CIS in P2.7B takeover negotiations

Brian Benza
Staff Writer | Tuesday October 12, 2010 00:00

Frustrated by unyielding efforts to acquire a Power purchasing agreement with South Africa's Eskom, who were supposed to be the off takers of the MEP, the Botswana Stock Exchange-listed company looks set to offload the project after receiving the second takeover offer from another Indian group in a month.

CIC Energy is developing the Mmamabula Energy Complex, which comprises four projects, at its Mmamabula Coal Field in the south eastern part of the country. The most advanced project is the power station and integrated coal mine project, known as the Mmamabula Energy Project. 

While waiting to iron out agreements with South Africa's Eskom, CIC is in the meantime developing a 300mw Mookane power station whose total supply will be for Botswana's domestic use. In addition, a Coal-to-Hydrocarbons Project (CTH) and Export Coal project are planned. 

Although CIC declined to mention the name of the  Indian Group, they said that a 'multi-billion dollar congolomerate' offered to acquire at least 51 percent, and up to 100 percent, of the company at a price of C$7.75 per share, representing a 170 percent premium to CIC's share price on September 14, 2010, the last business day prior to the first acquisition proposal.

The company has given the potential buyer, who has vast interest in coal-mining and power generation, exclusivity to complete due diligence and the negotiation of a binding agreement.

'This proposal is noteworthy in that the terms do not require the fulfilment of any project milestones,' said chairman and CEO of CIC Energy, Warren Newfield in a statement to the Toronto Stock Exchange(TSX), where the counter has a primary listing.

'A transaction at this non-binding price would represent an approximate 170 per cent premium to CIC Energy's unaffected closing price of CDN$2.87 on September 14, 2010 (being the trading day preceding the date of announcement of the first acquisition proposal),' he said.

CIC has hired Deutsche Bank Securities as its financial advisor to assess the merits of the offer and help in negotiations.The company currently has approximately C$29 million in cash and has 52,573,969 common shares outstanding. It was up 4.7% since the news, trading at $6.44 as of 12:30pm ET on Friday.

The Mmamabula field is estimated to contain 2.6 billion tonnes of high-thermal coal, with calorific value largely above 6,000 kcal per kg. In the next three to four years, it is expected that around 24 million tonnes of coal can be extracted every year. Along with the mines is a proposed 1, 200 MW coal-fired power plant.

The shares of CIC Energy gained more than six per cent last Friday after the announcement on the TSX although investors in Botswana have been less moved by the proposed bid.