Edenville Energy (LON:EDL) could soon find themselves subject to takeover by one of the large Asian corporations that are currently investing billions in to Tanzania.The company revealed in late 2013 that there are plans in place to construct a 100 megawatt coal fired power station at its Tanzania based Rukwa coal project,and that new plant will supply energy directly to the country's new power grid.The Tanzania government has also confirmed the building of a new Western power line between Mbeya and Sumbawanga,on a route that passes close to the Rukwa coal project.This new power line has been planned for some time but has now been rapidly brought forward and is expected to be in full operation by 2016. The government aims to increase installed generation capacity to 2,780 MW by 2015, up from its current 1,438 MW ,and supply an additional four million people with access to electricity.
As a result of these decisions Edenville Energy have suddenly found themselves sitting in a location hotspot of potential long term investment,notably much of that investment is coming from China who are now the largest single foreign investor in Tanzania.In the last few years Chinese investment in to the country has more than doubled year on year,and has jumped from $700 million in 2011 to $2.1 billion in 2013,and is forecast to double again in 2014 and 2015.
In terms of economics a 100MW plant could realise revenues of around $7m per month or $84m per annum,and over the projected 30 year plant life this amounts to over $2.5 billion dollars.To put those figures in to context with Edenvilles current market cap of just over £4m there are some serious upside numbers clearly visible.And although Edenville are planning to bring in joint venture partners to help develop this project,the size and scale of the projected revenues could be too tempting for one of those potential suitors not to miss.There is an added attraction to the location of the new proposed 100 MW plant,which is the ability to export excess energy in to neighbouring Zambia.
I would say that 30 years supply to a 100 MW power plant must be worth in excess of £50m which could be conservative when you consider that would be less than £2m per year of operation. It could be more like £4m per year or £100m over the project life, obviously either of those figures turn this into a multi bagger from edenville,s current market cap of only £4m. It could also be the case that the recent management changes here was because the previous directors were not willing to consider proposed deals IMVHO
The Directors have no shares The Directors have options at 0.25, requiring 300%+ increase on the bid just to get there. The only II with an average less than about 0.17 is the latest one we know nothing about.
So, who's going to vote for a cheap takeover at anything near this price?
If you look at the figures quoted by the chairman here on possible revenues from the power plant you can see there could be a potential $2.5 billion at stake, so if you consider that the key to this project is the coal resource itself which EDL own 90% of ( but only have a market cap of £4m ) would it not be very tempting for any of those big players looking to develop the power plant to take ownership of the coal resource itself ?
Edenville Chairman Sally Schofield
"Being project specific we are not at a stage to quote hard numbers as there are many variables such as the cost of the power plant, economic size of the coal reserve and of course the value of the tariff we agree with the purchaser/s. However, to give you an idea of possible economics, on a 10c / KW hr tariff a 100MW plant would realise revenue of approximately $7m per month or $84m per annum. Fuel (coal) and running costs along with the cost of the financing would have to be subtracted from this. So you see it is very much about matching the coal resource to the optimum size of the plant and being to maintain this for as long as possible but the returns can be significant when considering the project life could be around 30 years. "
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