coal
Coal Mining Matters

A new joint venture between two energy development companies may result in the potential development of a coal-fired power station in Mozambique.

This follows the signing of a joint venture (JV) agreement between Kibo Mining, the multi-asset Africa focused energy and resource company, and Mozambique energy company Termoeléctrica de Benga S.A. (Termoeléctrica) to form the Benga Power JV.

The JV agreement will allow both parties to participate in the further assessment and potential development of the Benga Independent Power Project (BIPP), including the right to construct and operate a 150-300 MW coal fired power station.

Kibo and Termoeléctrica shall hold initial participation interests in the unincorporated joint venture of 65% and 35% respectively.

The Benga Power JV is another step in advancing Kibo’s strategy to position the company as a leading regional energy player.

Subject to the successful outcomes of further and more detailed studies on the BIPP, Kibo Mining envisages being able to develop the BIPP in an expedited manner alongside its Mbeya Coal to Power project (MCPP) in Tanzania and the recently acquired Mabesekwa Coal Independent Power (Mabesekwa) project in Botswana.

The Benga Power JV will utilise Kibo’s experience in the  advancement and development of power projects in the East African region and its strategic relationships with international development partners such as Sepco III and General Electric.

As the BIPP has similarities with the MCPP and Mabesekwa, it is envisaged that considerable benefits could be realised in any potential power station development, including economies of scale in equipment, execution and project finance.

Principal terms of the JV

  • The assets the subject of the JV will be transferred unencumbered and unfunded into a clean, “sole purpose” vehicle (Newco) in which Kibo and Termoeléctrica shall hold initial interests of 65% and 35% respectively;
  • Kibo will be granted an initial 65% participation interest in the Benga Power JV to exploit the assets of Newco for no upfront consideration, and must maintain this interest by funding a maximum amount of £1 million towards the completion of a Definitive Feasibility Study (DFS);
  • Pursuant to a positive outcome of the DFS and the construction of a coal-fired power plant, both Kibo and Termoeléctrica will contribute to the project cost on a pro-rata basis;
  • In the event that the JV is terminated before Kibo meets its earn-in threshold, Kibo will be entitled to become a creditor of Newco for an amount of between 50% and 175% of its JV expenses contribution, payable within 30 days of financial close in respect of project financing for construction of the BIPP;
  • In the event that the JV is terminated after Kibo meets its earn-in threshold, Kibo shall retain a residual interest in the project calculated as a percentage relative to total project expenditure by Kibo, and subject to a minimum retained interest of 15%;
  • Typical joint venture dilution clauses and formulas apply to each party allowing one party to dilute the other’s participation interest should it not be able to contribute to an agreed sum within the set time period, and subject to a minimum retained interest of 15%;
  • Upon delivering a positive DFS in respect of the BIPP, Kibo will have the option, for a period of 365 days from the delivery of the DFS, to increase its interest in the project up to 85%, at a price determined by an independent third party (and payable within 30 days of such determination);
  • Kibo will have majority representation on the JV management committee, including the ability to appoint the chair of the management committee;
  • Kibo and Termoeléctrica to refrain from participating, to the exclusion of each other, in any new project (subject to agreed exclusions) involving the generation of coal-fired electricity in the Republic of Mozambique until the earlier of:
    • the fifth anniversary of the signature date of the JV; or
    • financial close
  • Reciprocal right of first refusals over disposal of either party’s participation Interest in whole or part on terms typical of such an agreement;
  • Typical termination clauses, including but not limited to, lack of commercial viability, material breach, and mutual consent; and
  • The JV is inter alia conditional upon both parties obtaining all approvals in their relevant jurisdictions to enter into the JV Summary of the BIPP.

BIPP at a glance

The BIPP consists of a suite of authorisations and agreements in addition to lease title over land in the Tete province, Mozambique, on which a potential coal fired power station may be built, in close proximity to various thermal coal producers which could be a source of feedstock.

The company is focused on building a geographically diversified portfolio of strategically located energy production assets spanning the entire spectrum of electricity generation across Africa that can solve the increasing acute energy shortages on the continent.

With the signing of this joint venture agreement with Termoeléctrica, Kibo will solidify its position as a key participant seeking to contribute in a meaningful way to the energy demand across three countries in southern Africa –Tanzania, Botswana and Mozambique.

Its flagship asset is the MCPP in Tanzania, which comprises the development of the Mbeya coal mine, a 1.5 Mtpa mining operation and the Mbeya power plant, a 300 MW mine – mouth thermal power station anticipated to be in production in 36 months from the date of achieving financial close.

It also holds an 85% interest in the Mabesekwa Coal Independent Power project in Botswana on which feasibility studies are well advanced.

“This JV is expected to add considerable value to Kibo’s portfolio of late stage energy projects and aligns perfectly with our proactive investment strategy of becoming a significant regional power player, says Kibo Mining CEO Louis Coetzee,

“Due to our experience of the development of the MCPP and Mabesekwa in addition to our relationships with international development partners General Electric and SEPCO III, we have been recognized as the preferred development partner for strategic power projects in the region. Now we strive to utilize our contacts and industry experience, delivering value to the shareholders through three different projects,” he concludes.