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Kibo Mining’s Mbeya project about to hit the big time

Published: 04:00 19 Nov 2015 EST

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“There’s a desperate need for energy in Tanzania”

Louis Coetzee is absolutely clear about the rationale underlying Kibo Mining’s (LON:KIBO) ongoing work on the Mbeya coal project.

Feasibility work on the mine is well underway with much information already in the public domain, while Tractebel Engineering has just been appointed to undertake a similar examination of the economic potential of the associated power station.

But there’s more to it than merely turning round a favourable IRR [internal rate of return] and booking an attractive net present value.

This project fits into a wider pattern of development that is essential for the future of Tanzania.

But you don’t just have to take chief executive Coetzee’s word for it.

“There’s a desperate need for energy in Tanzania,” he says. “The Tanzanian government is in favour. It’s part of their strategic energy plan.”

Of course, there’s an even wider context at work here: the global environmental concerns about coal as a source of power in itself.

Those concerns are legitimate, says Coetzee, but there’s also a need to be practical.

“To take coal off the table in one fell swoop doesn’t provide us with answers yet,” he says.

How will Tanzania get the power to provide the engine for economic growth and increasing living standards that its people are crying out for?

“Coal is a means to an end,” says Coetzee. “It’s more of a facilitator to economic growth, providing access to affordable power.”

It’s also worth considering the more tangible local benefits to a development decision at Mbeya.

The boost to employment in central south west Tanzania will be significant just from the work provided on the power plant and mine alone, but for every single job created there Coetzee reckons a further five-to-seven ancillary jobs will be created indirectly.

All of which makes a compelling case for continuing work at Mbeya, where definitive feasibility work on the mine has already highlighted the potential for an internal rate of return of between 131% to 146% and cash return on capital invested, ranging between 726% and 732% on annual coal sale revenues of around US$48mln.

What’s more, at between US$38mln and US$73mln, the capital expenditure required to get the mine built is relatively modest.

It’s no wonder that Coetzee sounds relatively bullish as he explains where Kibo goes from here.

“We’re now in a position to get a definitive feasibility going on the power plant as well,” he says.

“We hope to be on schedule to have the study ready in the first quarter of next year. It’s a fairly quick study to do.”

The engineers in question, Tractebel, form part of the company that was formerly known as GDF Suez, so there’s plenty of know-how being brought to bear.

“We don’t expect any surprises at this point,” says Coetzee.

“As far as the technical and financial aspects of the projects go, we know it’s a robust project with really good returns. We’ve demonstrated that in the work we’ve done so far.”

Previous work undertaken by consultants Aurecon and released to the market at the end of last year outlined a plan to build a power station capable of producing between 1,841GWh (gigawatt hours per year and 1,877GWh per year.

That proposition, according to Aurecon, could deliver what was termed “indicative power generation revenues” over an assumed 25 year plant operating life of between US$7.8bn and US$8.4bn.

The construction cost, though, comes in at a chunking US$640-US$760mln.

That could be a big hurdle for Kibo, which is currently only capitalised at around £13mln.

But Coetzee isn’t phased.

“We have significant interest in this project,” he says.

“We have substantial interest in the financial aspects. Of course our preference would be to do this as an integrated project, but in the end it will be what makes the best commercial sense. We don’t have any views that are cast in stone.”

Once the feasibility work on the power station has been completed, the mine and the power studies will then be worked into a proper bankable feasibility study.

That process should be relatively rapid. “It’s basically just an integration exercise,” says Coetzee.

After that though, the company will really be in a position to start talking big money.

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