6th Mar 2006 07:02
IPSA Group PLC06 March 2006 6 March 2006 IPSA Group Plc Progress update (1) Initiation of two significant South African generation projects; and (2) Update on power project at Newcastle in South Africa IPSA Group Plc ("IPSA" or "the Company"), the independent power plant developerin southern Africa, today announces a number of important developments for the Company: • IPSA has signed preliminary agreements for two significant new powergeneration projects in the Eastern Cape region of South Africa; and • The Company's initial power plant for Karbochem in Newcastle,KwaZulu Natal is now approximately 40 per cent. complete and is running ahead ofschedule although capital expenditure has been higher than originally planned. Peter Earl, CEO of IPSA, comments "We are very pleased to be ahead of schedulein Newcastle and very much looking forward to being revenue generating in the second half of 2006. We are also excited by the projects the Company is developing in South Africa,as the current power shortages in the country are resulting in a great number ofelectricity cuts. We have initiated two significant projects to help alleviate this situation, which also have the added benefit of generating highly attractive returns for our shareholders." (1) Coega, Port Elizabeth IPSA has signed preliminary agreements for the lease of a 20 hectare site atCoega Development Corporation's Industrial Development Zone ("the IDZ") at PortElizabeth, South Africa with the intention of developing a fast track combinedcycle gas turbine ("CCGT") project of 800 MW. This project would initiallyoperate in open cycle at 500MW using liquid fuels. Pending construction of anLNG receiving terminal at the IDZ, it is anticipated that this project wouldconvert to being gas fired. The IDZ is considered an important element in South Africa's policy of addingvalue to locally mined metals and minerals. A number of energy intensive metal-processing and smelting companies are considering moving onto the IDZ sitesubject to the availability of reliable, sustainable, regional generation ofelectric power. IPSA has therefore chosen to accelerate its plans for new capacity in thesouthern coastal cities of South Africa to meet this requirement for new capacity. The total cost of the first phase of 500 MW is estimated by IPSA to be some US$150 million. The balance of conversion to CCGT would cost a further US $150million. IPSA is in discussions with a number of South African financialinstitutions regarding raising project finance for the initial 500 MW of theCoega project. (2) Elitheni, East London IPSA has this week signed a Memorandum of Understanding ("MOU") for thedevelopment of up to 400 MW of mine-mouth clean coal power capacity at theElitheni coal deposit in East London. Elitheni was one of the first coal deposits to be worked in South Africa priorto the opening up in the early 20th century of the Highveld coal reserves in theregion close to Johannesburg. Its development has the support of the localmunicipality, and the recent power cuts in the Western Cape have accelerated theneed for Elitheni to move to full production. Following recent zoning andenvironmental approvals, production is expected to commence within six months,subject to a series of independent coal reserve assessments intended to confirmhistorical reserve data. Under the terms of the MOU, IPSA has been granted an exclusive right to act aspower developer for Elitheni. In return, IPSA has committed to assist Elitheniin raising development finance for the coal reserve. IPSA will itself advance£100,000 of its own funds in the form of a subordinated loan to Elitheni whichwill be returned from the revenues of first commercial coal production on the9,000 hectare production site. IPSA has no further responsibility for anyadditional funding at Elitheni but will be responsible for its own environmentalimpact assessment on site together with project engineering costs. Power project at Newcastle The Board of IPSA announces that the Karbochem power project at Newcastle,KwaZulu Natal is currently running ahead of schedule. All of the shipments fromthe UK have arrived in Newcastle, and the Directors believe that the work isapproximately 40 per cent. complete and envisage that the Newcastle plant willbe ready for initial commissioning by the end of July 2006. Expenditure on the Newcastle project has also increased in a number of areas,including: (i) During the dismantling of the 18MW CHP plant acquired by IPSA, itwas decided that it was more economic and offered improved functionality tosource certain new elements of equipment locally, principally electrical cables,certain water treatment tanks and a portal frame building. This has resulted inan increase in cost of ZAR 7.3m; (ii) Dismantling costs were approximately ZAR 4.0m higher thananticipated; (iii) It was also decided that the CHP plant would be better located ata new, larger site on the Newcastle complex, offering more physical independenceand room for future growth should additional generating capacity be installed onthe site. The change of location has resulted in additional expenditure of ZAR5.5m; (iv) The strengthening of the South African rand since September 2005has resulted in additional cost of around ZAR 7.5m equivalent. The Directorsanticipate that this foreign exchange cost will net out if rand finance can besecured on the plant at commissioning in July 2006; Overall the final projected expenditure, including rand foreign exchangeadjustments, will be approximately ZAR 28m (£2.6 million) higher than initiallybudgeted. The Directors of IPSA believe that the project is eligible for South Africangrants. The Department of Minerals and Energy ("the DME") in South Africa nowprovides grants of 20 per cent of capital expenditure on new CHP plants. IPSAhas commenced preparing a grant application to the DME and intends to submit theapplication by the end of March 2006. IPSA has secured an interim facility of US$4 million to take account of anytiming differences on the receipt of the grant. This funding is initially beingprovided by Independent Power Corporation ("IPC"), currently interest free,however the Company is in talks with a South African bank regarding analternative funding package. The Directors intend to provide further details onthis package once it has been secured. Under the AIM Rules the funding provided by IPC is considered a related partytransaction because Peter Earl, CEO of IPSA, controls more than 30% of thevoting rights of IPC. The Directors of IPSA, excluding Peter Earl, consider, having consulted with itsnominated adviser, that the terms of the transaction are fair and reasonableinsofar as its shareholders are concerned. Overall, the directors of IPSA are aiming to achieve a net position for theNewcastle project in line with the original September 2005 capital expenditurebudget. As planned, the Company has initiated discussions with commercial banks in SouthAfrica to provide Rand denominated funding for the Newcastle project in order torelease equity for future developments. The project to date has been funded entirely from equity, and it is envisagedthat at completion in July 2006 the Newcastle project should be no more than50:50 debt:equity funded. The Directors envisage that the project will have theability to release further cash through debt drawn-down upon commercialoperation for re-investment in other IPSA projects. The Board of IPSA also wishes to announce that it has agreed to seek a secondarylisting in South Africa on either the Johannesburg Stock Exchange ("JSE") or theJSE's market ALTX. For further information please contact: Peter Earl, CEO, IPSA Group Plc 0207 793 7676 Stephen Hargrave, Chairman IPSA Group Plc 0207 793 7676 Adam Westcott, Noble & Company Limited 0131 225 9677 Allan Piper, First City Financial 07736 064982 020 7436 7486 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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