Anglo American South Africa deputy chairperson Norman Mbazima...

Anglo American South Africa deputy chairperson Norman Mbazima argues that a revitalisation of South Africa’s railand port networks will be key to ensuring a recovery in mining investment. Speaking at the Investing in African Mining Indaba, he lamented that he had not seen any significant rail and portexpansion during the 15 years that he had been involved in the mining industry. He also highlighted the importance of efficient and cost-effect freight logistics for South Africa’s inland iron-ore, coal and manganese mines, which required an urgent expansion in rail and portnetworks to support their export competitiveness. “I would therefore urge immediate dialogue to work out how best to ensure that we adequately invest in our rail and port infrastructure so as to facilitate the growth and competitiveness of our mining industry,” Mbazima said. Mining Weekly sought reaction to Mbazima’s comments from Transnet chief business development officer Gertde Beer, whose responses are provided below.
Mining Weekly: Would you agree with Mr Mbazima’s appeal for rail and port networks to be urgently revitalised and expanded to bring investment back into the South African miningindustry?
De Beer: Transnet is constantly evaluating rail and port infrastructure to facilitate current and future demand. Given the cost associated with creating rail and port capacity, our investments follow validated demand based on confirmed mining investment. Although Transnet acknowledges its role as a key economic enabler in the South African economy, Transnet’s investments in rail and port infrastructure, as well as associated rolling stock and equipment, are by their very nature long-term investments, as the underlying assets have long asset lives. In addition, unlike mining companies which, to a degree, enjoy greater operational flexibility to accelerate or decelerate their mining activities in line with commodity cycles, once Transnet has invested in infrastructure, such investment must yield reasonable and ongoing returns and, as such, Transnet needs to limit avoidable exposure to commercial risks. Effort is therefore put into securing appropriate medium- and long-term take-or-pay arrangements within sustainable tariff envelopes before embarking on such capital expansions. Initially, the Market Demand Strategy (MDS) capital plan was R337-billion and this was revised to R229-billion following the commodities crisis in 2015/16 and on the back of visible curtailment of investment by mining houses. We have, however, invested in upgrades to the Lephalale line to unlock the Waterberg coal for investors such as Exxarro and Resgen. We have also invested in rail and port capacity and partnered with the private sector to increase manganese export volumes. The collaborative partnership between Transnet and manganese exporters yielded more than 12-million tons a year last year and has strengthened South Africa’s position as the leading global exporter. To sustain and grow capacity in the iron-ore export channel, Transnet is investing significant capital in a new (third) tippler at the Port of Saldanha. Investments in the multi- purpose terminal (MPT) in the same port were instrumental in proving additional export capacity for both manganese and iron-ore. Kumba is one of the companies that have benefited from the ability to export products through the MPT to meet vessel restrictions imposed by their customers.
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How would you respond to the assertion that there has been no significant expansion of mine-linked rail and port infrastructure for 15 years? This is not true. The iron-ore channel expansion from 47-million tons a year to the current 60-million tons a year was completed in 2013, with Kumba being one of the key beneficiaries of this investment as it unlocked export capacity for its new Kolomela mine, in the Northern Cape. The expansion, furthermore, enabled Transnet to meet one of its key strategic objectives aimed at catalysing industry transformation by introducing new entrants, in the form of junior mining companies, onto the channel. The Port of Ngqura – constructed in 2006 and operationalised in 2009 via the flagship Ngqura Container Terminal – demonstrates Transnet’s continued strategic investment to strengthen the economy of the Eastern Cape. In the same period, Transnetinvested in increasing the manganese export channel capacity through Port Elizabeth to 5.5-million tons a year with investments in rail infrastructure and rolling stock, as well as the upgrade of the bulk export terminal. Phase 1 of the rail investment supporting the manganese expansion to the Port of Ngqura was completed in December 2017 and the capacity created contributed to the record eight-million tons a year that will be exported through Port Elizabeth this financial year. Transnet has invested close to R15-billion in this region alone over the last 15 years. Transnet has also undertaken a significant capital expansion of the coal line to 81-million tons a year and is also supporting alternative coalexport channels through its wagon and locomotiveprocurement programmes. These programmes focus on not only recapitalising and modernising the rolling stock fleet but also supporting growth in various sectors of the economy. In Richards Bay, we have increased coal exportcapacity in partnership with RBT Grindrod Terminals and partnered with others to increase chrome exports, as well as investing in a further tippler to increase capacity. In addition, we have made capacity available to unlock the Maputo corridor by providing rail infrastructure and rolling stock to export more magnetite chrome and coal and are currently running 34 trains a week through this channel, and we intend to increase this further. Transnet is actively seeking ways to utilise existing assets more efficiently in order to create capacity through optimisation as opposed to capital investments. Transnet invested significant capital in concluding the necessary feasibility and specialist studies for the next tranche of capacity to 82.5-million tons a year in the iron-ore channel. Industry, represented by Kumba, Assmang and various new entrants, was involved every step of the way, but it was evident that the downturn in the commodities market limited industry’s appetite to commit on a take-or-pay basis. It is ironic that the perception is created that Transnet is stifling growth when Norman Mbazima himself walked away from the expansion when he was CEO of Kumba. Transnet cannot invest for ‘good times’ only and deferring investment based on risk is not a unilateral privilege. In addition, and despite the very absence of commitments from iron-ore exporters, Transnet decided to, at risk, proceed with over R2-billion in capital investment in the third tippler in the Port of Saldanha. This tippler was originally included in the 82.5-million-ton-a-year scope, but was brought forward after due consideration of the operational risks in the channel. This investment ensures both sustainability and growth of the iron-ore exportchannel. The decision to invest at risk was taken despite Kumba not wanting to commit financially towards it. It would be a further irony if they were first in line to claim access to the capacity created. We have developed Postmasburg through a private-sector collabo- rative partnership – ISolethu – to establish loading capacity for junior iron-ore mines and have invested in wagons to meet their more complex logistics needs. Lesser known to the mining industry is a portfolio of investments in the Port of Durban aimed at accommodating growth in containerised shipping and asso- ciated changes to vessel profiles.
Do you concur with Mr Mbazima’s call for urgent dialogue on stimulating ways to ‘adequately invest in our rail and port infrastructure so as to facilitate the growth and competitiveness of our miningindustry’? No. Transnet’s MDS speaks for itself and addresses the growth needs of the broader economy. Commitment from the mining houses rather than dialogue is required. We would, however, welcome good-faith conversations with Kumba to ensure a sustainable iron-orechannel, which provides a commercially sound basis for additional investment in increased throughput capacity. Good-faith conversations in the context of collaborative partnerships, focusing on ‘win-win outcomes’ for all stakeholders, have proven to be very successful in the manganese industry. During the commodities crisis, a number of mining companies asked for price support from Transnet to, on the one hand, assist in financial survival, [and] to maintain their market position should prices recover, [on the other]. Despite our own financial pressures at the time, Transnet assisted customers to the tune of R600-million.
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Which areas in the mining sector does Transnetbelieve could be ripe for partnership with miners, or others, to increase capacity or improve competitiveness? It has been proven in manganese, iron-ore and chrome that we can partner and collaborate with the private sector to increase capacity. Latest estimates are that we will be moving more than 13-million tons of manganese for the 2017/18 financial year, which will be 16.5% up on last year and we have managed to provide capacity for junior miners in the iron-ore channel by creating loading facilities and back-of-port operations. However, as with any partnership of this nature, Transnet’s investment in infrastructure must be matched and supported by financially sustainable rail and port tariffs and associated commercial terms.
Are there any specific public–private partnership projects that are being implemented? Various public-sector-participation- (PSP-) enabling projects in the miningsector have greatly reduced barriers to entry for junior miners. In the agriculture sector, we have several PSPssupporting upstream supply chain activities. Transnet has also been instrumental in evaluating and, where possible, facilitating a wide range of projects in connection with government’s Project Phakisa initiative.
How much has Transnet invested, since the start of the MDS, in mine-related capacity? Since the start of the MDS in 2012, Transnet has invested about R120-billion in capital to enable the mining sector. Whilst it is acknowledged that the mining industry is an important sector in the South African economy, Transnet has a responsibility to support economic development and investment across all economic sectors, including agriculture, energy, the petrochemicals industry, the automotive industry and others. As such, investments made to sustain existing infrastructure and to support growth in the mining industry have to be balanced in relation to other necessary investments.
What has the volume impact been of these investments for coal, iron-ore, manganese and other minerals?
The Richards Bay Coal Terminal (RBCT) has commended Transnet’s support in the terminal reaching record volumes of some 76-million tons in 2017. Existing and planned investments in the Waterberg will further unlock capacity to Richards Bay and other eastern seaboard ports. Transnet is on track to move 60-million tons of iron-ore at the close of this financial year, which is 5.2% above last year. The 13.1-million tons of manganese ore forecast to be exported this financial year is 16.5% more than last year. We have taken over 10 000 t of magnetite per day off the roads, which has increased our chrome volumes to 5.8-million tons, with a target of ten-million tons a year in the future.
What are the main current mining-related projects? The Lephalale upgrade to support coal expansion to 15-million tons a year from the Waterberg, and the expansion of manganese export capacity to 12-million tons a year through the Port of Ngqura by 2023. We are also finalising feasibility studies on resolving the constraint associated with the single line Overvaal tunnel on the coal line, which will increase capacity and ensure sustainability of the coal line by 2022. The third tippler at Saldanha should be commissioned in 2019. Then we have the Swazi Link project, which will provide increased capacity for our general-freight and mining customers. In addition, feasibility studies are under way to connect the Waterberg rail network to Botswana to unlock coal mining opportunities.
What is the value of the investments under way?
We expect to spend R23.1-billion on capital growth projectsthis financial year and a similar amount in the coming year.
Transnet’s transition from the MDS to Transnet 4.0 places far less emphasis on adding pit-to-port-type infrastructure and, instead, prioritises market diversification. Is this a fair assessment?
As a State-owned company, Transnet’s economic mandate spans beyond the requirements of any one industry. In saying this, Transnet 4.0 is evolving how Transnet better serves its markets and customers, including the miningsector.
But is Transnet 4.0 fully aligned with the new, more upbeat mood surrounding certain commodities? Transnet 4.0 aims to bring about efficiencies and improvements in the way we serve mining commodities and enable a more agile response to changing market conditions.
How does the Africa strategy play into this expected recovery in commodity demand and prices? Strengthening and investing in rail and port opportunities elsewhere on the continent enable Transnet to support South Africa’s export initiatives by facilitating and improving the provision of rail and port services in target markets across Africa. Such investments and participation also contribute to improved regional cooperation and planning which, in turn, bring their own economic benefits for South Africa and fellow African countries. We are constantly looking at regional integration with the Democratic Republic of Congo, Zambia, Botswana, Mozambique and Zimbabwe, amongst others, and have projects at various stages in 13 other African countries. The projects range from operating portsand concessions to running railways and investing in portsand terminals to technical and operational partnerships.
There is ongoing unhappiness about South Africa’s rail and port costs. How is Transnet planning to improve customer perception and experience in this area and particularly in the mining sector? When we look at our costs per ton kilometre on the major commodities and heavy-haul lines, we are better than all our international peers. The bulk customers, such as coal and iron-ore, as well as other mining entities, enjoy a very competitive pricing regime on both rail and port services. On the port side, there is a ten-year programme to rebalance tariffs, which is spearheaded by the port regulator. To ensure the international competitiveness of our mining supply chains, we run a collabo- rative Channel Oversight Team (COT) for each commodity channel, including representation by both customers and Transnet. The COTs are focused on extracting efficiency and productivity opportunities in the various channels. As a result of areas of concern raised during consecutive annual customer satisfaction surveys, Transnet implemented a strategic Key Account Management (KAM) programme for each customer. The KAM programme is tailored to personalise the improvement of service and relationships issues. To give the customers a voice, Transnet has established a Customer Nerve Centre, which was launched late last year. The significance of continuously improving the customer experience is underpinned by an across-the-board Transnetperformance measure of 30%, linked to customer satisfaction key performance indicators.

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