Minergy sells coal directly to industrial end-users based in southern Africa.
Demand for the correct coal size, quality and consistent supply remains high. Minergy’s focus is ensuring that industrial customers across southern Africa receive this steady volume and quality of coal.
REGIONAL INDUSTRIAL MARKET
The smaller fraction product (<8mm) or “duff” is targeted for sale on longer-terms contracts. Minergy concluded an off-take agreement with a South African cement producer for a minimum value of P240 million over three years from September 2019. Additional off-take agreements are in the process of being negotiated.
The Company continues to offer the larger fractions (“peas” and “nuts”) on short-term contracts and on a spot basis. The Company will focus on ensuring industrial customers across southern Africa receive this steady volume and quality of coal. This sales strategy affords Minergy exposure to local pricing, which is more stable than international spot prices.
Minergy’s target market is depicted in the graphs indicating that in South Africa the industrial market, according to the SA Coal Report 2019, comprises 34MT and this industrial component is broken down into domestic trades, industrial, steelworks, chemical, cement, brick and other — this is the Minergy target market.
Given the structural change in the market and uncertainty on its recovery resulting from COVID-19, targeted production was revised to 60 000 saleable tonnes per month once the plant upgrades have been completed. This revised production number does not impact the execution of the sales strategy as it pertains to the regional industrial market.
The Group has coal seams with the necessary qualities to supply coal for power generation.
Minergy has submitted an Eskom tender for the supply of coal to the Tutuka power station located in South Africa during November 2019. The tender has a validity period of 60 weeks before award. The award of this tender will be a game changer for Minergy as it will open a separate mine with infrastructure for this supply.
The qualities of produced coal are attractive to export customers. Depending on the availability of adequate rail infrastructure such as the proposed Lephahale link between Botswana and the Waterberg region of South Africa (which is receiving significant attention from the Botswana counterparties) as well as favourable seaborne thermal coal prices, Minergy may enter into agreements with established international coal traders on a free-on-mine basis.
Accessing both the power generation and export markets will require Minergy having to establish an additional processing and washing plant and develop new box cuts. However, these opportunities will only be considered once Minergy has a steady supply and additional off-take agreements with industrial customers.