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Coal makes resurgence as alternative to depleting diamonds

Coal makes resurgence as alternative to depleting diamonds
April 10
11:50 2018
  • 93 percent price rally since 2016
  • Great opportunity for former BCL workers

BUSINESS REPORTER

 As Botswana’s economic mainstay being diamonds near depletion, coal, which was touted to augment the gap left behind, has made a huge resurgence as a mineral that can help sustain the economy of Botswana, having gained 93 per cent in a price rally since 2016.

A recently released paper on insights observed by local asset management firm, Kgori Capital, highlights strong fundamentals that make coal mining more viable than in the recent past. Coal, a high margin, bulk commodity, has been on a price rally on international markets, as is the case with other commodities in 2018.

Since the coal price crash of 2009, the route to monetize coal in Botswana has been through the export of power, which most players have been focused on. However, Kgori opines that a slight shift in focus from ‘coal for power’ to ‘coal for export’ will prove to have significant impact on the potential of the industry.

Botswana looks set to play a more prominent role in both the domestic and regional coal sector, as emerging BSE listed coal mining companies such as Minergy Limited and Shumba Energy approach important production milestones in 2018. Kgori forecasts suggest better prospective returns for coal related equities.

Some of the fundamentals are as follows: Global Coal production fell by 6 per cent (458 million tonnes) between 2015 and 2016; double that of 2014/15; Global Imports and trade were up by 1.5 per cent (14.6 million tonnes) from 2015 to 2016 even with reduced output, with China alone increasing imports by 25.0 per cent; South Africa production down 1.4 per cent and exports up 2.9 per cent; resulting in a 5.8 per cent shortage in the inland market; Botswana Railways (BR) and Transnet Freight Rail (TFR) discussing linking the BR network to the TFR and lastly, coal prices improved by 93 per cent to $93/tonne from the lows of $48/tonne in 2016.

“Botswana producers are currently estimating their production capabilities at around one million tonnes per annum. The regional demand gap can therefore absorb all the planned production and support any further investment in Botswana. Botswana producers have a distinct advantage over other Southern African producers, as our deposits are closer to the consumer,” the asset manager said in its statement.

A combination of the reduced production and re-directing of ‘coal for export’ has resulted in a shortfall to South African industrial coal consumers of approximately 13 million tonnes per annum; this gap is projected to go up to 383 million tonnes per annum by 2030.

While Government has since gone quiet about the development of the 1600 km Trans Kalahari Railway which was to service seaborne market, Botswana Railways continuing engagement with Transnet of South Africa in a bid to reach an agreement on the use of Transnet’s rail into South Africa is seen as a panacea for the logistics head ache that has forever stood in the way of the monetisation of Botswana’s vast coal resources.

The prospects look so good for coal mining that Kgori sees it soaking up employees laid off of BCL Mining and Smelting and Tati Nickel Mining Company, in Selebi Phikwe and Francistown, respectively.

However, Kgori warns that fast decision making is of the essence and those who move quick to take advantage of the imbalances between demand and supply, stand to benefit most.

It is said that coal will remain relevant for the foreseeable future even as a slow switch to cleaner energy sources is taking place.

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