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KIBO ENERGY PLC - Q&A Document

Release Date: 18/12/2019 11:00
Code(s): KBO     PDF:  
 
Wrap Text
Q&A Document

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: 18 December 2019


                              Kibo Energy PLC (‘Kibo’ or the ‘Company’)
                                           Q&A Document

Kibo Energy PLC, the multi-asset, Africa focused, energy company, is pleased to release this Q&A to
publicly answer questions it has received from shareholders over recent months.


Can you provide an overview of Kibo’s strategy?

The rationale behind Kibo’s strategy is that 620 million people in Sub-Saharan Africa currently rely on
firewood, kerosene and charcoal for energy needs with the associated adverse environmental impact of
using these fuel sources. With this in mind, Kibo aims to provide long-term energy solutions for sustainable
regional economic development as the basis for Sustainability*. Initially, it aims to develop its African
projects with the latest clean coal burning technologies, since coal is still the cheapest electrical energy
source. At the same time, Kibo recognises the environmental necessity and benefits of renewable energy
generation and therefore is actively seeking opportunities to integrate this technology with the traditional
base load generation solutions in a practical and affordable manner.


Kibo’s existing project portfolio reflects its strategy, and, with a clear view to production in the short and
medium term, will not only contribute to economic growth and stability in the project jurisdictions, but will
also create value growth and stable long term returns to shareholders.


Can you rank each project in terms of importance to the country of operation and to the Company?

To rank projects in order of importance is an extremely circumstantial and sometimes subjective question,
as a variety of drivers have an impact on project importance or priority. For instance, project importance
in terms of completion status, funding readiness etc. will be vastly different from project importance in
relation to technical development, as different resource, timing and budgetary requirements will vary project
importance from one condition to the other. The table below outlines the specific perspective in relation to
the question asked given prevailing circumstances.
Table 1: Project Importance

                                                             Importance
                  Description                             (5=Lowest 1=Highest)
                                               Kibo Importance       Country Importance
                       
                        Coal                          2
     Botswana                          KP1            4                          2
                        Power
                                       KP2            1                          
                                       

      Tanzania          MCPP           Power                                     3
                                       Coal           2

    Mozambique         BPPPP           Power          1                          1

        UK            Bordersley       Power          2                          2



Notes to Table 1
Importance to Kibo: This part of the table was arrived at by combining the estimated (Kibo Attributable)
project production values in terms of GWh per annum (Power) and Million tons per annum (Coal) currently
covered under a provisional PPA or CSA. This picture will change over time as more PPAs and CSAs are
finalised.
Importance to the Country: In all cases and based on its strategy rationale, Kibo would argue that the
specific project would be most important to the host country. The project importance illustrated in the table,
however, indicates the importance of the specific country to Kibo in relation to project importance. This
makes more sense, as it would explain the attitude and willingness of Kibo to direct resources, time and
funding towards the specific country.


Are NPVs attached to each project?

Yes, as part of the initial and ongoing economic feasibility assessment and financial modelling of each
project, a key element is the assessment of the estimated inherent net present value (“NPV”) of a project.
In developing and operating large utility-scale power station projects, a 20-30-year view is required and
forecasting the attributable cash flows over such a period is more of an art than a science. That said, cash
flows can be valued for projects of this nature, utilising discounted cash-flow as a methodology to arrive at
an NPV for unlevered free cash flow generated from Kibo’s individual and combined power project
portfolio. From this, we calculate the value of Kibo’s equity share, after debt, the market value of minority
interests and Kibo’s share of the Developer’s Premium is also considered. The most recent example of the
foregoing can be seen in the First Equity Research Note as published over a year ago on 28 November 2018
and available on Kibo’s website, which estimated the Company’s combined projects’ NPV at that time at
US$1.9bn.


What financial modelling has been done across the portfolio?

As referred to in the above point, each of Kibo’s projects undergo robust initial and ongoing financial
modelling. The financial modelling is conducted by an experienced reputable and appropriately accredited
independent expert and is a key requirement of the final stages of the project development process (i.e.
financial close and financing arrangements). The ongoing status of the financial modelling corresponds to
the level of development of the specific project. In the case of MCPP for instance for which the development
process has technically been completed, a final integrated bankable financial model has been finalised.


How and in what way will Kibo’s projects economically impact the various countries/regions and
what is the prognosis of a successfully delivered project?

The Kibo strategy guides the intended impact of its projects on the respective host countries. In order to
fully understand this, the continental and regional context is to be fully understood.
African Projects – Background** & Regional Impact
Africa is set to emerge as a key driver of global energy demand growth, one that is home to abundant
reserves of fossil fuels, solar power and minerals that will be vital for clean energy transitions worldwide.
At the same time, the sub-Saharan economy has more than doubled in size since 2000 to reach $2.7 trillion
in 2013 and despite relatively low gross domestic product (‘GDP’) growth since 2010, the overall sub-
Saharan economy has expanded by more than one-third since, reaching more than $4.3 trillion in 2018.


The primary purpose of an energy system is to contribute to a better quality of life. Measuring the extent
to which the population of the sub-Saharan region lacks access to modern energy is the key to understanding
why projections based simply on an extrapolation of past trends, or even on the basis of declared policy
intentions, would fail to capture expressed another way, this huge pent-up energy demand. Increasing access
to reliable, modern sustainable energy will turbo-charge economic growth in sub-Saharan Africa.


The region’s existing energy resources are more than sufficient to meet its overall needs, but they are
unevenly distributed and under-developed, a fact that speaks strongly towards the benefits of regional
energy integration.


Kibo’s projects are strategically positioned to tap into the Southern and East African Power Pools in
Tanzania, Botswana and Mozambique. The physical locations of the project sites are all within 100km
from a current or future regional interconnector. Additionally, they are designed to provide long term
sustainable base load power at a tariff that is more affordable than current levelized cost of generation
experienced in the countries listed above.


Kibo’s projects, while planned to impact significantly in the respective host countries, collectively will have
a strategically important impact on regional economic growth by adding an estimated 6,44 Twh per annum
to supply of the current 16 Twh, of which more than half is attributable to South Africa (2012 figures). This
implies that the impact of a fully delivered Kibo portfolio in the region could be around 30 – 40%.


UK Projects - Background

The current peak demand to the national grid is estimated to be as high as 50,000 GW. Much of the
generation capacity meeting this demand is expected to be decommissioned as was officially announced by
the Energy Secretary over time, inclusive and especially coal fired and certain nuclear installations by mid
to end of the 2020s which could see as much of 21,5GW to be replaced by renewable energy. Transition to
a clean economy, and specifically a low-carbon power generation environment, will have its own unique
challenges, of which security of supply and grid stability could strategically be the most significant.

Small sized flexible generation capacity (“Peaking Power Plants”), sensibly distributed across the grid, is
the answer for the short to medium term and as such has been included in the UK Power Policy Framework.
Reliable peaking power plants provide key services to the National Grid as it is fast responding and flexible
to generate power within seconds in the event of system failure or grid instability. The key success factor
in this regard is an experienced and capable agent in the energy market where energy and energy-related
products are bought and sold. Energy market prices tend to fluctuate and can be affected by a variety of
factors. The market agent knows exactly when to buy or sell a product and will analyse enormous amounts
of data to understand market mechanisms in order to ensure immediate response to demand.
MED is positioned in the flexible power market, and the Bordersley project will be the first in the stable to
go live.

Country Impact

The table below is aimed at providing an insight into Kibo’s Strategic thinking, as the latter is driven by the
economic disposition of the region and/or the country in which the projects are deployed.

Table 2: Economic Impact of Projects

   Description of Country vis a vis
                                                                 Economic prognosis/impact
              Projects

Botswana

                         Coal
                                KP1
                                        Botswana has enjoyed strong and stable growth since independence, with sizable
                                        fiscal buffers and prudent policies playing a key role in shielding the economy
                                        despite diamond market weakness and volatility. Despite this, more recently, the
                                        limitations of Botswana’s diamond-led development model have become more
                                        apparent: growth is slower, inequality remains high and job creation is
                                        limited***.
                                        The Shumba Energy Botswana initiative is informed by the first of the four
                                        priorities by the Botswana Eleventh National Development Plan (NDP11),
                 Power                  namely “sustained and inclusive economic growth”. The establishment of a Coal
                                KP2
                                        to Liquid production capacity will provide Botswana with energy fuels and
                                        specialty chemicals and will contribute to the economic development priority
                                        referred to above. Additionally, the projects will provide a substantial economic
                                        boost to employment, social development and a myriad of related spin – offs.
                                        The projects referred to above is roughly comparable to the SASOL business case

  Tanzania
                 MCPP           Power
                                        This fully developed project comprising of a 39 MT mineable reserve and a
                                        300MW power plant is making headway and remains an exciting opportunity as
                                        highlighted by the recent confirmation from TANESCO that Kibo has the option
                                        to develop the project for the severely undersupplied power export market.
                                        Kibo is actively pursuing the export market alongside opportunities within the
                                        domestic market.
                                        Recently, the Company was granted seven Mining Licenses and the Project’s
                                Coal    Water Permits were successfully renewed, showing continued dedicated work,
                                        progress and development on the MCPP.
                                        The Tanzanian Power System Masterplan (2016) provides for a commitment of
                                        880MW of installed power for export purposes by 2020 and an installed internal
                                        capacity of 10GW by 2025. To achieve this goal, the Government of Tanzania
                                        has embarked on reforming the Electricity Supply Industry (ESI) mainly by
                                        attracting private capital in the industry.
                                        The MCPP, fully implemented, whether for export or otherwise, will add 1,84
                                        TWh of power to the Tanzanian grid annually. This impact, in the absence of
                                        any other registered projects to deliver in the medium term is substantial, adding
                                        approximately 22% installed capacity to the reported 1357 MW.

Mozambique
               BPPPP        Power       This project will have a dual positive impact on the Mozambique economy.
                                        -    Provision of 50MW of power (approximately 310 Gwh per annum) ensures
                                             security of power supply to the largest company and taxpayer in
                                             Mozambique. This impact is a direct impact to the Mozambican economy.
                                             Provision of approximately 85MW to EDM will address the current power
                                             demand and ensure grid stability.
                                        -    The strategic positioning of the BPPP will also allow power export into the
                                             Southern African Power Pool.
   
    UK
              Bordersley      Power
                                        Small sized flexible generation capacity (“Peaking Power Plants”) such as
                                        Bordersley, sensibly distributed across the grid, is the answer for short to medium
                                        term and as such has been included in the UK Power policy framework. Reliable
                                        peaking power plants provide key services to the National Grid as it is fast
                                        responding and flexible to generate power within seconds in the event of system
                                        failure or grid instability. Several milestones in respect of the development of the
                                        Bordersley Project has been achieved by the Bordersley working/steering
                                        committee, which includes MED and its joint development partner, AB Impianti
                                        S.R.L as was reported in the RNS of December 10, 2019.
                                        The key success factor in this regard is an experienced and capable agent such as
                                        Statkraft in the energy market where energy and energy-related products are
                                        bought and sold. Energy market prices tend to fluctuate and can be affected by a
                                        variety of factors. Statkraft, being an experienced and capable market player
                                        knows exactly when to buy or sell a product and will analyze enormous amounts
                                        of data to understand market mechanisms in order to ensure immediate response
                                        to demand.
                                        MED, therefore, in the short to medium term will also impact directly in the UK
                                        economy by alleviating the pressure of an over strained energy system.



Are you still engaged with your partnership network and if so, to what extent? 

The partnership network remains active and in place, and the aim is to consistently extend this, aligned with
strategic requirements. Kibo targets leading-edge, blue-chip resources to ensure world-class delivery of
sustainable energy solutions within its strategy. The network serves multiples objectives, of which the most
important is to lock in world class OEM and EPC and professional oversight capacity into project planning,
design and delivery. This not only enhances the fundability of projects, but also ensures optimal plant
performance and life, thereby contributing not only to the concept of sustainability but ultimately to
sustained long term investor returns.


The current partnership network is contained in the latest Corporate Presentation, available at:
http://kibo.energy/wp-content/uploads/Q4-2019-Kibo-presentation_V3.0_Final.pdf?portfolioCats=86


Are you on track to generate first revenues from Bordersley at the end of Q1 2020 and what will this
mean to the Company?

Yes, as recently announced in the latest Bordersley project update (RNS dated 10 December 2019), based
on current planning and progress it is still expected that Bordersley will become commercially operational
and generate first revenues at the end of Q1 2020.


The free cash flow and net profit to be generated by Bordersley and all other current and future projects
will significantly contribute toward Kibo’s ongoing working capital requirements, with the ultimate goal
for the Company to self-fund all ongoing working capital requirements from project revenues in due
course.


Why hasn’t the share price performed?

The directors believe that the Company is undervalued and that its potential is not reflected in its current
share price. Difficult market conditions have not helped the share price, prompting investors to implement
risk-averse strategies. Despite this, Kibo has built an enviable and very strategic portfolio of major
development projects that offer great potential. Given their vast scale, the development of these projects
could never offer a quick route to profits but rather a longer-term path to significant value add; the Company
has never suggested otherwise.


Due to the Company’s aggressive acquisition strategy implemented the past 18-months in line with its
strategy, Kibo has been able to significantly increase and bolster its balance sheet asset value, as illustrated
in the most recently announced financial results. The below table is an extract from Kibo’s 30 June 2019
Interim Results (RNS: September 27th, 2019):

                      Composition of Intangible Assets                                 30 June
                                                                                          2019
                                                                                             £
                      Mbeya Coal to Power Project                                   15,896,105
                      Katoro Gold PLC                                                  787,108
                      Mabesekwa Coal Independent Power Project                       9,376,312
                      Bordersley Power Project                                       2,595,000
                      Total                                                         28,654,525


    The Company currently has a Net Asset Value of GBP26,555,380 (as per the 30 June 2019 Interim Results).
    The foregoing translates to a share price value of 2.12p per share (based on the current issued share capital
    of 1,247,276,078 shares). This reflects the significant variance between the underlying asset value of the
    Company’s projects (carried conservatively at cost and not even fair market value) and the current
    prevailing share price and market capitalisation (c. 0.4p / GBP5m as of the date of this Q&A), translating
    to a current under-valuation / discount applied by the market of c. 80%.


    The Directors strongly believe that this presents an opportunity for existing and prospective investors to
    buy into Kibo’s strong balance sheet at a significant discount.

   *Sustainability represents the quality of being able to continue over a period of time and focuses on meeting the
   needs of the present without compromising the ability of future generations to meet their needs. The concept of
   sustainability is composed of three pillars: economic, environmental, and social.
   **Extracted and paraphrased from two recent IEA publications, namely (1) the Africa Energy Outlook A Focus On
   Energy Prospects In Sub-Saharan Africa”, and (2) Africa Energy Outlook 2019, both available at www.iea.org.
   ***www.worldbank.org/en/country/botswana/overview

                                                   **ENDS**


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

  Jason Robertson          +44 (0) 20 7374 2212      First Equity Limited         Joint Broker
  Philip Adler             +44 (0) 20 7392 1494      ETX Capital Limited          Joint Broker
  Bhavesh Patel /          +44 20 3440 6800          RFC Ambrian Limited          NOMAD on AIM
  Stephen Allen
  Isabel de Salis /        +44 (0) 20 7236 1177      St Brides Partners Ltd       Investor & Media Relations
  Beth Melluish                                                                   Adviser

Notes
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 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 UK Reserve
Power generation market.

Johannesburg
18 December 2019
Corporate and Designated Adviser
River Group

Date: 18-12-2019 11:00:00
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