Minergy Makes Strong Progress On Masama Project

Botswana Stock Exchange (BSE)-listed Minergy Limited, a coal mining company, has released its inaugural final results for the year ended 30 June 2017, reporting a loss per share of 6,76 thebe. The company embarked on a capital-raising exercise in the first quarter of 2017,raising BWP70 million via a private placement prior to listing on the main board of the BSE in April this year.

Minergy chief executive officer, Andre Boje said a lot of work had been done and continues to be done since inception. Boje added that their focus shifted to coal production for supply to the regional and export markets rather than coal for power generation.

“We believe the narrative around South Africa requiring imported power will not come to fruition in the foreseeable future, if at all. This is supported by the announcement that there a surplus of 9,000 MW capacity and that South Africa has signed off-take agreements with Botswana and other SADC countries,” he said.

Mr. Andre Boje

Boje added that a highly-experienced team had been brought on board to accelerate the process of refining and understanding the full potential of the Masama resource. “74 diamond core boreholes and 22 reverse circulation boreholes have been drilled,totalling 5,570 metres over an area of 147 square kilometres. From this a revised Competent Persons Report (CPR)1is being finalised, mine plans are in place, markets have been identified and off-take agreements are being discussed.”

Boje said the various requirements and obligations relating to the submission of a mining license application are also being attended to, with the target date for submission being the end of September 2017. “We’ve engaged extensively with the various government departments and the response has been most encouraging, leading us to believe that the license should be granted by the second quarter of 2018.”

Requests for information (RFI) have been issued to identify qualified suppliers of the processing and wash plant and for mining contractor. This process is expected to be complete by the end of October 2017.

Talking about the industry, Boje said that “Renewable energy has a role to play however has been proven unreliable for base load electricity supply,with the only alternatives being nuclear, hydro and coal.

“Nuclear is prohibitively capital intensive, hydro is hamstrung by global water shortages, which leaves coal-fired power generation. In addition, a large volume of coal continues to be used in numerous industrial processes other than power generation. Many of these processes are dependent on coal with no practical substitutes,” said Boje.

Financial

This is the first year that the group expensed certain operating expenditures, which were mostly incurred at the holding company level, which acts as an investment and holding company and sources funding for the group. Cash utilised in operations amounted to a loss of BWP9,4m million, with Exploration and Evaluation Asset Expenditure also showing a loss of BWP5,6 million.

In total P72 million was raised via the private and public placement of shares, with the cash being used to finance operational expenditures and further exploration and evaluation of the Masama Coal Project covered by the Prospecting License.

Boje, commented that without capital partners a project of this nature would not get off the ground, and that the major investors remain committed and supportive of the project going forward.

PROSPECTS

Regional Market

The demand for coal in the southern African region continues unabated with prices escalating on an ongoing basis. “The July 2017 McCloskey Coal Report highlights that South African domestic prices were 51% higher than the same period in 2016 and that there is strong demand from the cement, industrial and paper industries.”

Boje said this situation is driven by demand exceeding supply as producers are focused on fulfilling their take or pay export agreements together with the lack of investment in new projects or expansion of existing production facilities.  “The climate of under-investment in South Africa is blamed partly on political interference in the mining sector and the rise of resource nationalisation.”

Initial production at Masama is planned for 1.2 million tons of saleable coal per annum ramping up when required, as the project will have a capacity to process3 million tons of run of mine coal per annum from first commissioning.

Export Market

Whilst the initial project plan focused entirely on the 1.2 million tons to the regional market, attention must be paid to the export market as the API4 index price for seaborne thermal coal has risen 67% since 2016 and currently trades at $82.00 – $84.00 per ton.

“The international traders forecast that this trend could continue, albeit at slower rate, due to production cutbacks in China and delayed investment in greenfield coal projects. Noteworthy is significant investment by large multi nationals in coal projects in Australia which highlights their bullish view on coal going forward.”

Boje added that Botswana has a significant role to play in the seaborne thermal coal market due to its large untapped coal resources and proximity to the South African coal export infrastructure.

He said that logistical challenges to exploit this opportunity need to be addressed and the company has had extensive engagement with Botswana Rail and Transnet Freight Railto address the issue of getting coal to port. “The engagements have been extremely positive with an apparent will from all parties to resolve this which is expected to result in full utilization of the project capacity.”

Boje concluded by saying that following the successful listing on the BSE in April, the proposal was to explore a listing on the Johannesburg Securities Exchange (JSE) and list during 2018. “The board has also deemed it prudent to investigate the Australian Stock Exchange and the London-based Alternative Investment Market in addition to the JSE. Shareholders will be advised on progress on this matter in due course.”

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