The Botswanan government is expected to dedicate more resources to the development of its coal sector to diversify its mining revenue and meet its energy imperatives, says mining consultancy Core Consultants MD Lara Smith.

This is attributed to a decreased global demand for diamonds – Botswana’s main export – as well as the long-awaited implementation of the Ministry of Minerals, Energy and Water Resources’ (MMEWR’s) Coal Roadmap – a national strategy for the beneficial exploitation of Botswana’s coal reserves – developed in 2012.

The roadmap provides for the development of coal-generated energy projects that will boost Botswana’s energy capacity, such as coal-fired power stations, coal-bed methane gas-fired power stations and coal-to-liquids (CTL) projects.

Smith notes that there is a concern that the economy relies too heavily on diamond mining, subsequently prompting the diversification of and support for other investment projects, adding that “coal mining has long been identified as a potential revenue source for Botswana”.

She cites a $4.2-billion CTL cogeneration and fertiliser project, owned and funded by energy company Coal Petroleum and South African holding company Kumvest. The Francistown-based project is expected to use about 4.3-million tons of coal a year, sourced from Botswana’s Morupule mine. The project has been in development since April 2014.

It is forecast to stimulate investment and is strongly aligned with the Botswanan National Imperatives of energy security and independence of supply, combined with conscious beneficiation of local coal resources. It is predicted that 20 000 bbl/d will be produced initially, with capacity scaling up to 50 000 bbl/d, contributing 304 MW to the national grid at this point.

More than 4 000 permanent jobs should be created, with an additional 5 000 temporary jobs earmarked for the construction phases. Smith notes that the first of three construction phases is due to start this year, with the third phase concluding in 2020.

She points out that, as coal mining and CTL require human capital, which is important for Botswana, the project is expected to be well supported by the country’s government.

However, Smith notes that “we are currently in a situation where commodities have fallen out of favour, with prices down dramatically”, therefore making investment “challenging to secure”.

Further, while the low oil price is positive from an input cost perspective, it will likely have adverse impacts on projects like the Francistown CTL project. Smith explains that low oil prices are negative for any commodity regarded as a potential oil substitute or that is positively correlated to and, thus, dependent on oil prices.

“For instance, low oil prices have had an adverse effect on alternative-fuel demand and price tariffs. This, in turn, has led to fewer orders, which has a knock-on effect on raw materials used to produce alternative fuels.”

Smith also expects reduced production, scaled-down operations or outright mine closures across all commodities to continue until 2017, at the very least. “Currently, there is still a major overhang in the market and we need to see a lot more shutdowns globally before any turnaround can occur.”

She suggests that mining companies use the depressed mining market to gain efficiencies and consider their supply chain. “If you can cut costs, do so. Trim the fat. Cement relationships and marketing strategies, but do not cut back so much that you will not be able to recover when the market turns.”

Companies should leave a core workforce in place so that, when the market recovers, they do not suddenly have to start sourcing workers. Smith predicts that the market will start to turn within the next two years for some commodities.

She maintains that Botswana is a good mining jurisdiction, as it is endowed with untapped reserves and has a stable government and a positive investment climate. While there are constraints with respect to insufficient infrastructure, a relatively small workforce and the fact it is landlocked – characterised by vast distances and relatively few citizens, thus little in terms of industry – Botswana has great potential for growth in its mining sector.

State’s efforts to address power and water supply problems by allocating more resources to infrastructural development, as well as its continued efforts to encourage foreign investment by correcting hindrances in Botswana’s legal and regulatory framework, will ensure that its mining industry is well placed to capitalise when the market turns.