The 'overburden' concealing Botswana's 'black gold'

| Friday July 30, 2010 00:00

The brief picture is this: Of the 118 licences in issue for coal and coal-bed methane (CBM), only 30 percent are active and of these, CIC Energy's Mmamabula Energy Project is among the most advanced.

Demand for energy minerals rose by 50 percent last year and coal is increasingly viewed as the future of energy in southern Africa. However, between possessing the massive resources and developing them on a sustainable basis lies a labyrinth of challenges.

And now for something of the broader picture: While Botswana's coal resources are estimated at more than 200 billion, the country only has one colliery that produces approximately one million tonnes of coal annually. The concession are of Morupule Colliery, which was established in 1973, covers a large swathe of land between Palapye and Serowe and is estimated to contain about 83 billion tonnes of coal.

The figures clearly show gross underdevelopment of coal energy in Botswana at a time when the country and the southern African region are experiencing a severe shortfall of power. CIC Energy, a Canadian energy group, has spent hundreds of millions of Pula since 2006 in attempts to develop a coalmine and an associated power station at the Mmamabula coal resource, northwest of Mochudi. CIC Energy's concession area is estimated to contain 2.6 billion tonnes, with further studies indicating that 1.9 billion can potentially be extracted. Of this resource, 757 million tonnes of coal is suitable for power generation, 432 is of high quality and is best suited for export, while 182 million tonnes is suitable for the company's Coal to Hydrocarbons project. These three uses represent the major projects of CIC Energy's plans to exploit the Mmamabula coal resource and are collectively referred to as the Mmamabula Energy Complex.

The Coal to Hydrocarbons (CTH) project involves gasifying coal to produce synthetic gas that can then be converted to fuel and other petrochemical products.

In the years since 2006 when the ambitious plans were laid, the global recession, legislative and regulatory delays in targeted markets, as well as rising Engineering, Procurement and Construction (EPC) costs have forced the Canadian group to downscale its plans for Mmamabula, while simultaneously suspending other targeted projects.

At present, the planned 1, 200-megawatt (MW) power station is on ice, pending regulatory approvals in South Africa, while the planned Coal to Hydrocarbon and coal export project have been suspended as part of the financial and technical focus on the power station.

Increasingly, the new 'baby' in the family, the Mookane Domestic Power Project (MDPP), looks set to become CIC Energy and Botswana's first coal project outside Morupule Colliery. MDPP consists of a coal mine firing a 300MW power station, with the power generated being sold exclusively to the Botswana Power Corporation (BPC), which is keenly watching and facilitating all developments. The potential success of MDPP has also been boosted by the input of a Chinese majority equity partner, GCL Projects Limited.

For CIC Energy's Chief Operating Officer (Mining), Eddie Scholtz, MDPP could be the realisation of a long-held dream, that began several years ago when he was appointed CEO of Bon-Terra, CIC Energy's coal mining subsidiary. Prior to this, Scholtz, a highly experienced coal mining administrator, was Managing Director of Ingwe Coal, a BHP Billiton subsidiary worth billions of Pula in assets.

His experience in coal mining, particularly mineralisation in southern Africa, has enabled Scholtz to remain confident in the development of the Mmamabula resource, repaying the trust CIC Energy and its shareholders have placed in him. Drawing from his experience, Scholtz has a clear vision for MDPP and its place in the several coal mining developments springing up in the region.

'We have dedicated a separate block of coal for MDPP and also identified the most suitable place for the power station,' he explains. 'For the latter, we were looking at a geologically stable area, free of coal and free of geological faults. There are many ways to mine the block and we have looked at the quality of the coal, thickness of the seams and other factors. However, there's consensus that it will be an opencast mine.'

In developing MDPP's coal mine, Scholtz and his team have leveraged off previous geological and metallurgical studies done for the mine meant to power the 1, 200MW power station. Known as Serorome Mine, development of the 6.3 million tonne per annum operation has also stalled as a result of the regulatory delays affecting the power station's development.

'We did the environmental and social studies for the whole area,' Scholtz picks up the cue. 'But we have to refine these for the mine before submitting them to the Department of Environmental Affairs as an addendum. 'The geology for the mine is done, the mine design is about 90 percent, the infrastructure studies are about 80 percent completed. Generally, the technical work is largely complete.'

MDPP's significant advantage over its larger 'cousin' is the improved certainty of an off-take agreement. Where the 1, 200MW project has stalled over Eskom's delays in securing regulatory approval for Independent Power Producers such as CIC Energy, MDPP is confident of sealing a deal with BPC, which is the targeted and sole off-taker.Already, CIC Energy has entered into negotiations with BPC for MDPP's supplies. Once inked, the resultant Power Purchase Agreement (PPA) will allow Scholtz and his team to secure a coal-mining licence. Among other criteria, the Mines and Minerals Act requires project developers to produce proof of their off-take agreements before applying for and receiving licences.

Securing an off-take agreement also empowers CIC Energy in its ongoing negotiations with possible financiers of MDPP.

'No one is going to hit the button to spend a lot of money until there's an off-take agreement,' says Scholtz.'The government will not grant us a mining licence unless our market is proven and suitable.' Government is presently establishing a national energy regulator, which will be expected - among other duties - to negotiate and conclude PPAs with IPPs such as CIC Energy. Prior to its establishment, BPC, through consultants, undertakes these negotiations with final approval from Government.

In this regard, Scholtz and his team are understandably optimistic about becoming the first coal mine outside of Morupule Colliery. 'We are excited about the project,' he adds. 'There's a lot of technical and geological activities going on, as well as the project financials.

'The government has shown unwavering support for this project. It realises that Botswana needs IPPs in the market and this is an exciting time for the power industry. We are delighted to be at the forefront of this industry in Botswana.'

Government's support is also influenced by the millions of pula it is currently spending monthly on costly diesel power and the fact that more sustainable solar power options are still at an infancy stage.

Although the developers are hesitant to give project timelines, given the experience with the 1, 200MW project, all indicators are that MDPP could become Botswana's first coal-fired power station in the next few years.

At its commissioning, MDPP will become the torch-bearer for other private sector players hoping to tap into Botswana's massive resources of black gold