Feeding the coal rush

Robert Laing

Robert Laing

Coal is the new gold. You wouldn't guess it from the JSE's coal board which only has three listings. But look at the JSE's General Mining and AltX boards, and you will see a coal rush is on, sparked by prices rocketing even faster than oil.

While all types of coal have jumped in price, steel makers have seen the price of hard coking coal triple after the commodity's main mining area in Eastern Australia suffered floods.

Until now, the only source of hard coking coal in South Africa was Tshikunda, a difficult to mine underground seam which only produces about half a ton a year - about a fifth of what ArcelorMittal's South African steel works require.

The rest has been shipped from Australia at a high price.

One of the new coal juniors, Coal of Africa Limited (which abbreviates into CoAL), has two projects under way to bring hard coking coalfields in the Soutpansberg into operation. These are expected to produce about five times more hard coking coal than South Africa currently consumes.

Last week, global steel giant ArcelorMittal concluded a £67million (about R1billion) deal to acquire 17percent of CoAL, guaranteeing itself 2,5million tons of the forthcoming domestic hard coking coal supply in the process.

Simon Farrel, CoAL's managing director, said: "The deal lowers our cost by about $30 (about R244) a ton, and ArcelorMittal's by about $60 a ton. Both of us reduce our costs dramatically thanks to the savings on rail and port, and this country's trade balance benefits by around $700million thanks to not having to import metalurgical coal from Australia."

CoAL said on Friday the overall group was now more than 26percent black owned.

Farrel is among the Australian mining industry veterans drawn to South Africa by this country's switch to a "use it or lose it" mineral rights system. The new laws have created opportunities for junior mining companies to proceed with projects local mining companies had been sitting on.