Joule Africa B Summary
Total Page:16
File Type:pdf, Size:1020Kb
! Strictly Confidential Preliminary Summary of Terms 25 Million USD October 2011 Private Placement Project Type Projected MWs Est. Development Cost Est. Free Cash Flow Large Retained Hydro 389 MW $625MM USD $223MM USD Executive Summary The Opportunity – Sierra Leone emerged from a 10-year civil conflict in 2001 and has since experienced a return to economic growth and political stability, which has resulted in high levels of foreign investment and rapidly growing energy needs. The country’s burgeoning capital city and industrial mining sector require large quantities of electricity that are currently met with imported hydrocarbons. Sierra Leone’s pro-business regulatory environment permits foreign investors to develop hydroelectric resources and sell the resulting energy directly to the public utility and private mining companies. Joule Africa is taking advantage of this opportunity by developing the second phase of an existing hydroelectric dam called Bumbuna, on the Seli River, creating a total estimated 389 MW of hydroelectric power. The Firm – Joule Investments is an international developer that finances, builds, owns, and operates renewable energy projects in emerging markets. Joule Investments owns over 2 GW of water rights and is developing over 200 MW of hydroelectric power projects in Latin America. The Bumbuna scheme is the company’s first project in Africa and is being managed through Joule Africa. The managing partners of Joule Africa have invested five years in-country building business and government relationships and have the requisite experience to complete deals effectively and legally in Sierra Leone. The Business Model – Hydroelectric power incurs low marginal costs of production with no fuel input costs, low maintenance costs, and proven and reliable technology. In Sierra Leone, hydropower enjoys the added benefit of competing directly against expensive hydrocarbons, resulting in the potential for significant operating margins. Joule Africa intends to sell the majority of its electricity through long-term power purchase agreements (“PPAs”) with international mining companies and most of its remaining energy to the Government of Sierra Leone (“GoSL”) for public distribution. The Project – The Bumbuna project (“Project”) is a proposed 389 MW hydroelectric scheme, of which the first 50 MW has been completed by GoSL and is in commercial operation. The Project was determined to be the most technically feasible and economically lucrative project in Sierra Leone in 1996 by leading hydroelectric engineering consultancy Lahmeyer International. The Project’s advantages include: ownership of the 50 MW operational Bumbuna asset to be contributed into a Joint Venture entity by GoSL, cost effective expansion of the current 50 MW plant, and minimal transmission infrastructure upgrades as major mining customers are either close to the plant (<15 km) or near the already operational Bumbuna-Freetown transmission line. The Timeline – On 19th May 2011, Joule Africa signed a Memorandum of Understanding (“MoU”) with GoSL granting it the exclusive right to develop the Project. Within three weeks, Joule Africa deployed Lahmeyer International to conduct a pre-feasibility study in-country. The completed study confirmed the Project’s economic attractiveness and designed a scheme with limited environmental impact. The full feasibility study is scheduled to commence in October 2011. The Risk – Mining and industrial counterparties present decreased payment risk: two potential customers, London Mining and African Minerals, maintain significant market capitalizations on the London Stock Exchange and in July 2011 African Minerals received $1.5B USD in financing from the Shandong Iron & Steel Group. Comprehensive political risk insurance is available from the World Bank and private commercial underwriters at a cost of between ~1.25% and ~2% of insured capital per annum. Insured risks include coup d’états, war, civil disturbance, and breach of government contracts. The Financing – Joule Africa invested $3MM USD to develop the Project to date and is currently raising a further $25MM, in two tranches, to complete the development process prior to commencing construction. Depending on the timing of the investment, the first $5MM tranche may receive a discount to the second tranche. Joule Africa estimates the total Project will cost $625MM and generate $223MM of annual free cash flow, representing a project ROI of less than 3 years. CONFIDENTIAL ! Sierra Leone Sierra Leone represents a stable, pro-business investment environment with significant opportunities for profitable large retained hydroelectric development. Safe & Stable: One of the lowest crime rates in Africa; homicide rate on par with Canada, according to the UN Office on Drugs and Crime. Economic Growth: Average real GDP growth of 9.7% per year from 2001 – 2010; IMF projects annual GDP growth between 5% and 6% between 2011 – 2016. Pro-Business: World Bank rated 28th best investor protections in the world in 2011; government signing business friendly investment agreements with international companies. Resource Rich: Abundant deposits of iron ore, titanium, bauxite, gold and diamonds; one of the largest magnetite iron ore deposits in the world. Particularly well suited to hydroelectric development with mountainous eastern border and some of the highest levels of rainfall on earth. Investment Inflows: Over $2B USD of investment initiated in 2010 by publically traded companies: Anadarko, African Minerals, London Mining, and Titanium Resources; and private conglomerate Addax & Oryx. Limited Energy Supply: Installed capacity in Sierra Leone is currently 80 MW, of which 50 MW is from the first stage of Bumbuna and the remainder from small thermal plants. GoSL recently signed a PPA with Addax & Oryx for 15 MW of power at 18¢/kWh. The current 80 MW of energy capacity is roughly enough to power 30,000 British or American homes. Demand Sierra Leone has seen a significant influx of large industrial investors since 2007 when the new pro-business government took power. GoSL has identified energy supply as its number one priority. Currently, no large-scale energy producer exists to support public consumption or mining activity. In lieu of hydroelectric power, diesel or heavy fuel oil must be used to power most homes, businesses and mining firms. As an example, African Minerals discovered one of Africa’s largest known deposits of magnetite iron ore – 12.8 billion tonnes – yet must import heavy fuel oil, which is both expensive and prone to shortages that cause operational downtime, to power its current mining operations. The hydroelectric power from this Project would offer a more reliable source of energy and material cost savings for African Minerals. Stated power demands in Sierra Leone in the next 5 years are: African Minerals: 400 MW London Mining: 100 MW Other Mining Companies: 200 MW Economic Opportunity Zone (industrial exporters): 100 MW GoSL/Public Demand: 100 MW Total Demand: 900 MW! The Project The Project’s pre-feasibility study was undertaken by Lahmeyer International and completed in July 2011. Lahmeyer is a leading international energy consultancy currently developing over 23,000 MW around the world. The study assessed the current plant and analyzed possible upstream and downstream sites (100 km area in diameter) to determine the optimal locations for expansion. The Existing Plant – Bumbuna The current Bumbuna plant maintains 50 MW of peak power capacity. Initial examination by Lahmayer concluded that the plant is structurally sound. This fully operational plant is a key strategic part of what makes this project so attractive. GoSL has agreed to contribute Bumbuna into a Joint Venture entity in return for equity ownership in the resultant company. Further analysis must be conducted during the feasibility study to fully assess the plant’s current status and value. The New Project – Yiben II Two sites were considered 30 km north of Bumbuna to create additional power capacity upstream and increase water flow into the existing Bumbuna dam. The two identified sites are called Yiben I and Yiben II. Despite having slightly higher energy potential, Yiben I was ruled out due to high environmental impact (inundation of 7 villages; relocation of 3,500 people). The alternative, Yiben II, was selected since it required minimal loss of homes, roads and other infrastructure and relocated less than 50 people. Yiben II is estimated to generate 129 MW of peak power capacity and also increase the minimum constant power the existing Bumbuna plant produces. CONFIDENTIAL ! The Extension – Bumbuna Extension The increased volume of water from Yiben II to Bumbuna allows for the expansion of overall generation capacity at Bumbuna. The Bumbuna extension will channel excess water from the current Bumbuna plant through three 70 MW turbines and back into the Seli River. The Bumbuna extension will increase total peak power at Bumbuna from 50 MW to 260 MW. Conclusions The study estimated a total construction period for the entire scheme of four years. The following summarizes the proposed key statistics for the scheme upon completion: Yiben II Bumbuna Extension Total Installed Capacity 129 MW 260 MW 389 MW Firm Power 43 MW 69 MW 112 MW Energy 447 GWh/a 1,025 GWh/a 1,472 GWh/a ! Corporate Social Responsibility Joule Africa is committed to undertaking responsible infrastructure development and holistically engaging with the communities in which it operates. Specific concepts discussed so far with GoSL include: