Minergy, the coal mining and trading company, released results for the year ended 30 June 2023, indicating that strong momentum in the first half was eroded by year-end due to changes in the international coal market.
Outgoing Chief Executive Officer (CEO) Morné du Plessis indicated that the year under review had been one of changing fortunes. During the first half of the year (H1 2023) Minergy operated within an unprecedented thriving sales environment. This had supported full production, with the Group achieving new monthly sales and production records.
“However, in the second half of the year, i.e., H2 2023 there was a sudden and significant drop in coal prices due to excess product in the European market, caused by voracious buying,” du Plessis explained. The situation was compounded by the stoppage by the mining contractor at the beginning of March 2023. Downsized operations only resumed during the week of 7 April 2023.
However, comparing annual statistics does show an improvement over prior years, with four consecutive years of production and sales increases, even with the H2 2023 setbacks. “Typically, mining and processing volumes are still 19 percent higher than FY22, with overburden exceeding the prior year by 35 percent. Absolute values also represent new annual performance records. Overall sales were 10 percent higher but trended at 50 percent volume increases at the end of H1 2023.”
Du Plessis added that although the size of operations at the Masama Coal Mine is being reduced to balance production levels and costs in this current market, Minergy strongly believes that the quality of its products, its loyal customer base, and logistical advantages will set the tone for a solid future.
Total revenue increased by 21 percent to P512 million (2022: P425 million) and pure coal sales (excluding transport recoveries) increased to P459 million (2022: P297 million). To illustrate the impact between half years, H1 2023 pure coal sales amounted to P298 million (which is the same amount as the full FY 2022), tapering down to P161 million in sales in H2 2023 due to the difficult market conditions. Compared to 2022, operating losses decreased by 30 percent to P52 million, with EBITDA losses decreasing by 43 percent to P32 million, continuing the trend of decreasing losses, buoyed by the positive operating and EBITDA numbers from H1 2023.
Mining costs, specifically diesel and explosives, increased 50 percent from the previous period, due to the global energy security crisis, only stabilising late in H2 2023 but remaining at high levels. Mining cost increases were exacerbated by a higher mining strip ratio and additional fixed costs accompanying the ramp-up to full capacity. Du Plessis was pleased with the first-time generation of cash flow from operating activities, compared to historical cash utilisation.
Safety, health, and employment
“Safety is paramount and remains our top priority. The excellent safety records, with no lost time injuries, are a clear testament to the team’s efforts on the ground who have implemented effective safety systems. We remain vigilant and are grateful to have had no fatalities, with only one minor lost time injury since our inception.”
Du Plessis added that 97 percent of Minergy’s employees – who are on average 95 percent-96 percent Batswana – are either fully vaccinated or have received their first dose of the COVID-19 vaccine. “Sadly, as part of the cost restructuring process post the March 2023 halting of mining operations, the workforce decreased to 366 employees.”
Subsequent events and outlook
A significant amount of strategic positioning has taken place subsequent to year-end, with Minergy successfully concluding a further P90 million in funding from its main funder, the Minerals Development Company Botswana (MDCB). The proceeds were disbursed on 3 August 2023 and allocated to the trade payable arrears of the mining contractor.
As part of the agreement, the MDCB has seconded Matthews Bagopi for 12 months to augment the management team. He fulfils the role of Acting Chief Executive Officer at Minery Coal, a subsidiary of Minergy Limited, as announced. The CEO of the MDCB has also subsequently joined the Minergy Limited Board of Directors.
Minergy has issued a notice of termination to its mining contractor Jarcon Opencast Mining Botswana (Pty) Ltd (“Jarcon”). The termination of the mining contract is in line with the strategic intent of the Board of Directors and Minergy’s financiers to stabilise operations and bring the business to sustainable profitability. The Board of Minergy Coal has identified a new mining contractor for the Masama Coal Mine and negotiations are underway to finalise the terms of a new mining contract. Minergy will keep the market updated on the progress.
During this transition period, arrangements have been made to ensure business continuity and minimal disruption in coal supply to customers, by inter alia using stock holdings available. To augment the management team with the departure of Mr. du Plessis, various human resources have been made available through the MDCB. The MDCB, indirectly the Government of Botswana, has confirmed its continued support for Minergy, which is highly appreciated and comforting.
In conclusion, du Plessis said that although he will be departing after seven years of direct involvement, there is a strong foundation now in place for the future, with an established and fully operational mine. “Botswana now has open-cast coal mining operations, skills and knowledge in place, which the country will gain tremendous value from not only through royalties and forex but also the permanent development of coal mining skills and employment opportunities.”