Local coal miner, Shumba Coal, has endured a tough year of operations as the junior mining sector saw falling stocks with cost reductions, contraction, and suspension of operations by most miners, in a bid to survive.
However, Shumba board chair Allen Clegg, is still upbeat, future prospects, saying that: “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,” adding that Shumba will 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.”
Already, Shumba is projecting sales to local power producers of coal supply of up to 1.5 Mtpa of quality thermal coal to existing nearby power producers by 2016.
“Management continues to execute it 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 300MWe IPP potentially supplying NamPower in Namibia,” stated Clegg in a statement that accompanied the financial results of the company for the year ended 30 June 2015.
The expansion of the Mine to produce and supply an additional 1.5 Mtpa (Total of 3 Mtpa saleable) and construction and commissioning of our Sechaba Energy 300MWe IPP, utilising this expansion in production for generation and distribution to regional grids, with NamPower targeted for end of 2017.
“Analysts continue to predict that established energy markets and producers will continue to struggle in the short term, but also indicate the attractiveness at current levels of emerging energy markets like Africa where Shumba is in prime position. The power deficits embedded in the Southern African sector and SADEC region plays to Shumba’s growing strength in its asset base as our projects advance to energy supplier and we see this continuing to underwrite our future,” stated Clegg.
Shumba, as well as other miners are currently feeling the effects of low commodity prices. The downward spiral of the sector is said to be abating according to most observers.
“The potential rebound in the market and in particular for those companies like Shumba that have shown the resilience, prudence and diligence to continue to advance despite the past difficult environment remains a high probability and possibility,” said Clegg.
With the whole sector pondering on the timing of the recovery, however, an analysis carried out by the Board led them to posit “that it is not too far away based on macro trends in currency adjustments and devaluations, the need to bring interest rates to sensible levels and inflationary pressures that will result.”
On the markets for thermal coal, Shumba believes the markets will correct by 2017/18 based on the known energy demand across South-East Asia – not including major buyers, India and china- which is estimated to require an additional 40Mt of coal supply per annum with “the market is still heading for a significant deficit within 3 to 5 years which will force prices upward to potentially unseen levels and highs.”
Looking at the region, the Southern African power pool has a major net deficit of over 30GWe that is growing as older power plants (some 40GWe) are closed down and need replacement hence the planned Shumba Sechaba and Mabesekwa IPP’s will enter a readymade high demand market for security of return on investment for the long term.
2015 HIGHLIGHTS In total the Group raised USD $5.95 million during the year from two separate private placements with institutional and private investors in Botswana (USD $3.19m) and Mauritius (USD $2.76m) representing a 92 percent increase in the previous year “in more difficult times.”
Total Group expenditures on Exploration and Evaluation during the year were USD $ 1,001,754.
The Group’s net assets at the end of the year were USD $8,836,183.
Cash and Cash Equivalents of the Group as at the reporting date were USD $3,415,208.
Completion of the full project PFS for Sechaba Mine & Beneficiation project with export products.
Acquisition in September 2014 of the Lethlakeng deposit prospecting licence No. PL308/2014 with estimated coal resources of 500Mt and expenditures of USD $330,000 for the next three years to investigate the strong potential for development of a UCG (Underground Coal Gasification) project.
Acquisition in February 2015 of the 800Mt Mabesekwa Opencast Coal Mine Project and prospecting licence No. PL428/2009 in a binding agreement from Daheng Group for USD $4 million in shares and deferred cash/shares payments.
Execution of a legally binding JDA (Joint Development Agreement) with Mulilo Renewable Project Developments Pty Ltd of Capetown, for the joint development of the 600Mw Mabesekwa Independent Power Plant (MEIPP).
Completion of a strongly positive Mining Prefeasibility Study (PFS) for Mabesekwa strongly underwriting the MEIPP plan of the Company under the JDA with Mulilo.
The confirmation of the renewal of the Sechaba Licence in April 2015 by the Botswana Government underlining the confidence in the delivery capability of Shumba.
The confirmation in April 2015 of the full transfer of rights to Mabesekwa into the name of Shumba as a further show of confidence from the Botswana Government in the delivery capability of Shumba.
Management’s commitment and demonstrated competence in the disciplined maintenance of a low cost structure within the Group shown clearly in the Company’s continued advancement detailed above.
The Group remains adequately funded to meet its planned expenditure requirements in the coming financial year.
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”