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Kinetiko strikes LNG deal with the IDC

LNG production infrastructure

Photo by Bloomberg

22nd August 2023

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

     

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PERTH (miningweekly.com) – The share price of ASX-listed Kinetiko Energy surged by nearly 40% on Tuesday on the signing of a non-binding term sheet with the Industrial Development Corporation of South Africa (IDC) to jointly develop South Africa’s largest onshore liquefied natural gas (LNG) project.

Kinetiko, through its subsidiary Afro Energy, will use its granted exploration rights to develop an initial 50 MW operation, eventually expanding this to a 500 MW operation. The expanded operation will make use of additional onshore natural gas wells within the existing granted exploration rights.

Development of Block 1, which will feed the 50 MW LNG project will be developed over a span of two to three years, with further blocks for the expanded LNG project to be developed over nine to ten years.

Kinetiko on Tuesday said that the initial development costs for the upstream and midstream activities for the natural gas development would amount to R1.68-billion, of which R1.09-billion will be funded through equity and R0.59-billion through debt.

The IDC will invest R630-million for a 30% equity share in the initial operation, of which R435-million will be paid on the effective date of a shareholder agreement, and the balance on the successful completion of a bankable feasibility study (BFS).

Afro Energy will invest the remaining R456-million for a 70% interest in the initial operation.

Furthermore, the IDC will provide debt funding of R210-million of the R590-million debt funding required, on the successful completion of a BFS, and will underwrite any equity shortfall on Afro Energy’s equity portion for the 50 MW project.

The IDC’s underwriting will be limited to restrict it to no more than a 49.99% holding in the initial project.

“This is a step change in the scale of the company’s development and represents a national project to support South Africa’s transition to cleaner, reliable affordable energy,” said Kinetiko CEO Nick de Blocq.

“I cannot overstate the importance of this massive step we have taken in collaboration with our IDC joint venture partners, as it represents a level of confidence in our project from high layers of government. The project has been registered under the Strategic Infrastructural Projects management mechanism that operates from the Office of the President.

“This is expected to expedite all State and government-related processes in terms of permitting and licensing and minimising of red-tape. We are beyond delighted to be able to say that our journey towards a large-scale project commercialisation and production has now begun.”

For the expanded project, the IDC will participate as a 30% equity investor for the gas required for the 450 MW equivalent in LNG, and Afro Energy has the right to introduce a third-party investor for part of its share of the JV, but only with the consent of the IDC.

Afro Energy will retain gas resources for IDC participation of 500 MW-equivalent LNG, or 0.7 TCF, plus an option in favour of IDC for another 1 000 MW-equivalent equating to 1.4 TCF, totalling 1 500 MW-equivalent or 2.1 TCF.

Kinetiko said on Tuesday that while offtake agreements were not in place, the company had executed a memorandum of understanding with FFS Refiners and a letter of intent with Gruner Energy for the potential offtake of LNG.

The current joint venture (JV) with the IDC will only deal with the upstream activities, but the parties have agreed to create a second JV for downstream and midstream activities where the LNG offtaker or investors could directly invest. Until an investor is found, this JV would be 70% held by IDC and 30% by Afro Energy.

Kinetiko shares were trading at a high of 12.5c a share at the time of writing.

Edited by Creamer Media Reporter

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