Q&A: Menar bets big on coal

Coal has become a burning and divisive topic as the world pivots to cleaner sources of energy. While environmentalists are especially critical of its use in the energy mix, other commentators argue that it will remain a useful resource for decades to come. Business Day caught up with Vuslat Bayoglu, MD of privately owned mining investment company, Menar, to get his perspective.

Canyon Coal, one of your operating subsidiaries, is constructing a new coal mine in Mpumalanga at an estimated cost of R1.4bn. How is the first phase of the project coming along? I believe the first production will come online later this year?

Yes, that is correct. The first phase is progressing well. The first equipment has arrived on site and training of mine equipment operators has also commenced. It is envisaged that mining operations will start soon. The commissioning of the processing plant is scheduled towards the end of 2023. Transfer of the plant from Hakhano, a mine that has reached the end of its life, for reassembly at Gugulethu has begun. Mining will start at the beginning of April, with the first coal planned for July. Full production will be achieved by the end of 2023.

What the benefits that will accrue to the surrounding community as a result of the project in terms of potential job opportunities and skills transfer and so on?

The overall project will create 430 jobs with preference to local residents as part of the opencast and underground phases. We have a social and labour plan that will provide local communities with numerous learnership, internship and bursary opportunities. The plan will also support the community through development projects and enterprise development projects, which will have a positive lasting impact.

Is there a plan to rehabilitate the site once the mine reaches the end of its life cycle?

Yes, absolutely. We carry out concurrent rehabilitation to assist with final mine rehabilitation. Canyon Coal implements a risk-based approach to ensure concurrently implemented rehabilitation actions achieve the desired post-mining landscape and restoring the site to agricultural land. We are rehabilitating two of our former mining operations in Middelburg, Mpumalanga, namely Singani and Hakhano Collieries. Singani is at a very advanced staged of the process, while Hakhano is at an earlier stage.

Cost inflation continues to be a bugbear across the mining industry. How is Canyon Coal and the rest of your mining portfolio navigating the choppy waters in this regard?

We strive to operate in an optimally efficient manner through meticulous planning and management throughout the life cycle of the mine. This aids in mitigating cost inflation as much as possible.

So many labels continue to be assigned to coal because of its damaging effect on the environment. Why do you think there is there is still an investment case for fossil fuels when the green economy seems to be the dominant language?

Energy demand has continued to increase exponentially year on year. Even before the start of the Russian invasion of Ukraine, there were predictions that global demand for coal would hit an all-time high in 2022. The International Energy Agency has stated that coal power is on track to hit a record in 2023 due to the global economic rebound. Buoyant demand for coal is also underpinned by robust appetite from China and India. China is adding coal-fired generating capacity of 50GW. That means demand is expected to be strong for the foreseeable future, even as renewable energy installations are expected to rise. Moreover, there are close to 1,000 coal plants planned or under construction worldwide. Additionally, there are over 6,500 operational coal plants worldwide that depend on coal. Even in Europe, where coal use has reduced in recent decades, there is a a marked resurgence given the energy uncertainty in Eastern Europe owing to Russia’s actions in Ukraine. We believe the war has heightened countries’ awareness of the importance of diversifying the energy sources to mitigate the risk of shortages and having security of energy supply. Therefore, we are positive about the foreseeable prospects for the coal sector.

The pressure is building on financial institutions in SA and elsewhere not to back new fossil-fuel projects. To what extent are you concerned about this emerging trend?

There are still financial institutions that fund new and existing coal projects. Many financial institutions are reviewing their policies due to shareholder activism. However, we have placed emphasis on self-funding our new projects as much as possible to mitigate the need to seek capital elsewhere. It is a concern for the industry because coal is not an illegal commodity. Much of human life and economic development still depends on it for energy and other chemicals. More importantly, it is also critical in the manufacture of renewable energy equipment.

The shortage of rail capacity is a burning issue in SA as it inhibits the growth potential of miners in particular. How are you working around these bottlenecks as a relatively small player?

It has been challenging to transport our coal to the Richards Bay Coal Terminal in KwaZulu-Natal. We also export some of our products through Grindrod’s Terminal de Carvao da Matola port in Maputo using trucks when trains aren’t available. However, we have seen gradual improvements in the availability of trains from Transnet in recent months. We are confident that Transnet will eventually solve the problems if it can implement its plans to improve efficiencies.

What is the growth strategy in the rest of your portfolio, which includes Zululand Anthracite Colliery and East Manganese?

Our R137m Mngeni shaft project at the Zululand Anthracite Colliery, in Emakhalathini, is edging closer to completion, with water infrastructure and electrical reticulation installed in February. We anticipate that the Mngeni shaft will achieve first coal in October this year, which is about 12 months after its start date. The Mngeni shaft has an expected life of six years, with a resource of 1.2-million tonnes. East Manganese is nearing its end of its life. It was a successful project and we have learnt a great deal from our first foray into the manganese sector. We are looking at other potential manganese, chrome and PGM [platinum group metal] projects nearby and we are hoping to make an announcement about this in the coming months.