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Rukwa feasibility, financial studies map out potential 300 MW power plant

2nd March 2015

By: Natalie Greve

Creamer Media Contributing Editor Online

  

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JOHANNESBURG (miningweekly.com) – A feasibility study and financial model of Edenville Energy’s proposed Rukwa coal-to-power project, in western Tanzania, have suggested a two-phase construction period that could see the development of an integrated coal mine and power plant boasting generating capacity of over 300 MW.

Under the proposals, the first phase would see the establishment of two 60 MW generation units, while the second phase would see the construction of two 120 MW units.

The London-listed group added in a statement on Monday that there was also an opportunity for rapid scale-up to the second phase in parallel with the increasing energy demand profile in the East African State.

PHASED EXPANSION
Elaborating on the proposed first phase, Edenville announced an estimated project cost of $175-million with a modelled plant load factor of 80% and an estimated project payback of between nine and ten years.

The feasibility study found that there were sufficient near-surface coal supplies, at a strip ratio of 1:1, to feed the 120 MW plant for at least 30 years.

“Modelled on a flat tariff for all power produced, otherwise known as the base case, Phase 1 returns an estimated pre-tax net present value (NPV) of $220-million, with an internal rate of return (IRR) of 23.1%,” it noted.

If a commercial power offtake agreement with variable commercial tariffs for 40% of the production was modelled, the project would return an estimated pre-tax NPV of $322-million, with an IRR of 27.8%.

The average earnings before interest, taxes, depreciation and amortisation over the life of the project for the base case and offtake scenario were $58-million a year and $75-million a year respectively.

Based on a review of the available coal resources, the study revealed the possibility to develop a larger project beyond the first phase.

“There will likely be a second-phase development as power usage in the area increases over time,” Edenville noted.

PROJECT POSITIVES
It added that Rukwa boasted several “key positives” which assisted development discussions, including a combined capital expenditure of $175-million for the power plant and mine, which equated to $1.45-million per MW.

“A sustainable market for this level of power [also] ties in with official plans for power grid development and private enterprise, allowing the project to grow in parallel with the economic development of Tanzania.

“Moreover, the option for commercial power offtake increases and diversifies the revenue stream, while development of commercial operations near to the project site drives growth and employment opportunities for Tanzania,” said the group.

Edenville noted on Monday that key documents had also been submitted to the Tanzanian authorities to advance the technical and regulatory requirements to enable the project to be placed on the Tanzanian Power Master Plan and to advance technical and commercial discussions. 

Delivery to the Tanzanian grid system depended, however, on the construction of the Western Transmission line, which was planned to pass within 12 km of the Edenville project site. 

The company said recent information had indicated that this would be completed in 2018, broadly in line with the conceptual development timeframe for the power plant. 

“However, our approach is to explore all possibilities to develop the project as rapidly and economically as possible and we are assessing commercial offtake opportunities in parallel with Tanzanian government guidelines and timelines for the transmission line,” it stated.

This process was ongoing and the board said it remained in “close” discussions with the Tanzanian authorities. 

DEVELOPMENT FOCUS
Commenting on the announcement, CEO Rufus Short noted on Monday that he was “extremely pleased” to have advanced the project to a stage where it could be taken forward on the basis of a “feasible and realistic” business plan.

“The completion of this vitally important work to demonstrate the viability of mining and power generation at our project site is critical to the next phase of development. The results show a robust case to move forward with further work to advance the project for the benefit of both our shareholders and the people of Tanzania.

"We are now in a position to progress through the next steps of project development through advanced discussions with Tanzanian government organisations, commercial entities seeking a sustainable power supply and potential partners who wish to become involved in the project development,” he commented.

Short added that, over the coming months, work would be increasingly focused on progressing the project towards the development phase.

“Shareholders would appreciate that identification of, and negotiation with, potential partners for the financing, development and operation of a plant can be complex and time consuming.

“The commercially sensitive nature of much of the dialogue prevents us from being explicit on certain aspects at this stage but we will continue to update the shareholders as and when appropriate. The board is excited about the prospects for the company,” he noted.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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