Gov't gives local collieries teeth to bite into SA market
Mbongeni Mguni | Friday September 27, 2019 15:25
Most analysts agree that Africa and other parts of the world have a long way to go before any other fuel replaces coal as the base load for electricity provision.
New, cleaner sources such as coal bed methane, solar, nuclear, hydro and others are being added to the energy mix, but most countries on the continent, particularly in the region, are still dependent on coal as the base for electricity provision.
“There is a long way to go before coal is not the baseload for electricity, even in countries like Germany,” explains Mooiplaats Colliery CEO, Louis Loubser.
“Coal has a consistency where you can determine the amount of input and output for 12 months in advance, whereas with solar and wind you can overproduce and even have to pay someone to take that excess.”
Energy funders, however are not listening. Between the “blacklisting” of coal by the global green world and commitments made by most nations on the Paris Agreements, coal development has become a worldwide anathema.
Analysts explain that the situation has led to the development of a coal deficit in countries like South Africa, whose electricity utility, Eskom, uses the black metal to produce 90% of its output.
“The banks have withdrawn from funding any coal,” Loubser says.
“We have about 20 to 30 years of guaranteed coal production in Africa and future funding is not guaranteed. It will not come from the banks.”
Eskom, which requires about 90 million tonnes of coal annually has frequently found itself running out, as collieries in that country grow old and go under. Those developers attempting to establish new coal mines or expand existing ones are stymied by funding, worsening the deficit.
Matthews Bagopi, whose role as Morupule Coal Mine’s business development manager, means keeping an eagle eye on such opportunities, is intimately aware of the situation. Morupule Coal is expanding its production by one million tonnes per annum and the SA market is a prime target.
“The issue of a ‘coal cliff’ comes from the fact that some of their known resources are winding down and there has not been investment to expand mines.
“That has left a gap in terms of supply but it also leaves an opportunity for coal from Botswana.”
Minergy, the country’s other coal producer and the newest having sold its first rocks in September, is also making inroads in South Africa.
“The demand in SA is extremely strong,” says Minergy’s CEO, Morne du Plessis.
“That market is growing but on the supply side, there is not a significant development of new mines.
“You have growing demand and static supply and we are inundated with calls from the SA market, ‘saying please supply us with coal’.”
Both Morupule and Minergy have achieved success in breaking into the SA market. Not only that, but the pace of their expansion to break into the market has been breakneck, particularly in a market filled with reluctant funders.
The difference?
Both Morupule and Minergy have been given a hand-up by government, which is eager to see greater value extraction of the country’s untapped reserves of coal, commonly estimated at about 200 billion tonnes.
Morupule is owned by Debswana, a 50% government/50% De Beers interest, and the expansion has largely been off the shoulders of the two shareholders.
Minergy, meanwhile, received debt funding of P55m from state minerals agency, Minerals Development Company Botswana (MDCB) and P40 from state investment agency, the Botswana Development Corporation (BDC).
The MDCB is set to pump in another P15 million which will help Minergy ramp up to full production of about 100,000 tonnes per month by next year.
The total state-related funding of Minergy totals P110 million, a significant contribution of the estimated P250 million to P280 million the private company has spent developing its Masama Coal Mine to production.
“We are thankful to the Botswana government and the minerals ministry for helping us to put funding together between the MDCB and the BDC,” du Plessis says.
“I believe we have been very fortunate.
“I feel very sorry for new entrants.
“We turned every rock over in Botswana to get funding and it is very difficult.”
In fact, while the world has turned its back on coal, local investors are still willing to take the gamble, a fact shown by the positive response Minergy received to its Initial Public Offer when it listed in May 2017. That time, public servants lent a helping hand, sort of.
“The initial capital we raised was on the equity basis from the local fund managers, mainly on mandates from the Botswana Public Officers Pension Fund and that was a very good start for us,” the CEO said.
“We were able to complete exploration and start developing the mine.
“But then we got to the stage where we had to find debt funding and I can’t stress to you how difficult it is.
“I can confirm that commercial banks aren’t interested in a start up, especially coal, until you show them an offtake.”
Helped by public officers and state-owned entities, Minergy has not only rapidly progressed Masama, but the company has all but inked a P240 million three-year supply deal with a South African cement firm.
With the offtake deal and riskier parts of the development pipeline funded, du Plessis says funders have come knocking.
“The banks have changed their tune after we got the offtake agreement and at our recent results briefing, there were three of them, when previously they would not take our calls.
“We look forward to engaging with them and we will fund our growth from that.
“The funding we have received is enough to take us into production and we have been very fortunate to be funded by our vendors, like the open cast mining contract, on very favourable terms.
“A lot of the funding now goes to repay them for what they have done.
“Any additional funding we need now we will be able to raise commercially.”
Vendor-financing is another avenue coal developers are increasingly turning to. Bagopa explains that another is securing funding from the power stations the mines are looking at supplying.
“The banks may say they are not funding, but the people on the ground who need that energy are willing to participate in the development of projects,” he explains.
“Actual consumers, like industries abroad especially in South East Asia are doing that.
“There are people there who have power plants and are continuing to build more and they need global coal trade to be moving despite the fact that the banks are saying they are not financing.” While those options are available to all developers, those in Botswana have the added confidence that the entire country is rooting for them and willing to put money where it matters most.