BOTSWANA - The Future of Regional Coal Production JUNE 2018 - - PowerPoint PPT Presentation

JUNE 2018

BOTSWANA

• The Future of Regional

Coal Production

This presentation has been prepared by and issued by Shumba Energy Ltd (“Shumba Energy”) to assist it in informing interested parties about the Company and its progress. It should not be considered as an offer or invitation to subscribe for or purchase any securities in the Company or as an inducement to make an offer or invitation with respect to those securities. No agreement to subscribe for securities in the Company will be entered into on the basis of this presentation. You should not act or refrain from acting in reliance on this presentation material. This overview of Shumba Energy does not purport to be all inclusive

• r to contain all information which its recipients may require in order to make an informed assessment of the Company’s prospects. You should

conduct your own investigation and perform your own analysis in order to satisfy yourself as to the accuracy and completeness of the information, statements and opinions contained in this presentation and making any investment decision. The Company has not verified the accuracy or completeness of the information, statements and opinions contained in this presentation. Accordingly, to the maximum extent permitted by law, the Company makes no representation and give no assurance, guarantee or warranty, express or implied, as to, and takes no responsibility and assume no liability for, the authenticity, validity, accuracy, suitability or completeness of, or any errors in or

• mission, from any information, statement or opinion contained in this presentation. The contents of this presentation are confidential.

This presentation includes certain “Forward- Looking Statements”. The words “forecast”, “estimate”, “like”, “anticipate”, “project”, “opinion”, “should”, “could”, “may”, “target” and other similar expressions are intended to identify forward looking statements. All statements, other than statements of historical fact, included herein, including without limitation, statements regarding forecast cash flows and potential mineralisation, resources and reserves, exploration results, future expansion plans and development objectives of Shumba Energy Ltd are forward-looking statements that involve various risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such statements. The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the ‘JORC Code’) sets out minimum standards, recommendations and guidelines for Public Reporting in Australasia of Exploration Results, Mineral Resources and Ore Reserves. The information contained in this announcement has been presented in accordance with the JORC Code and references to “Measured Resources”, “Inferred Resources” and “Indicated Resources” are to those terms as defined in the JORC Code. 2

Disclaimer

1. Company Background 2. Projects 3. BOTSWANA - The Future of Regional Coal Production 4. Conclusion

3

Contents

Company Background

4

5

Company Background

• Shumba Energy, a coal and energy company, was established in Botswana in 2011 to

provide the SADC region with low-cost coal and energy

• STRATEGY FOR 2018

Mining Coal Trading Logistics Investments

• with 3 assets in the development phase Shumba Energy controls most of the advanced

coal projects in Botswana, including over 4.5 billion tonnes of coal for thermal energy and exports.’

MINING LOGISTICS TRADING INVESTMENTS

6

Company Background

• Listed on the Botswana Stock Exchange (BSE) with 264,604,249 shares in issues and a

market capitalisation of USD 32 million

• Invested and committed over USD 20 million in Botswana projects to date
• Shumba Energy is reaching its development objectives and now controls a significant

portion of advanced energy projects in Botswana, including over 4.5 billion tonnes of coal for thermal energy

• 25% Shareholder of London listed Kibo Mining PLC ( USD 36m Market Cap)

MINING LOGISTICS TRADING INVESTMENTS

7

ALAN CLEGG - CHAIRMAN § Professional Engineer and Project and Construction Manager § 30 years experience in mining and minerals projects in over 150 countries § renowned expert in mining, technical assessment, reporting and project valuation with extensive experience in stock exchange listings and capital raising § currently holds six directorship positions in the mining and energy sectors and is a Fellow of the Institutes of Mining & Quarrying and Fellow of the Institute of Directors of RSA/UK MASHALE PHUMAPHI – MANAGING DIRECTOR § Founding director of Shumba Energy § formerly part of the corporate finance team

• f a London-based natural resources

corporate finance and issuing house § raised debt and equity finance for projects in the Americas, Europe and Africa in addition to conducting investment analysis and research § Member of the United Kingdom Society of Investment Professionals (UKSIP) and the London-based Association of Mining Analysts (AMA) THAPELO MOKHATI – FINANCE DIRECTOR

• Management Accounting and Executive

Program in Mining and Minerals (WITS)

• executive director of various junior mining

companies in various African countries over last 10 years

• 2004 – cofounded BSC Resources Ltd which is

a junior exploration company with significant assets in nickel, copper and coal across South Africa

Board Members

SIPHO ZIGA – NON-EXEC DIRECTOR

• Partner at Armstrongs Attorneys
• 16 years experience in commercial

law and currently head the Commercial Department within the law firm

• Advisor to various parties in the

most recent major capital raisings for mines in Botswana and acted as lead advisor for Shumba's listing on the Botswana Stock Exchange

MINING LOGISTICS TRADING INVESTMENTS

8

KAPILDEO JOORY – NON-EXEC DIRECTOR

• Over 20 years experience in international tax

planning and business structuring

• Cofounder

and executive director

• f

International Financial Services Limited which is a leading management company specialising in international tax, business and corporate advisory services

• Fellow
• f

the Institute

• f

Chartered Accountants in England and Wales and an associate member of the Society of Trust and Estate Practitioners

• Serves as a director of numerous offshore funds

and companies

Board Members

BOIKOPO PAYA– NON-EXEC DIRECTOR

• B.Sc. and an M.Phil. in Geology with

extensive research experience

• Currently the director of research at the

Botswana International University of Science and Technology (BIUST)

• Formerly the permanent secretary in the

Botswana Ministry of Minerals, Energy and Water Resources for a period of two years as well as deputy permanent secretary in the same post since 2008

• Prior experience includes holding several

directorships in the resource sector GRANT RAMNAUTH – NON-EXEC DIRECTOR

• B.Sc. (Hons) from London University and a

Joint M.B.A from Hartford University (USA and France)

• holds an Investment Advisor license in the
• ffshore financial sector in Mauritius
• currently a Senior Partner of St. James's

Place Wealth Management

• formerly with HSBC Bank (Jersey) in

business development for international high-net-worth advisory and distribution

• Fellow of the Mauritius Institute of

Directors

MINING LOGISTICS TRADING INVESTMENTS

Projects

9

10

Key Projects

Shumba Energy has three advanced-stage projects totalling in excess of 4 billion tonnes of coal and one earlier-stage alternative energy asset spread across central Botswana:

• Mabesekwa Independent Power Plant: Being developed for power generation and coal

to liquids in partnership with Kibo Mining PLC. The entire resource can be mined using

• pen cast methods.
• Sechaba Mine: Attractive with substantial resources of which some are open cast
• mineable. A mining license application is being made for this project.
• Morupule South Mine: Largest of

Shumba’s coal resources with over 2.45 Billion

• Tonnes. Fast tracking into production for early revenues. Possibility for several open pit

mines.

• Letlhakeng Under Ground Coal Gasification Project: Early stage. Looking to develop the

project in conjunction with a strategic partner.

MINING LOGISTICS TRADING INVESTMENTS

Three assets in the development phase, one in exploration

11 GEOSCIENCE EXPLORATION DISCOVERY DEVELOPMENT PRODUCTION Morupule South Mine 2.45 Billion Tonnes Mabesekwa Mine 1 Billion Tonnes Sechaba Mine 1.1 Billion Tonnes Letlhakeng UCG Project 300 Million Tonnes

• Thermal Coal for Export
• Open cast and Underground mines
• ESIA completed and submitted
• Mine feasibility studies completed
• Water supply from wellfield and

surface sources

• ESIA Approved
• Mining License application to be

submitted soon

• Coal for power generation
• Open cast mine
• ESIA approved
• Mine feasibility studies

completed

• Water supply from nearby dam
• Surface rights attained
• Mining license application

submitted

• Coal for both export and power generation
• Open cast mines
• ESIA underway
• Mine feasibility studies underway
• Railway siding 5km away
• Surface water supply secured
• Underground coal

gasification

• Exploration drilling

underway

• Gas for power generation

Project Stages Overview

MINING LOGISTICS TRADING INVESTMENTS

12

• In August 2015 Shumba incorporated a new subsidiary, namely Shumba Coal Trading

Ltd (SCT), as a result of the demand from future off-takers of the Company’s export coal products

• “SCT establishment is to manage the trade of coal from projects owned by

it and on an initial interim basis from other coal producers in order to build experienced capabilities in this key area of the future business value chain and meet our customers’ short-term needs.”

• Since January 2017 Shumba has established partnerships for the distribution of coal

into the region

• In May 2017 Shumba begun buying coal from regional coal producers and selling it into

the regional market

• Shumba is in partnership with Fraser Alexander currently investing in a 900kt capacity

Wash Plant which shall allow it to produce a variety of coal products for the regional market

Coal Trading Division

MINING LOGISTICS TRADING INVESTMENTS

BOTSWANA - The Future of Regional Coal Production

13

14

Coal: Botswana’s under utilised potential

MINING LOGISTICS TRADING INVESTMENTS

Botswana is endowed with significant Coal resources, estimated at around 200 billion tonnes, yet the vast majority of these are yet to be exploited.

15

Botswana Fiscal Incentives Attractions of Botswana’s mining code include:

§

Variable Income Tax: Lower rates for less profitable operations

§ Capital allowances: 100% depreciation of capital expenditures §

Allowable losses: Unlimited carry forward of tax losses

§

Import Duty: Mining equipment and spares are zero-rated

§ Reduced Taxation for Downstream procession (refining of minerals)

MINING LOGISTICS TRADING INVESTMENTS

16

• Recent increases in global seaborne coal prices have made it more difficult for regional

consumers to find high-grade coal and thus open the opportunity for Botswana- sourced coal to enter the market

• There is an increasing shortfall in the constant supply of washed coal exports in South

Africa, Zimbabwe, Zambia, Namibia and Botswana

Market

• Major coal producers withdrawing supply to the regional market to focus on export
• At over 25 million tonnes per annum the regional industrial demand for washed coal is

substantial and outstrips supply

• Eskom requires over 130 million tonnes of coal per annum and struggles to source this

domestically

• South Africa production down 1.4% and exports up 2.9%, resulting in a 5.8% shortage

in the inland market.

• Botswana Railways (BR) and Transnet Freight Rail (TFR) will link the BR network to the

TFR network in the Waterburg

MINING LOGISTICS TRADING INVESTMENTS

17

Market

• Botswana coal is largely sub- and bituminous with in situ CV of between 18 and 22

MJ/kg. When washed, CV improves to between 24 and 26.5 MJ/kg and of less than 0.80% sulphur

• Over the past year, regional coal prices have escalated by c.45% to historic highs last

seen in 2005–2007

• Immediate opportunity for Botswana to increase supply into the region and for export

MINING LOGISTICS TRADING INVESTMENTS

18

Botswana Coal Economics

§ Botswana coal more economical to mine than RSA § Lower strip ratios § Significantly cheaper diesel § Shorter distance to several markets for coal in South Africa and throughout the region

MINING LOGISTICS TRADING INVESTMENTS

19

Economics Example: Morupule South

Wood Mackenzie determined that the favourable mining conditions drive Morupule South’s cost

• competitiveness. Morupule South is located in the first

decile of the energy adjusted southern African mining cost curve (see above) and export FOT cost curve, even after adjusting for energy content to RB1 Benchmark (6000 Kcal/kg NAR).

• 50

100 150 200 250 300 20 40 60 80 100 120 140

Mining Cash Costs (ZAR/t) Production (Mt)

Morupule South Botswana South Africa

10 20 30 40

Ash

Domestic Supply Range Morupule South

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40

Sulphur

1,000 2,000 3,000 4,000 5,000 6,000

Specific Energy

Southern African domestic coal quality benchmark (Raw) Southern African export coal quality benchmarks (Washed)

2015 Energy Adjusted Southern African domestic coal mining cost curve (2012 ZAR) Source Wood Mackenzie

MINING LOGISTICS TRADING INVESTMENTS

20

Market Example: Cement Industry

MINING LOGISTICS TRADING INVESTMENTS

§ Logistics is key to the regional market § Morupule South Project is closer than both the Waterburg Coalfield and the Central Basin Coalfield in South Africa to its target markets § Major coal South African producers reducing supply to the regional market to focus

• n export

§ Consumers can easily be serviced using road and rail. Both are currently being used.

21

Existing access to SA customers by rail

MINING LOGISTICS TRADING INVESTMENTS

22

Imminent Heavy Haul Rail Link – Bots to SA

Lephalale

Musina

Maputo Komatipoort

Ermelo Ogies Pyramid Richards Bay

Botswana Coal Fields

Thabazimbi Polokwane Phalaborwa Note: Joint Development between Botswana Railways and TFR § Connection between Botswana coal fields to Lephalale – 120 km § Coordination with BR / Transnet for a current transportation volume of

• ver 20 mt/a through

existing rail system to Richards Bay and other ports § Potential to also Supply Eskom Power Stations § Construction commences in 2020

Overview

MINING LOGISTICS TRADING INVESTMENTS

Ports available for the export of Botswana coal

Terminal de Carvão da Matola (TCM) (Mozambique)

• Approx. 7.5 Mtpa capacity with plans to increase by a further

20 Mtpa Richards Bay Coal terminal (RBCT) 65.5M tons coal exported in 12 months to December 2011 (2 Design capacity increased in May 2010 under Phase V to 91 Mtpa Richards Bay Dry Bulk Terminal Immediate phase 1 expansion from 3.2 million to 4.5 Mtpa

• capacity. Potential future phases up to 20 Mtpa capacity

Bulk Connections – Durban

• Approx. 3 Mtpa coal export capacity

Matola RBCT Navitrade Bulk Connections

MINING LOGISTICS TRADING INVESTMENTS

24

Coal Export Potential: Example

§ Richards Bay Coal Terminal (RBCT) has a capacity of 91 mtpa § Transnet Freight Rail (TFR ) has capacity of 82mpta

§ Lephalele line to 13 mtpa by 2019

§ Only 75 mt railed in 2017 due to coal shortages § Botswana could have exported 7 mt in 2017

MINING LOGISTICS TRADING INVESTMENTS

Conclusion

25

26

• Shumba Energy Mines
• Several low cost coal resources (over 4bn tonnes)
• Well positioned in terms of infrastructure (road and rail)
• Ready to go into production within 12 months
• Export quality coal
• Market
• Attractive Prices and Returns
• Shortage of supply to a growing regional demand
• Regional market is four times larger than the export market
• With the Waterberg link seaborne exports shall soon be possible
• Open to partnerships with existing industry players
• To fast track mine development
• Gain access to new markets
• Secure additional funding for projects
• Strategic joint ownership of mines

Conclusion

MINING LOGISTICS TRADING INVESTMENTS

THANK YOU

Mashale Phumaphi | Managing Director

• email. phumaphi@shumbaenergy.com

www.shumbaenergy.com