Coal Contender: Minergy Makes Off-Take Agreement

New kid on the coal block, BSE-listed coal producer Minergy Coal, recently finalised an off-take agreement with a South African cement producer, CEO Morne du Plessis tells SA Mining.

By: Nelendhre Moodley

Apart from the agreement, which takes up a significant portion of its nameplate capacity, the miner is looking to secure “a few more” contracts.

The coal mining and trading company’s wholly owned 390 million-tonne Masama Coal Project located in the Mmamabula Coalfields of Botswana is targeting some 70 000tpm of product, and planning to extract steady state production of 110 000 tonnes run of mine (ROM) per month.

According to Du Plessis, the three-year off-take agreement is for the supply of duff product (fines) and accounts for roughly 30-35% of current coal production.

However, he remains adamant that for its more profitable product, ranging between 8mm-28mm in size, the company will look to sell at spot prices; negotiating contracts with a maximum time frame of between six and 12 months.

The miner is targeting industrial users, including breweries, manufacturing facilities and hospitals, among others.

Around 85% of product is earmarked for the South African industrial sector, with 10% supplied into Namibia and 5% allocated to Botswana’s manufacturing sector.

However, while it is not focused on supplying product to power utilities, Du Plessis notes that should the need arise, “Minergy with its stability of volume and quality of supply is well poised to provide coal on a consistent basis to the South African market.

“Owing to coal shortages in South Africa, industrial users are struggling to access a consistent supply of high-quality product. Moreover, favourable export prices generally see South Africa’s larger coal producers favouring the export market where prices are higher and volumes bigger.”

Among the numerous challenges faced by local producers, including the pressure to mine sustainably and additional costs associated with the recently implemented carbon tax as well as banking institutions’ refusal to fund the development of coal projects, the South African government has indicated that it is considering asking local coal producers to reduce the cost of coal supplied to power utility Eskom.

Coal demand

Du Plessis believes that in the short term, the industrial demand for coal will increase.

“Following notification from South Africa’s coal majors of their imminent exit from the commodity and the refusal by financial institutions to fund projects, we expect the coal supply shortage to grow. And while there is certainly a speedy move to adopt renewable energy, South Africa cannot afford to immediately transition from coal to renewables given the country’s strong reliance on coal,” Du Plessis says.

Furthermore, with more than 500 million people in Africa living without electricity, coal, a cheap resource which is in abundant supply, has been tagged as the catalyst for electricity generation.

According to Du Plessis, the Botswana coal miner has the capacity to speedily ramp up production to meet growing demand.

“Our Masama project offers significant blue sky potential to help sub-Saharan Africans access power.”

Image: Masama coal project in Botswana

You might be interested in these articles?