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Agulhas Group in happy place as world's biggest LNG project ramps up

Published: 11:21 21 Nov 2019 GMT

Barge being loaded
Logistics can account for anywhere between 10-15% of the cost of a construction project.

If you are going to run a port, having it situated next to the largest LNG infrastructure project the world has ever seen seems a good starting point.

Agulhas Group Africa PLC is in that happy position and UK investors are going to get a chance to participate when it lists on London’s standard market late this year.

The development in question is the massive Afungi LNG (liquefied natural gas) project to be built both on and off the coast of Mozambique.

Cost estimates by Standard Bank for the project's two distinct investment areas range up to US$128bn on the assumption that the second part gets the go-ahead early next year.

US giant ExxonMobil is leading the consortium developing this second section (known as Area 4), though the recently- acquired Anadarko has already pressed the button on Area 1 and has started to move equipment and construction material to build the supporting infrastructure.

If Agulhas can handle just 1% of the cargo being shipped to that project through the port it operates in Mombasa the numbers are 'off the scale' says Simon Phillips, chief executive.

Given where the port is located, however, that 1% should be the absolute minimum, he believes.

Logistics can account for anywhere between 10-15% of the cost of a construction project.

Agulhas's Mombasa port has modern facilities and is reasonably close at just 455 nautical miles to the north up the coast.

And just based on that, Phillips is confident of a bigger percentage can be realised and the focus of the group should be in winning 5 - 10% of the logistics spend.

Reverse takeover

The group is the result of the reverse takeover of Anglo African Agriculture PLC (LON:AAAP) by Comarco, which currently owns the port in Mombasa.

Existing shareholders are selling around US$6mln worth of shares, while a further US$16.5mln is being raised by Agulhas to beef up its balance sheet and give some flexibility to handle more capacity.

Pricing has yet to be confirmed, but early indications are that the market cap will be around US$49mln.

Afungi, though, is not the only boost to business Phillips’ expects to get in the coming months.

Earlier this year, Agulhas’s Comarco port was designated an import and export area for customs purposes by the Kenyans.

That puts it on a similar footing with the nearby main port at Mombasa, which is a key entry point not only for goods entering Kenya but also for the whole of east Africa.

Crucially, that will allow the type of goods that come into the port to be expanded substantially.

Spreading the load

Traditionally, oil and gas exploration equipment was a staple but when the crude price crashed through the floor at the end of 2014, times got tough.

Other commodities including coal and iron ore are now being handled and the group is looking at other cargoes to complement the activities of the main port.

Being private and smaller has advantages, adds Phillips.

Waiting times are shorter, so the expensive business of loading and unloading is quicker and more cost-effective, which is a big plus for shippers.

Comarco has been running the port since 1974 and through its fleet of tugs and barges has accrued plenty of experience running logistics in shallow water, a skill that will be required again to land equipment at Afungi.

Plans to reconnect the railway to the Agulhas port should only add to its appeal as a hub for East Africa as well as the LNG plant development.

Phillips says the reverse takeover was priced at a discount to the asset value of the port and does not take into account any of the potential upside from the port’s new customs status or the Mozambique potential.

Property backing

Property alone is worth US$53.4mln, while the plant and equipment are worth a further US$18mln according to a valuation at the end of 2018.

Revenues that year were US$7.4mln and there was an operating loss of US$3mln, but ports are fixed cost operations where boosting the volume is a key requirement.

On the assumption that just 1% of the Afungi work does indeed go through its port, revenues would comfortably more than double with a bigger impact on the bottom line.

All of the details of the reverse takeover and funding should be tied up the New Year.

Around that time too, there should be confirmation that ExxonMobil’s consortium is going ahead in Mozambique and after which things should get very interesting indeed.

 

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