As investment in SA coal mining dwindles, the question of future coal supply for the country looms large. But just across the border is a flurry of activity that could provide an answer to SA’s needs.
Botswana has vast coal resources, with an estimated 213-billion tons, or two-thirds of the total resource in Africa. But its proximity to SA is also key as this provides coal produced there with a market.
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Botswana-based Maatla Energy and Minergy are developing coal mines in that country with a view to selling their product in SA, with the potential to send coal overseas at a later stage. Maatla intends to also produce fuel from coal for the Botswana market, which imports all its fuel from SA.
Botswana’s only producing coal mine — the government of Botswana’s Morupule colliery, which supplies the country’s only power station — is now expanding its capacity to also take advantage of the coal-hungry SA market.
For the SA coal mining industry, Eskom is a major source of uncertainty, says Xavier Prévost, senior coal analyst at XMP Consulting. The utility has backtracked on its supposed policy to stop investing in coal mines but, according to Prévost, big mining companies are not taking up the opportunity for fear that it could change its mind yet again.
But SA’s power system looks set to remain reliant on coal-fired power generation for several years to come, necessitating the supply of coal. SA’s industrial users, such as paper mills and cement makers, are also expected to drive demand for coal.
Jacques Badenhorst, CEO of Maatla Energy, says the neighbouring country is not only attractive because of its large, high-quality coal resources. The chances of success for a business are also elevated in Botswana thanks to a number of other factors such as a favourable tax regime and no foreign exchange controls.
Prévost says that new coal miners in Botswana are not as dependent on commercial banks for funding.
In SA, some banks have made public their decision not to fund new coal-fired power stations. However, none have taken a stance against funding of coal mining yet. Even so, Prévost says financing for new coal mining projects is notably drying up, driven by legislation’s unsupportive stance on coal mining.
“The financial situation in Botswana is different,” says Prévost, who notes that funds can be raised by listing on the Botswana Stock Exchange, where local pension funds are eager to invest in new opportunities.
“Botswana pension funds are heavily invested in foreign assets as they are able to invest up to 70% of their assets outside the country,” says Gerrit van Rooyen, an economist at NKC African Economics. “There seems to be scope for local pension funds to increase investments in domestic development projects, and given the limited alternative opportunities that are on offer in Botswana’s small market, coal mines could generate a lot of interest.”
That has been the case for Minergy, the first coal miner to list on the Botswana Stock Exchange, where it raised funding for the development of its Masama coal mine, located about 50km outside Gaborone.
While Badenhorst says there is indeed a lot of institutional cash in Botswana, Maatla’s management took a decision to steer away from listing with the view that it could destroy value. Instead, one has to think outside the box to attract funding, he says, but notes that just by virtue of being located in Botswana makes a project more attractive for investors.
Botswana is a favoured jurisdiction for investors compared with its African peers. The Fraser Institute’s survey of mining companies ranked Botswana highly — 27th out of 122 countries listed in its 2018 investment attractiveness index for 2018 (compared with SA, which ranks 74th).
Van Rooyen says the Botswana government certainly seems keen on coal mining, since it is issuing new coal mining licences and planning to improve the country’s coal beneficiation and railway capacities.
“The government is interested in diversifying the economy away from diamonds, and the coal-hungry SA power stations on the country’s doorstep could possibly provide an opportunity to do so,” Van Rooyen says.
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