Coal is no-brainer: Swanepoel

Gerard Kemp, who heads the R10bn Pamodzi Resources Fund 1, said he had reviewed at least 90 potential investments in coal, but had turned his back on all of them because they were too expensive, or needed infrastructure.

"There are a lot of people on a lot of steroids out there," said Kemp speaking at a mining investment conference in Johannesburg. "It's just crazy.

"They have this huge expectation that everything is going to go up and generate huge returns," he said.

"We think normality will come back in about a year's time. There's not a lot of money out there. Banks have stopped providing debt to mining companies and if they do it's very expensive and onerous," Kemp said.

However, Swanepoel, who in nine years built Harmony Gold into a three million oz/year gold producer from less than 600 000 oz/year, said that if investors were not playing in coal they would "miss out".

Coal assets were also likely to find their way into Village Main, the JSE-listed cash shell he offered to buy earlier this year. "The rational and irrational things about coal excite me more than any other commodity," he said.

Demand for coal in SA is an almost certain bet as power utility Eskom ramps up more generating capacity by de-mothballing coal-fired power plants and builds new ones. SA is also the largest supplier of coal to the European market, so there is an export market, which generally commands a premium in prices.

There were an estimated 1 000 coal exploration permits in SA and this provided an opportunity for consolidation, in much the same way there are some 34 platinum juniors. But it's unlikely they are all going to bring mines on stream, Swanepoel said.

Value was created in tough times such as the market is currently finding itself in, with juniors battling to raise funding. "I like the down phase of cycles," he said.

Jobs on the line

In other comments, Swanepoel said the skills shortage in the global mining sector could ease if there is a sustained pull-back in the prices of some of the major mineral commodities.

Skilled miners had been lured to smaller companies by enormous salaries, but this could all change if the market changes. "If commodity prices come down a lot of people currently sitting in brand new positions will become available," he said.

As commodity prices peaked so did the demand for skilled workers.

"The market became completely skewed," Swanepoel said. "If any one of the big commodities goes into bit of a downturn a lot of people will be back in the market."

- MiningMX.com

For more mining sector coverage, go to miningmx.com.