Recently, Minergy coal made a market update that covers the performance of the Company for the six months ending 31 December 2020 (interim period) which was characterised by both highs and lows. The first three months showed extremely positive trends in production, processing, and sales, followed by a depressed three months on the back of delayed funding and the COVID-19 pandemic, which impacted operations.
Achievements of Minergy during the interim period includes record sales volumes in first half of the interim period. There were comparable sales for the full six-month interim period were significantly higher in volume terms compared to the six months ending 31 December 2019, albeit from a low base. The successful completion of the rail siding and sending 10 coal trains to a cement producer in South Africa was also a highlight.
Further to that, the successful awarding and delivery of a second tender for the Namibian Power Corporation was a positive too. Fortunately, no COVID-19 cases were identified on the mine. To add on, there was no lost time due to injury during the interim period, bringing the accumulated record to 850 day. Moreover, there was continued government support for the project, resulting in Minergy securing additional debt funding late in the interim period. In addition, the completion and commissioning of Stage 2 of the Coal Handling and Processing Plant (CHPP) rigid crushing section and the termination of the use of mobile crushers and early signs of recovery in domestic pricing.
Impressively, Minergy was shortlisted for an Eskom (South Africa’s national electricity provider) tender to supply the Tutuka Power Station; and business optimisation and efficiency drive continues unabated. As previously reported, the business was unfortunately negatively impacted by delays in funding shortfalls relating to COVID-19, which compelled suppliers to scale back operations in order to minimise overdue exposures and caused the following operational impacts.
However, Minergy had to reduce mining shifts, which led to limited capacity to provide sufficient feedstock for the processing plant and sales orders as all exposed coal had been extracted. The inability to continue with pre-stripping of overburden contributed to delays in the extraction of coal once financing was approved and received; and all saleable stockpiles were depleted to provide product to customers. Production was also impacted by safety precautions taken over a 3-week period relating to final assembly and commission phase of Stage 2 of the CHPP. In addition to this, excessive rainfall in the last two months of the interim period impacted production volumes, product processing ability, and the subsequent collection of products by customers.
As aforementioned, sales volumes showed positive recoveries after the relaxation of COVID-19 restrictions in June 2020. Sales order activity increased and has remained constant for the interim period, with customers again confirming orders as well as their satisfaction with the quality of coal delivered. Due to the use of mobile crusher, the sales mix for most of the interim period was geared to finer, less profitable product. The majority of product for the interim period was sold into the cement market in South Africa. The Botswana Pula gradually weakened against the South African Rand, particularly at the end of the interim period, but on average remained strong, which contributed to pressure on realised sales prices in BWP terms. The easing of COVID-19 border restrictions assisted with the collection of coal albeit that intermittent delays at border crossings still occur.
The Company has an outstanding safety record, with zero COVID-19 cases reported, zero injuries on the mine and more than 850 days without lost time due to injury. A COVID-19 action plan is in place and thoroughly implemented. In terms of funding, the Company has since inception, raised a gross amount of P165 million in equity and accessed approximately P253 million of debt. The cash proceeds from these raisings and facilities were utilised for the establishment of the Masama Coal Mine, its mining infrastructure, and related operational costs. Minergy is pleased to announce that additional convertible debt funding was secured through the Mineral Development Company Botswana (MDCB) amounting to P125 million. Of this amount.
Furthermore, 50% was drawn down in December 2020; and the balance is subject to conditions (see further information in circular to shareholders dated 19 January 2021 referred to below). This funding will primarily be used for working capital, outstanding capital projects and to complete the ramp-up phase. In terms of the outlook for Minergy, Stage 2 of the CHPP relating to the rigid crushing and screening section of the plant, was recently completed and is expected to present significant efficiencies, improved product particle distribution (favouring more economical product sizes), reduction of double handling material processing costs, improved water management and stability in supply.
Water management infrastructures, such as a filter press and dewatering circuits, representing Stage 3 of the CHPP, is scheduled for imminent completion, all of which is expected to maximise efficient water usage, recovery, and control of this precious resource. Completing of Stage 4 CHPP (Rigid Screening and Stock Handling section) is expected to be completed before the end of the financial year, which will provide added benefits of savings in material handling processing costs, availability of supply and less handling of the product.
Given that funding has been secured and with the potential of further funding available, Minergy is confident that production and sales momentum will continue into 2021. International coal pricing for southern Africa coal has seen a significant upturn. Richards Bay thermal coal prices attained a 10-month high late in November 2020. Pricing has steadily increased by 30% from November 2020 levels and average December 2020 prices were 70% higher than July 2020 prices. The sudden increase is driven by strong demand from India and the spill-over of China’s ban on Australian coal. Prices have remained stable post the interim period although there is an expectation for a shortterm downward correction in the first quarter of 2021. Minergy’s outlook expectation is that prices will remain stable at these adjusted levels in the first half of 2021.
This has a positive effect on domestic pricing with export product being removed from the market allowing for sales opportunities as well as pricing adjustments. Given the positive news on vaccine options and the rollout thereof, the Company further expects that demand from China and India as well as from regional neighbours will provide momentum and sustainability to the coal price. The ZAR has strengthened against the BWP and stabilised at normalised levels used in initial forecasts, which assists in the realisation of Pula sales prices. COVID-19 restrictions continue to impact the business.
Despite new curfew restrictions being announced by the Botswana Government, which require additional permitting administration for night shifts, operations and the collection of coal can continue. Several opportunities to significantly increase production are currently being assessed. Depending on the economics at the time, Minergy’s objective is to double production capacity through a Phase 2 project, which would enable it to access a range of opportunities. These include increasing supply to industrial customers and export opportunities. However, increased production would require additional capex primarily to boost the capacity of the washing plant and plant infrastructure, as well as the completion of an additional box cut.