Transnet signs deal to help unlock Waterberg coal

Transnet has signed a R10bn deal to rail export coal to Richards Bay in a move that will help unlock the coal potential of the Waterberg in Limpopo.

On Thursday, the state-owned logistics company signed a 10-year contract with Ledjadja Coal, a fully empowered subsidiary of JSE-listed ResGen, to haul 3.6-million tons of export coal from its Boikarabelo coal mine to the Grindrod Terminal at Richards Bay. ResGen is also listed in Australia. Its largest shareholder is the Public Investment Corporation, which holds a 14% stake.

As coal production from the Mpumalanga coalfields dwindles, the Waterberg region is becoming the next focus area for prospective coal miners as it is known to hold significant reserves. Until now, however, logistics have been a key hurdle in unlocking mining investment in the area.

“Once there is this critical mass in the area we believe others will want to go there too,” said Mike Fanucchi, Transnet’s chief customer officer. “I believe and hope it will give further momentum to investment in the area and the region.”

Fanucchi said the deal will also open up an opportunity for Botswana coal to be exported through SA.

Boikarabelo is one of several new mines proposed for the Waterberg, but is the most advanced as it is fully funded and permitted. The project cost is an estimated R7bn, of which R2bn has already been spent on infrastructure.

The transportation agreement with Transnet was a condition that had to be met in order for the project to reach financial close. The 3.6-million tons of export coal is above 3-million tons, which will be produced for the local market. Boikarabelo’s first coal production is expected in the second quarter of 2022.

ResGen interim CEO Leapeetswe “Papi” Molotsane said securing the railway capacity was a milestone for the company and will result in economic benefit for the Lephalale area as it will create 700 permanent jobs and 3,000 more during construction.

The project has credit approval for R4.2bn from a syndicate of three lenders. One is the government’s Industrial Development Corporation while the other two are yet to be announced.

As the world moves to lower its carbon emissions in light of growing climate change concerns, Molotsane acknowledged it is a challenge to secure funding for the project as banks grow reluctant to fund new coal.

“It’s a worldwide trend,” he said. “If you look at the country’s coal requirements, the fact that the bulk of our electricity is generated from coal, we will probably still require coal, as a country, for some time to come.”

Transnet announced plans to expand the Waterberg coal line to unlock coal-mining opportunities in Limpopo back in 2016. The SOE has since completed the first phase of the Waterberg project and has now started with the second and third phases which, once completed, will ensure there is sufficient rail capacity for Boikarabelo and other mines to move their coal out of the region.

steynl@businesslive.co.za