COAL producer Exxaro Resources last week said logistic company Transnet should not be able to declare a force majeure after the parastatal said it struggled with vandalism and legal woes.
This follows a statement released on Thursday morning by Thungela Resources, a major coal exporter, stating that state-owned logistics company Transnet informed Coal Export Parties (CEPs) that it was under force majeure and it might not be able to fulfil its long-term agreements due to unforeseeable circumstances.
The market thrashed Thungela on its statement with other commodity equities unscathed. Thungela’s shares closed lower on Thursday 4.7 percent lower at R247.64.
This as Exxaro’s share gained 0.2 percent to R234.19, while Glencore’s shares gained 0.89 percent to R101.19; Merafe Resources shares gained 1.81 percent to R1.69; Kumba Iron Ore shares rose 2.35 percent to R650.07, while ArcelorMittal SA gained 1.61 percent to R9.45. The stock market closed on Friday and yesterday due to Easter public holiday.
Transnet’s rail arm, Transnet Freight Rail Division (TFR) has been plagued by the massive theft of copper cables which has dented its finances.
“The impact of these factors resulted in an annual rail performance of 58.3Mt (million tonnes) coal delivered to Richards Bay Coal Terminal (RBCT) in 2021, compared to its annual capacity of 77Mt. Transnet believes that these circumstances will continue to detract from its ability to perform for at least the next six months and that, accordingly, Transnet is under force majeure,” Thungela said.
However, with coal rail services and export sales continuing, Thungela said it did not envisage that this development would have a material impact on its 2022 operational outlook.
Exxaro said following a consultation with its legal advisers, it was of the view that the events relied upon by TFR did not constitute force majeure events, that the agreements did not terminate and TFR's reliance on any purported termination was invalid.
Transnet has long-term coal transportation agreements with CEPs, inluding Thungela and Exxaro. TFR has expressed the intention to finalise new five-year agreements with affected parties by June 30, according to the statement.
Exxaro said it was engaging with TFR and other stakeholders to seek a mutually acceptable resolution.
Thungela chief executive July Ndlovu said: “We are encouraged that Transnet has reaffirmed its commitment to existing material commercial terms and it is therefore unlikely that these developments would have material commercial impact on our business. We continue to actively engage Transnet to clarify contractual positions.”
Meanwhile, Allan Seccombe, Minerals Council South Africa head of communications, said the Council had intensively engaged with Transnet’s management and the Department of Public Enterprises regarding the constraints in Transnet, especially on the rail and ports.
While Seccombe did not disclose the nature of the discussions, he said they were robust and solutions orientated.
“The Minerals Council really wants to find solutions to the problems with Transnet’s rail and ports,” he said.
Seccombe said the Council’s members in the coal industry had in the past, offered Transnet assistance on security on the railway line. Some members even offered engineering expertise to help address the problems Transnet had with locomotives and spares.
“The Minerals Council is engaged with Transnet on a commodity space, for chrome, coal, iron ore, and manganese. We have dedicated task teams working with Transnet on each of those commodities, trying to resolve those problems on each of those export corridors,” he said.
Seccombe said Transnet’s difficulties on the railways had resulted in bulk commodity miners losing revenue.
“Miners of iron ore, coal, and chrome, the three big ones, those miners in those three commodities last year, lost revenue of R35 billion because Transnet could not meet its targeted rail capacity. For coal alone, the industry lost R16bn out of the R35bn,” according to Seccombe.
He said the fiscus also lost revenue as the third of the revenue that was lost would have gone to the fiscus as tax and royalties.
Recently, several mining firms reported that Transnet’s poor rail performance had a negative impact on their achievements.
In March, Thungela Resources reported that it lost billions worth of export opportunities due to Transnet’s poor rail performance.
In October, Kumba Iron Ore flagged concerns about Transnet’s rail and port challenges, which knocked its production guidance lower.
Transnet’s poor performance forced ArcelorMittal South Africa to shut off a blast furnace for three weeks last month.
In response, Transnet said it entered into 10-year agreements with the CEPs individually for the transportation of coal to the Richards Bay Coal Terminal.
“Recent events have meant that we as TFR have been unable to meet our contractual obligations with the CEPs. The following is a subset of many of the events that have led us to occasionally declare force majeure to the clients,” it said.
Transnet said its difficulties were common knowledge and had been widely reported on.
“Despite undertakings from various CEPs and the industry at large, under the auspices of the Minerals Council of South Africa to assist Transnet in acquiring the required spares and components, all efforts have failed to deliver the spares or additional locomotives,” it said.
Transnet said it was engaging CEPs to address pertinent issues related to the agreement and had implemented arrangements that would ensure that this process does not impact planned railed services.
“Transnet reiterates its commitment to continue transport services and has confirmed that it will work with the CEPs and RBCT to optimise and improve performance. The transport services are not affected and will continue while the parties address these matters,” it said.
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