Global Opportunities for Kibo Energy PLC
“…The company’s diverse set of international interests, encompassing traditional and renewable fuel sources positioned at the intersection of the energy transition, make Kibo Energy one of the more interesting small cap energy plays, with several positive developments on the horizon…”
The issues facing companies seeking to manage a transition to renewable energy have come into even sharper focus over the past couple of weeks with court cases and shareholder activism directed against Shell and Exxon, and a striking International Energy Agency report calling for an end to the era of fossil fuel exploration.
Away from the spotlight small caps are navigating the same challenge of managing the move to new energy sources while maintaining revenues, one intriguing example being Kibo Energy (AIM:KIBO), an energy developer with interests in Sub-Saharan Africa and the UK that has been busy redesigning its portfolio to shift from hydrocarbons to renewables.
Focused – to use the company’s own words – on ‘integrating Clean Fossil Fuel Technology, Renewable Generation Technology and Energy Storage Technology’ Kibo has had a long interest in three prospective thermal coal power projects in Mozambique, Botswana and Tanzania. But it has just embarked on a waste to energy project in South Africa, and has a 55.42pc stake in Mast Energy Developments (AIM:MAST), which is seeking to develop a portfolio of natural gas plants serving the UK’s reserve power market. Last month Kibo announced early plans for a new UK-focused renewable energy project. The company also has a 25.37pc interest in Katoro Gold (AIM:KAT), mining for gold and battery metals in South Africa and Tanzania.
Kibo’s Sub-Saharan projects
Kibo’s most advanced African asset is the Benga Power Plant Project in Mozambique, in which it holds a 65pc interest. A Definitive Feasibility Study (DFS) for the planned coal-fired power station has been completed, and an MoU secured with EDM, one of the country’s leading electricity companies. A Power Purchase Agreement (PPA) is being worked out for the off-take of 150 MW power. Terms have also been agreed for the supply of an additional 200 MW power for a major steel and vanadium project run by Baobab Resources. Kibo is seeking to green the project so far as is possible, designing the station to incorporate emission mitigation technologies, and exploring possibilities for integrating renewable power and battery storage technology into the plant.
A second coal plant, the Mabesekwa Coal Independent Power Project, approximately 50 km south of Francistown in Botswana, in which Kibo has an 85pc project interest, is at the DFS stage. A third, the focus of the 100pc owned Mbeya Coal to Power Project in Tanzania, encompasses a 120.8 Mt NI 43 101 thermal coal resource for which the company holds seven mining licences. The 300 MW mouth-of-mine thermal power station has long term scalability to approximately 1000 MW, with an annual power output target of 1840 GWh based on annual average coal consumption of approximately 1.5 Mt. It has the capacity to generate total potential revenues of $ 7.5-8.5bn over an initial 25-year mine life.
Unfortunately the project is currently stalled, suffering a major setback two years ago, when the Tanzanian government disqualified it from participation in a state tender process. The blow was one of several dealt to international investors under the regime of former President John Magufuli, whose hostility to overseas firms prompted critics to dub Tanzania the ‘Cuba of east Africa’. Magufuli famously banned exports of unprocessed ore and led a $190bn tax dispute against a Barrick Gold subsidiary. There are signs of a friendlier environment under new President Samia Suluhu Hassan, who took over after Magufuli’s death earlier this year. Hassan has signalled she wants to improve strained relations with investors and multinational companies, and ensure challenges on taxes and other issues with mining companies are quickly resolved.
Moving into the UK’s reserve power market
Mast Energy Developments is seeking to acquire and develop a 300 MW portfolio of small-scale flexible power plants across the UK. The company, which raised £5m last month in advance of its IPO on 14 April, taking its initial market capitalisation to around £23m, is aiming to win a substantive share of the UK’s fast growing reserve power market.
During the long transition to a national grid powered wholly by renewables, gas will be essential to the reserve power technologies that ensure energy can be channelled to it at times of peak demand. Automated reserve power systems trigger small unmanned gas-fired power plants with capacities of less than 50 MW when a looming power shortfall is detected. Although renewables account for an ever greater proportion of Britain’s energy mix, with coal now contributing less than 2pc, natural gas still provides about 40pc due to the intermittency of solar and wind power: on some days last year they supplied as much as 65pc of the National Grid’s power, but on nearly 90 days they contributed 20pc or less, and sometimes as little as 5pc. (See our UK small cap clean energy feature for more on the growing importance of reserve power.)
Mast is fast-tracking the development of its first gas plant at Bordersley in the midlands, which is expected to produce 100 MW by the end of the year, generating £500,000 of free cash flow per month. Last autumn the company announced the acquisitions of a 9 MW gas project with a projected annual revenue stream over its project life of more than £7.2m, and a leasehold site with planning and permitting in place for the installation of a 6 MW synchronous gas-powered standby generation facility. The company is assessing a pipeline of prospective gas power plant sites capable of generating a further 71 MW.
Gold and battery metals in Tanzania
Katoro Gold (AIM:KAT), picked out by TMS as a mining small cap to look out for in 2021, is exploring Blyvoor, a near term gold production opportunity in South Africa, and Haneti, a polymetallic prospect in Tanzania, with potential for nickel, PGMS minerals (platinum, palladium, rhodium and others), copper, gold, lithium and rare earth elements.
Blyvoor, located some 75km south west of Johannesburg, was one of the country’s most prolific gold producers during its peak years in the mid-20th century, with recovered grades averaging more than 14 g/t from 1937 to 2013. Katoro shares a 50/50 interest in the licence with its joint venture partner Blyvoor Gold Operations Pty Ltd. The partners plan to exploit potentially viable deposits of gold and any other minerals from six gold tailings dams, which contain an aggregate JORC Code compliant resource of 1.34 Moz of Au at an average grade of 0.30g/t Au. Subject to funding, they are targeting initial production of up to 250,000 tonnes per month of material from the tailings, with the possibility of ramping-up production to 500,000 tonnes per month within two years. Forecasts suggest Blyvoor may sustain a mine life of 25 years, building to a production capacity of 500,000 tonnes per month and 35,000 ounces of gold production per annum. Total production of 661,171 ounces of gold over 25 years would generate revenue of US$992m. The partners forecast total project capital costs of US$110m across the life of the project, with a peak funding requirement of US$36.4m.
The polymetallic Haneti prospect, covering an area of approximately 5,000 km2 in central Tanzania, is a joint venture with Power Metal Resources, in which Katoro holds a 65pc interest. The partners have announced details of a planned initial drill programme to enhance their understanding of the project’s geological characteristics, and – possibly – identify the existence of nickel sulphides. Pre-drill rig mobilisation now underway, and a drill contractor has been confirmed.
Kibo’s 2021 so far
With its diverse range of interests Kibo has maintained a busy news flow this year. The company’s ability to progress Benga, its most advanced African project, has been frustrated by pandemic restrictions, but an April update said it and local JV partners have been able to start meeting with off-takers EDA again to clear the way towards finalising the PPA.
A few weeks later Kibo announced a significant step towards progressing its Sub-Saharan renewables strategy, an agreement with African renewables innovator Industrial Green Solutions to to develop a portfolio of waste to energy projects in South Africa. The partners have set an initial target of generating more than 50 MW of electricity for sale to industrial users. Project portfolio holder Newco Energy, in which Kibo will have a 65pc interest, will begin with a phased 8 MW project for an industrial client, to be followed by six other projects at different sites. The first project is well advanced, with access to land, key licenses and approvals acquired, and offtake MOU and PPA negotiations concluded. All seven projects will use pyrolysis technologies to convert waste non-recyclable plastics to syngas for energy generation, helping address South Africa’s chronic electricity shortfall and high plastic waste disposal costs.
Kibo has also announced a new UK renewables venture, with a due diligence process underway for a prospective portfolio of UK energy projects focused ‘on the generation and/or storage of electric power from renewable generation sources’. This new enterprise, focused on the bespoke private off-take market, is ‘completely unrelated to and commercially and technically different’ from the reserve power projects that are being developed by Mast Energy.
Mast has been busy since its IPO, announcing last month that the Bordesley project is nearing construction-ready status. A £2,900,000 statement of work proposal will be funded by debt financing at 65pc of project capex, currently ‘being negotiated with a blue-chip financier at very competitive commercial terms’. Construction is expected to begin this month. The company has also announced a sales and purchase agreement for the acquisition of one of its target sites, projected to generate a revenue stream of £42,500 per month at steady state production. Commercial and technical solution timelines are currently being evaluated at another target, with a view to site construction and commercial commissioning within 10 months.
There have also been developments at Katoro Gold, which last month published a Competent Person’s Report for the Blyvoor mine, confirming a total project resource size of 1,410,000 oz gold consisting 500,000 oz gold in the measured category (35.5pc), 368,000 oz gold in the indicated category (26.1pc), and 542,000 oz gold in the inferred category (38.4pc). Blyvoor is estimated to have a Net Present Value of $114m, and a mine life of 25 years building to a production capacity of 500,000 tonnes per month with an overall production of 675, 842 ounces of gold.
On the horizon
Kibo’s last set of interim results recorded a loss for the six months to 30 June of £1,426,128 (2019: £1,820,803). During the period the company secured a £1m credit facility in the form of a convertible loan note, but cancelled it after undertaking a placing last September for £1,450,000 to provide working capital for key development milestones, notably the Benga and Mast projects.
Kibo’s steady news flow helped its share price touch 0.5p in mid-April – the price has since settled back to around the 0.25p region it has occupied for most of the past year. The company’s diverse set of international interests, encompassing traditional and renewable fuel sources positioned at the intersection of the energy transition, make it one of the more interesting small cap energy plays, with several positive developments on the horizon.
After the frustrations of the pandemic and Tanzania’s uncertain economic climate things may now begin to happen for the company in Africa. Details so far are scarce, but its new UK renewables venture looks interesting. And Mast’s strategy to move into the burgeoning reserve power space seems to be taking material shape. All of which make for several catalysts that might spark the company’s share price again.