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DateSubject
31/5/2016
09:20
Kibo Mining Daily Update: Kibo Mining is listed in the Mining sector of the London Stock Exchange with ticker KIBO. The last closing price for Kibo Mining was 4.63p.
Kibo Mining has a 4 week average price of 4.31p and a 12 week average price of 3.95p.
The 1 year high share price is 7.13p while the 1 year low share price is currently 2.75p.
There are currently 353,012,435 shares in issue and the average daily traded volume is 1,581,736 shares. The market capitalisation of Kibo Mining is £16,326,825.12.
20/4/2016
10:16
gilbly: Extension to the previous post. D. POWER ELEMENT The government goal is to make power accessible to a greater percentage of people in Tanzania. Therefore the power tariff will have to be affordable and remain attractive enough to encourage the IPPs to invest in the country. The all-important power tariff will eventually be settled based on the draft model PPA document assembled by EWURA and as outlined in 11 Jan 2016 RNS centred on a set of principles to be agreed in an MoU and used as a reference framework to finalise a tariff, which is acceptable not only to TANESCO and Kibo, but to the regulator EWURA. I think that both parties must know the tariff they want and what they will accept, so the DFS should not be delayed as a result of PPA finalisation, hopefully. The web site timelines would appear to indicate that the PPA follows after the DFS, according to the interactive box links and the red text indicates the added complexity with continuous interaction in the processes. According to RNS in July, the PPA is within the DFS so slightly different from the Timelines which imply PPA after DFS. MPPA link is hxxp://144.76.33.232/wp-content/uploads/2015/08/Model-PPA-for-Coal-fired-power-generation.pdf The electricity tariff and the cost price of producing the Power per KWh will determine the profit margin per kWh and from the energy generated, this will yield the overall Revenue and Profit generated per annum. A first phase of 2 x 150MW generation sets of course ensures that one power generating set can be available and so reduce the power loss from outages. The current PFS figures for the power illustrate essentially favourable fundamentals and as LC stated better than expected. The recent RNS indicated the PDFS is completed subject to a review and is well within expectations, so it all looks very promising. The current figures from the PFS are: POWER PFS. - 1,841GWh to 1,877GWh per annum based on an 80% baseload. (Note basic 80% of FL is 2628GWh Max X 80% = 2102.4GWh) - Power revenue $7.8 to $8.4 billion over life of PS of 25 years. - NPV is $230m to $280m at a 15% discount rate. - CAPEX is $640m to $760m. - IRR in excess of 23%. - Payback period 8 to 9 years The current NPV of $230m to $280m and other financial metrics are likely to be updated after the review of PDFS, which is now completed and this should be released shortly, followed by the MDFS afterwards, which then leads in to the Integrated Bankable Study which should be completed by end of Q2. Combined with the Coal NPV of $211m - $219 this is a combined project NPV of $441m to $499m and the final DFS results are likely to have a bearing on these fundamentals. Some thoughts on the factors relating to the electricity tariff and power profit estimates are covered below. The current Power NPV of $230m with 365.4 shares is about 42p a share as valued per Beaufort calc. The power PFS excluded the electricity tariff, cost price of Power and therefore profit margin so we have await the DFS final reports re the tariff and commercial off-take, if any. However we can work out the profit for each cent of change in tariff rate and although we don’t have the tariff, we can work out the unstated tariff rate from the figures supplied in the PFS. In addition we can try and estimate the Power profit from what we know and this is considered later below. 1) Electricity Tariff At the outset, a fair domestic tariff is likely to be above the 9 to 11 cents/kWh modelled by Beaufort’s Sheldon Modeland in a June interview, but below the 18 to 35 cents kWh as LC advised in the Mining Weekly interview on 4th September 2015. http://www.miningweekly.com/article/kibo-says-tanzania-power-project-will-be-competitive-2015-09-04 When SM was asked about the project, he spoke of the sensitivity of the tariff in the model and indicated he had used 10 cents/kWh and the model results change significantly over the 9 to 11 cents/kwh tariff range. So the above range has to be our electricity tariff starting point and any thing higher will be a most welcome bonus. 2) Profit Figure for Each 1 cent/kwh on the Margin In addition to the fundamental figures from the PFS, as posted previously an important fact we derive from the PFS energy range of 1841GWh to 1877GWh, or using the average energy of 1859GWh, this yields: “For each 1 cent/kWh rise in tariff margin the power profit increases by $18.59m per year”. So regardless of the eventual tariff level this is a constant profit per 1 cent/kWh increment, unless the energy figure changes per year. An important fact to remember once we know the tariff, cost price and profit margin per kWh. For the moment, the electricity tariff, cost price and the actual profit margins are not in our domain at present, but it will be an interesting feature in the Power DFS which should be issued ‘shortly’ after reviewing, as they will have to commit to some figure eventually and if the PPA discussions are still on-going, then amendments may be necessary as required. From above on margins of : - 2 cents, the tariff would give $37.18m power profit per year. (coal is $23.5m currently). - 3 cents, the tariff gives $55.77m power profit per year. - 4 cents, the tariff yields $74.36m power profit per year. So the tariff is fairly sensitive as signposted by Beaufort 11 June 2015, and if we consider a tenth of a cent change, this equates to a change in profit of $1.86m per year. 3) Power Tariff Comments The electricity tariff is undisclosed in the Power PFS ( although we can derive a value, see 7. below) and therefore the tariff and in particular the cost price of power and the resulting profit margin on the tariff are key factors to be announced for the Power generation element and are meaningful and positive outcomes which are eagerly awaited. Furthermore it is imperative of course that the final tariff is both affordable whilst ensuring that power provision is made available to as many people as possible and at the same time profitable for Kibo. See links and notes below for indication of pressure in keeping tariff low a) In the link dated 29 May 2104 - TanCoal had demanded to be paid USD 12 cents/kWh, while Tanesco wanted to buy between 5 and 6 USD cents per unit. http://allafrica.com/stories/201405290841.html b) Link below dated 17 June 2015 – Establishment of Ngaka Power Project has been delayed because of lack of an investor with proper tariffs, the Deputy Minister for Energy and Minerals, Charles Kaijage has said. He revealed in Parliament that the investors, whom he did not name, had quoted expensive tariffs that were deemed not viable for the project. (I think it was Tancoal). "Coal-fired electricity cost between SIX to EIGHT US cents, but they came with tariffs which I am ashamed to say here," he said. So for Kibo, perhaps an optimistic starting point for the cost price of power could be in the region of 8 cents/kWh or thereabouts and even tending up to a cost price of 9 cents/kWh. http://allafrica.com/stories/201506171239.html c) Link below covers application to EWURA for Tariff reduction hxxp://www.ippmedia.com/frontend/index.php?l=89405 In the above, TANESCO announced they had asked the Energy and Water Utilities Regulatory Authority (EWURA) to approve a power tariff reduction of 1.1 per cent effective from April 1 this year, and a further cut of 7.9 per cent effective from January 1, 2017. From this, I estimate a reduction from 350TSh or 16 cents/kwh to 14.6 cents/kWh, however it would appear from the Tariff Adjustment Application in d) below that the 350 cent/kWh rate is being maintained for 2016. In addition, the links below, dated 2 April 2016, confirms that the proposed tariff cut of 7.9% for Jan 2017 was blocked by EWURA and would be resubmitted by August 31 this year for the same planned reduction of 7.9% for Jan 2017. hxxp://www.ippmedia.com/business/former-energy-ps-warns-against-tanesco-tariff-reduction or hxxp://www.inlivenews.com/ewura-stops-lower-tanesco-tariff-plan/ This is obviously driven by the government in an attempt to keep rates low and allow many more people to link up to electricity access. d) Tariff Adjustment Application re the link below hxxp://144.76.33.232/wp-content/uploads/2016/02/TANESCO-TARIFF-ADJUSTIMENT-APPLICATION-FEBRUARY-2016.doc From the link, TANESCO’s Tariff Adjustment Application, page 3 shows that they have been using the 2013 approved tariff, and the 350TSh will also apply to 2016 (Table 4) for the Domestic rate above 75kWh. This document indicates further (Table 1) that TANESCO are projecting an average Tariff Requirement or yield of 272 TSh for 2016 and 250.62 TSh for 2017. So it appears from the latter they require about 11.5 cents/kwh in 2017, so perhaps still scope for Tanesco’s domestic tariff to be above this level going forward to discussions with Kibo. Therefore thinking about the 2017 tariff level and assuming that the August resubmission of the planned reduction of 7.9% goes ahead, TANESCO may settle on a domestic tariff of 350TSh reduced to 322.35TSh, or about 14.7p. So if the reduction in tariff rate proceeds, I think the Kibo tariff rate may be just below this figure. See estimates of tariff in 4) and 5) below. So we can see at the front end of negotiations there will be huge pressure to supply electricity to as many Tanzanians as cheaply as possible and the link quotes a target of 75% of the population with access to electricity by 2025. The EWURA Draft Model PPA should help speed up the process and hopefully we are near the point of agreement on the MoU setting out the terms of reference to be used in the PPA negotiations. From the tariff adjustment link - The tariffs apply from 1 April 2016. Also the proposed adjustments for 2016 and 2017 are subject to automatic adjustments for inflation, currency fluctuation and change in fuel prices, as per Tariff Setting Rules and as modified by the EWURA Regulatory from time to time. 4) Power Tariff and Profit, a Conservative Estimation. Using Beaufort’s mid-range price of 10 cent/kwh and a cost price of 8.5 cents/kwh, which is just above the 6 to 8 cents/kwh referred to in the Web link in 3) above, we have a fairly conservative 1.5 cents profit per kWh. Using the profit rate from 2) above where, “1 cent/kWh margin equals $18.59m profit”, this equates to $18.59m/cent x 1.5 cents profit, which is $27.9m a year. Added to the current coal profit of $23.5m this gives $51.4m per annum for Coal and Power together. With 365.4m FD shares, this equates to 94p at a P/E of 10 and at a lower P/E of 6 is 56p. (Now 366.724m with Sandersons batch). So that is my estimated safe figure which is 15% of the mid value of Beaufort’s 9 to 11 cents/kwh range. (Obviously this assumes Kibo ownership at this stage and producing). 5) Power Tariff and Profit, a Less Conservative Estimation. Possibly less conservative is the assumption that we have a top end tariff estimate of 13 cents/kWh and with a cost price of power of 8.5cents/kWh, (say 9 cents/kWh) this gives a 4 cents profit. Yes it is only speculation for the present, but if this was the case, it amounts to a power profit of 4 x $18.59m or $74.4m, which combined with the Coal profit of $23.5m is $98m per year before deductions. If this was the case, I would accept that level of profit for the coal and power, which on a lower P/E of 6 equates to about 107p per share, when producing. TANESCO’s domestic charge is 350 TSh/kWh or 16 cents/kWh and if they make 1-2 cents/kWh, then we may push up higher to 14 cents/kWh, but it has to be affordable and there will be immense pressure to keep this as low and inexpensive as possible. Also it appears that with a possible 7.9% rate decrease to be re-submitted in August, perhaps pushing for a 14 cent/kWh tariff would leave TANESCO with insufficient profit. So a lack of profit is nothing new for TANESCO according to the announcements this month and must be a major concern. Therefore 13 cents/kwh remains my top end tariff estimate and perhaps this may result in a profit around the 4 cent/kWh mark as above. The 14 cents is just a touch adventurous I feel, but who knows and all will be revealed ‘shortly’. So 4) and 5) was my best estimate / guesstimate of a profit of 1.5 cents to 4 cents/kWh. Edited later - Perhaps I should have considered only the averages. i.e. 10 cent/kWh tariff minus a cost of 7 cent/kWh, which is a 3 cents margin. Using the safe figures, a 9 cent/kWh tariff minus a cost of 8 cent/kWh gives a min. 1 cent profit and a more optimistic view gives 11 cents/kWh tariff minus a cost of 6 cents/kWh which is max. 5 cents margin, with an average profit of 3 cents. - Edit end. 6) Commercial Off-take Agreements. The above excludes any commercial power off-take agreements and it is strange that we have not heard any peripheral news on this. Possibly LC has been conservative with the profit figures issued and deliberately keeping the profits low key, as EWURA, in setting the tariff rate will no doubt be scrutinising the potential earnings with a view to squeezing the tariff to as low a value as possible, thus improving the TANESCO situation which looks somewhat bleak at the moment. In EDL’s 120MW Feasible Study, they incorporated commercial off-take figures and inspection indicates the NPV increases from $220m for a base case with a single buyer to $320m with off-take power at 40% production at variable commercial rates. So EDL estimated a substantial increase of about 46% when the off-take case is considered. This however may not be applicable for Kibo, as it is a different situation. However if it did and we apply this to Kibo’s NPV range of $230m - $280m it gives a minimum of $335m with a combined coal and power NPV of $546m. So any off-take has the capacity to inflate profits, assuming that EDL are not barking up the wrong tree. It does on the face of it however appear a pretty ambitious premium on the flat rate tariff and so await the release of the final figures for Kibo. These rates of course may not have been officially agreed upon and are maybe only commercial off-take estimates by Lahmeyer for the EDL Feasibility Study. Interesting that Lahmeyer, as far as I know, is now a subsidiary of Tractobel. So it will be interesting to see what transpires regarding the outcome from any commercial off-take negotiations. The above scenario may be well wide of the mark with regards to the Kibo position and obviously there may be potential to increase the power profits via the power off-take agreements if they are there, but not necessarily at the aforementioned level. For example, contributing towards the figures we may have higher commercial off-take tariffs and as a consequence it may be at the expense of preserving a lower domestic rate, as there will be pressure to keep this low and affordable. Naturally from Kibo’s point of view, it has to be affordable to enable Kibo to pay off the debt and equity funding involved. EDL call the figures robust and in terms of industry costs to develop the project it appears low at $1.45m/MW, with Kibo costs about $2.4m/MW. Therefore on the negative side, their low cost per MW may be indicative of a low estimate of the Capex value used, leading to a more elevated NPV as a result., but even so the NPV ratio still looks high. Also looking at their unstated tariff, from EDL’s FS figures, this works out at 7.8 cents/kwh for the base case and 10.08 cents/kwh for the power off-take case, which is an increase of about 30%, however the former tariff looks somewhat on the low side. Perhaps the revenues stated are just indicative values without any intent to be accurate. 7) Unstated Tariff from the Power PFS I was reasonably happy with the Coal and potentially up to 4 cents/kWh profit I estimated for the Power, if this could be realised, then I recalled from a previous post that we derived the unstated electricity tariff from the PFS figures. Using an average energy of 1859GWh from the PFS figures and an average revenue from the $7.8 to $8.4 billion, which is about $8 billion turnover, the average electricity tariff over 25 years is: $8 x 10^9 / (25x1859x10^6 KWh) = 8/(25x1.859) = $0.1721 or 17.2 cents/KWh. (15.4 cents/kWh if we assume 28 years.) This unstated tariff at 17.2 cents/kwh looks too high for me, but it is derived from the Power PFS figures. Although high, however it is less than the 18 to 35 cents/kWh LC referred to. As the 80% FL is 2102 GWh, it looks as if the stated energy values are of the correct order, so have they overstated the revenue amount in the PFS? Alternatively is it a level which allows for future price rises over the period or just an indicative value or even a rogue value or is it just an intended target value that they have concluded, is a value in the future? Perhaps it is a representative figure of the tariff average resulting from an estimate of both a domestic rates and a commercial off-take agreement rate. Who knows, but I did ask LC the question. I know it is obtained indirectly from the PFS figures and if the revenue is a rough value it should be stated as such. So yes, it appears unrealistic to have a tariff of 17.2 cents/kWh against the existing TANESCO domestic tariff of 16 cents/kWh, unless of course this was the commercial tariff they were working on at the time in the model and just included the corresponding revenue range in the PFS report accidently. 8) Rough NPV Figures To check this out I performed some Power NPV calcs. using a tariff of 17.2 cent/kWh and it certainly produced a relatively high power NPV figure, fairly remote from the actual PFS result. However utilising the 9 – 11 cents/kWh as modelled by Beaufort, this gives realistic NPV values and 10.3 cents/kwh yields a value close to the low end NPV. Note this is just a basic calc. in comparison with the sophisticated model they will be utilising, however it is useful when trying to establish if ball park figures are reasonable. Even in my rough model the sensitivity of the tariff was apparent on the NPV as SM of Beaufort has previously stated. As we thought above, how can we possibly have a 17.2 cent/kWh rate if the current TANESCO domestic rate is 16 cents/kWh and in the longer term it may possibly reduce further. 9) Figures that result from Tanesco tariff adjustment application doc. The link below is TANESCOS’ Tariff Adjustment Application and page 3 shows that they have been using the 2013 approved tariff. This indicates further that they are talking of an average required tariff of 272 TSh for 2016 and 250.62 TSh for 2017. The latter must be about 11.5 cents/kwh, which is an average from all the rates. hxxp://144.76.33.232/wp-content/uploads/2016/02/TANESCO-TARIFF-ADJUSTIMENT-APPLICATION-FEBRUARY-2016.doc. Inspecting the document further shows the situation TANESCO are in prior to considering any tariff reduction. Bottom of Page 5 states: The current tariff regime yields average revenue of 274.90 TZS/kWh, yet the revenue requirement target for TANESCO in 2015 was 348.68 TZS /kWh and projected to be 272.00 TZS/kWh in year 2016. The shortfall of 67.78 TZS/kWh (26.8%) in year 2015, restricted the ability of the company to provide the services required to meet its obligations to both its lenders and its customers So despite them wanting to decrease the tariff further, TANESCO are currently suffering large losses and 49% of the business is to be placed. So if they are currently losing mega /- who will buy the share offer. Tanesco’s situation cannot be helping in the negotiations. The gov. and national banks have to bail them out with loans, and to encourage investment, if the tariff level cannot be raised, some radical changes will probably be pursued to turn the company around into a profitable organisation. In the meantime they may suffer drastic reductions in important service and maintenance work on its power infrastructure, and this will lead to possible power cuts. They can’t be losing money forever and a reasonable tariff settlement may help solve their money problems. From The Guardian, both the World Bank and IMF have been pushing the government to allow TANESCO to raise power tariffs to end the use of subsidized funds to the utility. TANESCO themselves warned in a letter to EWURA that to cut the tariffs even further than as indicated would paralyze the company’s financial capacity and risk driving it out of business. The TANESCO MD Felchesmi Mramba sums it up a succinctly on page 1 of the Tariff Adjustment document; “The unavoidable reality is that no enterprise can provide the service that its customers seek if it loses money on every unit of output that it sells”. Note a previous link posted indicated that the Gov. want Tanesco to build, as against hiring generating plant and this may assist in reducing power costs in the long term. So perhaps this is a great opportunity for direct involvement in the MCPP working alongside Kibo. 10) Power Profit and Discount Rate (DR) The tariff, power cost price and the resulting profit margin will affect the generated power profit and NPV, however in addition a further improvement in the NPV and IRR may be obtained by considering the DR used. The Power NPV value is based on a 15% DR which is likely pitched on the high side as it most probably accommodates a high degree of risk. A higher DR is safer, resulting in a lower NPV, which may be attributable to LC’s conservatism and a lower value will lead to increased NPV figures. (Note that a 5.5% DR is used for coal). Perhaps with the Power studies completed this may de-risk the power element further and perhaps they will adopt a DR of 10% to 12% for the power plant. Based on a reduced DR of 12%, my very rough calcs estimate the NPV at about $360m over 25 years. Any improvement obtained or changes to the final figures will be reflected in the rest of the financial metrics such as revenue, NPV calculation, payback period, ROI, IRR etc. and if the initial figures were quoted as being better than expected then perhaps we will be pleasantly surprised with the finals which to-date they quote as well within expected. 11) SPV Assets From the recent interview, it’s comforting to know that any equity release in the MCPP will be raised at a decent premium to the current share price, which LC considers is very cheap. But at what premium to the share price does LC expect and what would it actually rise to? Bearing in mind the elevated heights we have already scaled and will we surpass the 9p levels again? ( I think the the intra day was possibly higher near 12p). Attempts to ascertain the level of SPV asset sell off have been made in previous posts (34800, 36518 an edited version of 36342) on the basis of a range of prices from 25 cents to 1.68 cents per share. (January 17 I think). A part of this is shown below for this price range and for $169.5m equity for the integrated project. This illustrates the level of assets that would have to be sold at the corresponding prices without issuing more shares. Table on SPV asset disposal and full Equity raising. Table for Scenario 4 - Equity funding of $169.5m. (Rev is revenue). ..1...........2.............3..............4.................5...............6...............7............8............9 Price ...Price in...N-No.....Worth...Tot equity ...% SPV....SPV....Buyer...% covered P in $....pence....Shares....PxN.....cover $m....sold...Rev $m...Equity $m....by Kibo 1.68.....109.59.....331.....555.00.....169.50......23.40....129.84.....39.66.....76.60 1.50......98.04.....331.....496.50.....169.50......25.45....126.36.....43.14.....74.55 1.25......81.70.....331.....413.75.....169.50......29.06....120.24.....49.26.....70.94 1.00......65.36.....331.....331.00.....169.50......33.87....112.10.....57.40.....66.13 0.75......49.02.....331.....248.25.....169.50......40.57....100.73.....68.77.....59.43 0.50......32.68.....331.....165.50.....169.50......50.60.....83.74.....85.76.....49.40 0.25......16.34.....331.....82.75......169.50......67.20.....55.60....113.90.....32.80 As we see from the table as the share price reduces the % of SPV assets needed to be sold increases, as expected, and correspondingly the required guaranteed equity finance increases for the buyer, as in Col 8. At a high $1.68 value, Kibo retain 76.6% of the SPV asset and at the lower 25 cents they retain only 32.8%. This reveals the enormity of retaining a high percentage level of the assets. But note that this was without adding or changing the 331m shares. This is only an indication of what assets would have to be sold for the above price range, without any dilution by selling shares. Obviously the option to sell the SPV assets without issuing more shares is highly dependent on the valuation attached to these assets as the table shows. 12) Raising the Equity Funding Debt funding will be arranged from the banks on the proviso that the Equity Funding can be obtained by Kibo and potential partners. ‘Project level loan financing’ was discussed regarding the coal element and it was deemed an attractive option due to the robustness of the figures and the RNS covered the loans at 70%/30%. The ratio 75%/25% was also referred to later so we just have to wait and see what they arrange. Whether Kibo retain sole ownership or indeed any sort of ownership or not is another question, nonetheless the current profit of $23.5m per year, EBIT, is not an insignificant return for a CAPEX outlay of $38m. Other options might see them raising finance, through issuing bonds or royalty and streaming capital finance options where a share or price of the mineral is agreed upfront in exchange for Capital finance. However LC will be well advised on his finance options regarding the MCPP, that’s what the Standard Bank is there for. So LC may opt for a share placing of New shares on the market combined and/or a direct investment by interested parties, hopefully at a much higher price than we are currently at. We then have to accept the dilution. The advantage of selling a % of the SPV assets without issuing shares means no dilution, however if we have to issue/sell more shares, so be it. If you need money you have to raise it in the market or dispose of a share of assets to raise equity funding. That is the whole purpose of the market place, to allow companies to raise finance. Financially if we raise equity funding which involves repaying, at any rate you want to choose, say a 15%, or 20% return on investment, it is likely to be a large chunk of interest payments either way. This is fine and not a problem if we generate adequate revenue to easily fund this. In addition the higher the tariff and corresponding profit margin, then hopefully the higher the share price will be and consequently the better the prospects for arranging finance, where we have an investor looking for a return of 15% to 20% per year. Indeed with Kibo having pretty decent and robust fundamentals, then we may attain a lower and more competitive rate of return if the deal looks an attractive opportunity to investors for the capital employed. We need a minimum equity of $169.5m as an integrated project and $160m for the power only. So we only need $9.5m (at 25%) to start the coal development. If LC is raising funds by issuing shares, it is unlikely that he will sell off the extra shares cheaply to take them to the 800m shares that they can possibly have in issue, as this will not raise a huge amount of funds. For example if we double the FD 365.4m shares, this would raise £18.27m ($27.4m) at 5p, $54.8m at 10p and $82.2m at 15p. Even if we sell 434.6m shares to meet the full 800m shares permissioned to sell, at 5p this raises $32.6m, at 10p this gives $65.2m and at 15p this raises $97.8m. Still short, but note that the latter is about 57.7% of the $169.5m equity funding required for the integrated project, without disposal of any assets, but we still need to raise $72m. To raise the full $169.5m equity funding requirement, it would need the 434.6m extra shares to be sold at 26p and in so doing we have to accept that dilution has to be a factor to be reckoned with. I did a previous post estimate selling off Imweru at 10p a share, which now raises £36.5m or $ 54.8m, and represents 32.3% of the equity funding needed and the remainder is available for disposal. Lubando may be a possible sale also and may contribute another 9%. This would be a brave and bold approach but none the less, if it is necessary, then it may be an available option open to Kibo. Another option and would need funding, is to prove up the resources to Bankable and start to mine Imweru solely or jointly but it is likely to take too long, so selling may be the preferred option to raise funds. Barrick own a 10 % free carry up to the time they decide to mine and have to contribute or be diluted to a 2% smelter royalty rate. They also have first refusal at the BFS stage at an agreed market price. In perspective, the Imweru 550K oz of gold is worth $660m out of the ground, whilst the coal for the PS feed at 1.48mt/year, is worth $48.5m per year and $1,356m over 28 years, so quite a difference on just the coal alone. The double whammy, suppose we sold Imweru and also issued the 434.6 m extra shares at 15p say, this is $54.8m + $97.8m = $152.6 which is 90% of the assets retained and we need about another $17m, which by comparison is quite small. Yes issuing the extra share results in dilution, however we may then be on our way to 100% retention, although it is a fairly large jump from 365.4m FD shares to 800m shares in issue, but the share price may compensate for this. As LC indicated there is nothing cast in stone and whether the projects are to be split or integrated, this and the finalised financial package will be down to, whatever makes the best commercial sense, as he says and hopefully it will be beneficial to all. I also did some estimates re selling the SPV assets off on the basis of different equity amounts. 13) Mining Maven’s Gervaise Heddle He thinks we will retain 10% to 50%. I think he is far too conservative. A 10% share of the equity required is worth $16.95m, which is less than for 1 year’s coal production and sales revenue of $23.5m, assuming the same feed as the PS. So certainly at 15p a share, GH’s 10% retention value still looks low. However we would have to attain that level price wise. Say we generate $24m/ year from the coal and raise $40m from the coal sales over the construction period, we have 25% of the $160m equity funding required for the Power project, neglecting deductions. Also if projects are integrated, we have 23.6% of the coal and power assets. Of course only if it was all that simple, it is easy to say on paper but harder to expedite. They don’t need all of the finance in place in one go. Looking it another way, If we sold Imweru at 10p a share and raise £36.5m or $54m we would have funding for a 33% share of the Power SPV assets and 31.8% of the project if integrated Then we later add to this from the coal export/sales to further reduce the equity required. Remember they appear confident of extending the gold resource by potentially 40% to 80% so Barrick /Acacia may be interested and as a 10% holder, they will know the full potential of the gold there also. 14) Timelines and PPA Looking at the Presentation and the Timelines the indication is the PPA negotiations still follow on after the PDFS. (As they did in the August presentation). So a draft or provisional agreement may be appropriate. However a July RNS last year stated: ‘In addition, the Definitive Feasibility work will also include negotiation and agreement of the terms of a Power Purchase Agreement, Implementation Agreement and Environmental Impact Assessment with the appropriate Tanzanian Government bodies’. The RNS on 11 January says they were finalising a MoU with Tanesco on the PPA and the parties identified an agreed set of principles to guide and direct the PPA development to be used as a reference framework when they jointly develop and implement an appropriate PPA for the MCPP. So this framework has to be agreed first before they finalise the PPA. The whole point of the DFS amongst other outcomes is for it to demonstrate the Technical and Economic viability of the project. So the power tariff will certainly be firmed up sufficiently in order to facilitate the issuing the PDFS, if it is to be on time, even if it is only provisional and subject to a review and signing. Both parties must know what tariff rate they want and what they will accept and I would imagine any provisional agreement will have been vetted by EWURA By the very nature of the financing involved, the PPA agreement may not be fully finalised until the lenders of the finance are satisfied with all of the details and I think until the finance is settled any PPA tariff may be subject to amendment, particularly by the lenders, for obvious reasons, no finance then no project. As LC has indicated, the fundamentals are robust with more than adequate IRRs, so I would think that any tariff provisionally agreed with TANESCO is probably the final one. Nice and neat if they settle on a tariff now and a PPA is issued. There is huge pressure to keep these rates as low as possible and this is being driven by the government. There should not really be any dubiety about any of the timelines and I feel they should have had this all mapped out so they can see the critical path and take appropriate action and announcements. So there you have it. I’m off tomorrow to Tenerife. Hope we have some news shortly. It's all starting to get interesting and once all of the work studies, permits, permissions, agreements and finance etc are all pulled together, it may impress and become even slightly more exciting in the future. GLA Gil
20/4/2016
10:15
gilbly: Morning. Very little internet these day. Sad when you have to go to the Library. I still have this queasiness and have had lots of test done but still have persistent sickness all day. Tomorrow we are off to Tenerife so looks like no beer and wine again, but I have to say I never missed it last trip. So hopefully the sun will help. Anyway I have been trying to keep busy and as ever end up contemplating where we are and the figures we have to date and what will be issued shortly. I have enjoyed reading some of the post when I gain internet access, but mainly when out shopping. So keep the news flowing. Thanks also to Mr K for his research and sharing his discussions when he manages to contact LC. He does not have to divulge this info and chooses to share it on the board, so everyone should be grateful for this on both boards. We know that it should be very interesting with the news flow expected and it should place us in the enviable position of having all the study work competed and behind us with only a small matter of the finance to finalise and then on final closure it will all become a reality that this old project is both technically and financially feasible and moving towards the next phase. Others companies are also in a similar position, awaiting financial closure and in most of these circumstances it will take as long as it takes, as there may be unforeseen hurdles to circumvent in achieving this final stage. We all want to get there and none more so than the Tanzanian Government, however it’s how we arrive there and with what assets that causes us, the small investor concern. We are presently now in a position where the PDFS only has to be reviewed and then it can be issued. Then shortly after the MDFS report should also be published with the Integrated Bankable then following on. When we attain the ‘Financial Close Ready’ milestone will this mean the green light for the Institutions to climb aboard directly or indirectly or perhaps we might experience some slight increase in the market capital enroute to reaching FC? Just think no more studies unless we instigate them. Whatever happens we continue to steadily de-risk this project so that it will be a major prospective investment in the months to come and a great achievement for a small developer like Kibo when we do arrive. I wonder how many doubters we have out there? Hopefully after the ‘Finance Close Ready’ milestone that the financial closure process advances steadily towards the ‘Construction Ready’ milestone and is not too drawn out. The deliberations and discussions on the finance has to be well advanced, as they know the Integrated Bankable Study is on its way. We all know it is a complex and important stage we are at. I have to say I was extremely encouraged by C’s post which commented to the affect that LC was not concerned about the finance. Not too sure why it was removed on LSE. The figures have to be attractive and robust and there has to be a need for the technology and plant so in both respects we are well positioned and well supported by the Tanzanian government. When the studies are complete and integrated into a Bankable Feasibility Study, the arrangement of finance is probably the most significant hurdle we will ever have to surmount, but we should already be well advanced in terms of the discussions with banks and finance modelling etc. Only the figures in the DFSs are going to change and so are not unexpected, so they surely only have to tweak the finance model. I started off with my original post below on NPV queries only, however lacking the internet, which is becoming the norm here, I just added to it and below are some other thoughts I pencilled in on the Coal and Power elements and some points I have re-visited. No advice is intended here, it is just my own thoughts on the Kibo MCPP project. What I have found to have been a pain over the last year or so is the differences and inaccuracy in the information we receive via the regulatory news facility and interviews. There is nothing wrong if we have delays whether out of Kibo’s control or not, but if there is a delay and they know it’s coming, then it is important to keep us all informed. A. MBEYA POWER COAL & POWER PROJECT (MCPP) – PFS FIGURES The current PFS figures for both COAL and POWER elements (with the RNS updates) are shown below and we await the final PDFS and MDFS reports: COAL PFS (---- Now as per the latest RNS) - A 28 year mine life at 1.48mt of coal/year (42mt per year). - Coal revenue $48.4m to $48.6m / year. (--- Now $48.4 million ). - Cost margins - 49% to 62%, with 25% considered healthy. (--- Now 47.9% to 48.1%). - Annual profit - £24m to $27m. (---- EBIT now $23.5 to 23.6 million). - CAPEX - $38m to $73m, preferred option is $38m. (--- Peak funding confirmed at $37.905 million). - NPV - $211 to $244 at a 5.5% discount rated. (--- Now $214 to $219 million based on 5.51% DR). - IRR - 33.6% to 53%. (--- Project IRR now 54%). - ROI - 595% to 903%. (---Cash return on capital now 726% to 732%). - Payback period - 2.6 to 3.65 years. (--- Now 2.6 years). - Sensitivity - coal price and op. costs. - Coal resource of 109mt (---April 2016 - Now increased to 120mt). POWER PFS. - 1,841GWh to 1,877GWh per annum based on an 80% baseload. (Note basic 80% of FL is 2628GWh Max X 80% = 2102.4GWh) - Power revenue $7.8 to $8.4 billion over life of PS of 25 years. - NPV is $230m to $280m at a 15% discount rate. - CAPEX is $640m to $760m. - IRR in excess of 23%. - Payback period 8 to 9 years. Note from the above figures the combined Coal and Power NPV is $441 to $499 million. On completion of the Power DFS Coal and Power DFS, I think the profit figures for both will increase along with the associated NPV estimates and financial metrics, so we shall see. B. – MCPP Coal and Power NPV Queries and Beaufort Security’s NPV Value Can anybody explain why there are large differences in the Kibo NPV compared to the NPV (£) published in the Beaufort research notes? Kibo have an NPV of $211m to $219m for the Coal and a Power NPV between $230m to $280m giving a total combined Coal and Power NPV ranging from $441m to $499m. Beaufort Securities initially quoted on 11th May 2015 an NPV of £99.6m at a discount rate of 10% and they simply divided by the number of shares to obtain their target price of 31.1p and subsequent to that they similarly reported an NPV of £109.7m (33.4p/share) on 23rd Sept 2015 for the MCPP alone. (Note as in GBP the NPVs are $150m and $165m). No surprise that their most recent offering was again a speculative buy. On the same calc.basis as Beaufort share value, the combined Kibo NPV of $441m is worth 80.5p per share, a disparity order of about 2.5 times. I have not read any commentary comparing these NPV differences. Note the MasterInvestor valuation ranged from 12.8p to 31p per share, despite the fact the methodology was questioned by some. However at least they did compare all four companies they reviewed on a like for like basis. Again the answer was only as good as the assumptions. In reality, assuming the top end figure, it is no worse than the Beaufort NPV figures. He (John Cornford I think) also discounts the rule of thumb I employ of using a Buying Target up to 30% of the NPV/No. shares, a valuation I always thought was relatively safe and useful for investing. Also needless to say he shot down the NPV share valuation as per Beaufort and used by many others, obtaining a valuation dividing the NPV by Share Nos. I had some queries and did email him but never heard back. He did ever so kindly, attach a zero value to the other Kibo projects and I think he forgets everything has a value, especially when someone may want it. Just because it is in the ground does not mean the inherent value of the resource is worthless, but it’s an easy option to take. Having said that, what do I know, just look at the current price, it’s less than the Imweru ‘in-ground’ value. What troubles me is how the NPV figures can be so different for the two closely associated companies? They don’t appear to be singing from the same hymnbook. Are they not supposed to support Kibo’s case with realistic research reviews and notes? I queried this difference and the unstated tariff which can be derived from the power PFS figures (see later below) with LC and he passed my email on to Beaufort, so Kibo appear unconcerned re these differences. It would be nice to hear them discussing the inconsistency between their sets of NPV values. Are Beaufort worthy analysts or are they unsure of their calcs so they pitch the NPV lower, or as with most analysts, simply happy to stick a speculative buy on the stocks if it is not producing? Interesting to see their next research note, assuming they remain the Kibo broker. Are Beaufort actually beneficial to the Kibo operation and what’s their remit? Do they seek out potential investors with their ‘speculative buy’ recommendations and do they guide Kibo down the path to accessing loans and funding? Yes maybe they do, as we have had Sanderson’s valuable contributions, which I suppose in truth did keep us on track and with 100% of the projects for now. At least we are still in the driving seat with 100%. Surely if we are on the ascendancy they will issue an updated research note and if they do, it would be nice to have it before we move northwards and it will be interesting to see what figures they present, their justification and in particular, whether there is closer harmony with the next Kibo NPV figures. Also it will be interesting to see what the MasterInvestor site has to say on this share in a month’s time. Probably the same as he said for Sirius Minerals. But possibly he did have a point with them and the funding required. It is probably indicative of how far removed analysis figures can in actual fact be and that the answer, as one would expect, is only as good as the assumptions made in the first place. Initially I thought that perhaps the difference was down to the discount rate (DR). However, Beauforts used 10% and Kibo assigned a 15% rate, which is more conservative, as there is much more risk, so the Kibo NPV should actually be lower and it clearly is not the case. It may well be they are just more conservative in their views re the additional sustaining expenses and profit margins etc. Regarding the Power figures neither Beaufort nor Kibo released the electricity tariff, power cost price or the profit margin values. But they will have to ‘shortly’ and my effort at estimating the tariff and profit is given later below. On the DR, often 5% is used in conjunction with a 3% risk factor, making 8% a common rate and interestingly the Coal figures employs 5.51% DR which in my view is indicative of the reduced risk attached to the coal element. C. COAL ELEMENT 1. Coal Profit From the PFS report, the profit on the coal is $23.5m per year before deductions and with 365.4m FD shares this yields 43p per share based on a P/E of 10, when producing. Note the shares numbers changed with the second batch issued to Sandersons The coal NPV is $211m - $219m after tax and equates to an indicative 38p per share, on the same basis as Beaufort used. (i.e. NPV/No. Share). Strange concept that we own both projects and will be digging the coal out of the ground and supplying it to and charging it to a power station, which is our power station. So perhaps with twin tracked projects we will have more control and be better positioned in the discussions when the Power tariff is being settled, which should not be that far away, if we are lucky. The final Coal figures will improve as LC has been conservative in the Coal PFS with the derived coal price at $32.8/t and I think this is likely to increase by about a fifth to $40/t, with a corresponding profit of $28.6m before deductions. Who would like to bet they used the higher coal price in the Power PFS calcs thus keeping the power profits and NPV conservative? Thinking about the profits, it may all depend on the resulting tax associated with any ‘free carry’ that may be negotiated, but perhaps we should be charging the Power station the most appropriate coal price such that we pay the lowest possible tax. In other words we pay the lowest tax according to the most advantageous tax position for Kibo’s projects, that’s assuming there is a tax difference. For example are we required to pay Royalties? 2. Coal and Funding Unless we are very lucky financially and it can happen, yes we will either have to sell a new issue of shares or dispose of a percentage of the SPV assets and perhaps even give a free carry if we have to, but that's what business is all about. We have always known it was never going to be easy funding a project to the extent of £38m Capex for the Coal element and $640m to $760m for the Power element. All companies reach the stage when they need to realise finances, and to our advantage we currently have, as LC says, robust fundamentals for both coal and power. But first the Integrated Bankable Study needs preparing when the DFS are completed. The current position is that the PDFS report is under review prior to issuing followed shortly thereafter by the MDFS report. The government are more willing to fund developments than they were and are encouraging TANESCO towards building more plant rather than hiring power generation plant, so perhaps there may be news on a partner from this quarter. (They are owned by the Gov. of course and have announced that 49% of the company is to be hived off by a placing.). I also thought that SEPCO, who are the preferred EPC, would be making their presence felt by now, as I am sure they would like to get their hands on this project. The JDA and the circumstances surrounding the arrangement and agreement with SEPCO III is still vague to me and if nothing has changed, then logically they may still have the option of investing in a 15% share in the SPV, or up to 17% as per wording in the RNS, (which later changed to 15%), but the question is, at what price? I think personally they are off the team and will run only as the preferred EPC. They were to fund the PDFS and also all the related work up to FC and I think it was the latter costs that may have eventually caused the change, as it may have been slightly indeterminate and they were to carry the said costs. Now with Tractobel on board they appear to have completed the PDFS on time, so they delivered and SEPCO appeared not to. SEPCO remain as the preferred EPC contractor, for now at least, having been the sole contractor and still a strange decision despite the reason LC gave. However their money is as good as anybody else’s as long as we don’t give the assets away too cheaply. There is a substantial difference between the Coal and Power in terms of the equity funding required. The coal Capex is $38m with a required equity funding of $9.5m at 25%, ($11.4m at 30%). The Power Capex, which is $640m to $760m requires $160m minimum equity funding which is not far off the equity funding of $169.5m (min) needed for the combined Coal and Power integrated project. So the Power swamps the Coal in terms of the Equity Funding required. It certainly looks like an integrated project is on the cards, as consistently that is the terminology used, nevertheless, surely 100% Coal ownership has to be in the mix as a pretty big consideration. The $23.5m profit is not trivial and the Coal is much more manageable with less Capital expenditure and a smaller finance burden. In addition any early coal production, sales and export profits can contribute towards the associated equity funding, regardless of whatever % share Kibo retain in the Power share price assets. Kibo paid good money for the coal element and own it outright, so why should they not keep if it is a possible, but if they can’t, it obviously provides an important leverage in any negotiations on asset distribution for the projects. The coal is more or less completely de-risked once the MDFS is completed and this has to have some significance eventually with the SP, as does the Power DFS, which is imminent and must eventually produce the lion’s share of profits. However any significant share price movement may not materialise until we move from’ Financial Ready’ along the process of Financial closure to end at the ‘Construction Ready’ milestone in Q1 of 2017. Thereafter the fun should really start as Kibo should have all the necessary studies completed along with the respective EIAs and all permits and licenses in place with a recognised and agreed tariff with Tanesco and the regulator and with all Financial aspects ready for the implementation of the next phase. Surely there will be commercial off-take agreements to be discussed and negotiated along the way and also by then we may know if the coal to liquid gas is a practical and viable proposition. On coal funding, as outlined in the RNS 12 Oct 2015 RNS, LC refers to the option of ‘Project Level Loan Financing’ regarding the coal, which would be at LIBOR + 5%. From Para 3 and 4, LC’s quote in the RNS said: “This is a large-scale project which is now demonstrably lower risk. With the relatively low capital investment required, the Mbeya coal mine delivers a high project IRR and short payback period. The IRR being substantially above the cost of debt makes it an attractive option to consider project level loan financing. The project's robust financials will play in Kibo's favour in respect of the competitiveness and conditions attached to any such loans”. …..Para ends. So on the basis of that RNS statement does this constitute the arrangement of a loan to allow the Coal development and early coal production to get underway? I understand this type of loan is not unique and I interpret this as a loan that is dependent on the project’s generated cash flow for repayment, thus in reality we start to pay back the loan, both debt and equity, only when we are generating revenue. Assumes of course that the project’s assets, rights and interests will be held as secondary security or collateral, but not too sure on the finer details of how all of this works. Once we start talking about non-recourse lending, which I think is common place in project finance, and limited recourse lending these are pretty specialised to me, and there are probably sheets of documentation and legalities and covenants surrounding the necessary agreement to be addressed and drawn up for discussion and signing. An interesting link was posted by Patch on LSE re PPA on 26 March. https://www.google.co.uk/url?sa=t&rct=j&q=&esrc=s&source=web&;cd=4&cad=rja&uact=8&ved=0ahUKEwjVk6nS0t7LAhWFzRQKHaysCLEQFggyMAM&url=http%3A%2F%2Fcldp.doc.gov%2Fsites%2Fdefault%2Ffiles%2FUnderstanding_Power_Purchase_Agreements.pdf&usg=AFQjCNHctsruQv0vgxYvSPS8UTw7cuCWAQ&sig2=Jxge5fmUSPE_G5td2ZxrIA As Standard Bank have been involved at an early stage, the various options on financing the projects will have been discussed well in advance and the necessary financial modelling will have produced by now a selection of optimum alternative financial models which are attractive, workable and acceptable to Kibo and all concerned. I’m sure they will know their preferred ‘best ‘option by now. Further final modelling will probably take place and the funding will of course take time to be negotiated as it is a major deal of some significance and will be instrumental and a pivotal point in deciding the Projects future. The process will no doubt encompass examination of the tariff rates to ensure that Kibo are adequately funded and can redeem the payback in the requisite timescales. The final tariff outcome therefore may be subject to amendment by the lender(s) of finance if deemed necessary. Coal without any need for massive investment yields $23.5m profit on its own, albeit EBIT and as per RNS any loan is at LIBOR + 5%, which must be more attractive than any large investor requiring a 15% to 20% return on their capital employed. It would not be a surprise if the Government are in the frame taking perhaps a 15% to 30% investment share of the assets. But will they get a free carry on any of this? So owning 100% of the coal and taking one year to produce coal, (probably less as we can spade this off the surface), we have no payback that year and assuming the same rate as the PS feed, if through coal/ export sales, we generate revenue of $23.5m/year for two years, this has the capability of reducing the power equity funding requirement. So after paying the relevant taxes and loan payback amount which will be agreed upfront, we have a contribution to reducing the Equity Funding requirement. A sum of $20m over 2 years would cover 12% of the SPV assets. I have covered selling Imweru previously and at 10p a share this gives us about $50million and will fund about 30% of the MCPP equity requirement ($169.5m at 25%). It may not be the way it all pans out, but simply selling Imweru would set us up with a 30% minimum stake in the SPV with the remainder available for disposal. This and the coal sales would take it to 42% of the assets, with assets to sell. The edited post 36518 attempts to show what asset percentage we retain at a number of share prices. So if this loan facility is available even if only for the coal, why would LC sell off shares cheap? Not when he more than anybody else knows what Kibo is worth. Considering that ‘Project Level Loan Financing’ might have been available in October, I just wonder what the various options on financial packages are now available on the table. Especially if the final figures improve with an upside in the fundamentals, as it may open other doors for accessing competitive finance From the recent RNS, Kibo are still due to issue the Power DFS figures first, although I was under the impression the Coal would be more advanced, so perhaps all the finer details on the PPA electricity tariff and permitting etc are more or less settled, although not signed. However they all need finalisation and signing and may be subject to authorisation by the lenders of the finance. It all takes time and will take as long as it takes despite any drawn up timelines. Perhaps issuing the PDFS first is to accelerate and implement the loan funding discussion process, as it may take longer to negotiate considering the large debt funding required. So the question is with the progression of events and the news flow to come; - will there be integrated twin projects of Coal and Power or - will the projects be split into separate entities/companies or - will Kibo retain 100% coal ownership and retain a share of the Power SPV assets or - will Kibo will retain 100% of the coal element only and sell off the Power element or - will they sell off the whole MCPP and concentrate on other projects, if the price is right and do we get a vote Re the last two, I’ll bet SEPCO would love to get their hands on this project now, they appear to be into everything and I would still like to know exactly what transpired with SEPCO and a nice question for LC at the next meeting. Just think what the MCPP twin project will be worth if it was sold. Who would argue against selling off the Power element if the price is right and on the positive side, perhaps it may deliver an attractive return to shareholders and also eliminate any money worries regarding the development of the other four alive and active projects. Surely given the financial returns predicted they will keep the Coal element. Intriguing prospects ahead and it may all be down to how the final figures pan out and what we are worth, asset wise. Exciting times ahead. 3. The Special Mining Licence (SML) or Mining Licence (ML) issue I was most encouraged by the reference in the presentation slide 23 to the following, “Securing a strategic partner in the near term and completing Feasibility Studies to drive Mbeya Coal to Power into coal mining, electricity production and significant revenue generation by 2018”. This reference to a partner however was also included in the August presentation so partnering is not a new prospect. It is however sensible as it is an enormous responsibility for Kibo to develop these projects alone. So we may have early coal production on the cards and the question of a strategic partner of course may be construed as the Government and Tanesco and they could do a lot worse than having the Gov. involved and perhaps worth surrendering a percentage share in a free carry, if it was appropriate. What are the chances of SEPCO and Tractobel climbing aboard? Re the latter I think that coal may be off their agenda these days, but they are obviously happy doing coal related work at this point in time. Impressed that they were on time, considering they started later o the PDFS. So do we qualify for a SML or a ML. According to the Kibo web site, hxxp://kibomining.com/about-us/about-tanzania/ from the section headed; ‘Holding of mineral rights by foreign companies in Tanzania’, a SML is only required for projects over a Capex of $100m and the SML will be the subject of a comprehensive Mining Development Agreement with the Government and will be accompanied by negotiation of a free carried interest by the state. (See also the Development Agreement in The Mining Act 2010, Section 10, page 17). Now it depends on how you view this interpretation of the mining rules. a) If they adhere to the wording for a SML, then as we only have a requirement for a $38m Capex Coal project, possibly they will issue the mining licence option and it lasts for 10 years before renewal. So on the plus side, with no free carry to the Gov., we save a possible 15% of the project assets, (assuming that is the order of any free carry interest) and the same percentage of savings on the coal profit, currently at $23.5m/year (EBIT). In addition it adds weight to retaining 100% of the coal element if it is affordable and manageable and in addition no royalty is payable. Investigations into the coal to gas (CTG) conversion technology is on-going and if this was feasible and implemented through a dedicated mine, this may take the Capex above $100m threshold, however we then have to find the money. It may depend on how badly the Gov want a free carry and what we get in return by way of agreement. An approach may be to value, on paper at least, the Capex expenditure for the total potential of the coal project with no real intention of implementing the CTG plant and the Gov get their free carry. Not sure if they can just take one regardless of the circumstances. Doubling on the expense of two coal fields might do it, but we then need to find this increased Capex, or treat it as an on-paper exercise. b) On the other hand if we are an integrated project, the Government may bend the rules somewhat and consider Kibo as a single entity with a joint Coal and Power Capex well above $100m and so we qualify for a SML and they negotiate a free carry on that basis. Perhaps unethical. So on the face of it, we may be giving away a 15% for free (assumed), however perhaps this may be offset to a certain extent, by: i) Negotiations on an agreement to reduce taxes for Kibo on both Coal and Power elements and ii) The unlimited access to the governments and TANESCO’s expertise in power generation. As a consequence of any uptake of assets by the Gov /TANESCO, there will be less assets to offer up for disposal and indeed Gov / T may be interested in investing over and above any free carry share. iii) Furthermore with part ownership, the Gov/T may be more amenable to a higher tariff. So yes a free carry for the Gov / T costs us, but in the best interest for Kibo, who will have limited experience re Power projects it makes sense to engage with and have the Gov as a venture partner whether it be just with the free carry or otherwise. Their association with the project provides the added benefit of their knowledge, expertise and operations framework base to draw on over the course of the project. This may prove immensely invaluable, leading to considerable savings both in time and money during the design construction and subsequent operation of the coal and power plant. Also as they would be involved from day one, it would be to their advantage politically to accelerate the design and construction programme ahead of schedule towards completion. In a similar vein, with the bulk of the plant we need an EPC contractor that has been down that road and is well acquainted with the power industry and has the relevant expertise across the whole range of the design procurement and construction processes. No doubt there will be a wealth of these companies out there prepared to bid for the EPC contracts, albeit SEPCO were previously announced as the ‘preferred EPC contractor’ after the PDFS false start. So with the Gov / T on board this will provide Kibo with a robust platform to allow rapid progress from here on in. But we will still have to raise the equity funding. Perhaps this is why they are now referring to power gen by 2018 in the presentation (slide 23) or is this another mistake as in the recent Sharepicker podcast LC spoke about Q1 2019. Just a thought perhaps SEPCO may be interested in purchasing the 49% of TANESCO to be placed and that way they are directly involved in the power generation throughout Tanzania. They appear to have the necessary funding and I wonder how much this would cost. I also wonder if the Gov / TANESCO would be interested in investing in the Coal element and the Power element if they were separate entities and if so to what extent? 4. Coal Resource Size and Grading To supply the power station, the coal feed is 1.48mt per year which is 41.4mt over the 28 years and even allowing for a 30% reserve, which the banks may prefer, this is 54mt, which is less than half of the current resource of 120mt, which has now increased from 109mt. (See re-classification RNS below). So even with this allowance we can easily double the power generation to 2 X 300MW phases without further coal field extension and delineation. They appear confident that there is excellent potential that the coal resource can be extended to 400mt which is adequate to supply 6 phases, (being safe), or possibly 8 phases of 300MW generation plant. In addition to the 48km strike length, of which only 12km have been delineated and stated as a NI 43-101 compliant resource, the RNS on 13 Jan 2016 indicates that there are 3 new PLs namely, PL 10744/2015, PL 10742/2015 and 10743/2015 located immediately north, south and east respectively of the current development area thus consolidating the Company’s ground position on the boundaries. These will further enhance the BFS and subsequent project development and significantly increase the exploration potential thus enabling a future capacity of 1,000MW. Of course to generate much needed revenue, on the assumption there is a market there, some of the coal may be sold off or exported which makes economic sense, and we also have the coal to liquid technology currently being investigated and this may be adopted in time. Perhaps by the allocation of a dedicated mine for the gasification production process. The resource restatement in 11 April RNS indicates an increase of 10.42% on the previous total Mineral Resources from 109.39mt (April 2012) to 120.793mt with a reclassification of the Coal resources into ‘Measured’, ‘Indicated’ and ‘Inferred’ resources as follows: Resource ….Previous…......Restated….....Change Category…..Resource..…....Resource.....(+ or -) ……..………... ..mt..............mt............mt Measured…...…0.............20.904….......+20.904 Indicated…..71.34..........88.601........+17.261 Inferred.....38.05.........11.280….......-26.770 Total.......109.39........120.790........+11.400 The above reclassification provides an increase in the quality and confidence level of the Mineral Resource and the Measured and Indicated combined level of 91% of the restated resource provides a critical input to the ultimate reserve statement of the Mining DFS currently underway. The Final Raw Quality attributes of the coal are also within specification for power plant design. Louis Coetzee, CEO of Kibo Mining, said: "The restated Mbeya coal resource is a further example of the MCPP feasibility study exceeding our expectations. The work undertaken was primarily aimed at improving confidence levels in the resource, to enable the MDFS to state an appropriate coal reserve. This objective was exceeded, with 91% of the total resource now in the Measured and Indicated categories. An unexpected 10.4% increase in the overall resource was also delivered. The restated Mbeya coal resource also provides comfort that the mine will have sufficient reserve capacity, subject to viable MDFS results, to satisfy the energy needs for potential future expansions of the MCPP". Restatement of the Mbeya coal resource is a critical activity in the MDFS work programme and completion means the MDFS can remain on schedule. 5. Royalties and Taxes The following information on the Royalties and Taxes is from the 12/8/2015 RNS on the Mbeya MDFS. "Discounted Cash Flow Modelling: Minxcon's in-house DCF model was employed to illustrate the NPV for the operation in real terms. The NPV is derived from POST-royalties (Note: No royalties are payable on strategic minerals in Tanzania and coal is deemed to be a strategic mineral in Tanzania) and tax, post-debt real cash flows, using the techno-economic parameters, commodity price and macro-economic projections." So as coal is deemed to be a strategic mineral, there are NO ROYALTIES payable on the coal, which is good news for the profits. This probably saves about 4% or about $1m on the coal profit and any potential profit should not be overlooked. Also the Minxcom NPV figures in the PFS report appear to be after TAXES which is an added bonus. Regarding taxes, any free carry, official or otherwise, may be negotiated of course to allow for a reduction in company taxes and royalties, obviously this will depend on the final figures and may be one factor in the decision to integrate the projects or not. Assuming there is a market and an adequate coal resource, then surely most coal and mine mouth power station projects will consider commencing early coal extraction, resources permitting. I think the early coal sales could be the way forward and have referred to this in past posts and in the SPV asset sell post made an attempt to reduce the required equity using early coal sales, thereby reducing the asset disposal. In addition it is shorter term and less costly to implement and provides revenue to extend exploration and define other resources as well as contribute to equity funds. It all depends on what is commercially the best option and this will be apparent once all the profits and NPV etc are released. I would opt for retaining 100% of the Coal element and a share of the Power element and move towards the integrated project only if: -The final power tariff and in particular the profit margin is exceptionally generous. -The notion or the threat of going it alone on the coal project provides the necessary leverage such that we extract an absolutely stunning financial package on the project funding thus enhancing the start of the next phase. -The integrated project with a SML requires a ‘free carry’ to be negotiated and this being the case, they negotiate an agreement to offset this ‘free carry’ to a certain extent, by a reducing the Company taxes on both power and coal. However it would appear either way that regardless of how we develop, LC has said it will be whatever makes the best commercial sense and hopefully it is indeed advantageous for all invested here not just the traders. Power element follows.
30/3/2016
16:42
12bn: Here is the relevant RNS.ibo Mining Plc 02 March 2016 Kibo Mining Plc (Incorporated in Ireland) (Registration Number: 451931) (External registration number: 2011/007371/10) Share code on the JSE Limited: KBO Share code on the AIM: KIBO ISIN:IE00B97C0C31 ("Kibo" or "the Company") 02 March 2016 Kibo Mining Agrees Unsecured, Interest Free Loan Facility of GBP1, 500,000 Ensuring Adequate Funding Security In The Medium Term Kibo Mining plc ("Kibo" or the "Company") (AIM: KIBO; AltX: KBO), the Tanzania focused mineral exploration and development Company is pleased to announce it has today entered into a loan facility (the "Facility") with Sanderson Capital Partners Limited ("Sanderson") for an amount up to GBP1,500,000 to be utilised by Kibo, at its sole discretion and election, for contingency funding, during the term of the Facility. The Facility comprises the following: -- An unsecured, interest free, fixed term loan due for repayment no later than 31 August 2016; -- The loan can be drawn down in five GBP300,000 tranches no less than 40 days apart, with tranches three, four and five subject to successfully achieving certain specified project deliverables; -- A fee of up 7 million Ordinary Shares in Kibo, capped by a maximum value of GBP350,000 associated with the arrangement and implementation of the Facility, will become payable if the Facility is utilised (the "Arrangement Fee"); -- The Arrangement Fee will be payable on the day the Facility is activated by Kibo; -- In addition to the Arrangement Fee, a drawdown fee of GBP51,000 is payable to Sanderson in respect of each of the five GBP300,000 drawdown tranches; -- Each drawdown fee will be payable in 1,186,046 Ordinary Shares in Kibo, subject to certain share price limits, on or before any particular drawdown date; -- At the completion of the term of the loan, Kibo will have the option to settle the first GBP750,000 of the monies borrowed in either cash or Ordinary Shares in Kibo; -- Should Kibo be unable to settle the second GBP750,000 of monies borrowed in cash it will have the option to settle this portion in Ordinary Shares in Kibo; and -- In the event where the loan or any part thereof is settled in shares, the price at which such Ordinary Shares will be issued will be the 30 day VWAP for Kibo Ordinary Shares that traded during the 30 days preceding the settlement date. Additional to the fees payable to Sanderson in the event of utilising the Facility, Kibo is also obliged to pay a 5% corporate advisory fee to the Company's broker, Beaufort Securities Limited. The amount off GBP75,000 will be payable in Ordinary Shares in Kibo at the same time as the Arrangement Fee becomes due and will be issued at a price equal to the prevailing market price for Kibo Ordinary Shares. Louis Coetzee, CEO of Kibo Mining commented today: "The MCPP is progressing at an expeditious pace. We are now only a few months away from expected completion of the Definitive Feasibility Studies for both the mining and power elements of the MCPP and at an advanced stage with the MCPP commercial arrangements and agreements. Notably, Kibo has also retained 100% ownership of the MCPP and has cultivated growing support and interest from the Tanzanian Government and other strategic stakeholders. Sustaining and maintaining this momentum is crucial to successfully expediting the completion of the final MCPP development phase, with funding certainty and stability over the next six months a key factor in this. To this end, Kibo has secured a funding instrument for the Company that: -- Provides adequate funding security in the medium term while retaining the flexibility to freely investigate additional or substitute funding alternatives; -- Is considered to be competitive vis a vis other funding options currently on offer and accessible to Kibo, given the prevailing market conditions; -- Provides the transparency and flexibility for the Company to effectively manage its cash position upon repayment of the Loan facility; and -- Does not incorporate hidden, cumulative or progressive cost elements. With this funding in place, we can focus our attention on an exciting six months ahead to prove and deliver the MCPP as a project with solid, robust bankable credentials." Contacts
24/3/2016
07:59
12bn: LSE:KIBO OKSearch Kibo Mining Share News (KIBO) Follow KIBO Start Trading Share Name Share Symbol Market Type Share ISIN Share Description Kibo Mining LSE:KIBO London Ordinary Share IE00B97C0C31 ORD EUR0.015 Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade +0.00p +0.00% 3.50p 3.25p 3.75p - - - 0 07:30:09 Industry Sector Turnover (m) Profit (m) EPS - Basic PE Ratio Market Cap (m) Mining 0.0 2.1 1.0 3.5 12.25 Print Alert Kibo Mining Plc Company Presentation & Web Integrated Timeline 24/03/2016 7:01am RNS Non-Regulatory TIDMKIBO Kibo Mining Plc 24 March 2016 Kibo Mining Plc (Incorporated in Ireland) (Registration Number: 451931) (External registration number: 2011/007371/10) Share code on the JSE Limited: KBO Share code on the AIM: KIBO ISIN:IE00B97C0C31 ("Kibo" or "the Company") 24 March 2016 Updated Company Presentation and Web integration of MCPP Process Graphic Kibo Mining plc ("Kibo" or the "Company") (AIM: KIBO; AltX: KBO), the Tanzania focused mineral exploration and development company is pleased to inform shareholders that it has uploaded an updated company presentation to its website. It has now also fully web integrated its previously announced interactive process description and timeline for the Mbeya Coal to Power Project ("MCPP") to make it more user-friendly for navigation. Both the Company Presentation and the MCPP Timeline & Description can be accessed under Key Documents on the Company's website or by selecting the links shown. Contacts +27 (0) 83 2606126 Kibo Mining Chief Executive Officer Louis Coetzee plc -------------------- ------------------- -------------------- ------------------------ Andreas Lianos +27 (0) 83 4408365 River Group Corporate Adviser and Designated Adviser on JSE -------------------- ------------------- -------------------- ------------------------ Jon Belliss +44 (0) 207 382 Beaufort Securities Broker 8300 Limited -------------------- ------------------- -------------------- ------------------------ Oliver Morse +61 8 9480 2500 RFC Ambrian Nominated Adviser Limited on AIM -------------------- ------------------- -------------------- ------------------------ Bell Pottinger Investor and Media Daniel Thöle +44 (0) 203 772 Relations / Anna Legge 2500 -------------------- ------------------- -------------------- ------------------------ Kibo Mining - Notes to editors Kibo Mining is listed on the AIM market in London and the AltX in Johannesburg. The Company is focused on exploration and development of mineral projects in Tanzania, and controls one of Tanzania's largest mineral right portfolios. Tanzania provides a secure and stable operating environment for the mineral resource industry and Kibo Mining therein. Kibo Mining holds a thermal coal deposit at Rukwa, which has a significant JORC compliant defined resource (See Table 1 below), and is developing a 250-350MW mouth-of-mine thermal power station, the Mbeya Coal to Power Project ("MCPP"), previously called Rukwa Coal to Power Project ("RCPP"), with an established management team that includes Standard Bank as Financial Advisor. Kibo is undertaking a Coal Mining Definitive Feasibility Study and a Power Pre-Feasibility Study for the Mbeya project with an integrated Coal-Power interim study report to be released in the near term. On 20(th) April 2015, Kibo signed a Joint Development Agreement for the completion of the Definitive Feasibility Studies and development of the MCPP with China based EPC contractor SEPCO III. The Company also has extensive gold focused interests including Lake Victoria Goldfields and Morogoro projects. At Lake Victoria, the Company has projects with a 550,000oz JORC compliant gold Mineral Resource at Imweru Project (See Table 2 below) and a 168,000oz NI 43-101 compliant gold Mineral Resource at the Lubando Project (See Table 3 below) in which the Company holds a 90% attributable interest. The Company is currently undertaking a Definitive Feasibility Study on its Imweru Project. Kibo also holds the Haneti Project on which the latest technical report confirms prospectivity for nickel, PGMs, gold and strategic metals including lithium. Kibo Mining further holds the Pinewood (coal & uranium) project where the company has entered into a 50/50 Exploration Joint Venture with Metal Tiger plc. Finally, the Company also holds the Morogoro (gold) project where the company has also entered into a 50/50 Exploration Joint Venture with Metal Tiger plc. The Company's projects are located in the established and gold prolific Lake Victoria Goldfields, the emerging goldfields of eastern Tanzania and the Mtwara Corridor in southern Tanzania where the Government has prioritised infrastructural development attracting significant recent investment in coal and uranium. The Company has a positive working relationship with the Tanzanian government at local, regional and national levels and works hard to maintain positive relationships with all communities where company interests are held. The Company recognises the potential to enhance the quality of life and opportunity for Tanzanian citizens through careful development of its projects. Updates on the Company's activities are regularly posted on its website www.kibomining.com Johannesburg 24 March 2016 Corporate and Designated Adviser River Group This information is provided by RNS The company news service from the London Stock Exchange END
02/3/2016
12:31
mrkeysersoze: News out. Mr K. 02/03/2016 12:30pm UK Regulatory (RNS & others) Kibo Mining (LSE:KIBO) Intraday Stock Chart Today : Wednesday 2 March 2016 Click Here for more Kibo Mining Charts. TIDMKIBO RNS Number : 8000Q Kibo Mining Plc 02 March 2016 Kibo Mining Plc (Incorporated in Ireland) (Registration Number: 451931) (External registration number: 2011/007371/10) Share code on the JSE Limited: KBO Share code on the AIM: KIBO ISIN:IE00B97C0C31 ("Kibo" or "the Company") 02 March 2016 Kibo Mining Agrees Unsecured, Interest Free Loan Facility of GBP1, 500,000 Ensuring Adequate Funding Security In The Medium Term Kibo Mining plc ("Kibo" or the "Company") (AIM: KIBO; AltX: KBO), the Tanzania focused mineral exploration and development Company is pleased to announce it has today entered into a loan facility (the "Facility") with Sanderson Capital Partners Limited ("Sanderson") for an amount up to GBP1,500,000 to be utilised by Kibo, at its sole discretion and election, for contingency funding, during the term of the Facility. The Facility comprises the following: -- An unsecured, interest free, fixed term loan due for repayment no later than 31 August 2016; -- The loan can be drawn down in five GBP300,000 tranches no less than 40 days apart, with tranches three, four and five subject to successfully achieving certain specified project deliverables; -- A fee of up 7 million Ordinary Shares in Kibo, capped by a maximum value of GBP350,000 associated with the arrangement and implementation of the Facility, will become payable if the Facility is utilised (the "Arrangement Fee"); -- The Arrangement Fee will be payable on the day the Facility is activated by Kibo; -- In addition to the Arrangement Fee, a drawdown fee of GBP51,000 is payable to Sanderson in respect of each of the five GBP300,000 drawdown tranches; -- Each drawdown fee will be payable in 1,186,046 Ordinary Shares in Kibo, subject to certain share price limits, on or before any particular drawdown date; -- At the completion of the term of the loan, Kibo will have the option to settle the first GBP750,000 of the monies borrowed in either cash or Ordinary Shares in Kibo; -- Should Kibo be unable to settle the second GBP750,000 of monies borrowed in cash it will have the option to settle this portion in Ordinary Shares in Kibo; and -- In the event where the loan or any part thereof is settled in shares, the price at which such Ordinary Shares will be issued will be the 30 day VWAP for Kibo Ordinary Shares that traded during the 30 days preceding the settlement date. Additional to the fees payable to Sanderson in the event of utilising the Facility, Kibo is also obliged to pay a 5% corporate advisory fee to the Company's broker, Beaufort Securities Limited. The amount off GBP75,000 will be payable in Ordinary Shares in Kibo at the same time as the Arrangement Fee becomes due and will be issued at a price equal to the prevailing market price for Kibo Ordinary Shares. Louis Coetzee, CEO of Kibo Mining commented today: "The MCPP is progressing at an expeditious pace. We are now only a few months away from expected completion of the Definitive Feasibility Studies for both the mining and power elements of the MCPP and at an advanced stage with the MCPP commercial arrangements and agreements. Notably, Kibo has also retained 100% ownership of the MCPP and has cultivated growing support and interest from the Tanzanian Government and other strategic stakeholders. Sustaining and maintaining this momentum is crucial to successfully expediting the completion of the final MCPP development phase, with funding certainty and stability over the next six months a key factor in this. To this end, Kibo has secured a funding instrument for the Company that: -- Provides adequate funding security in the medium term while retaining the flexibility to freely investigate additional or substitute funding alternatives; -- Is considered to be competitive vis a vis other funding options currently on offer and accessible to Kibo, given the prevailing market conditions; -- Provides the transparency and flexibility for the Company to effectively manage its cash position upon repayment of the Loan facility; and -- Does not incorporate hidden, cumulative or progressive cost elements. With this funding in place, we can focus our attention on an exciting six months ahead to prove and deliver the MCPP as a project with solid, robust bankable credentials."
02/2/2016
11:04
gilbly: SPV ASSET DISPOSAL OF MCPP. Further to post 36342, 17Jan LSE, on SPV assets this is an edited version. The calcs of the SPV assets sold such that the buyer and the Kibo sale cover or guarantee the 25% equity are taken from 17 Jan post. From prev. post re selling a % of the SPV assets and the amount Kibo retain, the values below are listed for the 4 equity cases considered (but not for the 7 share prices), only for the case for the SPV assets sold at the 25 cents or 16.34p per share price. (Added later - The case with the SPV assets sold off at the max price of $1.68 is now also included below). Selection of the required Equity funding as per 36342, but basically the first 3 scenarios are for an integrated Coal and Power project and the fourth scenario assumes Kibo own 100% of the Coal element and SPV asset disposal is calculated to cover the required equity funding for the POWER only. Scenario 4 is basically 25% of the combined Capex low value which gives $169.5m of equity funding required. Scenario 5 considers reduced equity from coal production after 1 year, a Coal loan, minus the loan payback and so we raise, $24m + $24m + $9.5m loan - £11.5m payback = $46 million over the 3 years. Of course this assumes we don’t have to raise all equity immediately, but only have to guarantee it. Equity needed is then $169.5m - $46m = $123.5m. Scenario 6 waives the loan payback until power is generated and so $11.5m reduces the equity needed to $112m. Scenario 7 assumes Coal element is 100% owned by Kibo and as hinted at by LC due to our robust figures, we borrow $9.5m and commence coal production. We payback a minimum of $2m for 2 years and dispose of SPV assets for the Power element ONLY. We raise $24m+$24m -$2m -$2m or $44m and so the equity funding becomes $160m - $44 or $116m. To recap, the calculation methology is ok, although the value of equity may be interpreted differently (it depends on how you see it) and the actual result is obviously dependant on the value attached to the SPV assets, which is an unknown factor at the moment. All I did was to consider an estimate of the equity, the price / share from $1.68 down to 25 cents (in 7 steps) and calculate the % of SPV assets that Kibo need to be sell such that the Buyer's % share and Kibo’s revenue from the sale, cover/guarntee the required 25% equity funding. Whatever the equity is estimated at. That was the purpose of the tables and these calculated the % and the equity amounts as shown. The table below lists the SPV asset sale info from 36342 and then we look at the profit based on the 4 Scenarios. The Table shows the case for a share value of 25 cents and lists, the % of SPV assets sold, the SPV revenue ($m), the buyers equity ($m) to be covered and the Kibo % covered by the asset sale. Scenarios 4 to 5 are for an integrated coal and power project whilst Scenario 7 assumes that the coal element is 100% owned by Kibo and we produce coal early and sell the SPV assets for the Power ONLY. Details in prev post. ………;……̷0;……R30;……230;…………………………...........…….…..…...Price....Price…..% SPV….....SPV…...Buyer $m....Kibo % ………;……̷0;……R30;……230;……………………………;…............….….....P ($)…...(p)R30;…..sold......Rev $m..…Equity230;…...Cover Scenario 4 Coal & Power Equity of $169.5m….0.25…...16.34…;...67.20...…55.60…....113.90…...32.80 Scenario 5 Coal & Power Equity of $123.5m..0.25....16.34…...59.88230;...49.55….....73.95…...40.12 Scenario 6 Coal & Power Equity of $112.0m….0.25…...16.34…;...57.51....47.59......64.41…...42.49 Scenario 7 Power Equity ONLY of $116.0m……;..0.25....16.34R30;...58.36…...48.30…..̷0;..67.70…...41.64 Scenario 7 considers that the Coal element is owned 100% by Kibo and they share a % the Power assets as above. Note in the table the % should add up to 100% and the amounts should cover the Equity required for that scenario. Profit consideration. So assuming that we have 1.5 cents/kwh for the power giving a power profit of $27.9m and $24m coal profit, then the Kibo profits for each of the 4 cases would be as follows for the 25 cent case . Scenario 4 with equity of $169.5m. C&P Profit = 32.8% × ($24m + $27.9m) = $17.02m. With 340m shares and on a P/E of 10, it is worth 33.3p a share. Scenario 5 with equity of $123.5m. C&P Profit = 40.12% × $51.9m = $20.82m. On a P/E of 10 worth 40.8p a share. Scenario 6 with equity of $112m. C&P Profit = 42.49% × $51.9m = $22.05m. On a P/E of 10 worth 43.2p a share. Scenario 7 with coal owned 100% and with Power ONLY equity of $116m. Profit = (41.64%x $27.9m)+$24m coal = $11.61m + $24m = $35.61m. On a P/E of 10 worth 69.8p a share. The last scenario shows that owning 100% of the Coal element and retaining 41.64% of the Power element, yields the highest profits, with the Scen 7 profit double Scen 4 profit for this case with the 25 cents share value. The difference between highest profit and lowest profit is $18.6m and rough share price differs by 36.5p. Note this is all based on the SPV asset disposal to ensure that the equity funding is raised by Kibo and the buyer, who must guarantee their equity funding for the % share purchased. Also it assumes only the lowest price of 25 cents or 16.34pence per share. Added later A second case was added later - The figures for the max. share value considered in selling off the SPV assets ($1.68/share) are shown below. This was added later as initially I felt it was too much a longer term view to get up to these share value levels. ………;……̷0;……R30;……230;…………………………...........…….…..…...Price....Price…..% SPV….....SPV…...Buyer $m....Kibo % ………;……̷0;……R30;……230;……………………………;…............….….....P ($)…...(p)R30;…..sold......Rev $m..…Equity230;…...Cover Scenario 4 Coal & Power Equity of $169.5m….1.68…..109.59…;...23.40...129.84….....39.66̷0;...76.60 Scenario 5 Coal & Power Equity of $123.5m..1.68...109.59…...18.20230;..101.02….....22.48…...81.80 Scenario 6 Coal & Power Equity of $112.0m….1.68…..109.59…;...16.79....93.19......18.81…...83.21 Scenario 7 Power Equity ONLY of $116.0m……;..1.68...109.59R30;...17.29…...95.95…..̷0;..20.05…...82.71 Scenario 7 considers that the Coal element is owned 100% by Kibo and they share a % the Power assets as above. Again based on a coal profit of $24m per year and $27.9m per year for the power for the % SPV retained the profits for the $1.68 case are : Scenario 4, with equity of $169.5m. Profit (C & P) = 76.6% × ($24m + $27.9m) = $39.76m. On a P/E of 10 worth 78p. Scenario 5 with equity of $123.5m. Profit(C & P) = 81.80% × $51.9m = $42.45m. On a P/E of 10 worth 83.2p. Scenario 6 with equity of $112m. Profit (C & P) = 83.21% × $51.9m = $43.19m. On a P/E of 10 worth 84.7p. Scenario 7 with coal owned 100% and Power ONLY equity of $116m. Profit = (82.71% x $27.9m) + $24m coal = $47.07m. On a P/E of 10 worth 92.3p. Obviously the high end value is a long term viewpoint but anyway that’s it done fwiw. The profit for the 100% owned case with Kibo retaining 83.21% of the power element, Scenario 7, is still the highest for this case but only just by a factor of 1.2 between Scen 4 (C&P) and Scen 7 (100% coal & a % of power) for this case considering a share value of $1.68. The difference between the highest profit and lowest profit is much less at $7.31m, as is the difference in the share price, which is now dropped to 14.3p. From above, owning 100% of the coal element and a % of the power is more attractive at the lower share price end or valuation of the assets. As the valuation or share price increases, the ratio of highest to lowest reduces from approx. 2.1 to 1.2. So at high values there is less difference between the profits and share valuations across the 4 scenarios. Coal exports could also be a consideration for Kibo, as can the alternative energies of coal to gas which is currently under investigation. Buying EDL would give us another 171mt of the black stuff for selling/exporting without delineating additional resources. So that is an edited version of the previous post showing how the profits vary across the 4 scenarios, for the two share price considerations, i.e high and low. So which way do we go? It may all be down to the values attached to the assets. 1. Do we have a Coal and Power integrated twin tracked project or  2. Do we retain 100% ownership of the coal and sell off the Power SPV assets as required? Comment - Yes a P/E may be inaccurate as we all know but it is at least comparing like for like. So do we use a smaller ratio and if so how safe do we go? Valuation is not an easy task. Re evaluating shares from an NPV viewpoint that also has a shortcoming. Often the problem looking at a valuation of the NAV which includes the NPV and loans is that it is too severe an assessment early on, especially when in our case we know that the loans are not everlasting with short term payback periods involved in both projects, particularly for the coal. I may be wrong but as far as I remember Beaufort’s analysis concluded a share price of 31p and this appeared to be derived from a valuation based on simply dividing the NPV by the shares. I would be targeting up to 30% of the NPV as safe to buy, but then yet again MasterInvestors article discounted this approach and he certainly discounts using the NPV and dividing by the No of shares. Loads to look forward to from now on in. Gil
03/12/2015
09:16
mrkeysersoze: So what exactly is the problem with the bloody Administrators?? "As announced on previous updates to shareholders, the Joint Special Administrators has confirmed to Kibo that all of the GBP526,000 (representing the consideration for 10,520,000 shares which were to be issued to third party investors) that had been paid into Hume Capital's client money account, will be released to Kibo, less a small proportion representing costs of the administration, which can now be confirmed to be in the range of GBP5,000 to GBP7,000. The Joint Special Administrators have also confirmed that no further delays / postponements are expected with regard to payment of the GBP526,000. " Kibo have sourced alternative funding (at significant cost) just grow a pair Louis & cancel the 10m shares as per the companies articles of association. LC's most recent interview only a couple of days ago highlighted his disbelief with Kibo's current mcap given the significant progress gained with Mbeya. Cancelling the 10m shares would screw over any shorters that have a stranglehold on the Kibo share price & close their exit route, therefore causing a short squeeze. Mr K.
02/12/2015
09:49
tadtech: It is clear Louis Coetzee is very frustrated with the market value of the company and rightly so. The MCPP is a world class project and has a NPV of circa $500m verses Kibo's current market value of only $21m. It is worth remembering the valuation model put on the project by Hume who offered a target price north of 30p, which at the time some considered conservative. I think the Kibo share price has been immensely damaged by the uncertainty concerning the Hume cash and delivery of those 20m shares. It looks like this has now been resolved. As we all know it does not take much demand to move the share price so I suspect now is a pretty good time to add/buy (in my view) as Louis Coetzee still seems very comfortable in that interview and he hinted of more news flow. As I said previously December is usually a good month for Kibo shareholders. DYOR etc
03/11/2015
22:12
gilbly: Evening, just back from visit to Chicago, Nashville, Memphis and New Orleans. Last few days the weather in NO was the same as here when we landed, wet but at least it was warm and humid. A really enjoyable trip and a shame we did not extend it as a fortnight was just not enough. Slept for 12 hours the last 2 nights. Zzzzzzzz. Still jet lagged here. Q for Andrew1 - Is there a problem with LSE site I can’t access the site at present. Off tomorrow to Tenerife till the 14th November and back home on the 19th Nov. after another nomadic trip to Scotland. Hope we have some good news shortly. Board not to busy these days. Glad to read that politics are sorted with the incumbent party returned. Undoubtedly the best decision for Kibo et al and may have saved them 6 months or so pending the re negotiating with new ministers on applications and permissions and licences etc. Although it is currently not reflected in the share price, shame. So hopefully we will maintain our progress on the DFS and head on towards reporting issuing and the all-important FC. The last RNS would appear to fulfil two tasks in one with the drilling to confirm the slope angles of the pit, which is a pre-requisite for the pit design and the recovered core doubling up to provide metallurgical samples for verification of the coal properties for the Power station design. From the web site previous coal tests stated; “The results of petrographic analyses from three samples submitted to an inspectorate laboratory in South Africa classify the coal as medium rank bituminous D coal. This indicates good economic potential of the coal particularly as feed for coal fired electricity generating plants”. So the tests on the specific properties of these samples should be available in about 4 weeks time. Another step forwards for Kibo. There should be plenty of news to look forward to in the coming weeks and months on MCPP. There will of course be plenty of details to be released in the DFS reports for both Mine and Power elements, some of which are itemised in the key operations plan on the web site. Re the ongoing DFS, the coal purchase agreement and the electricity supply agreement and the EIA are all likely to be well advanced if not finalised by now. Also in the list and due Q4 2015 is the securing of the necessary Permits and Licences and Modelling of the Mine and Power Station. The alternative energy investigation re coal to liquids is due Q1 2016. I thought they would be looking to increase confidence levels of the mineral resources through a re-classification, so we may get a statement to this effect. Also I thought that perhaps they may have looked at some random sampling over the remaining area, which has the potential for expansion to bring us up to about 400mt from the present 109mt resource. No doubt further delineation of the resources will come eventually. We have enough to double the power generation to 600MW with two phases to the power station, which is often normal. They build one phase before proceeding to the next phase, if it is not problematical. The power plant may have some teething problems and may not always perform as planned and if it don’t work you don’t build another one that also doesn’t work but incorporate all of the necessary updates and modifications. So sometimes better to finish one phase before deciding on the next. Also it may fail on the performance acceptance tests and a hefty penalty fee may be applicable based on any below par performance. However they can, especially if there is a need, announce that it is their intentions to build two phases, all going well and this may save on granting of permissions and licences etc at a later date and so this then sets out their stall and prepares a clear path for the design and constructions stages. In reality Phase 2, if there is to be one, should be built quicker than phase 1 as no major design is required. Coal Element. In effect to supply the power station we need a coal resource of 1.48mt/y which is 41.4mt over 28 years and allowing for a reserve of 30%, which the banks may well expect for a coal resource, this equates to 54mt for the station, which is half of the current resources of 109mt. So we can easily double the power generation to 2 X 300MW PS phases without the need for further coal field extension. However it is pertinent that they appear confident that there is excellent potential to expand the resources up to about 400mt of coal. An amount equivalent to supplying 8 phases of 300MW. Re the coal purchase price, this should be more or less decided now. They used a conservative value of $32.8/t in the PFS which is low in comparison to the current price of about $40/t, so for the mine figures, we can expect an increase in the $24 million profits by a possible 22%, or about a fifth. It is a strange concept that we will be digging the coal out of the ground and supplying it and charging it to a power station, which is our power station. It also means we are more or less in control of the prices and may have more stability and so may have less price fluctuations which are bound to exist in the market. Most figures are done on the basis of a fixed level coal value over the life of the plant but there will of course be some movement either way in these prices with scope to manoeuvre. The stated mine profit of $24m is based on conservative estimates, without considering the other half of the current resource of 109mt, let alone the potential to expand the resources. So assuming we raise finances and have a short term loan for the coal mine, we can start early production and sale or export of coal, which will facilitate loan repayment and/or allow part funding to be realised for the equity funding. The quicker we get started the quicker we start to create revenue. Is a year to production realistic? Wish we new what the strategy was going to be re all of the financial issues, but I suppose this will all be revealed in time. The current coal resources are 109mt, if we extract half and sell it off we still have sufficient for the power station and on top of this they believe that potentially we have an extra 300mt of coal resources. This being the case, at $32.8/tonne, this will be worth sales of $9.84 billion and at the predicted cost margins of 48% this will yield coal profits of $4.72 billion over the mine life. (based on the conservative coal price used in the PFS, so this may increase by about 22%). Assuming we produce the same amount of coal for sale as we anticipate is used in the PS, which is 1.48mt/year and we achieve $24m profit per year, this is equivalent to, $24m/328.9m shares, which is 0.073 dollars per share, or 4.77p per share and at a P/E of 10 this is worth 47.7p per share. (Assumes Kibo ownership only, but would be split according to the final asset share held). So assuming we have a buyer for the coal, this provides early profit per year, without the need to supply the power station at this point. Not forgetting we potentially have another three times the current resources. If we owned only the mine element, this produces a fair turnover and profit over 25/28 years based on 42mt of the current 109mt coal resource. (Perhaps we do a deal with SEPCO and we own the mine and they own the Power). The question is how much coal is it practicable to extract each year, as they could double up on the above if it was feasible? Compared with the power it is cheaper to mine the coal with less CAPEX outlay ($38m) and I would be thinking of further delineating the coal field to establish additional resources and concentrate on coal extraction to generate revenue for a couple of years prior to the power plant being built and commissioned. Alternatively Kibo and SEPCO III could buy up EDL and their 171mt of coal resources. So revenue can be generated initially with the early production and sell off of coal and another option is the additional markets which may be available for any coal resources not required for the Power plant generation. i.e. the alternative energy technology of coal to liquid gas conversion energies. This is under examination with the results due Q1 2016 and may be another important factor in reducing the equity funding requirement for the Mbeya project. Indeed the level of profits generated may all depend on how quickly they can remove and process the coal minerals etc. which then might dictate the amount of equity funding we might require. An increase in the profits will of course be reflected in any NPV estimate updates for the mine operation which may be forthcoming. Power Element. No doubt SEPCO III will confirm the final figures for the POWER element when they complete the power DFS. This is likely to be impressive as they will have had time to look at the electricity tariff rates and the possibilities of getting private off-takers on board which is probably at premium tariff rates compared to the domestic tariff rate. Beaufort’s Sheldon Modeland, as far as I remember, indicated that the electricity tariff was price sensitive in his model and varied between 9 and 11 cents per KWh. So hopefully we should see a fair increase in the tariff rates, albeit they are aware they must be competitive but still offer rates that remain affordable to customers. We should not lose sight of the fact that the main reason for the plant is to close the shortfall in power capabilities and supply in the region. Assuming power generation of 300MW, the plant generates a max. of (300,000KW x 24 hrs x 365 days) = 2628GWh. I have previously assumed the power element profit to be based on 15% of the mid tariff of 10 cents/KWh, or 1.5 cents per KWh and the resulting profit is (2628 x 10^6)KWh x 1.5cents = $39.42 millon per year. So at max load, every 1 cent change in electricity tariff will change the profit by $26.28 million and at 80% load a 1 cent change will change the profits by $21 million year. Assuming a base load factor of 80% this is a Power profit of $39.42 x 80% = $31.54 million per year. Combining the coal and power this is $24m + $31.5m = $55.5 million a year. (for 1 phase). Currently this is worth $55.5m/328.9m shares, which is $0.168 or 11.0p per share and based on a P/E of 10, this is worth $1.68 or £1.10 per share. (Assumes Kibo ownership and 1 phase only). Again an increase in the electricity tariffs will increase the NPV estimate, although not proportionally. Tariiff rates and coal prices are important here and we should have some degree of control on both. In the studies they have been conservative and there is scope to increase it, but it will be well below the 18 to 35 cents as LC indicated in one of the interviews. Note that as I recall when EDL did their PFS in March this year they quoted two NPV values. The higher NPV was based on commercial take-off tariff and was about 50% higher. So perhaps scope for Kibo to increase the power revenue with commercial take-off rates at higher electricity tariff charges. This of course may be a deciding factor in allowing domestic rates to be lower and more affordable to the Tanzanian people. The work content of the Power element study must be fairly comprehensive, however SEPCO have been there before and know the score so I would imagine they will be well on the way progressing the power DFS. Each passing week brings the FC that little bit closer. I still think the equity funding is the big question and any assets we sell off, along with the price, will ultimately decide on what share of the SPV assets we finally end up with. I am sure LC has his finger on the pulse re the equity situation and there must be a number of options that are open to them. All will be revealed. Surely if they announce another phase extending the power generation from 300MW to 600MW there must be a touch more interest in the Kibo shares from then on, surely? Hume – It looks as though we shall receive the Hume monies by 2 December, which is just in time for a Xmas bonus. Not ours I presume. On the other project fronts. Imweru. The PEA confirmed potential for initial mine development of 7 to 10 years and possibilities to expand for a further indicative 6 years and they hope to plan and budget for this work. An update on Imweru should be forthcoming and based on the PFS information they have and all of their assumptions on the technical, engineering, operating and economic factors and other related factors, it will be interesting to see whether all or part of the mineral resources can be classed as a Mineral Reserve, along with increasing the confidence levels to 70%/85% level. In addition they are confident of extending the gold resources by 40% to 80%. So in future at Imweru we might possibly move up from 550K oz of gold to between 770K oz and 990K oz and we still have Lubando at 168K oz. So combined, this would possibly take us over the 1 million oz mark for the gold. In July they were hoping to make rapid advance in the FS work. Other FS work also expected included the associated environmental assessments and advanced financial modelling and securing of all related permits and certificates. The initial work was stated as being underway and would be fully implemented once adequate funding has been secured. So from this, not really too sure how far we will have advanced Imweru, especially with MCPP taking priority, so perhaps we will receive a welcome progress update. In the past LC spoke about taking Imweru into early production and the Lake Victoria gold projects effectively being self funding. The Imweru project is an intriguing proposition as it can be mined, solely or jointly, or sold if desired, as and when they decide. Out of the ground gold is worth $660m or a resource value per share of $2 or £1.31. The in-ground valuation at 4% of the gold price, is worth 5.2p per share, however it is conceivable they may possibly get an offer between 9p and 12p per share if selling, particularly if Barrick/Acacia are interested, as they have a 10% free carry in Imweru (and Lubando) up to the decision to mine, when they have to contribute or be reduced to a 2% smelter royalty rate. Acacia also have first refusal to purchase at an agreed market price when we get to the bankable stage of the studies. So perhaps we even have a buyer at the right time and at the right price. If they prove up the resources to P and P, the in ground value is probably worth about 15% of the gold price, at about 19.6p per share. What share price are we currently sat at, a paltry 5p? Re Imweru and MCPP, I muted in a previous post that an option may be to sell off Imweru for, say 10p a share, or mine it with a SEPCO III and raise the same amount of £32.8 m ($50 m). This could start the coal production process and/or start the equity fund raising process on MCPP, and still leave us with 85% of the SPV assets to be released for equity funding. i.e. if necessary, which will probably be the case, unless LC has it otherwise sussed out. Could be the big bang when news comes. The sale and percentages retained was hypothesised in post number 34800, but it was only a guess at what we would have to sell asset wise and what we would be left with, in order to raise the 25% equity funding, or the equity portion according to our share of the SPV assets we finally hold. I think this scenario returned, Kibo retaining 48.3% of the SPV, with others on 51.7% and I guessed that Tanzanian government would take up a 15% share. It may be more who knows? Wouldn’t it be nice if we arranged or received a cheap loan from the Tanzanian government or they guaranteed our financing security! However it would appear from the recent Mbeya RNS that they are possibly looking to take on board a commercial loan which is understandable given the robustness of the profit figures. This of course may well change. It may be they can raise finance using the gold fields as security, especially if they can complete the relevant FS. The mine and power plant will be held as security for the debt funding which we will require from the banks and of course this will only be arranged and available to us if we can raise the 25% equity funding. Maybe it is important to get the coal up and running then get it extracted and sold or otherwise converted to alternative energies for sale. Other options might see them raising finance, through issuing bonds or royalty and streaming capital finance options where a share or price of the mineral is agreed upfront in exchange for Capital finance. However LC will be well advised on his finance options regarding the MCPP, that’s what the Standard Bank is there for. A placing might be used to raise a small amount, if required, but not for the equity funding as the amount is too large. Perhaps the royalty and streaming option could be applied to Imweru where a share of the gold, or an agreed price for the gold is set up in exchange for capital finance and this allows us to proceed and mine Imweru and generate funding for the coal and power project. I don’t know enough about this, so perhaps the cheaper option is to arrange finances based on the gold field securities, if this is feasible and implement mine production of the goldfield. Money is then available for the coal mine. Oh to be a fly on the wall in Kibo offices! A few questions still spring to mind. What will the SPV valuation be on completion of the DFS /BFS and the eventual FC? Raising 25% equity ensures the arrangement for the 75% debt funding, but what percentage of the SPV assets will we have to sell and what % will we be left with? What will the final power generation be for the complete project, if we are currently on 300MW Do we get a bank loan and start coal production which will later contribute to the equity funding or De we do as previous and explore further to extend the resources up from the 109mt or Do we get a loan and start digging for Imweru gold then start coal production etc or Do we mine Imweru as a JV, say with SEPCO to fund coal start etc or Do we sell Imweru off before or after further FS work, and can then start the coal mine etc. Do we JV on Haneti and would it raise enough capital? Probably not at this stage. Do we sell the Power element to SEPCO if they want it and run with the Mine element? Do we sell the complete MCPP Coal and Power elements if the price is right and concentrate on the other projects / acquistions. There must be other options of course. Haneti - As far as I remember, as they had firmed up on the drill targets they were hoping to implement their drilling programme in 2015 after the geotechnical drilling was completed at Rukwa, which is now the case. So perhaps an update on this position or word of a potential JV partner. Morogoro - The analysis of the Morogoro samples collected previously must be due soon and this may lead to additional sampling to enhance findings, to extend the mineralisation and assessment and mapping of the unexplored ground. Overall objective is to assess prospectivity and to define the project pathway. Pinewood – As far as I remember a review and update of the historic technical reports prepared for the Pinewood and the surrounding Uranium licence is being undertaken to further refine and define the next exploration studies. No Kibo expenditure is required on Morogoro and Pinewood with MTR committed to their $800K spend in 3 years. So let’s hope MTR deliver in full and play ball with our shares and don’t sell too rapidly. I received a warning once selling a company’s share, as I apparently sold two batches too quickly and was told it may as a consequence drive the price down and they threatened to cancel my deals. Me drive the price down and what do the MM get away with? Things must surely be starting to appear brighter even for the LTH as we are so much further down the road now and approaching DFS completion and then FC, although you would never know this from the share price. However it is easy to say this and I know how hard it is to be holding a share and to retain it when it constantly drops down month after month. LC has said he will create value for the company and shareholders, particularly long term holders. Let’s hope he fulfils this objective for all the small investors in Kibo. Hope to keep reading the posts on holiday in Teno, see you in 2 weeks or so. GLA.
21/9/2015
11:40
gilbly: Morning. No internet for over a week, so out of touch with all posts. More thoughts for today on funding and selling etc. All early stage miners go through the process of exploring and delineating a resource followed by a series of consecutive studies such as Scoping, PEA, PFS and DFS and these culminate in a Bankable report which is instrumental in negotiating for finance. Invariably the Bankable study is a necessity as the banks call for this level of reporting and the financial decision will be highly dependent on this. So the financial aspects will be well and truly investigated but first and foremost the project has to be capable of paying off the debt by generating adequate funds over the loan period of the debt, which is likely to be over the life of the power plant. That is the reason, as we know, for all of the financial calculations on the NPV, IRR, ROI and payback period and a whole host of other financial metrics that are considered in the modelling and analysis. In progressing to this stage additional value must surely be attached to the project. On completion of the DFS the transfer of the MCPP assets to a project holding company or SPV will take place and the split will be 85% to 15% in Kibo favour. This separate special purpose vehicle probably ensures for one thing that Kibo and SEPCO are not liable for future debts of the project. Assuming we have a successful DFS/BFS conclusion, the debt funding will be successful if, the equity requirements are satisfied so we are all keen to ascertain the exact route of the equity funding level from here on in. LC indicated in the RNS that he negotiated hard for their share of the holding assets or SPV and it will reflect the original cost of the Rukwa acquisition and all expenditure to-date and would allow for asset disposal as and when required during the progress of the project. I suppose the disposal of assets can be concluded immediately at the outset or progressively as we proceed and need funding. In fact the whole situation re the Power, in particular, may already be done and dusted with an agreement between Kibo and SEPCO III. Who knows? So moving forward with this 85% share of the SPV and with the debt to equity gearing ratio now 75%/25% we are mindful that we have an obligation to raise this equity funding in proportion to the final percentage of assets held in the SPV. It is always an option of course to sell off the whole Mbeya project lock stock and barrel and that would create a substantial value. Any guesses? Perhaps we will own only the coal element or a high percentage of it and SEPCO the Power side or ultimately we may still retain a share in the MCPP. This being the case, to advance the project the equity funding is paramount and there is a high probability that we have to dispose of an asset share to realise this funding. The question is at what price and what percentage of the assets. Once the DFS is completed the project needs the debt and equity funding and the decision to proceed finalised and it is probable within this financial time frame, that SEPCO and/or other partners will come on board and a percentage share of the assets, will be released and we obtain a guarantee that the partnership has the equity raising capabilities. SEPCO is a subsidiary of the huge ChinaPower organisation and it would be no surprise if SEPCO III purchased the whole of MCPP particularly with the potential to increase from 109mt of coal to 400mt. The current resource is sufficient to double the power to 600MW and the potential resource of 400mt, has the capability of supplying 8 phases of 300MW stations. Kibo did not come all this way for nothing so regardless of what eventually transpires they are bound to create value for the shareholders. The question of course is how much. A solution to funding is imperative or the project won’t happen and given the power shortages they have, it is essential for the Tanzania Government that the Mbeya project succeeds. So there is pressure on everyone to finalise all aspects of the project towards financial closure and the likelihood is that the Tanzanian government will be a venture partner. But at what share? LC indicated in the last Mining Weekly interview that he was happy with shareholder role and confidence and some institutional investors were now in. In addition when prompted by the Interviewer about returning to the market he was confident that the shareholders would provide support. We had a handful of partners interested in the project prior to signing with SEPCO III and LC has indicated that parties remain interested in taking a direct investment, so we must still have their attention. If we were to dispose of all of the MCPP asset tomorrow and it was advantageous to ALL shareholders, then would most agree to this? Maybe we should all sort out our voting rights as nominee a/c holders need permission to vote. For the time being however the situation is such that we have a majority asset share, available for disposal at any time and we know we have to raise a proportional amount of equity funding on our asset share. It is clear that the SPV assets will be realised and reduced, but by what percent? Looking at the PFS figures for the coal and power elements we have: COAL PFS A 28 year mine life at 1.48mt of coal per year (42mt per year) Coal revenue $48.4m to $48.6m per year. Cost margins - 49% to 62% (with 25% considered healthy). Annual profit - £24m to $27m. CAPEX - $38m to $73m. (Preferred option is $38m). NPV - $211 to $244 at a 5.5% discount rated. IRR - 33.6% to 53%. ROI - 595% to 903%. Payback period - 2.6 to 3.65 years. Sensitivity - coal price and op. costs. POWER PFS 1,841GWh to 1,877GWh per annum based on an 80% baseload. (From Post 34194, this estimates 2628GWh Max X 80% = 2102.4GWh) Power revenue $7.8 to $8.4 billion over life of PS. NPV - $230m to $280m at a 15% discount rate. CAPEX - $640m to $760m. IRR – in excess of 23%. Payback period – 8 to 9 years. From above the current combined CAPEX is $678 to $833 million. The latest figures are now 75% / 25% debt to equity gearing ratio. So, the debt funding is now $508 to $625 million whilst the equity funding is $169 to $208 million. So with the current asset split of 85% to 15% in Kibo favour, the required equity funding for Kibo will be $144 to $177 million. Regarding the PFS completed on coal and power if we look at the current NPV, this is not a small NPV of some $99.6 million as per Beaufort, but with a coal NPV of ($211m to $244m) and a power NPV of ($230m to $280m) we have an accumulated NPV = $441 to $524 million. As mentioned in last post, I am not sure what sort of credence you can attach to the Beaufort's report. For me there were too many notes not in the same Hymnbook. As Company broker I thought it was appropriate because of the differences in the NPVs and also because of the new RNS on the coal PFS, that they should be releasing another update for clarity apart from anything else. Yes they can still update when new info is issued on Imweru and Haneti, meantime they could be helping to promote the Kibo cause. Note that I attempted to estimate rough worth in terms of price per share and a Target Buying price per share and this varied from 11p to 47p per share as I recall. Assuming of course that all SPV assets belong to Kibo, as no SPV currently exists. As we contemplate the venture, the reality is, we are sitting on top of an 85% share, (which will probably be diluted) of a twin track coal and power project with a coal turnover of $48.5m x 25 years which is $1,212 million or £1,358 million over 28 years. Having mined the coal, we sell it to the power station (our power station) and from the power plant we generate a turnover averaging $8 billion over the 25/28 years LOP. So that’s a combined turnover of approximately a $9.3 billion. In essence this translates to a combined profit of $55.5 million per year. ($24m coal + $31.5m power). However the power is an estimate from Post 34194. As we were only given the turnover of $7.8 to $8.4 billion the estimate assumes we have a profit of 1.5 cents on a 10 cent electricity tariff. i.e. 15%. So for mine production and power generation over 25 years the estimated profit is $1,387 million. In the studies I feel LC has been conservative and instrumental in ensuring that the modelled price of coal was less than the current value so he now has a possible 22% rise in hand and there is scope to increase the electrical tariff although it will be well below the 18 to 35 cents as he indicated in the last interview. Therefore I think the DFS may well throw up revised figures expressing further improvements, particularly if there are likely to be private off-take agreements on the electricity tariffs. The burning question is, how will this funding be realised. Any partner investing directly must have adequate funds so that the partnership can meet the equity funding requirements. A consortium of banks will no doubt supply the debt funding based on positive Bankable studies and on the proviso Kibo and SEPCO III cover the equity funding share, which is now currently at 25%. Under the debt financing arrangement it is possible that repayments will not start to be paid back until the power generation revenue comes on stream . To raise finance, there are ways of issuing bonds and royalty and streaming capital finance options where a share or price of the mineral is agreed upfront in exchange for Capital finance. However LC will be well advised on his finance options regarding the MCPP. Kibo SPV asset share of 85% will reflect the original purchase and costs to-date, of say $27 million. SEPCO will have a $3 million spend on the power DFS. However, regardless of this, Kibo need to raise a share of equity in proportion to their 85% asset share, which is presently $144 million and the easiest way is to sell off some assets, which also reduces the amount of equity funding to be raised. If we sell it all, of course we will have no project, and do not need to raise equity, and can you imagine the substantial revenue we would receive in return? We cannot use the assets to borrow money as these will be held as security for the debt funding over the loan period, which is likely to be the life of the station. Not too sure if there are possibilities of raising finances on the strength of the Imweru and Lubando projects, so we can offer these as security to a lender. The equity funding figures above are too high to raise through a full placing, so obviously we will release some, or if the price is right, all of the assets in the SPV, to any party interested in investing directly in the project. We all want to Kibo to create value and thinking about it logically, why should Kibo not sell off the Power and then concentrate on the Coal. It currently belongs to Kibo. The current coal resource will need $38 million of capital and will generate $24m - $27m as stated, so not a bad return. That way selling off the power element we will probably have working capital for all of the other projects and have a coal profit of $24m per year to anticipate. On a P/E of 6, this is about 28.6p and 25/28 years of profits ahead of us. In addition we do not have to consider selling off any projects. The resource of 109mt is enough to supply 2 x 300MW phases of plant and the remaining coal field has massive potential and it will eventually be defined. This will generate a large revenue when producing. (e.g. The potential - Using the £32.8/t from the PFS an extra 300mt of coal would be worth profits of $9.84 billion and using the 49% margin this is $4.82 billion. But only a potential at the moment). Assuming we remain in MCPP, how do we start to fund the equity? I think LC indicated the intention with Imweru was to use it as a self-funding mechanism for the Lake Victoria gold fields and Haneti. But he may change his mind if we need finances given the potential in profits to be made. However we are not party to the strategy they have and they must have a plan A and a backup plan B in mind. Currently work is progressing on the Imweru PFS and that study itself may be enough for an agreement to be made to sell Imweru. Assuming that we need to. It may also be the reason for running the Imweru PFS in parallel with Mbeya. Unless we have other sources of funding, we can consider selling Imweru or mining it, either independently or through a JV development. 1.SUPPOSE KIBO DECIDE TO SELL IMWERU Although Kibo have 4 other projects, suppose they decide to raise equity funding by selling Imweru at a reasonable price. What is a reasonable price? Selling Imweru may happen, but preferably after they have completed the PFS, which is ongoing, as it should create additional inherent project value. Approximate valuation ‘in the ground’ is about 5.2p per share and upgrading to P & P is possibly worth 19.6p per share, from a previous post. Acacia own a 10% free carry up to mining then have to contribute or be diluted to a 2% smelter royalty and also have first option to buy at the BFS stage, at an agreed market price. In short, I think that Acacia know the resource potential here and that Kibo plan to extend the resource by 40% to 80% as well as increase the confidence levels. Therefore they may well decide to agree on a middle of the road price between 9p to 12 p. In addition any deal done at PFS stage is likely to be cheaper for Acacia than at the Bankable stage. So room for Kibo to manoeuvre for a higher price. Is it worth considering taking Imweru to the BFS stage by spending additional funds which may encourage Acacia /Barrick to purchase the goldfields at a higher price? Acacia know precisely what we have got and will be well aware of the fact that KIBO will be keen to extract a worthwhile price for Imweru and possibly Lubando with MCPP taking centre stage. A Barrick mine is in the area, as you would guess and many of these well-established mining companies are running short of fully explored fields. Exploration is slowing down as the grade quality reduces in the remaining goldfields and now they let the junior miners do the work for them, then step in later. If Imweru is sold, Kibo gain a source of funding for the coal capital outlay and Acacia obtain a resource with great potential and importantly for them, at a price significantly less than if they proceed to BFS. If successful, Kibo have created and obtained value to fund the Coal project and perhaps a contribution to the equity portion, if we are lucky with the price. Selling - Imweru may attract an 'in the ground' valuation of 10p per share, which is worth £32.9 million ($50 million), but hopefully it would be more than this. From above if the equity funding required is ($169m - $208m), with Kibo share ($144m - $177m ) and we utilise the Imweru proceeds of $50m (29.5% of SPV, say 30%), the remaining equity to be found is $94m to $127m. (So $94m is $94/169 = 55% of SPV). Assuming the low figure, the remaining 55% of the SPV assets are available for disposal and any purchasing partner or partners are then responsible for raising the $94 million of equity. So we then proceed to the next phase on the basis of Kibo with 30% and SEPCO III with a 15% share with the remaining 55% of SPV assets to be acquired by partners / SEPCO III. Assumes of course that Kibo cannot raise further cash until any SPV asset is sold and any further retention of SPV assets is then reliant on the revenue realised from a part disposal. Selling Imweru effectively covers the CAPEX for the Coal element of $38m and we can then start to implement the coal mine design and development phase and advance it to production. It must be possible to bring it into production within a year. Then we have the options to sell coal to fund the ongoing power work and to stock coal for the PS as we go. Perhaps later we can export coal or generate revenue from the alternative energy technologies. (Investigation of coal to liquids operation is ongoing and due in Q1 2016). So worst case scenario by selling Imweru and raising $50m we have a 30% minimum share in the MCPP. The combined coal and power profit estimate is $55.5m and 30% is $16.65m or £10.88m. So on a P/E = 6, this is worth 19.8p per share. Just a guess, but a new partner may be the Tanzanian government on 25% share of the SPV and an increased holding by SEPCO to 30%, with Kibo on 30% and a possibly another new partner on 15%. Alternatively SEPCO may take 45% as three partners may be a better than four. Kibo may have potential to retain more but it depends on the returns on assets sold. Looking at the projects that SEPCO III and II and their parent company are involved with, I am sure they will want as large a share of the project as they can possibly acquire. So with Imweru sold off, cheaply, we have $50 million in the bag and we still have 55% of the SPV assets to sell off. Of course when sold it guarantees the equity funding from the purchaser, whether SEPCO or a new partner. I eagerly await to see how it all develops in the forthcoming months and it will be interesting to see what materialises on the SPV asset disposals front. 2. IMWERU WORTH Imweru however is worth far much more if it is advanced to mine production and we realise the 'out of ground' value. There is a 550K oz of gold resources at Imweru and 168K oz at Lubando and they are hoping to increase this by 40% to 80% along with the confidence mineral levels. So 550K oz of gold at $1.2K / oz is $660m and 168K oz at $1.2K / oz is $201 million, which totals $861 million for the current 718K oz resource level, with further potential as mentioned above. Assuming Op. costs of 50% this is $430 million profit between Imweru and Lubando. It is starting to get very interesting now and I can’t help wonder what sort of deal LC is dreaming up? There has to be a surprise package concocted somewhere in the script as the project progresses and the story unfolds. LC has been safe on the coal price, the electric tariff and then on the Debt to Equity funding ratio. So what is next? Perhaps an inexpensive dollar loan from Tanzanian government due to the importance of this project for the Tanzanian economy and people. 3. WHAT IF SEPCO BUY INTO A JOINT VENTURE WITH KIBO IMWERU & LUBANDO What about SEPCO III buying into the Imweru (and Lubando) projects. Rather than sell off Imweru, if SEPCO buy a share of Imweru, then we have additional mining proceeds to add to the equity funding pot. So perhaps this is the reason for the Imweru PFS being worked in parallel with Mbeya. The question here is also what price for a SEPCO share of Imweru? Maybe a price to reflect the acquisition costs of Imweru (and Lubando) and the work costs to date, but this is likely to be too low and has to reflect the project potential value. Assume for the present that we receive sufficient funds on the JV deal to start progressing the Mbeya coal to the production stage. Then they may consider doing two things on Imweru; i) They proceed to mine and simultaneously, ii) Explore and delineate a further extension of the resources in the region of the 40% to 80% they are predicting. Suppose we proceed to mine what would we produce a year? For a life of 6 years and with a gold resource of 550K on Imweru alone, assume the mine produces 92K oz of gold per year. (Probably less the first year). Added later – Checked and expected life is actually 7-10 years. The 92K oz of gold is worth 92K x $1.2K/oz = $110 million and say the profit margin is 50%. This generates $55 Million. So accounting for Acacia’s 10% share this produces a revenue of about $50 million. This is about the same as if we sold off Imweru for 10p per share. However we can still mine for another 5 or so years, at the current production / resource level. So in 6 years we generate 6 x $50m = $300 million, which make a considerable inroads into the equity and debt funding even within the three and half build period for Mbeya. A Mining JV with SEPCO on Imweru is beneficial to both parties and it may allow the coal production to get underway. So in conjunction with SEPCO III, we mine Imweru to create revenue, use this to set up coal production, which can be sold early on to generate funding (for the power) and then eventually supply coal to the PS to generate power. Acacia are involved to the tune of 10% and have to contribute to mining or reduce to 2% and they only have the option to buy at the BFS stage. Now the threat of possibly mining with a new JV partner such as SEPCO, may provide the impetus to pressurise Acacia into opting to purchase Imweru at a more advantageous price to Kibo. But given what is achievable with possible mining in a JV with SEPCO III is it worth selling Imweru for 10p a share? However with SEPCO on the project probably mining is a better option if it can be implemented rapidly as it will generate much more value than 5p or 10p per share by selling and contributes to Mbeya coal. So should we sell Imweru, or if it is possible, commit to a JV with SEPCO III, start the Mbeya coal mine, then proceed to mine Imweru and generate a higher level of profit from the gold resources? Which way will we go and have we the timescales, which may be a deciding factor? Intriguing question, what asset share of the SPV will be sold, what revenue will we have generated and what will our final share of the SPV be assuming it is not 30%. Perhaps as I already said the easy way is to sell off the Power to SEPCO and concentrate solely on the mine, it may be negotiable and easier to arrange before anyone else climbs on board to invest directly. In that way we are remunerated for the value we have been creating to date including financial closure, so we have the funding to return to shareholders, participate in acquisitions and further advance the existing projects down the road to value creation. Tadtech spoke to LC a few years back and LC stated that Kibo strategy was to demonstrate value and then realise that value. Just as MTR appear to be doing, same philosophy but just a different and a more ethical approach. The current values returned from the PFS are considered exceptional according to LC with potential to increase profits apparent, as they used conservative coal pricing and a higher value electricity tariffs looks to be possible, so revised and finalised upward figures should be forthcoming with the DFS reporting. So with the completion of the DFS / BFS and financial closure in Q1 next year, and things are done and dusted, we must surely add value to the Mbeya project. We have something that plenty miners would envy, we just need the acumen and wherewith all to be able to carry it off. The price may not be doing much at the moment but we have plenty to look forward to. Just a thought, LC has indicated that he will create value for the shareholder. Has anyone actually asked him what this value would be? Next news may be the Morogoro assay results, I think they were due in Q3. Possibly an update on the progress and discussions with the Tanzanian authorities on the Power Purchase Agreement the Implementation Agreement and the EIA. The permitting and licencing is expected later on. Also they might issue an update re Imweru PFS, possibly in the October quarterly review. Maybe sold, or a JV after the PFS! Plenty of work to do in the DFS, but with the information they have, they must be looking to classify the mineral resource as a Mineral Reserve and increase the confidence levels of the resource. Thus improving the Bankable study and financial expectations. Haneti – More analysis of the geophysical data may lead to confirmation of the drill targets and expected start dates. This was to be later in 2015 once they complete the geo technical drilling at MCPP as outlined in the 26May 2015 RNS. I think the drilling was to aid the mine design criteria work for later in the MCPP study etc, so we may have these results. Exciting times ahead. GL for this week. Off to Portugal tomorrow for 10 days.

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O 11,504 4.45 31 May 2016 10:08:50 GBX
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