INVESTMENT OPPORTUNITIES IN COAL IN ZIMBABWE

A PRESENTATION TO THE 5TH ANNUAL MINING IN AFRICA CONFERENCE 5TH August 2009 By O.J Maponga

1.0 INTRODUCTION
The economic development of a country is directly proportional to the production and use of energy, particularly electricity. Zimbabwe, like the rest of the countries of the sub-continent, has great potential for growth. Also like most developed and developing countries, Zimbabwes fossil fuel remains and will for a long time be a major source of energy.

Introduction (cont)
Zimbabwe is endowed with huge fossil fuel resources of world-class quality and is rich in other minerals. The country has enabling infrastructure supported by an excellent skills base, abundant labour and other critical resources like water and arable land.

Introduction (cont)
These factors provide tremendous investment opportunities in coal in Zimbabwe. Government provision of an enabling environment, setting of the priorities and milestones right will provide impetus for the envisaged national economic growth.

THIS PRESENTATION
This presentation: gives an overview of the geology of the coal resources in Zimbabwe looks at Hwange Colliery operations in the pre- and post-independence era; and Looks at the opportunities arising in light of the new political dispensation.

1.0 THE GEOLOGY OF COAL DEPOSITS IN ZIMBABWE

1.1 LOCATION OF COAL DEPOSITS IN ZIMBABWE

LOCATION (CONT)
Known coal deposits are found in two areas of Karoo rocks in Zimbabwe: The mid-Zambezi basin in the north and northwest; and The Sabi-Limpopo basins in the south and southeast. Coalfields may yet lie undiscovered in the Zambezi Valley.

Location of coal deposits (cont)

These basins contain subsidiary basins (intrabasins) of deposition in which there are variations in lithology and succession, but the major ones can be correlated with each other (see fig 2 below)

1.2 GEOLOGY OF THE COAL SEAM

The coal measures are an integral part of the Karoo Sequence. The seams occur at depths ranges of 10 450m In all areas only one seam (Main Seam) is economic. This Main Sea is Permian in age and often shows a vertical variation in chemical attributes

Fig 2: LOWER KAROO IN THE MID-ZAMBEZI BASIN (ZIMBABWE)

Schematic columnar sections of key areas and their lithostratigraphic correlation (Adopted from J. Lepper)
HWANGE LUBIMBI LUSULU BUSI - SENGWA KAONGA SANYATI

MOLTENO

UPPER KAROO
Sidaga Mudstone K5d+e K5H K5C K5b + K5b + K5c K5d K5c

BEAUFORT
Madumabisa Mudstones

Hankano Beds Clay - Ranch Formation

UPPER O KARO

Ridge Sandstone Tshale Formation Upper Hwange Sandstone Black Shale and Coal Group Waterfall Sandstone Bira Coal Measures

K5R

Upper Sandstone Upper Coal-Shale Central Sandstone Lower Coal-Shale Lower Sandstone Tillites and Varvites

K5T K4

K5a

K5a

ECCA

K2

Lower Hwange Sandstone

K1 Lubimbi Glacials K0

DWYKA

Tillite

Deweras Wacke

not to scale

2.0 THE HWANGE SECTION

A western extension of the Mlibizi intrabasin (see Fig 3 below). Dichotomous divided by the Entuba Crystalline Inlier into two: Hwange Concession and Western Areas to the northwest; and Lukosi Entuba and Sinamatella to the southeast.

Fig.3 Mid Zambezi Intrabasins

The HWANGE SECTION (CONT)

The Hwange Concession is the only area that has meaningfully been exploited for its coal resources. The coal seam has been extensively drilled; The bottom part of the seam has excellent coking properties and its ash as low as 5 to 7%. Phosphorus is low too, while the mean value of sulphur is approximately 1.3%

3.0 HWANGE COLLIERY COMPANY LTD. HISTORICAL PERSPECTIVE

3.1 PRE-INDEPENDENCE
Mining claims pegged in 1893 Main incline shaft (No.1 Colliery) completed in 1902 and production commenced with coal transported by ox wagon. Rail line from Bulawayo reached Hwange in 1903, enabling the Company to supply coal at agreed quantity, quality and price to mines, railways and industry.

HISTORICAL PERSPECTIVE (cont)

Mining was essentially by the underground hand-got system. Opencast mining was intermittent and limited to small pits to supplement underground mining operations during periods of increased coal demand. Increased demand led to the Company commissioning No.2 and No.3 Collieries in 1927 and 1953, respectively.

PRE-INDEPENDENCE (cont)
Regrettably a major disaster occurred at No.2 Shaft in June 1972, and the shaft was closed. To make up for the lost coal production, No.4 Shaft was commissioned in 1976.

3.2 POST- INDEPENDENCE

Two major developments took place soon after independence: a) Completion and commissioning of the 950MW Hwange coal-powered station on the Hwange Coalfield; and b) The commissioning of the Main Opencast Mine which employed the Dragline with Supplementary Stripping Method to supply the new Thermal Plant with coal.

POST-INDEPENDENCE (CONT)
Production (No.3, No.4 and Opencast) increased reaching a peak of 5.915 million tonnes total coal per year in 1991 Since then production has been on a downward trend to the 2008 low of just under 2 million per year (see graph below).

Historical Coal Production Graph

Coal Production 1980 to 2008
7000000

6000000

5000000

4000000

Tonnes
3000000 2000000 1000000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

Year

OPENCAST HPS

OPENCAST HCC

UNDERGROUND HCC

TOTAL HCC

TOTAL COAL

2008

POST INDEPENDENCE (CON.T)

Decline in production rates are mainly due to the smart sanctions that the country has been slapped with and this resulted in the following challenges: HCCLs inability to source funds for recapitalisation and refurbishment of ageing equipment most of which has outlived its useful lifespan;

Declining Production (cont)

Perennial shortage of forex aggravated by the fact that Hwange Colliery Company is not a net exporter. Loss of critical skills to the sub-region and beyond. Reduced production itself also spiralled negative cash-flow.

4.0 OUTLOOK
OPPORTUNITIES With the growing interest in Zimbabwe shown by external investors since the advent of the Government of National Unity, what opportunities are in coal in Zimbabwe?

4.1 HUGE COAL RESOURCE BASE

Zimbabwe is endowed with huge coal resources. These are estimated at 26 500 million tonnes in situ, an estimated 10 500 million of which is potentially extractable. The zonal distribution of these resources is as shown below.

Estimate of Coal Resources in Zimbabwe.

Limpopo Basin Save (Sabi) Basin Zambezi Basin: Eastern Area Middle Area Hwange Area : : 60 million 684 million

: 14 million : 23 766 million : 1 976 million

COAL RESOURCES (CONT)

All the known coal deposits in the country, expect the Hwange Colliery Concession part of the Hwange Area, are yet to be fully explored and developed.

THE HWANGE AREA

Home to four coal-bearing areas legally known as Coal Concessions: Hwange Colliery Concession Western Area Entua-Lukosi Sinamatella

HWANGE CONCESSION
As stated earlier, this is the only coal concession that has been fully developed and exploited for its coal. Data from this area is used for reference and bench-marking. It is owned by the Hwange Colliery Company and is approximately 22 000ha in extent (Fig 4).

Fig 4 : HWANGE CONCESSION

HWANGE CONCESSION (CONT)

The coal seam occurs at depths ranging from outcrop to 350m. Coal is won by Opencast and Underground bord and pillar mining methods The Concession has a remaining coal reserve equivalent to a maximum of 30 years of mining Hwange Colliery has applied for new mining concessions

THE MAIN COAL SEAM AT HWANGE

The Main Seam at Hwange shows a characteristic variation from base to top: Ash and phosphorus values increase, while volatile and sulphur contents decrease with distance above footwall. Reactive macerals (vitrinite and reactive semi-fusinite) dominate at base, while inert macerals are predominant towards the top of the seam.

Seam Modelling
Based on this variation, the geological seam is modelled into three layers using a compositing procedure shown in Fig. 5 below.

Fig. 5: Hwange Seam Compositing Procedure

Compositing Diagram
1 : HCC VM Cut - Off 2 : HCC ASH Cut - Off Borehole Trace

Moving Mean ASH from footwall Moving Mean ASH from top of HCC Moving Mean VM from footwall Moving Mean VM from top of HCC

3 :HPS ASH Cut - Off

3 2

H P S H C C

VM

23.5%

15%

24%

ASH

The Seam Subdivisions

The resulting subdivisions are: A basal layer with coking properties and is referred to as Hwange coking coal (HCC) except in the Chaba area where it is noncoking and is referred to as industrial coal (HIC). A middle layer of power coal or HPS. The remainder high ash material is discarded as overburden (see Fig. 6).

HWANGE MAIN SEAM DIVISIONS

Fig 6
Black Shale / Overburden

Power Coal

Coking / Industrial Coal

Floor

Economic Significance of the Vertical Parameter Variation

This variation makes the seam at Hwange suitable for a variety of applications: Power generation Steam raising Coke Making Heating and cooking Chemical industry - fertilizer manufacture Transport and agriculture (tobacco curing)

4.2 Coal-Bed Methane

Recent studies on the Karoo areas of Zimbabwe have revealed that the country is also endowed with huge coal-bed methane gas deposits. These include Entuba, Lubimbi, Lupane and the Western Area coalfields. Hwange Colliery is currently one of the leading companies exploring for CBM.

Benefits of CBM Use in Zimbabwe

Availability of an alternative to coal for power generation, is more environmentally friendly and has a more flexible use pattern; a 330MW gas-fired power plant can be established in 25 -30 months. Provision of a new feedstock to replace the electricity intensive hydrolysis of water in fertilizer production at Sable

Benefits of CBM Use (Cont)

Opening up of the petrochemicals subsector to a major new phase of development, e.g. production of wax An alternative to diesel and petrol gas can be used as motor fuel, either in compressed form or liquid form through conversion as gas based diesel, gasoline or ethanol.

4.3 ENABLERS
Exploitation of the coal and the associated coalbed methane is supported by a number of factors: good railway system Abundant water resources Interstate Power Line An excellent skills base and abundant labour Tourism

a) RAILWAY SYSTEM
Zimbabwe has an excellent railway network which connects all the major cities in the country (see map below). The system connects with the neighbouring countries of Botswana, South Africa, Zambia and South Africa. Ultimately the landlocked nation is linked to the sea via these countries.

b. Abundant Water
Zimbabwes mature drainage system comprises Zambezi and Limpopo which are fed from the Zimbabwean side by tributaries that cascade from the countrys north east- southwest trending watershed. These, plus dams built on them, offer abundant water supplies to support coal and related resources exploitation and utilisation.

c. Interstate Power Line

The interstate power line linking Botswana, Zambia and through Katima Mlilo to Namibia under construction will pass through Victoria Falls.

d. Excellent Skills Base

One of Zimbabwes sterling post independence successes is education and skills training. The syllabi at School of Mines in Bulawayo have a strong coal component Hwange Colliery has a big Training School for artisans who are an envy of the sub-region and the world beyond.

Excellent Skills Base (cont)

The countrys universities have strong Engineering syllabi and produce excellent engineers and the coal mining industry draws it mining, mechanical, civil and electrical engineers from these institutions. The countrys policy of Education for All has provided a trainable labour force even in the semi-skilled bands.

e. Tourism
The country has a well developed tourist industry: Hwange town is adjacent to the Hwange National Parks and approximately 100km from the scenic Victoria Falls.

f. Governments Policy Fossil Fuel Exploitation

Mining of coal and CBM currently falls under the Mines and Mineral Act. Government regards the two commodities as resources of strategic value to the nation and thus feels compelled to be actively involved in the exploitation of the two resources. Partnership with Hwange Colliery Company and any other coal operator in Zimbabwe, like Rio Zim, can be negotiated with equity ratio flexible.

Hwange Colliery Current Share Structure

Those interested in the Hwange Colliery Company profile please visit our website: www.hwangecolliery.co.zw

HWANGE COLLIERY COMPANY STOCK REGISTRATION

The Company is currently registered the Zimbabwe, Johannesburg and London stock exchanges, with the main register in Harare. The organisation is considering registering on the proposed African Stock Market in Johannesburg.

5.O CONCLUSIONS
Zimbabwe has huge fossil fuel resources located on either side of the countrys main geographical watershed. All expect those in the Hwange Collierys Concession are yet to be fully developed for exploitation The existing infrastructure, abundant water resources, excellent skills and abundant labour will lend themselves to the exploitation of these resources.

Conclusions (cont)
The coal seams have attributes that offer tremendous opportunities for power generation and coking coal for both local use and export. The Huge CBM deposits will offer alternatives to coal, motor fuel and imported raw materials for fertilizers and other petrochemical feedstocks. THERE HUGE INVESTMENT OPPORTUNITIES IN COAL IN ZIMBABWE