Mr Xavier Prevost analyst of Wood Mackenzie said that the decision by South African Coal Mining Holdings to halt production could be the start of a pattern of junior mining companies cutting coal output because of a lack of finance. The most vulnerable would be coal mining companies that are developing projects or building mines.

SA Coal Mining Holdings closed all its mines last week, with the loss of contract and permanent jobs.

It said that “Significantly reduced coal prices and difficult conditions have resulted in the board of SA Coal Mining Holdings resolving to cease operations with immediate effect for 3 months and to place the operations on care and maintenance.”

Mr Prevost said that there was no venture capital available for small coal mining companies. He said that more than one coal mining company is going to suffer difficulties. All juniors are at risk. There was even a chance that established coal mining firms could announce production cuts or job cuts.

He added that “The worst part of the recession is still going to hit us. South Africa has been riding high and avoided the worst. The key buffer for local coal demand was Eskom’s coal buying last year.

The spot price of coal exported via Richards Bay has fallen to about USD 50 ton from a high of more than USD 170 tonnes as a result of the recession in many major economies.

Mr Paul Miller MD of Keaton Energy said that while demand for coal had softened, he remained bullish about prospects for local coal prices, given the ZAR 100 billion Eskom had said needed to be spent to boost local coal supply by 2018.

Mr Miller said that we are more risk averse than in the past as the world markets have changed. At the end of September, Keaton had ZAR 379 million in cash available.

He said that coal companies that had exploration projects at early stages would struggle to get funding to progress with exploration in the prevailing financial markets. Equity has dried up. Cost pressures would also have an effect.

Ms Naomi Nemeth a spokeswoman for Homeland Energy Group said that the company was ramping up to full production and had no plans to change the time frame for that process.

He said that homeland had 23 permanent staff in Witbank and 235 contractors on site at the Kendal colliery.

Exxaro Resources, BHP Billiton and Xstrata all said that they did not have plans to cut coal production or jobs.

source : Business Report

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