Oracle Coalfields (LON:ORCP) has pencilled in 2015 for first production from the Thar coalfield in Pakistan after agreeing a significant joint development agreement (JDA) with Chinese firm CAMCE.
The Chinese state-owned heavyweight intends to develop both the coal mine and power station that will utilise the massive lignite deposits at Thar.
It is estimated that the combined cost of the mine and power plant would be just under US$1bn, with about two thirds of this being debt finance from Chinese lenders including underwriting of capital expenditure by Sinosure, the Chinese export and credit insurance corporation.
It is also expected that Oracle will raise equity finance through a staged programme in 2014.
Shahrukh Khan, Oracle’s chief executive, said the JDA was a major step forward not only for the company, but also for Pakistan, which has been dogged by power supply issues.
The power plant at Thar will initially supply 300MW into the Pakistan grid, but the plan is eventually to increase output to 1100MW.
Khan told Proactive Investors: “A project of this size with an open pit coal mine and mouth of mine power station needed a strategic partner to take it forward.
“This partner needed to have the international financial muscle, technical background and expertise to put together a package deal to bring the project to fruition.
“Over last 14 months, have been investigating the market to see if we could find a potential group and now we have been able to bring in CAMCE from China.
“If we can get to financial close [on the JDA] in the first quarter of next year, we can move into mine development in the second half of next year followed by initial production in 2015.”
Once the JDA is finalised and a successful conclusion reached on construction costs, Oracle will proceed with the equity funding element, which is likely to take six months to complete, said Khan.
He added that though it took 14 months work to find the right group for the Thar project, it was “good work”.
“I would have liked to have done something sooner but these things take time.”
While there were a number of companies that could manage the engineering, procurement contract (EPC) for the coal and power development, the key was finding a group that could also come up with a finance package, he said.
CAMCE is a subsidiary of giant Chinese engineering concern Sinomach.
Khan adds that with the JDA, most of the major hurdles at Thar have now been cleared.
It already has in place a 30-year mining lease with a 30-year extension.
Khan also expects to receive a non-objection certificate shortly for its environmental study following a public hearing in June.
“This is a potential game changer for Pakistan, and it is getting close now that we know we have a major partner.”
Because of the national importance to Pakistan, Oracle also insisted that it remained involved in the ongoing development and commissioning at Thar.
“For us, it very important to remain active and we have discussed with CAMCE that we will remain very involved to make sure we deliver on the project.”
As the final stages of the project gather momentum, so will the news coming from Oracle as details such as the fine print of the EPC are thrashed out.
Khan said to de-risk the project further it is also talking to a non-Chinese project management company.
This firm will act as an overseer of the whole process from mine development to operation and also scrutinise and supervise the Chinese EPC.
Structuring of the debt and equity elements at Thar has been aided by the SPV (special purpose vehicle) already set up by Oracle in Pakistan and that holds the mine’s licence.
All major project finance will be held in this vehicle or a related SPV that supports it, said Khan.
Issues of dividends, repatriation, registration and taxes can also be fast-tracked and closed now the JDA is in place.
On the equity side, Khan expects institutional investors would be attracted by the projected 20.5% IRR (rate of return in US dollar terms).
“We have an audience in the Middle East, Pakistan, Far East and China as well as London.
“My main exercise, following the JDA, is to engage with equity providers and explain the appeal.
“What makes us different is that we are a unique proposition as game changer in Pakistan.
“Remember the scale or the project is enormous with 300mw upside to 1100mw – from where we started, very few people would have believed we could have reached this stage and could deliver.”
“There are still challenges ahead, but as we have overcome a number of hurdles in the past, we remain steadfast in our objectives to deliver on the coal mine and power plant in Thar.”
Source Article from http://www.proactiveinvestors.co.uk/companies/news/61404/agreement-with-chinese-a-game-changer-for-company-and-pakistan-says-oracle-coalfields-61404.html
