Up to 35,000 coal mining jobs could be on the line due to export constraints on the coal corridor as a result of Transnet weaknesses.
Coal miner Seriti Power confirmed to Business Times that it has issued a section 189 retrenchment notice at its Klipspruit colliery in Mpumalanga, affecting 605 workers.
The company said production at its export mines has been hampered by the inability to transport more coal by rail.
“Stockpiles at our export mines remain high while stockpiles at Richards Bay Coal Terminal remain low due to persistently low export coal railings to port,” it said in response to questions.
It is now seeking alternative markets for coal that cannot be railed.
In the section 189 notice issued on September 11, Seriti chief people officer Ndumi Khoza proposed restructuring the Klipspruit colliery, saying it is struggling with increased production costs and the depressed coal price environment.
He said the inability of Transnet Freight Rail (TFR) to ferry coal stockpiles to Richards Bay is resulting in the diversion of stock to the domestic market at reduced prices.
Despite efforts to cut costs over the past five years, including reducing the number of contractors, the colliery is not commercially viable and can become a financial risk to Seriti Group, he added.
“If no action is taken, Klipspruit will lose between R657m and R949m in the 2024 financial year alone, which puts the whole group at a huge business risk.”
In the letter, Khoza said the company envisages 775 employees may be affected and will need to be consulted. “After the staffing and selection processes for the new structure has been completed, about 605 employees will become redundant.”
Brendon Hubbard, senior fund manager at ClucasGray Investment Management, said mining companies cannot keep mining volumes at the same level if they can’t sell their coal.
“They have to start curtailing production and planning early mine closures, and that leads to retrenchments.”
Hubbard said the coal industry is facing a double whammy of rail constraints and load-shedding.
“Of the 93,000 people who work in the coal sector, somewhere between 25,000 and 35,000 could be retrenched. These are big numbers.”
He said allowing the private sector to take over the running of key export rail lines is the only solution to the crisis.
“It is so easy to fix the problem, it’s a phone call from [public enterprises] minister Pravin Gordhan to Transnet to say it is government policy to allow the private sector to run on the rail network.”
National Union of Mineworkers (NUM) highveld region deputy secretary Thapelo Malekutu said workers are bearing the brunt of a failing logistics system. “We used to worry about the future, we are now facing the reality of the logistics problems. We have previously warned that if nothing is done, things will get worse.”
The union is pushing for the opening of the freight rail network to the private sector. “If they can relax the regulations of independent power producers, during what was not even a crisis, surely they can come to our rescue as miners,” he said.
He said NUM is engaged in wage negotiations with several coal miners and all of them are rejecting increased wage demands because they are sitting with stocks they cannot rail.
South Africa missed out on fully exploiting the commodities boom because of rail weaknesses and constant load-shedding. The average benchmark coal price has since declined sharply to about $129.50 a ton from around $276.54 a ton a year ago.
The Minerals Council says the bulk mineral exporters lost revenue of R51bn in 2022 when measuring deliveries to the ports against targeted tonnages. It said R151bn in extra revenue could be generated if Transnet Freight Rail was operating at nameplate capacity.
The state-owned ports and logistics company has debts of R130bn and is paying R1bn a month in interest, a situation that makes another call on the government for a bailout almost inevitable. Gordhan recently gave the board three weeks to develop a financial performance turnaround plan and report back to him.
He instructed the board to conduct a thorough review of the executive management “with a view to establishing whether people with the right skills are optimally used to deliver on the mandate”.
Of the 93,000 people who work in the coal sector, somewhere between 25,000 and 35,000 could be retrenched. These are big numbers
— Brendon Hubbard, senior fund manager at ClucasGray
In the release of its results to June 2023, Thungela Resources, one of the biggest coal miners, said it had scaled down underground operations at its Zibulo, Greenside and Goedehoop collieries because of rail constraints.
“We have reduced the number of underground sections from our operations and redeployed employees across the business. We will continue to closely monitor the trajectory of thermal coal prices and rail performance, and the impact that this will have on the business.”
On June 30, it had a 2.7Mt stockpile at its mines, and another 400,000t at the port.
The company told Business Times that limited rail capacity and lower benchmark coal prices weigh heavily on its performance and remain a significant risk to the business “as we are not able to move product to the port at an optimal rate”.
“We are not unable to move product at all; rather, we are unable to move product as quickly as we would like to.”
Trade union Solidarity’s general secretary, Gideon du Plessis, said the iron ore line is also affected by problems at Transnet.
Transnet board chair Andile Sangqu said they are unlikely to report back within three weeks on all the issues Gordhan raised but will provide him with a report on progress the board has made.
“As I indicated at the Transnet results presentation, we will have a turnaround plan by the end of October. This will indicate and articulate our strategy for dealing with issues such as operational improvements, efficiencies, productivity improvements, funding constraints, and how we restore the financial stability of Transnet.”
He refused to go into detail on what the plan is likely to entail.
Business Day reported on Friday that the Durban Chamber of Commerce & Industry had called for the axing of Transnet’s top executives, including CEO Portia Derby, citing the continued deterioration of port and rail services which has adverse effects on revenue for not only Transnet but also its clients.
The chamber, which represents 2,900 members comprising small, medium and large business in the city, wrote a letter citing worsening conditions that require urgent actions. These include firing Derby, TFR CEO Siza Mzimela and Transnet National Ports Authority CEO Pepi Silinga.
“Businesses are collapsing and losing revenue daily due to the port challenges. We cannot allow this to continue any longer,” the letter reads.
“Ms Portia Derby and her executive team … have proven time and time again that they are incompetent. Transnet requires an executive team that is suitable, accountable, transparent and a team that will give this matter the urgency that it needs.”
Transnet said late on Friday that Derby met eThekwini mayor Mxolisi Kaunda and the CEO of the chamber, Palesa Phili, on the sidelines of another engagement in Durban on Friday, and the parties “agreed to collaborate on finding solutions to the pressing challenges”.
Meanwhile, Stats SA said mining production fell 3.6% year on year in July, after June’s 1.3% y/y lift.
The biggest contributors to the decline were coal, which dropped 7% y/y, diamonds, down 33%, and platinum group metals, down 10.4%.
On Thursday it was reported that Sibanye-Stillwater has issued retrenchment notices at its Kloof 4 shaft, which could potentially affect as many as 3,000 workers at the gold mining operation near Carletonville.
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