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CIC Energy vulnerable to a takeover bid
Allan Seccombe
Posted: Mon, 23 Jun 2008
[miningmx.com] -- CIC ENERGY is considering building a smaller power plant at its Mmamabula energy project (MEP) in Botswana because potential clients like South African power utility Eskom and the Botswana Power Corporation could not come to an agreement on assuming risk in the project, the company said on Monday.
Moody's rating agency said last week the Mmamabula energy project is in danger of being scrapped or down-sized after costs soared to almost triple the initial estimate of $6bn.
The MEP includes a coal mine and a 2,100 to 2,400 megawatt power plant. Kristin Lindow, Moody's senior vice president and Botswana sovereign analyst, told Reuters costs were now seen at about $16bn.
"CIC Energy intends to assess and consider alternative configurations for the Phase One Mmamabula Energy Project to supply power for the region's growing needs," CIC president Greg Kinross
said in a statement.
"One alternative is downsizing the project to a smaller power station," he said, adding there were a number of engineering companies excluded when looking at building the large plant that could construct the smaller plant.
"We are aggressively pursuing those avenues," he said on a conference call.
The lenders CIC had spoken to wanted one of the offtake parties to assume some of the risk in the project, but talks failed to reach any conclusion at the expiry of the deadline set by the prefered engineering, procurement and construction company that was build the large power project.
Mmamabula had featured in Eskom's plans to increase power supply to its consumers in South Africa, which are experiencing electricity shortages. Most mining and large industrial companies are operating at 90% of normal consumption. Eskom has battled with unplanned maintenance and depleted coal stockpiles.
"The fundamental need for this
project hasn't gone away and this void isn't easily filled by any other project. We firmly believe this is one of the most developed and ready projects in the region," Kinross said.
"Going forward, Eskom will still be committed to seeing us develop a power plant on an alternatively configured basis," he said.
There are a number of other consumers in the region interested in sourcing power. With the revisitation of the project those can now come into play. Under the previous agreement, Eskom and the BPC would take 100% of the power generated in phase one.
Three years ago, the only feasible project for the coal deposit was the power plant, but with the increase in crude oil prices and rising prices for coal, it has allowed CIC to bolt on a coal-to-hydrocarbons project and export plans, both of which are now being accelerated, Kinross said.
Those two projects can be implemented in parallel and the values attributable to them are in excess of the
power generation project, Kinross said. "The best use of the coal is either export or to create fuel products. In so doing we would create a big middlings product, which would be ideal for the power station. The power station is not needed at all."
The size of the Mmamabula resource is 2.3 billion tonnes.
Global bankers have warned CIC that it could be subject to some sort of corporate action by another large player in the region.
"The company we feel is vulnerable at this point particularly with the value where it is," said company CEO Warren Newfield. "There are very few projects in the world that are multi-billion tonnes in a jurisidiction like Botswana that are fully permitted and ready to go into production."
Asked how the company could protect itself, he said: "The trick is to keep our investors totally abreast of what is happening and to try get the development news into the market as quickly as we can about the other projects, which we
believe will lock substantial value for shareholders and they can appreciate the magnitude of the asset."
CIC hopes to inform investors shortly about its plans for a coal-to-hydrocarbons project as well as coal exports through a yet-to-be-constructed rail link from southeastern Botswana across Namibia to a port.
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