JOHANNESBURG, May 3 (Reuters) – Mining companies in South Africa have resorted to trucking coal to ports to meet rising European demand since the start of the war in Ukraine, circumventing deteriorating railway infrastructure they blame for billions of dollars in lost revenue.

Poor maintenance, a lack of spare parts for trains, theft of copper cables and vandalism have disrupted freight rail services of national logistics company Transnet, leading to a drop in coal and iron ore exports these last years.

In April, Transnet declared force majeure on contracts with producers, but with coal prices near record highs, mining companies including Glencore (GLEN.L) turned to trucks, a source said. Of the industry. A Glencore spokesman declined to comment.

Trucking coal costs about four times as much as rail, according to miner Menar. He has started using trucks, but said high coal prices mean miners can absorb the cost, for now.

“The industry as a whole is on its knees, so it’s resorting to drastic measures,” said Clifford Hallatt, chief operating officer of Canyon Coal, a joint venture between Menar and commodities trader Mercuria.

At Canyon Coal’s Khanye coal mine, about 90 km (55 miles) from Johannesburg, it takes around 80 trucks – each carrying 34 tonnes – to replace an average Transnet train, making it financially unsustainable, increasing emissions and obstruct the roads.

But the company says it has no choice.

A year ago, he loaded five or six Transnet trains a week from Khanye. That’s down to just two or three now, and its coal stocks have been growing, Hallatt said.

Demand, meanwhile, has exploded since the war in Ukraine. The European Union announced a ban on Russian coal and mining companies in South Africa, saying they were responding to calls from European countries seeking imports. Read more

As for prices, Australian thermal coal futures were trading at around $80 a tonne at the start of 2021. A week after Russia sent its forces into Ukraine, they hit a record high of 440 dollars and are now trading at $326 per ton.

Menar trucks about 120,000 tons of coal a month and plans to increase that to 200,000 tons, Hallatt said.

Overall, South African coal miners put around 400 trucks on the road a day, transporting some 6 million tonnes of coal on an annualized basis, according to the industry source.

“We are aware that there has been an increase in the number of coal trucks currently going to ports and this is not a good situation,” Transnet Freight Rail chief executive Sizakele Mzimela told Reuters. .

Transnet shipped 58.3 million tonnes of coal to the Richards Bay coal terminal last year, 24% below its annual capacity of 77 million tonnes. Transnet expects coal delivery to improve this year to around 60 million tonnes.

But limited rail capacity cost bulk commodity exporters at least 35 billion rand ($2.2 billion) last year in lost revenue, according to South Africa’s Minerals Council.

Transnet’s Mzimela said the state-owned company felt the pain of the industry.

“The frustration is more about the lost opportunity, because of course if we could move more we would benefit, they would benefit. We are hip-bound,” she said.

OTHER OPPORTUNITIES?

Mzimela said Transnet was open to miners investing in their own rolling stock, while allowing private rail operators to operate on certain container route slots. But it has no plans to open its iron ore and coal lines to private companies.

This is not what mining companies, which help fund private security to combat theft along railway lines, want.

Menar said he was pushing to invest in state-owned rail lines and procure his own locomotives and wagons as part of attempts to overcome the country’s infrastructure bottleneck.

Hallatt told Reuters that Menar would also consider operating a section of the bulk freight rail lines, although that was an option rejected by Transnet’s Mzimela.

Since the start of the security collaboration, the number of drones monitoring the coal line from Mpumalanga to Richards Bay has more than doubled and incidents have fallen to around 19 per week from 35 previously, according to Transnet.

Copper cables carrying electricity from substations along the line to signaling systems are regularly stolen, for example, along with other metal parts along the track.

For the first time, South Africa was ranked among the 10 least attractive jurisdictions for mining investment in the Fraser Institute’s annual mining industry survey last year.

Gabrielle Reid, associate director of strategic intelligence at S-RM, said logistical challenges are now prompting some South African miners to look outside the country for growth opportunities.

“Our most recent experiences with rail in South Africa provide a compelling case for diversification,” July Ndlovu, managing director of thermal coal producer Thungela Resources (TGAJ.J), told analysts on a call in March. .

“Given the concentration we have in a single geographic area and the concentrated risk associated with this infrastructure, I think it makes sense that we should look at other opportunities.”

Reporting by Nelson Banya and Helen Reid; Editing by David Clarke

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