TORONTO- Botswana-listed CIC Energy still hopes to be generating electricity by early 2013 from a coal-fired power station at its Mmamabula energy project, but will likely be doing it on a smaller scale, president Greg Kinross said on Monday.
The company was unable to reach an agreement with the preferred engineering, procurement and construction (EPC) contractor before a deadline for securing manufacturing slots for big long-lead-time equipment passed last week, and is now looking at "alternative configurations", which will probably mean building a smaller plant to begin with, and then adding more capacity at a later stage.
Shares in the company plunged when they resumed trading on Monday, after having been halted pending news on Friday. CIC Energy was down 44,64percent, at C$5,73 a share by 16:10 in Toronto.
The first phase of the Mmamabula energy complex, in Botswana, was to have involved the construction of a 2 100 to 2 400-MW power station and a ten-million ton a year associated mine.
A second phase envisaged another power station and mine of the same size. The project's timing has already been moved back a number of times, most recently when CIC said in January that it expected to be producing commercially from the first unit by late 2012 or early 2013.
"I think on a smaller configuration, we would definitely be targeting the same time frame," Kinross said on a conference call on Monday. "We will start with a smaller plant, probably a two-unit plant, not a three unit plant [previously planned], and possibly units slightly smaller," he suggested, although no firm decisions have yet been made.
CIC said in May that it was approaching the off-takers for the project - South African power utility Eskom and the Botswana Power Corporation - with proposed changes to the risk allocations for the project, which it would have needed to satisfy prospective lenders. No agreements were reached before the window passed to secure the manufacturing slots for big equipment like the boiler and turbines, and so the company will not be able to go ahead as planned with the project. Kinross said that the company would continue to discuss the changes with power-strapped Eskom and the BPC, both of which had included Mmamabula in their plans to meet surging energy demand in the region.
He emphasised that, while the initial phases of the project would have to be reconfigurated, the ultimate size of the plant would remain the same. The company has already begun talks with potential EPC contractors, Kinross said.
"The population of EPC contractors expands as we consider a smaller plant," he added. With regard to financing the project, the company plans to raise about 80percent of the necessary funds from international financing institutions and development financing bodies, and has received encouraging indicative commitment from a number of these organisations, Kinross said. CIC Energy COO Tore Horvei said in April that the first phase of the project was expected to cost about $10-billion, but Kinross declined to speculate how costs would be affected by the changes announced this week.
Despite the hurdles, the company is "very optimistic" that a power plant will be built at Mmamabula. "The Southern African region is in urgent need of new base-load capacity," Kinross said on Monday.
That said, the company is also accelerating a number of other plans to exploit the huge 2,3-billion ton coal resource at Mmamabula, including a new trans-border coal corridor from Botswana to the west coast of Africa, and a possible coal-to-hydrocarbons plant at Mmamabula.
Kinross commented that, while the Mmamabula project had originally centred around the planned power station, the other projects were now outstripping it in financial attractiveness.
"The values attributable to those projects are actually far in excess of the power station project." "The best use of the coal is either export or to create fuel products. In so doing we would create a big middlings product, which would be ideal for the power station...but the power station is not needed at all."
The firm expects to publish initial results in the next few weeks from a feasibility study into the coal-to-hydrocarbons project.