Government and Banks Should Return to the Coal-mining Party

The unemployment rate of 29%, the highest since the 2008 recession, equates to 6.7-million able-bodied individuals between 15 and 64 years old who are excluded from the labour force. Regarding the extended definition of unemployment, including discouraged work-seekers, the picture becomes even grimmer, with about 10-million people out of work.

The situation is yet more frightening in the mining sector. According to the latest Stats SA quarterly labour force survey, more than 36,000 jobs were shed in the second quarter of2019, representing a 12.4% decrease in employment in the sector year on year.

The coal industry is likely to experience additional job losses in the near future due to a harsh operating environment at home and a depressed global commodities market. The situation is further compounded by persistent policy uncertainty, with the latest draft of the integrated resource plan (IRP 2019) revising down coal’s allocation, a decision some fear will result in the loss of 100,000 jobs by 2030.

Despite coal’s contribution to the economy in past years, the sector is under attack on several fronts, reflecting a global shift away from coal towards gas and renewables. While there is no question about the need to move towards cleaner energy sources, the wholesale rejection of a coal sector that has kept — and continues to keep — the lights on is alarming.

"This is a particularly devastating development for emerging coal miners, who are finding it extremely challenging to operate in an environment that penalises entrepreneurial endeavour."

The Minerals Council SA says the coal industry contributes R130bn to the economy annually and is responsible for about 86,000 direct jobs and 170,000 more in adjacent industries.

In terms of coal endowment, SA is ranked ninth in the world with 30-billion metric tons of the world’s premium-grade coal resources.

Yet despite this endowment and the number of people relying on the sector for their livelihoods, some SA financial institutions are excluding coal projects from future financing opportunities. Three of SA’s top banks have indicated they will not fund two new proposed coal-fired independent power producer (IPP) power stations, and one has said it will stop funding coal mining entirely.

This is a particularly devastating development for emerging coal miners, who are finding it challenging to operate in an environment that penalises entrepreneurial endeavour and makes capitalising on opportunities difficult due to limited funding avenues. With the major global producers retreating from coal, there is an opening for emerging miners to fill the gap and provide the crucial coal SA’s economy needs.

What should have been a watershed moment for black industrialists in this country is turning into an enormous missed opportunity to transform the sector equitably.

This lack of long-term strategic thinking on the part of some financial institutions is of major concern, and if not managed correctly could result in catastrophic job losses in a sector once considered to be the lifeblood of the economy. Damage will also be done to the economic prospects of emerging miners.

The decision also seems to be counterintuitive in the light of the clean coal technology developments in the sector. By retrofitting existing coal plants with this new technology, current carbon dioxide emissions would not only be reduced, but it would also be ensured that SA continues to benefit from its substantial coal endowment. In line with its compliance programme to meet minimum emission standards, Eskom is implementing a process of retrofitting some of its older plants with emission-abatement technology. Where this is not economically feasible they are being removed from service.

The draft IRP 2018 update (2019) recognises the potential for investment to be made in new, flexible, high-efficiency, low-emission technologies, including new ultra-supercritical plants with flue-gas desulphurisation, underground coal gasification, integrated gasification combined cycle, and carbon capture storage.

Junior miners will have to think about accessing finance more creatively. Due consideration should be given to equity, mezzanine and other traditional forms of finance. It may also mean exploring creative and innovative funding solutions such as pursued by Canadian junior miners, who are accessing capital through crowdfunding.

Additional support is required from the government to create a policy framework that incentivises the funding of junior miners in support of its employment mandate.

Junior miners need a further commitment from the government and the financial industry to support them in their efforts to mine coal sustainably and efficiently, to support employment and the use of our mineral endowment.

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