Australian Longwall: How would you compare the Australian coal industry with the South African industry?
Tony Weber: I believe South Africa is in a very good space given the high domestic demand for coal, especially for power. In addition, currency depreciation in the rand has occurred relative to all major currencies of late, which has allowed for a slower cost escalation when comparing localities. As such I believe our cost base is lower relative to our Australian peers.
AL: Are there common issues between the countries, for example rising input costs and exchange rate problems?
TW: Having said the above, costs are always an issue – especially when commodity prices are coming down and I believe in South Africa we too are under cost pressure. The recent decline in exchange rates relative to the US dollar has assisted in keeping prices stable in local currency though.
AL: Have you had any underground coal mining experience?
TW: Yes, I’m actually more of a mole than a sunshine miner, having experienced underground both in coal and hard rock [gold initially, then platinum group metals and base minerals].
AL: Why did Universal Coal list on the Australian Securities Exchange instead of, say London’s AIM or Johannesburg?
TW: UNV is a public limited company and when we first attempted to be listed, we tried on AIM. This, however, happened to coincide with the post-GFC period and as such there was little appetite for any coal stories in the UK at the time. Australia never went through this slump and there was still a vibrant junior sector at the time. Consequently, we came here and today, three years later, we’re still here.
AL: You must know the South African coal sector like the back of your hand, having worked there for much of your career. How’s the back of your hand looking these days? How is the coal industry viewed by your everyday South African?
TW: It [the back of the hand] is getting really old. Seriously though, coal is vital for the South African economy, both domestically – nearly all our power comes from it – and as an export commodity and as such the sector has a significant impact on the economic health of the nation.
That said, I think in today’s world, there will always be a negative connotation attached to it [coal] by certain sectors and as miners, all we can do is to mine in the most responsible way possible, taking into account these concerns and views.
AL: What have been some of the highlights in working in the sector for you?
TW: I think it is the achievement factor – the delivery of a project in the cradle to grave type of concept – very much where we are at with Kangala at the moment. It takes years of dedicated work – even when surrounded with a great team – to take a project or tenement through from being nothing more than potential, through to delivering its first profits. It’s a serious challenge.
AL: I notice that you had a brief stint at a German coal mine. What led to that? How do coal operations compare between South Africa and Germany?
TW: I was working on a South African colliery at the time when a mate of mine introduced me to his former employers in Germany [RAG]. Being a German national – even though living in South Africa my entire life – the idea grew on me to take a sabbatical and experience how the others did it. I was fortunate my South African employers let me have this time out and gather the experience.
In short, mining coal in the Ruhr is more like mining gold in South Africa – deep, hot and narrow seam mining, whereas South African coal is very similar in setting to Australia.
AL: South Africa is seen by many investors as a high risk destination, with labour issues and nationalisation a concern. Is that a fair assessment?
TW: I think it is somewhat overdone. Challenges or risks are always seen greater when viewing from the outside-in, than when you are within that same environment.
For example, you would have seen most South African business people did not view nationalisation as having a high probability when asked – and as such were proven correct in this assessment.
That said, we do have labour challenges – maybe less so in the coal sector one must add but this is a reality.
The more labour intensive mines, where South Africa has a large exposure, have a greater corresponding risk.
AL: With your first mine nearing maiden production at Kangala, what are the biggest hurdles still to cross? When do you expect to get into production?
TW: Replicating the actual to resemble the feasibility results is always a demanding task. As such, we’ve been on target with our development – and that is credit to having a very good team around me at Universal but this needs to be maintained going through commissioning and towards steady state.
I can only reiterate that coming in on time and budget are paramount for any junior and everyone at Universal is focused to achieve this. We start production in February next year.
AL: What are the major changes you have seen in the coal sector since you began?
TW: There are several but if I need to highlight it would be both the productivity increases and the development in sales of grades of coal previously not developed.
AL: Where did you get your mining engineering degree? Do you have any other mining or management qualifications?
TW: I’m a Wit’s graduate – University of the Witwatersrand, Johannesburg in South Africa. I did do my bachelor’s and master’s degrees in mining engineering here, with further business diploma through Anglo Platinum.
AL: Describe your focus as CEO of Universal Coal?
TW: Our focus has always been to develop a sustainable mid-tier mining company. That said, it entails bringing Kangala in on time and budget, getting to positive cash flows expediently in order to return value to the benefit of all stakeholders.
AL: Do you think it is a better utilisation of capital for smaller mining companies to use contract miners?
TW: I cannot speak for others, but my experience has been that as junior you attempt to de-risk as far as possible and not needing that extra capital obviously helps. Also, it adds another layer of operating experience and the correct contractor can add significant operational benefit to an operation. Lastly, you do have a call on additional resources at short notice, were it needed for a period of time – contractors invariably have these available.
AL: What are some of the infrastructure challenges for Universal’s projects?
TW: As a whole, the infrastructure in the Witbank area is very good – with power, road and rail very well established and with port facilities in reach. That said, sometimes gaining access, especially to port facilities, is a challenge, although Universal has recently gained a modest 50,000 tonnes per annum port opening. Even away from the traditional mining hub, Universal has been fortunate that rail and road infrastructure is relatively well established, although again the challenge here is more a volume constraint.
AL: Do you think that the industry downturn will eventually pick up?
TW: Resources have always been a cyclical beast – at the risk of oversimplifying this, you have the bulls and the bears and the truth is somewhere in-between. In the same way, back two to three years ago, prices ran to unsustainably high levels. We now have the opposite occurring.
AL: When you plan long-term projects do you assume that there will be a growing coal price or do you have to factor in the volatility?
TW: Kangala is somewhat unique with the offtake being fixed, with escalation – costing being on the same basis but in general, yes, volatility needs to be allowed for – again both in pricing and on the cost side of the equation. Even in a bull market, margins get squeezed as cost growth tends to outpace increases in leaner times.
AL: Do you think Australia is losing its competitive edge because of costs to newly emerging mining areas such as Mongolia or Mozambique?
TW: I think it is a risk that all mature mining countries face, it’s not exclusively Australia or South Africa for that fact. Invariably you tend to mine the better reserves first as an industry as a whole, although that said, we have benefits of infrastructure, a good understanding of the assets and the experience base. These new countries present other challenges, which at times are underestimated, as has been seen.
AL: What do you like doing to relax?
TW: My colleagues say I don’t know the meaning of the word.