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As Global Coal Majors Get Ready to Exit South Africa, Lack of Funding Leaves Junior Minors Stuck



March 2, 2020 - The South African coal market will endure increased challenges to supply coal to fuel its electricity needs, following the exit of some of the biggest global coal producers from the country, sources told S&P Global Platts.

Coal majors Anglo American and South32 have sold or are in the process of selling their thermal coal operations to Mike Teke's local company Seriti Group, which with one other miner, Exxaro, is set to provide the vast majority -- about 80% to the country's largest electric public utility company Eskom.

Two significant changes have recently come to light that show obtaining coal to fuel power stations may assert difficultly for South Africa --- The first is that India, South Africa's largest consumer of thermal coal, plans to phase out all thermal coal imports by 2024.

The second, is Glencore -- the largest producer of thermal coal for the seaborne market - announcing its plans to exit the SA coal market, having said they will allow its coal reserves in the country to deplete in order to meet its Scope 3 targets, which is to reduce greenhouse gas emissions by 30% by 2035.

Glencore's total SA thermal coal exports measured 13 million mt in 2019, down a notable 25% from 17.3 million mt in 2018, according to the company's official production report.

As the major coal producers "will be leaving" the market, sources have noted that only two domestic miners will remain.

"They are cash strapped, they will not be able to gain financing from the bank," a South Africa-based analyst said.

Another source added that the only potential funding could be from the government, through its mining company African Exploration, Mining & Finance, then mines would be owned by government.

For an extended period of time, the junior domestic miners have faced difficulties gaining funding from banks which are under pressure to cut backing for coal projects, which now stand to dominate coal supply.

"Globally coal is getting less and less popular. So, nobody really wants to invest more money on exploration and mining more coal in case it doesn't have a long-term future," a UAE-based trader said.

"It's easy [for the global coal producer to say they are] going to exit, but no one will walk away without getting paid for their assets. So I cannot see anything happening in a hurry."

India to Phase Out Coal Imports

Southeast Asia, most notably India and Pakistan, accounted for the majority of buying of total thermal coal from South Africa, about 70% in 2019, up from 64% in 2018, according to official statistics.

But India plans to phase out coal imports eventually and focus on renewable energy with the country's energy minister Pralhad Joshi earlier making a public statement that imports of the commodity will be phased out within the next three to four years.

"End result, I don't think we'll ever see SA coal export volumes [to India] grow any more than the current levels, a Dubai-based trader said. "I hope I am wrong, but let's see."