Minergy in search of working capital after maiden production year blighted by Covid-19

BOTSWANA’S thermal coal producer, Minergy, would issue shares for cash and raise additional debt in order to finance working capital after border closures reduced coal sales in 2020 and forced the firm to cut targeted 2021 production a quarter.

Cash was also required to complete the second phase ramp up of its P90m ($7.7m) coal washing facilities at its Masama mine. Despite cutting annual production for its current year to 60,000 tons of saleable coal, the company said completion of the second phase expansion was “imperative”.

The impact of Covid-19 related restrictions was a heavy blow for Minergy which should have seen its first full year of installed productive capacity from Masama. As a result of border closures, sales in the second half of the year were 10% to 15% of the first half.

Minergy, therefore, reported a net loss of Pula 91.9m ($7.8m) for the year.

Helpfully, the company remained solvent owing to debt agreements with the Botswana Development Corporation, a government-owned institution, for a total of P80m ($6.9m) which will be converted into preference shares.

Some P110m ($9.5m) was also borrowed from the Mineral Development Corporation Botswana, also subject to a convertible debentures structure whilst Botswana Railways entered into a P4.6m toll agreement payable in revenue from coal sales.

The outcome on the balance sheet was cash of P1.7m, a year-on-year increase but insufficient to fund working capital requirements.

Minergy said that cash reserves and cash generation capabilities were “severely affected” during the period, especially as the operational ramp-up phase was delayed by lockdowns preventing commercial levels of production. “The group has and will be experiencing cash shortfalls as result of this,” it said.

“Additional funding is required to restore the group’s working capital deficits and provide a buffer to complete the ramp-up phase.

“To this end, additional debt facilities are being sought through existing debt provider channels where significant progress has been made in securing these facilities and further announcements will follow when concluded.”

Morné du Plessis, CEO of Minergy, said an announcement on further capital raising would be made shortly, adding: “Whatever I raise in debt and want to raise in equity; it will be a 50:50 split”.

Prior to the Covid-19 lockdown, Minergy achieved a number of strategic targets such as delivery of its first signed off-take agreement with a South African cement producer.

It also proved the movement of saleable product into South Africa, Namibia and within Botswana could be achieved consistently. Botswana has significant reserves of thermal coal, but in a context of low industrial activity, and the fact the country is landlocked, means that export infrastructural investment is required to scale up the sector.