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P136 billion for Trans Kalahari Railway


Australian based Trans Kalahari railway line consultants, Aurecon, last week Thursday, handed over to Botswana Government, a preliminary assessment of the viability and modalities surrounding the development of the rail line.

The report titled ‘Trans-Kalahari Railway Preliminary financial and commercial assessment’ was prepared by Tom Frost and Ben Ellis dated 11 December 2014. This report precedes a final assessment report that will be presented in January next year.

The purpose of the assessment was to determine the commercial viability of Botswana coal mines if they were to use the envisaged Trans Kalahari Railway line where various TKR development scenarios were considered and sensitivity analysis was performed on all key inputs.

The 1477 kilometers railway line will run from Mmamabula through six coal producing regions in Botswana, to Walvis Bay, Namibia.

KEY FINDINGS
First, the rail related costs are particularly sensitive to assumptions with respect to WACC, gauge and below rail capex costs thus: The major impact policy makers can have on the project costs is through the choice of route and gauge. The optimised route is only 124km -less than 10 percent shorter- than the Government of Botswana route but the longer route is estimated to be nearly $2 per tonne higher. A move to narrow gauge would increase costs by around $3 per tonne primarily through higher above rail operating costs. Accessing cheaper investor capital would also improve the viability of the railway significantly

Secondly, the results are also very sensitive to assumptions with respect to mine operations

Last, consultants say ramp up is a major risk for project investors and miners. If all miners are not able to ramp up production from 65 to 95 Mtpa to full production in seven years costs will increase significantly  

RISK FACTOR
The major risk factor and potential upside is with respect to sale price of coal, the report says.

To achieve the target export sale quality, it is likely that miners will use underground mining techniques.

“Botswana coal typically is deposited in a number of seams at varying depths; Coal quality varies across these seams, with the higher quality coal typically lower in the deposit; At a high level two mining techniques are typically considered; Underground (bord and pillar).”

The report states that Underground mining will be more expensive at approximately $25 per tonne ROM, but miners are able to target only the best seams and it yields a higher proportion of coal per tonne of ROM lower the proportion of waste from the mining

A major disadvantage of underground mining bord and pillar mining, however is that it leaves more than 30 percent of the coal behind, as pillars and therefore a much larger resource is required for any given output level.

Open cut is cheaper at approximately $12 per tonne ROM but miners clear all seams and it produces a significant amount of waste product and low quality coal.

BENEFITS OF THE RAIL LINE
The railway line is expected to unlock the monetisation of Botswana’s coal resources, which are seen as a way to augment the depleting diamond resources that have been the mainstay of the country’s economy.
Aurecon has given the resultant capital expenditure costs at a total of USD14.2 billion, comprising USD8.6 billion for electrified rail, and USD1.9 billion for above rail, and USD3.6 billion for the port.

The “Pre-Feasibility Study of the TKR Report” prepared by Canadian firm, CPCS in 2011, contained capital and operating costs estimates for the rail and port but the new assessment by Aurecon is said to be 90 percent different due to several considerations such as: A high level review of these costs has been undertaken as a result of a number of issues: changes to the construction market since 2011; changes in operating philosophy of the rail, and proposed enhancements to the project.

“Lower capex possible however will result in higher operating costs, and overall
higher whole-of-life costs,” states the report.

There are two coal quality options that policy makers will be faced with, Option 1 being Richard Bay benchmark export which has middlings, and Option 2 which is lower than Richard Bay quality coal, little or no middlings.

Benchmark quality export coal can be produced but only if there is a domestic market for the low quality ‘middlings’ by product while producing a lower quality export coal (~5,500 c/kg) middlings production is eliminated or minimized.

Botswana possesses substantial coal deposits of 212 billion tonnes, the majority of which are low grade. Under favourable conditions, and until solar power becomes a feasible option for supplying base load electricity, this coal could be either exported or used for local regional electricity production and consumption. Electricity shortages impose a considerable constraint on economic growth in sub-Saharan Africa. This strengthens the argument for local production of coal-fired electricity, especially if regional fossil fuel supplies are integrated in a technologically adept manner to ensure economies of scale. However, coal extraction for either export or local production is environmentally costly despite advances in technology.

The alternative is for Botswana to export its coal, which would attract immediate export revenue. This is unlikely to create sustainable economic diversification, though. Botswana is landlocked and lacks available transport infrastructure to facilitate exports of such a scale, weakening the argument for this option.

The high quality export/middlings option is potentially attractive to miners if the middlings can be sold to a relatively close power station because it maximises the price achieve for export coal and minimised the proportion of output that has to be transported to a port

If all the miners took this strategy a much higher ROM output would be required if 60mtpa of export coal were to be produced and the middlings output would be in the order of 20mtpa. Current domestic Botswana electricity demand can be satisfied by under 2mpta of coal. It is not expected that the market will expand sufficiently to be able to provide a market for high volumes of middlings. If the middlings are not sold then the average cost of producing benchmark export coal will rise by 20 percent to 30 percent and become uneconomic. As a result it is anticipated that the majority of producers will blend to produce a higher volume mid range ~5,500 c/kg.

The Richards Bay has been used to benchmark potential Botswana coal products and estimate a sale price, which at the moment stands at US$ 65 per ton, a five year low. Botswana’s Export quality coal with 20 percent ash and 5500kcal/kg is estimated to sell at US$60 per ton, with expected price increases forecast for the next ten years.
 
Price variations from this benchmark are calculated based on a wide range of factors including, caloric value, sulphur content, ash and moisture levels.

A primary problem is that demand for Botswana’s coal is not guaranteed. The International Energy Agency’s (IEA) ‘Annual Energy Outlook 2014’ foresees a general shift away from carbon-intensive fuels for electricity generation, though that may largely be restricted to the Organisation for Economic Co-operation and Development (OECD) countries.

A 2014 statistical review by British Petroleum, the global energy giant, shows that total world coal consumption in 2013 was the equivalent of 3 826 million tonnes of oil (Mtoe), up from 2 342 Mtoe at the turn of the century. Much of this growth is primarily generated by non-OECD countries.

However, increasingly competing with coal and cohering with the IEA assessment, consumption of ‘other renewables’ was up to 279.3 Mtoe from only 51.8 Mtoe in 2000. In the absence of globally binding policies to mitigate climate change, though, the EIA still projects coal consumption to increase at an average rate of 1.8 percent per year through 2040 in non-OECD countries. Coal’s share of fuel consumption for electricity will only decline from 43 percent in 2010 to 37 percent in 2040.


Furthermore, Aurecon has identified a number of alignment improvements that will reduce the length by a total of approximately 108km, in addition to the 24km reduction resulting from the GoB enhancement between Mochudi and Kang. However, the PFS Northern Alignment, whilst environmentally and socially superior to the Southern Alignment, adds significant costs to the supply chain.

“Considering the economics of exporting coal from Botswana, it is critical that (whole-of-life) costs be minimised – optimising the alignment provides the greatest opportunity in this area,” stated the report.

DIESEL OR ELECTRIC TRAINS?
The debate around whether to employ diesel or electric locomotives on the Trans Kalahari Highway will be decided on various factors, including environmental and long term cost concerns.


Electrification of the envisaged railway line provides several additional benefits such as: Opportunity to convert coal unsuitable for export to power; Provides additional high value link to Namibia; SADC region projected to experience continued shortfall in power; Electricity generation from own resources provides significant balance of payments benefits compared to importing up to 450 million litres of diesel fuel each year; Improved supply security – not reliant on external suppliers for a critical input and cleaner, quieter operation compared with diesel locomotives


RISKS TO THE PROJECT
There remain various latent risks to the project such as :  Loss of the project to a major resource player whereby a major coal developer possibly seeks to take control of the project once the Botswana Government has invested significantly to initiate the project; Major User seeks to dictate terms favourable to them; Low coal price – non-viable project; Principal driver for the project is the commercial viability of export coal; Timing as a critical issue with the project being  delivered at a time when the market can sustainably support it; Land acquisition and negotiations and approvals, though not a concern for the majority of the alignment of the TKR, the revised alignment has a significant impact upon the viability of the project and might bring the TKR closer to populated or developed areas; Project timing with resource projects gearing up for the next wave bringing Botswana and Namibia domestic resources and workforce to develop this project.

Finally, the Walvis Bay Export Terminal development faces a risk of running slow or capability of Walvis Bay developers to meet the timeline of the TKR as it must be considered within and as part of the total export supply chain Walvis Bay Export Terminal fails to develop, the rail is unlikely to proceed.


The finalisation of the Development Plan for the Trans Kalahari Railway line will be possible after the following are completed: Finalisation of Supply Chain Infrastructure;  Master Plan mapping of clusters and connections to copper/manganese; Finalisation of the commercial model assessment for the TKR; Incorporating the commercial outcome from the mine to ship modelling; Finalisation of structure assessment and impact on Government of Botswana; Funding sources identified and the Project Memorandum being developed to engage with the market in the next stage.


The efficiency of the railway line coal supply chain is expected to be maximized by Copper resources in North West Botswana identified to boost TKR viability, Manganese ore resources in southern Botswana identified to add to the viability of the TKR, both these mineral developments (copper and manganese) will add to the diversification of Botswana’s GDP.  Mineral resources along the TKR corridor in Namibia have the ability to further improve the viability of the TKR.

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MD, Board in BBS battle for supremacy

12th April 2021

Botswana Stock Exchange (BSE) moved swiftly this week to suspend BBS Limited from trading its securities following a brawl between Board of Directors and Managing Director, Pius Molefe, which led to corporate governance crisis at the organisation.

In an interesting series of events that unfolded this week, incumbent board Chairperson, Pelani Siwawa-Ndai moved to expel Molefe together with board Secretary, Sipho Showa, who also doubles up as Head of Marketing and Communications.  It is reported that Siwawa-Ndai in her capacity as the board Chairperson wrote letters of dismissals to Molefe and Showa.

Following receipt of letters, the duo sought and was furnished with legal opinion from Armstrong Attorneys advising them that their dismissals were unlawful hence they were told to continue to report to work and carry out their duties.

Documents seen by BusinessPost articulate that in the meeting which was held on the 1st of April, the five outgoing board members, unlawfully took resolutions to extend their contracts by a further 90 days after April 30 2021 as they face tough competition from five other candidates who had expressed interest to run for the elections.

Moreover, at the said meeting, management explained that neither management nor the board have the authority to decline nominations submitted by shareholders or the interested parties which is in line with Companies Act and also BBS Limited constitution.

Molefe also revealed that as management they cautioned the board that it was conflicted and it would be improper for it to influence the election process as it seems they intended to do so.
“Nonetheless, in a totally unprecedented move in the history of BBSL, the board then collectively passed the unlawful resolutions below. Leading to the illegitimate decisions, the board had brazenly directed that its discussions on the Board elections should not be recorded totally violating sound corporate governance,” reads the statement released by management this week.

When giving their legal advice, Armstrong Attorneys noted that notice for the AGM should state individuals proposed to be elected to the board and directors have no legal authority to prevent the process.

Armstrong Attorneys also noted that, “due process” cited by board members are simply to ensure that the five retiring Directors avoid competition from interested candidates to be appointed to the BBS Limited board.  The law firm further opined that the resolution of the 90 day extension of term of the five directors pending re-election or election was unlawful.

Molefe expressed with regret that BBS has been suspended from trading by BSE until the current matter has been resolved. “I am concerned by this development and other potentially harmful actions on the business. As management, we are engaging with stakeholders to mitigate any negative impact on BBS Limited,” expressed a distressed Molefe.

He assured shareholders and the rest of Management that they are working very hard to ensure that the issues are being dealt with in a mature manner.  BBS which hopes to become the first indigenous commercial bank has seen its shares halted barely four months after BSE lifted the trading suspension of shares for BBS following submission of their published 2019 audited financial statements.

According to Chief Executive Officer (CEO) of the local bourse, Thapelo Tsheole said the halting of shares of BBSL is to maintain fair, efficient and orderly securities trading environment. “The securities have been suspended to allow BBS to provide clarity to the market concerning the recent allegations which have been brought to the attention of the BSE relating to the company’s Board of Directors and senior management,” said Tsheole.

Meanwhile in their audited financial statements for the year ended 31 December 2020, BBS recorded a loss of P14.6 million as at 31 December 2020 compared to the loss of P35.7 million for the comparative year ended 31 December 2019. According to Molefe the year under review was the most challenging for the bank, its shareholders and customers endured the difficult economic environment and the negative impact of the coronavirus.

He revealed that as the bank, they were forced to put in place several measures to ensure that the business withstands the impact of coronavirus and also to cushion mortgage customers from the effects of the pandemic. “Since April 2020 up to the end of December 2020, BBS assisted 555 mortgage customers with a payment holiday,’’ he said.

This is the bank whose total balance sheet declined by 12 percent from P4, 626 billion for the year ended. 31 December 2019 to P4, 088 billion as at 31 December 2020. As if things were not bad enough, total savings and deposits at the bank declined by 14 percent from a balance of P2, 885 billion as at 31 December 2019 to P2, 494 billion as at 31 December 2020.

On a much brighter side, BBSL mortgage loans and advances improved from P3, 401 billion to P3.408 billion with impairment allowance significantly improving to P78, 648 million from P102, 532 million for the year under review, representing a positive variance of 23 percent. BBS maintained a strong capital base with capital adequacy ratios of 26.32% for the year ended 31 December 2020.

Molefe was optimistic and anticipated a positive outcome during the implementation of the new BBS corporate strategy, whose main drive is commercialization of operations, which is in full force.
“It will be spurred on by the positive results we have achieved for the year ended 31 December 2020, and our planned submission of our banking license application to Bank of Botswana which we anticipate to operate as a commercial bank in the third quarter of 2021,” he alluded.

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Mphathi promises people centred, environmentally sensitive new BCL

12th April 2021
CEO of Premium Nickel Resources Botswana: Montwedi Mphathi

Chief Executive Officer (CEO) of Premium Nickel Resources Botswana (PNRB), Montwedi Mphathi, has said his company will resuscitate the formerly owned BCL assets and deliver a new, sustainable and cutting edge mining operation.

The new mine which will leverage on modern and next generation technology, will be environmentally sensitive and cognisant of the needs of its people and that of the communities around the area of influence.

In a statement last week, Premium Nickel Resources Botswana and its parent company, the Canadian headquartered Premium Nickel Resources announced that they have now completed the Exclusivity Memorandum of Understanding (MOU) with the Liquidator.

The MOU will govern a six-month exclusivity period to complete its due diligence and related purchase agreements on the Botswana nickel-copper-cobalt (Ni-Cu-Co) assets formerly operated by BCL Limited (BCL), that are currently in liquidation.

On February 10, 2021, Lefoko Moagi, the Minister of Mineral Resources, Green Technology and Energy Security of Botswana, affirmed in Parliament a press release by the Liquidator for the BCL Group of Companies, stating that PNR was selected as the preferred bidder to acquire assets formerly owned by BCL.

“This is encouraging for the company and for Botswana. Our ambition in this new project dubbed “Tsholofelo” is to redevelop the former BCL assets into a modern, environmentally sensitive, efficient NI-Cu-Co-water producer where sustainability and the people are at the forefront of the decisions we make,” said Mphathi in a statement last Thursday.

“We also understand that no matter how successful we are at building the “New BCL” , our success will only be measured at our ability to create local wealth , skills and support the continued transition of local economy to a longer term sustainable base.”

The next step during the exclusivity period will be the completion of the definitive agreement. Simultaneous to this the PNRB will be conducting additional investigative work on site to further its understanding of the potential of these assets.

Specifically the company will complete an environmental assessment, a metallurgical study, a review of legal and social responsibilities, a review of the mine closure and rehabilitation plans and an on-site inspection of the legacy mining infrastructure and equipment that has been under care and maintenance.

Mphathi said they continue to monitor the global Covid-19 developments noting that they are committed to working with health and safety authorities as a priority and in full respect of all government and local Covid-19 protocol requirements. PNRB has developed Covid-19 travel, living and working protocols in anticipation of moving forward to on site due diligence.

“We will integrate these protocols with the currently applicable protocols of Ministry of Health & Wellness as well as District Health Management Team ( DHMT) and surrounding communities,” reads a statement released by the Gaborone based Premium Nickel Resources team.

PNRB is looking to become a catalyst in participating and building a strong economy for Botswana, with a purpose where respect and trust are core to every single step that will be taken. “Our success will mean following international best-in-class practices for the protection of Botswana’s environment and the focus on its people, building partnerships and earning respect, through cooperation and collaboration,” explains PNRB on its website.

“We are committed to Governance through transparent accountability and open communication within our team and with all our stakeholders.” Mphathi, a former BCL Executive, is widely celebrated for achieving unprecedented profitability at the mine during his tenure as General Manager.

The Serowe-born mining guru obtained a Diploma in Mining Technology from Haileybury School of Mines in Canada. He later obtained a B.Eng. Mining degree from the Technical University of Nova Scotia. Mphathi went on to City University in London, UK and obtained a M.Sc. in Industrial and Administrative Sciences.

Before ascending to the top country managerial role of Premium Nickel Resources. Mphathi was General Manager of Botswana Ash (Botash), Southern Africa’s leading salt and soda ash producer.
He was at some point linked to Debswana top post, which is still to date not substantively filled following the death of Managing Director, Albert Milton, in August 2019.

With Mphathi out of the race and now leading the rebuilding of his former employer, the top post at De Beers- Botswana joint venture is likely to be filled by current acting Managing Director Lynette Armstrong, a seasoned finance executive with unparalleled experience in the extractive industry.

“We are happy to hear that former General Manager of BCL, Mr Montwedi Mphathi, has a relationship with the new Company that intends to resuscitate the mine, he is an experienced Mining Executive who knows BCL better, we want the mine to be brought back to life so that our people can be employed ” said Dithapelo Keorapetse Member of Parliament for Selibe Phikwe West recently in Parliament.

BCL was liquidated in October 2016 following a series of losses and government bailout occasioned by low Copper prices and allegedly poor Investment decisions and maladministration. Recently PNR CEO, Keith Morrison said his team of seasoned experts both from Canada and Botswana are committed to resuscitate the BCL assets and deliver a high performance mining operation.

“The World, Botswana and the mining industry have changed dramatically since mining first started at the former BCL assets in the early 1970s. The nickel-copper-cobalt resources remaining at these mines are now critical metals, required for the continued development of a decarbonized and electrified global economy,” he said.

Morrison added: “As we move forward, it is our goal to demonstrate the potential economics of re-developing a combination of the former BCL assets to produce Ni-Cu-Co and water in a manner that is inclusive of modern environmental, social and corporate governance responsibilities.”

He explained that to attain this, extensive upgrades to infrastructure will be required with an emphasis on safety, sustainability and the application of new technologies to minimize the environmental impact and total carbon footprint for the new operations.

“Our team remains committed to working with the local communities and all of the stakeholders throughout this period and we encourage anyone with questions or feedback to reach out to us directly,” he noted.

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Lucara extends sales deal with Belgian diamond cutter

12th April 2021
Lucara extends HB Antwerp’s contract Signum technologies

Lucara Diamond Corporation, the Canadian 100% owners of iconic Karowe mine, this week announced the extension of its supply deal with Belgian diamond midstream giant HB Antwerp.

The definitive supply agreement is in respect of all diamonds produced in excess. of 10.8 carats in size from its rare gem producing Karowe diamond mine located in the Boteti district of Botswana.
Large, high value diamonds in excess of 10.8 carats in size account for approximately 70% of Lucara’s annual revenue.

Though the Karowe mine has remained fully operational throughout the COVID-19 pandemic, Lucara made a deliberate decision not to tender any of its +10.8 carat inventory after early March 2020 amidst the uncertainty caused by the global crisis.

Under the terms of this novel supply agreement with HB, extended to December 2022, the purchase price paid for each +10.8 carat rough diamond is based on the estimated polished outcome, determined through state of the art scanning and planning technology, with a true up paid on actual achieved polished sales thereafter, less a fee and the cost of manufacturing.

“Lucara is beginning to see the benefits of this strategy in accessing a broader marketplace and delivering regular cash flow based on final polished sales,” said Lucara CEO, Eira Thomas on Wednesday.

“We believe these early results warrant an extension of the arrangement for at least 24 months to determine if superior pricing and market stability for our large, high-value diamonds can be sustained longer term.”

The Canadian junior miner initiated a supply agreement with HB for large stones from its Botswana Karowe mine in July 2020, after pausing its tenders shortly after the Covid-19 pandemic began.
The deal enables Lucara to sell the rough diamonds to HB at a price based on an estimate of the polished outcome, which the companies determine using diamond scanning and planning technology.
Once HB sells the goods, it adjusts the price that Lucara receives based on the actual selling price of the polished, minus a fee and manufacturing costs.

The extended supply deal will follow the same payment terms as the initial agreement, and will be in effect through to December 2022. Lucara said in a statement this week that the agreement also provides increased tax revenue and beneficiation opportunities for the government of Botswana, and creates a streamlined supply chain for Karowe’s rough.

“More than a supply agreement, this collaboration structurally embeds a new transparent and sustainable way of working in the diamond-value chain,” said HB CEO, Oded Mansori.
“For the first time, different partners of the value chain are fully aligned, sharing data and information throughout the process from mine to consumer.”

Mansori added: “We are truly proud with this innovative and straightforward collaboration that has proven itself through the volatile and uncertain reality of 2020. We are confident to achieve even better results during the term of this new contract and demonstrate the power of a true partnership.”

Lucara, which early this year secured extension of Karowe mining license to 2040, announced over P2.4 billion funding for Karowe underground mining expansion project a fortnight ago. The Vancouver headquartered top large diamond producer says this supply agreement deal extension with HB will bring about regular cash flow for Lucara using polished pricing mechanism. Furthermore, the company says the deal has potential revenue upside, particularly suited for Lucara’s large, exceptional diamonds.

In the main, Botswana will benefit increased tax revenue and additional beneficiation opportunities for the Government and communities around Karowe mine. A streamlined supply chain that achieves alignment between Lucara and HB to maximize the value of each +10.8 carat diamond produced at Karowe.

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