Multicommodity exploration and minerals project development company Kibo Mining has started the bankable feasibility study (BFS) for the development of its Mbeya coal-to-power project, in south-west Tanzania, Kibo CEO Louis Coetzee tells Mining Weekly.

Kibo signed a joint development agreement on April 20 for the completion of the project’s definitive feasibility study (DFS) with China-based engineering, procurement and construction (EPC) company Sepco III.

Sepco III will lead the DFS for the power plant, while Kibo will lead the DFS for the mining operation.

After succesful completion of the DFS, Sepco III will be the sole EPC contractor for the Mbeya project, subject to meeting certain preagreed cost and technical criteria and is set to hold a maximum of 15% of the total equity, with Kibo holding a minimum of 85%.

This is the first time Kibo is venturing into energy generation, says Coetzee.

The project will consist of the Rukwa coal mine and a power plant on the same premises, making the power station a mine-mouth operation.

The mineable project area is a 48 km strike, of which Kibo has delineated 12 km with a Joint Ore Reserves Committee-compliant resource estimate of 109million tonnes. This figure includes 71million tonnes of indicated reserves and 38million tonnes of inferred reserves.

The company predicts that the project’s total reserves are about four times this amount, amounting to more than 400million tonnes of coal.

The Mbeya coal deposit is hosted within the Karoo Supergroup and extends across two prospecting licences.

The development of the mine, which Coetzee states will begin in 2016, will require capital investment of between $46-million and $89-million.

The prefeasibility study for the power station, which will have two units producing 150 MW of power each, was completed in December 2014.

The total capital cost of the power plant is estimated at between $640-million and $760-million. It is expected that financing the Mbeya project will be at a 70:30 debt-to-equity ratio.

Coetzee notes that the project was previously known as the Rukwa coal-to-power project, until April 2015, when Kibo changed the project name to avoid confusion with other similarly named projects unrelated to Kibo.

There is a large deficit of baseload electricity supply in Tanzania, says Coetzee. While Tanzania’s installed generation-capacity is 1 500 MW, only about 800 MW is operational and the remaining 700 MW cannot be rehabilitated. The current electricity demand in Tanzania is about 2 000 MW, without accounting for growth, he states.

Coetzee notes that the Mbeya coal-to-power project is in close proximity to the town of Mbeya, eliminating the challenge of having to install extensive infrastructure.

Moreover, the power station is a critical component to the Mtwara development corridor, in southern Tanzania, which forms a central part of the country’s economic development plan, he states.

In addition to the gap in the market created by the electricity deficit, the Mbeya project has also been made attractive by the Tanzania government’s openness to foreign direct investment. Government also took a definitive decision in 2011 to incentivise independent power production in the country, Coetzee adds.

He maintains that, by having the correct regulatory framework, government has managed, where other governments have failed, to strike the difficult balance between gaining the benefits of efficiency generated by the market and ensuring that Tanzania’s market benefits the interests of its citizens.

Kibo’s sole focus is on Tanzania, where it has had a presence since 1997, mining coal, gold, nickel and uranium.

“The country’s stable jurisdiction, fast-growing economy and its rich resource endowment make it an excellent place to operate,” states Coetzee.