Chariot (CHAR:16p), an Africa-focused energy group focused on developing and delivering transitional energy projects, has released a raft of positive announcements since the autumn, all of which are highly supportive of the investment case.
This week’s small acquisition of ENEO Water, an African company focused on delivering clean water solutions using renewable energy, complements Chariot's Transitional Power and Green Hydrogen businesses within the context of increasing water scarcity across Africa. Desalinated water is an essential component of green hydrogen production, so the capacity to implement desalination solutions powered by renewable energy will be critical for the feasibility of green hydrogen projects.
Chariot's aim is to provide affordable access to water for private offtakers and municipalities in Africa to be sold under long-term agreements, as part of its commitment to socially responsible development. ENEO utilises an efficient and scalable reverse osmosis technology that can be 100 per cent powered by solar energy to produce desalinated water. The company has a proof-of-concept project at the largest windfarm in the Republic of Djibouti under construction.
Desalination solutions powered by renewable energy will be critical for Chariot’s joint venture with Total Eren to co-develop Project Nour in Mauritania. That project has the potential to deliver 10GW of electrolyser capacity, which would make it one of the most significant green hydrogen projects in Africa, and one of the lowest-cost producers, too.
The future’s bright
- Chariot partners on solar project at platinum mine in Zimbabwe
- 25 per cent stake taken in a new South African electricity trading company
- Long-term offtake agreement in principle for low-cost Anchois Gas project
Total Eren and Chariot have also agreed to work together on the development, financing, construction and operation of a solar photovoltaic (PV) project that will provide competitive electricity for the Karo Platinum Project, in Zimbabwe. It is expected to have an initial installed capacity of 30 Megawatt (MWp) peak – a unit of measurement for the output of power from a source such as solar or wind where the output may vary according to the strength of sunlight or wind speed – with a potential extension of up to 300 MWp. Construction of the Karo Platinum Mine started in July 2022 and is majority owned by Tharisa (THS), the platinum group metals and chrome producer.
In addition, Chariot has taken a 25 per cent stake in a new South African electricity trading company, Etana Energy, which has been granted an electricity trading licence by the National Energy Regulator of South Africa. The country is the largest electricity market on the continent, but suffers from regular power outages due to insufficient supply. To combat this energy crisis rapid market deregulation is currently taking place, which includes selectively issuing electricity trading licences and facilitating the building of energy projects of up to 100 MW generation capacity.
Etana’s objective is to deliver renewable energy solutions at competitive prices to help address the power requirements across South Africa. The trading licence is important. That’s because it opens up access to a range of high-volume off-takers (including municipal, industrial and retail customers) and gives Etana the right to buy and sell electricity on the national transmission grid and within some selected municipal areas. Electricity trading is a new revenue stream for Chariot and it should support the group’s future participation in large renewable projects in Southern Africa.
An African adventure
The good news doesn’t end there as Chariot has announced a long-term offtake agreement in principle for its low-cost flagship Anchois Gas development, offshore of Morocco, in which it has a 75 per cent working interest. Gas sales of up to 60mn standard cubic feet per day will be delivered through the Maghreb-Europe pipeline on a take-or-pay basis for a minimum of 10 years, thus securing direct domestic supply for Morocco's existing and potentially longer-term gas power plant infrastructure. Investment bank Societe Generale is leading the structuring and syndication of the project’s debt financing, while Chariot’s gas team remain in discussions with commercial partners.
In the near term, newsflow from Anchois is the key share price driver. That’s because Chariot’s 75 per cent working interest in Anchois’ 2C resources accounts for 44p a share of Cenkos Securities' target price of 63p (using a 50 per cent risk weighting and based on a risked value of $507mn). Positive newsflow on debt funding and commercial offtake agreements at Anchois would de-risk the investment case and warrant a material narrowing of the share price discount to Cenkos’ target.
Although Chariot’s share price has drifted since I last published an update five months ago (‘Profit from climate change’, 14 September 2022), the holding has still delivered a 428 per cent return in my 2017 Bargain Shares Portfolio. There is scope for significantly more capital upside. Buy.
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