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A review of Southern Africa thermal coal markets

A review of Southern Africa thermal coal markets

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Xavier Prevost, Senior Coal Analyst, from XMP Consulting South Africa has presented at the Botswana Coal and Energy Conference. If you would like more information about the conference, please visit the website: http://bit.ly/13MkVsy

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Page 1: A review of Southern Africa thermal coal markets

A review of Southern Africa thermal coal markets

Page 2: A review of Southern Africa thermal coal markets

A review of Southern Africa thermal coal markets

1. World Overview

2. South African Coal Reserves 2013

3. Central Basin and Limpopo Coalfields

4. The “Big Five” and Junior Coal Mines

5. SA Coal chain, from production to discards

6. Coal Prices and their impact in the market

7. Exports – where to now?

8. Transnet – old and new rail lines

9. Inland market Eskom, Sasol and other users

• trends and prices

Page 3: A review of Southern Africa thermal coal markets

Energy is the source of industrialisation!

Coal provides over 41% of

the world’s energy

requirements.

Page 4: A review of Southern Africa thermal coal markets

Coal in electricity generation 2011

Source: World Coal Association 2011

0 10 20 30 40 50 60 70 80 90 100

Botswana

Mongolia

South Africa

Poland

China

Australia

Kazakhstan

India

Czech Republic

Morocco

Denmark

Zimbabwe

USA

Korea

Germany

UK

Turkey

Japan

Netherlands

Vietnam

Russia

Canada

France

%

Coal plays a vital role for energy production. Globally, coal accounts for 41% of the world’s electricity generation. It is the key player for generating electricity on nearly every continent and is the foundation of energy production in both developed and developing countries. The graph to the right, reproduced from the IEA Electricity Information, 2011, shows the countries that rely on coal to produce electricity; many of these countries rely primarily on coal. In addition, new coal-fired power plants are being constructed today; there is no doubt that coal will remain an important part of the energy mix.

Page 5: A review of Southern Africa thermal coal markets

World coal growth 1970 – 2011

Page 6: A review of Southern Africa thermal coal markets

Global poor figures compared to EU population

Page 7: A review of Southern Africa thermal coal markets

Importance of coal in South Africa - 2012 statistics

South Africa is the; – 7th largest producer of steam coal in the world - 250.3Mt

– 4th largest consumer of steam coal - 178.7Mt

– 5th largest exporter of coal - 73.4Mt

– Has 5% of world’s hard coal reserves (6th largest reserves)

Coal accounts for; – 1st highest foreign exchange earnings in the country

– 2nd largest mining income earner commodity, beating gold

– 93% of SA energy production

– >90% of carbon reductants in the metallurgical industry

– >40% of petrol and diesel requirements

– >200 major chemicals for 1000s of carbon-based products

Page 8: A review of Southern Africa thermal coal markets

South Africa’s coal reserves in the world context

8

35%

28%

11%

10%

7%

5% 3% 0.7%

World Hard Coal Proven Recoverable Reserves

North America

China

India

Russian Federation

Australia-Oceania

South Africa

Europe

Colombia

Page 9: A review of Southern Africa thermal coal markets

Coal reserves in South Africa

Coal reserves by province

1982 - 58.4 Bt (de Jager)

2012 - 32.4 Bt est. (MB)

• CENTRAL BASIN - 69.5% - Bituminous Steam

Witbank, Highveld, Ermelo Coalfields

Steam, petrochemical, export, industry

• KWAZULU NATAL - 3.6% - Bituminous,

Anthracite Coking, anthracite, lean

Bituminous.

• LIMPOPO – 21.3% - Bituminous, Soft coking,

PCI, Steam, export

• V-SASOLBURG – 5.1% - Bituminous Steam

COALFIELDS OF SOUTH AFRICA

N

INDIAN OCEAN

ZIMBABWE

BOTSWANA

LESOTHO

SWAZILAND

MO

ZA

MB

IQU

E

Nongoma

Vryheid

Ladysmith

Standerton

Volksrus t

UtrechtNewc astle

2

7

1312

14

16

17

Ermelo

8

Molteno

Potgietersrus

Springs

Pretoria WitbankBelfast

Vereeniging

Bloemfontein

Thabazimbi

Richards Bay

Durban

5

10

NORTHERNCAPE

EASTERN CAPE

FREE STATE

NORTH WEST PROVINCE

LIMPOPO PROVINCE

MPUMALANGA

KWA ZULU NATAL

GAUTENG

1

3

4

6

11

9

Welkom

18

19Indwe

COALFIELD

1) Tuli (Limpopo) 2)

3) Mopane (Western

4) Tshipise (Central

5) Venda-Pafuri (Eastern 6) Springbok Flats 7)

8) 9) Free State

10) 11) South Rand

12)

13)

14) 15)

16) 17)

18) Somkele19) Molteno -Indwe

Waterberg

Soutpansberg)

Soutpansberg)

Soutpansberg)

Witbank

Kangwane

Vereeniging - Sasolburg

Highveld

Ermelo

Klip RiverUtrecht

VryheidNongoma

15

Page 10: A review of Southern Africa thermal coal markets

SA coal reserves - 2012

29%

25% 21%

13%

5%

2.2%

1.7%

1.6% 0.8% 0.4%

0.3%

0.01%

HIGHVELD WITBANK WATERBERG *

ERMELO VRG.-SASOLBURG SOUTH RAND

UTRECHT KLIPRIVIER SOUTPANSBERG

KANGWANE VRYHEID NONGOMA

COALFIELDS OF SOUTH AFRICA

N

INDIAN OCEAN

ZIMBABWE

BOTSWANA

LESOTHO

SWAZILAND

MO

ZA

MB

IQU

E

Nongoma

Vryheid

Ladysmith

Standerton

Volksrus t

UtrechtNewc astle

2

7

1312

14

16

17

Ermelo

8

Molteno

Potgietersrus

Springs

Pretoria WitbankBelfast

Vereeniging

Bloemfontein

Thabazimbi

Richards Bay

Durban

5

10

NORTHERNCAPE

EASTERN CAPE

FREE STATE

NORTH WEST PROVINCE

LIMPOPO PROVINCE

MPUMALANGA

KWA ZULU NATAL

GAUTENG

1

3

4

6

11

9

Welkom

18

19Indwe

COALFIELD

1) Tuli (Limpopo) 2)

3) Mopane (Western

4) Tshipise (Central

5) Venda-Pafuri (Eastern 6) Springbok Flats 7)

8) 9) Free State

10) 11) South Rand

12)

13)

14) 15)

16) 17)

18) Somkele19) Molteno -Indwe

Waterberg

Soutpansberg)

Soutpansberg)

Soutpansberg)

Witbank

Kangwane

Vereeniging - Sasolburg

Highveld

Ermelo

Klip RiverUtrecht

VryheidNongoma

15

Page 11: A review of Southern Africa thermal coal markets

Coalfields of the Limpopo Province

Springbok Flats

Waterberg

Mopane

Tuli Pafuri

Tshipise

Page 12: A review of Southern Africa thermal coal markets

South Africa’s coal production in the world context

45.2%

13.1% 7.6%

5.4%

5.9%

4.3%

3.3% 2.5%

1.8%

2%

1.1%

1%

0.9% 0.8% 0.8% 0.7%

5%

China United States

India Australia

Indonesia Russian Federation

South Africa Germany

Poland Kazakhstan

Colombia Turkey

Canada Ukraine

Greece Czech Republic

Other

Page 13: A review of Southern Africa thermal coal markets

Coal production Run-of-Mine

o Most of steam coal for export and domestic markets is produced by 8 mega-mines, with more than 10Mtpa, 7 in the Central Basin, our main producing area. The remaining one in the Waterberg, where most of SA’s coal resources are. The later also produces a small amount (20%) of coking and metallurgical coal.

o KZN Coalfields have only four small mines, all producing anthracite mainly used as a reductant in the metallurgical industry. Most of the previously operating mines, including some producers of hard coking coal have closed down.

o The V-Sasolburg Coalfield has two mines, with the lowest coal quality in the country. The rest of the coal resources in the south (Free State) contain even higher ash.

o The only mine producing hard coking coal is in the Soutpansberg Coalfield (Limpopo Province).

o Molteno-Indwe Coalfield in the Eastern Cape has now a mine. It has very young coal to be used as local thermal coal or for exports.

29%

25% 21%

13%

5%

2.2%

1.7% 1.6%

0.8%

0.4%

0.3%

0.01%

HIGHVELD WITBANK WATERBERG *

ERMELO VRG.-SASOLBURG SOUTH RAND

UTRECHT KLIPRIVIER SOUTPANSBERG

KANGWANE VRYHEID NONGOMA

Page 14: A review of Southern Africa thermal coal markets

Coal production by company Anglo, Exxaro, Sasol, BHP and Xstrata have

77% of the coal market share in South Africa

23.6%

16.1%

14.7% 14.7%

8.1%

6.8%

4.4%

2.6%

2.5% 1.3%

1.2% 1.1% 1%

0.7% 0.6

0.3

Anglo Exxaro Sasol BHP Billiton

Xstrata Juniors Optimum Umcebo

Shanduka Sudor Kangra Stuart

Total CoAL Kuyasa Anker

o There is very little fragmentation in the mature South African coal industry as big players like Anglo, Exxaro, BHP Billiton, Sasol and Xstrata are in control of the largest mines.

o Exxaro, with large resources, has the only two operating mines in Limpopo – Grootegeluk in the Waterberg and Tshikondeni in the Soutpansberg ‘s Pafuri Sector.

o The importance of the BEE mines is now emerging as they produced more than 30%. Exxaro ‘s Grootegeluk mine is the second largest producer, soon to almost duplicate production as mine expansion is implemented.

Page 15: A review of Southern Africa thermal coal markets

The SA’s Coal Chain 2012 15

Run-of-Mine Production

311.2Mt

“Washing”

“Screening”

Discards

51.8Mt

189Mt

122.2Mt

Stocks

1Mt

Synfuels 42.2Mt

Electricity 120.8Mt

Local Use 24Mt

Exports 73.4Mt

50.4Mt 2.2Mt 40Mt

1.4Mt 40Mt 80.8Mt

Page 16: A review of Southern Africa thermal coal markets

SA’s thermal coal inland market prices

16

Coal

specifications Unit

Lower Ash A -

grade

Lower Ash B -

grade

Higher Ash C-

grade

Higher Ash D-

grade

Higher Ash

Minus D-grade

Calorific

Value MJ/kg 27.5 - 28.5 26.5 - 27.5 25.5 - 26.5 < 24.5 < 22.5

Volatile

Matter % >27 >25 >24 >20 >18

Ash content % 7 - 15 12 - 17 17 - 22 18 - 30 18 - 35

Inherent

Moisture % <4 <4 <6 <7 <7

Total

Moisture % <10 <10 <10 <10 <10

Total Sulphur % <1 <1 <1 <1 <1

Fixed Carbon % By difference By difference By difference By difference By difference

Price/ton

FOT R R640 R550 - R640 R450 - R500 R350 - R450

R9.50 -

R11.50/GJ/t

Page 17: A review of Southern Africa thermal coal markets

SA’s Thermal coal market 2012

17

66%

23%

9%

2%

POWER GENERATION SYNTHETIC FUELS

INDUSTRIES METALLURGY

USER ktpa

POWER GENERATION 120 774

SYNTHETIC FUELS 42 234

INDUSTRIES 16 520

METALLURGY 4 513

TOTAL 184 041

Page 18: A review of Southern Africa thermal coal markets

SA’s exports 2012

18

70% 23%

4% 2% 1%

FAR EAST/ASIA EUROPE

MIDDLE EAST AMERICAS

AFRICA & ISLANDS

The EU, once main market for SA exports, has fallen to just above 20% of our exports, while the Far East has grown to almost the same size the EU market was in 2007. Future trends focus on China and India, while the EU market is losing its attractive for thermal coal exporters.

Page 19: A review of Southern Africa thermal coal markets

Platts ICR thermal coal marker – NW Europe

19

20

60

100

140

180

220

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Page 20: A review of Southern Africa thermal coal markets

Platts ICR thermal coal marker – Asian

20

0

40

80

120

160

200

240

Fe

b-9

8

Fe

b-0

0

Fe

b-0

2

Fe

b-0

4

Fe

b-0

6

Fe

b-0

8

Fe

b-1

0

Fe

b-1

2

Page 21: A review of Southern Africa thermal coal markets

Transnet Coal System Proposal

21

Page 22: A review of Southern Africa thermal coal markets

303.6 Mt Discards 51.8 Mt

Electricity 120.8 Mt

Exports 64.0 Mt

SA’s future energy resources

• Despite the requested increase in renewable energy sources,

“the reality is that fossil fuels still provide the major share of

power generation with coal alone accounting for 41% of the

world’s electricity, a situation that will not change in the near

term”. International Energy Agency October 2011

• With a potential delay of two years or more in the South African

nuclear programme, i.e. a loss of 3.6GW, what can fill the

gap? Only Coal on top of the 19GW in the current programme. D

Collins, Oct 2011

• Renewables at present comprise approximately only 1% of

the power generated in the country. Business Day October 2011

22

Page 23: A review of Southern Africa thermal coal markets

303.6 Mt Discards 51.8 Mt

Electricity 120.8 Mt

Exports 64.0 Mt

23

Coal mining in South Africa

Coal mining provides jobs for the long-term.

According to the DMR, coal mining provided more than 85 000 jobs in 2012, this figure will increase, as more junior mines are opened in the future.

Coal mining jobs fuel other jobs.

For every coal mining job, many more additional are created elsewhere as coal is the mainstay of the economy. In other words, coal mining keeps millions of people – including coal miners – on the job – supporting themselves and their families.

Coal mining jobs are relatively well paid.

If mines were eventually closed down, all those jobs will be lost, increasing unemployment and poverty.

Coal is abundant and affordable.

Coal supplies 93% the electricity consumed by SA. Electricity from coal costs, in spite of the recent increases, are among the lowest in the world.

Page 24: A review of Southern Africa thermal coal markets

303.6 Mt Discards 51.8 Mt

Electricity 120.8 Mt

Exports 64.0 Mt

24

The future

• Most collieries optimising their coal production are now supplying coal to both inland and export markets.

• The Waterberg Coalfield with very large resources, cannot be fully exploited until the area’s infrastructure is suitable upgraded.

• More production is needed now to supply coal to RBCT’s present capacity of 91Mtpa and future expansion to 105Mtpa, to the inland market, Eskom Sasol and future independent power producers (IPPs).

• Although there are other sources of energy in the country, they can not compete with coal in price and reliability of supply.

Page 25: A review of Southern Africa thermal coal markets

THANK YOU!

Xavier Prevost Senior Coal Analyst +27 (0) 12 333 6305 +27 (0) 82 494 3968

[email protected]