Thursday, August 5, 2021

Losses pile for Minergy as it seeks capital injection

Though it is in the process of raising capital to stay afloat, Botswana’s only operating private coal miner Minergy is expecting more losses, and has appealed for more funding, even though increasing loan repayments have added extra pressure to the bottom-line. 

The Australian coal explorer which listed on the Botswana Stock Exchange (BSE)  since 2017 revealed this week that in the six months up to December 2020, they were operating below break-even levels resulting in strain on working capital and its ability to continue its ramp-up to steady state levels. 

While the company achieved higher production and sales volumes during the interim period when compared to the six months ended December 2019, including sending its first coal via rail to South Africa and the fulfilment of coal delivery to the Namibian Power Corporation in accordance with tender terms, performance in the half year period ended December 2020 was affected by significant challenges resulting from COVID-19, short term funding constraints arising from a delay in obtaining additional funding and related plant and mining operational difficulties, the company said. 

“The reported loss before tax for the previous interim period was P56.5 million. The Board of Minergy advises shareholders that the loss before tax for the interim period will be between 20 and 40 percent higher than the previous interim period. This equates to an additional loss before tax of between P11.4 million and P22.7 million for the interim period ended 31 December 2020,” according to the cautionary statement released on Thursday. 

The increase in loss for the period has been attributed to continued pressure on gross margins, even though the gross loss margin has reduced significantly due to a lower unit cost, driven mainly by higher sales volumes. Another pressure emanated from increase in finance costs as a result of additional debt to fund the operational ramp-up and further mine development.

Still, Minergy’s chief executive officer Morné du Plessis, says the company requires additional funding, to fund cash and working capital shortfalls arising from the COVID-19 pandemic and the related slower operational ramp up to steady-state production levels also affected by excessive rainfall.

“Obtaining additional debt funding at the end of the interim period under review enables the company to boost its ramp-up activity in the second half of the financial year,” Du Plessis said. 

“The company has a history of successful debt and capital raisings to meet its funding requirements. The raising of additional equity funding has been approved by shareholders and the process of seeking interested investors is underway.”

Shareholders voted for the company to issue 195.3 million at a price consideration of 0.64 thebe, which should bring in P125 million. While shareholders in the past were lukewarm to raising capital through additional shares, government owned Minerals Development Company Botswana (MDCB), has indicated that it will underwrite the P125 million in additional convertible debt funding should the additional issuance fail to raise the required amount. 

Minergy has to date accessed approximately P418 million: where P165 million was raised through selling of shares and P253 million through borrowing. The cash proceeds from these raisings and facilities were utilised for establishment of the Masama Coal Mine, and its mining infrastructure and related costs.

MDCB  which has already advanced P110 million to Minergy in 2020 through secured six-year term convertible debentures, has revealed in the latest capital raising round that it has taken  a significant development and operational risk to sustain the Masama coal mine, and given the exposure, it has approved additional funding as it is imperative that the project does not lose critical momentum gained.

The coal miner has secured various sources of debt finance from other government linked funders in order to continue funding the operational ramp-up and further mine development. The Botswana Development Corporation (BDC) which advanced P40 million to Minergy in 2019 extended another P40 million in 2020, which has been converted into a new six-year P80 million secured, convertible preference share facility with interest at 18 percent. 

MDCB is adamant that  Minergy is an attractive investment for its mining and minerals investment portfolio, with the investment presenting an opportunity for the state company to benefit from monetisation of Botswana’s coal, generation of attractive commercial returns and development of the Botswana coal industry for its shareholder while also contributing broader benefits such as job creation and diversification of the economy.

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