Report R76/2009 THE FUTURE ROLE OF THE WATERBERG COALFIELD IN SOUTH AFRICA’S COAL INDUSTRY DIRECTORATE: MINERAL ECONOMICS 1 Report R76/2009 THE FUTURE ROLE OF THE WATERBERG COALFIELD IN SOUTH AFRICA’S COAL INDUSTRY DIRECTORATE: MINERAL ECONOMICS Compiled by: Mr Omphemetse Moumakwa [email protected] Issued by and obtainable from The Director: Mineral Economics, Trevenna Campus, 70 Meintjies Street, Arcadia, Pretoria 0001, Private Bag X59, Arcadia 0001 Telephone (012)444-3536, Telefax (012) 444-3134 Website: http://www.dme.gov.za 2 DEPARTMENT OF MINERAL RESOURCES Director-General Adv. S Nogxina MINERAL POLICY AND PROMOTION BRANCH Acting Deputy Director-General Mr M Mabuza MINERAL PROMOTION CHIEF DIRECTORATE Chief Director Mr M Mabuza DIRECTORATE MINERAL ECONOMICS Director: Mineral Economics Mr TR Masetlana Deputy Director: Non-Ferrous Minerals and Energy Commodities Mr L Themba THIS IS THE FIRST EDITION PUBLISHED IN 2008 WHEREAS THE GREATEST CARE HAS BEEN TAKEN IN THE COMPILATION OF THE CONTENTS OF THIS PUBLICATION, THE DEPARTMENT OF MINERALS AND ENERGY DOES NOT HOLD ITSELF RESPONSIBLE FOR ANY ERRORS OR OMISSIONS ISBN: 978-1-920448-10-3 COPYRIGHT RESERVED 3 1. INTRODUCTION South Africa's indigenous energy resource base is dominated by coal. The bulk of South Africa’s coal reserves are situated in the central basin, which consists of the Witbank, Highveld, Ermelo, South Rand and KwaZulu-Natal coalfields. The Witbank area of Mpumalanga contains extensive coal reserves and remains the country’s most productive coalfield. Production from both Witbank and Highveld coalfields represents just over 80 percent of the total run-of-mine (ROM) coal in the country. South Africa has an estimated 30 billion tons of proven coal reserves left, which, at current production rates, would only offer supply for the next 40 to 50 years. An estimated 27 percent of these reserves are located in the Witbank and Highveld coalfields. However, it has become more and more apparent that production from the Witbank-Highveld coalfields will be difficult to sustain in the not-so-distant future. It is believed that by 2020, reserves in many of the large coal mines in these coalfields will be near exhaustion, taking into account the fact that power generation demand is likely to continue rising. The uncertainty of the availability of significant amounts of economically extractable coal reserves for future use means that the generally expected dependence on the Witbank-Highveld coalfields well into the foreseeable future is also uncertain. The Waterberg coalfield in the Limpopo Province has been largely untapped and as such could be regarded as SA’s future, as far as coal is concerned. Hosting 40 percent of SA’s remaining coal resources, the Waterberg coalfield offers a unique opportunity of significantly increasing the country’s coal reserves and doubling its output through new discoveries and developments. This has led to considerable interest and activity in the region, with many new research projects and pilot scale developments. The main aim of this report is therefore to review developments and highlight the new approaches that are now being taken regarding the Waterberg Coalfield, for future coal and energy developments in South Africa. 4 2. GEOLOGY AND EXPLOITATION OF WATERBERG 2.1 Location and General Geology Coal reserves in SA are hosted in sediments of the Permian age which overlie a large area of the country. The coalfields are generally spread over an area of 700 km from north to south and 500 km from east to west. The Waterberg Coalfield, located in the Waterberg basin, is situated in the north-western part of Limpopo province (Figure 1). It trends east-west and is characterised by faults, which strike east-west. Such faults are somewhat responsible for the deep occurrence of coal in some areas, which is the reason why those particular areas have been deemed unmineable. This is in contrast with the majority of South Africa's coal deposits, particularly in the Witbank- Highveld coalfields, which are relatively shallow with thick seams and are thus easier and usually cheaper to mine. FIGURE 1: THE LOCATION OF THE WATERBERG COALFIELD. 5 The Waterberg Coalfield has a 75 billion tonnes resource, making up just over 40 percent of South Africa’s total coal resources. Realistically, however, it will only be economically viable to convert a fraction of this resource into mineable reserves. The coalfield hosts coking coal as well as coal for power generation from both the Vryheid and Grootegeluk Formations of the Karoo Supergroup. The Grootegeluk Formation consists of low grade coal with an ash content of up to 65 percent. Consequently, it has to be beneficiated to get low ash products such as blend coking coal (approximately 10 percent ash content) and middlings (maximum of 35 percent ash content) suitable for power generation. The high P 2O5 content of up to 10 percent in the coal ash of the lower zones in the Grootegeluk Formation makes these zones unsuitable as a source of metallurgical coal. Characteristics of some coal products (air dry basis) from the Grootegeluk Formation are shown in Table 1. TABLE 1: CHARACTERISTICS OF BENEFICIATED COAL PRODUCTS FROM THE GROOTEGELUK FORMATION. Blend Coking Coal* Powerstation Coal (Middlings)* Ash % 10,0 35,0 max Volatile % 38,0 max 22,0 max Moisture % 10,0 max 11,0 max Sulphur % 1,1 1,4 max * Characteristics are based on 12 – 14 percent and 23 – 26 percent yield on ROM for blend coking coal and power station coal, respectively. On the other hand, raw coal from the Vryheid Formation is used as steam coal and for conversion into fuels and chemicals. A small percentage of the Vryheid Formation coal can be processed to higher quality metallurgical products and blend coking coal that can be considered for export. 2.2 Current Production Exxaro’s Grootegeluk opencast coal mine, the largest coal mine in SA, is the only operational mine currently situated in the Waterberg Coalfield (Figure 2). It was commissioned in 1980 to provide coking coal to the steel plants of the then Iscor. The mine also boasts the largest complex of coal beneficiation plants in the world, 6 allowing it to produce a diversity of products. It is also South Africa’s lowest cost coal mine on a free-on-rail basis and is the sole source of coal for Eskom’s Matimba power station, the largest directly dry-cooled power station in the world. FIGURE 2: OPERATIONS AT EXXARO'S GROOTEGELUK COAL MINE. Currently, Exxaro mines several coal zones or coal mining benches in the Grootegeluk mine, which are grouped into two zones. The Upper Ecca zone (Grootegeluk Formation) is characterised by bright coal with interbedded shale, while the Middle Ecca zone (Vryheid Formation) comprises dull coal, sandstone and carbonaceous shale. The coal is generally rich in vitrinite content, thus making it suitable for direct liquefaction. In 2007 the Grootegeluk mine produced 18,5 Mt of coal, of which approximately 14,6 Mt was sold to Eskom and approximately 0,72 Mt was exported. The remaining 3,18 Mt was sold domestically to the metals and other industries. Of all the remaining coal resources in the Waterberg, just over 60 percent would require underground mining, while the remaining portion can be mined in an opencast manner, depending on market trends and logistics. The majority of these resources occur in the Upper Ecca Grootegeluk Formation. 7 3. CURRENT AND FUTURE DVELOPMENTS 3.1 Expansion of Power Generation Internationally, coal is the most widely used primary fuel, accounting for about 36 percent of the total fuel consumption of the world's electricity production. In South Africa, 183 Mt of coal was sold locally in 2007, with 61 percent being consumed in the electricity sector. It is estimated that electricity demand will grow at 1 200 MW per annum over the next 20 years. This would require at least 8 new power stations. However, most of Eskom’s sources for coal are expected to be depleted in the next 15 years, posing an inevitable question of where all the coal is going to come from. The ever growing energy demands, coupled with the depletion of coal reserves in other major coalfields, have led to several major developments being undertaken within the Waterberg area. One of the most significant developments is the expansion of power generation by building new power stations as well as expanding the existing 4 000 MW Matimba Power station, which already sources all its coal requirements from the Grootegeluk mine. Exxaro has devised a three – phase development plan for the Waterberg. Phase 1 of the plan involves brown fields expansion of the current Grootegeluk coal mine to be able to supply Matimba power station with an extra 7.5 Mt between 2009 and 2015. The company has reached an agreement with Eskom to supply a total of 14,6 Mt/year of coal to the Medupi power station, which is now under construction adjacent Grootegeluk mine. In 10 – 12 years time, a new coal mine is expected to produce 10 Mt of coal, signalling Phase 3 of the development plan. South Africa’s dependence on coal for its elctricity needs is unlikely to change in the next two decades owing to the relative lack of alternatives to coal as an energy source. However, supply disruptions and sustained strong demand for South African low grade coal in Asian markets are threats to low grade coal availability to Eskom. Although South Africa’s newly approved nuclear policy would allow the country to diversify its primary energy sources, it would not lead to Uranium playing a dominant role in South Africa’s energy mix. Exploitation of the Waterberg Coalfield therefore remains the key to the country’s future electricity needs.