Justin Reynolds
Is This A New Dawn For Edenville Energy?
Edenville Energy, is an AIM-listed British mining company focused on serving Tanzania’s rapidly expanding economy, patience seems set to pay off. The company has secured an anchor tenancy with a well established Tanzanian client, the culmination of discussions that began last year.
Edenville is developing the Rukwa coal mine in southwest Tanzania, some 25 kilometres by road from the major commercial centre of Sumbawanga. According to a JORC (Australian Joint Ore Reserves Committee Code) Compliant Resource Statement completed in 2013 the field has 173 million tonnes, with 61.5 million tonnes in the ‘Measured’ category (indicating resources likely to be of the highest quality).
The mine will produce coal for industrial usage, primarily the making of cement, supporting Tanzania’s fast-growing economy, which is expanding at a rate of 6 to 8% every year. The country has a population of 47.2 million. Edenville’s coal would also help serve significant markets in the land-locked neighbouring countries of Rwanda, Burundi and Uganda, and Kenya.
A transformative agreement
Edenville completed construction work on the mine some time ago, and, until operations were suspended due to the pandemic, it was producing up to 3,000 tonnes a month of coal for sale. This month’s agreement brings together all the elements for consistently strong production to resume.
Under the terms of the agreement, announced in a 5 June market update, Infrastructure and Logistics Tanzania Limited (ILTL), a Tanzanian company with a focus on infrastructure development, logistics, mining, and marketing, will buy 3,000 tonnes of washed Rukwa coal per month at standard market rates, increasing to 5,000 tonnes per month over a 12 month period. This coal mining agreement will run for four years and be automatically be renewed for another unless terminated by either party.
Edenville expects the deal to be just the first stage of a wider strategic partnership with ILTL. An anticipated purchase agreement, further to the coal mining agreement, would enable ILTL to market Rukwa coal to customers beyond Edenville’s current customer base – potentially a significant source of additional revenue given ILTL’s network of relationships throughout East Africa. The deal also envisages a potential loan agreement according to which ILTL will lend Edenville up to $1,000,000 to ensure the recommencement of mining operations is fully funded.
The loan would provide a capital injection to allow the smooth resumption of production following the pandemic and a protracted east African rainy season. The company’s financial position has been strengthened further through a placing that raised £500,000, supported by the company’s four major shareholders, which include the Brandon Hill and Pitchcroft Groups. Three-quarters of the placing proceeds will be directed to the resumption of operations. The placing brings Edenville’s cash balance to £375,000 – independent of the potential loan agreement – which would underwrite the company’s capacity to ensure a steady positive cash flow from its Rukwa operations. Edenville expects cash flow breakeven at a steady state of circa 6,000 tonnes of washed coal sales per month.
Speaking to Total Market Solutions, Edenville CEO Alastair Muir said: ‘The coal mining agreement means the project is cash flow positive from start-up, a great new opportunity for us. Our plan with ILTL is to build the market to 12,500 tonnes of washed product, then look at how we double that: this would of course mean we would need to look at additional plant capacity. But at current market rates, the business is very profitable with healthy margins. Our recent capital raise has righted our balance sheet and was principally funded by our four major shareholder groups, who collectively own around 63% of the company. While we continue to prepare to bring Rukwa back into production we are also focusing on mining plans to cover higher production targets, as well as pressing ahead with our marketing efforts to build on our existing order book and the anticipated anchor tenancy provided by ILTL.’
Looking ahead
The company is on standby to recommence activity at Rukwa, where it employs 40 operations staff, as soon as it is practicable and safe to do so. The Tanzanian government, which closed non-essential businesses and introduced social distancing measures to curb the spread of the virus, has recently recommenced flights in and out of the country and is signalling that businesses will soon be able to resume.
Mr. Muir, said: ‘These developments are the start of a new, exciting period for Edenville. The pandemic delayed our closing with ILTL, our chosen partner. But things now seem to be returning to normal in Tanzania. We have already signed the coal mining agreement with ILTL and expect the relationship to continue to develop further, with plans for the loan and sales and marketing agreements to follow in the near term. This a fantastic arrangement for all concerned, which we hope will set the pattern for our future strategic partnership with ILTL both in regard to Rukwa and other opportunities.’
Edenville’s share price has already begun to move this week following the announcement. The company also today appointed Mr. Nicholas von Schirnding (Chairman of Arc Minerals) to the Company’s Board as an Independent Non-Executive Director with immediate effect. With the physical and financial conditions in place for operations to resume, a multi-layered deal with a major Tanzanian client, and growing East African economies to serve, it may be time to take advantage of a share price currently no more than 0.05p.
Late last year Edenville Energy announces two big new offtake deals for its coal
The author was remunerated but does not hold shares in the company
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