JOHANNESBURG (miningweekly.com) – Minergy CEO Andre Bojé is full of praise for Botswana’s regulatory authorities, who he says use legislation to assist mining investment.
Minergy, which is listed on the Botswana Stock Exchange, has begun work on its maiden 390-million-tonne Masama project, located in the Mmamabula coalfield, 50 km north of the capital city Gaborone.
AdvertisementThe project has the potential to produce 2.4-million tonnes a year of thermal coal as Botswana’s only opencast low-strip mine. The 25-year mining licence covers the first 82-million-tonne opencast period.
Bojé, who built coal mines in South Africa when he was CEO of Wescoal, spoke of a “chalk and cheese” difference between investing in mining in South Africa and investing in mining in Botswana.
Advertisement“But it doesn't mean that there aren’t hurdles. We’re the first opencast coal operation in Botswana so we had issues with the environmental authorities who did not understand coal mining.
“They know diamond mining and in diamond mining your hole just gets bigger and bigger and bigger and bigger. They don’t understand the way of coal mining, so it took a while to get that into their heads that in coal mining you’ve only got a hole, say 85 m wide by most probably a kilometre long at any one stage, not a huge hole that gets bigger and bigger and bigger, like Debswana. Once they understood how we work, it was quite easy,” he told Mining Weekly Online.
A rollover process is used to minimise hole size: “Imagine a normal ruler as your boxcut. You take the coal out of that, then you dig another ruler next to it and everything you dig out of there, you flow into the first ruler. That’s what’s called rollover, the hole keeps moving. You’re rehabilitating behind you and when you come to the end in 25 years, you’ve then got to fill that last hole with the original material you dug out of the first hole,” he explained.
Payback on Minergy’s new P300-million Masama coal development, which will generate 400 to 450 jobs, is expected to be a maximum of two years.
“But there’s a definite potential to expand with the current market conditions. Should we want to expand, we’ll raise more funding on AIM and double production very quickly,” he said.
Botswana benefits from the development of its coal as an alternative to diamonds, and community upliftment programmes include the supply of electricity to the village for the first time ever, upgrades and continuous support of the local school and clinic and support for brick making, tuck shops and laundries.
“This mine opening will change the lives of villagers completely,” he predicted.
Operating costs of the mine, at P3-million a month, are at the low end of the cost curve.
Current funding will take the Masama project to full production. Future funding envisaged is the raising of £5-million on a London listing on AIM in the second quarter of next year, followed by £15-million should the coal market remain where it is.
“We’re listing on AIM to have access to significant funding going forward. But when you list on AIM, you can’t list to raise huge amounts. It’s not that we need £5-million for anything in particular. We’ve been advised, go for £5-million, otherwise nobody is going to even bother to look at us,” said Bojé.
Minergy intends selling coal on the South African spot market.
“That’s my history,” said Bojé, who founded coal trading company Chandler Coal, which is now a subsidiary of Wescoal.
“For the first 1.2-milllion tonnes we’ll remain on the spot market. If you look at the curves going back ten years, it doesn’t matter what the export price does, the domestic pricing remains pretty stable. So, when we did the business plan in 2016, we looked at the domestic market and saw the very stable pricing and then it’s a business plan.
“Should we expand any further into the international market, then obviously we’ll have offtake agreements with the large traders,” he added.
Masama also has a 70-year underground life-of-mine. Logistical arrangements include a rail siding at Tshele Hills and road transport to South Africa. The rail transport is for the longer distances and road transport is for short distances.
With the South African cement and lime industry just over the border in Zeerust and Lichtenburg, trucking will be the most economical transport option.
While full current focus is on Masama, Minergy does have a longer-term strategy.
Why the company is listing on the AIM and not capital raising in Botswana is because it has exhausted Botswana funding and the AIM listing is to source funds for a second mine, once the contract for the Botswana/Lephalele rail link, for which Botswana has funding, is signed between Botswana Rail and South Africa’s Transnet Freight Rail.
The expected three-year signoff at government level to build the rail link matches the same time it will take for Minergy to start the process of opening a second mine.
The mining contract has been awarded to Jarcon, a joint venture between South African company Igor Pinto Plant (IPP) and Botswana company Giant Plant. Minergy has opted for contract mining rather than self-mining because of the high capital required to self-mine and contract mining companies being equipped to service junior miners.
“I don’t know of any junior miner that owner mines. Continental Coal tried it in the underground operation that they had. They invested hundreds of millions of rands into equipment to self-mine underground and ultimately went bust because of that. It just sucks your capex and there are other guys that do it better than you. There’s money right along the value chain. Let them make their bit and we take our bit and we’ll derisk the project etc, etc,” he said.
IPP mined for Bojé when he was CEO of Wescoal and Giant Plant has a good track record in Botswana. Funders have encouraged Minergy to use Botswana based companies. “The money we got came from Botswana and we were asked to invest as much as possible into Botswana business. They understood that there are no coal skills in Botswana. IPP is highly experienced in mining so what we did was we got them together with Giant Plant, which has considerable equipment exposure in Botswana. Giant is being equity funded by Botswana as well, so it was a natural fit. They were telling us to please use Botswana companies and bring the expertise. It’s actually a joint venture between the two and its working quite well,” he explained.
The benefit of awarding three three-year build own operate and transfer (BOOT) contract to Pentalin Processing for the washing plant spares the company the sourcing of an additional P100-million. Bojé also contracted Pentalin when he was at Wescoal.
“We would have chosen to build our own plant but the amount of capex we could raise precluded us from doing so. We needed somebody else’s balance sheet and cash flow to fund the plant, so that’s why we went out on BOOT. It’s not uncommon. There are a lot of BOOT plants in the junior mining space in South Africa. It’s not the ideal way, but sometimes you’ve got to bite the bullet,” he commented.
Contracts for the provision of site and bush clearing, civil works, power reticulation, water and waste management, road construction and weighbridges are in various stages of appointment.
Minergy tested three global stock exchanges before settling for London’s AIM. While JSE did not have appetite for junior miners and the ASX showed a preference for investments in Australia and Asia, the AIM had a special affinity for Africa in general and Botswana particular.
“We actually went to Australia and we went through the whole process and they told us that we should rather go to the AIM. We went to all my JSE old contacts that invested in Wescoal. They first said the funds are too small and then that they are not allowed to invest over the border. They’ve got very strict mandates. When we went to the AIM we spent a week there and we found that they love the investment, they love Botswana and they love Africa. The AIM’s not like the main board of the London Stock Exchange. They’ve got risk capital in AIM and there’re guys who really want to invest. We found them very accommodating, actually, and that’s why we’ve decided it’s where we will go,” he said.
Raising more capital in Botswana had reached its limit: “There’s only so much funding in Botswana and we’ve exhausted it. For Botswana to put any more into a single project like Masama is too risky for them. Look, in three years, when we’re pumping money and paying dividends back to them, then it’ll be a different kettle of fish, but it’s going to take time,” Bojé explained to Mining Weekly Online.
Despite the global drive to decarbonise, coal demand is forecast to rise to 2030 and flatline thereafter driven by a multitude of factors but investment in coal projects has all but dried up
Bojés view is that the coal market will remain buoyant for a number of years: “Demand and supply are not meeting each other, so we’re going to need money quite quickly.”
The International Energy Agency is expecting coal demand to be on the rise until about 2030 before flatlining.
“It’s not going to go away anytime soon. There’s no investment in coal and there are mines coming off line. Then you have your horror stories like Optimum, Continental Coal, and those sorts of things.
“While the supply is either static or dwindling, the demand is going up and that’s why your pricing is doing what it’s doing,” he said.
The 33% increase in the thermal coal price over the past 18 months has made the mineral one of the world’s five highest-performing commodities at a time when Botswana and Minergy have an opportunity to respond to Africa’s increasing demand for coal; the four-million tonnes exported from South Africa to the African continent in 2016 is forecast to grow to 38-million tonnes by 2030.
The AIM listing is to source funds for a second mine once the contract for the Botswana/Lephalele link is signed.
Export to South Africa is the game plan and if international prices hold up, Minergy will double production by June 2019 to sell into the international seaborne thermal coal market via the large traders.
In Minergy’s original business plan in 2016 involved supply of 1.2-million tonnes of saleable product into the South African market.
“That’s what I reckoned I could place in the South African market without disrupting the market, and that made Masama a viable project. International prices, at that stage, were at a very low $50/t, so international sales were just not viable.
“But, as we went along with the project, and before we started construction of the process, the price of thermal coal rocketed up to $90/t and $100/t,” he pointed out.
Masama’s entire washing infrastructure is designed for and output of three-million tonne a year and not 1.2-million tonnes. The plant is modular. The first module, which is being done now, is for 1.2-million tonnes of yearly output, but that can be increased to an output to three-million tonnes a year in a relatively short period.
If, in January, for 1.8-million tonnes over a period of a year. We’ll then do stage two and start delivering in June, then we’ll be a two-million tonne a year producer.
The regulatory environment is encouraging Minergy to do more: “The Botswana regulatory authorities mostly use legislation to assist investment in mining rather than the big stick approach to beat the industry into compliance as experienced in South Africa.
“They have a different mindset in Botswana. When I first met them in 2016, I said their legislative process was very long. What happens there is you’ve first got to get your environmental authorisation. Only then can you apply for your mining licence. So that doubles the timeframe.
“In South Africa, although they don't always exercise a parallel process, officially there is a parallel process. So I said why can’t we do it parallel? They said welcome. We ran the environmental impact assessment (EIA) process and we ran with the mining licence process, and they signed off all the documentation.
“When the EIA come in, within two days we had our mining licence. They work to legislation, that’s one thing, there is no administrative discretion. That doesn't happen. But they do use the rules to try and assist you. In South Africa, they use rules as a stick to beat you with,” Bojé lamented.