Shumba Coal eyes power exports to Namibia

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Junior mining and exploration company, Shumba Coal says it is planning to export 300 MegaWatt (MW) to Namibia by 2017 from its Sechaba power project which is located in the central district.

The Botswana Stock Exchange (BSE) listed company looks to set up an initial 1.5 million tonnes per annum (mtpa) coal mine at Sechaba, near Morupule by next year to supply thermal coal locally.

In a market update for the year ended June 2015, Shumba says it will then double the capacity of the mine to cater for the 300MW power station, which is expected to export power to Namibia the following year.   

“Management continues to execute its plans with a low cost overhead structure in the company and focus on expenditure and investment for project value growth with a well-considered and controlled outsourcing model for critical expertise towards early project execution for Sechaba with consideration for a 300MW IPP potentially supplying NamPower in Namibia.

“In October 2014, we completed the project’s Pre-Feasibility study (PFS). Shumba is now in discussions with a number of parties with a view to entering a Joint Development Agreement (JDA) for the development of Sechaba,” said the company.

In March this year, Shumba entered into a JDA with South Africa’s Mulilo for the joint development of its other coal resource, the Mabesekwa Export Independent Power Plant (MEIPP), which is earmarked to supply power to Eskom.

The MEIPP is a 300MW energy capacity project with a minimum 260MW net supply to grid after auxiliary and mine consumption.  The project will entail building a coal-fired power plant with a captive coalmine, to take part in the South African Coal Base Load Independent Power Producers (IPPs) programme.

“The expansion of the Sechaba Mine to produce and supply an additional 1.5 Mtpa and construction and commissioning of our Sechaba Energy 300MW IPP, utilising this expansion in production for generation and distribution to regional grids (NamPower targeted) by end of 2017.

 “A further expansion of the mine to produce and supply an additional two mtpa for a total of 5mtpa of high quality thermal coal for export via Southern Africa,” said Shumba.

Due to the current depressed international coal prices, Shumba says it will in the short-term only look to supply the domestic market before exploring the global market around 2018 when the market is expected to have corrected. Commodity market experts say at least 55% of thermal coal exports (approximately 115Mt) are loss making at current spot prices of around US$65 per tonne.

With more than half of all the coal produced in Australia at or well above $65 per tonne cash cost, exporters are making increased losses of up to +$30 per tonne.

“We still believe the markets will correct by 2017/18 based on the known energy demand across South-East Asia which will on conservative estimates require an additional 40Mt of Coal supply per annum.

“Shumba is continuing to focus on low cost coal production for local supply to the spot market and its IPP projects in the short term and then export onto world spot markets into the sweet spot of the upturn medium term, giving significantly higher than normal returns, and the future is certainly bright,” said the company.

As a result of the depressed international prices, 2015 has seen the historical bottom of the mining and natural resources investment market continually extended to new lows never before experienced. The Junior Mining market where Shumba resides has been decimated with most stocks down up to 97% from their historical highs reached in 2010 in the bounce after the 2008 crash.

Other coal mining and exploration companies in Botswana have also adopted Shumba’s ‘buy and hold’ approach with regards to coal export with technical studies showing that it will take either a fall in rail tariffs or increase in coal price to make coal exports sustainable and profitable.

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