Thursday, October 28, 2021

Shumba Energy signs milestone agreement

The Board of Directors of Shumba Energy has announced that the company has signed an option to acquire 75 percent of the Morupule South project from Hodges Resources. 

The Morupule South Coal Project is located within the central eastern district of Botswana, directly to the south of the Morupule Colliery. 

The project has a resource of 2.45 billion tons of JORC-compliant resources of which 380 million tons are in the measured and indicated categories. The Morupule Main seam represents 83 percent of the resources. 1.2 billion tons are amenable to open cut mining with initial waste to coal strip ratios of under 2 to1.

Shumba Energy’s Managing Director Mashale Phumaphi comments: “The Morupule South acquisition elevates Shumba Energy to be able to take advantage of the domestic and regional industrial market. The project has 1.2 billion tons of high grade from an operating rail siding and can be brought into production within a very short time frame. These factors set the Morupule South project ahead of other coal development projects in Botswana.” 

The terms of acquisition (which are subject to due diligence and Shumba Energy securing all required regulatory approvals) are that an immediate cash payment of USD1.4 million be paid to Hodges Resources and a further payment of USD1 million due one year after commercial production. The above acquisition is a significant transaction, according to the DEM Rules

Study results confirm robust economics across all Morupule South development scenarios. Wood Mackenzie benchmarked Morupule South’s mining costs and coal quality against other southern African domestic mines and the project is expected to be one of the lowest cost in the region.

Early this year, Shumba Energy said that it had signed a binding memorandum of understanding with HMS Bergbau Africa, a subsidiary of the Frankfurt-listed global trading house, in a step towards exploring the export market.

Shumba Energy, which was established in 2011 to provide the SADC region with coal and energy, owns a significant portion of advanced energy projects in Botswana, including more than 2 billion tonnes of coal for thermal energy.

Under the terms of the agreement, HMS will be responsible for marketing all export products as of 2019.

Shumba said in a statement that the collaboration would deliver advantages of scale and combined expertise.

“Shumba Energy’s know-how of development of coal mines in Botswana combined with HMS’s Bergbau’s marketing and logistics expertise in the global coal markets offers a solid base for further growth for both companies,” it said.

Phumaphi said then that the MoU was “a welcome step towards exploring the export market”.

“Despite political pressure to support non-fossils, we believe that the global long-term outlook for thermal coal demand is promising, driven by the industrialisation of emerging economies and the need to secure reliable and cost-effective baseload power supply,” Phumaphi added.

Heinz Schernikau, founder and chief executive of HMS Bergbau AG, said the deal would result in “a significant expansion of our operating activities in this region”.

“Besides expanding business volume in South Africa we also expect positive effects and improvements in terms of our position on the international coal market,” he added.

The statement added, however, that Shumba’s primary focus would continue to be developing power stations in Botswana to address the power challenges faced in southern Africa.

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