While the world focuses on climate change issues and environmentally sustainable alternatives to phase out coal as an energy resource, the prospects for South African coal production remain strong for the coming decades.
However, South African exports have been
volatile in recent quarters, declining during the initial stage of the Covid-19
pandemic, recovering in the second half of 2020, but subsequently losing momentum
in early 2021. South African market volatility comes as a result of cheaper
coal from alternative suppliers becoming available in the export market.
South African coal exports to India have been
increasingly affected by strong competition from mid-calorific Australian coal,
which has been redirected from markets in China. Domestic coal projects in South
Africa have also come under pressure from the South African government’s
Integrated Resource Plan, which seeks to diversify power sources to encompass
more renewables, battery storage, and liquefied natural gas.
India remains the main destination for South
African coal. However, its share of exports has dropped to 44% from 48% in
2020, as exports to China jumped to more than 4Mt in January-July from zero
over 2015-20. South Africa’s thermal coal exports in the first seven months of
2021 declined nearly 13% on the year amid logistical constraints, social unrest
and a sharp drop in Indian demand.
Indices of South African thermal coal have
increased significantly in the last month and are expected to continue to grow
until the end of 2021 amid issues with the railway line connecting the
coal-mining provinces of South Africa with the port of Richards Bay. According
to the Eskom’s forecasts, in 2022 the volume of coal consumption will remain at
the level of 2021. A decrease in demand on the part of Eskom for medium-calorie
coal in the future may contribute to the growth of its exports, provided
logistics problems can be solved.

Future Ownership Trends
The exodus of several major coal mining
giants has resulted in a shift in the historic ownership trends of South
Africa's coal mining operators. This shift is providing opportunities for
smaller operators to enter the market. Even though the main coal mining
companies do not show any intention of investing in new South African coal
mining projects, it remains clear that coal will keep pushing South Africa's
energy landscape in the foreseeable future.
South Africa's Integrated Resource Plan
stated coal would continue playing a significant role in electricity generation
in the country’s foreseeable future. Coal-fired plants represent the largest
base of the installed generation capacity and account for the largest share of
energy generated.
The extended construction of the Kusile and
Medupi power stations highlights the gap that new investors will need to fill
as previously established coal miners exit the market. Medupi power station is
anticipated to be the 8th largest coal-fired power station in the
world when fully operational.
Big Departures
Anglo American’s shareholders approved the
demerger of its South African thermal coal mining assets in May 2021. Anglo
American planned to separate its local thermal coal assets into a different
company, Thungela Resources. The new holding company’s shares were listed on
the Johannesburg Stock Exchange and the London Stock Exchange in June 2021.
Thungela was set to take ownership of Anglo’s
three local mines near Witbank in Mpumalanga – Goedehoop, Greenside and
Khwezela – as well as a majority stake in the Zibulo mine and a 50% stake in
the Mafube colliery. Additionally, Thungela holds Anglo’s 23% stake in the
Richards Bay Coal Terminal.
Anglo American decided to demerge the thermal
coal business following a similar decision by South32 to sell South Africa Energy
Coal (SAEC) to South African group Seriti Resources in November 2019. Seriti
assumed management of SAEC in June 2021 and renamed SAEC as Seriti Power.
Previously, Seriti had acquired three coal mining operations from Anglo
American in early March 2018.
Likewise, Exxaro Resources announced it is
not planning to invest in new thermal coal assets. However, it clarified the
company would continue to supply thermal coal to state-owned power utility
Eskom’s Medupi and Matimba power stations through its coal contracts. Exxaro is
reportedly seeking opportunities in greener energy, acquiring full ownership of
two wind farms in the Eastern Cape province in 2019.
On the other hand, Glencore
has indicated its intention to continue its coal mining operations until the
mines reach the end of their lives. However, Glencore is unlikely to pursue
major investments in new coal mining projects in South Africa.

Long-term Political Risks
Concerns about policy and
regulatory uncertainty are intensified by the ongoing fears about the African
National Congress (ANC) leadership’s handling of its factional divisions. International
investors are cautious due to the continuing failure of the national political
leadership to prevent party-political infighting, which has escalated into
large-scale civil unrest. The media has reinforced this sentiment with widespread
coverage of the evident failure of law enforcement to intervene. The industry
also anticipates government pressure to increase rents and revenues from mining.