Prioritisation of markets for growth of South African majority black-owned junior coal mining

Abstract

South African majority black-owned junior coal miners (MBOJCMs) can sell coal to the state-owned power utility, Eskom, the export market and local industry. The allocation of limited resources between these markets can affect profitability and sustainable growth. Prioritising these markets, to achieve the optimal sales mix, is therefore a critical decision for MBOJCMs. The strategic capabilities of MBOJCMs was studied to determine their competitive advantage compared to other resource companies, and to recommend how they should prioritise the allocation of their resources and funds between the three markets. The study adopted a mainly qualitative approach. Semi-structured interviews were conducted with thirteen coal industry experts to gain an understanding of the current coal environment, and to explore the different dynamics facing MBOJCM’s and the markets in which they operate. A SWOT analysis was followed by the application of the GE-McKinsey matrix. Based on their strengths and the attractiveness of the different markets, it was determined that MBOJCMs are best positioned to supply Eskom. Although the export markets and the local industrial markets also offer growth potential and provide higher profit margins, Eskom’s drive to empower MBOJCMs and the state-owned utility’s insatiable demand for coal provides more stability for juniors that can secure long-term supply contracts. The lower grade coal that juniors generally produce is also better suited to Eskom and the logistics involved in supplying the power-producer are easier for them to deal with.