Load shedding. Yes, you know what we’re talking about. This has become a global problem - and many countries face the same issue. The energy crisis was further fueled by the global dependence shift, where the global economy moves its dependence from The West in terms of energy and food.
Due to demand, we find ourselves moving to higher levels of load shedding. Who else hasn’t experienced it right? But what does it actually mean? This means that more power is needed when there's an imbalance between supply and demand. As demand continues to rise, more energy will be required in the medium to long term. This is not only in South Africa - but globally. With that being said, here are some companies that are positioning themselves to bring solutions to blackouts:
Kibo Energy PLC
Plastic waste is a rising concern in the global community. In South Africa, Kibo is on a journey to put waste plastic to good use. This will be through the waste-to-energy project, which looks at converting plastic waste into energy. Kibo Energy is a clean/renewable energy-focused company that owns 55% of MAST Energy Development (MED), a company that aims to produce up to 300MW in the UK through natural gas projects. In South Africa, the company entered a 10-year take-or-pay conditional power purchase agreement (PPA), where 2.7 megawatts (MW) of energy will be generated through a plastic-to-syngas power plant.
The take-or-pay clause is a PPA that obligates the purchaser to pay for unused energy based on the agreed-upon volume. The project is a joint venture where Kibo holds 65%, and Industrial Green Energy Solutions the remaining 35%. This was followed by another deal to buy 100% of a gasification and power plant in the UK.
To expand its footprint, Kibo signed another agreement to develop long-duration energy solutions in targeted sectors in members of the Southern African Development Community (SADC). By 29 September 2022, the company also announced that it was proceeding with a proposal for its IPO on the alternative investment market (AIM) on the London stock exchange (LSE) under the name Ultimate Sustainable Energy Ltd (USE), in which the company expects to hold at least 75% post admissions. In its performance for the six-month period that ended on 30 June 2022, Kibo had revenue of £305 384 from MED's renewable energy operations sales. Including the costs and expenses, the company reported a loss of £1.9 million for the period. From a debt perspective, using the debt-to-equity ratio (£3.1 million total liabilities divided by £10 million total equity), Kibo had a D/E ratio of 0.31x.
Going forward, it intends to increase its stake in MED to 61% and dispose of its original coal assets while converting its existing projects in Tanzania, Botswana and Mozambique to renewable/clean energy projects.
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Orion Minerals Limited
Copper is the new oil! It's a saying that's been making the rounds since copper plays a crucial role in electronics and the upcoming EV market. Prieska copper/zinc mine was once rich with copper and zinc when it was mined by Prieska Copper Mine, a subsidiary of Anglovaal from 1971 to 1991. The political changes in the 1980s and PESTLE factors, such as the 'right technology to mine’, pushed Anglovaal to close the mine and move and position itself in Zambian Copperbelt instead.
Orion Minerals is positioning itself to press the restart button for the mine. Copper prices remain relatively high, as of writing, at U$7749.00/mt from the early 2022 range of around U$10 000/mt, with many analysts anticipating a rise in demand as the EV revolution becomes mainstream. On 12 October 2022, Orion notified shareholders that it was preparing to remove water from the underground mine at Prieska. From an ESG perspective, this dewatering process is expected to benefit the local community through agri-nutrients, while also seeing the potential to extract other products that may be used in the chemical industry.
Friday, 21 October 2022, Orion Minerals further announced that it had secured R250 million (AU$22 million) - pivotal funding that will enable the explorer to start the dewatering process and complete its bank feasibility study (BFS). Since Orion Mineral is a mining exploration company, it has no income. As a result, operating losses increased significantly to AU$15 million due to the exploration and evaluation costs expenses. Loss per share during the period was AU$0.33; its D/E ratio (AU$8.7 million/AU$80 million) was 0.10x as of June 2022.
The company's exploration projects, according to the 2022 annual report, are:
The explorer also inked an earn-in agreement with Stratega Metals, whereby Orion will fund the construction of a demonstration-scale battery minerals refinery in the Northern Cape for a 75% interest in Stratega.
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Ellies Holdings Limited
Locally, more South Africans are on a hunt for energy security through solar use and energy storage products such as UPS and other power backup products.
Ellies is among the well-known brands in South Africa, famously known for almost all satellites that we see on nearly every corner to indoor electronics that we can find on retail store shelves. Even though Ellies started its 2021 financial year (FY21) on a good note, the period was followed by what the company executive describes as a 'two-half year' reflecting the micro environmental factors such as the global restrictions, unrest in South Africa from May 2021 to October 2021. As a result of the low demand for satellites (which contribute 47% of its revenue), Ellies took a knock on earnings, reporting a 10% decline in revenue for its FY22 to R1 billion from R1.2 billion the previous comparative period (PCP).
As part of a turnaround strategy to grab the opportunity to champion the current energy concerns, the company's executive, in a letter to shareholders, said the shift, focusing on the energy sector, "seeks to address many of the issues that are impacting the daily lives of most South Africans. The continued inability of Eskom to provide South Africans with reliable energy has created significant demand for alternative energy, as witnessed by the aggressive growth of solar distributors and installers."
Ellies ended its FY at a financial position of R133.5 million (capital and reserves); based on its total debt of R319 million and equity of R133 million, its D/E ratio as of 30 April 2022 was 2.4x. The company released a cautionary announcement on 28 September 2022, alerting shareholders that it was negotiating with third parties regarding potential acquisitions in the energy sector.
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MCMining Limited
Coal won't disappear overnight. As of writing, coal prices were trading at their all-time high range of around U$300/t, and with that being said, MC Mining may be on the path to harvesting the dollar bars 💸 that come with coal sales, given the elevated coal prices.
On 12 October, EasyVSTRs received additional shares under the LOA for MC Mining. These are shares that investors convert to ordinary shares at a 'discount' of R2.36 for shareholders invested via the JSE. This is because the miner is raising AU$40 million (R472 million) to develop the Makhado project in the Limpopo province. While anyone can participate in the offer, excess rights may not always be considered; the offer may also be dilutive to existing shareholders. According to the company, the Makhado Project has 344.8 million mineable tons of coal in situ (MTIS); the bank feasibility study (BFS) that was during FY2022 highlighted the following this project has:
During the 12 months that ended on 30 June 2022, MC Minings' Uitkomst Colliery (a metallurgical and thermal coal mine) produced 470,597 tonnes of coal. 22,169t (FY2021: 0t) of coal under the coal sales & marketing agreement (an agreement where Overlooked Ltd will facilitate the export of the coal produced by Uitkomst), reached the Durban port by June 2022.
Geopolitical factors, including the unrest in KZN, affected production during the period. Coal sold in FY22 was 225,096t, generating $23.5 million in revenue; profits (gross) generated were $2.5 million. Expenses took a chunk of what was left, leaving the company at an operating loss of $19 million. MC Mining had a balance of $1.4 million as of 30 June 2022 - the price of coal, during the period, increased from around $100/t to $300/t. Its D/E ($48 279 000/$77 136 000) for the period was 0.63x.
As we transition to a renewable and clean energy environment, this may increase demand for coal and, at the same time, the current growth of technology that may also contribute to the demand and coal prices. In addition to this, coal exports from South Africa, according to Banchero Costa, increased over 500% year-on-year (YoY) in the first nine months this year to 9.6 million tonnes to European countries; whereby MC mining has various projects in the country, these include:
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Round up
Debt can be both good and bad, depending on how a company uses it and how it plans to repay. The higher the ratio (at least above 2x or borrowing twice as much from lenders as you do from shareholders), the higher the company's borrowing; with the interest rates rising, this may affect financing costs.
The recent move of countries moving back to coal, while at the same time securing clean and renewable energy, has also proven that we may, in the interim, be in a position where energy supply comes from both fossil fuels and renewable/clean energy sources. This will also help to bring energy prices down. In addition, EasyVSTRs need to consider that rewards may also be high where the risk is high.Companies trading below R5 may be volatile, and when it comes to mining companies, investors should also consider the prices of the underlying commodities, etc.
Want to read more on the global dependence shift? check out the article here or below
Sources – Ellies Holdings Limited, Orion Minerals Limited, MCMining Limited, Kibo Energy PLC