AT A TOUGH COALFACE

With reserves of 75-billion tons, the Waterberg coalfield would seem to be worth tapping. But few miners have made a success of operations in the area

The Waterberg coalfield in Limpopo, stretching from Lephalale into neighbouring Botswana, has long been touted as the future for SA coal mining and energy. Home to about 75-billion tons of untapped coal resource (40% of SA’s total coal) the area has given rise to many a mining dream. Many have been dashed.

The latest to stumble is Resource Generation, listed on the ASX and the JSE. After developing its Boikarabelo coal project in the Waterberg for more than a decade, it announced last month that funding has been halted, the CFO and COO have stepped down, and the company is mulling its options, including possibly going into administration.

Amid a push for cleaner energy alternatives in response to climate change, funding for coal projects has become extremely scarce.

In SA, major banks have published policies that restrict or exclude funding for new coal-mining projects. Development financiers such as the Industrial Development Corp (IDC) and the Public Investment Corp (PIC) are also increasingly reluctant to fund such projects, though they are loath to say so explicitly.

Both the IDC and PIC were supposed to extend funds to Boikarabelo, but the first domino fell in October, when the IDC said it would withdraw its support for the project. In its view, the conditions under which the mine would have to operate “have materially deteriorated”.

Noble Group, a Hong Kong-based commodity trader and a shareholder in the project, stepped in to provide working capital. In the absence of traditional financing for many new coal projects, commodity traders such as Nobel have put up the funds to establish mines in return for tonnages to sell into the markets.

Last month, however, Nobel decided against injecting further funds into the project. It declined to provide further information on its decision; Resource Generation, too, declined to comment.

Things don’t look good. Apart from traders, there are just a few maverick funders who see opportunities in coal. World production is dwindling and with hardly any new mining projects to speak of, a supply crunch and resultant strong prices seem inevitable in the near term.

But even these investors haven’t given Boikarabelo — or other Waterberg projects — much consideration, largely because of two challenges.

For one, the area is water-scarce. Then there’s the insufficient rail infrastructure — a detail that can be damning, given that coal is a logistics game. But there is something beyond that: the area’s geology.

“The Waterberg is vastly different to SA’s main coalfields, which have been the backbone of the country’s coal industry until now,” says Xavier Prévost, senior coal analyst at XMP Consulting .

Most of SA’s coal deposits, particularly in the Witbank area, are relatively shallow. Thick seams make them easier and cheaper to mine.

The Waterberg coalfield is a different animal altogether. As the department of mineral resources noted in a 2009 report, the deposits are characterised by faults so deep that some areas cannot be mined. The coal is also deposited in thin layers that are interspersed with layers of rock — meaning that a whole lot of rock has to be mined along with the coal.

“It is difficult to mine in small scale,” says Prévost. “Because of the rock intercalations [layers], high discards of up to 60% are expected.”

That means only 40% of what is mined is actually coal.

For this reason, mines established in the Waterberg must, from the outset, be able to extract large amounts of ore — and wash it — to produce sufficient saleable coal, he says.

To make mining even more difficult, “the geological structure differs from place to place and it is seldom as simple as at Exxaro Resources’ Grootegeluk, the only mine currently in operation in the Waterberg,” says Prévost. “Many new prospectors intend[ing] to open mines similar to Grootegeluk are in for a surprise.”

Grootegeluk, which supplies coal to the adjacent Matimba and Medupi power stations, was established in 1980 by the apartheid government’s Iscor to exploit the reserves there because they include some metallurgical coal — a rarity in SA but an essential component in steel-making.

Just across the border, in Botswana, the Waterberg deposits hold more promise, with significantly higher coal yields.

Already Minergy’s Masama Coal Mine produces coal from the Mmamabula coalfield, an extension of the Waterberg deposit.

And Maatla Energy was recently awarded a 25-year licence to mine its project in that coalfield. The first phase is already fully funded, after German commodity trader HMS Bergbau took a majority stake in the company.

Maatla CEO Jacques Badenhorst says the Mmamabula resource is different, allowing for lower costs and higher yields.

“Those banded layers on the Botswana side have all been partially weathered away,” he says. “The two seams we will be mining are quite shallow and decent in terms of opencast [mining].”

The same seams in the rest of the Waterberg can be as deep as 200m.

Minergy supplies coal to SA’s inland industrial market — cement-makers and paper mills, for example — which is struggling to source adequate coal. Maatla intends to do the same.

The Waterberg is vastly different to SA’s main coalfields, which have been the backbone of the country’s coal industry

Xavier Prévost