The energy crisis may be more visible to most South Africans because everyone is affected by load-shedding, but the performance of existing logistics infrastructure is just as bad and the effect of this on mining’s contribution to the economy is running to about R50bn in lost revenue for the year so far.
“SA mining is being held back by a logistics crisis driven by poor performance of Transnet Freight Rail and Transnet Port Terminals. This is as serious as the electricity crisis,” Roger Baxter, CEO of the Minerals Council SA, said at a mining conference in Johannesburg on Wednesday.
The council estimates that if SA managed to fix the logistics bottlenecks, the mining sector could earn an additional R150bn in revenue through exports of coal, chrome, ferrochrome and manganese.
“That is a huge number — it would raise taxes paid by the industry by about R27bn and enable the sector to increase employment from about 459,000 to 500,000 direct jobs,” Baxter told the Joburg Indaba.
Iron ore, coal, chrome and manganese rail deliveries are well below target, to the extent that in 2021 about R35bn in revenue was lost by bulk mineral exporters when measured by rail deliveries against the target for the year, according to Baxter.
For the year to date, record commodity prices combined with production decreases have resulted in about R50bn in lost revenue.
There has been a steady decline in the Saldanha iron ore line’s performance, with the percentage of contracted volumes actually railed to port decreasing from about 95% between 2017 and 2019 to about 85% between 2020 and 2022.
“This means this year we’re going to see roughly R16bn to R18bn in lost revenue [from iron ore exports],” said Baxter.
But this fails to illustrate the total opportunity cost, he said, because “with a bit of optimisation we could probably get to 67-million tonnes [compared with 51-million tonnes of actual exports of iron ore], which would generate an extra R30bn in revenue, of which R6bn would go to the Treasury”.
Coal exports have also declined. Before the Covid-19 pandemic export volumes were sitting at about 70-million tonnes. This year SA “will be lucky to get to 50-million tonnes” — this while coal export prices increased about 400% over the past two years.
The revenue lost when comparing the export target for the year with actual exports amounts to about R30bn for 2022. This increases to R63bn when comparing actual exports with the 78-million tonne nameplate capacity of the coal line, Baxter said.
For comparison he referred to the increase in coal exports from Australia, which grew from 350-million tonnes to 395-million tonnes in five years.
In Australia the industry “worked with government, they invested the resources needed and got on with it. Here [in SA] we sit and talk when we need to start focusing on doing things that are really going to make a difference,” he said.
Additional costs
Poor rail performance is forcing mining companies to move larger volumes by road, but this is causing severe damage to roads and means additional costs for mines. The higher number of heavy-haul trucks also poses a safety hazard for other road users and communities living close to the roads that connect mines with harbours.
According to Baxter, transporting manganese ore via road, instead of by rail, could increase the cost of exports by between R350 and R450 per tonne.
Given that the industry exports between 6-million and 7-million tonnes of manganese ore by road per year, it costs companies between R2.1bn and R2.8bn per year to use trucks.
André Joubert, head of the ferrous division at African Rainbow Minerals (ARM), told the conference that his company should have been able to produce and transport 4.6-million tonnes of manganese this year, but Transnet’s rail constraints and delays in finishing the Port of Coega meant that it was able to transport only 4-million tonnes.
ARM is also sitting with a stockpile of about 3-million tonnes of iron ore, roughly three months’ worth of production, that it has not been able to move because of Transnet’s capacity constraints.
Mpumi Zikalala, CEO of Kumba Iron Ore, who was also a speaker at the conference, said an improvement in rail performance will help improve the safety of those communities that live in the areas where heavy haulers carrying metal and mineral ore pass by.
She referred to an accident on the N2 near Pongola in KwaZulu-Natal in September, in which an ore-carrying side-tipper truck on its way to Richards Bay collided with a bakkie, killing 20 people. This, she said, was a result of “having too many trucks on the road”.
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