Transnet has hit rock bottom

South Africa’s abysmal rail performance that’s crimped the ability of miners to export output is set to improve, according to coal producer Exxaro Resources.

State-owned rail and freight operator Transnet shipped the lowest volumes in three decades on the main coal line that runs from mines to the Richards Bay Coal Terminal on the nation’s northeastern coast last year.

Improvements could take years before a full recovery in performance. 

President Cyril Ramaphosa and Business for South Africa said Wednesday that the state company—the source of bottlenecks for exporters and importers due to its operational inefficiencies and equipment breakdowns—requires substantial interventions to meet its customers’ needs. 

“This is really the bottom”, and volumes to the export facility won’t likely drop below 40 million tons for the year, Exxaro CEO Nombasa Tsengwa said in an interview.

“The new team that came in is very clear on what the operational issues are, and they’re focusing on those,” she said, even though measures being put in place won’t start to take effect for another year.

In February, South Africa appointed Michelle Phillips as Transnet’s new CEO in a bid to improve the company’s performance.

Transnet’s “conservative” export-coal forecast for the financial year is 54 million tons, it said in a response to questions earlier this week.

Fixing the main line will take as long as five years and require R12.2 billion just to upgrade signals and other infrastructure, according to an internal report. 

Exxaro raised export sales by almost a third in the first half of the financial year by trucking coal, an expensive option, especially after a decline in prices for the dirtiest fossil fuel, according to its interim results on Thursday.

“We are not at the end of the journey yet in terms of optimizing those routes to the other ports, said Sakkie Swanepoel, Exxaro’s group manager for marketing and logistics. “It makes sense for us to continue.”

Coal prices have plunged almost 70% since peaking in September 2022. Exxaro’s net income declined 41% to 3.66 billion rand in the six months through June from a year earlier, and it cut the interim dividend by 30%. 

The coal company also runs a clean-energy business and has plans to diversify its mining assets. After losing a bid to buy a copper mine in Botswana last year, the strategy to acquire a critical-minerals operation remains intact.

“We are quite well advanced on a number of opportunities through due diligence and engagement with principals,” said Exxaro Chief Growth Officer Richard Lilleike, declining to give more detail.