There are no plans to close Minergy Coal’s owned Masama mine, said Minerals and Energy minister Lefoko Moagi on Friday when responding to concerns that the mine’s contractor is retrenching workers.
The minister said his ministry was working with the state owned mining entity, Minerals Development Company Botswana (MDCB), to curtail and mitigate the impact of Jarcon’s plan of action. The company was awarded the mining contract in 2018.
“As described in the operating structure, Jarcon, the mining contractor is a company appointed by Minergy Coal, the company that holds the mining license. The mining contractor’s restructuring process is not an implication of closure of the mine. I can confirm there is no such plan of closure,” he said.
Lefoko explained that the current dip in prices is part of the normal commodities cycle, and is still significantly higher than the long term historically prices for coal, as well as being higher than the baseline of average of coal at the inception of the Jarcon contract.
“I therefore submit that this event should not be seen as an unusual occurrence that threatens the going concern status of the mine,” said the minister.
Moagi said coal prices have risen in recent years due to not only Russia’s invasion of Ukraine, but possible under investment, leading to under supply of coal generally. European countries flocked to fossil fuels after Russia’s gas, largely used by European countries for heating was sanctioned. International coal prices have fallen from well over $200 per tonne in 2022 to $135 in 2023 for certain grades of coal.
“Given that Botswana is a landlocked country, and far from seaports, the costs of logistics often renders sea borne markets unattractive until global prices reach breakeven point that cover the said high costs of logistics,” said Moagi.
He revealed that the ministry of Transport and Public works through state owned Botswana Railways is currently undertaking feasibility studies to expedite the development of rail linkages to alleviate challenges of high transport costs.
In January, the private coal miner Minergy said it was edging close to profitability, buoyed by remarkable increase in demand for coal and higher prices, coupled with stable operations, the company said in a market update.
The Australian coal explorer, which listed on the Botswana Stock Exchange(BSE) since 2017, and began production at its wholly owned Masama mine in 2019, says it expects both an operating and earnings before interest, taxes, depreciation and amortization (EBITDA) for the first six months of the 2023 financial year. As of June 2022, Minergy had accumulated losses of P376.4 million, with net liabilities exceeding net assets by P180.2 million.
“Overall average pricing has increased, buoyed by lucrative export pricing. Pleasingly, coal qualities have been consistently achieved to the extent that deliveries have resulted in quality bonuses. These factors combined to achieve better revenue,” said Morne du Plessis, the miner’s chief executive officer.
He added that domestic sized coal pricing has increased, driven by a coal shortage in the local market which the regional and global energy crisis has exacerbated. “Minergy is exploring opportunities to provide more economical product offerings, which at the same time will increase saleable product without the requirement of increasing plant capacity.”
According to the market update report, mining operations and plant performance have constantly demonstrated full production capacity, with a consistent average of 125,000 tonnes per month being achieved. In line with the sales growth, mining and plant volumes in the last six months of last year have increased by more than 50 percent compared to six months period in 2021.
Minergy has invested in increasing production for additional coal in anticipation of increased sales, according to the report. However, the biggest challenge remains managing water usage carefully, dust control at the mine and through the village, with recent heat and dry spell putting additional pressure on already scarce resources. Power outages, as a result of infrastructure breakdowns on the part of the national generator, as opposed to load shedding, was also cited as a contributor to production losses and damage to equipment.
“Despite these challenges, we are pleased with the performance and are confident that any future challenges can be mitigated,” said du Plessis.
Minergy expects that coal prices will remain high, though at lower levels experienced over the last 12 months, with demand driven by diminishing worldwide coal supply as global investment into coal mines significantly reduces, contributing to a general shortage of supply which has been exacerbated and highlighted by the Ukraine War.
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.
Minergy is actively pursuing the placing of P125 million share issue, approved in February 2021 by shareholders.
