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, Zimbabwe’s fossil fuel remains and

will for a long time be a major source of energy.

Introduction (con’t)

• Zimbabwe is endowed with huge fossil fuelresources of world-class quality and is richin other minerals.

• The country has enabling infrastructuresupported by an excellent skills base,abundant labour and other criticalresources like water and arable land.

Introduction (con’t)

• These factors provide tremendousinvestment opportunities in coal inZimbabwe.

• Government provision of an enablingenvironment, setting of the priorities andmilestones right will provide impetus forthe envisaged national economic growth.

THIS PRESENTATION

This presentation:

• gives an overview of the geology of thecoal resources in Zimbabwe

• looks at Hwange Colliery operations in thepre- and post-independence era; and

• Looks at the opportunities arising in light ofthe new political dispensation.

1.0 THE GEOLOGY OF COAL

DEPOSITS IN ZIMBABWE

1.1 LOCATION OF COAL

DEPOSITS IN ZIMBABWE

LOCATION (CON’T)

Known coal deposits are found in two areasof Karoo rocks in Zimbabwe:

• The mid-Zambezi basin in the north andnorthwest; and

• The Sabi-Limpopo basins in the southand southeast.

Coalfields may yet lie undiscovered in theZambezi Valley.

Location of coal deposits (con’t)

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

1.2 GEOLOGY OF THE COAL

SEAM

• The coal measures are an integral part ofthe Karoo Sequence.

• The seams occur at depths ranges of 10 –450m

• In all areas only one seam (Main Seam) iseconomic.

• This Main Sea is Permian in age and oftenshows a vertical variation in chemicalattributes

MOLTENO

BEAUFORT

ECCA

DWYKA

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

LUBIMBI LUSULU BUSI - SENGWA KAONGA SANYATI

UPPER KAROO

Tillite

Lower Hwange

Sandstone

Black Shale and

Coal Group

Upper Hwange

Sandstone

Madumabisa

Mudstones

Sidaga

Mudstone

Hankano

Beds

Clay - Ranch

Formation

Ridge

Sandstone

Tshale

Formation

Waterfall

Sandstone

Bira Coal

Measures

Lubimbi

Glacials

Upper

Sandstone

Upper

Coal-Shale

Central

Sandstone

Lower

Coal-Shale

Lower

Sandstone

Deweras

Wacke

UP

PE

R K

AR

OO

Tillites and

Varvites

K0

K1

K2

K4

K5T

K5R

K5C

K5H

K5d+e

K5c

K5b

+

K5a

K5d

K5c

K5b

+

K5a

Schematic columnar sections of key areas and their lithostratigraphic correlation

(Adopted from J. Lepper)

HWANGE

not to scale

2.0 THE HWANGE SECTION

• A western extension of the Mlibiziintrabasin (see Fig 3 below).

• Dichotomous – divided by the EntubaCrystalline Inlier into two:

� Hwange Concession and Western Areasto the northwest; and

�Lukosi –Entuba and Sinamatella to thesoutheast.

Fig.3 Mid Zambezi Intrabasins

The HWANGE SECTION (CON’T)

• 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 productioncommenced with coal transported by oxwagon.

• Rail line from Bulawayo reached Hwangein 1903, enabling the Company to supplycoal at agreed quantity, quality and priceto mines, railways and industry.

HISTORICAL PERSPECTIVE

(con’t)

• Mining was essentially by the undergroundhand-got system.

• Opencast mining was intermittent andlimited to small pits to supplementunderground mining operations duringperiods of increased coal demand.

• Increased demand led to the Companycommissioning No.2 and No.3 Collieries in1927 and 1953, respectively.

PRE-INDEPENDENCE (con’t)

• Regrettably a major disaster occurred atNo.2 Shaft in June 1972, and the shaftwas 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 the950MW Hwange coal-powered station onthe Hwange Coalfield; and

b) The commissioning of the Main OpencastMine which employed the “Dragline withSupplementary Stripping Method” tosupply the new Thermal Plant with coal.

POST-INDEPENDENCE (CON’T)

• Production (No.3, No.4 and Opencast)increased reaching a peak of 5.915million tonnes total coal per year in 1991

• Since then production has been on adownward trend to the 2008 low of justunder 2 million per year (see graph below).

Historical Coal Production Graph

Coal Production 1980 to 2008

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OPENCAST HPS OPENCAST HCC UNDERGROUND HCC TOTAL HCC TOTAL COAL

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:

• HCCL’s inability to source funds forrecapitalisation and refurbishment ofageing equipment most of which hasoutlived its useful lifespan;

Declining Production (con’t)

• Perennial shortage of forex – aggravatedby the fact that Hwange Colliery Companyis not a net exporter.

• Loss of critical skills to the sub-region andbeyond.

• Reduced production itself also spirallednegative 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 coalresources. These are estimated at 26 500million tonnes in situ, an estimated 10 500million of which is potentially extractable.

The zonal distribution of these resources

is as shown below.

Estimate of Coal Resources in

Zimbabwe.

• Limpopo Basin : 60 million

• Save (Sabi) Basin : 684 million

• Zambezi Basin:

� Eastern Area : 14 million

� Middle Area : 23 766 million

� Hwange Area : 1 976 million

COAL RESOURCES (CON’T)

All the known coal deposits in the country,expect the Hwange Colliery Concessionpart of the Hwange Area, are yet to befully explored and developed.

THE HWANGE AREA

• Home to four coal-bearing areas legallyknown as Coal Concessions:

�Hwange Colliery Concession

� Western Area

� Entua-Lukosi

� Sinamatella

HWANGE CONCESSION

• As stated earlier, this is the only coalconcession that has been fully developedand exploited for its coal.

• Data from this area is used for referenceand bench-marking.

• It is owned by the Hwange CollieryCompany and is approximately 22 000hain extent (Fig 4).

Fig 4 : HWANGE CONCESSION

HWANGE CONCESSION (CON’T)

• 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 acharacteristic variation from base to top:

• Ash and phosphorus values increase,while volatile and sulphur contentsdecrease with distance above footwall.

• Reactive macerals (vitrinite and reactivesemi-fusinite) dominate at base, while inertmacerals are predominant towards the topof the seam.

Seam Modelling

• Based on this variation, the geologicalseam is modelled into three layers using acompositing procedure shown in Fig. 5below.

Fig. 5: Hwange Seam Compositing

ProcedureCompositing Diagram Moving Mean ASH from footwall

Moving Mean ASH from top of HCC

Moving Mean VM from footwall

Moving Mean VM from top of HCC

VM ASH23.5%

0 15% 24%

H

C

C

H

P

S

1 : HCC VM Cut - Off

2 : HCC ASH Cut - Off

3 :HPS ASH Cut - Off

1

2

3

Bo

reh

ole

Tra

ce

The Seam Subdivisions

The resulting subdivisions are:

• A basal layer with coking properties and isreferred to as Hwange coking coal (HCC)except in the Chaba area where it is non-coking and is referred to as industrial coal(HIC).

• A middle layer of power coal or HPS.

• The remainder high ash material isdiscarded as overburden (see Fig. 6).

HWANGE MAIN SEAM DIVISIONS

Fig 6

Coking / Industrial Coal

Power Coal

Black Shale / Overburden

Floor

Economic Significance of the

Vertical Parameter Variation

This variation makes the seam at Hwangesuitable 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 ofZimbabwe have revealed that the countryis also endowed with huge coal-bedmethane gas deposits.

• These include Entuba, Lubimbi, Lupaneand the Western Area coalfields.

• Hwange Colliery is currently one of theleading companies exploring for CBM.

Benefits of CBM Use in Zimbabwe

• Availability of an alternative to coal forpower generation, is more environmentallyfriendly and has a more flexible usepattern; a 330MW gas-fired power plantcan be established in 25 -30 months.

• Provision of a new feedstock to replacethe electricity intensive hydrolysis of waterin fertilizer production at Sable

Benefits of CBM Use (Con’t)

• Opening up of the petrochemicals sub-sector to a major new phase ofdevelopment, e.g. production of wax

• An alternative to diesel and petrol – gascan be used as motor fuel, either incompressed form or liquid form throughconversion as gas based diesel, gasolineor ethanol.

4.3 ENABLERS

Exploitation of the coal and the associated coal-

bed 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 railwaynetwork which connects all the major citiesin the country (see map below).

• The system connects with theneighbouring countries of Botswana,South Africa, Zambia and South Africa.

• Ultimately the landlocked nation is linkedto the sea via these countries.

b. Abundant Water

• Zimbabwe’s mature drainage systemcomprises Zambezi and Limpopo whichare fed from the Zimbabwean side bytributaries that cascade from the country’snorth east- southwest trending watershed.

• These, plus dams built on them, offerabundant water supplies to support coaland related resources exploitation andutilisation.

c. Interstate Power Line

• The interstate power line linking Botswana,Zambia and through Katima Mlilo toNamibia under construction will passthrough Victoria Falls.

d. Excellent Skills Base

• One of Zimbabwe’s sterling postindependence successes is education andskills 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 (con’t)

�The country’s universities have strongEngineering syllabi and produce excellentengineers and the coal mining industrydraws it mining, mechanical, civil andelectrical engineers from these institutions.

�The country’s policy of “Education for All”has provided a trainable labour force evenin the semi-skilled bands.

e. Tourism

• The country has a well developed touristindustry:

�Hwange town is adjacent to the HwangeNational Parks and approximately 100kmfrom the scenic Victoria Falls.

f. Government’s 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 CollieryCompany profile please visit our website:www.hwangecolliery.co.zw

HWANGE COLLIERY COMPANY

STOCK REGISTRATION

• The Company is currently registered theZimbabwe, Johannesburg and Londonstock exchanges, with the main register inHarare.

• The organisation is considering registeringon the proposed African Stock Market inJohannesburg.

5.O CONCLUSIONS

• Zimbabwe has huge fossil fuel resourceslocated on either side of the country’s maingeographical watershed.

• All expect those in the Hwange Colliery’sConcession are yet to be fully developed forexploitation

• The existing infrastructure, abundant waterresources, excellent skills and abundant labourwill lend themselves to the exploitation of theseresources.

Conclusions (con’t)

• 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