South32 coal deal is a confidence trick
The weekend papers were full of a wellspun story about how smart it was for Seriti to have won the exclusive right to bid for South32’s coal mines in SA. The rest of us should be terrified.
Seriti represents the best about the transformation of mining in SA. Its major shareholders, Thebe and Zungu Investments among them, are the cream of the crop. It is a really big, 90% black-owned, mining giant.
CEO Mike Teke is a former president of the Chamber of Mines. In 2018 Seriti bought Anglo American’s thermal coal business. A huge deal for a huge amount of money.
South32 owns the local coal business (SA Energy Coal) of BHP, the Australian miner divesting out of SA. So Seriti beats off a long queue of contenders to get to negotiate the purchase of the South32 thermal coal business. If it reaches a deal it will supply a third of Eskom’s coal.
Mike Fraser, South32’s CEO, is happy. “People were nervous about seeing another Optimum here,” he said earlier in September, explaining the decision to secure a preferred buyer. “The future sustainability of this business is absolutely paramount. Cobbling together just another consortium to try to run this business I think would create risk.”
The Australians are seriously relieved to be getting out of SA. “If you look at the resource base that SA Energy Coal has of 4.5billion tons, there is a lot of coal,” Fraser was reported to have told Business Day.
“I don’t see SA building any new coal-fired power stations ... but I think for the next 20 to 30 years you will need to burn 120-million tons of coal a year at least. That’s got to come from somewhere.”
That’s true, but in fact not a single ounce of it has to come from a South32 coal mine. This “deal” with Seriti is nothing but a slick confidence trick on a country at death’s door because of Eskom’s relationship with the coal industry.
It is a departing elite handing over a string of bloated, marginenriched contracts to supply Eskom with coal to a new elite, and the only negotiating Seriti will be exclusively doing is agreeing on how much that will all be worth. Ultimately, Eskom will pay the price before forcing it on you and me.
Someone has to stop this deal. Where is Ebrahim Patel when you need him? It is the continuation of a rip-off of old. Not a single ounce of Eskom’s future coal requirement needs to come from any mine.
The answer lies in slurry (nothing happens in SA unless you shout often and loud), the huge ponds of fine coal collected when it is washed before being sent off to Eskom.
Eskom has a tender closing today for the supply of briquettes made of pellets made from slurry ponds. There are 2-billion tons of coal in them, more than enough for Eskom to burn the 120-million tons a year for the next 20 years that Fraser speaks so breezily about.
The tender is for briquettes that Eskom can test. They will throw them against walls, leave them under water, burn them. But it has already tested them, including briquettes from South32. And Eskom’s chief primary fuels adviser declared them good to go.
Eskom doesn’t need South32’s coal. It doesn’t need Seriti’s. Nor anyone else’s. Its coal for the next 20 years is just lying there out in the open. It is hard to believe that management at Eskom, teetering as it is, ignores the blindingly obvious solution to its problem. The briquettes cost a fraction of new coal.
I presume that deep in Eskom’s management is a deeply conservative spirit that cannot contemplate change.
So when new CEOs or politicians ask about things such as briquettes they are told it would all be too difficult. Scaling up would be a problem. Where would 328,000 tons a day of briquettes come from? And what about the jobs at the mines?
But what about Eskom and the economy? What if the state, through Eskom, expropriated the 2-billion tons of coal mine slurry? The industry would welcome it. The slurry is an expensive headache. The mines could supply a further 20million tons of slurry a year.
Along with the slurry comes all or part of the rehabilitation fund all mines have to pay for environmental rehabilitation. The funds buy the routine local technology to pelletise and briquette and Eskom cuts the cost of its coal from close to R600 a ton to just over R100 a ton. And the slurry ponds are rehabilitated.
Would the unions buy it? Probably not. The unions and their “economists” looked the other way from 2007 to 2019 as electricity sales fell 5% and Eskom’s staff rose 43%. No reason to expect them to behave rationally now. It will have to be done for them.
What’s required is for the state, ministers, the president not Eskom to hear the case for slurry, for coal’s waste. It could save us all. Them too.
I PRESUME THAT DEEP IN ESKOM’S MANAGEMENT IS A DEEPLY CONSERVATIVE SPIRIT THAT CANNOT CONTEMPLATE CHANGE
● Bruce is a former editor of Business Day and the Financial Mail