Uncertainty surrounds Mmamabula's future

MBONGENI MGUNI
Staff Writer | Friday October 15, 2010 00:00

 

The draft Integrated Resource Plan 2010 (IRP 2010) - which determines South Africa's long-term electricity demand, how this should be met in terms of capacity, type, timing and cost - only envisages fossil fuel imports into South Africa in no less than 12 years.

The various scenarios proposed by the draft are widely interpreted to ring the death knell for the 1, 200 MW project, whose viability is based on Eskom offtake, which in turn is based on the IRP 2010 providing for such off-take.

CIC Energy, the Canadian developer behind Mmamabula, froze development of the titan project late last year, citing delays in the publication of the IRP 2010; the company also stressed the resource plan's pivotal role in Mmamabula's development.

The week bore mixed fortunes for CIC Energy's shareholders, who collectively hold 70.2 million shares. While the dream of a power purchase agreement with Eskom dimmed, an Indian conglomerate's healthy offer for at least 51 percent of these shares at a 170 percent premium brightened prospects.

JSW, a multi-billion dollar conglomerate, made the US$500 million (P3.4 billion) late last week, sparking a rise in CIC Energy's counter on the Toronto Stock Exchange (TSX). By Wednesday, CIC Energy's counter was trading at 5.94 Canadian Dollars (P38) nearing its 12-month high of 7.25 and far from the 2.87 it was trading at in September when the Indian first approached.

Speculation is rife among TSX brokers that the Indian offer's timing is no coincidence, coming as it did in the same week that the draft IRP 2010 made depressing reading for CIC Energy. 'The Indian's offer would have been forced to be higher had CIC Energy been clearly included in the IRP 2010; as its position and evaluation would have been stronger. CIC Energy's share price at the height of the Mmamabula Energy vision reached 30 Canadian Dollars and at present, is undervalued in terms of the assets the company possesses,' said a TSX stockholder.

CIC Energy, through several prospecting licences, controls 2.6 billion tonnes of coal resources strategically located near South Africa, which would provide a cost-effective, tried and tested export route through that country.

However, without the Mmamabula project on board in South Africa, CIC Energy's options have become limited, forcing shareholders to strongly consider the Indian proposal which represents high value given the status quo.

Speculation among TSX brokers is that CIC Energy's partner in the Mookane Domestic Power Project (MDPP), Golden Conchord Limited, could whip up a counter offer to the Indians, precipitating a bidding war for control of CIC Energy and its massive coal holdings.

The Indian conglomerate, JSW, is eager to tap into coal exports to feed India's estimated 600 million tonnes per annum appetite for coal, while Golden Conchord, a Chinese company, also has a guaranteed huge market at home,For Botswana, the IRP 2010 is a bitter pill having dimmed the prospects of massive employment arising from the coal mine and power station, as well as revenues via royalties and taxes from the operations. Botswana has, however, already secured 300 megawatts from CIC Energy, via the MDPP, whose regulatory progression is advanced.

Questions sent this week to CIC Energy's South African and Canadian offices had not been responded to at Press time. For their part, Eskom officials told Busines Week that the IRP 2010 could not specify projects and was subject to change in the public comments period before Cabinet consideration.