Zambian firm snaps Sese Power Project up
Brian Benza | Wednesday October 22, 2014 16:13
In a statement released this week, the two companies announced that they had signed a binding Heads of Agreement (HoA).
Under it (HoA), FQM can earn 75 percent interest in the Sese project through an investment of A$20 million (P170 million) and other loan arrangements.
The first phase of the Sese project is expected to produce 300 MW of electricity, which First Quantum is likely to export to Zambia to fire its mining and smelting operations.
Despite power shortages in Zambia, FQM produces over 400,000 tonnes of copper per annum at Zambia’s largest copper mine, Kansanshi.
FQM, which originates from Canada, is also currently constructing a new copper mine and a smelter in the copper belt, which can produce 300,000 tonnes of treated copper concentrate per year.
The deal is still, however, subject to key conditions being met within 30 days of signing of the HoA, which include completion of due diligence by FQM on African Energy as well as the execution of a shareholders agreement.
“Once the conditions precedent have been met, FQM will invest a total of A$20 million for a 75 percent stake in African Energy Holdings.
“An initial payment of A$8 million will be used to repay outstanding project loans increasing AFR’s working capital to A$10 million and will earn FQM an effective 51 percent interest in the Sese Project,” said AFR is a statement.
The balance committed of A$12 million will fund future project development activities.
After payment of the initial $8 million, FQM will become the project manager with analysts projecting that the experienced Zambia mining company can produce power from Sese at a cost 30 percent lower than African Energy.
Analysts estimate that FQM, which is the biggest foreign investor in Zambia, can produce power at about six cents (55 thebe) per kilowatt Hour (KWH) compared to African Energy’s estimate of around nine cents (83 thebe) per KWH.
Zambia has endured intermittent nationwide power outages in recent years as the country’s ageing power plants are struggling to keep pace with rising demand for electricity amid expanding copper mining operations.
Early this year, African Energy signed a memorandum of understanding with Zambian power utility, Zesco allowing the two parties to explore the potential for the delivery of 300MW of base-load electrical power from Sese into Zesco’s grid.
African Energy Resources already made considerable development at the Sese Integrated Power Project, which has reduced development risks for First Quantum.
The first phase of the definitive feasibility study to evaluate a coalmine to provide fuel for an initial 300MW power station has been completed, while an Environmental Impact Assessment was approved recently.
On the other hand, a water allocation of up to 2.8 giga litres per annum from the nearby Shashe Dam has been approved for project use, sufficient for approximately 750MW of power generation and associated coal mining.
Apart from Zambia, First Quantum also has mining operations In Finland, Australia, Mauritania, Spain and Turkey. The company is also listed in Zambia, UK and Canada with a market capitalisation of A$11 billion.