Kinetiko Energy Ltd (ASX:KKO, OTC:KKOEF) has soared after taking a massive step in its objective to provide a sustainable cleaner energy solution for South Africa by executing an agreement with the Industrial Development Corporation of South Africa (IDC) to co-develop a new joint venture for the appraisal and production of LNG to deliver 50MW growing to 500MW gas equivalent energy.
A non-binding term sheet has been signed by Kinetiko Energy subsidiary Afro Energy (Pty) Ltd with the IDC for the joint project which stands to be of national benefit to the nation.
50MW growing to 500MW
This will see the partners jointly develop the appraisal and production of natural gas (NG) within Afro Energy’s granted exploration rights for commercial liquified-natural gas (LNG) use.
The first stage will be a 50MW equivalent project that is estimated to cost approximately A$138 million comprising A$90 million in equity and A$48 million in debt.
KKO shares have been as much as 75.83% higher on releasing the announcement this afternoon to A$0.16.
“A step change”
Kinetiko CEO Nick de Blocq said: “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.
"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.”
Interest in Afro Energy
The term sheet underpins Kinetiko’s strategic objectives to unlock in excess of 2TCF in gas reserves through its current 49% economic interest in Afro Energy, which holds the exploration permits.
The company has recently obtained the necessary shareholder approvals allowing it to, among other things, acquire a 100% economic interest in Afro Energy and expects to complete the transaction shortly.
Once this acquisition is complete, Kinetiko will be the sole shareholder of Afro Energy and all Afro Energy’s obligations under the term sheet will be assumed 100% by KKO.
Funding arrangements
For the first stage, IDC will equity fund approximately A$52 million for a 30% interest in the joint venture while Afro Energy will equity fund approximately $A38 million for a 70% JV interest.
Afro Energy has the right to introduce third-party investors to the JV for part or all of its 70% interest and can also stage payment.
The planned second stage will see the parties expand the JV to 500MW LNG gas equivalent, which would be the largest on shore LNG project in South Africa. The IDC intends to fund 30% of the second stage.
This agreement also grants IDC the option to participate in the co-development of further 1,000MW LNG gas equivalent projects, totalling 1.5GW.
Project components
The JV project will comprise:
The parties estimate that Block 1 will be developed over 2-3 years and Further Blocks for 450 MW equivalent of LNG will be developed over 9-10 years.
READ: Kinetiko Energy delivers maiden gas reserve and 20% lift in Contingent Resource from just 0.2% of South African project area
The Sproule Report outlines the capital expenditure and operating costs assumptions that provide the company with a reasonable basis for the Block 1 project having positive economics based on the maiden gas reserves.
Gas is intended be sold to an LNG-offtaker to supply 50MW of equivalent LNG.
While offtake agreements are not in place, KKO has executed an MoU with FFS Refiners and a letter of intent with Gruner Energy for the potential offtake of LNG.
The scope of a bankable feasibility study has not been defined, however, KKO anticipates given its existing binding joint venture with the IDC that it will work with the IDC to agree economic parameters for the bankable feasibility study expected to be completed with the conclusion of IDC internal approvals.