State owned Minerals Development Company Botswana (MDCB) is taking on more risk to save its investment in Masama coal mine which has been hit by funding shortages following a lukewarm response from other shareholders to inject further capital.
The Australian coal explorer which listed on the Botswana Stock Exchange (BSE) in 2017, is the only operational coal miner in the country, and has been seeking funds to sustain operations following the first year of production last year.
Minergy sought to raise P115 million through selling additional ordinary shares for cash to selected and qualifying institutional investors, to raise additional equity funding. Minergy revealed that the maximum number of shares that can issued is 153.3 million and will be placed at 0.75 thebe per share.
Shareholders have since 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, has indicated that it will step in to offer 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.
“In the absence of additional funding by shareholders and other investors, the project cannot be left unsupported without funding, and MDCB has the right, subject to shareholder approval to protect its interest even to the degree of control if necessary. Again, MDCB accordingly urges Minergy shareholder participation in the placing before such a decision is reached by MDCB,” the state-owned minerals investment company said.
Minergy has secured various sources of debt finance from 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, the company said.
Despite border restrictions between South Africa and Botswana (a minimum of fifteen weeks), Minergy sold approximately 198 000 tonnes for the financial year ending 30 June 2020, its first year of operations. The miner has secured a three-year contractual offtake for some of its product worth a minimum of P240 million, and various discussions are underway with a number of other regional customers, many of whom are already purchasing coal from the subsidiary for their operations.
Furthermore, Minergy was awarded a short-term tender from the Namibian power utility during the latter part of 2020 and completed delivery. The company also tendered in late 2019 to supply coal to Eskom’s Tutuka power station in South Africa. Late last year, Minergy was informed that it had been shortlisted for potential supply into this contract. A further due diligence process is currently in progress.