South Africa is missing out on some of the riches on offer from the commodities boom as a rail network beset by problems hobbles its exports.
While coal prices recently soared to a record and iron ore is historically high, miners are being forced to stockpile supplies as state-owned Transnet SOC Ltd.’s rail network buckles under issues from cable theft to breakdowns, compounded by years of corruption.
Last year alone, more than $2 billion in potential coal, iron ore and chrome exports were lost, an industry group said.
Transnet’s lines are critical for moving bulk commodities — which have rallied further amid the war in Ukraine — from mines to ports.
As lost earnings mount for miners, executives are becoming more frustrated by rail failures.
It’s become such a headache that South Africa’s top thermal coal shipper, Thungela Resources Ltd., is weighing buying overseas assets to limit its local exposure.
“South Africa is losing money, we are losing money as an industry and we as a company are losing money,” Thungela Chief Executive Officer July Ndlovu said. “It doesn’t make sense for us to concentrate our risk on exactly the same infrastructure that has cost us as much.”
Transnet’s 31,000-kilometer (19,260 miles) network includes a route taking high-grade iron ore from Kumba Iron Ore Ltd.’s giant Sishen pit in the Northern Cape to the west coast, and one from Mpumalanga’s vast coal fields to the east coast.
Companies using it also include Exxaro Resources Ltd. and Glencore Plc.
The network is being increasingly targeted by thieves taking cables which disrupts operations.
It has suffered from locomotive shortages and has even suspected sabotage of infrastructure. Frequent locusts infestations that affect traction on the iron ore line and bad weather also add to the list of problems.
Transnet is among state firms that were hollowed out by mismanagement under former President Jacob Zuma.
It said it has turned to general freight locomotives to haul some coal after part of its fleet specifically designed to transport the fuel was grounded by shortages of spare parts. That’s partly due to suspension of supplier contracts in the wake of widespread state corruption.
Coal, iron ore and chrome companies missed out on about R35 billion rand last year from contracted volumes that couldn’t reach ports, the Minerals Council South Africa said.
Even as coal prices and demand surged in 2021 on the back of an energy crunch, volumes of the fuel transported by Transnet fell to a 13-year low, according to Anglo American Plc spinoff Thungela.
The producer is among those stockpiling coal, Chief Financial Officer Deon Smith said.
Kumba’s iron ore stockpiles totalled 6.1 million tons as of December, up about a quarter from the prior year. The company will maintain similar stock levels this year due to the rail challenges, spokeswoman Sinah Phochana said.
It transported 39.3 million tons on the rail network last year, but wants to raise output to fully utilize its annual rail capacity that should be 44 million tons.
Kumba parent Anglo is open to exploring ways to help Transnet transport more, CEO Mark Cutifani said.
“If that means we need to put a capital contribution or partner in some way, we are very open to that possibility,” he said in an interview in Johannesburg.
Improving efficiency is “at the core” of Transnet’s recovery plans, it said in response to Bloomberg questions. It has identified areas for collaboration with customers, and one key area is prioritizing investment toward growth in high margin flows such as bulk commodities, it said.
That will become even more important if the fallout from the Ukraine war pushes demand for South African supplies and prices higher.
Without urgent attention, “the mining industry, the fiscus and the rail and port operator will again forgo any benefit from commodity prices by not exporting minerals to South Africa’s full potential,” the minerals council said.
Source: Mybroadband