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KIBO ENERGY PLC - Update to Conversion of Sanderson Minority Interest in Mbeya Development

Release Date: 08/03/2019 10:15
Code(s): KBO     PDF:  
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Update to Conversion of Sanderson Minority Interest in Mbeya Development

Kibo Energy 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”)

Dated: 08 March 2019
                            Kibo Energy PLC (‘Kibo’ or the ‘Company’)
              Update to Conversion of Sanderson Minority Interest in Mbeya Development
                           to Kibo Shares & Continuation of Forward Payment Facility

Kibo Energy PLC (“Kibo” or the “Company”), the multi-asset, Africa focused, energy company, notes that
further to the Company's announcement on 5 March 2019 with regard to the Conversion of the Sanderson
Minority Interest in Mbeya Development into Kibo Ordinary Shares and the continuation of the Sanderson
Forward Payment Facility, it wishes to further clarify the transaction with the following information:


Conversion of Sanderson’s 2.5% Interest in Mbeya Development


    *Sanderson Capital Partners (“Sanderson”) initially acquired its 2.5% equity interest in Mbeya
     Development Company Ltd (the “Project Company”), which holds 100% of the Mbeya Coal to Power
     Project (“MCPP”), and which was at the time a 100% subsidiary of Kibo, on 1 September 2016 by
     converting the full outstanding loan amount of GBP1,500,000 owed by Kibo to Sanderson at that time
     under a Loan Facility announced 3 March 2016 into the aforementioned equity interest. The terms of the
     September 2016 Conversion were calculated based on a net present value of 100% of the MCPP’s coal
     resource of GBP 60,000,000 (discounted for risk) at the time of the conversion. Please refer to the RNS
     dated 1 September 2016 for more information in this regard.
     *As stated in the previous RNS dated 5 March 2019, Kibo has now re-acquired the aforementioned 2.5%
     equity interest from Sanderson on the basis of a valuation of GBP 66 million for 100% of the MCPP’s
     Mbeya Coal Resource (“the Valuation”). The consideration will be settled by means of the allotment and
     issue of 126,436,782 new Ordinary Shares at their par value of €0.015 (the “Conversion Shares”) to
     Sanderson. At the time of the conversion agreement, ordinary shares in Kibo were trading below par value.
     The issue price was agreed as par value due to the Company not being able to issue shares below their par
     value under Irish company law.
    *The Valuation was based on the weighted average total of the following elements:
        -the net present value of the proposed Coal Mine based on a 1.5 million ton per annum production
         figure as determined in the definitive mining feasibility study for the Mbeya Coal Mine amounting
         to c. GBP79.5m. The calculation also incorporates a risk factor discount of 27% and assumes a
         lead time for first production of 7 years. This provided a value estimate for the Mbeya coal mine
         separate to its value to the integrated MCPP coal to power project (ie the value of it were it to sell
         coal at arm’s length to an undetermined power project); and
       -estimated market value of MCPP’s Coal Resource of 120.8Mt (Refer RNS dated 11 April 2016)
        held under Mbeya Coal LTD with reference to “$/tonne of coal in Resource” market-based
        multiples, amounting to c. GBP37.2m.
       -The MCPP was from inception developed with various commercialization options in mind and
        all these options remain open to the Company, despite the TANESCO decision announced on 14
        February. The MCPP’s current development status was furthermore not in any way affected by
        the 14 February announcement and it remains a fully developed bankable project, positioned for
        an ultimate generating capacity of 1000MW to take advantage of the fast-growing local market
        via TANESCO, private local off-takers as well as the power export market. The TANESCO
        decision announced on 14 February did not disqualify the Company from engaging with
        TANESCO on other existing or future opportunities, nor does the current TANESCO tender in
        any form or manner satisfy / address the country’s growing immediate or long-term electricity
        demand - the electricity market remains vastly undersupplied. (NOTE: The Company is still
        pursuing its request for clarification from TANESCO on its decision not to qualify the Company
        for tender No. PA/001/2018-19/HQ/N/033). The lucrative and fast-growing Tanzanian and
        regional markets, across both public and private sectors, therefore remains open and available to
        the MCPP, albeit that it will not be able to access the market via the specific opportunity that the
        current TANESCO tender for coal fired power offers. Apart from the energy market the Company
        also has the option to develop the MCPP coal resource as a dedicated coal mine (or a part thereof)
        to supply coal into the local and regional coal market as evidenced in the Company’s MOU with
        Mbeya Cement LTD, see RNS of 20 April 2017.
    *The current transaction valuation has increased by just 10%, or GBP6,000,000, since the 2016 transaction
     where Sanderson acquired a 2.5% interest in the Project Company from Kibo. The Company believes that,
     notwithstanding the Company’s share price, the Valuation reflects the progress made and value added to
     the MCPP’s coal resource since 2016 to date, which inter alia includes the following milestones reached:
        -Integrated Financial Model Completed – November 2016
        -MCPP Update: EPC Contract Awarded to SEPCO III – December 2016
        -Final Approval for ESIA Scoping Reports – January 2017
        -Completion of Integrated Bankable Feasibility Study – January 2017
        -MCPP Receives Formal Reconfirmation – June 2017
        -MCPP Awarded ESIA Certificate from the Government – October 2017
        -Final Lot of EPC Contract Signed on MCPP – May 2018
        -MCPP’s Mbeya Coal Mine updated Special Mining Licence re-submitted and subsequently
         recommended for grant by the Tanzania Ministry of Minerals – July 2018
   *The Company also considers that the ability to do business on the Mbeya coal Resource will be
    considerably enhanced with a clean ownership structure where counterparties, such as but not limited to,
    authorities, suppliers, and potential project debt funding providers, are only dealing with one owner. While
    the benefits from this are not readily quantifiable, they would be expected to avoid unnecessary costs or
    delays as a result of a minority party being present that may be value destructive in the shorter and longer
    term. This may potentially take on a particular significance as Kibo continues to seek clarification on the
    TANESCO decision announced on 14 February 2019 while also pursuing alternative paths to
    commercializing its Tanzanian assets, which amongst others include the export market and private local
    market off-takers.


Continuation of Forward Payment Facility


As stated in the previous RNS dated 5 March 2019, the Term Sheet also provides for the continuation of Kibo’s
USD 2,940,000 Forward Payment Facility (the “Facility”) signed between Kibo and Sanderson, which currently
remains undrawn.


Since the events notified in the RNS of 14 February 2019, the Company’s shares have been trading well below
their par value of €0.015. This unexpectedly and suddenly placed Kibo under considerable funding pressure as
it did not, and could not possibly, foresee the events announced 14 February 2019, the result being that sourcing
additional funds through an equity placing was no longer considered a viable option in a reasonable time frame
as:
       a. Kibo is unable to issue shares at a price below par value under Irish company law;
       b. equity providers are highly unlikely to subscribe to a placing for shares at a significant premium to
          the prevailing share price (i.e. at par value or above). Kibo notes that on the day prior to the
          announcement of the Sanderson Transaction (being 4 March 2019) its ordinary shares closed trading
          at 0.95p, against a par value of approximately 1.30p; and
       c. the lead time necessary to adjust the Company’s par value (to enable a capital raising) is significant
          in the context of funding requirements, given the process includes the calling and holding of a general
          meeting to obtain shareholder approval to amend the capital structure of the Company. There is also
          no guarantee the resolution to do so would be passed by shareholders.


The Company also notes that the longer the process to obtain additional funding goes on, generally the weaker
the position of the party seeking funds becomes to negotiate terms with potential funding providers, which
typically translates into ever more expensive funding (if funding is available at all).


Sanderson was under no obligation to maintain Kibo’s access to the Forward Payment Facility, and the securing
of its continuation provides the Company with the option of short-term funding, with first draw-down amounts
of GBP 100,000 and GBP 400,000 agreed and any subsequent draw-downs to be agreed on a case by case basis,
as necessary according to funding requirements within the Facility limit of USD2,940,000. The repayment
terms of these subsequent draw downs will be the same as the initial draw downs.
 The Company believes that the certainty and immediate availability of the continued Forward Payment Facility
 brings with it considerable value for Kibo shareholders as it:
      
       * provides a certain and immediately available source of funding allowing Kibo to:
               -overcome its short-term funding challenges
               -have confidence that in the medium term it can retain access to critical funding if necessary
       * provides flexibility to not draw the entire amount, leaving the option open to source additional funds at
         potentially more attractive prices in the future to:
               -refinance (or even close out) the Sanderson Forward Payment Facility should it wish to do so
               -utilise instead of drawing down further from the Sanderson Forward Payment Facility
               -retain competitive tension for the provision of funding to Kibo
       * provides Kibo the opportunity to consider the best course of immediate action with respect to its par
         value/capital structure without the pressure of having to avoid a potentially damaging funding shortage
       * ensures that the Company has access to sufficient working capital to continue its operations on its projects
         even in the very difficult prevailing market conditions and uncertainty that was caused by unforeseen
         events in Tanzania. This will enable the Company to maintain momentum behind its on-going
         development work across its African and UK projects while also examining a range of additional funding
         options, which would be expected to be greater with a higher share price (which would deliver increased
         value to all shareholders).

                                               **ENDS**

This announcement contains inside information as stipulated under the Market Abuse Regulations (EU) no.
596/2014 ("MAR").

 For further information please visit www.kibo.energy or contact:

  Louis Coetzee             info@kibo.energy           Kibo Energy PLC             Chief Executive Officer
  Andreas Lianos            +27 (0) 83 4408365         River Group                 Corporate and Designated
                                                                                   Adviser on JSE
  Ben Tadd /                +44 (0) 20 3700 0093       SVS Securities Limited      Joint Broker
  Tom Curran
  Jason Robertson           +44 (0) 20 7374 2212       First Equity Limited        Joint Broker

  Andrew Thomson            +61 8 9480 2500            RFC Ambrian Limited         NOMAD on AIM

  Isabel de Salis /         +44 (0) 20 7236 1177       St Brides Partners Ltd      Investor       and     Media
  Gaby Jenner                                                                      Relations Adviser



Notes to editors
Kibo Energy PLC is a multi-asset, Africa focused, energy company positioned to address the acute power deficit,
which is one of the primary impediments to economic development in Sub-Saharan Africa. To this end, it is the
Company’s objective to become a leading independent power producer in the region.


Kibo is simultaneously developing three similar coal-fuelled power projects: the Mbeya Coal to Power Project
(‘MCPP’) in Tanzania; the Mabesekwa Coal Independent Power Project (‘MCIPP’) in Botswana; and the Benga
Independent Power Project (‘BIPP’) in Mozambique. By developing these projects in parallel, the Company
intends to leverage considerable economies of scale and timing in respect of strategic partnerships, procurement,
equipment, human capital, execution capability / capacity and project finance. Additionally, the Company will
benefit from its robust and experienced international blue-chip partnership network across its project portfolio,
which includes: SEPCO III (China), General Electric (USA); Tractebel Engineering (Belgium); Minxcon
Consulting (South Africa); ABSA / Barclays Africa; and Hogan Lovells International LLP.


Additionally, the Company has a 60% interest in MAST Energy Developments Limited (‘MED’), a private UK
registered company targeting the development and operation of flexible power plants to service the Reserve Power
generation market.

Johannesburg
08 March 2019
Corporate and Designated Adviser
River Group

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