Coal
Since June 20, shares in Coal of Africa have dropped by 45.58%

JITTERS among investors about the possibility of the government declaring coal a strategic national resource have resulted in a plunge in coal share prices.

The industry, already reeling from a drop in export thermal coal prices, is concerned that the government might place conditions on the exploitation, sale and export of coal.

African National Congress (ANC) secretary-general Gwede Mantashe said this week the party would publish a list of strategic minerals next month.

According to the ANC's research on state intervention in the mineral sector, strategic minerals should be supplied at "reasonable prices" - implying a new regime of state price regulation for mineral resources.

Since June 20, shares in Coal of Africa have dropped by 45.58% and reached a low of R3.14 yesterday.

Mid-tier miner Keaton Energy has shed 19.16% in the same period, to trade at about R2.70, while Exxaro has fallen by 20.83% to trade at about R165 a share.

The debate on strategic minerals is creating huge uncertainty for the industry. Exxaro CEO Sipho Nkosi said yesterday the company was seeking clarity from the ANC. "When coal is identified as a strategic asset, it is something that affects our business directly.

"The big issue that we need to contend with is when we have to supply material at prices that are lower than we would have," Mr Nkosi said.

The coal industry was engaging with the ANC, he said. A "five-a-side" team of representatives from the Chamber of Mines and the party has been established to debate the contents of the ANC's research report.

Over the past few months, export coal prices at Richards Bay Coal Terminal have risen by 2.06% to trade around $85.62 a ton.

Bevan Jones, MD for the South African division of London Commodity Brokers, said these levels were "sustainable".

"It is difficult for coal prices to fall much further than this, although it is always possible, especially if the Chinese produce as much as they say they are going to," Mr Jones said.

Exports through the coal terminal increased to 5.48-million tons in June, compared with the 4.62-million tons shipped out in May.

The State Intervention in the Mining Sector report commissioned by the ANC recommended that a "user concession" be applied on coal and iron-ore prices. This may induce sales of the minerals at prices lower than the international benchmark.

Public Enterprises Minister Malusi Gigaba has also weighed in, calling for coal to be classified as a strategic mineral - to protect Eskom from rising prices and deteriorating quality.

Coal is an important cost driver for the state-owned utility, which will pass high prices on to consumers.

Shares in Coal of Africa (CoAL) yesterday plunged to their lowest level in five years - also on concern from investors about how it will raise "significant" capital to develop its Makhado and Vele projects in Limpopo.

CoAL's export thermal coal operations lost money in the last quarter, raising questions about raising the additional funding for its coking coal assets, Kamini Moodley, an analyst at Afrifocus Securities said.

Thermal or steam coal is mainly used in power generation, while coking coal is predominantly used in steel production.

There was no cash flow from thermal coal to fund CoAL's capital expenditure and there was no room for additional debt, Ms Moodley said.

CoAL's export thermal coal sales fell 9.3% in its fourth quarter to end-June, it said on Wednesday.

CEO John Wallington said thermal coal mines were reporting losses, a trend that was expected to persist into the first quarter of next year.

International coal prices have been hit by falling demand from China and India, as emerging-market economies start to slow on the back of the eurozone debt crisis.

There was also an oversupply problem, especially at South African ports, Miswin Mahesh, a commodities analyst at London-based Barclays Capital, said. "We remain negative on coal prices," he said.

With Ron Derby

maotom@bdfm.co.za