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Klimat X in landmark carbon credits deal for African reforestation project

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Canada-listed Klimat X Developments (TSXV: KLX) says it has secured binding commercial terms with an undisclosed Fortune 100 buyer for the pre-purchase of carbon credits from its Sierra Leone Rewilding Project. Klimat X develops validated and verified carbon credits from afforestation and reforestation activities of degraded land areas, which include mangroves.

Under the terms of the agreement, the remaining capital costs of the first 5,000 hectares of native species planting will be covered, with 1,000-1,200 hectares of planting anticipated to be completed by the end of the 2023 season and with the PDD (Project Design Document) to be validated in 2023. Approximately 400 hectares were planted in 2022 and planting of a further 800-1,000ha is already underway, the company said yesterday.

The first of three US $500,000 payments for 2023 to Klimat X is scheduled for transfer within four weeks. Under the pre-purchase financing structure, US$2.5m of investment is to be repaid in tons of carbon credits issued at a pre-agreed price by the project. The initial project area will generate an IRR of up to 20% based on current modelling assumptions and pricing scenarios, Klimat X said.

Dr. James Tansey, CEO of Klimat X explained: “Klimat X has designed its projects to meet the needs and expectations of large corporate buyers who are willing to share investment and operational risk with our company. These final commercial terms demonstrate that our model can produce significant volumes of saleable credits through jurisdictional projects.”

How does Klimate X help the environment?

The activities of Klimat X as a direct upstream owner and operator of projects helps it to address a key supply constraint in the current carbon credits market. This is in direct contrast to streaming and royalty companies also active in the space. Klimat X says it intends to achieve this by investing in the exploration, restoration and management of terrestrial and marine systems that can either be protected to enhance the sequestration of greenhouse gases or restored from a degraded status to fully productive ecosystems.

Klimat X has committed to produce and validate the credits under the highest standards of the Verra protocol, including their Climate, Community, Biodiversity standards (CCB). It is committed to equitable revenue sharing arrangements with local smallholders and a transparent Free Prior and Informed Consent process monitored by Namati, an independent third party non-governmental organisation.

Restoring degraded forest land

Project implementation by Klimat X will restore degraded forest land owned by smallholders, providing income from carbon markets and providing employment to thousands of seasonal workers in a region with high unemployment and incomes below the poverty line.

The African carbon credits market remains a major area of focus for regional politicians committed to helping companies make the sector work. According to the Economic Commission for Africa, the continent is at the cusp of an opportunity to develop the voluntary carbon credit market that will boost climate action while enabling value creation and fostering sustainable livelihoods for communities.

“As Africa seeks to recover from the multi-crises of the COVID pandemic, energy crises and climate change, it is critical that we invest in sustainable value chains that will deliver jobs and resilience and inclusive economic growth,” said ECA Acting Executive Secretary, Antonio Pedro. “The carbon market present’s such an opportunity for African countries.”

Expansion of rewilding operations

Dr Tansey said that Klimat X has the potential to expand the rewilding and mangrove operations that are currently underway across Sierra Leone and the region. These projects have already attracted commercial interest from multiple parties. “We are expanding our footprint in West Africa and have additional projects under development in Yucatan, Mexico and Suriname,” he explained.

The deal is a major step forwards for Klimat X, as it proves the company’s investment thesis that large-scale jurisdictional projects can be developed and pre-sold to wholesale buyers seeking to meet their net zero obligations. The milestone demonstrates that the company can use its equity to de-risk projects to the draft PDD stage where the execution risk can be shared with the world’s largest corporate clients.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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