A last hurrah for unpopular coal? | Business Day | 3 June 2021 | Lisa Steyn

• With world investors searching for returns, good mining projects may yet come up with willing investors

Unattractive as the coal industry has become to investors, a coming supply deficit and the prospect of healthy returns may lure some financiers back to the table, attendees at the Junior Mining Indaba heard this week. Strong demand from China, paired with supply disruptions, has pushed coal prices skyward to levels last seen three years ago.

Unattractive as the coal industry has become to investors, a coming supply deficit and the prospect of healthy returns may lure some financiers back to the table, attendees at the Junior Mining Indaba heard this week.

Funding for coal projects has been drying up as financiers come under pressure to reduce their exposure to fossil fuels as climate-change concerns grow. Even ’in s electricity SA, where infrastructure the government energy plans in 2030 and beyond bank on a large portion of coal-fired power generation in the mix, new coal projects are few and far between as they struggle to find investors.

“Mentioning coal anywhere in the world right now is really a swear word,” said Moshe Capital founder and CEO Mametja Moshe. “And the moment you mention SA and coal in one sentence, you are about to be thrown out the door.”

Caroline Donally, MD of mining financier Sprott Resource Streaming and Royalty, said the company invests across a broad spectrum of resources, with the exception of coal. Even so, in the current economic climate, there may be willing investors out there, she said.

“I think there’s certainly a market for it. People that are looking for yield. Interest rates here in the US are practically nothing. You put your money in a bank account and you’re lucky if you’re getting 50 basis points on it,” Donally said.

“I think if you can show that the returns are going to be good, you will find investors for it. These are not going to be investors that want their name splashed out there … they’ll be very under the radar.”

Strong demand from China plus supply disruptions have pushed coal prices up to levels last seen three years ago. It offers a glimpse into what may happen to coal prices as the demandsupply disparity grows. As new production dwindles coal demand from developing nations using it for power generation and industrial processes remains strong and is expected to support buoyant prices in the short- to medium-term. Moshe says there is money out there for some coal producers.

“It depends on what you’re selling into the market in terms of your strategy. If you’re a pure coal play, chances are you will not get capital. And if you’re a coal play that is moving towards renewables you will get capital.” Junior coal producers speaking at the Indaba on Wednesday attested to the difficulty in securing funds.

Jacques Badenhorst, CEO of Maatla Resources which recently secured funding for its Botswana coal mine from a commodity trading firm, said it is difficult to convince lenders to look at coal.

“Financiers, they stop at the E of ESG [environmental, social and governance investment categories]. If they hear it is a coal project, or even an infrastructure that’s predominantly going to be utilised to transport coal, it’ sa no-go, they don’t want to fund it … I think coal funding will only come from within the coal industry,” Badenhorst said.

Morné du Plessis, CEO of Minergy, a Botswana coal producer, said miners will have to look to partnering with governments for funding, or securing funding from commodity traders needing product to sell.

IT DEPENDS ON WHAT YOU’RE SELLING INTO THE MARKET… IF YOU’RE A COAL PLAY MOVING TOWARDS RENEWABLES YOU WILL GET CAPITAL

“Mines are not going to be able to start up without help. So I see a bit of a move in the financing mechanisms to more joint partnerships with government and your vendor financing type of situations,” Du Plessis said.

When it comes to SA, Moshe believes there is a need for the industry to create its own, locally funded solution. “That could make a lot of money because this is still a very lucrative space. I think it’s time for us to find our own solutions for the junior miners.”

Prince Nyati, CEO of Madagascar coal and power company Lemur Holdings, said statebacked financial institutions in SA such as the Development Bank of Southern Africa, the Industrial Development Corporation and the Public Investment Corporation could look to set up a coal fund.

“If you look at economics, I think it makes a lot of sense given how much demand Eskom has, and how much global demand there is out there for coal. I think there’s a very strong business case … we just need to find alternatives.”