Sunday, May 28, 2023

Minergy blows hot and cold amid anticipated 47 percent net loss

The beleaguered coal operator of Masama mine – Minergy – says it has narrowed its losses but the news have been overshadowed by the temporary halt in mining production.

This is because the company struggles to secure funding after its mining contractor shuttered production over delayed payments.

The Botswana Stock Exchange listed miner notified the markets that for the first time, the company will post an operating profit and positive earnings before interest, tax and amortization (EBITDA), thanks to the benefits of running operations at full capacity, supporting the surge in demand for coal both locally and internationally.

According to the statement, Minergy’s financials for the six months ended 31 December 2022, which are expected to be released this week, will reflect a net loss before tax that will be between 27 and 47 percent lower than the previous interim period – translating to a reduction in the net loss before tax of between P25 million and P43 million, against the P91 million reported for 2021 half year financials.

However, Minergy said the increasing finance charges from the compounding of capitalised finance costs has caused the net loss before taxation on the back of a heavy debt-weighted capital structure.

“In 2017, Minergy started raising funds to develop the Masama coal mine. The company was able to raise P72m through an equity capital raise. However with time, Minergy needed more funds but was not able to get additional funding by means of an equity issuance,” said Kgori Capital, a local asset manager.

“Minergy then turned to state owned enterprises and was able to secure debt funding to continue its operations and the development of the mine – which led the company’s capital structure being more skewed towards debt.”

In the past weeks, Minergy has been thrown in a tailspin after its mining contractor, Jarcon Opencast Mining Botswana, halted operations and issued retrenchment of its more than 300 workers.

Jarcon was awarded the contract in 2018, while production in Masama began a year later. Since operations, Minergy has accumulated losses of P376.4 million, with net liabilities exceeding net assets by P180.2 million.

As of June 2022, Minergy owed Jarcon around P120 million, and the company’s total borrowings amounted to P582 million.

The company says after Jarcon halted operations, they have held several meetings with government funders, and the mining contractor. Last week, the minerals and energy minister, Lefoko Moagi, told parliament that they are assessing ways to assist Minergy to curtail and mitigate the impact of Jarcon’s plan of action.

The coal miner has to date accessed approximately P418 million in funding locally: 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.

The funding includes a P125 million of additional convertible debt financing through government owned MDCB which was secured in 2020. The Botswana Development Corporation (BDC) advanced P40 million to Minergy in 2019 and extended another P40 million in 2020. The two tranches from BDC have been converted into a new six-year P80 million secured convertible preference share facility.

According to Minergy, a possible outcome of funding request from the government agencies may be expected towards the end of the week, subject to processes being followed by the funders, their respective boards and their shareholder, the government of Botswana.

“Minergy is liaising with customers regarding the availability of stock. We trust all parties are aligned and Minergy undertakes to keep shareholders informed. Unfortunately, the stoppage takes the attention away from a solid six-month performance,” the company said in a statement.

In the first half of 2022 coal prices firmed driven by supply side constraints on natural gas caused by the Russia-Ukraine war, pushing several European countries to look for alternative cost-effective sources of energy such as coal. This pushed the demand and subsequently the price for coal up during the course of the year, but then prices softened in the latter part of the year as supply disruptions smoothed, and demand from India and China waned, according to a report by Reuters.

“Minergy was able to benefit from this and was able to run its operations at full capacity over the period. This led to increased revenues, and the company made an operating profit for the first time since it started operating,” Kgori Capital said.

“However the high finance costs from the debt that the company was able to secure resulted in profits being eroded. Coupled with a decrease in coal prices at the end of 2022 due to a decrease in energy demand – Minergy’s cashflows reduced.”


Read this week's paper