The JORC-compliant inferred resource for Morupule South now stands at 2.3 billion tonnes of thermal coal.

It is a 485% increase on the historical JORC inferred thermal coal resource of 414 million tonnes (developed from historical drilling).

The resource increase is a culmination of Hodges’ latest drilling campaign, which included 15 diamond and 46 reverse circulation holes for a total of 7250m of drilling.

Ultimately, Hodges has the potential to become a major producer for the seaborne export market where the company could be mining in the order of a combined 15-20 million tonnes per annum from Morupule South and it second project in Botswana, Moiyabana.

Initially, the company is targeting small-scale mining producing up to 1.5Mtpa of thermal coal for supply into the domestic power market, before increasing production up to as much as 5Mtpa.

To date, all is going to plan, with the size of the resource, the quality of the coal and the potential for open cut mining all supportive of the company’s vision.

“What we have found is shallow, flat lying, thick bituminous to sub-bituminous coal seams over the central and east areas of the tenement and the same seams deeper to the northwest,” Hodges Resources managing director Mark Major said.

There are four main seams within the deeper coal sequence and the lower two or three seams in the shallow area.

All the seams have calorific values ranging from approximately 4000 to 5000 kilocalories per kilogram on a raw (air dried) basis. Indicative washing results show that some seams can achieve 51% yields and deliver calorific values to around 6200kcal/kg and 14.5% ash.

Of the 2.3Bt, around 1.2Bt is earmarked to be amenable to open cast mining.

The Morupule South resource adds to Hodges’ potential coal resources at the Moiyabana tenement, which is just 80km away.

A Runge independent geological report found a coal exploration target of 1.4-1.6Bt could be defined in a 140sq.km area on the site – of which 660Mt would be suitable for open cast mining.

And there is still plenty of blue sky on the 593sq.km tenement.

The maiden JORC resource for the Moiyabana project is expected in the third quarter of this year. Over the past financial year, Hodges has completed an extensive drilling program that included more than 6000m of RC and diamond drilling.

Major said the company had experienced some frustrating lab testing and reporting delays over the past six months but with data in hand, Hodges was going full steam ahead.

With the Morupule South resource now released and the Moiyabana maiden resource expected soon, the company will move rapidly into proving up the minable reserves.

“Our focus going forward is to identify and concentrate on the higher quality coal zones within the shallower coal areas where open pit potential exists, enabling lower mining costs,” Major said.

“From there we can conduct further drilling and commence the necessary mining and economic studies.”

Despite the delays beyond the company’s control in releasing the Moiyabana maiden resource and Morupule South resource update, Hodges has been able to advance other parts of the project.

“We are already drilling a specific zone at Morupule South which is focusing on a shallower area in order to advance the resources into mining reserves and progress our scoping studies into feasibility studies over the next 12 months,” Major said.

Production at both Moiyabana and Morupule South could be completed in staged developments, according to Major, feeding demand locally before looking to supply neighbouring African countries and, ultimately, seaborne exports.

“It has to be a staged approach,” Major said.

“We initially envisage a small-scale mine with production in the order of 0.5 to 1.5 million tonnes of thermal coal per annum. This could be supplied into the domestic market for power supply.

“By then increasing production up to as much as 5Mtpa we could potentially supply coal to South Africa or another neighbouring country, or directly into a site based power station designed for export.

“The potential beyond that is to become a major producer for the seaborne export market where we would be mining a combined 15 to 20Mtpa from Morupule South and Moiyabana to meet demand in domestic, regional and export markets.”

Strategically located, the Morupule South tenement is just 4km from the state-owned coal-fired power station that has recently been upgraded and will be commissioned later this year.

Additionally, a rail line just 2km from Morupule South may be utilised if regional demand increases and an economic rail route to a seaborne port becomes viable.

Hodges Resources has also been looking at building additional power stations for the expanding southern African energy markets.

Major said Hodges had been exploring options for offtake agreements including those with private greenfield power providers.

“The demand for power to support industrial activity and economic growth is only going to increase in Botswana and across the wider region,” Major said.

“Although the Botswanan government has just built a 500 megawatt power station, it still needs another 600MW to meet the country’s demand and is tendering for utility providers to supply the additional capacity later this year.

“We are considering the option of attracting a power group, or an independent power provider, to build a power station on our doorstep. We would be able to provide their demand for thermal coal and they could supply power to the domestic and regional markets.”

Major said the company had been in initial discussions with a number of groups about the project.

“We have a 400 kilovolt power line that is being built over the top of our current focus area at Morupule South, so essentially we are in a prime location for a power provider,” he said.

“At the moment we don’t want to get ahead of ourselves and are still primarily focused on defining our resources, completing the studies and ticking those boxes before we get too far along that line.”

Major said a better rail system needed to be built for the seaborne export market but it wouldn’t rest solely on Hodges’ shoulders and would be delivered by several of the emerging coal groups in the region.

“The idea is to start to advance these projects into production,” Major said.

“Morupule South looks like the project we are going to be developing first – it has shown it has the resources and quality, plus the added benefit of potential low-cost open pit mining but we’ll have to wait for the Moiyabana maiden resource and scoping studies to see what’s best.

“We have established a great technical team to help bring these projects to reality.

“Our capital structure is really tight – we only have 78 million shares on issue and 54 per cent of that is housed within the top 20 shareholders, and of that, management own about 15 per cent.

“I believe we will be rerated on the back of building our resources as we continue to strategically advance these projects in line with the local, regional and world coal demand.”

*A version of this report, first published in the August 2012 edition of RESOURCESTOCKS magazine, was commissioned by Hodges Resources