South African rail logistics provider, Transnet Freight Rail is targeting end-May 2018 for the conclusion of a memorandum of understanding with the Botswana government-owned Botswana Railways, for a rail line that will connect the Botswana coal fields with the South African rail infrastructure, Sunday Standard has learnt.
This rail infrastructure is to access export possibilities through the various South African ports.
According to the latest unaudited interim consolidated results statement for Minergy Limited of the six months ended 31st December 2017, this MoU will be a game changer for the Botswana coal industry. This will cut some 500km out of the current rail route thereby significantly reducing logistics costs to allow Botswana coal producers to compete in the international seaborne thermal coal market.
Sunday Standard understands that initial discussions between the two parties, had proposed that Transnet should build the line from Waterburg connecting by Mmamabula for a long haul for coal. Those close to the developments have indicated that the government of Botswana wants to engage private sector on both the Mmamabula-Lephalale rail network and the Mosetse-Kazungula rail.
Meanwhile, Non-Executive Chairman, Mokwena Morulane together with Andre Boje, Chief Executive Officer in their financial statement indicated that, “we have had excellent engagement with and assistance from the Botswana government at all levels and this has given us comfort that the license should be awarded by Q3 2018.
The process to identify and appoint a suitable mining contractor is at an advanced stage with Minergy currently in discussions with two suitable companies. Mining operations should then commence during July 2018 following the award of the mining license.”
Subject to the awarding of the mining license and given the timelines outlined above, Minergy plans to have 250 000 tons of run of mine available for processing through the washing plant by September 2018. That will produce 150 000 tons of saleable coal and thereafter 100 000 tons per month.
Due to the current favourable coal pricing and product shortages, the two executives add that the Company has had numerous approaches to enter into off-take agreements with both regional end users and international coal traders which could elevate the required saleable product to in excess of 200 000 tons per month. The mine’s ability to service this increased tonnage will be dependent on factors such as the availability of capital for expansion and projected coal pricing to 2021.
Looking into the industry market internationally, coal continues to defy the market commentators who project falling prices and a diminishing industry. During February 2018 physical coal shipments from Richards Bay Coal Terminal traded at US$98 per ton (equivalent of P940.12 by this week), up 90 percent from the 2016 lows. This is driven by the lack of investment in new coal projects; China cutting back some 500 million tons per annum in production and increased demand for coal from new coal fired plants. Regionally, prices are at levels not seen before due to the lack of investment in new projects in the dominant coal producer, South Africa.
This lack of investment is partly due to policy uncertainty and the talk around resource nationalisation. However coal demand continues to rise as it is still the most economical form of energy available. Regional end users are finding it difficult to source reliable and consistent supply as most producers are favouring the export market.