Value of the Bots coal resources25 Sep 2019 12:25
I don't contribute here often. But here's a few comments regarding the RNS:
IMHO complex deals as this one appears to be (or at least its explanation is shockingly poor) are rarely a 'good' thing - I've had to write down several flow charts just to try to figure it out!
However, what's clear is there are potentially two new projects that KIBO will have exposure to: a new 300 MW powerstation and a coal to liquids petrochemical plant which, by the sounds of it, has a potentially captive market in Botswana.
Now onto my point. The coal resources in Table 1 and 2. If my interpretation is correct, following the RNS agreements, all of the coal assets go into KEB and then KIBO will see 35 to 40% of those assets 'reduced' through its ownership in KEB. (At 303 M tonnes, it already has 40% of the 761 Mt coal resources).
Anyway, under codes such as JORC, only the Measured and Indicated Resources can be 'converted' to 'Proven and Probable Reserves (respectively). If you take the data published in Table 1 (which presumably has been checked by a Competent Person??), and assume a 60 % conversion of the M & I resources to P & P reserves you'll get a figure of around 362.24 M tonnes coal reserves. If we then assume that for quality reasons and others, the FOB price obtained for that is around 50% of the current Richards Bay FOB for September 2019 of ~ US$ 60 / tonne, therefore US$ 30 / tonne coal, we're looking conservatively at a current valuation of the coal in the ground of around at US$ 10. 8 billion! Kibo's share at 35% ownership in KEB would be around US$ 3.8 billion. The coal is reportedly shallow at less than 100 m below the surface so even if the capital costs to set an independent mine up were high and around US$500 million (split 35% Kibo, 65% Shumba or even 85% Kibo, 15% Shumba), it would still represent a high asset value.
Incidentally, if Kibo maitained its 303 M tonne interest as per Table 2, and the same assumptions applied, Kibo's coal asset value would be even higher.
If you want to take the realised FOB coal price down to US$10 / tonne because of quality, mining issues and say transportation, Kibo's current share in that resource would still be worth over US$ 1 billion.
Clearly, if these back of the envelope estimations and assumptions are anywhere close to the real asset value, the current Kibo share price and market cap is way under the mark.
Obviously, the coal is now potentially eventually destined for two power plants and a PCP so it is for us to see how this works out for future returns to Kibo. The coal probably can't be marketed on its own without the attached powerstation and PCP projects. I guess it's all a question of trust in the BoD and whether they can deliver on such complex deals.
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