Greg Kinross, president CIC Energy
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» Quantum leap for Botswana coal
» Miners wait on $5bn Mmamabula venture


CIC signs heads with Int’l Power
David McKay
Posted: Wed, 18 Oct 2006

[miningmx.com] -- PLANS to build a $5.5bn integrated coal-based power station on the border of Botswana and South Africa moved a step closer after project backer, CIC Energy, agreed to sell half of the equity portion of the project to International Power, a ₤5bn power generation firm.

In terms of the agreement, International Power will in-principle buy 50% of the equity in the vehicle that will develop Mmamabula, CIC Energy said in an announcement.

Of the capital requirement, about 20% will be equity. As International Power paid a premium for its stake, it will therefore fund a little over $500m, said Greg Kinross, CEO of CIC Energy in an interview.

The debt portion of the project, about 80% of the $5.5bn, would be syndicated on a non-recourse basis to export credit agencies and banks. Absa Capital is the lead syndicator, but it’s expected sub-syndicators, possibly international banks, may be introduced, Kinross said.

The first phase of the project will involve the development of a 12 million ton/year coal mine, the contract for which is still outstanding. “We are still in discussions with the potential mining contractors. We hope to have this tied up by the year-end,” said Kinross. “It was important to establish the independent power contract first as this affects how the mining will be done.”

The coal mining portion of the project comprises an estimated 5% to 10% of the total cost of the development. The last stated coal reserves of Mmamabula was 1.2 billion tons of measured and indicated resources. An update was likely in November, Kinross said.

The majority of the project is related to development of the power plant by International Power. Power from the project – estimated to reach 3,600 megawatts – and scheduled for commissioning for 2011, will be predominantly for South Africa’s power utility, Eskom.

A definitive agreement is expected by the end of 2006 which will be followed by all necessary agreements in early 2007. Construction is scheduled to start towards the end of 2007, CIC Energy said in its announcement.

For Botswana, the Mmamabula project could have potential to transform the African country’s economy, currently driven by diamonds. Botswana’s gross domestic product was $16.48bn in 2005. Of this, about a third was derived from diamond production through Debswana, a joint venture with De Beers.

South Africa’s Witbank region is an integral part of production from the country which exports about 82 million tons/year of coal. However, there was a total of 212 billion tons of coal in southern Botswana, according to the estimates of Frank Wookey, chief financial officer of Botswana’s Morupule Colliery, controlled by Debswana.

Assuming a coal price of about $50/t, Botswana’s coal fields could produce revenue of some $10 trillion if it were all saleable, Wookey said in July.
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Kinross said International Power was one of two potential developers and power station operators to which it was speaking. “There is good chemistry and they are a very experienced and efficient operator,” he said. “Southern Africa is a market we have been researching for a number of years,” said International Power CEO, Philip Cox.

Water, which is an important component of power station operation, would be mostly supplied from ground water wells. But CIC Energy had also agreed to build the north-south carrier pipeline number two from a dam in Botswana, Kinross said. Kalahari Gas, operating in the region of Mmamabula, also had water resources which CIC Energy said it would also consider buying.