- Financial support granted by the MDCB to support the strategic turnaround plan
- Successful transition to new mining contractor to position Minergy as a low-cost coal producer
- Operational stabilisation is progressing well, supported by inquiries from regional and offshore markets for coal supplies
Coal mining junior Minergy said it is experiencing challenging trading conditions that initially surfaced in the second half of 2023.
Global coal prices experienced a drop followed by stabilisation from the record highs observed in 2022. Despite the decrease in global prices, the stabilised levels remain above the long-term average, coinciding with a global decrease in demand. However, regional demand and prices continued to face pressure due to ongoing logistics and supply chain infrastructure challenges. These challenges have impeded coal export evacuation from South African producers, despite relatively firm export prices.
Matthews Bagopi, the Acting CEO of Minergy Coal, expressed cautious optimism regarding Minergy’s outlook. He noted a trend where various South African industries are considering self-generation of steam and electricity using small, customized coal-fired boilers. This trend is reflected in the increasing order book for such boilers with equipment manufacturers. Bagopi attributed this trend to the growing dissatisfaction with Eskom’s inability to provide reliable power in the immediate and foreseeable future. Additionally, Minergy continues to receive inquiries from regional and offshore markets for coal supplies, with some traditional customers expressing interest in resuming and increasing offtake.
“Looking ahead, we are optimistic about Minergy’s future. Meropa Resources commenced mobilisation to the site on 3 January 2024, allowing mining activities to resume. The first overburden blast occurred on 23 February, and we anticipate the first coal load and haul from the pit by the third week of March,” said Bagopi. Supply is expected to stabilise by the end of April, with full-scale mobilisation, production, and sales projected by the end of June 2024.
Bagopi said “This phase marks the beginning of operational stabilisation and continuous business improvement, positioning Minergy as a low-cost coal producer. The company is focused on optimising its coal resources, extraction, and processing, developing logistical solutions, and establishing market linkages to enhance efficiency, productivity, and sustainability, ensuring a bright and prosperous future for Minergy.”
Funding
Minergy has disclosed that it encountered substantial operational challenges, largely stemming from the suspension of activities by the former mining contractor in March 2023.
Matthews Bagopi, Acting CEO of Minergy Coal (Pty) Ltd (Minergy Coal), clarified that the suspension was due to outstanding trade payable arrears, which subsequently affected sales performance, persisting throughout the period and beyond.
Bagopi further noted that the period was marked by depressed coal prices and heightened inland inventories. These challenges were exacerbated by logistical issues in South Africa, adding to the operational difficulties faced by Minergy.
“These strategic adjustments were essential to navigate the operational disruptions, as well as to position Minergy for future stability and growth as a low-cost coal producer,” said Bagopi.
As part of the transformative journey, Bagopi said Minergy announced a parting of ways with its former mining contractor.
“As can be expected, coal production was affected in mid-September 2023 and temporarily halted from October 2023, as a consequence of the termination, which in turn had inevitable and undesired inconsistencies in coal supply to our customers.”
The separation from the previous contractor is now complete and Minergy has successfully procured and appointed a new mining contractor, Meropa Resources (Meropa), which at the time of releasing these results, had established its presence on-site and resumed production.
The second phase of the strategic turnaround involved additional funding of P299 million from MDCB, received on 29 December 2023. This funding was crucial in the facilitation of the transition of mining contractors and enabled the resumption of production, as well as provided short-term working capital.
Financial Review
Minergy’s financial performance during the six months ended 31 December 2023 was challenged primarily by operational disruptions and a difficult trading environment. This was exacerbated by the need for financial support, which was received from the MDCB in two tranches of P90 million in August 2023 and P299 million in December 2023. This funding was crucial for the strategic turnaround plan and settling obligations with the former mining contractor.
Revenue for the period ending in December 2023 declined significantly by 84 percent compared to the previous year due to the aforementioned operational challenges and the resultant loss of key customers, as well as the cessation of seaborne exports.
Due to reduced production levels, the cost of sales decreased by 67 percent compared to the previous year. Operations were scaled back to align production with costs in the current market. Additionally, the second quarter faced further setbacks as production was halted, albeit temporarily, following the termination of the mining contractor in September 2023.
The company’s finance costs surged by 33 percent, largely due to the heavily leveraged capital structure and the added debt burden. Ongoing discussions are focused on restructuring the capital framework to bolster financial stability and ensure sustainable growth. The total comprehensive income for the period tallied a loss of P72.5 million, resulting in a loss per share of 15.42 thebe.
