MDCB’s investment in Masama Coal Mine could help diversify the economy
Minerals Development Company Botswana (MDCB)’s an investment in Minergy has the potential to achieve MDCB’s objectives.
Amongst others, the mining investment holding company is mandated to monetize and develop Botswana’s coal industry.
Updating shareholders recently, Minergy, which operates Masama Coal Mine some 50km north of Gaborone, expressed confidence they could help MDCB realise such ambitions.
Minergy also believes the investment will have broader benefits, including job creation and diversification of the economy.
In early 2019, MDCB, together with its advisors, completed comprehensive due diligence of the Masama Coal Project. The initiative was found to be robust and viable if approximately funded.
However, subsequent reviews are said to have highlighted developmental and operational risks, primarily driven by lack of funding and Covid-19. Nevertheless, the project was still seen a profitable if ongoing funding issues are resolved.
The government’s mining investment holding company’s investment mandate is to invest in the equity of a licence holder as opposed to being a debt provider.
In its information to shareholders, Minergy revealed MDCB was made aware of funding shortages due to the impacts of Covid-19 related lockdowns and the lack of both commercial and shareholder funding during this time.
In the absence of funding from the shareholders, MDCB is reported to have taken development and operational risk to sustain the Masama Coal Mine, even approving additional funding so that the project does not lose momentum.
MDCB has already advanced two funding tranches totaling P110 million, to be repaid by the end of February 2026 with a base interest of 15 percent – however, all interest would be capitalized until 31 March 2021.
Minergy believes its Masama Coal Mine project is sustainable with a coal resource of 390 metric tonnes (Mt), comprising open castable and underground mineable resources.
On the whole, the company is buoyed by the regional industrial coal market.
The market, excluding power generation and synthetic fuels, is said to have an annual demand of 34Mt, with the Group targeting 18Mt of that total.
Minergy’s target market includes industries such as cement and steel.
While this market, like all markets, was impacted by the pandemic, Minergy feels the outlook remains favourable in the medium to longer term.
The company also believes it is well placed with several natural competitive advantages including proximity to the customer, consistency of supply, and quality of the product, to benefit from opportunities in this market.
It is for this reason that MDCB identified Minergy’s Masama Coal Mine as an attractive investment for its mining and minerals investment portfolio.