Transnet targets leap in coal exports despite cash squeeze

TRANSNET has targeted 65 million tons (Mt) in delivered coal exports after another year of rail volume growth, but debt and weak cash generation have put a brake on its ambition.

Transnet CEO Michelle Phillips said at the utility’s annual results presentation on Thursday coal exports rose to 58.5Mt from 57.6Mt. Richards Bay Coal Terminal reported 57.6Mt in exports but its year-end (December 31) differs from Transnet’s (end-March). RBCT said in June exports for 2026 could top 62Mt.

Iron-ore volumes increased by about 2Mt to 52.8Mt, said Transnet. Total rail freight increased 4.9% to 167.9Mt from 160.1Mt. This was the third consecutive year of improvement from the 149.5Mt low reached in 2023.

“[But coal] needs to get to 65 million tons,” Phillips said. Transnet also wants to move more chrome and magnetite, while manganese will continue to be routed through available channels until the Ngqura manganese export facility is operational.

The long-delayed Ngqura project, estimated at about R10bn, is intended to shift manganese exports from Gqeberha to a dedicated terminal with capacity of up to 16Mt a year.

Transnet did not specify a target for iron ore.

The entity’s immediate aim is 180Mt of total rail freight – a level it has targeted before. Responding to questions, Phillips said volumes would have to move even beyond that level for total freight. “We are not going to get to the numbers that we want unless we exceed the 180 million ton number.”

Private sector

The group has approved R6.77bn to restore the Coal North Corridor and R3.37bn for the Iron Ore Corridor. Both routes also form part of Transnet’s private-sector participation programme. However, mining companies and private rail operators have raised concerns about the commercial bankability of Transnet’s new open-access rail.

Among the concerns are weak service guarantees and the risk that operators could still have to pay access charges when the network is unusable.

Eleven private train operating companies have committed to moving about 24Mt over the next three years, Phillips said. At least one was testing on the network, with some operators expected to start during 2027 once they have secured safety approvals.

More slots could be opened as Transnet Rail Infrastructure Manager (TRIM) rehabilitates the network. Phillips said existing operators could seek more capacity while new entrants could apply for access.

Transnet is also looking to bring private capital into the rail infrastructure itself. TRIM is seeking market interest in the refurbishment, financing, operation and maintenance of about 9,100km of low-density branch lines, including possible concessions. The process is expected to pave the way for formal procurement programmes.

TRIM has also issued requests for proposals to lease railway sidings to private operators as part of the move to widen access to the network.

Locomotive dispute

The long-running dispute with Chinese locomotive supplier CRRC did not feature in Transnet’s presentation, but Phillips acknowledged when questioned that the impasse over the 1,064-locomotive procurement programme remained unresolved.

“We’ve not mentioned anything about 1064 and whether or not the Chinese impasse has been resolved. I can say it has to date not yet been resolved,” she said.

Transnet’s current volume plans exclude any benefit from resolving the dispute. Phillips said getting outstanding locomotives into service, as well as the parts and skills needed to repair idle units, would add capacity and could help Transnet reach its volume targets sooner.

The dispute dates back to 2014 contracts worth R54.4bn for 1,064 locomotives from four suppliers. A court last year ordered CRRC E-Loco to release locomotive spares it had withheld. At the time, 161 CRRC-supplied locomotives were idle because Transnet lacked spares and maintenance support.

Strained balance sheet

Transnet plans to spend R129.1bn over the next five years, mostly to rehabilitate and sustain existing assets. Only about R13bn is earmarked for expansion.

The spending comes against a still-strained balance sheet. Borrowings rose 4.1% to R150.7bn in the year under review, while gearing eased slightly to 49.4% from 49.6%. Cash interest cover weakened to 1.5 times from 1.8 times.

Asked during the results when Transnet expected cash interest cover to improve, CFO Nosipho Maphumulo said it had been falling for the past three years because cash generation had not recovered fast enough to keep pace with rising finance costs and debt obligations.

“We haven’t received any debt relief. We haven’t received any interest support,” Phillips stressed. Funders had instead helped Transnet lower its cost of capital and extend the tenor of its loans.

Cash generated from operations fell to R8.5bn from R13.8bn despite higher revenue and freight volumes, with wages, maintenance and repairs, and security among the cost pressures.

Phillips said existing government guarantees were sufficient for Transnet’s five-year corporate plan and it did not expect to seek more unless something “catastrophic” occurred.

Transnet is also seeking infrastructure funding through the government’s Budget Facility for Infrastructure. Phillips said three of four applications had resulted in grants, while support could also come through concessional loans, reducing the amount Transnet needs to borrow in the market.

The group reported a R4.6bn profit, reversing a R1.9bn loss previously, but the result was boosted by a R12.5bn gain from the sale of 49.99% of Durban Gateway Terminal.

The deal brought Philippines-based ICTSI into Transnet’s biggest container terminal, Durban Container Terminal Pier 2, under a 25-year partnership.

Transnet acknowledged the transaction was a major contributor to profit and said future financial sustainability would have to come from higher freight volumes, stronger cash generation and better operations.

Revenue rose 7.1% to R88.6bn, but operating costs climbed 10.8% to R57.7bn. Transnet said higher maintenance spending had not yet been matched by gains in volumes and earnings, but expects this to improve as rail volumes rise.

The post Transnet targets leap in coal exports despite cash squeeze appeared first on Miningmx.