Barry Sergeant|

20 August 2010 23:01

Special report podcast: John Wallington – CEO, Coal of Africa

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What's going on at Vele Colliery?

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BARRY SERGEANT: I'm speaking with John Wallington, chief executive officer of Coal of Africa Limited (CoAL). John your company has a very handy shortened name - CoAL - an appropriate name for a coal company. Your market cap at the moment is close to US$800 million - a very substantial company and the reason we are talking to you today, among other things, is to look at the issue of the regulatory environment in South Africa given the big headlines that have gone through in the past month or so, Imperial Crown Trading (ICT), Lonmin, Aquarius Platinum and so on. You've had quite a different experience and we are going to mention probably three agencies the Department of Mineral Resources (DMR) - which has been very much in the news, the Department of Water Affairs (DWA) and the Department of Environmental Affairs (DEA) - which has got the same abbreviation as something in America called the Drug Enforcement Agency... We're going to focus on Vele Colliery - give us a background there as to what's happening at Vele Colliery at this point, especially in the regulatory environment.

JOHN WALLINGTON: How far back do you want to go - as you know we are on stop at the moment - we've had the interactions with the DEA, with the compliance notice etcetera, and we reacted to that and since then, certainly I've been involved, and the company has been involved in intensive discussions with the DEA to resolve the issue and we are starting to make great progress from that regard. When we talk about the regulatory issues, we have to accept that this is the first mine that's been developed in that area - the sensitivity of the area - what with The World Heritage site and the Mapungubwe National Park - clearly has been a far bigger issue than maybe either government or CoAL thought it would be. There has been some very effective publicity of it and therefore it has become very sensitive and particularly when there were threats that Unesco would even de-list. It has caused a lot of emotional reactions - a lot of defensive reactions, which resulted in the current impasse that we're in.

BARRY SERGEANT: Go into the detail there of the distances - the Mapungubwe World Heritage site as such - how many kilometres is Vele, the actual mining site, from that?

JOHN WALLINGTON: The mining site is about 15 kilometres from the border and about 28, 29 kilometres from the actual Citadel - that's where the present activities are located.

BARRY SERGEANT: So it's outside the site, as such?

JOHN WALLINGTON: It's outside the buffer zone of the border as well. Sadly that's been part of the distortion - there has been a lot of distortion, a lot of facts that have not been correct - where initially the view was that it was in the middle of the Park and it was going to damage the Park directly. Misinformation, yes - it's not going to damage the Park, and what we are going to be organising - if you're keen - is a visit up there to see for yourself. Certainly when I saw it for the first time, I realised it won't damage the Park. But having said that it is close and it is sensitive, and people are concerned about the future and how many more mines might be there - and so that's what we're having to deal with.

BARRY SERGEANT: If you look at some of the people involved - let's say putting the thing in the public domain - there's Mapungubwe Action Group, there's the Endangered Wildlife Trust, the Association of Southern African Professional Archaeologists, the Peace Parks Foundation, the Worldwide Fund for Nature South Africa, Birdlife South Africa and the Wilderness Foundation - that's a real pack of organisations. If you look at the asset - Vele is a fantastic asset - over 700 million tonnes of resources - and you're looking at initially building a R3bn mine that will have an output of a million tonnes a year, and possibly a phase two going up to five million tonnes. The underlying asset is coking-coal - one of the world's premier commodities - not quite in the same league as Seaborne Iron Ore maybe, but certainly it's pretty close to that. Your coal is Seaborne - it's going to go through Richards Bay and also through Matola in Mozambique - that's all been tied up.

JOHN WALLINGTON: What this coal has the potential to do is one, reduce import requirements and certainly expand the exports. We don't export any coking-coal at the moment in this country - it's dominated by Australia and it's a very lucrative business and the fundamental of coking-coal is superb. There is no doubt - as I mentioned to you earlier - these two projects Vele and Makhado have the ability to economically transform the Limpopo. When you go through Musina at the moment, it's not an area that's doing well economically, so we need balance in this and obviously it's a very sensitive area and we need to work with everybody to make sure that the mine is run extremely efficiently - and to the high standards and to satisfy all the environmental concerns - but I don't think a country of this size with the unemployment issues we have, and the economic growth problems that we have can afford to not let it happen at all.

BARRY SERGEANT: The Musina local municipality - that's a little city which is the closes to the mine - a couple of days ago issued a compliance notice to Coal of Africa - that is saying there is very strong support from the Musina local municipality indeed which is a good ally to have. If you go into the fundamental nature of the regulatory environment, going back to the DMR - you appear to have no issues there - as you've obviously mentioned, you do have the DEA issue as well as the outstanding issue with the Department of Water Affairs - which of those do you think will be solved first, and will it lead to solving the next?

JOHN WALLINGTON: I believe we'll solve both hopefully in the short term. As I said the negotiations and discussions from both sides have intensified recently. There's a real willingness now to settle this and to solve the problem. One must understand that there was a very big reaction to all the news that came out. There was concern that we are going to damage the Park - or we were going to do the heritage sight listing - and all these things and it led to a bit of a stand off, but we're now in discussions where we're making great progress together in terms of finding out what the right solution is for the company, for the country and for co-existence.

BARRY SERGEANT: Lets just deal with some of the realities of coal mining. It's very capital intensive and what you're doing is taking the coal out and you sash it - you might also do a bit of media separation - but there's no actual burning - no kind of industrial process as such. Then when the coal is cleaned it gets loaded into the trucks or the railway and off it goes. So why is there a perception that a mine that is 15km outside of the border of the site - going to damage something that is quite a distance away? Is it just that it's a mine and we just cannot tolerate the idea of any kind of mine? Is it something that simple or are there any facts to support the perceptions that this is going to be a bad thing?

JOHN WALLINGTON: Well there are different views but I don't think so. Obviously if you read the issues - there is an issue of a concern that once there is one mine, there will be another and then another and that's a difficult one to argue because each mine needs to be measured on its own merits. But you have heard that once there's one mine it is going to threaten the whole area. Vele on its own will not have any impact on the Park but clearly it is close enough to be sensitive, it is close enough to the river to have other people concerned and it is in a sensitive area - certainly a far more sensitive area from an environmental point of view and an ecological point of view than say the bulk of our mines which are in Mpumalanga or in the Platinum Bushveld. It's a new learning experience I would say for the DMRD, DWA and CoAL.

BARRY SERGEANT: You're sufficiently funded to deal with any kind of additional matters, which might have to be taken into the building of the mine...

JOHN WALLINGTON: We have to protect the cash flow so depending on the rate of progress - we will have to let people go. There will be a reduction of staff on the mine that we employed this week, and further reductions next week if progress is too slow. It's just that CoAL is a junior company and we do have limited cash and we need to protect that - and we will be doing that so that when we do get the go ahead to actually move, we will be able to.

BARRY SERGEANT: Just to wrap up, if you go back on this, what would you take out of it in the constructive sense - would you have done things differently?

JOHN WALLINGTON: Hindsight is a wonderful science - 20/20 - we were all - and when I say all I mean the regulatory authorities and CoAL would have realised that this is a highly sensitive area and we needed to approach all the approaches with just that bit more sensitivity to everyone's concerns. That's the big difference - it's just a different type of area - it's the first mine to be opened in this area since Venetia was opened over 20 years ago. There has been some effective opposition - a lot of it's emotional, a lot of it is not factual, a lot of it disappointingly libellous and defamatory. But a lot of it is real.

BARRY SERGEANT: Well good luck - we're going to be watching this very closely.

The SAfm Market Update with Moneyweb is broadcast on SAfm 104-107fm, weekdays at 18:00 to 18:30.
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