transnet’s freight woes will have a serious impact on mining companies.

“Transnet’s failure will start causing coal mines to shut down,” said Vuslat Bayoglu, managing director at miner Menar. Operating without options to use trucks or working rail allocation is non-viable, he said.

The article adds that Thungela Resources, South Africa’s biggest coal miner by market value, hasn’t been shipping the fuel on trucks, the company said in an emailed response. Exxaro Resources continues to “truck coal opportunistically,” a spokeswoman for the company said.

Transnet’s performance has deteriorated in recent years as the firm faces multiple challenges including derailments, equipment shortages, vandalism, corruption and poor weather.

Delays in turnaround

The News24 article points out that Transnet has a turnaround plan to improve the performance of its rail network to the ports it operates and has requested funding from the government to reach these higher targets. It had set a goal of shipping 60 million tons of coal to Richards Bay last year, though it’s been on pace to ship less than 50 million tons.

Total volumes at Maputo Port in Mozambique surged 16% to 31.2 million tons in 2023, benefiting from the woes in South Africa.

The article adds that the problems for Transnet trains are bound to remain “due to the inherent risks of outdated manual systems and poor operational control,” Gavin Kelly, chief executive officer of the Road Freight Association, said in a statement. The collision “exposes vulnerabilities” on the main export line, he said.

Relief for Eskom is not forthcoming

One of the major issues that the mining industry has to deal with is the energy Crisis. Being an energy-intensive industry, mining houses have been forced to significantly reduce power demand as Eskom battles to keep the country’s lights on.

There have been plenty of efforts to try and find relief for the beleaguered power utility. however, none of these have been fruitful. Again, we are seeing signs of Government being their own worst enemy.

A News24 article points out that Minister of Mineral Resources and Energy Gwede Mantashe re-published the Gas Amendment Bill on 19 January for public comment despite the scant hope that it will be processed before Parliament dissolves at the end of March.

The bill, which will regulate the gas industry’s development and make provisions for black economic empowerment, has been in the making for the past five years. It was extensively discussed in Nedlac before it was tabled in Parliament in April 2018. It was then withdrawn by Mantashe in September 2022 without much explanation.

Most confusing

The article points out that, most confusing is that the bill appears to be very much the same bill approved by Cabinet and tabled in Parliament in 2018. An extensive process of public hearings was held to consult with industry, labour and the public in 2021 and 2022.

While stakeholders raised some issues with the bill, such as the minister’s discretionary powers and the overlap with the National Energy Regulator of SA (Nersa) on tariff setting, the public comment process was not controversial.

The article adds that the Department of Mineral Resources and Energy (DMRE) could not provide any information on the reasons for the withdrawal and re-tabling of the bill.

The slow passage of the bill is particularly odd as Mantashe is a strong champion of gas energy generation, which takes centre stage in the Integrated Resource Plan 2024 that was gazetted for comment two weeks ago.

The National Assembly Portfolio Committee Chairman on Mineral Resources and Energy, Zet Luzipho, said that the bill had initially been withdrawn due to “technical errors in the drafting.”

The article points out that Luzipho said the bill had not been passed onto the committee for consideration, and he was still determining whether the entire public participation process would have to be repeated in terms of the rules of Parliament.

“We will get guidance from the rules committee and legal services on what we should do and if we need to start the process again,” he said, “I don’t want to pre-empt the process, but we will find it difficult to deal with a bill that comes now. The big question is we are already sitting with two Bills, the Electricity Regulation Act (ERA) and the National Nuclear Regulator Bill. In neither case have we considered the bill clause-by-clause. I am worried, I must say.”

NCOP blockade

The article points out that The ERA bill is considered a high priority by both the Presidency and the business sector as it is crucial to enable the unbundling of Eskom and the establishment of an independent transmission company, which will allow the establishment of an electricity trading market. This is an essential step to introducing competition in the electricity supply.

Luzipho said that the prospects were good that the National Assembly (NA) will pass the ERA bill before Parliament’s dissolution. However, he could not speak for the National Council of Provinces (NCOP), which must also process the bill, which will include more provincial public hearings.

The article adds that DA shadow minister for Energy Kevin Mileham said the chances of getting ERA through both houses were slim.

“The NA will pass it. I don’t think the NCOP will have sufficient time to consider it, given that it’s a Section 76 bill. This means that each province has to consider it in their legislature and provide a mandate to their NCOP delegation. That requires public hearings conducted by the provinces,” he said.

Are we shooting ourselves in the foot?

With mounting pressure to resolve critical challenges impeding economic growth, 2024 will likely be the year the ANC faces its sword of Damocles.

It is becoming increasingly evident that the ruling party is losing support among voters over its inability to improve the lives of South Africans. Key to this is a resolution to the energy crisis, which impacts all aspects of business. Why is there a reluctance to pass a critical bill such as the Gas Bill if it will reduce some of the pressures felt by Eskom?

As the Energy and Logistics Crisis continue, one wonders why Government seems to be significantly unmotivated to resolve these challenges. How will these crises impact the economy in 2024?