Oracle Coalfields PLC's (LON:ORPC) huge Thar project in the desert of Pakistan continues to progress and the latest statement from the firm on Friday - namely, that it had inked a new shareholder framework agreement - sent shares surging.
The energy group had said "a consortium of new and existing Chinese partners will take 70% equity in its subsidiaries in Pakistan in order to advance the development of the project".
The firm has steadily been assembling the jigsaw at Thar for some time now.
In its full year results in March this year, the company said that work this year 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.
A power plant at the mouth-of-mine
The concept is a 4Mtpa (million tonnes per annum) providing lignite to a first stage 600MW power plant at its mouth.
The JORC code resource at the project houses a massive 1.4bn tonnes of coal.
In September last year (2015), the mine was valued at US$624mln and the power station was valued at US$770mln.
From 2016 to 2018, the firm has said work will proceed to open up the mine, alongside construction of the power plant, with production of coal and delivery of electricity beginning in late 2018.
The opportunity for Thar exists because reports have shown that the current shortfall in Pakistan of generating capacity of 5,500MW will continue until at least 2020.
Coal in Pakistan's power sector growing
In 2008-2009 less than 1% of the power sector in the country was coal but this is expected to rise to 17% by 2025.
Meanwhile, significantly, the Pakistani Government is allowing a 20% IRR (in US$ terms) on new projects, meaning any project developing the Thar resource will be guaranteed a 20% internal rate of return on its investment.
The cost of realising the project is expected to be $1.6bn, of which $1bn will be debt.
Finalisng agreements and contracts
The firm is now finalising agreements and contracts, including an EPC (engineering, procurement and construction) term sheet and contracts with its Chinese partner for both mine and plant.
Previously, it has said financing for the project 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.
That means power from the Thar project can be transmitted into the grid.
And 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.
Shares eased today 0.78% to 3.175p having jumped 11% on Friday.
More details are set to follow.