Minergy eyes rebound despite market tightness
Mbongeni Mguni | Monday April 8, 2024 06:00
Mmegi: What is the situation with Minergy at the moment in terms of operations?
Bagopi: Operations have restarted. As you know we took the decision to part with the former mining contractor in September last year and it took a bit of time to get the whole issue settled out. However, it was resolved by the end of the year on December 29 and we were immediately able to appoint the new contractor at the turn of the year and it takes a bit of time for them to mobilise.
Mobilisation is more or less done at about 85% to 90% and the good thing is that production has restarted. With the new contractor, we have been doing blasts to remove waste and now we are blasting coal.
Mmegi: What are your planned outcomes for the year in terms of production and sales?
Bagopi: For the year (ending on June 30) we are already now getting into the fourth quarter of 2023–2024, so a good part of it is already water under the bridge. The last half of it has been about getting the operations restarted. In the final quarter, we will see quite a steady pick up in terms of production and sales.
By the end of April, we believe we will have sold 40,000 tonnes which will ramp up to between 55,000 and 60,000 tonnes in May, then 125,000 tonnes by the end of June which is the full run of the mine. Coming from where we were, we have lost quite a lot of the financial year to claw back anything. We believe on a month-on-month basis, by June or July, we will be achieving our targets, with positive EBITDA territory. We are currently doing our plan for the next financial year.
This has been a watershed year for us and we are changing how we have been looking at the business in the past and looking at bringing more steadiness. From a financial performance view, that’s just setting up our success for the next financial year.
Mmegi: Coal prices dropped from their heights two years ago. What has been the impact on Minergy?
Bagopi: If you look at those prices, they were a windfall. However, the real impact that has hit coal producers is not the coal price. Of course, people enjoyed those prices and were in seventh heaven when they were at $350 to $400 (per tonne), but look at our region, we didn’t get the best of what we could have because we couldn’t export the amount that we could produce due to logistical problems in South Africa. The lack of infrastructure.
The biggest challenge or shock is the inability of the Southern African market to take out its export coal to the port because of Transnet issues.
Coal that usually goes to export is now inland and that creates pressure on prices where for the first time in decades, these have dropped. One of the things we are looking at is those relationships that we have forged on the mainland that will protect us from shocks because our product is still much-desired and they cannot wait for us to put out our first shipments. That market is our focus area.
Mmegi: There has been commentary in the market that Minergy’s operating costs were so tight or fragile that any drop in the coal price could not be accommodated. What is your view of that or comment on the current situation?
Bagopi: Coal is a margin commodity and the issue is about volumes. The more you can pump out, the better for the business. Minergy as a coal producer finds itself in that bracket and it’s essential to fully understand our cost structure and strengthen that to be as resilient as possible.
Those are some of the things we are working on with the new contractor and that we believe we have been able to shape, to get the benefits of a long-term relationship as well as make sure that the relationship with the market, is protected, such that we don’t get distracted by windfalls.
Sometimes, it’s more important to think about the end game rather than a quick return.
Our strategy that we are working on now is about ensuring sustainability which talks to cost and efficiency issues. For instance, it’s about looking at diversifying the revenue streams for the business, looking at some of the products that we are producing but have not been able to monetise. So we are looking at opportunities around power and gasification of coal.
We are also looking at the finance costs or capital structure of the business. We have to optimise the capital structure, lessen the debt and help the business be more agile.
There are also internal issues, our efficiency, the market that we can control and the relationship with the funders that will enable us to diversify revenues. We take price from the market and the only thing that we can do is safeguard our relationships with the market.
Mmegi: What is your target market this year and what is in place in terms of logistics to reach this market?
Bagopi: Our focus market is the inland market for the reason that there’s less of a challenge for us in that. If you look at our position, we are close to some of the biggest industries like those in the North West which are into lime. We are working on ensuring there’s a steady supply to those customers and that those relationships are strengthened.
One of the things we have been discussing with government is the improvement of the road from the mine. The road is a dirt one and it began as a strip. One of the projects being looked at is to bituminise that road, which would reduce the costs of operations, particularly the maintenance budget on our end and increase our profitability.
Mmegi: What would you say is the medium-term outlook for Minergy?
Bagopi: We have a positive outlook when we do our five-year forecasts. The board will soon be holding a strategic retreat for the direction of the business, where some of the fundamentals will be crystallised to become our north star in terms of positioning the business strategically.
Mmegi: At the Botswana Minerals and Energy Conference, you spoke passionately about coal and its role in developing economies such as Botswana. How can Botswana and other similar economies both electrify themselves in a world where funding for fossil fuels is drying up and meet their climate commitments?
Bagopi: That’s something very close to my heart. There’s quite a lot that we can do. Unfortunately, some of it is about our need to have a strong research footprint as an economy and we are not doing enough on that.
When you look at a marginal business or any start-up, it cannot be left to the producers or miners. There must be a determined direction or position at a national level about how to do things. I was recently in India looking for markets and benchmarking on what other economies are doing and when you look at the amount of research that’s coming up with new ways and new technology, but also using current technology, it’s something that we actually need to look at.
How can we become a hub of energy generation and export in the region? How do we green our coal or use the value that we get in our coal to do other things that the world is looking for from energy, things that rely on the baseload provided by coal?
We should not be afraid to have large budgets going to BITRI [Botswana Institute for Technology Research and Innovation], BIUST [Botswana International University of Science and Technology], UB [University of Botswana] and others to do real work and test some of the new technology and even come up with new tech.
We have very educated young people who can crack some of the problems that we have. It’s quite an area that can become a beehive of activity in the economy. This also is in line with the mindset change agenda and the knowledge-based economy.