The agreement represents a redefined contract between the Tanzania focused mineral company and the major international, China-based EPC contractor – specifically for the power plant component which comprises one half of the Mbeya coal-to-power-project (MCCP) in Tanzania. The coal mine is the other component of the entire project.
The new agreement supersedes and replaces the existing joint development agreement currently in force between the parties.
According to the principal terms and conditions of the agreement, SEPCO III will refund Kibo 50% of the total development costs incurred by Kibo Mining on the MCPP to date, with a fixed first tranche in the amount of US$1.8 million to be paid to Kibo before the end of August.
SEPCO III and Kibo will mutually agree by 22 September the final amount which constitutes the development costs, the final amount to be refunded to Kibo and the date at which the residual refund amount will be payable to Kibo.
The terms are conditional on Kibo receiving the first refund tranche of US$1.8 million and a mutual agreement being reached between the parties on the refund payment balance due, following which SEPCO III will be formally appointed sole bidder and will be required to submit an EPC bid proposal to Kibo by 22 October 2016.
However, the bid must meet the EPC-specification laid down by Kibo and Tractebel Engineering (MCPP’s definitive power feasibility study consultant) for the construction of the MCPP thermal power plant.
[quote]This EPC-specification requires the EPC-bid to, amongst others, be competitive against an international benchmark determined by Tractebel in respect of elements such as price, technical standards, operational, management and financial capability and capacity.
The final bid must also comply with international good practice and standards and will in the final instance be subject to acceptance by Kibo and its financial advisors appointed to the MCPP.
In addition, subject to SEPCO III’s bid proposal meeting the EPC-specification as determined by Kibo and Tractebel Engineering, SEPCO III will be formally awarded the EPC contract by Kibo, no later than 23 December 2016.
SEPCO III will no longer earn any equity in the MCPP and all payments made to Kibo under the agreement, will be a cash refund for historical development cost associated with the development of the MCPP.
The agreement provides for summary termination in the event of any of the listed conditions not being met, specifically in terms of missing any of the agreed timelines.
In particular, if the parties cannot agree on the total amount deemed to comprise the development costs by 22 September 2016 or do not complete signing of an EPC contract by the 23 December 2016, the agreement will terminate.
Louis Coetzee, CEO of Kibo Mining, says that the company is extremely pleased that it has been successful in negotiating a new agreement with SEPCO III on favorable terms that ensures the company continues to hold a 100% interest in the MCPP and still leaves the company with full and absolute control over the further development of the project.
Under the terms of the agreement, the company will benefit from a near term cash injection which the coal-to-energy company can use at its sole discretion and which will be of great assistance with the further development of the MCPP.
It also provides for a further cash payment to be made to Kibo, subsequent to the initial tranche of $1.8 million as partial reimbursement of the shareholder funds spent to date on the project.
“The agreement reflects recognition of the increased value of the MCPP by SEPCO III, following completion of the mining and power definitive feasibility studies earlier this year,” Coetzee concludes.