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Funding, skills and logistics remain challenges for junior coal miners

19th July 2023

By: Cameron Mackay

Creamer Media Senior Online Writer

     

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Junior miner Ndalamo Resources founder and CEO Shammy Luvhengo, Morupule Coal Mine CEO Edwin Elias and energy company Shumba Energy chairperson Alan Clegg on July 18 outlined various challenges, particularly funding, skills and logistics, facing junior coal miners.

During the 2023 Coal and Energy Transition Day, Luvhengo highlighted the challenges for junior miners in obtaining funding, particularly from major banks.

Luvhengo noted that, while junior miners sometimes have fewer challenges to deal with compared with their listed counterparts from a cost perspective, a lack of financial resources available to junior miners can provide challenges in terms of solving challenges with capital investments.

“Being agile provides an advantage. Our strategy is to make sure we never build a mine that supplies only locally or for exports, it must service both markets.

"You have to acknowledge that you're in the coal mining industry, and the skills you’re selling is to mine cheaper than other major producers. We export coal. Miners are all facing similar challenges, but juniors are smaller in terms of the tonnage profile. You have to be agile in how you market your coal so that you remain sustainable and profitable,” added Luvhengo.  

Clegg, meanwhile, noted that Shumba was founded in 2009 as a coal exporter.

It then became a coal development company, and afterwards transitioned to a diversified energy company with investments in renewable energy projects.

“In Botswana, we have the first utility-scale renewable-energy solar photovoltaic plant. We are diversified; our approach hasn’t specifically been exports.

“Owing to the changing narrative around coal around 2015, we decided in 2017 to mothball coal assets. We’d already taken them to prefeasibility study level, and we didn’t do much with them. We’ve also done prefeasibility studies and have permitted footprints for up to 5 000 MW of power produced in Botswana.

“This power can be supplied and wheeled into the Southern African Development Community (SADC) market and power pool,” he outlined.

He added that in terms of using coal resources, the company’s focus has been on primary energy such as liquid fuels.

He also pointed to the closure of petroleum refineries in South Africa as a concern.

“Botswana needs a lot of liquid fuels, particularly for its agricultural market. We decided to take some of that Botswana coal and develop a 30 000 bbl/d coal-to-liquids project.

“We’ve funded this privately. And now we're in negotiations with the tier-one petroleum companies for the offtake in the region. They will, therefore, still have Africans producing liquid fuels such as diesel, petrol and so on.”

Clegg also noted the cyclical nature of the coal mining industry, and that there was still significant demand for investment in hydrocarbons.

He added that investors in certain regions were still interested in making a business case for coal and generating power in the SADC region.

“The market has a current deficit of between 80 GW and 90 GW. The market is there, you can sell every single kilowatt-hour you can produce”.

Clegg stated that Shumba had listed on the Botswana Stock Exchange and was able to raise about $8-million.

The company then also listed in Mauritius, the first miner to list on the country’s stock exchange, and was able to raise about $6-million.

“We, however, had a negative arbitrage on our stock price because less than 1% of our stock was trading in Mauritius. We, therefore, delisted there, and went to non-traditional sources such as India, Southeast Asia, the Middle East to attract investors who wanted to invest in profitable projects.”

Highlighting the need for efficient logistics networks, Elias said Botswana had more than 200-billion tonnes of coal reserves, but that it was under-used.

“We believe the opportunity is there for us to actually invest more in these coal reserves and make sure that we can create value for Botswana.”

Elias added that while the Morupule mine continued to provide 100% power generation for Botswana, the company had identified an ideal opportunity in the export market. This had led to the development of the opencast operation, which provided about 1.4-million tonnes a year.

“The key theme for us is around logistics. Coal is a bulk commodity and we believe that the infrastructure development within Botswana should position us well to be competitive.

“We believe the collaboration between South African State-owned rail company Transnet [Freight Rail] and Botswana could help us and further ensure that we see growth within the coal space.”

He added that Morupule had now been able to export coal to Europe for the first time in 50 years of operations.

“If we can resolve infrastructure issues, we’ll see more of this happening”.

TRANSITION FUNDING

Luvhengo emphasised that many countries in the world were pursuing energy certainty and security.

This can lead to volatile coal markets in the immediate future, which made proving an investment case for coal miners vital.

“Track record matters. If you've shown that you've delivered in the past and you stick to what you've said, you will attract investors. One of the positives we’re seeing is that traders are beginning to examine markets differently.

“The demise of coal was a misspent prophecy that came too soon. We will need coal, what we've got to look for is how do we make sure that we attract the investment required.”

He also argued that junior miners were often penalised more severely than more established mines in terms of mining responsibly.

This, however, could change going forward as miners begin to introduce more environment-friendly practices such as powering mining operations through renewable energy projects.

Elias pointed out that, globally, countries have made commitments based on their agreements made at the United Nations Climate Change Conference in 2021, Glasgow, where countries made commitments to transition away from coal by 2050 or 2060.

“From now until 2065, we still need coal and coal-fired power stations. Our growth strategy, however, is aligned to those agreements.”

In terms of funding, Elias added that it was difficult to solicit funding from major banks.

Morupule is currently in collaboration with major banks to help them develop a criterion to support the needs of junior coal miners.

Part of this criteria is for organisations to develop their decarbonisation strategy in order to demonstrate environmental, social and governance elements as part of this strategy.

“If we can also invest and create more forecasts within the decarbonisation strategies, it will make it easier for us moving forward.”

Clegg pointed out that while Shumba Energy had secured funding, there were challenges in securing offtake guarantees from petroleum companies.

“We found the best technology available with the lowest carbon footprint, the cleanest fuel available today. All we now need is to finalise these distribution and offtake agreements with petroleum companies, which is what we're engaged with currently.”

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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