Tlou’s Gas to Power project received a boost on Monday when the company announced the award of the 10MW PPA (Power Purchase Agreement). This long awaited news now opens the door to a more lucrative scaled-up project to 100MW – a big boost for energy starved Botswana too!
Tlou Energy featured in my recent blog where I selected three companies that I believe have been oversold and/or are offer compelling risk vs reward (RvR) from their current levels particularly as the valuations have hit rock bottom.
Well the first reward was delivered today by TLOU Energy who announced that they had signed a 10MW PPA with Botswana Power Corporation. Despite a muted market reaction we normally see on ‘news’ days the news is game-changing as it has taken a year or two to finally get the deal ‘penned’ and now pathes the way for TLOU to become a major energy provider in Botswana.
The share price back in 2018 was flying high at 16p on the promise that the 10MW PPA was close. I’ve followed the story myself and it was a bumpy road to say the least with tenders for the PPA submitted only to be withdrawn due to certain shenanigans I wont bore you with here but three years later the news shareholders were waiting for has arrived!
The news is game-changing not just for TLOU and shareholders but for Botswana. Botswana rely heavily on other neighbouring countries for power and what they do have is not sufficient and dirty !
The agreement signed today is the firing gun for a new Botswana energy supplier (namely TLOU) to deliver a scaled project that will ramp up from 1MW > 10MW and ultimately an expected 100MW.
The company would make roughly £1m per MW in annual revenue so you can see the long-term upside. What makes that long-term upside more interesting is they have huge reserves with 3TCF of 3C resource and significant proven and probable reserves.
With a mining license in place (permit to operate), permission already granted to connect into the grid under the 1MW initial agreement and a power line under construction, TLOU are now finally well on the way to realising the Gas to Power project at Lesedi that will start the transformation of Botswana power to a greener more sustainable an internally controlled energy source.
The project will require c.$10M in project finance and the company also announced they have now agreed terms for a $10M finance package that should I imagine be announced shortly given the PPA was likely a pre-cursor.
As I mentioned in my last blog, Tlou have also recently announced Heads of Agreement with an Australian company Synergen Met to establish a pilot Gas to Hydrogen/Carbon project. In fact the following slide from their website sums up what this should look like nicely.
Basically Tlou are partnering with Synergen who are due to list on the ASX this year with Tlou also intending to invest in the IPO. This is interesting as it gives some vertical integration across the Gas/Hydrogen energy spectrum and it’ll be a front-runner.
Both companies will work on a pilot project to use Tlou’s existing gas that is currently flowing at Lesedi and use Synergen’s proven methane to hydrogen/carbon solution. Assuming it’s successful and I can’t see why it wouldn’t be this adds a potentially very lucrative additional business that can run in conjunction with the Lesedi Gas to Electricity project.
Despite a painful few years for shareholders, the company now seems to be well on track to meet their goal of becoming a major energy supplier in Botswana supplying reliable and cleaner energy to a country desperate for it.
The upside for a £16m Market Cap company expecting revenues of £10m pa scaling up to a potential £100m pa is clear and given the company are funded for working and development capital all the way through 2022 with project capital sign-posted as imminent the shares at under 3p in my opinion now look a steal!
Research materials prepared based upon my own analysis and research. Accuracy cannot be guaranteed and research notes should not be taken as investment advice. Please always do your own research.