Vuslat Bayoglu is optimistic about the future of coal mining in South Africa, writes Leon Louw.
In fewer than 15 years Canyon Coal has become a prime mover in the South African coal mining space, and Vuslat Bayoglu, the company’s founder and executive chairman, believes the coal sector still has a lot to offer. Bayoglu regards South Africa as a top mining destination and has invested heavily in the country’s abundant coal deposits. Canyon Coal has five operating mines, and more projects in the pipeline. Bayoglu is also the managing director of investment company Menar Capital and a director of newly established Sibambene Coal. Mining Mirror asked Bayoglu to tell us a bit more about himself and the business of coal mining.
Vuslat, you are originally from Turkey. When did you establish yourself in South Africa and how did you become involved in the mining industry?
I was looking for business opportunities and landed up in Cape Town in 2001. After two years in Cape Town, I decided that Johannesburg was a better place for an entrepreneur and in Johannesburg my partner and I started looking for opportunities in mining, specifically coal mining.
We established a coal trading company and then applied for a number of prospecting rights. We started drilling and not long after that found coal in Mpumalanga. Coal deposits in these areas of South Africa are shallow, and drilling is not that costly. We developed Hakhano Colliery close to Middelburg, which produces Richards Bay export quality coal.
Meanwhile, the company invested in exploration and considered possible acquisition opportunities to establish a sustainable pipeline of projects. We applied for and then acquired the prospecting rights for Phalanndwa, near Delmas in Mpumalanga, and started mining in October 2010.
Phalanndwa became fully operational in 2013 and the business grew organically. In 2016 we bought Zululand Anthracite Colliery (ZAC) from Rio Tinto, and in 2018 closed the deal to buy Kangra Coal from Spanish company Union Fenosa. Through this R560-million deal we became a shareholder in the Richards Bay Coal Terminal (RBCT).
Did you previously have any experience in the coal mining industry?
No, I had no experience in the coal mining sector. When Canyon Coal was established initially, we sold our product to Turkey. Being from Turkey I knew that the country was importing coal as it didn’t have enough of its own deposits. They have low quality lignite deposits which are used in ageing power stations that are nearing the end of their lives. Steam coal is limited and occurs in the north of the country, but the deposits are deep and difficult to extract.
Turkey thus relies heavily on coal and gas from Russia and has, in fact, been importing coal from South Africa for a long time. More than half of the coal we mined at Hakhano was sized product for the Turkish market. At that time, we used Maputo to export our coal. In fact, Canyon was the first company to truck coal to the port of Maputo.
What was the logic behind trucking coal to Maputo?
When we started mining at Hakhano we realised logistics was a big problem. There wasn’t enough rail capacity to Maputo and the only other option was to truck the coal to Maputo. We found a logistics company that was able to clear our trucks very quickly at the border. In fact, when the trucks left the mine, they were pre-cleared and were never delayed. A truck could leave the mine with a full load and return from Maputo on the same day. During that time, we managed to move close to 50 000 tonnes of coal per month.
Do you still export coal to Turkey?
No. The Turkish government is buying more coal from local mines and is importing a lot of coal from countries like Columbia and Russia, for example. Asia is now a big market for South African coal, and for us, as is the rest of Africa, especially East Africa. Kenya and Tanzania are using South African coal, as is Ethiopia and Djibouti while countries like Pakistan, India, Bangladesh and Sri Lanka have become important markets for South Africa.
How much of Canyon’s coal is still transported to Maputo?
We don’t use the port of Maputo any longer. Through the Kangra acquisition, we are now shareholders in the Richard Bay Coal Terminal (RBCT), so when the rand weakened and it became costly to export coal through the port of Maputo, we diverted our product to RBCT where we also make use of the dry bulk terminal run by TPT. So, in Richards Bay we use RBCT and the dry bulk terminal.
What is the secret of running a successful coal mining company in South Africa, and what advice do you have for junior mining companies looking to establish operations in the country?
South Africa remains a top-class mining destination. Although the country faces many challenges, it has a relatively stable government. If a company creates employment, the government will support it. In addition, there is rule of law and human skills are available. Road and rail infrastructure are first class, and Transnet is one of the better state-owned entities. All these factors are benefits not present in many other developing countries. A lot of juniors are complaining that finance is a challenge, but if it is not available you have to be innovative. Nobody can teach you how to be an entrepreneur.
If the geology is good, the operation will be on the front foot from the start. It is imperative that the geology is favourable. If it is not, and you want to operate an underground mine where you achieve a 50% yield for Eskom product, it is not going to work. Don’t get overly excited about any project in the Waterberg either. There has been only one company that could make it work, and that is Exxaro, and they made huge investment to make it profitable. Don’t go building a siding in Limpopo and say that you have a mining investment.
If you have a deposit in Makhado with a two to one strip ratio and a 80% yield, it will work, but if you have a 20% yield and a five to one strip ratio in the Waterberg, forget it. The problem with many new projects is that their products are only suitable for Eskom, and because Eskom has a fixed price arrangement with Exxaro, Eskom won’t buy the coal. Therefore, Exxaro will continue supplying coal to the Medupi and Matimba power stations in the Waterberg at a competitive price, so there is not really room for new mining companies in the Waterberg.
There are still in excess of 10 billion tonnes of coal available to be mined in Mpumalanga. Junior miners are limited to opportunities in KwaZulu-Natal, Gauteng and Mpumalanga. KwaZulu-Natal’s geology is tough, and Gauteng is far from the markets, but all three of these provinces offer plenty of opportunities to the investor.
At the moment all Canyon’s coal is earmarked for the export market. Is coal supply to Eskom part of your future plans?
We’re hoping that we’ll be able to supply coal to both Eskom and the export market. Currently we are not supplying anything to Eskom. However, they are aware of all our coal resources and if they want to buy, we’ll certainly give them priority. Eskom is extremely important to the South African economy, and I believe for them to succeed, we need to provide them with affordable supply, which is not happening right now.
What is the significance of establishing Sibambene Coal in the context of the current situation in South Africa?
Globally, major mining companies are exiting from coal, which has left a big gap in the market. Worldwide there are 62 countries building 1 600 coal-fired power stations. South Africa is an emerging economy that needs to create jobs. Therefore, it needs to have a cheap and consistent power supply. The country’s grid has to operate efficiently, and coal is important because it generates base load.
Anglo American is certainly not putting more money into coal, they haven’t built a new mine in the last 10 years, so where is the investment going to come from? South Africa needs coal, Eskom needs coal. The reason why Eskom is short of coal is that major mining companies didn’t invest in coal because coal is unwanted. South Africa needs 130 million tonnes for Eskom, and 20 million tonnes of coal for industrial use, which means 150 million tonnes of saleable coal. Where is this going to come from? On top of that nobody is investing in new mines.
Furthermore, RBCT can move 72 million tonnes of export coal per annum, and Maputo has a capacity of five to six million tonnes per annum. There is also the dry bulk terminal and the Navitrade Terminal at Richards Bay which, between them can take another five to six million tonnes. In total that is about 88 million tonnes per annum.
Between Eskom and export, it adds up to more than 300 million tonnes of raw coal that should be mined every year. There is also a 70 to 80 million tonne per annum shortfall of coal in international markets. Indonesia increased their production from 290 million ton per annum to 550 million ton per annum in less than 10 years. It means more jobs and foreign currency for Indonesia; it’s massive. South Africa has a world class port and infrastructure at RBCT with a capacity of 100 million tonnes, and it’s using only 72 million tonnes per annum. There is obviously a shortfall, and Sibambene believes it can fill that void.
You’ve been campaigning for Eskom to adopt an index price for coal. What is your reasoning, and what, in your view, are the issues at Eskom?
There should be no special treatment for certain suppliers at Eskom. All suppliers are delivering the same service: why should they get paid different rates? Because they have superior negotiating power or are better connected?
Eskom has to be consistent and pay the same price, and that price should be competitive. It should be a market-related rate and it can only be achieved by establishing an index price. In other words, if there is an oversupply of coal one day, Eskom will not pay a premium price. Conversely, if there is a shortage, they would pay a high price. With an index price, it is possible to avoid a repetition of the Tegeta fiasco. Eskom has to be more transparent.
This is one problem, but the big issue that has sunk Eskom is the huge investment in Medupi and Kusile, and it is a continuous headache.
What is your outlook for the coal mining industry in South Africa?
Eskom will continue burning coal. The South African government has made significant investments into coal-fired power stations and the industrial use of coal in South Africa continues growing as the economy grows. As the economy expands, there will be more foreign direct investment into other industries. There are a lot of coal reserves in South Africa, and there’s substantial capacity at RBCT. The road and rail infrastructure are of a high quality and the major companies are selling their assets. There has never been so much opportunity for new entrants to the coal market in South Africa.