In the 12 months to June 2024, Minergy has faced considerable challenges that ultimately led to a less-than-favorable outcome for its stakeholders.
The company grappled with a volatile coal market, the loss of its mining contractor, and a six-month suspension of operations, severely impacting sales. Additionally, Minergyexperienced a leadership transition with the appointment of an acting CEO, adding further complexity to an already demanding situation.
These disruptions placed immense financial strain on the company, resulting in disappointing financial results. In response, Minergy swiftly implemented a strategic turnaround plan to address the disruptions of 2023. This plan included securing a new contractor, raising additional funding, and initiating operational restructuring to stabilise the business and improve future performance.
According to Acting Chief Financial Officer Julius Ayo, Minergy experienced an 81 percent reduction in revenue year-on-year, a significant decline primarily due to operational disruptions. Ayo explains that the transition to a new contractor, Meropa Resources, led to a six-month period with minimal coal sales activity, further worsened by the loss of major customers.
These operational challenges left Minergy in a precarious financial position. Ayo emphasises that the company is now focused on implementing strategic initiatives to reverse this trend and improve performance in the coming year. These initiatives, he says, aim to drive growth, reinvigorate coal sales, and strengthen customer relationships.
The disruptions were compounded by substantial financial pressures, particularly an increase in borrowing. Financially, the cost of sales decreased by 64 percent year-on-year, from P558.67 million in 2023 to P202.33 million in 2024, reflecting a sharp decline in production due to operational downtime. Despite this reduction in costs, ongoing fixed costs placed a significant strain on Minergy’s cash flows.
Ayo notes that the decline in revenue, combined with sustained fixed costs, left the company with no option but to increase borrowing to finance operations during this period. Consequently, the additional debt burden further stressed the company’s already leveraged capital structure, resulting in a 37 percent rise in finance costs year-on-year, from P124.23 million in 2023 to P169.70 million in 2024.
Operating expenses decreased by 40 percent, largely due to the reduced scale of operations. This reduction was also supported by several key management positions remaining unfilled, with seconded staff from the Minerals Development Company Botswana (MDCB) filling in temporarily. Despite these cost-saving efforts, the company’s financial position continued to deteriorate, as reflected in its net loss before tax. Minergy recorded a net loss of P188.44 million for 2024, a 36 percent increase from the P138.84 million loss in 2023. Ayo explains that the steep revenue decline coupled with higher finance costs were key factors in the company’s weakened financial performance.
Adding to these difficulties was a 14 percent reduction in Minergy’s property, plant, and equipment (PPE), resulting from the revision of the mining provision for rehabilitation. This had a downward impact on the value of mining assets. However, despite these setbacks, Ayo highlights that investments were made during the year to re-establish production, including additions to the Meropa Resources site.
Minergy also reported a 45 percent reduction in trade and other receivables, mainly due to the halt in mining activities during the contractor transition, which led to a significant drop in sales. The company’s long-term borrowings increased by 42 percent year-on-year, driven by new loans from MDCB to meet financial obligations during the transition. This further strained Minergy’s already leveraged balance sheet, pushing the debt-to-equity ratio higher. Ayo says this prompted the company to review and restructure its capital strategy to optimise this ratio going forward.
On a more positive note, Minergy made progress in reducing trade and other payables, which decreased by 55 percent. This reduction was primarily achieved through settling the previous contractor’s account using funds from MDCB. However, this came at the cost of increased borrowing and financial leverage. As a result, Minergy’s cash flows came under significant pressure, with operating cash flow for the year showing a negative P165 million. Ayo explains that this negative cash flow reflects the combined impact of reduced coal sales and the need to cover operational costs despite the downturn in production.
Acting Chief Executive Officer Matthews Bagopi outlined the company’s strategic turnaround plan, initiated in response to the 2023 disruptions. According to Bagopi, the transition to a new mining contractor, Meropa Resources, was a critical step in redefining the company’s cost structure and setting the stage for a return to profitability. The first phase of this turnaround was completed in early 2024, with mining operations resuming in February under the new contractor. Although this six-month period of inactivity was not ideal, it provided Minergy with an opportunity to refocus its strategy, reduce costs, and re-engage its key customer base.
Bagopi acknowledges that the operational disruptions caused by the departure of the previous contractor severely impacted Minergy’s production and sales. During this period, the company had to rely on its coal inventory to fulfill customer orders. The transition also strained customer relationships, with some major clients opting to source coal from alternative suppliers. Despite these challenges, Minergy secured essential funding from MDCB, which enabled the company to meet its obligations during this difficult period. According to Bagopi, this funding was instrumental in settling outstanding debts owed to the previous contractor and facilitating the appointment of Meropa Resources, a Botswana-based contractor with a strong record of operational efficiency.
As a result of the new mining contract, Bagopi reports that production costs have been reduced by 25 percent, reflecting the benefits of more efficient operational practices introduced by the new contractor. However, the temporary suspension of activities during the contractor transition meant that overburden and coal mining fell significantly below budget, at 48 percent and 47 percent under budget, respectively.
The challenges of 2023, particularly the downturn in global coal prices, also affected Minergy. Global offshore export pricing for the API4 index (FOB pricing for RB1 grade coal from Richard’s Bay) peaked at $124 during the year, with prices ranging between $100 and $124. Although these prices were above the historical long-term average of $85, the bearish market outlook and high inland inventories—driven by poor export logistics in South Africa—dampened demand. This pricing pressure, coupled with weak economic conditions affecting industrial coal users, further weighed on Minergy’sfinancial performance. Despite these market conditions, Minergy reached a significant milestone in 2024 by making its first offshore coal exports via South African ports, a critical step in its expansion strategy.
Alongside its operational and financial restructuring, Minergyhas maintained a strong focus on safety and sustainability. The company’s safety record remained exemplary throughout the year, with no lost-time injuries reported. This outstanding safety performance was recognized by the Botswana Chamber of Mines, which awarded Minergy two accolades for its safety practices: Best Total Recordable Injury Frequency Rate (TRIFR) and Best Classified Injury Frequency Rate (CIFR). Bagopi highlights that maintaining high safety standards is integral to Minergy’s operational ethos, ensuring the well-being of its workforce while supporting sustainable business practices. In terms of environmental, social, and governance (ESG) commitments, Minergy is aligning with the Towards Sustainable Mining (TSM) protocols, a set of best practices aimed at improving mining operations’ sustainability.
Looking ahead, Minergy’s management is cautiously optimistic about the company’s future. Bagopi expects the company to reach full production capacity by the end of 2024, targeting a steady monthly output of 75,000 tonnes of saleable coal. Furthermore, Minergy is exploring additional cost-saving measures in logistics to enhance its competitive position and expand its market share. Bagopi says that efforts to regain customers lost during the operational disruptions are already underway, with the company focusing on rebuilding relationships and growing its customer base both regionally and internationally.
