Botswana Stock Exchange (BSE)-listed Minergy Limited, a coal mining company, today released its inaugural final results for the year ended 30 June 2017, reporting a loss per share of 6,76 thebe.
The company embarked on a capital-raising exercise in the first quarter of 2017, raising BWP70 million via a private placement prior to listing on the main board of the BSE in April this year. Minergy CEO, Andre Boje commented that, “A lot of work had been done and continues to be done since inception. Our focus shifted to coal production for supply to the regional and export markets rather than coal for power generation. We believe the narrative around South Africa requiring imported power will not come to fruition in the foreseeable future, if at all. This is supported by the announcement that there a surplus of 9,000 MW capacity and that South Africa has signed off-take agreements with Botswana and other SADC countries.”
Boje added that a highly-experienced team had been brought on board to accelerate the process of refining and understanding the full potential of the Masama resource. “74 diamond core boreholes and 22 reverse circulation boreholes have been drilled, totalling 5,570 metres over an area of 147 square kilometres. From this a revised Competent Persons Report (CPR)1 is being finalised, mine plans are in place, markets have been identified and off-take agreements are being discussed.”
Boje commented that the various requirements and obligations relating to the submission of a mining license application are also being attended to, with the target date for submission being the end of September 2017. “We’ve engaged extensively with the various government departments and the response has been most encouraging, leading us to believe that the license should be granted by the second quarter of 2018.” Requests for information (RFI) have been issued to identify qualified suppliers of the processing and wash plant and for mining contractor. This process is expected to be complete by the end of October 2017.
Talking about the industry, Boje said that “Renewable energy has a role to play however has been proven unreliable for base load electricity supply, with the only alternatives being nuclear, hydro and coal. “Nuclear is prohibitively capital intensive, hydro is hamstrung by global water shortages, which leaves coal-fired power generation. In addition, a large volume of coal continues to be used in numerous industrial processes other than power generation. Many of these processes are dependent on coal with no practical substitutes,” said Boje.
This is the first year that the group expensed certain operating expenditures, which were mostly incurred at the holding company level, which acts as an investment and holding company and sources funding for the group. Cash utilised in operations amounted to a loss of BWP9,4m million, with Exploration and Evaluation Asset Expenditure also showing a loss of BWP5,6 million.
In total BWP72 million was raised via the private and public placement of shares, with the cash being used to finance operational expenditures and further exploration and evaluation of the Masama Coal Project covered by the Prospecting License. Andre Boje, commented that without capital partners a project of this nature would not get off the ground, and that the major investors remain committed and supportive of the project going forward.
The demand for coal in the southern African region continues unabated with prices escalating on an ongoing basis. “The July 2017 McCloskey Coal Report highlights that South African domestic prices were 51% higher than the same period in 2016 and that there is strong demand from the cement, industrial and paper industries.”
Boje said this situation is driven by demand exceeding supply as producers are focused on fulfilling their take or pay export agreements together with the lack of investment in new projects or expansion of existing production facilities. “The climate of under-investment in South Africa is blamed partly on political interference in the mining sector and the rise of resource nationalisation.”
Initial production at Masama is planned for 1.2 million tons of saleable coal per annum ramping up when required, as the project will have a capacity to process 3 million tons of run of mine coal per annum from first commissioning. Export Market Whilst the initial project plan focused entirely on the 1.2 million tons to the regional market, attention must be paid to the export market as the API4 index price for seaborne thermal coal has risen 67% since 2016 and currently trades at $82.00 – $84.00 per ton.
“The international traders forecast that this trend could continue, albeit at slower rate, due to production cutbacks in China and delayed investment in greenfield coal projects. Noteworthy is significant investment by large multi nationals in coal projects in Australia which highlights their bullish view on coal going forward.” Boje added that Botswana has a significant role to play in the seaborne thermal coal market due to its large untapped coal resources and proximity to the South African coal export infrastructure.
He said that logistical challenges to exploit this opportunity need to be addressed and the company has had extensive engagement with Botswana Rail 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 utilization of the project capacity.”
Boje concluded by saying that following the successful listing on the BSE in April, the proposal was to explore a listing on the Johannesburg Securities Exchange (JSE) and list during 2018. “The board has also deemed it prudent to investigate the Australian Stock Exchange and the London-based Alternative Investment Market in addition to the JSE. Shareholders will be advised on progress on this matter in due course.”
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”