Mining services sector struggling, The West Australian

The first half-reporting season for the depressed mining services sector is promising to be one of reduced earnings and the odd savage writedown.

Some have already been flagged; there will likely be others which so far have not.

The impairments usually concern writing off goodwill from businesses, or reflecting the sagging values of mining equipment. Investors are reminded that these are non-cash accounting procedures, but they can produce ugly, confidence-sapping losses.

Specialist mining contractor Macmahon Holdings is expected to join some of its peers in slashing its equipment worth by tens of millions of dollars.

Executive chairman Jim Walker - who took the reins last week - may take the familiar route of incoming leaders by giving himself a clean slate. At a miserable share price of 6¢, such a move may already be factored into Macmahon's market worth.

Investors will also be looking for news from NRW over its spat with head contractor Samsung C&T at the Roy Hill iron ore project.

NRW told the market in November that differences over progress payments for a $620 million rail earthworks contract would damage its first-half performance if unresolved by December 31.

At the time, the gulf between the two sides over changes in scope and additional work was believed to be in the tens of millions of dollars. NRW yesterday said there would be no update until next month's half-year report.

Ausdrill last year flagged further impairments of business units after writing down $78 million in goodwill at the full year.

MACA had been an exception in forecasting increased revenue but last week was forced to knock off $30 million when Arrium mothballed a South Australian iron ore project.

The Gresham Mining Services Index of 50 companies fell 24 per cent in calendar 2014, a combined loss of $6.6 billion. Excluding Leighton Holdings, the index fell 17 per cent in the December quarter.

"If the theme of the last two years has been the transition from construction to production, recent months have added an overlay of commodity price volatility," Gresham Investment House said.

"This environment impacts the profitability and in some case viability of current and potential projects. For service providers, it will mean pressure on margins and ultimately order books.

China to study Mongolian mineral line

NORTHERN Railways (NR), the rail infrastructure subsidiary of Aspire Mining, Australia, has appointed China Railways 20 Bureau Group, a subsidiary of China Railway Construction Corporation, to carry out a feasibility study for its proposed 547km Erdenet – Ovoot line in Mongolia.

Aspire says preliminary work on mapping the first 250km of the east-west route is already underway and it has made an initial payment of $US 250,000. Further payments will be conditional on the project receiving a construction concession and funding.

The first stage feasibility study (FSFS) will include a detailed construction schedule and cost estimates for the entire route. If this study is approved, NR will commission a bankable feasibility study to develop the project in more detail. The total cost of both studies will be around $US 6.5m plus VAT.

The most recent pre-feasibility report indicates the railway will require a total investment of around $US 1.3bn plus contingencies, will be funded primarily through an engineering, procurement and construction (EPC) contractor as well as debt and equity sources.

The railway was included in the Mongolian government's recently-published national rail policy and will support Aspire's Ovoot Coking Coal project, which is expected to generate output of 5 million tonnes in its first year of operation. Both the railway and the mine are due to be commissioned in 2018.

In addition to traffic from the mine, the new line is expected to carry general freight and passenger traffic.

Australian miner eyes Botswana’s biggest thermal coal investment

The development of the Trans Kalahari railway line will be pivotal in the viability of the biggest thermal coal mining project in Botswana to date. Even with unguaranteed buyer markets for Botswana coal, emerging market economies such as India and China are set to become major consumers of coal globally, with projected increases in consumption by 2020.

Australian junior miner, Walkabout Resources, this week announced the results of a scoping study into the Takatokwane thermal coal project, in Botswana, estimated that the mine would cost $767 million (P7,5 billion) to develop, the biggest such project in the country to date.

The conceptual operation at Takatokwane was based on two open-pit strip mines, each delivering six-million tonnes a year of coal. Some of the product would be upgraded through a modular two-stage washing plant, and the project was expected to deliver three saleable products.

Takatokwane is located just 195kilometres from the capital, Gaborone, in the southern belt of the Central Kalahari Sub-Basin and is directly accessible by a well-maintained bitumen road. The area was previously drilled by BP Coal Botswana Exploration in the 1970’s and more recently, by Homeland Mining in 2008.

The scoping study was based on the over seven-billion-tonne Joint Ore Reserves Committee-compliant resource at Takatokwane, with the mine design focused on a target mining area where 748-million tonnes had been classified as indicated resource.

“It was always important that we understood the optimum profile for mining the huge Takatokwane deposit. We now know that we will be building large-scale, open-cut strip mines employing drag-lines and rope excavators that will produce coal for many years to come,” Walkabout MD Allan Mulligan was quoted as saying, in statement from the company.

While the scoping study had initially opted for a 12-million-tonne-a-year production rate, Mulligan noted that this could be significantly increased in modular extensions.

Based on the 12-million-tonne-a-year output, the Takatokwane mine was currently estimated to have a net present value of $850-million and an internal rate of return of 14 percent.

However, Mulligan noted that the development of the Takatokwane project remained dependent on the construction of suitable rail infrastructure to move the coal product, which had been targeted for sale to South African power stations and for export through the Port of Walvis Bay, in Namibia.

The government of Botswana is currently investigating the feasibility of the Trans-Kalahari rail project, and the project was slated for completion by 2019/20.

The railway line is expected to unlock the monetisation of Botswana’s coal resources, which are seen as a way to augment the depleting diamond resources that have been the mainstay of the country’s economy.

Aurecon, the consultant for the rail line project, has given the resultant capital expenditure costs at a total of USD14.2 billion (P136 billion), comprising USD8.6 billion for electrified rail, and USD1.9 billion for above rail, and USD3.6 billion for the port.

The finalisation of the Development Plan for the Trans Kalahari Railway line will be possible after the following are completed: Finalisation of Supply Chain Infrastructure;  Master Plan mapping of clusters and connections to copper/manganese; Finalisation of the commercial model assessment for the TKR; Incorporating the commercial outcome from the mine to ship modelling; Finalisation of structure assessment and impact on Government of Botswana; Funding sources identified and the Project Memorandum being developed to engage with the market in the next stage.

Takatokwane has one tenement: PL035/2007 which consists of 500 square kilometres of land holding and is 100 percent owned by Wizard Investments (Pty) Ltd. Walkabout Resources Ltd (WKT) has earned 70 percent of Wizard Investments (Pty) Ltd through its work on the ground to date.

Takatokwane South consists of two tenements: PL157/2009 and PL160/2009; and is 100 percent owned by Triprop Energy (Pty) Ltd. WKT has a 40 percent interest and is earning 65 percent of Triprop Energy (Pty) Ltd.
In August 2012 the Company announced an upgrade to the maiden JORC Inferred Resource giving a combined total of 6.88 billion tonnes of raw coal and a washed Resource of some 3.6 billion tonnes.

In April 2013, the Company announced an Indicated Resource of 478 million tonnes within the Target Mining Area.

Completion of Phase 2 drilling over a targeted zone, where shallow and thicker coal seams coincided with a lower incidence of sulphur, highlighting a large area that would be amenable to large scale surface and strip mining methods, subsequently designated as the Target Mining Area.

In April 2013, the Company commenced with a Pre-feasibility Study over the combined Takatokwane Project, which is this latest coping study, is part of.

Coal firms to press ahead with production in Botswana

Coal explorers in Botswana are pressing ahead with plans to begin production and use existing rail capacity to ports in South Africa and Mozambique, instead of waiting for a line being built to Namibia, the mines lobby said.

“You cannot sit down and wait for the Trans-Kalahari Railway; that would be a disaster,” Botswana Chamber of Mines Chief Executive Officer Charles Siwawa said. “The thing to do is to move on the available capacity and all of them are trying.”

Namibia, on Africa’s southwestern coast, and Botswana are jointly developing the 1500 km (932 mile) Trans-Kalahari Railway to transport coal from the east of the landlocked country to markets in China and India. Mozambique and South Africa, the world’s seventh-largest coal producer, have offered 20 million tpy of railing capacity to Botswana.

Producers in Botswana will rail the fuel to the port in Mozambique’s capital, Maputo and Richards Bay in South Africa, Siwawa said. The coal terminal at Matola in Maputo has capacity of 7.5 million tpy, Grindrod Ltd., the terminal operator that’s continent’s biggest shipping company, said.

Richards Bay Coal Terminal Ltd., the world’s largest export facility for coal, is on South Africa’s northeast coast, with Glencore Plc as the biggest shareholder. Grindrod operates the Navitrade terminal at Richards Bay with RBT Resources (Pty) Ltd. and is developing this into a fully mechanised coal facility with eventual capacity of 20 million tpy.

According to Bloomberg, Botswana’s production plans come as global supply of coal exceeds demand. The US, European and Asian price for thermal coal, which Botswana has in abundance, has fallen for four consecutive years, while metallurgical coal prices have dropped for three.

“Sitting back and waiting for the coal price to improve is unwise, as we believe we have hit the bottom now and the only way is up,” Siwawa said. “Producing now would help them work out the logistics when the Trans-Kalahari is developed as you cannot simply wake up and supply the 60 million tpy it will require.”

Of the seven coal companies active in Botswana, two are at exploration stage and four at pre-feasibility. Jindal Africa, a unit of India’s Jindal Steel & Power Ltd, received a mining license in August and plans to start production for export next year. Shumba Coal Ltd, Hodges Resources Ltd, Walkabout Resources Ltd and African Energy Resources Ltd are among the remaining coal companies.

GDP forecast to grow 5% in 2015, Botswana

Going into 2015, market analysts anticipate a slight growth in the country’s economy to at least 5 percent, which concurs with the government’s projections in the 2015/16 budget strategy paper.

The strategy paper had anticipated that going into 2014 and 2015, domestic economy would grow by 5.2 percent and 5.0 percent respectively driven by the recovery in diamond production. However, the main risk feared by the government was poor performance of mineral exports as it happened in the first quarter of 2014.  Econsult economist, Bogolo Kenewendo has said there is some uncertainty generated by instability in oil prices. When oil prices stabilise to profit level for Organisation of Petroleum Exporting Countries (OPEC) countries, the general global economy will have a good 2015 outlook. The US is anticipated to grow above last year’s 2 percent boasting exports from emerging markets including Botswana.

In this case, Kenewendo is optimistic that, “the diamond industry would benefit from this positive growth and ripple to the domestic economy through government expenditure. Lower fuel prices reduce the cost of doing business and boost business activity. Should these conditions hold, 2015 will be a little better than 2014 with expected growth rates around 5 percent, a slight growth from last year’s expected 4.6 percent.”  Stockbrokers Botswana analysts have observed that as mining continues to register diminishing economic returns, another balanced budget for 2015 is expected, as government moves to create a buffer to counter any exogenous shocks on the horizon.

Based on Debswana’s projected diamond production figures, Botswana, the world’s biggest diamond producer is expected to produce 22 million carats in 2014. The analysts Tshepo Setlhare, Kennedy Kgomanyane and Mooketsi Poane last week indicated in their 2015 outlook research that this is a far cry from the mines’ peak production of 34 million carats in 2007. Evidently they view this as symptomatic of the glut in the precious stones market. However demand is expected to pick in 2015. Diamond revenue, which accounts for 30 percent of Botswana’s GDP and 65 percent of Botswana’s foreign exchange receipts, is expected