CIC Energy walks financial tightrope

MBONGENI MGUNI
Staff Writer | Tuesday April 12, 2011 00:00

According to its quarterly results released last week, the Canadian firm has cash and cash equivalents of about 19.4 million Canadian Dollars (P130.7 million), against a budget of approximately 17.2 million (P116 million) for various expenses through to February 2012.

The expenses include consultancies towards the finalisation of the JSW Energy deal under which the Indian firm will take over CIC Energy, as well as costs of arbitration in Hong Kong where a joint venture partner is suing. In addition, CIC Energy needs to have 10.5 million Canadian Dollars (P70.8 million) ready to pay JSW in case the planned takeover does not occur by May 31. The non-completion fee, however, falls away if the takeover fails due to the Indians withdrawing their offer.

The budget leaves only 2.2 million Canadian Dollars (P15 million) to be carried over after February 2012, an indicator that the firm urgently needs to unlock the value of its vast holdings in eastern Botswana to open revenue streams. 'CIC Energy's precarious cash position could further weaken its leverage, should it require further negotiations with JSW Energy,' said a local resources analyst yesterday.

'More talks could become necessary because a portion of the resource was shaved off by the recent non-renewal of a prospecting licence. 'In the event of these talks, CIC Energy could become eager to settle at a much lower offer, based on the weakening finances and the need for revenues to start flowing soon.

'The deal with JSW represents the best opportunity for revenue streams to open up in the short to medium-term for investors.' On a positive note, however, the Canadian firm presently has no long-term debt and is not incurring any material costs in relation to the projects it intended to develop in Botswana.

Meanwhile, a decision is pending on CIC Energy's appeal involving the non-renewal of the Mmamabula South prospecting licence. The area, with a resource estimate of about 311 million tonnes, is a fraction of the total 2.6 billion tonnes under CIC's control in eastern Botswana.

Officials of the Department of Geological Survey (DGS) said while appeals and their consideration did not have a timeline, all efforts were made to speed up the process. DGS provides advice to the minister who makes a final decision on the appeal.

Said Department of Geological Survey Principal Geologist, Tebogo Segwabe, speaking generally on the appeals process: 'It's hard to say when an appeal will be considered and a decision taken. However, the department responds as quickly as possible to all correspondence.

'It's a to and fro between us and the applicant and all information submitted is responded to quickly. We encourage prospecting licence holders to apply for renewal three months ahead so that if there are any issues, these can be resolved within that period.'

DGS could also recommend an extension of the prospecting licence. Besides the prospecting licence appeal, CIC is awaiting the outcome of its arbitration in Hong Kong where it submitted a defence late last month.

In the response, the Canadian company states that there is no dispute with its joint venture company as it has complied with the shareholders' agreement.