Railway company Transnet SOC Ltd. is sending out force majeure notices to coal miners in South Africa as shipments of the fuel slow, potentially affecting exports at a time global prices are running high.
Thungela Resources Ltd., the country’s largest exporter of coal burned in power stations which has been notified, expects the rail bottlenecks to affect transport for at least another six months. Miner Exxaro Resources Ltd. has also been told about the force majeure, a clause that allows companies to avoid liability when they’re unable to honor contracts due to events beyond their control.
State-owned Transnet has been crippled by corruption that affected locomotive supply as well as vandalism including cable theft, Coal shipments on the main rail line to the country’s biggest export terminal, Richard Bay, slumped about 24% last year. Companies including units of Glencore Plc also use the terminal for exports.
Coal prices in Europe and Asia are rallying as many nations seek to avoid Russian shipments following the country’s invasion of Ukraine. It’s putting increasing pressure on major suppliers like South Africa to plug the gap. Richards Bay is one of the world’s biggest coal exporting ports.
“Transnet believes that these circumstances will continue to detract from its ability to perform for at least the next six months and that accordingly Transnet is under force majeure,” Thungela said in a Johannesburg Stock Exchange statement. Thungela’s shares slumped as much as 9.3% in Johannesburg, the biggest intraday drop since March 25.
Exxaro has consulted with legal advisers over the notice Transnet Freight Rail has sent to affected parties. “Events relied upon by TFR do not constitute force majeure events” and the rail company’s “reliance on any purported termination is invalid,” Exxaro said.
Coal exporters including Exxaro are in talks with Transnet to find a resolution.
Thungela, the Anglo American Plc coal spinoff, said there won’t be a material impact that differs from its outlook for the year published on March 22. Coal companies including Thungela are engaging with Transnet to clarify the contractual position and ensure coal deliveries, it said. Transnet has reiterated its commitment to continue its rail services, Thungela said.
