Hunger for elec­tric­ity

Finweek English Edition - - COMPANIES & INVESTMENTS - Tan­za­nia will ex­ploit its coal re­serves to drive its econ­omy for­ward. Pic­tured is the coun­try’s most im­por­tant eco­nomic cen­tre, Dar es Salaam David Mckay

For all the prob­lems at­tached to Eskom th­ese days, ther­mal coal sup­ply to the util­ity is still con­sid­ered a good busi­ness propo­si­tion. That’s a view partly based on the fact that Eskom is will­ing to pay bet­ter prices than in the past for ther­mal coal sup­plied to it ow­ing to the com­pe­ti­tion pro­vided by off­shore buy­ers, such as the In­dian util­i­ties.

For a dif­fer­ent take on power gen­er­a­tion, how­ever, there are some listed shares with ex­po­sure to African re­gions with­out the pol­icy-re­lated com­pli­ca­tions of South Africa. For in­stance, Mozam­bique’s GDP is grow­ing at about 8% and re­quires an es­ti­mated 2 000MW to ef­fec­tively fuel this growth – it’s a re­gion that doesn’t of­fer nearly as many reg­u­la­tory block­ers, or red tape.

AIM-listed Ncon­dezi Coal Com­pany is hop­ing to build a 300MW power plant near its Ncon­dezi mine in Mozam­bique’s Tete province. Ul­ti­mately, a 1 800MW power sta­tion is planned at a cost of $2.25bn with the 10m ton/year (Mtpa) mine cost­ing $627m. It’s am­bi­tious, but the theme run­ning through com­pa­nies like Ncon­dezi Coal is their cor­re­la­tion to GDP growth.

Pro­vi­sion of elec­tric­ity has got to be a key con­stituent in Africa’s story if you be­lieve it will be­come the next eco­nomic pow­er­house as count­less an­a­lysts are pre­pared to say.

In Botswana, there’s Hodges Re­sources. Listed on the Aus­tralian Stock Ex­change, Hodges is hop­ing to be­come a part­ner to the Botswana government, which has ten­ders out on two 300MW power sta­tions. Hodges is build­ing Morupule South, a 5Mtpa mine that could cost up to $200m de­pend­ing on how it’s devel­oped.

Ac­cord­ing to Mark Ma­jor, MD of Hodges Re­sources, there’s a 6 000MW deficit in re­gional power gen­er­a­tion that needs to be plugged, and thinks Botswana can play an in­te­gral part in its pro­vi­sion.

Out­side of the usual coal and en­ergy op­tions on the JSE, such as Coal of Africa, Re­source Gen­er­a­tion, and Fire­stone En­ergy, there’s the much less known Kibo Min­ing.

Headed by Louis Coet­zee, who was once re­spon­si­ble for busi­ness devel­op­ment at Great Basin Gold be­fore leav­ing in 2009, Kibo Min­ing re­cently won sup­port from the Tan­za­nian government for its $500m to $700m Rukwa coal project. Rukwa, in south-east­ern Tan­za­nia, is prospec­tive for other play­ers too. Edenville En­ergy is an­other AIM hope­ful dig­ging for coal there.

Again a 300MW power plant is at­tached to Kibo Min­ing’s por­tion of Rukwa, a typ­i­cal model in Africa ow­ing to the scarcity of in­fra­struc­ture that makes ex­ports a dif­fi­culty. Ac­cord­ing to Coet­zee, Tan­za­nia’s GDP is only held back from dou­ble-digit growth by the dearth of en­ergy.

“It’s the sin­gle big­gest fac­tor hold­ing the coun­try back,” says Coet­zee, who has op­er­ated in Tan­za­nia for about 17 years. Un­like Government, which has been told to open up the grid to pri­vate com­pa­nies, Tan­za­nia has taken ac­tive steps to pri­va­tise the elec­tric­ity gen­er­a­tion sec­tor.

Coet­zee says the plan for Kibo Min­ing, how­ever, is to spin the project out of the com­pany, or sell it. “The fund­ing pro­file for an ex­plo­ration com­pany is very dif­fer­ent to an op­er­a­tor,” says Coet­zee. As such, Kibo Min­ing is not nor­mal fare for min­ing in­vest­ment op­tions on the JSE where there are very few ex­plo­ration plays.

The lat­est devel­op­ment for Kibo is a cru­cial one in which the Tan­za­nian government has in­cor­po­rated its plans into its own strate­gic plan. That helps pave the way for ac­cess to in­fra­struc­ture, and re­moves some po­lit­i­cal risk.

Next on the agenda for Kibo is a devel­op­ment part­ner. “We’re ac­tively look­ing for one,” says Coet­zee who adds that Asian end-users are likely tar­gets. “Po­ten­tial part­ners were in the past re­served be­cause we didn’t have government sup­port,” he ex­plains.

Kibo Min­ing, the board of which looks like it has a wily criss­cross of African ex­plo­ration ex­per­tise (in­clud­ing three lawyers), also holds gold and nickel prospects – all of them in Tan­za­nia.

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