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This article originally appeared in the above issue of our print magazine. The digital version of the magazine can be read online or downloaded free of charge.
5 December 2016

Shumba Energy upbeat about its future as development of its projects gain momentum

The increase in coal prices will allow Shumba Energy to accelerate exports and generate revenue to push forward with the planned growth of its coal projects.

Botswana-based company Shumba Energy is cautiously optimistic about the recent uptick in the physical coal price and Matola Coal Terminal‘s increased export capacity which, for a junior coal and energy development company such as itself, could enable it to accelerate exports and generate revenue to bring forward its planned growth, CEO Mashale Phumaphi tells Chantelle Kotze.

Physical coal prices have surged to their highest level since the start of 2014, with the spot price of coal currently sitting at US$98/t, which Phumaphi is optimistic should remain until at least the end of the year and possibly even the next six months.

This significant uptick in price from the all-time low of $48/t experienced in January 2016, combined with the general resurgence of the global commodity market, should help to add some momentum into spurring growth within the energy sector, he notes. What’s more is that the Matola Coal Terminal at the Port of Maputo in Mozambique has recently been expanded – increasing the terminal’s export capacity from 6 Mtpa to 7.5 Mtpa.

A planned Phase 4 expansion, currently in the advanced feasibility stage, could see the terminal’s capacity expand to more than 20 Mtpa. The Botswana and Mauritius stock exchange-listed company, which is majority-owned by Botswana-based shareholders and citizens, has two advanced thermal coal projects under development in Botswana. These projects are suitable for crossborder energy procurement and include the Mabesekwa Export Independent Power Producer (MEIPP) project in the north-east of Botswana, and the Sechaba Coal Independent Power Producer (SCIPP) project near Palapye.

Shumba Energy’s strategy, in a market with only two other active energy developers, namely India’s Jindal Africa and ASX-listed African Energy Resources, is to unlock the value in Botswana’s highgrade thermal coal reserves as a means to generate cost-eff ective reliable energy for the region. “We will do this by developing integrated power projects which consist of coal mines with mine-mouth power stations,” says Phumaphi.

“Being one of only a few projects ready to take advantage of the current coal market dynamics, Shumba Energy is in the fortunate position of having continued the development of its assets despite the tough market conditions and competition from larger international companies, to now be in a position to take advantage of the reinvigorated coal price,” says Phumaphi.

Mabesekwa project specifics

Shumba Energy acquired the 60 000 ha Mabesekwa prospecting licence (PL428/2009) in March 2015 with the goal of developing it into a coal-fi red power plant with a captive coal mine, utilising Botswana’s vast coal resource to power the region. Mabesekwa, which is strategically located about 60 km south-west of the town of Francistown, has an estimated in situ JORC-compliant coal resource of 844 Mt. The coal resource is predominately contained in one coal seam, with an average seam thickness of 18 m at an average depth of between 50 m and 60 m making it amenable to open cast mining. Once mined, the ore will be transported to a central crushing station where it will be crushed, dry screened or washed to reduce the sulphur content to <1.0% and then moved by conveyor to the power plant. Shumba Energy is in the process of considering several contract mining opportunities to develop the coal mine, which, owing to its simplicity, could easily be brought into production within six months from first blast.

Making Mabesekwa happen

Shumba Energy entered into a joint development agreement with South African-based renewable energy project developer Mulilo Renewable Energy in August 2015. This is for the joint development of the MEIPP project at the Mabesekwa coal mine with a view to submitting bid responses under South Africa’s coal base-load cross border Independent Power Producer programme and the Botswana Coal Greenfi eld Power Procurement programme. The MEIPP project would see Shumba and Mulilo develop a 600 MW power plant, comprising 150 MW generating units, using circulating-fl uidised-bed boilers and dry cooling.

The power plant will be established in close proximity to the mine mouth of the Mabesekwa coalfi eld, about 5 km away, and would cost between US$600 million and $800 million, according to Phumaphi.

Milestones

Shumba Energy reached a number of development milestones at Mabesekwa in 2016.

The company secured surface rights for both the MEIPP and the associated open cast mine through the Tonota Sub Land Board for a period of 50 years and has received approval from Botswana’s Ministry of Environment, Wildlife and Tourism on its environmental and social impact assessment for both the proposed coal mine and associated power station at Mabesekwa.

Trans-Africa Projects has conducted a grid integration and transmission study to investigate the most desired point of interconnection to route energy from the Mabesekwa power station into Botswana power utility Botswana Power Corporation’s network. It was identifi ed that a highvoltage 400 kV line would be established within 20 km of the project, which the company could directly connect to, providing Shumba with a clear transmission route to deliver power into the domestic grid to the north of Botswana and also export power to South Africa, Zimbabwe, Zambia and Namibia. Moreover, Shumba has selected the site for the power plant following signifi cant geotechnical drilling work.

Another key milestone this year was the completion of a surface water hydrology study by Wellfi eld Consulting Services with input from the Water Utilities Corporation for the Mabesekwa power station and mine. Following this, Shumba Energy received a water allocation from Shashe Dam. The company also awarded the engineering, procurement and construction (EPC) contract to Korean conglomerate GS Engineering and Construction, which has a track record of developing projects in the energy sector; more specifi cally having worked as the EPC contractor for the development of the Morupule 5 and 6 power stations. Financial close of the MEIPP project is targeted for end 2017 with fi rst power supply targeted during the second half of 2020.

The Sechaba project – expected export extraordinaire

The company’s Sechaba project, which has been a part of its portfolio since 2011, approximately 1 Bt of high-grade thermal coal delineated in two main shallow coal seams: one seam suitable for high-quality export coal and the other suitable for high-quality power station coal. Average seam thicknesses are 2.6 m (Taukome Bright) and 3.7 m (Morupule Main) with the coal found at average depths of between 30 m and 100 m, to be accessed by underground mining. The overall plan is to develop the Sechaba area into an energy complex, consisting of four projects, producing coal and power for domestic, regional and international markets. In July 2014, the company completed a prefeasibility study at the project and has in 2016 been fi nalising all the additional work required to complete a bankable feasibility study. “Despite this, we already have more than enough information to enter into any coal export contracts by year-end,” Phumaphi notes.

Diversifying into renewable energy

Shumba Energy believes that an energy mix consisting not only of coal but also of renewable energy will benefi t the region and the environment; and it is looking at ways of integrating renewable energy into Botswana’s energy mix. Shumba Energy’s diversifi cation plan is based on the global move towards developing green sources of energy and has been embarked on in light of the success of power utility Eskom’s renewable energy independent power producer (REIPP) programme.

“Given the success of the REIPP programme in procuring additional power for South Africa and the signifi cant reduction in the cost of implementing solar projects and the resultant decrease in energy tariff s, we felt it the right time to embark on our own solar projects,” Phumaphi explains. Moreover, in the long-term, the company is investigating underground gasifi cation (UCG) opportunities in Botswana as a means to further diversify its energy generation mix. The benefi t of exploiting UCG is the benefi t of extracting a fairly clean gas, and the ability to target coal resources that are otherwise uneconomical to exploit. MRA

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