Minergy Coal is here to stay | Weekend Post

The Botswana Stock Exchange listed coal miner, Minergy has said renewable energy has been proven unreliable for base load electricity supply leaving only the alternatives nuclear, hydro and coal.

According to the company’s statement accompanying the financial results announcement, nuclear is prohibitively capital intensive, hydro is hamstrung by global water shortage which leaves coal fired power generation. “In addition, a large volume of coal continues to be used in numerous industrial processes other than power generation. Many of these processes are dependent on coal with no practical substitutes.”

Minergy officials say it is forecast that by 2030 the world will be short of 380 million tons of sea borne thermal coal due primarily to increased or at worst steady consumption, coupled with decreased production due to mines reaching end of life, lack of investment and production cut backs in China. In the African context and as highlighted by Miriam Mannack in the article “Power for Progress”, Africa urgently needs power. Approximately 620 million Africans rely on firewood, kerosene and charcoal for cooking, heating and lighting and the African Development Bank says that 600 000 Africans, mainly women and children, die prematurely every year due to illnesses caused by indoor air pollution. In addition, Africa’s population is expected to double to 2.5 billion by 2050.

Besides this, the use of charcoal and firewood leads to alarming deforestation with Zambia losing 250 000 to 300 000 hectares of forest annually. Furthermore, off and on grid renewables have a role but cannot support base load requirements. In 2016, four million tons of coal was exported from South Africa to the African continent. This is forecast to rise to 38 million tons by 2030 and Botswana has a significant role to play going forward by utilising the South African bulk handling facilities, the most sophisticated in Africa.

Regional market
The demand for coal in the southern African region continues unabated with prices escalating on an ongoing basis. The July 2017 McCloskey Coal Report highlights that South African domestic prices are 51% higher than the same period in 2016 and there is strong demand from the cement, industrial and paper industries.

This situation is driven by demand exceeding supply as producers are focused on fulfilling their take or pay export agreements together with the lack of investment in new projects or expansion of existing production facilities. The climate of under-investment in South Africa is blamed partly on political interference in the mining sector and the rise of resource nationalisation.

With the mining licence grant expected in Q2 2018 and the processes under way as outlined in the operational overview, the Company expects to be in production by August 2018 and would therefore be well positioned to take advantage of the southern African coal market. Initial production is planned for 1.2 million tons of saleable coal per annum ramping up when required, as the project will have a capacity of two million tons per annum from first commissioning.

Export market
Whilst the initial project plan focused entirely on the 1.2 million tons to the regional market,
attention must be paid to the export market as the API4 index price for sea borne thermal coal has
risen 67% since 2016 and currently trades at $82 to $84 per ton. The international traders forecast
that this trend could continue, albeit at slower rate, due to production cut backs in China and
delayed investment in greenfield coal projects. One must note the significant investment by large
multinationals in coal projects in Australia which highlights their bullish view on coal going forward.

Botswana has a significant role to play in the sea borne thermal coal market due to its large
untapped coal resources and close proximity to the South African coal export infrastructure.
Currently Richards Bay Coal Terminal (“RBCT”) and Transnet Freight Rail (“TFR”) together have a
capacity of 84 million tons per annum. However, in 2016 only 72.6 million tons of coal was shipped
through RBCT. Forecasts are for this number to remain steady leaving excess capacity of 11.4 million
tons of coal per annum that Botswana is ideally suited to utilise.

Logistical challenges to exploit this opportunity need to be addressed and the Company has had
extensive engagement with Botswana Rail (“BR”) and TFR to address the issue of getting coal to port.
The engagements have been extremely positive with an apparent will from all parties to resolve this
which is expected to result in full utilisation of the project capacity.

Following the successful listing on the Botswana Stock Exchange (BSE) in April 2017, the proposal
was to explore a listing on the JSE Securities Exchange (JSE) and list during 2018. The Board has
deemed it prudent to investigate the Australian Stock Exchange (“ASX”) and the London based
Alternative Investment Market (“AIM”) in addition to the JSE. Shareholders will be advised on
progress on this matter in due course.

Partnerships
In an interview with this publication, Minergy Chief Executive Officer, Andre Boje revealed that the
company wants to explore partnerships with Botswana Development Corporation (BDC) on
prospects of developing more convenient infrastructure specifically a rail way line connecting to the
Lephalale Coal handling facility. “BDC has interest in industrializing Botswana so in future when we
show evident output we will engage them,” he said. Boje further said that Minergy will also in future
engage Botswana Oil regarding their Coal-To-Liquid (CTL) Project. “Our coal is targeting South
African cement and lime industries but Botswana Oil will have no choice but to demand our high
grade coal.”

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