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AEMFC: South Africa’s state owned miner

March 2, 2011

“South African President Jacob Zuma launched the new ‘competitive’ State mining company, which will produce 800 000 t/y of energy coal at its first mine and synthetic crude oil from another in 2013. President Zuma turned the first sod at the new R130-million ($18.7mln) 120-employee Vlakfontein coal mine, which is situated 100 km east of Johannesburg and 10 km northwest of the town of Ogies, the first venture of the State-owned African Exploration Mining & Finance Corporation (AEMFC), which envisages being a top-five coal producer by 2020.”

AEMFC CEO Sizwe Madondo tells Mining Weekly Online that discussions with State electricity utility Eskom indicate that the Vlakfontein coal, which will be produced at an initial rate of 800 000 t/y, will be competitively priced. Eskom, which will be the buyer of the Vlakfontein coal, currently burns 115-million tons of coal a year, and expects to be burning 250-million tons a year by 2018.”

Source: Mining Weekly, February 26 2011

Observations:

  • Original launch of the state-owned company at Vlakfontein mine was planned for October 2010, but was postponed for several months. Apart from operating the coal mine the government aims to combine its minority participation in mining companies around the country in AEMFC.
  • The company appears to be mainly focused on Energy minerals (coal, synthetic oil from coal, and uranium). The ambition to be a top-five coal producer by 2020 therefore most likely is based on energy coal production.
  • According to BP’s energy statistical review South Africa accounts for 3.7% of world coal reserves and 4.1% of global production, which makes it the world’s 6th-largest coal producer (behind China, USA, Australia, India, and Indonesia)

Implications:

  • Fears of the ANC government nationalizing mines to benefit from the high profits in the industry have been tempered by the mining minister recently when he rejected a proposal by ANC’s youth organization to start nationalization. However, the existence of a state owned mining company makes the step to nationalize assets easier in case a future governments has a different opinion.
  • The investment climate for developing reserves and obtaining licenses for foreign companies will only become more challenging now that a local state-owned player is competing for the same opportunities. It will be hard for the South African government to prevent corruption and avoid an image of an unlevel playing field.

©2011 | Wilfred Visser | thebusinessofmining.com

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