South Africa’s Transnet declares force majeure on coal contracts, Thungela says

PUBLISHED: Thu, 14 Apr 2022 15:43:03 GMT
Helen Reid
A child collecting chunks of coal looks on at a colliery while smoke rises from the Duvha coal-based power station owned by state power utility Eskom, in Emalahleni, in Mpumalanga province, South Africa, June 2, 2021. REUTERS/Siphiwe Sibeko

JOHANNESBURG, April 14 (Reuters) – South Africa’s state-owned logistics firm Transnet has declared force majeure and is seeking to terminate long-term coal transportation agreements, thermal coal producer and exporter Thungela Resources TGAJ.J said on Thursday.

Despite Thungela saying rail services and coal exports are continuing, and the development would not significantly impact its 2022 production forecast, its shares fell 6% by 1230 GMT, their biggest fall in a month.

Transnet did not immediately reply to a request for comment.

Large-scale theft of copper cables, insufficient maintenance, and a lack of locomotives have crippled Transnet’s freight rail network used by coal and iron ore miners to transport their minerals to port.

“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 statement.

Triggering a force majeure clause in contracts allows certain terms of an otherwise legally binding agreement to be ignored because of unavoidable circumstances.

Read more: Anglo American completes exit from South African coal miner Thungela

Thungela said Transnet on April 8 notified coal exporters of force majeure and “expressed a desire” to terminate its long-term coal transportation agreements.

The coal exporters are engaging with Transnet to “clarify the contractual position” and ensure the stability of coal deliveries to take advantage of strong demand for South African coal, Thungela said.

“We are encouraged that Transnet has reaffirmed its commitment to existing material commercial terms,” Thungela CEO July Ndlovu said.

Coal producer Exxaro Resources last week said it had received “numerous” requests from European countries wanting to sign supply contracts, after the European Union proposed sanctions on Russian coal. Read full story

Both Exxaro and Thungela have said Transnet’s issues constrain their ability to ramp up coal production to meet the new demand.

Last year, Transnet railways delivered 58.3 million tonnes of coal to the Richards Bay Coal Terminal on South Africa’s east coast, significantly undershooting its annual capacity of 77 million tonnes.

(Reporting by Helen Reid; editing by Robert Birsel, Elaine Hardcastle)

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