Having accomplished all of its goals over the past year, Hodges Resources is hoping for a fruitful 2013 for its emerging Morupule South coal project in Botswana.

Although the Botswana coal industry is still relatively undeveloped, there is a burgeoning demand for coal. South Africa is the largest consumer of the southern African power pool grid and Hodges finds itself perfectly located and poised to rise to the top of the Botswana coal industry.

On top of the fervent demand, Morupule South has the resources to supply that demand, with Hodges establishing a maiden measured resource in November 2012.

Hodges managing director Mark Major said the milestone was critical for the company in two ways.

“It has proven that we have a significantly large resource and it allows us to now go into the next phase as we move towards development,” he said.

At Morupule, the resource stands at 110 million tonnes of measured resource, and 170Mt indicated and over 2 billion tones inferred.

Major said that the measured and indicated was more than enough to take the company to the next level.

“We don’t need to prove up the entire inferred resource just yet in order to build a power station or any other initial stage operation at this site.

At the moment we’re happy with our resource numbers and don’t see the purpose of wasting money on another drilling program to specifically increase the tonnages,” he said.

Morupule South is adjacent to Botswana’s only coal mine, the Morupule Colliery, which is currently operating at around 3-4Mtpa from underground.

“It’s mining the Morupule main seam at around the 80-100m level with the primarily use of the coal being for the local coal-fired power stations, Morupule A and Morupule B,” Major said. “We’re located right next door to the sole existing coal mine and coal-fired power stations. We have rail within 4km and a 400 kilovolts transmission line directly on top of our project.”

He added that the location of Morupule South was one aspect of the project that set it apart from its counterparts.

“That transmission grid links into the southern African power pool grid, which goes into South Africa and Zimbabwe, as 400Kv. This allows us potentially to get into the export market for power either using the current line or its infrastructure, which will be cheaper than building it ourselves. We are undertaking the power station and power infrastructure studies at the moment to confirm our options going forward,” he said.

“It’s got great potential because we are located in an area where power requirements are needed, so there’s a direct demand, and we are close to those power markets.”

But another key aspect to Morupule South, and one which makes it so attractive for shareholders, is the abundance of potential export level coal resource.

“The Morupule Basin has higher yields than most others in Botswana from what we know. We know we can achieve coal calorific values of over 6000 kilocalories by washing, with our indicative yields on average being over 50% for the Morupule main seam, whereas a lot of other coal basins in Botswana are lucky to get 5000kcal at those yields,” Major said.

“What that does is allows us the flexibility as we go forward to enter the export markets easier. With having low-cost open pit mining options and the higher wash yields we should be able to bring a higher spec coal to the markets at a cheaper cost than others in Botswana.

“The added benefit is that the coal quality will be higher and therefore gain a higher price on the market, which could be a $20-$30 difference. So that’s already allowing us that extra profit or margin.”

Hodges is currently waiting for the scoping studies for the mining and conceptual studies for the power development studies.

“Once we’ve got the scoping studies and associated operational and capital numbers on the project we will be able to see more clearly just how economically viable the project could be, and then the doors will be open for us to start looking at other investments.”

Looking into 2013, Major said there was still plenty to be done at Morupule South.

“Right now, we’re at the final stages of scoping and conceptual studies and we’re looking at those over various production rates, whether it be for export market washing or domestic market or a mixture of both,” Major said.

If the studies stand up, the company is set to consider a minimum 1.5Mtpa mine, which will be solely processed for a mine-mouth power station in the short term.

“After we finish the scoping studies the board will make a decision on the project’s progression. However, right now it looks to be standing up well and we will be looking to progress the technical studies on the coal and power sides into the first half of 2013,” Major said.

“We have identified an area where we have even shallower coal, which will drill out to bring our initial strip ratios down and therefore make the initial development economics better. So it might be justifiable to do that also, but if not we will pretty much continue our progress into feasibility-level studies.”

Hodges announced in August that it was not going to pursue its nearby Moiyabana coal project, which Major said freed the company up to focus on Morupule South.

“We did get a big resource here, which we expected, but the problem that we have with this resource was the insufficient yields obtained when we tried to beneficiate the coal and its lack of infrastructure currently,” Major said.

“But to concentrate on Morupule South, because of its location, the benefit of its coal quality will bring the Hodges story into production faster.”

The other upside of Hodges’ shift in focus is that because the company did not take up its option as part of the Moiyabana project the $3 million option fee with the shareholders of Jaguar Ventures is set to be refunded, boosting Hodges’ coffers.

With $730,000 already in the kitty at the September quarter and completion of a $800,000 convertible note with shareholders, Hodges’ cash reserves will be boosted further with the sale of Hodges’ interest in its non-core assets, such as the Salman South and Mame gold projects in southern Ghana.

This will be enough capital to fund operations for at least the next 12 months.

“As the saying goes, ‘cash is king’. And I think that’s one of the reasons why we’re undervalued at the moment, as people realise that we don’t need to increase our cash reserves in 2013,” Major said.

In another triumph for the company at a corporate level, Hodges appointed the former inaugural chief executive of the Oakajee Port and Rail project, Christopher Eves, as chairman.

Major said Eves had particular expertise in the development and financing of resources infrastructure, which made him the perfect replacement for outgoing chairman Peter Mullens.

“The appointment of someone of Chris’s calibre to the role of chairman is a significant step as we seriously shift our focus from exploration to project development and operations,” he said.

“His experience in developing infrastructure solutions is a significant gain for the company.”

The appointment caps off a whirlwind 2012 calendar year, and Hodges is primed to capitalise on its abundance of coal at Morupule South, combined with its location which is no doubt the envy of its southern African counterparts.

*A version of this report, first published in the January/February 2013 edition of RESOURCESTOCKS magazine, was commissioned by Hodges Resources