Mxolisi Mgojo says SA’s future depends on coal
Cleaner energy won’t be adopted overnight, says Exxaro CEO
● Mxolisi Mgojo, CEO of SA’s largest coal producer, Exxaro, says he’s not concerned about the fast-growing global trend away from coal.
“SA will be very much dependent on coal for the foreseeable future,” he says. “To replace the current energy generation capacity with anything beyond coal is going to take a very long time.”
South 32, which regards the future attractiveness of thermal coal as “questionable”, is in the process of selling its local coal business. BHP has signalled its intention to exit the thermal coal business, Rio Tinto has divested from large coal assets and Glencore has, under considerable investor pressure, decided to cap its current coal production. But Mgojo is unfazed.
“You cannot just switch off coal tomorrow and say all the power stations should stop taking coal and therefore coal mining comes to an end in South Africa.”
Transitioning to cleaner sources of energy is important but it’s not going to happen overnight, he says.
“Coal will not disappear as an energy source in South Africa for a long time, even if its share may reduce.”
Regardless of environmental arguments, the social impact of downscaling SA’s coal operations cannot be ignored.
“You’ve got to be very careful about saying coal will not be relevant in the South African context because you’ve got an economy that is not growing, high unemployment of close to 30%, high levels of poverty. You can’t simply say that does not matter.”
He’s not in denial about the increasingly strident anti-coal lobby, Mgojo insists.
“It’s there. South Africa will respond in a way that is right for South Africa.
“Just because Norway is screaming loudly does not remove the fact that South Africa is facing huge social challenges it has to deal with.”
Exxaro recently released half-year results showing it has been hurt by falling global demand and prices.
Mgojo says this has less to do with pressure from the anti-coal lobby — although he concedes this has affected sales to Europe — than the cyclical nature of the business and geopolitical issues such as trade wars involving China.
“One has to be open-minded and see the big picture.”
He says the new carbon tax is going to add a “significant cost” to coal mining.
“We don’t have a clue what the cost for mining is going to be beyond 2023 because it hasn’t been made clear.”
Although local banks have said they will not fund new coal-fired power stations, Mgojo says that “in the Asia-Pacific region they’re building hundreds of coal-fired power stations and demanding high-quality thermal coal, which we produce”.
Meanwhile, coal-fired power stations are being closed in SA as they come to the end of their lives, and Eskom has not been taking up the volumes from Exxaro it is contractually obliged to.
Mgojo is putting his hopes on the muchdelayed Medupi project.
“Completion of Medupi is wrapping up now in a manner that they’re able to take the minimum coal requirement as per the contract,” he says.
There are still daunting and expensive challenges ahead but he is confident the plug won’t be pulled.
“Government and Eskom realise that as they close the old power stations they need Medupi.”
However, it’s the survival of Eskom itself that is increasingly questioned.
That really would be the end of the road, he says.
“If Eskom collapses the whole economy will be in the dwang, not just mining. Eskom cannot fail. We’ve all heard what President Cyril Ramaphosa and finance minister Tito Mboweni have said.”
But how quickly do they need to act? “Yesterday. We as business have been imploring government to make sure that all the issues that need to be addressed to get the economy back on track are really, really expedited.”
It is “critical” for the government to adopt a clear plan and act on it.
“It’s vital it starts to reform and consolidate government expenditure, reduce fiscal pressure and debt, rapidly reform those state-owned enterprises.”
Meanwhile, a document produced by the department of mineral resources proposes that mining companies take responsibility for housing, health and infrastructure in areas where they operate. And threatens the licences of those that don’t comply.
Mgojo, who is also president of the Minerals Council of SA, says the industry is prepared to partner with municipalities and make its resources available to address these problems, but ultimately they’re the government’s responsibility.
“There’s almost this feeling of, ‘No, leave it to the mining houses to solve these problems for the communities’.
“We’re saying, that’s not our responsibility. We have to contribute, but there are some things that are basically the responsibility of government, and it needs to be accountable for that.”
The industry cannot do the things municipalities are supposed to be doing, he says, but can help capacitate them to do these things.
“We are prepared to put in skills and put money behind those skills.”
But the government needs to create an enabling environment for this to happen.
“We’ve been saying to government we can and want to play a role. If you enable this and allow us to, we will do it. We’ve been saying this for some time.
“There are a lot of things we’re doing as industry, but the municipalities have to allow us to help them create the capacity to do what they are supposed to do.
“We want to understand why there is not more willingness by municipalities to see us as partners. Government needs to play that facilitating role.
“We’re not getting the traction, or making the impact, that we could if they were more proactive.”
He says the department of co-operative government & traditional affairs, which is responsible for municipalities, and the department of mineral resources need to sing from the same hymn book.
“I get a sense there is not much collaboration between government departments. If you want to deal with the economy you’ve got to deal across all departments and get them aligned for one common purpose and outcome.
“You can’t have different departments running independently and contradicting the outcomes of each other.”
You cannot just switch off coal tomorrow and say all the power stations should stop taking coal Mxolisi Mgojo