Q&A Document

Kibo Energy PLC (Incorporated in Ireland)

(Registration Number: 451931)

(External registration number: 2011/007371/10)

Share code on the JSE Limited: KBO

Share code on the AIM: KIBO

ISIN: IE00B97C0C31

("Kibo" or "the Company")

 

Dated: 18 December 2019

 

 

Kibo Energy PLC ('Kibo' or the 'Company')

Q&A Document

 

Kibo Energy PLC, the multi-asset, Africa focused, energy company, is pleased to release this Q&A to publicly answer questions it has received from shareholders over recent months. 

 

Can you provide an overview of Kibo's strategy?

The rationale behind Kibo's strategy is that 620 million people in Sub-Saharan Africa currently rely on firewood, kerosene and charcoal for energy needs with the associated adverse environmental impact of using these fuel sources.  With this in mind, Kibo aims to provide long-term energy solutions for sustainable regional economic development as the basis for Sustainability*.  Initially, it aims to develop its African projects with the latest clean coal burning technologies, since coal is still the cheapest electrical energy source. At the same time, Kibo recognises the environmental necessity and benefits of renewable energy generation and therefore is actively seeking opportunities to integrate this technology with the traditional base load generation solutions in a practical and affordable manner. 

 

Kibo's existing project portfolio reflects its strategy, and, with a clear view to production in the short and medium term, will not only contribute to economic growth and stability in the project jurisdictions, but will also create value growth and stable long term returns to shareholders.

 

Can you rank each project in terms of importance to the country of operation and to the Company?

To rank projects in order of importance is an extremely circumstantial and sometimes subjective question, as a variety of drivers have an impact on project importance or priority.  For instance, project importance in terms of completion status, funding readiness etc. will be vastly different from project importance in relation to technical development, as different resource, timing and budgetary requirements will vary project importance from one condition to the other. The table below outlines the specific perspective in relation to the question asked given prevailing circumstances.

 

 

Table 1: Project Importance

 

Description			Importance (5=Lowest 1=Highest)
			Kibo Importance	Country Importance
Botswana	Coal		2	2
	Power	KP1	4
		KP2	1
Tanzania	MCPP	Power	3	3
		Coal	2
Mozambique	BPPPP	Power	1	1
UK	Bordersley	Power	2	2

 

Notes to Table 1

Importance to Kibo: This part of the table was arrived at by combining the estimated (Kibo Attributable) project production values in terms of GWh per annum (Power) and Million tons per annum (Coal) currently covered under a provisional PPA or CSA.  This picture will change over time as more PPAs and CSAs are finalised.

Importance to the Country: In all cases and based on its strategy rationale, Kibo would argue that the specific project would be most important to the host country.  The project importance illustrated in the table, however, indicates the importance of the specific country to Kibo in relation to project importance. This makes more sense, as it would explain the attitude and willingness of Kibo to direct resources, time and funding towards the specific country.

 

Are NPVs attached to each project?

Yes, as part of the initial and ongoing economic feasibility assessment and financial modelling of each project, a key element is the assessment of the estimated inherent net present value ("NPV") of a project. In developing and operating large utility-scale power station projects, a 20-30-year view is required and forecasting the attributable cash flows over such a period is more of an art than a science. That said, cash flows can be valued for projects of this nature, utilising discounted cash-flow as a methodology to arrive at an NPV for unlevered free cash flow generated from Kibo's individual and combined power project portfolio. From this, we calculate the value of Kibo's equity share, after debt, the market value of minority interests and Kibo's share of the Developer's Premium is also considered. The most recent example of the foregoing can be seen in the First Equity Research Note as published over a year ago on 28 November 2018 and available on Kibo's website, which estimated the Company's combined projects' NPV at that time at US$1.9bn.

 

What financial modelling has been done across the portfolio?

As referred to in the above point, each of Kibo's projects undergo robust initial and ongoing financial modelling. The financial modelling is conducted by an experienced reputable and appropriately accredited independent expert and is a key requirement of the final stages of the project development process (i.e. financial close and financing arrangements). The ongoing status of the financial modelling corresponds to the level of development of the specific project. In the case of MCPP for instance for which the development process has technically been completed, a final integrated bankable financial model has been finalised.

 

How and in what way will Kibo's projects economically impact the various countries/regions and what is the prognosis of a successfully delivered project

The Kibo strategy guides the intended impact of its projects on the respective host countries. In order to fully understand this, the continental and regional context is to be fully understood.

 

African Projects - Background** & Regional Impact

Africa is set to emerge as a key driver of global energy demand growth, one that is home to abundant reserves of fossil fuels, solar power and minerals that will be vital for clean energy transitions worldwide. At the same time, the sub-Saharan economy has more than doubled in size since 2000 to reach $2.7 trillion in 2013 and despite relatively low gross domestic product ('GDP') growth since 2010, the overall sub-Saharan economy has expanded by more than one-third since, reaching more than $4.3 trillion in 2018.

 

The primary purpose of an energy system is to contribute to a better quality of life.  Measuring the extent to which the population of the sub-Saharan region lacks access to modern energy is the key to understanding why projections based simply on an extrapolation of past trends, or even on the basis of declared policy intentions, would fail to capture expressed another way, this huge pent-up energy demand. Increasing access to reliable, modern sustainable energy will turbo-charge economic growth in sub-Saharan Africa.

 

The region's existing energy resources are more than sufficient to meet its overall needs, but they are unevenly distributed and under-developed, a fact that speaks strongly towards the benefits of regional energy integration.

 

Kibo's projects are strategically positioned to tap into the Southern and East African Power Pools in Tanzania, Botswana and Mozambique.  The physical locations of the project sites are all within 100km from a current or future regional interconnector.  Additionally, they are designed to provide long term sustainable base load power at a tariff that is more affordable than current levelized cost of generation experienced in the countries listed above.

 

Kibo's projects, while planned to impact significantly in the respective host countries, collectively will have a strategically important impact on regional economic growth by adding an estimated 6,44 Twh per annum to supply of the current 16 Twh, of which more than half is attributable to South Africa (2012 figures).  This implies that the impact of a fully delivered Kibo portfolio in the region could be around 30 - 40%.

 

UK Projects - Background

The current peak demand to the national grid is estimated to be as high as 50,000 GW. Much of the generation capacity meeting this demand is expected to be decommissioned as was officially announced by the Energy Secretary over time, inclusive and especially coal fired and certain nuclear installations by mid to end of the 2020s which could see as much of 21,5GW to be replaced by renewable energy. Transition to a clean economy, and specifically a low-carbon power generation environment, will have its own unique challenges, of which security of supply and grid stability could strategically be the most significant.

 

Small sized flexible generation capacity ("Peaking Power Plants"), sensibly distributed across the grid, is the answer for the short to medium term and as such has been included in the UK Power Policy Framework. Reliable peaking power plants provide key services to the National Grid as it is fast responding and flexible to generate power within seconds in the event of system failure or grid instability. The key success factor in this regard is an experienced and capable agent in the energy market where energy and energy-related products are bought and sold. Energy market prices tend to fluctuate and can be affected by a variety of factors. The market agent knows exactly when to buy or sell a product and will analyse enormous amounts of data to understand market mechanisms in order to ensure immediate response to demand.

 

MED is positioned in the flexible power market, and the Bordersley project will be the first in the stable to go live.

 

Country Impact

The table below is aimed at providing an insight into Kibo's Strategic thinking, as the latter is driven by the economic disposition of the region and/or the country in which the projects are deployed.

 

Table 2: Economic Impact of Projects

Description of Country vis a vis Projects			Economic prognosis/impact
Botswana
	Coal		Botswana has enjoyed strong and stable growth since independence, with sizable fiscal buffers and prudent policies playing a key role in shielding the economy despite diamond market weakness and volatility. Despite this, more recently, the limitations of Botswana's diamond-led development model have become more apparent: growth is slower, inequality remains high and job creation is limited***. The Shumba Energy Botswana initiative is informed by the first of the four priorities by the Botswana Eleventh National Development Plan (NDP11), namely "sustained and inclusive economic growth". The establishment of a Coal to Liquid production capacity will provide Botswana with energy fuels and specialty chemicals and will contribute to the economic development priority referred to above.  Additionally, the projects will provide a substantial economic boost to employment, social development and a myriad of related spin - offs. The projects referred to above is roughly comparable to the SASOL business case
	Power	KP1
		KP2
Tanzania
	MCPP	Power	This fully developed project comprising of a 39 MT mineable reserve and a 300MW power plant is making headway and remains an exciting opportunity as highlighted by the recent confirmation from TANESCO that Kibo has the option to develop the project for the severely undersupplied power export market. Kibo is actively pursuing the export market alongside opportunities within the domestic market. Recently, the Company was granted seven Mining Licenses and the Project's Water Permits were successfully renewed, showing continued dedicated work, progress and development on the MCPP. The Tanzanian Power System Masterplan (2016) provides for a commitment of 880MW of installed power for export purposes by 2020 and an installed internal capacity of 10GW by 2025. To achieve this goal, the Government of Tanzania has embarked on reforming the Electricity Supply Industry (ESI) mainly by attracting private capital in the industry. The MCPP, fully implemented, whether for export or otherwise, will add 1,84 TWh of power to the Tanzanian grid annually.  This impact, in the absence of any other registered projects to deliver in the medium term is substantial, adding approximately 22% installed capacity to the reported 1357 MW.
		Coal
Mozambique
	BPPPP	Power	This project will have a dual positive impact on the Mozambique economy. -      Provision of 50MW of power (approximately 310 Gwh per annum) ensures security of power supply to the largest company and taxpayer in Mozambique.  This impact is a direct impact to the Mozambican economy. -      Provision of approximately 85MW to EDM will address the current power demand and ensure grid stability.  -      The strategic positioning of the BPPP will also allow power export into the Southern African Power Pool.
UK
	Bordersley	Power	Small sized flexible generation capacity ("Peaking Power Plants") such as Bordersley, sensibly distributed across the grid, is the answer for short to medium term and as such has been included in the UK Power policy framework. Reliable peaking power plants provide key services to the National Grid as it is fast responding and flexible to generate power within seconds in the event of system failure or grid instability. Several milestones in respect of the development of the Bordersley Project has been achieved by the Bordersley working/steering committee, which includes MED and its joint development partner, AB Impianti S.R.L as was reported in the RNS of December 10, 2019. The key success factor in this regard is an experienced and capable agent such as Statkraft in the energy market where energy and energy-related products are bought and sold. Energy market prices tend to fluctuate and can be affected by a variety of factors. Statkraft, being an experienced and capable market player knows exactly when to buy or sell a product and will analyze enormous amounts of data to understand market mechanisms in order to ensure immediate response to demand. MED, therefore, in the short to medium term will also impact directly in the UK economy by alleviating the pressure of an over strained energy system.

 

Are you still engaged with your partnership network and if so, to what extent?

The partnership network remains active and in place, and the aim is to consistently extend this, aligned with strategic requirements. Kibo targets leading-edge, blue-chip resources to ensure world-class delivery of sustainable energy solutions within its strategy.  The network serves multiples objectives, of which the most important is to lock in world class OEM and EPC and professional oversight capacity into project planning, design and delivery.  This not only enhances the fundability of projects, but also ensures optimal plant performance and life, thereby contributing not only to the concept of sustainability but ultimately to sustained long term investor returns.

 

The current partnership network is contained in the latest Corporate Presentation, available at: http://kibo.energy/wp-content/uploads/Q4-2019-Kibo-presentation_V3.0_Final.pdf?portfolioCats=86

 

Are you on track to generate first revenues from Bordersley at the end of Q1 2020 and what will this mean to the Company?

Yes, as recently announced in the latest Bordersley project update (RNS dated 10 December 2019), based on current planning and progress it is still expected that Bordersley will become commercially operational and generate first revenues at the end of Q1 2020.

 

The free cash flow and net profit to be generated by Bordersley and all other current and future projects will significantly contribute toward Kibo's ongoing working capital requirements, with the ultimate goal for the Company to self-fund all ongoing working capital requirements from project revenues in due course.

 

Why hasn't the share price performed?

The directors believe that the Company is undervalued and that its potential is not reflected in its current share price.  Difficult market conditions have not helped the share price, prompting investors to implement risk-averse strategies.  Despite this, Kibo has built an enviable and very strategic portfolio of major development projects that offer great potential.  Given their vast scale, the development of these projects could never offer a quick route to profits but rather a longer-term path to significant value add; the Company has never suggested otherwise. 

 

Due to the Company's aggressive acquisition strategy implemented the past 18-months in line with its strategy, Kibo has been able to significantly increase and bolster its balance sheet asset value, as illustrated in the most recently announced financial results. The below table is an extract from Kibo's 30 June 2019 Interim Results (RNS: September 27th, 2019):

 

Composition of Intangible Assets	30 June
	2019
	£
Mbeya Coal to Power Project	15,896,105
Katoro Gold PLC	787,108
Mabesekwa Coal Independent Power Project	9,376,312
Bordersley Power Project	2,595,000
Total	28,654,525

 

The Company currently has a Net Asset Value of GBP26,555,380 (as per the 30 June 2019 Interim Results). The foregoing translates to a share price value of 2.12p per share (based on the current issued share capital of 1,247,276,078 shares). This reflects the significant variance between the underlying asset value of the Company's projects (carried conservatively at cost and not even fair market value) and the current prevailing share price and market capitalisation (c. 0.4p / GBP5m as of the date of this Q&A), translating to a current under-valuation / discount applied by the market of c. 80%.

 

The Directors strongly believe that this presents an opportunity for existing and prospective investors to buy into Kibo's strong balance sheet at a significant discount.

 

*Sustainability represents the quality of being able to continue over a period of time and focuses on meeting the needs of the present without compromising the ability of future generations to meet their needs. The concept of sustainability is composed of three pillars: economic, environmental, and social.

**Extracted and paraphrased from two recent IEA publications, namely (1) the Africa Energy Outlook A Focus On Energy Prospects In Sub-Saharan Africa", and (2) Africa Energy Outlook 2019, both available at www.iea.org.

***www.worldbank.org/en/country/botswana/overview

 

**ENDS**

 

 

For further information please visit www.kibo.energy or contact:

 

Louis Coetzee	info@kibo.energy	Kibo Energy PLC	Chief Executive Officer
Andreas Lianos	+27 (0) 83 4408365	River Group	Corporate and Designated Adviser on JSE
Jason Robertson	+44 (0) 20 7374 2212	First Equity Limited	Joint Broker
Philip Adler	+44 (0) 20 7392 1494	ETX Capital Limited	Joint Broker
Bhavesh Patel / Stephen Allen	+44 20 3440 6800	RFC Ambrian Limited	NOMAD on AIM
Isabel de Salis / Beth Melluish	+44 (0) 20 7236 1177	St Brides Partners Ltd	Investor & Media Relations Adviser

 

Notes

Kibo Energy PLC is a multi-asset, Africa focused, energy company positioned to address the acute power deficit, which is one of the primary impediments to economic development in Sub-Saharan Africa. To this end, it is the Company's objective to become a leading independent power producer in the region.

 

Kibo is simultaneously developing three similar coal-fuelled power projects: the Mbeya Coal to Power Project ('MCPP') in Tanzania; the Mabesekwa Coal Independent Power Project ('MCIPP') in Botswana; and the Benga Independent Power Project ('BIPP') in Mozambique.  By developing these projects in parallel, the Company intends to leverage considerable economies of scale and timing in respect of strategic partnerships, procurement, equipment, human capital, execution capability / capacity and project finance.

 

Additionally, the Company has a 60% interest in MAST Energy Developments Limited ('MED'), a private UK registered company targeting the development and operation of flexible power plants to service the UK Reserve Power generation market. 

 

Johannesburg

18 December 2019

Corporate and Designated Adviser

River Group