Coal industry faces capital-flight threat

JOHANNESBURG – The contribution of coal as the biggest revenue-generator to South Africa’s mining industry is under threat from capital withdrawal as the move towards clean energy sources gains momentum, the PricewaterhouseCoopers (PwC) 11th edition of the SA Mine report, released yesterday, said.

It noted that the industry, which contributed about 28 percent of total revenue faced waning investor sentiment, and fading global attractiveness as investors and consumers questioned whether the industry could create sustainable value for all stakeholders.

PwC Africa energy utilities and resources leader Andries Rossouw said the coal industry, having experienced near record prices in the recent past, will likely remain constrained in South Africa given the challenges in terms of new project development, infrastructure constraints, and Eskom’s inability to commit to long-term agreements

The distant glimmer of hope lay in the potential demand from India as well as the government’s intentions to improve the infrastructure network, thereby unlocking further export potential in the long term.

The report said mining companies have begun to enjoy some welcome relief in 2019 as gains in commodity prices, aided by a weaker rand began to bring the industry back into profitability, despite increased costs and weak production.

Rossouw said mining leaders will need to show that they are at the forefront of responsibility in creating sustainable value for all stakeholders to restore faith in a challenged industry.

“The speed of technological advancement, climate change, sustainable operations and changing consumer behaviour should be top of mind for mining companies. They need to find a balance between stakeholder needs and long-term sustainable operations in their capital allocation decisions,” Rossouw said.

PwC said the perceived Eskom 51 percent BEE procurement requirement posed a grave deterrent to external investment in the sector, as it relates to domestic production.

Major producers have already announced or have proceeded to dispose of their Eskom-linked mines.

South Africa’s mining industry was in transition from a deep-level, labour-intensive, conventional-mining environment to a mechanised shallower, technologically advanced industry.

Over the past 15 years, overall mining production declined marginally, as declining deep-level gold production is offset by increased bulk and base-metal commodity production.

PwC said mining companies of the future will need to consider the viability of the minerals they mine, their mining and processing technologies, as well as energy sources for their operations. It said miners should also consider a two-pronged approach to climate change to ensure their businesses remain resilient and relevant.

“By aligning financial and sustainable strategies to prioritise green, customer and community-focused strategies, further enabled by technology will help build a long-term vision of growth, access, equality, innovation and trust,” it said.


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