News24.com | Hit hard by rail crisis, Exxaro wants to cut dependence on Transnet

• Transnet's railing woes have hit Exxaro's coal export volumes at a time of record-high prices.
• The miner is looking for alternative routes to market.
• Its major operations in Mpumalanga and Limpopo stand to benefit from their proximity to Maputo.
• For more financial news, go to the News24 Business front page.

Exxaro Resources, which earns three-quarters of its revenue from selling thermal coal to Eskom, says it is actively pursuing opportunities to reduce its reliance on rail operator Transnet for its export coal to reach its customers. This as South Africa's logistics infrastructure constraints choke the country’s ability to export major commodities.

Rail constraints during the year ended December 2022 reduced the amount of coal that Exxaro could export through the Richard’s Bay Coal Terminal (RBCT) by a third when compared to the year prior. "To mitigate the impact of the lower rail performance (in South Africa), Exxaro has successfully exported vial alternative export ports and continues to strategically develop alternative routes to market," says Exxaro in its annual report, released on Tuesday.

Due to the Russian war on Ukraine, the spot demand for high-quality thermal coal reached a record high of more than $270 (R4 870) per tonne in 2022, said Exxaro. The rail logistics constraints, however, meant South Africa is not able to fully profit from the commodities boom.

"The most significant hurdle to overcome was ongoing logistics constraints, which limited our export volumes at a time of record coal prices, arising from the Russia-Ukraine conflict and consequent European energy crisis. After a record 12 million tonnes of exports in 2020, we are disappointed that we could not achieve our export sales capacity of between 15 million tonnes and 16 million tonnes following our expansion of the rapid load-out station, Grootegeluk 6 project and Belfast mine development," said Exxaro.

The company also increasingly had to deal with security-related downtimes such as cable theft, vandalism and sabotage, as well as challenges with the availability of locomotives.

Exxaro's strategic response to these logistic constraints include developing alternative routes to market, as well as engagements with Transnet Freight Rail. The rail operator reduced shipments of coal through the RBCT to 50.43 million tonnes during the 2022 calendar year, from 58.12 million tonnes a year earlier.

"Rail was constrained throughout the year due to locomotive availability and security-related incidents, strike action and multiple derailments,” said Exxaro. These resulted in Transnet reducing its rail commitment to 60 million tonnes per year for financial 2023. Previously Transnet had contracted to railing 81 million tonnes per year.

For Exxaro and other exporters of heavy commodities, these constraints, and any alternative export routes will result in reduced export volumes and increased costs of getting its commodities to market, robbing the country of much-needed foreign exchange earnings.

Exxaro is not the only major commodities exporter that has bemoaned the state of South Africa’s logistics value chain. 

The Minerals Council of South Africa, which represents the major mining companies and related stakeholders, in February estimated the opportunity cost resulting from inadequate rail and port infrastructure to have increased to R50 billion in 2022, from R35 billion the year before. "If the rail network was operating at nameplate capacity, with a few minor enhancements, South Africa would realise R151 billion more in bulk mineral sales," said the Minerals Council.

Ford SA, one of the major motor vehicle makers with assembly lines in South Africa, last year said it was moving almost all its vehicles by road due to the unavailability of rail facilities.

Click here for Exxaro's share price and other data

Kumba Iron Ore, the country’s largest producer of the major steel ingredient, said in February its Sishen and Kolomela, Northern Cape operations, had run out of space to store iron ore it could not move due to the rail constraints. Kumba CEO Mpumi Zikalala told News24 this cost the company an estimated R10 billion last year.

More South African exporters have diverted their business to the Port of Maputo in neighbouring Mozambique. Total volumes handled by Maputo jumped a fifth to reach a record 26.7 million tonnes in 2022.

Since May 2022, South Africa and Mozambique have also agreed on a 24-hour operation of the Lebombo/Ressano Garcia border post between the two southern African neighbours, facilitating a smoother and constant flow of goods and services to the Port of Maputo.

Although Exxaro did not specify what alternatives are available to it, its major operations in Mpumalanga and Limpopo stand to benefit from their proximity to Maputo.

"Sustainable solutions to current challenges will be explored through proactive engagement with Transnet and the industry," said Exxaro, the second biggest supplier of coal to Eskom, which earns it 75% of its R46 billion revenue.