Chief executive officer of Minergy Limited Botswana, Andre Boje has a strong belief that Botswana is missing out on the benefits that could accrue from its coal industry.
His confidence became noticeable this week when presenting Minergy’s financial results and business update for the year ended June 30, 2017.
He highlighted the vast potential and opportunities that Botswana has to become one of the leading coal exporters in the world.
“The demand for coal in the Southern African region continues unabated with prices escalating on an ongoing basis,” Boje said.
He said Botswana has a significant role to play in the seaborne thermal coal market due to its large untapped coal resources and close proximity to the South African coal export infrastructure.
Currently, he said the Richard Bay Coal Terminal (RBCT) and Transnet Freight Rail together have a capacity of 84 million tonnes per annum.
“However, in 2016 only 72.6 million tonnes of coal was shipped through RBCT. Forecasts are for this number to remain steady leaving excess capacity of 11.4 million tonnes of coal per annum that Botswana is ideally suited to utilise.”
Being an accountant with more than two decades of experience in the South African coal industry, Boje said if Botswana had a vibrant coal industry it would export about 11.4 million tonnes of coal, generating revenue of P6.3 billion, royalties of $18.5 million (P188m), and taxes of $17 million (P173m).
He, however said logistical challenges to exploit this opportunity need to be addressed, noting that Minergy has had extensive engagement with Botswana Railways (BR) and Transnet Freight Rail to address the issue of getting coal to port.
“The engagements have been extremely positive with an apparent will from all parties to resolve this, which is expected to result in full utilisation of the project capacity,” said Boje.
He also stated that there is lack of investment in coal specific projects, adding that the government tends to put more focus on power related projects despite the most profitable coal mines internationally.
According to Boje, there is also minimal coal specific skills and perception that Botswana coal is uneconomical to export, as well as limited access to capital.
“A successful coal project will bring new investments to the Botswana coal industry,” he enthused.
Boje urged government to drive investment in the logistical infrastructure, emphasising the need for positive commitment from the government.
He further said government should focus on the shortest lead time to market, noting that otherwise Botswana will miss the opportunities.
“South Africa has the most sophisticated bulk handling facilities in Africa, link into it. Lephalale is 123 kilometres from Botswana main line and Resgen common user line is 43km from Botswana main line,” Boje said.
In addition, he said the Trans-Kalahari Rail will be too far in the future, noting that Botswana rail will provide cost competitive rail rates.
He said the BR should work closely with the industry to have a workable plan.
As an added advantage, Boje said Botswana coal is more economical to mine than South Africa, due to lower strip ratios and significantly cheaper diesel.
“Government must consider tax relief to coal exporters as has been done with power producers. A lower tax rate of 15% on significant profits is better than 22% on nil,” he said.
He also appealed to government to increase diesel rebates for mining companies, adding that Minergy is positioned to supply quality coal across Southern Africa.
“There is high demand for coal in Southern Africa coupled with significant and regular price escalation,” Boje said.
He said current regional pricing has never been seen before, even in the boom of 2007 when export coal reached $171 per tonne.
This, he stated, presents massive opportunity for Minergy to gain traction and market share.
Minergy owns 100% of a 347Mt Masama Coal Project, located 50km north of Gaborone, with good working infrastructure into regional markets. With its mining licence grant expected in the second quarter of 2018, the coal mining and energy company, expects to be in production by August 2018.
Minergy plans to build an opencast coal mine within 16 to 18 months focussing on delivering coal to the regional market including Botswana and North Western and Northern Cape provinces of South Africa. The mine also has a potential to expand coal supply for export market and power stations.
Boje said the current price of international seaborne thermal coal is around $80 per tonne, noting that South African prices are significantly higher than this at around R1,000 per tonne, which makes it a viable project.
He said for developing the project, a lower capital cost is envisaged, adding that a capital expenditure of P200 million is required to reach steady state mining.
He said the company will therefore be well positioned to take advantage of the Southern African coal market, adding that initial production is planned for 1.2 million tonnes of saleable coal per annum, ramping up when required, as the project will have a capacity of two million tonnes per annum from first commissioning.
“Whilst the initial project plan focused entirely on the 1.2 million tonnes to the regional market, attention must be paid to the export market as the AP14 index price for seaborne thermal coal has risen 67% since 2016 and currently trades at $82 to $84 per tonne,” he said.
According to Boje, the international traders forecast that this trend could continue, albeit at a slower rate, due to production cut backs in China and delayed investment in Greenland coal projects.