Transnet: catching commodities cycle - FT.com You can dig as much stuff out of the ground as you like, but there's little point if you can't get it to market. South Africa's miners are almost inured to the constraints imposed by Transnet, the state-owned transport group. With its tired locomotives, ropey rail network and harbour bottlenecks, it has lacked the ability to shift as much of the country's mineral output as buyers want. The wheels were falling off. But that is changing, with direct backing from President Jacob Zuma. The transport group plans a R300bn ($36bn) capital expenditure programme. First trailed in February's budget, it will boost more than just the economy. It is the strongest sign yet that Mr Zuma's government really is committed to the mining sector. Two-thirds of the money will be spent on rolling stock at the world's fifth-biggest rail freight company. Thermal coal producers such as Anglo American and Xstrata, which supply state power generator Eskom's coal-fired power plants as well as supplying international markets, will benefit. So too will Anglo's Kumba Iron Ore subsidiary and manganese producer Assore. More broadly, miners - ground down by strikes, safety stoppages and power constraints - will be able to plan volume increases and capex on new mines with greater confidence. It will take seven years to double Transnet's freight capacity to 170m tonnes. Two-thirds of the capex will be funded from operating cash flow. With cash from operations of just R18bn in its last reported year to March 2011, that looks a stretch and assumes punchy annual revenue gains of 16 per cent. No wonder the bond markets will be tapped for the rest. The group has little choice: it has to spend to boost revenue and cannot bump up freight rates until it provides a reliable service. Jumping aboard its slow moving trains is easy. But Transnet will need to hurry to catch this commodity cycle.