COVID-19 impacts Minergy but the resumption of economic activity weighs in its favour

24 September 2020 – Gaborone – Minergy, the coal mining and trading company with the Masama coal mine located in the Mmamabula Coalfield of Botswana, today released results for the year ended 30 June 2020, which are described as unparalleled and which comprise two distinct parts. During the financial year substantial achievements and milestones were met, despite a significant part of the year being impacted by COVID-19.

Morné du Plessis, Chief Executive Officer of Minergy indicated that, “Despite border restrictions between South Africa and Botswana (a minimum of 15 weeks), Minergy, in its first year of operations, sold ~198 000 tonnes for the financial year generating P81 million in revenue. The completion of stage 2 of the Coal Handling and Processing Plant (“CHPP”) is also imminent, bringing significant efficiencies, improved product distribution, cost savings, and stability in supply”.

What Minergy classifies as the first part of the financial year (July 2019 to February 2020) it reached substantial milestones including:

  • Commissioning stage 1 of the CHPP, supported by mobile solutions
  • Construction of the required mining infrastructure including water and power supplies sufficient for targeted production
  • Delivering on the first signed off-take agreement with a South African cement producer
  • Moving purchased saleable product into South Africa, Namibia and within Botswana successfully and consistently
  • Completing the rail siding including the readiness to transport coal
  • Securing P150 million in debt funding and raising P35 million in equity
  • Strengthening the executive management team

Du Plessis, says that, “At this stage Minergy was on track to complete the planned plant upgrades necessary to achieve nameplate production and efficiencies.” Going on to add that from March 2020 onwards, the impact of COVID-19, border closures and travel restrictions of technical expertise impact Minergy.

In the second part of the financial year (March 2020 to June 2020), the worldwide devastating impact of COVID-19 did not escape Minergy, Botswana, and the southern African target market and specifically impacted Minergy as follows:

  • Closure of target markets from the latter part of March 2020
  • Although Minergy was categorised as an essential service provider, 90% of its customer base in South Africa did not qualify for essential service provider status
  • Force Majeure was called by off-take customer
  • Sales volumes dropped dramatically to roughly 10 -15% of volumes supplied prior to the lockdown, with coal stockpiles at Masama sufficient to cater for the limited demand during this period
  • Fixed costs remained payable including full staff complements for Minergy and its contractors
  • The stage 2 plant upgrade was delayed as the South African service provider could not manufacture critical sections nor order parts due to the non-essential classification of its subcontractors, and had applicable funding on hold to complete the second stage
  • Even with the later relaxation of lockdown restrictions, access to the border between South Africa and Botswana remained largely restricted, making the delivery of coal both difficult and inconsistent
  • Crossing of vital technical staff from South Africa across the border into Botswana was severely impeded by strict regulations, impacting servicing and availability of equipment

Commenting on the targeted saleable production, du Plessis said that, “The COVID-19 pandemic forced Minergy to critically relook its strategy to achieve full production capacity where ramp-up always assumed a fully functioning and participative market without restrictions”. Although the original targeted production target of 80,000 saleable tonnes per month is still within the nameplate capacity of the CHPP, given the structural change in the market and uncertainty in terms of its recovery, a decision was made to revise targeted production down to 60,000 saleable tonnes per month, he asserted.

It is important to note that a comparison between the results for the 12 months ended 30 June 2020 (“current year”) and the previous financial year to 30 June 2019 (“previous year”) is not practical on a like-for-like basis. During the previous year, the Group was developing the Masama coal mine (“the mine”) and advancing it toward operational status. During the current period, the Group moved into commissioning, ramping up production and sales at the mine.

Following commissioning of stage 1 of the CHPP during early August 2019, the Group recorded its first revenue. Sales volumes gradually increased in line with ramp-up operations between October 2019 and March 2020.

COIVD-19 lockdowns impacted the Group from the third week in March 2020, with the most severe effects being felt in April 2020 and May 2020 when sales were limited to certain “essential supply” customers from stockpiles existing at the end of March 2020. 90% of the target market was shut down during this period. Sales volumes showed a slow recovery in June 2020 as customers started to return to operations following the lifting of certain of the lockdown restrictions applicable in South Africa.

Earnings before interest, tax, depreciation and amortisation (“EBITDA”) for the year amounted to a loss of P95.3 million (2019: loss of P34.6 million) after adding back depreciation of ~P5 million (2019: P0.5 million).

Looking forward du Plessis said that, “Minergy’s future is supported by i) an outstanding safety record with an absolute care for people; ii) imminent completion of stage 2 of the CHPP; iii) favourable Government support; iv) ongoing negotiations with potential funders and shareholders to address working capital and cash flow shortfalls arising from COVID-19 and v) a business optimisation plan to focus on 10 key areas.

He concluded by indicating that certain of these initiatives are more advanced than others, “We remain encouraged at the results our plan has already delivered including sales order activity improvement post year end with record sales achieved in August 2020 and improved pricing opportunities on the back of a recovering market. He indicated there are game-changing opportunities ahead in anticipation of the submitted Eskom supply tender and progression of the Mmamabula-Lephalale rail link for exports. Minergy has already successfully delivery six trains of coal to a customer in South Africa post year end.