The highly anticipated full swing of Masama Coal project owned by the Botswana Stock Exchange (BSE) listed Minergy will this month come to live hence joining Morupule Colliery Mine in the business of selling coal mine.
A market update statement from Minergy published on BSE this week reveals that the company will this month record their first commercial sales. Following successful start-up of mining operations, Minergy has exposed the first 340,000 tons of coal, which represents approximately 3 months’ name plate production. In doing so, the company has removed over 2.5m cubic metres of overburden.
Minergy says it is completing the process to sign its first long-term contract, to deliver 120,000 tons of coal per annum to one regional industrial customer, which represents approximately 10% of estimated annual saleable coal. “Discussions are underway with a number of other interested regional industrial customers, many of whom have already tested samples of our coal over the past few months,” said Minergy Chief Executive Officer, Morné du Plessis.
Further boasting in confidence about signing additional customer contracts in the coming weeks. “We are extremely pleased with both the timing and the progress made at Masama Coal Project, we are transitioning from mine development into a mining operation at full production” he said . Currently Minergy is mining 110,000 tons per month, resulting in 70,000 – 80,000 tons of saleable coal. The saleable coal target is expected to increase to 100,000 tons per month in early 2020. “Our ramp up plan is on track, several opportunities to significantly increase production will be assessed going forward,” he said.
A coal resource of 386 Mt has been defined in terms of the preliminary workings for the Masama project and comprises open castable and underground mineable resources in the measured, indicated and inferred resource categories. Open castable coal reserves are currently in the process of being calculated and ROM Coal reserves are likely to range between 55 and 65 Mt, with resultant Saleable Coal Reserves likely in the range of 30 to 40 Mt.Within the 386Mt total coal resource of Masama, approximately 82 Mt is considered open castable, giving a life of mine of 22 years. The remaining approximately 304 Mt is considered mineable by underground mining methods and could significantly extend the life of the mine.
Prior to the open castable resource being exhausted, a detailed assessment of underground mining will take place. In addition, there are also plans to conduct further exploration on the remainder of the prospecting licence, which is substantial and currently totals at 352 km2. Morné du Plessis says depending on the economics at the time, opportunities to significantly increase production include increased supply to industrial customers, export opportunities, or power generation. “Increased production would require additional capex primarily to increase the capacity of washing plant and plant infrastructure, and completion of an additional box cut,” he said.
On the corporate fronts and capital raising efforts Minergy Head noted that progress was being made in the company’s previously stated objective of listing on the Alternative Investment Market (AIM) of the London Stock Exchange. Last month Minergy announced that Botswana state owned industrialization and mining investment outfits Botswana Development Corporation (BDC) and Mineral Development Company (MDC) have injected a total amount of P160 million into Masama.
In a statement then , Minergy revealed that P90 million capital boost from the two entities added into initial funding of P70 million bridging finance provided by both BDC & MDC for a period of six months. The statement stated that the funding will be refinanced through long-term agreements with both parties, adding that all the necessary regulatory approvals were in place and agreements have been signed with all paperwork completed.
This week Minergy also revealed that they have engaged a firm of experts to undertake significant technical work to finalize the mine plan to be conducted at Masama. “We are extremely proud of what has been achieved in a relatively short period of time, not only for Minergy but for the development of the coal sector in Botswana. Minergy has pioneered a process that will support the regional industrial demand for coal and in so doing, benefit the people of Botswana through job opportunities and vital coal skills development,” said Minergy Chief Executive Officer, Morné du Plessis.
Marcian Concepts have been contracted by Selibe Phikwe Economic Unit (SPEDU) in a P230 million project to raise the town from its ghost status. The project is in the design and building phase of building an industrial hub for Phikwe; putting together an infrastructure in Bolelanoto and Senwelo industrial sites.
This project comes as a life-raft for Selibe Phikwe, a town which was turned into a ghost town when the area’s economic mainstay, BCL mine, closed four years ago. In that catastrophe, 5000 people lost their livelihoods as the town’s life sunk into a gloomy horizon. Businesses were closed and some migrated to better places as industrial places and malls became almost empty.
However, SPEDU has now started plans to breathe life into the town. Information reaching this publication is that Marcian Concepts is now on the ground at Bolelanoto and Senwelo and works have commenced. Marcian as a contractor already promises to hire Phikwe locals only, even subcontract only companies from the area as a way to empower the place’s economy.
The procurement method for the tender is Open Domestic bidding which means Joint Ventures with foreign companies is not allowed. According to Marcian Concepts General Manager, Andre Strydom, in an interview with this publication, the project will come with 150 to 200 jobs. The project is expected to take 15 months at a tune of P230 531 402. 76. Marcian will put together construction of roadworks, storm-water drains, water reticulation, street lighting and telecommunication infrastructure. This tender was flouted last year August, but was awarded in June this year. This project is seen as the beginning of Phikwe’s revival and investors will be targeted to the area after the town has worn the ghost city status for almost half a decade.
The International Monetary Fund (IMF) has slashed its outlook the world economy projecting a significantly deeper recession and slower recovery than it anticipated just two months ago.
On Wednesday when delivering its World Economic Outlook report titled “A long difficult Ascent” the Washington Based global lender said it now expects global gross domestic product to shrink 4.9% this year, more than the 3% predicted in April. For 2021, IMF experts have projected growth of 5.4%, down from 5.8%. “We are projecting a somewhat less severe though still deep recession in 2020, relative to our June forecast,” said Gita Gopinath Economic Counsellor and Director of Research.
The struggle of humanity is now how to dribble past the ‘Great Pandemic’ in order to salvage a lean economic score. Botswana is already working on dwindling fiscal accounts, budget deficit, threatened foreign reserves and the GDP data that is screaming recession.
Latest data by think tank and renowned rating agency, Moody’s Investor Service, is that Botswana’s fiscal status is on the red and it is mostly because of its mineral-dependency garment and tourism-related taxation. Botswana decided to close borders as one of the containment measures of Covid-19; trade and travellers have been locked out of the country. Moody’s also acknowledges that closing borders by countries like Botswana results in the collapse of tourism which will also indirectly weigh on revenue through lower import duties, VAT receipts and other taxes.
Latest economic data shows that Gross Domestic Product (GDP) for the second quarter of 2020 with a decrease of 27 percent. One of the factors that led to contraction of the local economy is the suspension of air travel occasioned by COVID-19 containment measures impacted on the number of tourists entering through the country’s borders and hence affecting the output of the hotels and restaurants industry. This will also be weighed down by, according to Moody’s, emerging markets which will see government losing average revenue worth 2.1 percentage points (pps) of GDP in 2020, exceeding the 1.0 pps loss in advanced economies (AEs).
“Fiscal revenue in emerging markets is particularly vulnerable to this current crisis because of concentrated revenue structures and less sophisticated tax administrations than those in AEs. Oil exporters will see the largest falls but revenue volatility is a common feature of their credit profiles historically,” says Moody’s. The domino effects of containment measures could be seen cracking all sectors of the local economy as taxes from outside were locked out by the closure of borders hence dwindling tax revenue.
Moody’s has placed Botswana among oil importers, small, tourism-reliant economies which will see the largest fall in revenue. Botswana is in the top 10 of that pecking order where Moody’s pointed out recently that other resource-rich countries like Botswana (A2 negative) will also face a large drop in fiscal revenue.
This situation of countries’ revenue on the red is going to stay stubborn for a long run. Moody’s predicts that the spending pressures faced by governments across the globe are unlikely to ease in the short term, particularly because this crisis has emphasized the social role governments perform in areas like healthcare and labour markets.
For countries like Botswana, these spending pressures are generally exacerbated by a range of other factors like a higher interest burden, infrastructure deficiencies, weaker broader public sector, higher subsidies, lower incomes and more precarious employment. As a result, most of the burden for any fiscal consolidation is likely to fall on the revenue side, says Moody’s.
Moody’s then moves to the revenue spin of taxation. The rating agency looked at the likelihood and probability of sovereigns to raise up revenue by increasing tax to offset what was lost in mineral revenue and tourism-related tax revenue. Moody’s said the capacity to raise tax revenue distinguishes governments from other debt issuers. “In theory, governments can change a given tax system as they wish, subject to the relevant legislative process and within the constraints of international law. In practice, however, there are material constraints,” says Moody’s.
‘‘The coronavirus crisis will lead to long-lasting revenue losses for emerging market sovereigns because their ability to implement and enforce effective revenue-raising measures in response will be an important credit driver over the next few years because of their sizeable spending pressures and the subdued recovery in the global economy we expect next year.’’
According to Moody’s, together with a rise in stimulus and healthcare spending related to the crisis, the think tank expects this drop in revenue will trigger a sizeable fiscal deterioration across emerging market sovereigns. Most countries, including Botswana, are under pressure of widening their tax bases, Moody’s says that this will be challenging. “Even if governments reversed or do not extend tax-easing measures implemented in 2020 to support the economy through the coronavirus shock, which would be politically challenging, this would only provide a modest boost to revenue, especially as these measures were relatively modest in most emerging markets,” says Moody’s.
Botswana has been seen internationally as a ‘tax ease’ country and its taxes are seen as lower when compared to its regional counterparts. This country’s name has also been mentioned in various international investigative journalism tax evasion reports. In recent years there was a division of opinions over whether this country can stretch its tax base. But like other sovereigns who have tried but struggled to increase or even maintain their tax intake before the crisis, Botswana will face additional challenges, according to Moody’s.
“Additional measures to reduce tax evasion and cutting tax expenditure should support the recovery in government revenue, albeit from low levels,” advised Moody’s. Botswana’s tax revenue to the percentage of the GDP was 27 percent in 2008, dropped to 23 percent in 2010 to 23 percent before rising to 27 percent again in 2012. In years 2013 and 2014 the percentage went to 25 percent before it took a slip to decline in respective years of 2015 up to now where it is at 19.8 percent.