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Oracle Coalfields Plc: THE INVESTMENT CASE

Oracle Coalfields plc assembling the jigsaw for Pakistan project

Oracle Coalfields is developing a coal mine and power project in Pakistan..
Oracle Coalfields plc assembling the jigsaw for Pakistan project
INVESTMENT OVERVIEW: ORCP The Big Picture
An artists impression of the project in Pakistan....

Oracle Coalfields PLC’s (LON:ORCP) told investors on March 18 that its huge Thar coal and power project in Pakistan emerged from last year as one of the more "exciting" projects in a gloomy commodities sector.

Despite this background, and the many boxes that need to be ticked to get such a thing off the ground, the firm is steadily plodding towards financial close for the project and has made material progress in recent months.

The idea behind the 4Mtpa mine and a first stage 600MW power plant at the mouth is based on figures like these - that the current shortfall in Pakistan of generating capacity of 5,500MW will continue until at least 2020.

The cost of realising this project is expected to be $1.6bn, of which $1bn will be debt,  and the firm is now finalising agreements and contracts, including an EPC (engineering, procurement and  construction) term sheet and contracts with its Chinese partner SEPCO for both mine and plant.

Signing that term sheet will then trigger discussions on all important financing through credit giant Sinosure and the Chinese banks. Previously the firm has said financing would be made up of 70% debt and 30% equity.

A key milestone came in November last year when the group received a ‘no objection’ letter from a key agency - the Central Power Purchasing Agency Guarantee Limited (CPPA) -  which buys electricity on behalf of Pakistan’s state-owned electricity grid operator NTDC.

It means power from the Thar project can be transmitted into the grid.

That came a month after Oracle inked a consortium agreement with the its Chinese partner Shangdong Electric Power Corporation of China (SEPCO), which said Oracle will hold 90% of owner/ operator Thar Electricity (Private) Limited, while SEPCO has the remaining 10%.

The agreement formed part of a key submission to Pakistan’s Private Power and Infrastructure Board (PPIB), which is expected to lead to a power purchase agreement with NTDC that would, importantly from  Oracle's point of view, include a government guarantee for payment.

In full year results today, the company said that work in 2016 would concentrate on formalising agreements and contracts to bring the project to "full implementation" along with securing all the financing arrangements, including equity for funding.

Last year the firm said first power delivery was targeted for late 2018.

It ended 2015 with £1.86mln compared to £383,063 so it still has considerable financial wherewithal to continue plans.

What the broker says

City firm Shore Capital said on Friday: "A quick skim of the 2015 results revealed no surprises. Oracle is still working towards a power purchase agreement (PPA) and other key agreements required ahead of a Letter of Intent (LOI) for financing.

"The LOI had been expected by the company by late 2015, but we opined that sometime in 2016 was more likely."

Yuen Low added that a financing deal is still possible for 2016 but sees potential for further delay to 2017 if key agreements not reached within next few months.

Oracle shares were  down 0.97% to 2.55p.

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