A new cast of players
After years of being on the outside of economic activity, the South African government is trying to encourage black South Africans to play a more entrepreneurial role in the development of the mining industry, as Alan Swaby learns.
In 2002 the South African government changed the rules relating to mineral rights. Until then, whoever owned the surface also owned the rights to the minerals below the surface. The government reversed that decision and in effect nationalized mineral rights. No doubt it was a move that didnÔÇÖt go down well with entrenched interests, but it did open the door for a new generation of mining entrepreneurs; in particular, it encouraged members of the black community to get involved with the mining industry as part of its Black Economic Empowerment program.┬á
Once such person was Timothy Tebeila from the northernmost Limpopo Province, who in 2004 co-founded Sekoko Resources. Although Tebeila studied mining at university, his career took him first to teaching and then insurance. Nevertheless, Tebeila recognised that there were localities within an established mining area which hadnÔÇÖt been developed but which almost certainly had some potential.
With the rights to prospect for coal, iron and platinum, Tebeila put together a broad-based shareholding for Sekoko, getting investments from community and disadvantaged groups to supplement his own investment. An experienced team of professionals was put together, and work began on assessing the potential of the rights they held.
ÔÇ£The reality is that small investors will never have enough capital to develop a mine,ÔÇØ says vice president of exploration Andy Johnson. ÔÇ£Our role is to prospect for minerals and then enter a joint venture agreement to extract and sell what we find.ÔÇØ
So far it looks as though the best option is going to come from coal in the Waterberg and Soutpansberg districts. In fact, most of the companyÔÇÖs platinum prospecting rights have already been sold as a means of financing the coal exploration at Waterberg. Johnson explains: ÔÇ£We know about coal, whereas platinum is outside our scope of experience. WhatÔÇÖs more, there is an insatiable appetite for electricity, and the only way this can realistically be satisfied in the short term is by coal.ÔÇØ
The governmentÔÇÖs idea about electricity generation is that, apart from the state-owned Eskom, it wants to see 30 per cent of energy coming from private initiatives. Many of the existing Eskom plants are 40 years old or more and reaching retirement age. Alternatively, if the plant is still operational, the coal supply is running out. South Africa lacks the rail and road infrastructure to transport long distances the huge amount of coal consumed by a power station, so the policy is to build stations where the coal is.
As such, Eskom has already completed one new power station in the Waterberg area and is in the process of completing a second. In total, there could be six new power stations by 2020, and Johnson is confident not only that Sekoko will get an operational mine up and running on one of its leases but that it will also get a contract to supply Eskom with something in the order of 20 million tonnes of coal a year.
Global warming and CO2 emissions are obviously a concern, but like Poland and China, South Africa thinks there is no realistic alternative at the moment. ÔÇ£In addition to what industry wants, there is a program to electrify the most outlying villages,ÔÇØ says Johnson, ÔÇ£so the demand is high. South Africa is blessed with a lot of sunshine, but when you are producing electricity for some of the more energy-intensive industrial processes we have, the capital and area of land needed for solar panels just becomes impracticable.ÔÇØ
Eskom, apparently, is doing its best, equipping new power stations with the most up-to-date technology available, but until the problem of CO2 emissions has been resolved, coal will continue to alarm environmentalists.
Sekoko (which incidentally is the traditional African name for a hard hat) is six months into its bankable feasibility study, which should be complete by the first quarter of 2010, coinciding nicely with the mining application currently going through its bureaucratic processes. One hundred bore holes have been sunk suggesting that the coal is largely at the surface, which means an open-cast mine. However, the coal is not in seams but intermixed with rock. Thus, Johnson estimates the mine will require capital of around R1 billion (plus or minus $150 million, depending on the exchange rate) to fund the excavators and 150-ton trucks needed to collect the coal-bearing rock and to build the washing plant needed to extract the coal from its accompanying shale. The current thinking within the business is that the extra cash will be sought by floating the company on the Johannesburg Stock Exchange.
If the government continues with its plans to have independent power producers, Sekoko might be making another visit to the stock exchange for a vastly larger sum of money. Last year it was short-listed as a potential IPP when it put forward a joint venture proposal with China Railway to build up to three 600-megawatt power stations at an estimated cost of $3.8 billion. Sekoko would provide the coal while its Chinese partner would provide the plant.
SekokoÔÇÖs other promising prospecting focus is on an area of Soutpansberg near the Zimbabwe border that has good-quality coking coal but so far only in thin seams. Johnson reckons it will be another couple of years before a decision is made on what to do there.
In the meantime, there is also the prospect of mining iron ore. ItÔÇÖs not particularly high quality, but there is an estimated 140 million tons of 40 per cent iron relatively close to the surface. A few test holes have been drilled, but further activity is on the back burner due to an internationally low interest in iron.
The prospects for Sekoko and its many black African investors look promising, and members of the government will no doubt feel justified in having taken the controversial step it did seven years ago.