The Minerals Council of South Africa has bemoaned Transnet’s “inability to do its job”, resulting in a “rail and ports catastrophe”.
Roger Baxter, the Council’s CEO, made these comments when presenting an overview of the mining sector’s performance in 2022 with Minister of Mineral Resources and Energy Gwede Mantashe in attendance.
Baxter expressed mining companies’ continued frustration with Transnet’s dismal operating performance and Eskom’s load-shedding.
The Minerals Council estimates South African miners lost R150 billion in potential earnings last year because of Transnet alone.
These additional exports would have added nearly R27 billion to the national fiscus.
Mining companies and their CEOs have been outspoken about the impact of Transnet on their operations in their latest trading updates.
In its preliminary results, Glencore pointed to logistics and port constraints as the reasons for its limited chrome ore supply from South Africa.
Its coal profits were also limited by “continued rail constraints”, exacerbated by a two-week Transnet strike.
Exxaro’s coal production decreased by 11% in 2022 “due to the poor rail performance from Transnet” and the “structural constraint of inadequate electricity supply”.
It has begun trucking coal to alternative ports to ensure it can meet export demand.
Sasol’s chemicals business saw a decrease of 5% in sales volumes, and its profit margin declined by 12% over the last six months of 2022.
Sasol said it could be attributed to South Africa’s deteriorating infrastructure and the “structural constraint” of load-shedding.
“Persistent load-shedding, infrastructure constraints, in particular, the poor performance of the national provider of rail and port logistics services […] continue to significantly impact our business,” it said.
Kumba Iron Ore had “lower throughput than expected” in 2022, with its production and sales disrupted by Transnet’s inefficient services and the prolonged strike.
Kumba has a “significant build-up of iron ore stockpiles” at their mines. Due to Transnet’s rail constraints, iron ore cannot be transported for export.
Production at Kumba’s mines has decreased as the company ran out of space to store its iron ore prior to export. “This is not a crisis. It is a catastrophe,” Baxter said.
Investing in solutions
The Minerals Council has been engaging with Transnet to unblock rail inefficiencies through multiple high-level meetings.
However, Baxter said more has to be done to allow for private participation in rail transport and the operation of port terminals.
Mining companies have resorted to trucking their material to ports outside South Africa, such as Maputo, to avoid logistical backlogs.
This comes at a high cost for mining companies. For example, transporting coal to Richard’s Bay Coal Terminal via rail costs around $11 per ton, while trucking costs companies roughly $70 per ton.
Miners can absorb this additional cost for now. However, if commodity prices decrease, trucking will not be viable for many companies.
This may result in some companies closing their mines as they cannot get their product to market via Transnet’s rail and ports.
Thus, it is a priority for the Minerals Council to push the government to allow private companies to operate important rail corridors.