Powered by CIC Energy and Aviva Corp, the two eastern Botswana projects were all but scuppered in November when they were excluded from a draft South African energy plan outlining that country's power purchase plans over 20 years.
The two developers had planned to develop integrated coal mine and power stations with supplies targeted at South Africa, an economy with a 32, 000 megawatt (MW) peak power consumption rising at approximately two percent per year. With South Africa planning to double its power capacity to 80, 000 by 2026, Mmamabula and Mmamantswe were hopeful of supplying part of these requirements.
Analysts expect that the rising price of coal will add value to resources under Mmamabula and Mmamantswe, giving their developers hope of maximising returns from coal exports. While power exports would have provided optimal returns for CIC Energy and Aviva Corp, higher coal prices add lustre to the option of coal exports.
According to international analysts, average thermal coal prices are at a two-year high, hovering at US$140 per tonne and powered by a variety of climate and market-related factors. Prices in Colombia, South Africa, Russia, Indonesia and Australia are all on the rise, even as major consumers such as India and China are yet to weigh in with their considerable demand.
Analysts said the recovering global economy and its growing appetite for power, as well as freezing conditions in Europe, floods in major producer Australia and adverse weather conditions in other supplier regions of the world have all helped thermal coal prices.
American bank, Merrill Lynch, has already predicted that among several commodities, thermal coal
is likely to be the best-performing in 2011, even without the adverse weather conditions in producer and consumer markets.
"Coal faces supply restraints and is heavily geared toward emerging market growth," the bank said in a report last month. "Prices of all coal grades will move higher from the current levels in 2011."
The higher coal prices mean higher valuation for the Mmamantswe project which has a resource of 895 million tonnes, should buy-out or merger suitors appear on the horizon. For CIC Energy, JSW Energy expects to seal a US$400-million deal on January 21 when shareholders meet to approve or reject its offer. Once granted, the deal will give JSW access to Mmamabula's 2.6 billion tonne resource, the majority of which comprises thermal grade coal.
With Aviva Corp strategists re-focusing the project on coal exports, it is expected Indian or Chinese suitors could soon be lining up. India currently imports 67 million tonnes per annum on top of the 530-million tonne domestic production and expects its coal demand to triple to more than two billion tonnes per annum in the next two decades.
China consumes three billion tonnes of thermal coal annually, representing a key export market for many emerging producers.
Mmamabula and Mmamantswe's developers will be keen to leverage on the rising prices to seal supply contracts, which in turn will enable them to secure funding towards the commissioning of the projects. Although Botswana's sole operating coal producer, Morupule, has firm off-take agreements with the Botswana Power Corporation and other users, higher prices could enable the colliery to negotiate improved contracts.