Q&A - Andre Boje, CEO of Minergy Limited
Andre Boje, CEO of coal mining and trading company Minergy Limited, talks to Ellis Davies on the company’s Masama coal mine project in Botswana, its investment in mining and the future of coal in the energy mix.
How did you get into mining?
I got into the coal business 25 years ago and from the early 1990s to 2015 I was involved with Westcore. We started it from scratch in the 1990s as a coal trading company, and in 2004 decided to go into coal mining. We listed the company on the Johannesburg stock exchange and then proceeded to mining, going through the 2008 crisis, and when I left Westcore in 2015 it was mining four million tonnes (Mt) of coal a year.
The team we have on the Botswana project is essentially the team that contributed to the Westcore company.
Minergy recently acquired a mining licence in Botswana. What prompted this move?
Minergy was a British Virgin Islands company, looking for resources around the world and came across the Masama resource in Botswana. Why Botswana? It is untapped potential compared with South Africa, where there are a lot of junior miners and it’s a mature industry – Botswana is a very junior industry.
At the end of 2015 Minergy asked me to join to look at the project – was there anything they could do with this resource? I looked at the project and decided there was something to be done, so we began to build a team.
We applied for a mining licence in 2016. There were some delays due to a lack of understanding of open-cast coal mining in Botswana, but in the end we were granted the licence on 27 August 2018. Before this, we did a lot of offsite work. In mining you can do a lot preparatory work and appointing before you hit the site, and when the trigger was pulled everyone went on-site straight away. We will be in production this month [February 2019].
Coal is at its highest since 2008, internationally. Regionally, it's at the highest it has every been. By getting the mining licence and being the first up in Botswana, mining coal for the regional market, we are going to enter the coal market at a possible peak – a very good time in which we could make a lot of money. For Botswana, it's the fledgling start for its coal industry.
Botswana has a broader minerals industry, not including coal. Is this a significant contributor to its GDP?
Yes and no. Their big mineral is diamonds – Botswana diamonds is 49% government-owned. The rest of the mining sector is minor and has had some bad fortune, such as Botswana Copper Limited, a government-owned operation employing 10,000 people, which went bust.
There have been some attempts at germanium mining and other activities, but not much of it has gotten off the ground, and what has is very small and doesn't really contribute magnificently to the GDP. The GDP has flatlined. The country has tourism, agriculture and diamond mining, so coal mining should be the next best thing.
Tell me about the Masama project. What methods and technologies are being used?
It is a 380Mt resource with a 100-year life – it is massive. None of us will be around when it's used up. We're looking at mining, initially, sufficient coal to produce 1.2Mt per annum saleable, and then to very quickly expand this capacity to 4.4Mt per annum.
The project is a truck and shovel open-cast rollover site. It's a very simple mining technique that involves simply moving earth. In terms of technology, it's very basic – you just find the resource and remove it. Rollover means that you take material from a cut and use it to fill in a previous cut.
It's not underground and is not mechanised outside of yellow metal machinery. There's no fancy coal cutters or underground low-seam mining methods, and we don’t use automation. Some automation has been tried on other sites using this form of mining. There was one project many years ago in Kentucky, USA, and it is being used in Europe and Asia. It is a mechanised method with automated vehicles that drive over the coal to tear it up rather than using blasting. Unfortunately, that's not our market because it makes the coal fine, meaning it can only be used in power stations, which doesn't help us.
What is being done to address the environmental issues for this project?
The environment is very important to both the government of Botswana and us, and you can't get a mining licence in the country without an approved environmental impact assessment. That whole process alone takes around 12 months, where a professional consultant is employed to guide you through the process. There are guidelines provided by the department of environmental affairs to follow and at the end you provide a 1,000-page document that covers all areas of environmental risk and the mitigation tactics to be put in place. We had to do 17 specialised studies on various aspects, including water and the potential effect on the local communities. It's a very detailed process and I believe our experience specifically has been one of the more sophisticated examples, in the sense that it has been a bit of a challenge for the Botswana Department of Environmental Affairs to understand some of the concepts involved in open-cast mining because unlike diamond mining where you make a hole and it stays there, our project will move forward and fill the hole in. On the back of the approved environmental plan, only then will the government grant a mining licence.
How are you working with the local community?
One of our main focuses is the local community. In many cases in rural Africa there is no access to electricity and clinics are rudimentary, but the education level is very high despite having schools with no electricity, no teaching aids or computers. So, we are looking to provide support. We have upgraded a clinic and will be providing power to both the school and clinic by running electrical cables from a power corporation to the mine site, via the village. We will use this electricity to uplift the community.
We will be employing the villagers, they will have access to electricity, and businesses are likely to begin popping up to supply driver and workers, which will promote growth in the area.
Coal has had plenty of bad press. How do you feel about the future of coal?
It's fine for developed nations to turn around and say 'cut out coal and fossil fuels’. They were developed on the back of fossil fuel and, no matter what anybody says, it is the cheapest form of base-load power. You have to differentiate between baseline and peak load power – renewables are peak load power, they can't give you base-load until there is a storage facility that is sufficient. So it isn't renewables against fossil fuels – they have to work together to power the world.
Over 90% of people in developed nations have access to power, but in Africa, which is home to 1.2 billion people, more than 600 million do not have access to power. The cheapest form of power on the continent is either gas or coal. To provide power you have to build a power station, and the cheapest example is a coal power station.
Having said that about developed nations, right now, Japan, because of the tsunamis and the problems with nuclear, is building 36 coal-fired power stations. They are being built all around the world – there will be an increase in coal-fired projects until 2030, where it will flatline until 2050 and then begin to decline.
The public perception is based on the high media coverage of renewables and the investment community’s activity. There are certain funds that will not invest in coal at all, and some banks in Europe that will not back a company involved in coal – that's how serious it's getting. That has killed investment in coal, there's almost no investment left. Very few are still investing, such as Glencore, but there is not much. Yet, there are a lot of mines that are coming to their end-of-life, there's no investment and there's an increase in the requirement for coal. This tells me that the coal demand is going to go up and that prices will remain where they are. The demand is there, but supply is dwindling.
You can't replace the world's coal-fired capacity in 20 years, it won't happen. The money just isn't there. So, these power stations aren't going to go away. Everybody says don't invest in coal, but how are you going to keep power going? There's a whole host of reasons why we invest in coal – somebody has to keep the world in power.
Is lack of investment hurting the industry?
It's happening in South Africa right now. Eskom was the state power utility with a model to guarantee coal supply with competitive pricing. The large multinationals would operate the mine and the coal would go to Eskom on a fixed margin. However, investment stopped and now the country has no coal – it's looking for 100Mt of coal over the next 10 years. It's a perfect example of how lack of investment is driving up prices. Specifically in South Africa, there is very little investment in coal. There is one project, the South 32 project, in which US$235m is being invested – but that was there before the issues with Eskom and is all export coal. The lack of investment is definitely driving up prices and constricting supply.
How did you come into funding for the Masama project?
The bulk of funding came from equity investors, mostly from the Botswana pension funds and the Botswana Development Corporation. This is because the country recognised that it needed another industry – it would not have been easy to raise US$100m for a coal project in New York or London.
In all mining, not just coal, the exploration and development phase is not funded. Once production begins and revenue and free cashflow are generated, then funding is not an issue. But the start-up phase can be difficult. And, because the big investors are not investing in coal because they see it as a reputation issue, junior investors are the ones weighing in. But juniors have no money to explore and develop, which is the problem.
Because Botswana bought into the team and because it needs another industry, we were fortunate to get funding. It's not going to be easily available in many countries. It was the perfect storm. We came along at the right time, with a good team and project, and the environment within the government was one looking to develop the country.
What is the timeline for the coming months?
We will be in full production from February and will reach peak output by May 2019 because it is a simple process. With underground mining you are limited, but in open-cast you just make your hole bigger. A lot of people ask 'how can you accelerate so quickly?' You just dig a big hole – that's all it is.