Since the New Year, several global dealmakers have predicted higher merger and acquisition (M&A) activity by Chinese companies in the African mining sector, particularly in coal and other energy minerals.
Analysts say China's demand for coal and base metals will outpace the expected global slowdown, particularly as the Oriental giant's government has placed a cap on domestic coal production.
The development of both Mmamabula and Mmamantswe was frozen pending the availability of offtake agreements that would in turn allow finalisation of the projects. Both projects initially targeted South Africa for the sale of their power before the neighbouring country dashed their hopes in late 2010.
Since then, developers of both projects have been on the lookout for merger and acquisition prospects, with Mmamabula nearly being taken over by an Indian firm early in 2011, among several such attempts.
The quest for M&A at both Mmamabula and Mmamantswe has been driven by the depletion of funds and the need for these projects to unlock value for shareholders, many of whom have faithfully awaited returns for years. An analysis released by Standard Bank this week holds promise of increased attention for the two coal and power projects.
In its analysis, Standard Bank researchers predict a jump in the scale and pace of Chinese M&A in African minerals from the US$5 billion (P37.5 billion) in value of concluded deals last year.
"The scale and pace of Chinese transactions on the continent is clearly picking up pace, especially in the area of mining and minerals," said Brad Webber, Standard Bank's co-head of M&A in South Africa."Standard Bank forecasts that M&A activity between Africa and China will continue to grow and expand."
The bank advised on M&A deals worth more than R10 billion (P9.29 billion) recently between Chinese companies and companies on the African continent. These include the US$1.3 billion (P9.75 billion) acquisition by Chinese mining firm, Jinchuan of Johannesburg Stock Exchange-listed copper and cobalt miner, Metorex.Both Mmamabula and Mmamantswe are dream acquisitions for investors, particularly Chinese firms who are traditionally flush with cash and hungry for good ground with proven resources.
In addition, both are well advanced technically, with only the market and cash flow issues holding back development, which is a useful fact as Chinese M&A bargain hunters are generally armed with both the market and the cash.
Mmamantswe has proven resources of 200 million tonnes of export grade thermal coal and an additional 100-150 million tonnes of domestic power coal. The latter variety is capable of supporting a 300MW domestic power station with a mine life of 60 years.
Mmamabula, meanwhile, has proven the project's capability to pump out up to 24 million tonnes of export grade thermal coal per annum from a resource measured at 2.4 billion tonnes of various coal types.
The project has also advanced technical studies on a 1,200MW power station and integrated coalmine, a 300MW power station and integrated coalmine and coal to hydrocarbon projects. The latter involves producing diesel fuels and associated products via coal gasification.
However, dimming the lustre of both projects is the lack of high capacity access to ports as the available routes are either limited or have cost considerations.
Chinese and other M&A will draw comfort from government's prioritisation of the development of a coal export route as contained in the soon-to-be unveiled Coal Roadmap for Botswana.
In addition, the development of the Trans-Kalahari Railway is expected to gather momentum once the coal roadmap is unveiled.
The Ministry of Minerals, Energy and Water Resources is scheduled to reveal the key coal sector development plan on January 31.
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)