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An emerging
Mozambican
power development
company
Ncondezi Coal Company
Annual report and
financial statements 2012
Overview
Our vision
Ncondezi is focused on the
phased development of its large
scale, long life, integrated thermal
coal mine and 1,800MW power
plant project in northern
Mozambique.
Ncondezi Coal Company Limited (“Ncondezi”,
the “Company” or the “Group”), is a BVI registered
publicly listed company on the AIM market of the
London Stock Exchange (Ticker: NCCL).
Visit
www.ncondezicoal.com
For regular updates and additional
information on the Company and
its activities.
Contents
01 Highlights
02 At a glance
04 Chairman’s statement
06 Operations review
10 Financial review
11 Resource summary
12 Environmental & Social Responsibility
14 Board of Directors
16 Directors’ report
18 Risk factors
23 Corporate governance statement
26 Report of the Remuneration Committee
28 Statement of Directors’ responsibilities
29 Independent audit report to the
members of Ncondezi Coal
Company Limited
30 Consolidated income statement
30 Consolidated statement of
comprehensive income
31 Consolidated statement of
financial position
32 Consolidated statement of changes
in equity
33 Consolidated statement of cash flows
34 Notes to the consolidated financial
statements
52 Company information
Ncondezi Coal CompanyAnnual report and financial statements 2012 Highlights
Project achievements
2012
H1 2013
›› Decision›to›proceed›with›development›of›300MW›
Power›Project
›› Ncondezi›transitioning›into›a›Power›Development›Company
›› Power›Framework›Agreement›signed›with›Ministry›
›› Positive›results›of›Power›DFS›published,›independently›
of›Energy
reviewed›by›STEAG
›› System›Optimisation›Study›completed
›› Power›Evacuation›Study›completed,›route›identified›
and›aerial›surveillance›completed
›› Power›regulatory›process›initiated
›› JORC›resource›increased›to›4.7bt
›› Mine›DFS›Completed
›› Mine›Framework›Agreement›signed›with›Ministry›
of›Mineral›Resources›
›› Mining›Concession›Application›lodged›with›Ministry›
of›Mineral›Resources
›› Infrastructure›Agreement›with›Rio›Tinto›and›Minas›
de›Revuboè›for›Ncondezi’s›future›export›grade›
coal›production
›› Formal›endorsement›of›the›project›by›the›
Mozambican›Government
›› EPC›preselection›process›commenced
›› Power›Purchase›Agreement›negotiations›commenced
Corporate highlights
›› Board›and›senior›management›restructured›to›
strengthen›team›with›power›expertise
›› Appointment›of›Paul›Venter›as›Executive›Director›and›
Chief›Executive›Officer›
›› Appointment›of›Christiaan›Schutte›and›Peter›O’Connor›
as›Non-Executive›Directors
›› Funded›for›current›project›activities›until›end›of›Q1›2014
›› Cash›balance›US$12m,›as›at›31›December›2012
Southern African Power Pool
DR Congo
Tanzania
Angola
Malawi
Zambia
Zimbabwe
MOZAMBIQUE
Namibia
Botswana
Swaziland
South Africa
Lesotho
01
Overview 02Business review 04Corporate governance 15Financial statements 30
At a glance
The need for power
in Mozambique
Ncondezi’s project is
located in the Zambezi
Coal Basin in the Tete
Province, Mozambique.
Songo
Tete
Objective
Strategy
Develop a credible,
financeable power business
in Mozambique with
strong growth potential
02
Phased›development›
minimises›capital›outlay
› ›Realistic›in›current›
market›conditions
› Meets›existing›demand
› Utilising›existing›
transmission›
infrastructure
Maximise›Project›Returns
› ›Unlock›value›through›
delivery›of›project›
milestones
› ›Power›projects›generate›
predictable›revenues
› ›Project›finance›available
› ›Achieve›attractive›project›
IRRs›for›investment
Phased›expansion›to›
meet›growth›
› ›Incremental›units›of›
300MW›units›optimal
› ›Strong›demand›for›power
› ›Well›positioned›to›
capitalise›on›both›current›
and›planned›transmission›
infrastructure
Cahora Bassa Hydro DamMOZAMBIQUEZAMBIALilongweMalawiQuelimaneUapeMomaPort of NacalaPembaNampulaCaiaMarromeuMutareZIMBABWEHararePort of Beira Towards Apollo (South Africa)Bindura95km to pillon supplyElectricity link to ZimbabweElectricity link to South AfricaThe Northern GridThe Central GirdNcondezi Coal CompanyAnnual report and financial statements 2012 Strongest energy
demand outlook
in the region
Mozambique load growth: Medium forecast
C A G R 2 0 1 6 – 2 0 2 6 : 4 %
›
%
0
6 : 2
1
0
2
–
1
1
0
R 2
G
A
C
MW
2,500
2,000
1,500
1,000
500
0
2011
2012
2013
2014
2015
2016
2017 2018 2019 2020
2021
2022
2023
2024
2025 2026
Source: Transmission Grid Consulting
Regional focus
› Established›regional›energy›player›
› Second›largest›generator›in›SAPP›
› Largest›exporter›to›South›Africa›
› Largest›%›energy›demand›growth›in›southern›Africa›
› Accelerating›electrification›and›access›to›electricity›is››
a›strategic›imperative›for›Government
› Higher›tariffs›trend›in›region›supports›viability›of›IPP›projects,›
up›to›50%›increase›in›SAPP
› Track›record›of›recent›power›projects›
› Only›20%›of›Mozambique›electrified
Benefits
300MW integrated mine
& power plant project
Open
pit mine
›› ›+25›year›coal›
supply›to›power›
plant
›› ›1.2Mtpa›operation
›› ›Truck›and›shovel›
mining
›› ›Low›strip›ratios
›› ›DFS›complete
›› ›Mining›licence›
application›lodged
›› ›ESIA›due›H1›2013
Power
plant
›› ›Proven›CFB1›
technology
›› ›Access›to›water
›› ›10km›to›mine
›› ›DFS›complete
›› ›Peer›review›
complete
›› ›20%›IRR
›› ›Framework›
Agreement›with›
MoE2›signed
›› ›ESIA›due›H1›2013
Transmission
›› ›Access›to›
Mozambican›grid
›› ›90km›grid›
connection
›› ›Evacuation›Study›
completed
›› ›MoE2›approval›of›
connection›route
›› ›ESIA›due›H2›2013
Footnotes››
1:››Circulating›Fluidised›
Bed›technology.
2:›Ministry›of›Energy.
› Closelyalignedto
Government
electrificationpolicy
› Onlydedicatedcoalfired
powerplantprojectin
Mozambique
› Providessustainable
powergenerating
capacity
› Firstphase100%focused
onmeetinglocaldemand
› Directandindirectjob
creationandskills
transfer&training
› Contributortolocal,
nationalandregional
development
› Improvinglocal
Mozambicans'quality
oflife
03
Overview 02Business review 04Corporate governance 15Financial statements 30
Business review
Chairman’s statement
The›Mozambican›Government›is›keen›to›
capitalise›on›this›position›and›further›
expand›on›its›role›as›an›important›regional›
energy›player.›Key›Government›priorities›
are›to›increase›electrification›of›the›
country,›currently›at›just›20%,›and›to›
develop›regional›electricity›generation›and›
transmission›infrastructure.›The›country›
has›already›secured›the›backing›of›the›
World›Bank›and›European›Investment›Bank›
to›develop›local›power›projects.›The›
Ncondezi›Project›is›closely›aligned›with›the›
Government’s›vision.›
During›the›second›half›of›2012,›Ncondezi›
successfully›completed›Definitive›
Feasibility›Studies›(“DFS”)›on›both›its›mine›
and›power›projects,›which›confirmed›the›
technical›viability›and›economic›robustness›
of›the›proposed›projects.›However,›since›
initiating›the›Mine›DFS›in›Q3›2010,›the›
macro-economic›environment›has›changed›
considerably.›Seaborne›thermal›coal›prices›
have›weakened›significantly›and›there›are›
capital›constraints›for›large,›greenfield›
mine›development›projects.›The›developing›
coal›basin›around›Tete›has›not›been›
immune›to›these›changes›and›the›large,›
capital›intensive›export›rail›and›port›
infrastructure›projects,›primarily›for›coking›
coal›projects,›are›developing›much›more›
slowly›than›originally›envisaged.
Ncondezi›believes›the›power›opportunity›
for›the›Company›is›much›more›attractive.›
Adopting›a›phased›development›approach›
will›deliver›a›more›achievable,›prudent›and›
financeable›path›to›production›than›the›
immediate›development›of›a›larger›scale,›
higher›capital›intensive›project›as›defined›in›
the›Mine›DFS,›which›is›reliant›on›third›party›
rail›and›port›infrastructure›development›for›
project›operations›to›begin.›Therefore›
production›of›an›export›thermal›coal›
product›with›associated›capital›expenditure›
is›an›option›that›will›be›initiated›only›when›
rail›and›port›infrastructure›in›Mozambique›
has›sufficiently›advanced.›
Ncondezi›is›focused›on›developing›a›base›
load›power›plant›and›open›pit›mine›in›
phases›of›300›megawatts›(“MW”),›up›to›
1,800MW.›Development›of›the›first›300MW›
phase›("300MW›Project")›is›under›way›and›
is›targeting›domestic›consumption›in›
Mozambique›using›existing›transmission›
capacity›to›meet›current›demand.›The›power›
plant›is›expected›to›be›commissioned›and›
generate›electricity›during›2017.›The›
subsequent›roll›out›of›additional›300MW›
units›will›be›phased›to›meet›the›projected›
growth›in›both›transmission›capacity›and›
power›demand›within›Mozambique›and›
the›SAPP.›
The›300MW›Project›is›expected›to›be›cost›
competitive›with›other›sources›of›energy›in›
the›southern›African›region.›It›has›unique›
advantages›over›other›potential›power›
projects›in›the›region›as›it›is›scalable,›
has›security›of›fuel›supply›and›can›be›
implemented›within›a›24–36›month›
timeframe,›utilising›existing›infrastructure›
and›transmission›capacity›to›supply›power›
to›both›domestic›and›export›markets.
Power›plant›projects›are›stable›businesses›
as›they›enter›into›long-term›power›offtake›
agreements,›usually›for›20–25›years›which›
generate›predictable›cash›flows.›Financing›
power›projects›is›more›straightforward,›
compared›to›greenfield›mine›development›
projects,›as›they›can›support›higher›levels›
of›debt›financing,›typically›in›the›region›of›
70%–85%.›
Ncondezi›has›started›to›explore›a›number›
of›potential›funding›options›for›the›
development›of›the›300MW›Project.›The›
majority›of›the›Project›is›expected›to›be›
funded›by›debt,›with›an›equity›contribution›
of›between›15%–30%›of›the›Project›cost.›
The›equity›contribution›will›only›be›required›
at›the›very›end›of›the›development›stage,›
when›the›project›has›been›largely›de-risked›
with›all›the›key›commercial›agreements›
signed›and›potentially›monetised›with›the›
debt›financing›in›place.›
Ncondezi’s›immediate›focus›for›the›coming›
year›is›to›negotiate›the›key›commercial›
agreements›for›the›300MW›Project,›namely›
the›Power›Purchase,›the›Power›
Concession,›the›Coal›Supply›and›the›
Transmission›Access›agreements,›and›to›
optimise›the›capital›expenditure›for›the›
integrated›300MW›power›plant›and›mine.
Despite›the›Company's›share›price›under›
performance›over›the›past›year,›in›line›with›
many›junior›mining›companies,›achievement›
of›these›key›project›milestones›will›present›
share›price›catalysts›as›the›300MW›
Project›is›systematically›de-risked.›
Equity›contributions›will›be›supported›by›
engineering,›procurement›and›construction›
("EPC")›firms›and›operator›and›maintenance›
contractors’›equity›contributions,›further›
reducing›the›total›equity›requirement.›As›
part›of›the›potential›funding›options,›the›
Company›has›already›initiated›discussions›
Michael Haworth
Non‑Executive Chairman
Dear›Shareholder,
2012›was›a›pivotal›year›for›the›Company,›as›
it›transitioned›from›a›coal›explorer›to›an›
emerging›power›developer.›Following›the›
completion›of›the›technical›studies,›which›
confirmed›the›viability›of›the›Company’s›
project›in›Mozambique,›the›Board›took›the›
decision›to›proceed›with›the›phased›
development›of›an›integrated›thermal›coal›
power›plant›and›mine›(the›“Ncondezi›Project”).›
Opportunities›for›independent›power›
producers›(“IPPs”)›in›southern›Africa›have›
opened›up›as›the›region›struggles›to›meet›
the›demand›for›power.›The›liberalisation›of›
the›South›African›power›market,›the›
continent’s›largest,›as›well›as›the›recent›
increases›in›power›tariffs›have›combined›to›
make›IPP›projects›financially›attractive›in›
the›southern›African›region.›
Mozambique›is›uniquely›positioned›with›an›
established›and›successful›history›of›
generating›and›exporting›power.›The›
country›is›strategically›located›bordering›
South›Africa,›Zimbabwe,›Zambia,›Malawi›
and›Tanzania,›all›of›which›require›additional›
power.›It›is›the›largest›exporter›of›power›to›
South›Africa,›a›key›member›of›the›South›
African›Power›Pool›(“SAPP”)›and›is›
currently›the›fastest›growing›electricity›
market›in›southern›Africa.
04
Ncondezi Coal CompanyAnnual report and financial statements 2012 with›a›number›of›potential›equity›partners,›
ranging›from›private›equity›groups,›African›
focused›funds,›IPPs,›project›development›
investors›and›power›developers›who›have›all›
indicated›an›appetite›for›the›300MW›Project.›
2013›has›started›on›a›highly›encouraging›
note›with›the›signing›of›the›Power›
Framework›Agreement.›This›is›formal›
endorsement›for›the›Project›by›the›
Mozambican›Government›and›gives›
Ncondezi›the›exclusive›mandate›to›
negotiate›a›power›offtake›(also›known›as›
the›Power›Purchase›Agreement)›with›the›
state›owned›utility›company,›Electricidade›
de›Mozambique›(“EdM”)›as›well›as›regional›
power›offtakers.›The›application›for›a›
Mining›Concession›has›also›been›submitted›
and›the›Company›expects›to›receive›it›
during›Q3›2013.
As›part›of›this›transformation›from›mining›
to›power,›we›have›implemented›Board›and›
management›changes›and›are›proposing›a›
Company›name›change›to›Ncondezi›Energy›
Limited,›which›more›accurately›represents›
the›nature›of›the›business.›A›resolution›to›
propose›the›Company›name›change›will›be›
tabled›at›this›year’s›Annual›General›Meeting.›
This›year›the›Board›and›management›team›
have›been›strengthened›with›power›
expertise.›Following›the›successful›
completion›of›all›the›mining-related›
geological,›technical›and›feasibility›study›
work,›Nigel›Walls›decided›it›was›time›to›
move›on›from›his›position›as›Chief›
Executive›Officer›and›hand›the›reins›over›
to›Paul›Venter.›Paul›was›appointed›Chief›
Operating›Officer›in›June›last›year›and›has›
been›responsible›for›the›Company’s›power›
strategy›and›delivering›the›project’s›
power-related›milestones›to›date.›He›has›
a›wealth›of›coal-fired›power›generation›
experience›with›over›30›years›in›the›
industry›and›has›worked›for›power›
generation›companies›and›independent›
power›producers›in›South›Africa,›Russia,›
China›and›Mongolia.›
The›Company›also›recently›appointed›
two›Non-Executive›Directors,›Peter›
O’Connor›and›Christiaan›Schutte.›They›
bring›with›them›a›significant›amount›of›
power›expertise›in›both›generation›and›
transmission›in›southern›Africa›that›will›
be›invaluable›as›the›300MW›power›project›
progresses›through›the›development›stage›
and›project›funding›phases.
I›would›like›to›take›this›opportunity›to›thank›
Nigel›Walls›and›Colin›Harris,›who›recently›
resigned›as›a›Non-Executive›Director,›for›
their›valuable›contribution›guiding›the›
project›over›the›past›few›years›through›the›
exploration›and›feasibility›study›stages›to›
its›current›development›phase.›I›would›also›
like›to›thank›my›fellow›Board›members,›the›
Ncondezi›staff›and›project›consultants›for›
their›hard›work›over›the›past›year,›which›has›
been›a›particularly›intensive›period›with›two›
concurrent›feasibility›studies›to›complete.
Looking›ahead,›I›believe›Ncondezi›is›well›
placed›to›achieve›its›objectives›for›the›year.›
The›Company›has›an›experienced›team›in›
place›that›has›the›necessary›power›
expertise›and›strong›relations›with›the›
Mozambican›government.›Turning›
Mozambique’s›coal›resources›into›
electricity›provides›Shareholders›with›a›
more›attractive›business›proposition›in›
the›current›climate.›The›300MW›Project›
will›also›deliver›significant›benefits›to›local›
communities,›as›well›as›the›country›as›
a›whole›through›job›creation,›supporting›
economic›development›and›providing›
Mozambique›with›long-term›
sustainable›power.
Tariff increases in the last two years
0%
10%
20%
30%
40%
50%
South Africa
Mozambique
Botswana
Zambia
Tanzania
Key Milestones
H2 2012
Power›&›Mine›DFSs›completed
H1 2013
Power›Framework›Agreement›signed›
H2 2013
Mine›Concession›expected›
H2 2014
Power›Purchase›Agreement›signed
H1 2015
Mine›Construction›targeted
H1 2016
Power›Plant›construction›targeted›
2017
Power›Plant›commissioned
Southern African Power Pool
DR Congo
Tanzania
Malawi
Angola
Zambia
Zimbabwe
Botswana
MOZAMBIQUE
Namibia
Swaziland
South Africa
Lesotho
Major network and direction of flow
Minor network and direction of flow
05
Overview 02Business review 04Corporate governance 15Financial statements 30
Business review
Operations review
Ncondezi
project
Building›an›exciting›power›business›in›
Mozambique›with›strong›growth›potential›
through›the›phased›development›of›an›
integrated›open›pit›mine›and›power›plant.
2012 in Review
During›the›course›of›the›year,›Ncondezi›
completed›all›the›major›technical›study›
work›on›the›Ncondezi›Project,›including›
two›DFSs›on›power›and›mine›projects›
and›announced›an›upgraded›resource›
statement,›in›accordance›with›JORC.›
Based›on›the›outcomes›of›the›feasibility›
studies,›Ncondezi›has›decided›to›proceed›
with›the›development›of›an›integrated,›long›
life,›thermal›coal›power›plant›and›open›
pit›mine›in›phases›of›300MW›units,›up›
to›1,800MW.›
Development›of›the›first›300MW›phase›
is›under›way›and›is›targeting›domestic›
consumption›in›Mozambique›using›existing›
transmission›capacity›to›meet›current›
demand.›The›power›plant›is›expected›to›
be›operational›and›generate›electricity›
during›2017.›
The›subsequent›roll-out›of›additional›
300MW›units›will›be›phased›to›meet›the›
projected›growth›in›both›transmission›
capacity›and›power›demand›within›
Mozambique,›as›well›as›the›SAPP.›
The›power›plant›is›expected›to›be›cost›
competitive›with›other›sources›of›energy›
in›the›southern›African›region.
Production›of›an›export›thermal›coal›
product›and›associated›capital›expenditure›
will›be›initiated›only›when›rail›and›port›
infrastructure›in›Mozambique›is›
sufficiently›advanced.
The 300MW Project
In›September›2012›Ncondezi›published›
the›results›of›a›Power›DFS›by›Parsons›
Brinckerhoff,›a›leading›provider›of›
engineering›and›project›management›
services›to›the›global›power›and›energy›
market,›which›confirmed›the›economic›and›
technical›viability›of›an›1,800MW›thermal›
coal›fired›power›plant,›to›be›built›in›
phases›of›300MW.›The›Power›DFS›was›
independently›verified›by›STEAG,›one›of›
Germany’s›largest›electricity›producers.
06
Ncondezi Coal CompanyAnnual report and financial statements 2012 Ncondezi’s vision is to become
the power developer of choice
in Mozambique.
Power plant location
The›proposed›site›for›the›power›plant›is›
approximately›5km›from›the›planned›open›
pit›coal›mine›and›approximately›90km›from›
existing›power›transmission›infrastructure.›
The›location›will›reduce›the›costs›of›coal›
transportation›and›is›at›a›safe›distance›
from›the›mining›areas›to›minimise›any›
impact›of›mine›blasting›operations.
Captive fuel supply
The›power›plant›will›have›a›captive›fuel›
supply.›The›mine›will›comprise›a›2›million›
tonnes›per›annum›(“Mtpa”)›run-of-mine›
(“ROM”)›open›pit›mining›operation›with›an›
average›strip›ratio›of›1.0›(tonne›to›tonne)›
producing›1.2Mtpa›of›17MJ/kg›(NAR)›
domestic›grade›thermal›coal›product›at›
an›average›yield›of›+55%›for›supply›to›a›
300MW›mine›mouth›power›plant›over›a›25›
year›life.›The›Ncondezi›Project›has›a›coal›
resource›of›over›4.7bt›(reported›in›
accordance›with›JORC)›which›is›more›than›
sufficient›to›supply›up›to›an›1,800MW›power›
plant›over›25›years.
Technology and technical information
The›power›plant›will›be›a›base›load›
electricity›provider,›using›Circulating›
Fluidised›Bed›(“CFB”)›technology,›and›is›
expected›to›operate›at›an›82%›load›factor.›
CFB›is›proven›technology›and›has›been›
selected›as›it›is›better›suited›to›the›quality›
and›composition›of›the›domestic›grade›coal›
(compared›to›Pulverised›Fuel›technology),›it›
has›proven›unit›capacity,›with›a›number›of›
units›successfully›operating›worldwide,›and›
it›has›low›NOx›and›SOx›emissions.›The›low›
emissions›will›ensure›compliance›with›the›
Government›of›Mozambique’s›requirements›
for›air›quality,›as›well›as›meet›the›World›
Bank›and›IFC’s›standards›for›emissions›
from›coal›fired›power›plants.›
The›size›of›each›generating›unit›is›currently›
envisaged›to›be›300MW›as›it›offers›the›best›
efficiency›capability›of›CFB›technology,›the›
best›capital›expenditure›per›kilowatt›(“US$/
kW”)›option›and›the›ability›of›the›existing›
power›grid›to›absorb›and›evacuate›power.
Each›300MW›power›block›will›comprise›
a›steam›generator,›a›steam›turbine›and›
generator,›a›wet›type›of›cooling›condenser›
system›and›electrostatic›precipitators.›The›
cooling›system›is›proposed›to›include›wet›
mechanical›draft›cooling›towers,›which›will›
enable›the›units›to›operate›at›higher›
thermal›efficiency.›A›hydrological›study›has›
been›completed,›confirming›there›is›
sufficient›cooling›water›available›and›a›
water›optimisation›study›is›now›under›way.
Power transmission and evacuation
The›power›plant›site›will›be›located›
approximately›90km›from›EdM’s›northern›
grid›high›voltage›network.›System›
optimisation›and›power›evacuation›studies›
were›completed›during›2012›and›confirmed›
that›there›is›both›current›transmission›
capacity›and›demand›for›the›first›300MW›
phase,›as›well›as›forecast›demand›and›
transmission›growth›projects›for›the›
entire›1,800MW.
The›first›phase›is›focused›on›meeting›
current›domestic›demand›in›the›Northern›
grid.›Of›the›first›300MW,›250–270MW›is›
expected›to›be›supplied›to›EdM›via›the›
construction›of›a›new›400kV›transmission›
line›linking›the›power›plant›to›the›Northern›
grid,›at›an›estimated›cost›of›US$50m.›The›
balance›of›the›electricity›is›expected›to›be›
consumed›by›the›power›plant›and›mine.›
A›power›evacuation›feasibility›study›and›
accompanying›Environmental›Social›Impact›
Assessment›have›commenced›and›the›
power›evacuation›aerial›surveillance›route›
has›already›been›flown.›These›studies›are›
due›for›publication›during›the›second›half›
of›2013.›
Permitting
The›permitting›process›for›the›300MW›
Project›has›already›commenced.›A›Mine›
Framework›Agreement›was›signed›during›
Q2›2012›with›the›Ministry›of›Mineral›
Resources.›This›was›followed›by›an›
application›for›a›Mining›Concession,›upon›
completion›of›the›Mine›DFS,›in›December›
2012.›The›Mining›Concession›is›a›key›
prerequisite›to›commencing›construction›
and›mining›operations›and›it›is›expected›to›
be›issued›during›Q3›2013.
Work›on›the›power›regulatory›process›was›
initiated›during›H2›2012,›with›the›Company›
engaging›with›a›number›of›government›
officials›across›key›government›
departments,›including›the›Ministry›of›
Energy›and›EdM.›Quick›progress›has›been›
made›and›the›Power›Framework›
Agreement›(“PFA”)›was›signed›in›April›2013.›
07
Overview 02Business review 04Corporate governance 15Financial statements 30
Business review
Operations review
continued
Capital expenditure
Capital›expenditure›estimates›and›
operating›costs›for›the›integrated›300MW›
Project›are›being›optimised,›as›the›Mine›
DFS›capital›expenditure›projections›were›
based›on›a›larger›mining›operation›
producing›both›domestic›and›export›
grade›products.›
Current›estimates›indicated›that›the›
300MW›power›plant›requires›US$504m›
of›capital›expenditure›over›a›24–36›month›
construction›period›and›meets›the›
+20%›IRR›hurdle›requirements›for›
infrastructure›projects.›
Excluding›an›export›coal›component›in›the›
first›phase›of›the›mine's›development›has›
presented›a›number›of›cost›saving›
opportunities›through›smaller›mining›and›
equipment›requirements›and›higher›
average›product›yields.›Ncondezi›has›been›
exploring›a›number›of›options›to›minimise›
capital›outlay›and›operating›costs›further›
during›H1›2013,›including›assessing›
contractor›versus›owner-operated›mining›
and›evaluating›the›detailed›quotes›from›
EPC›firms›based›on›the›power›plant›
Minimum›Functional›Specifications,›which›
have›been›distributed›for›quotation.
The›PFA›is›formal›endorsement›by›the›
Mozambican›Government›of›Ncondezi's›
Power›Project›and›is›a›key›milestone.›The›
Agreement›provides›an›exclusive›platform›
from›which›to›negotiate›the›key›
commercial,›financial,›legal›and›local›
participation›parameters›of›the›Project.›
Power offtake and key
commercial agreement
Work›streams›to›progress›the›power›plant›
project›towards›a›fully›financeable›project›
have›commenced.›Ncondezi›is›targeting›
EdM›as›the›main›offtaker›for›the›first›
300MW.›EdM›is›an›ideal›customer›as›it›can›
readily›absorb›power›today,›it›has›existing›
transmission›capacity›and›there›is›current›
demand,›with›strong›growth›potential.›
Negotiations›have›commenced›with›EdM,›
beginning›with›Heads›of›Terms›for›a›Power›
Purchase›Agreement›(“PPA”)›and›are›
expected›to›be›concluded›by›Q4›2013.›
Ncondezi›expects›to›sign›the›final›PPA›
in›H2›2014›and›is›targeting›a›competitive›
electricity›tariff.
Heads›of›Terms›on›the›Coal›Supply›
Agreement›are›well›advanced›and›are›also›
expected›to›be›completed›by›Q4›2013.›The›
Agreement›will›be›conducted›at›arm’s›
length›and›on›commercial›terms›with›
a›minimum›duration›of›25›years.›
08
Construction and timeline
The›300MW›power›plant›is›targeting›
commercial›operation›in›2017.›Based›on›
industry›experience,›the›Company›has›
forecast›a›construction›period›of›between›
24›to›36›months,›depending›on›the›selected›
EPC›firm.›The›mine›construction›is›
expected›to›take›24›months,›with›first›
production›targeted›in›2016,›in›order›to›
stockpile›coal›supply›for›the›power›plant.
Power›Plant›Minimum›Functional›
Specifications›have›been›distributed›to›
selected›EPC›firms›for›tender›and›to›obtain›
more›accurate›capital›expenditure›quotes.›
Indicative›proposals›are›expected›during›
Q2›2013,›after›which›a›short›list›of›
preferred›EPC›bidders›will›be›invited›to›
submit›binding,›detailed›bids›during›H2›
2013.›The›binding›bids›will›play›a›key›role›
in›completing›the›PPA›and›project›funding.
Project funding
Ncondezi›plans›to›develop›the›Project›in›
partnership›with›a›power›plant›developer›
and›operator.›As›a›base›load›electricity›
provider,›the›power›plant›is›expected›to›
generate›a›consistent›and›stable›revenue›
stream›and›the›Company›has›received›
strong›indications›of›the›potential›
availability›of›project›finance,›ranging›
from›70%›to›85%›debt›financing.›
It›is›envisaged›that›potential›participation›
could›include›corporate›and/or›project›
equity,›offtake›and/or›financing›and›
construction›capabilities.
Ncondezi›is›exploring›a›range›of›options›
and›opportunities›regarding›strategic›
investors›participating›in›the›300MW›
Project.›These›potential›strategic›investors›
range›from›strategic›partners›(IPPs,›EPCs,›
O&Ms)›infrastructure›and›emerging›market›
funds›and›local›Mozambican›companies.
Ncondezi Coal CompanyAnnual report and financial statements 2012 Roadmap to implementation
Key Work Streams for 300MW Project
Power›Framework›Agreement›
with›MoE
Integrated›300MW›Project›refined›
capital›expenditure›estimate›
Coal›supply›agreement
Heads›of›Terms›Power
Purchase›Agreement
Commence›Power›Plant›
Detailed›Engineering
H1›2013
H1›2013
H2›2013
H2›2013
H2›2013
Commence›Power›Plant›Financing H2›2013
Selection›of›Owners›Engineer
H2›2013
Selection›of›Operator›&›
Maintenance›Contractor
Selection›of›Power›Plant›
EPC›Contractor
H1›2014
H1›2014
Finalise›300MW›Bankable›
Power›Purchase›Agreement
H2›2014
Mine›Construction
Power›Plant›Construction
Mine›Commissioning
Power›Plant›Commissioning
H1›2015
H1›2015
2016
2017
Ncondezi Export Coal Project
Since›initiating›the›Mine›DFS›in›Q3›2010,›
which›envisaged›a›large›scale,›long›life›
mining›operation›producing›export›grade›
coal›products,›the›macro-economic›
environment›has›changed›considerably›
and›seaborne›thermal›coal›prices›have›
weakened›significantly.›The›developing›coal›
projects›around›Tete›have›not›been›immune›
to›these›changes›and›the›large,›capital›
intensive›export›rail›and›port›infrastructure›
projects,›primarily›for›coking›coal›projects,›
have›developed›more›slowly›than›
originally›envisaged.›
Whilst›the›Mine›DFS›confirmed›the›
capability›of›a›large›scale,›long›life,›open›pit›
mining›operation›producing›both›domestic›
and›export›grade›coal›products,›Ncondezi›
has›decided›to›proceed›with›the›
development›of›its›power›project.›
Production›of›an›export›thermal›coal›
product›and›associated›capital›expenditure›
will›be›initiated›only›when›rail›and›port›
infrastructure›in›Mozambique›has›
sufficiently›advanced.›This›approach›has›
the›dual›benefit›of›a›reduction›in›the›
start-up›capital›outlay›for›the›mine›and›
reduces›Ncondezi’s›reliance›on›third›party›
rail›and›port›infrastructure›development›
for›project›operations›to›begin.
Transport infrastructure agreement
In›early›2012,›Ncondezi›signed›an›
agreement›with›Rio›Tinto›Coal›Mozambique,›
a›wholly›owned›subsidiary›of›Rio›Tinto›plc›
("Rio›Tinto"),›and›Minas›de›Revuboè.›The›
Agreement›entitles›Ncondezi›to›an›export›
allocation›on›the›Integrated›Transport›
Development›Project›(“ITD›Project”),›which›
is›a›greenfield›rail›and›port›project,›for›its›
planned›export›coal›production.
The›ITD›Project›is›under›Feasibility›Study,›
which›is›being›led›by›Rio›Tinto.›The›ITD›
Project›represents›a›scalable›solution›with›
the›potential›to›provide›coal›export›capacity›
of›between›25Mtpa›and›100Mtpa,›as›well›as›
provide›broader›economic›and›social›
benefits›to›the›people›and›agricultural›
industries›of›Zambezia›Province.›The›ITD›
Project›has›the›potential›to›be›a›low›cost›
rail›transport›option›for›exporting›coal›from›
the›Tete›Province,›as›it›is›expected›to›be›the›
shortest›rail›distance›to›port›and›would›
utilise›new›and›modern›infrastructure›
to›maximise›economies›of›scale.
Under›the›terms›of›the›Agreement,›
Ncondezi›is›not›required›to›contribute›
capital›to›the›ITD›Project›feasibility›study›
or›development›capital›costs,›however›
Ncondezi›will›have›the›option›to›negotiate›
take-or-pay›agreements›with›the›ITD›
Project›operator›once›a›decision›has›been›
made›to›implement›and›develop›the›
ITD›Project.
Summary of Mine DFS
The›Mine›DFS›was›independently›prepared›
by›TWP›Holdings›(Pty)›Ltd›and›confirmed›
the›large›scale,›long›life›operational›
capability›of›an›integrated›mine›and›power›
operation.›The›Mine›DFS›envisaged›an›open›
pit,›truck›and›shovel›mining›operation›
supplying›domestic›grade›coal›to›an›
1,800MW›mine›mouth›power›station›and›
producing›export›grade›thermal›coal›over›
a›25›year›life›of›mine›from›only›two›of›the›
six›resource›blocks›on›the›Ncondezi›Project›
license›area.›
The›Mine›DFS›scope›was›designed›to›
demonstrate›the›mine›could›support›up›
to›an›1,800MW›power›plant,›ramped›up›
in›phases,›with›a›25›MJ/kg›(NAR)›export›
thermal›coal›product›produced›as›a›
secondary›product.›However,›as›there›are›
currently›rail›and›infrastructure›limitations›
for›the›export›grade›product,›Ncondezi›is›
focusing›on›developing›a›much›smaller›
mining›operation›to›produce›only›domestic›
grade›coal›to›supply›the›power›plant›in›the›
short›to›medium›term.
Drilling programme and
resource upgrade
During›the›first›half›of›2012›an›infill›drilling›
resource›definition›programme›was›
conducted›on›the›license›areas›to›improve›
resource›classification,›resulting›in›4,063m›
of›additional›drilling›and›bringing›the›total›
number›of›metres›drilled›to›over›75,492m.›
A›total›of›36›HQ3›cored›boreholes›were›
drilled›during›the›campaign.›Previous›
geological›modelling›and›resource›
estimation›identified›six›discrete›resource›
blocks›within›the›Ncondezi›Project›area›
that›contained›coal›at›depths›amenable›
to›opencast›mining.›These›blocks›are›the›
North,›South,›Central,›East,›West›and›
River›Blocks.›
During›the›Mine›DFS,›optimisation›studies›
were›conducted›on›the›North,›South,›East›
and›Central›Blocks›and›based›on›these›
findings›detailed›mine›design›were›
conducted›for›the›North›and›South›Blocks.›
These›two›blocks›contain›some›1,206›MTIS›
(mineable›tonnes›in›situ)›of›which›62%›is›
classified›as›Indicated›Resources›and›the›
remaining›38%›as›Inferred.›The›Company’s›
geological›consultants,›The›Mineral›
Corporation›(Pty)›Ltd,›produced›JORC›
compliant›resource›estimations›for›all›the›
resource›blocks›and›these›calculations›
were›updated›in›Q4›2012›with›the›newly›
acquired›data›obtained›by›the›2012›
drilling›programme.
Social and environmental
ERM›and›Impacto›have›been›appointed›to›
conduct›the›Mine›Environmental›and›Social›
Impact›Assessments›(“ESIA”),›alongside›
Parsons›Brinckerhoff›and›Impacto›for›the›
power›plant›ESIA.›Work›progressed›well›
during›the›year,›with›no›fatal›flaws›
discovered.›Extensive›community›
engagement›has›been›conducted›with›
positive›responses.›The›ESIAs›are›due›
for›completion›during›Q3›2013.
09
Overview 02Business review 04Corporate governance 15Financial statements 30
Business review
Financial review
Outlook
The›Directors›have›reviewed›future›cash›
forecasts,›with›particular›reference›to›
minimum›expenditure›requirements›on›the›
licences›and›the›intended›work›programme›
for›the›300MW›Project›for›2013,›which›is›
focused›on›advancing›negotiations›on›the›
key›commercial›agreements,›including›
signed›Heads›of›Terms›by›year›end.›
The›Group›has›sufficient›funding›to›finance›
its›activities›through›to›March›2014.›The›
Directors›are›in›negotiations›with›a›number›
of›parties›in›respect›of›raising›further›funds›
to›continue›with›the›power›plant›
development›programme.›Whilst›progress›
is›being›made›on›a›number›of›potential›
transactions›that›would›provide›additional›
financing,›at›present›there›are›no›binding›
agreements›in›place.›
Based›on›the›current›progress›of›
negotiations›with›potential›providers›of›
finance›and›discussions›with›potential›
investors,›the›Directors›believe›that›the›
necessary›funds›to›provide›adequate›
financing›to›continue›the›power›plant›
development›programme›will›be›raised›as›
required.›Accordingly›they›are›confident›
that›the›Group›will›continue›as›a›going›
concern›and›have›prepared›the›financial›
statements›on›that›basis.
Manish Kotecha
Chief Financial Officer
Results from operations
The›Group›made›a›loss›after›tax›for›the›year›
of›US$8.6m›compared›to›a›loss›of›US$7.0m›
for›the›previous›financial›year.›The›basic›
loss›per›share›for›the›year›was›7.1›cents›
(2011:›5.9›cents).
Administrative›expenses›totalled›US$8.6m›
(2011:›US$11.1m).›This›included›a›share-
based›payments›charge›of›US$1.3m›(2011:›
US$2.6m),›impairment›of›exploration›costs›
of›US$Nil›(2011:›US$0.7m)›and›research›
expenses›of›US$Nil›(2011:›US$1.3m).›
Financial position
The›Group’s›statement›of›financial›position›
at›31›December›2012›and›comparatives›at›
31›December›2011›are›summarised›below:
Non-current›assets
Current›assets
Total›assets
Current›liabilities
Total›liabilities
Net›assets
2012
US$’000
2011››
US$’000
41,409
15,064
56,473
2,687
2,687
53,786
31,155
33,423
64,578
3,499
3,499
61,079
The›movement›in›non-current›assets›of›
US$10.2m›was›largely›due›to›an›increase›in›
intangible›assets›of›US$10.5m›and›tangible›
assets›of›US$0.1m›and›resulted›from›the›
continued›development›of›the›Ncondezi›
Project,›these›were›reduced›by›a›
depreciation›charge›for›the›year›of›
US$0.3m.
The›decrease›in›current›assets›of›
US$18.4m›is›attributable›to›a›decrease›in›
cash›and›cash›equivalents.
Cash flows
The›net›cash›outflow›from›operating›
activities›for›the›year›was›US$8.6m›
(2011:›US$9.3m).
Net›cash›used›in›investing›activities›was›
US$9.7m›(2011:›US$15.1m),›including›
amounts›of›US$0.1m›for›property,›plant›and›
equipment›(2011:›US$1.0m)›and›US$9.7m›on›
exploration›activities›(2011:›US$14.2m)›
incurred›on›the›Ncondezi›Project.
The›resulting›year›end›cash›and›cash›
equivalents›held›totalled›US$12.0m›
(2011:›US$30.4m).›
10
Ncondezi Coal CompanyAnnual report and financial statements 2012 Business review
Resource summary
High›Volatile
Low›Volatile
Sub-Total
Resource›Category
Indicated
Inferred
Indicated
Inferred
Indicated
Inferred
Total
Indicated›&›Inferred
High›Volatile
Low›Volatile
Sub-Total
y
r
a
m
m
u
S
Resource›Category
Indicated
Inferred
Indicated
Inferred
Indicated
Inferred
Total
Indicated›&›Inferred
GTIS
TTIS
MTIS
Mt
867
Mt
Mt
772.8
742.5
3,605.20
3,035.80
2,367.40
819.5
264.8
737.6
225.1
723.9
172.8
1,686.50
1,510.40
1,466.40
3,870.00
3,260.90
2,540.10
5,556.60
4,771.30
4,006.50
RD
1.85
1.94
1.91
1.92
1.88
1.94
1.92
Raw›Coal›Qualities›(air-dried›basis)
IM›(%)
Ash›(%)
VM›(%)
FC›(%)
CV›(MJ/kg)
1.4
1.9
1.9
1.8
1.7
1.9
1.8
53.5
57.7
51.8
52.1
52.7
57.4
55.6
18.1
18.6
7.5
7.6
12.9
17.8
16
27
21.9
38.7
38.5
32.8
23
26.6
13.83
11.79
12.73
12.78
13.29
11.86
12.38
17›MJ/kg›Domestic›Product
TS›(%)
1.01
1
0.88
0.83
0.94
0.99
0.97
Resource›Category
Yield›(%)
IM›(%)
Ash›(%)
VM›(%)
FC›(%)
CV›(MJ/kg)
TS›(%)
High›Volatile
Low›Volatile
Sub-Total
Indicated
Inferred
Indicated
Inferred
Indicated
Inferred
Total
Indicated›&›Inferred
71.3
62.6
71.7
70.8
71.5
63.2
66.2
1.4
2
1.9
1.8
1.6
1.9
1.9
44.4
44.7
42.6
42.5
43.5
44.6
44.2
20.5
22.2
9.1
9
14.9
21.2
18.9
33.7
31.1
46.4
46.7
40
32.3
35.0
17.61
17.07
17.29
17.41
17.45
17.09
17.22
1.09
1.13
1.01
0.98
1.05
1.12
1.09
Notes:
–› ›Indicated›resources›were›defined›within›areas›where›the›spacing›of›boreholes›with›raw›coal›quality›data›is›approximately›500›metres.›Extrapolation›of›these›areas›was›limited›
to›approximately›250›metres.
–› ›Inferred›resources›were›defined›within›areas›where›the›spacing›of›boreholes›with›raw›coal›quality›data›is›approximately›2,000›metres.›Extrapolation›of›these›areas›was›
limited›to›approximately›1,000›metres.
–› ›GTIS›(Gross›Tonnage›in›situ)›figures›represent›the›entire›classified›resource›for›the›block,›below›the›observed›limit›of›weathering,›with›application›of›a›0.5›metre›minimum›ply›
thickness›cut-off,›but›no›depth›restriction.
–› ›In›the›Central›Block,›classified›resources›reach›approximately›400›metres›depth;›in›the›North›Block›600›metres;›in›the›South›and›West›Blocks›300›metres,›in›the›East›Block›
330›metres›and›in›the›River›Block›500›metres.
–› ›TTIS›(Total›Tonnage›in›situ)›figures›for›high›and›low›volatile›coals›were›calculated›from›the›GTIS›tonnage›by›applying›Geological›Losses.›The›losses›applied›were›generally›
10%›for›Indicated›resources›and›15%›for›Inferred›resources.›In›the›Central›Block,›these›were›increased›to›15%›and›20%›respectively.
–› ›MTIS›(Mineable›Tonnage›in›situ)›figures›represent›that›part›of›the›TTIS›which›exists›above›a›depth›of›250›metres.
–› ›All›qualities›are›quoted›on›an›air-dried›basis.
–› ›Product›yields›are›theoretical›yields›for›+0.5mm›material›derived›from›slim›core›samples.
–› ›For›the›Central,›North,›South›and›East›Blocks,›ply›thicknesses›were›weighted›against›MTIS›coal›seam›area›to›obtain›average›resource›ply›thicknesses.›Thicknesses›for›
the›River›and›West›Blocks›are›not›incorporated›in›the›"Summary"›table›average›ply›thickness›as›plies›have›not›been›defined›in›those›blocks.
–› ›In›the›case›of›the›West›and›River›Blocks,›average›cumulative›coal›thickness›was›weighted›against›MTIS›coal›seam›area›to›obtain›the›average›resource›cumulative›
coal›thickness.
–› ›RDs›were›weighted›against›MTIS›coal›volume›to›obtain›average›resource›RDs.
–› ›Raw›qualities›and›product›yields›were›weighted›against›MTIS›tonnage›to›obtain›average›yields.
–› ›Product›qualities›were›weighted›against›wash›yield›and›MTIS›tonnage›to›obtain›average›resource›qualities.
–› ›Low›Volatile›coals›have›been›devolatilised›by›igneous›intrusions.›Studies›by›Ncondezi›indicate›that›these›coals›may›be›suitable›for›power›generation.
–› ›Low›volatile›coals›are›not›common›in›the›Central,›West›and›River›Blocks›and›have›been›excluded›from›resources.
–› ›The›Central,›North,›South›and›East›Block›models›comprise›detailed›ply›models›suitable›for›mine›planning›purposes.›The›West›and›River›Block›models›utilise›a›cumulative›
coal›thickness›methodology›that›is›appropriate›only›to›the›classification›of›Inferred›Resources.
–› ›As›hydrological›studies›have›not›yet›been›finalised,›no›allowance›has›been›made›for›potential›sterilisation›of›resources›below›the›limits›of›the›Ncondezi›or›Revuboe›Rivers'›
flood›lines.›This›could›affect›resources›in›the›Central,›North,›West›and›River›Blocks.
–› ›Certain›amounts›of›averaged›"control"›data›were›included›in›the›quality›database,›particularly›wash›analyses›of›low›volatile›coal›samples;›further›analytical›work›is›
planned›in›order›to›reduce›dependency›on›the›control›data.
11
Overview 02Business review 04Corporate governance 15Financial statements 30
Business review
Environmental &
Social Responsibility
Good corporate
citizenship is integral
to the way Ncondezi
operates. Environment,
social, health and safety
responsibilities are a
priority for Ncondezi
in all aspects of
its business.
12
Ncondezi’s›corporate›social›responsibility›
(“CSR”)›policy›has›been›designed›to›
promote›social›development›projects›that›
facilitate›sustainable›development›and›
focus›on›community›involvement.›Ncondezi›
adheres›to›the›Equator›Principles,›the›IFC›
performance›standards›and›to›Mozambican›
legislative›requirements.›
Social Development Plan
A›three›year›Social›Development›Plan›
(“SDP”)›is›being›implemented›as›a›public–
private›partnership›with›the›Company,›the›
Government›and›the›local›communities›
actively›participating.›The›SDP›will›benefit›
the›local›communities›at›the›Ncondezi›
Project,›the›Moatize›District›and›selected›
other›communities›in›Tete›and›Mozambique.›
A›total›budget›of›US$2m›has›been›
allocated.›Around›US$340,000›was›spent›
on›social›projects›in›2012.
The›objectives›of›the›SDP›include:
›› Contribute›to›sustainable›development›
in›Mozambique
›› Partner›with›the›Mozambican›
Government›in›development›efforts
›› Create›opportunities›to›share›Ncondezi’s›
success›with›local›communities
The›SDP›will›be›made›up›of›10›social›
initiatives›and›is›the›result›of›extensive›
stakeholder›consultation.
The›government›has›described›SDP›as›
“...unparalleled model
of public-private
partnership that fulfils
the aspirations of the
government and of the
people of Mozambique
which should be
emulated by other
companies...”
Manuel Guimarães,›District›Administrator››
of›Moatize,›1›November›2012›
Ncondezi Coal CompanyAnnual report and financial statements 2012 Following›the›signing›of›an›Interim›
Memorandum›of›Understanding›with›the›
Ministry›of›Mines›in›December›2011,›the›
Tete›Provincial›Government›reviewed›and›
endorsed›the›SDP›in›July›2012.›It›was›
officially›launched›by›the›Tete›Provincial›
Governor›in›January›2013›and›will›be›
implemented›over›the›next›three›years,›
up›to›2015.›The›specific›initiatives›to›be›
implemented›are›currently›under›final›
review›with›the›provincial›and›district›
government›authorities.›
Social projects
The›table›below›shows›the›summary›of›the››
social›projects›undertaken,›under›way›and››
planned›within›the›approved›SDP.›
Social Project Completed
(March 2011 – Dec 2012)
Social Projects Under way
(Jan 2013 – Dec 2013)
Planned Projects
(Jan 2014 – Dec 2014)
›› Post-graduate›students›in›Coimbra,›
›› Post-graduate›students›in›Coimbra,›
›› Post-graduate›students›in›Coimbra,›
Portugal›(x2)1
›› Built›Meeting›Centre›for›
presidential›visit1
›› Support›to›SOS›orphanage1
›› Signage›for›Moatize›District1
›› Intuitional›support›to›district1
›› Bicycle›Ambulances›for›villagers1
›› Bicycle›carriers›for›farmers1
›› 10›water›boreholes›for›villagers1
Portugal›(x4)›continued1
›› Clinic›rehabilitation›in›Mameme›2›
›› Ambulance›for›Ncondezi›Ceta
›› Intuitional›support›to›district
›› Medical›kit›for›Ncondezi›Ceta
›› Two›water›boreholes›for›Ncondezi›Ceta›
›› Water›and›sanitation›Educational›
Programme
›› Provincial›Adult›Literacy›Campaign
›› Agricultural›Support›scheme
Portugal›(x2)›continued
›› Agricultural›Support›scheme›continued
›› Provincial›Adult›Literacy›Campaign
›› Health›support›to›district
›› Intuitional›support›to›district
›› Six›water›boreholes
›› Technical›School›in›Madamba
US$404,000
US$340,000
US$1,256,000
1› Completed›projects›as›of›December›2012.
In›2012,›the›number›of›post›graduate›
bursary›students›in›Coimbra,›Portugal›
increased›to›four›as›two›more›mining›
engineering›students›joined›the›two›
geologists›undertaking›an›MSc›in›Geology›
and›Mining›Engineering.›
The›SDP›projects›for›the›year›included›
logistical›support›for›the›presidential›visit,›
district›signage›and›an›administration›
vehicle›and›ten›water›boreholes›for›ten›
different›communities›in›the›Moatize›
district›which›will›benefit›an›estimated›
11,000›people.›
The environment
The›environmental›work›for›2012›was›
dominated›by›the›ESIA›studies›for›the›mine›
and›power›plant.›This›included›the›review›
and›finalisation›stages›of›the›mine›ESIA,›
initiation›of›the›power›station›ESIA›and›a›
preliminary›resettlement›plan.›The›ESIAs›
have›been›designed›to›meet›both›the›
Mozambique›legislation›requirements›and›
international›best›practice.
Mine ESIA
ERM›and›Impacto›conducted›an›ESIA›of›
the›proposed›Ncondezi›mine›covering›
exploration›licences›804L›and›805L.›
All›environmental›baseline›studies›and›
monitoring›were›completed›during›the›year›
and›an›ESIA›report›is›being›prepared›for›
submission›to›the›Ministry›for›Coordination›
of›Environmental›Action›("MICOA")›in›H1›
2013.›Thereafter›an›application›for›the›
environmental›license›for›the›Ncondezi›
Project›will›be›prepared›and›will›be›
submitted›to›MICOA,›following›acceptance›
of›the›ESIA›by›the›authorities.›An›ESIA›
study›report›will›also›be›compiled›to›meet›
international›best›practice›requirements›
and›to›provide›framework›environmental›
and›social›management›plans.
Resettlement Action Plan for
Ncondezi Project
As›part›of›the›mine›ESIA,›an›extensive›
resettlement›assessment›was›undertaken›
that›included›the›following:
i.› Specialist›studies›as›part›of›the›ESIA
ii.› ›Three›workshops›held›in›Mozambique›
and›South›Africa
iii.› ›An›internal›resettlement›planning›project
The›outcomes›of›the›assessment›were:
i.›
›A›comprehensive›Resettlement›Policy›
Framework
ii.› ›A›preliminary›resettlement›plan›with›full›
costings›to›resettle›potentially›affected›
families›from›two›communities
Power Plant ESIA
Ncondezi›commissioned›Parsons›
Brinkerhoff›and›Impacto›to›conduct›the›
ESIA›for›the›proposed›300MW›thermal›
power›station,›which›was›undertaken›in›
parallel›with›the›Feasibility›Study.›The›ESIA›
has›been›progressing›well›with›no›fatal›
flaws›identified.›The›first›public›
consultation›meetings›were›held›in›
November›2012›in›Tete›and›Moatize.›
A›reconnaissance›aerial›tour›of›the›
proposed›power›evacuation›route›has›
been›conducted›by›Parsons›Brinkerhoff›and›
Ncondezi›personnel.›Ncondezi›also›hosted›
a›site›visit›by›MICOA›officials›for›a›
preliminary›environmental›feasibility›
assessment›of›the›power›plant›location›
and›the›outcome›was›positive.›The›ESIA›
is›due›to›be›completed›during›H1›2013.
13
Overview 02Business review 04Corporate governance 15Financial statements 30
Corporate governance
Board of Directors
Richard Stuart
Non-ExecutiveDirector
Richard›Stuart›has›over›19›years'›experience›
in›corporate›finance.›He›is›also›currently›the›
Chairman›of›Strata,›Ncondezi’s›largest›
shareholder.›He›was›a›partner›in›Martin›&›Co›
from›1978›and›a›former›Joint›Senior›Partner›
of›Fleming-Martin,›which›was›established›in›
1994›and›was›one›of›South›Africa’s›leading›
brokerage›firms.›He›played›a›key›role›in›
raising›international›equity›capital›for›South›
African›companies›in›the›post-sanction›era›
and›in›the›relocation›of›Gencor›(as›Billiton›plc.)›
and›The›South›African›Breweries›Ltd›onto›the›
London›Stock›Exchange.
Graham Mascall
Non-ExecutiveDirector
Graham›Mascall›has›over›40›years›of›
commercial,›financial,›and›transaction›
experience›in›mergers›and›acquisitions,›
business›development›and›project›
management›in›mining›and›mining›finance.›
Over›the›course›of›his›career›he›has›worked›
as›a›senior›executive›for›a›number›of›
companies›in›the›mining›and›mine›finance›
sector.›He›has›worked›in›senior›positions›
for›Billiton›plc,›the›post-merger›entity›BHP›
Billiton›plc,›Deutsche›Morgan›Grenfell,›
Outokumpu›Metals›and›Resources›
International›Limited,›Barclays›Bank,›and›
was›Chief›Executive›Officer›of›International›
Molybdenum›Limited›and›Lubel›Coal›
Company›(UK)›Limited.›Mr›Mascall›is›a›
graduate›in›mining›engineering›from›the›
Camborne›School›of›Mines›and›holds›a›
Master›of›Engineering›in›Mineral›
Economics›from›McGill›University.›He›is›
currently›also›a›director›of›AIM›listed›
Gemfields›Resources›plc.›and›NYSE›listed›
Walter›Energy›Inc.
Estevão Pale
IndependentNon-ExecutiveDirector
Estevão›Pale›has›more›than›30›years'›
experience›in›the›mining›industry.›He›is›
the›Chief›Executive›Officer›of›Companhia›
Moçambicana›de›Hidrocarbonetos,›S.A.,›a›
Mozambican›natural›gas›company,›where›he›
negotiates›sales›agreements›for›natural›gas›
and›condensate›as›well›as›dealing›with›
junior›and›senior›lenders›of›the›Company.›
Between›1996›and›2005,›he›was›the›National›
Director›of›Mines›in›the›Ministry›of›Mineral›
Resources›and›Energy,›where›he›was›
responsible›for›the›supervision›and›control›
of›mineral›activities›in›Mozambique›and›the›
formulation›and›implementation›of›the›
mining›and›geological›policy›approved›by›
the›Government›of›Mozambique.›
Mr›Pale›has›been›a›Director›of›numerous›
companies›in›the›mining›sector›including›
Promaco›SARL›and›the›Mining›
Development›Company,›as›well›as›the›
General›Director›and›Chief›Executive›of›
Minas›Gerais›de›Moçambique.›Mr›Pale›has›
a›postgraduate›diploma›in›Mining›
Engineering›from›the›Camborne›School›of›
Mines›in›Cornwall›and›a›Masters›degree›in›
Financial›Economics›from›the›University›of›
London›(SOAS).›He›completed›a›course›in›
Gas›Business›Management›in›Boston›at›the›
Institute›of›Human›Resources›Development›
Corporation›in›2006.
Nigel Sutherland
IndependentNon-ExecutiveDirector
Nigel›Sutherland›has›spent›over›35›years›
working›internationally,›particularly›in›South›
Africa,›Australia›and›the›former›Soviet›Union,›
in›the›resource›sector.›He›is›currently›a›
director›of›Partners›in›Performance›
International›('PIP')›and›responsible›for›
business›development.›Prior›to›joining›PIP,›
he›gained›wide›experience›in›corporate,›
commercial,›risk›management›and›strategic›
planning›through›his›roles›at›Anglo›American›
plc,›in›merchant›banking›and›in›management›
consulting.›Mr›Sutherland›has›an›MBA›from›
the›University›of›Cape›Town›and›a›Bachelor›of›
Engineering›(Metallurgy)›from›the›University›
of›Witwatersrand.
Michael Haworth
Non-ExecutiveChairman
(appointed1June2012)
Michael›Haworth›was›appointed›to›the›
Board›as›Non-Executive›Chairman›in›June›
2012.›He›is›a›Non-Executive›Director›of›
Zanaga›Iron›Ore›Company›Limited›and›is›
a›Director›of›Strata›Limited›(“Strata”),›
a›major›shareholder›of›the›Company.
Mr›Haworth›has›over›12›years'›investment›
banking›experience,›predominantly›in›
emerging›markets›and›natural›resources.›
Prior›to›establishing›Strata›in›2006,›Mr›
Haworth›was›a›Managing›Director›at›J.P.›
Morgan›and›Head›of›Mining›and›Metals›
Corporate›Finance›in›London.
Paul Venter
ChiefExecutiveOfficer
(appointed26April2013)
Paul›Venter›was›appointed›Chief›Executive›
Officer›in›April›2013.›He›joined›the›Company›
as›Chief›Operating›Officer›in›June›2012›and›
has›been›responsible›for›delivering›the›
Company’s›power›strategy.›Mr›Venter›has›
over›39›years'›experience›across›Africa,›
Mongolia,›China›and›Russia›in›the›mining,›
power›generation›and›transport›industries.
During›his›recent›tenure›as›Vice›President›
–›Energy›Operations›at›Prophecy›Coal›Corp,›
a›TSX›listed›company,›he›was›instrumental›
in›the›successful›commissioning›of›the›
Ulaan›Ovoo›coal›mine›in›Mongolia›into›
production›within›six›months›after›the›
acquisition›of›the›asset.›He›also›played›a›
pivotal›role›in›the›development›phases›of›
the›first›coal›fired›Independent›Power›
Producer›in›Mongolia.
Prior›to›this,›Mr›Venter›held›a›number›of›
senior›positions›within›the›coal›industry,›
including›Managing›Director›of›EN+›Group’s›
coal›mining›activities›in›Russia›and›senior›
executive›positions›in›the›coal›divisions›of›
Eskom,›Gencor›and›Anglo›American›in›
South›Africa.
14
Ncondezi Coal CompanyAnnual report and financial statements 2012 Peter O’Connor
IndependentNon-ExecutiveDirector
(appointed4February2013)
Peter›O’Connor›was›appointed›to›the›Board›
on›4›February›2013.›Mr›O’Connor›has›over›
20›years’›experience›in›the›power›sector,›
working›for›Eskom,›the›South›African›
electricity›public›utility›which›is›the›largest›
producer›of›electricity›in›Africa,›an›importer›
of›electricity›from›Mozambique›and›is›
among›the›top›seven›utilities›in›the›world›in›
terms›of›generation›capacity›and›among›the›
top›nine›in›terms›of›sales.›
Most›recently›he›was›Senior›General›
Manager›of›the›Capital›Expansion›Division,›
which›was›responsible›for›the›EPCM›of›all›
the›company’s›generation›and›transmission›
expansion›projects,›as›well›as›the›
construction›of›a›1050MW›gas›power›station,›
which›was›built›in›record›time.›Prior›to›this,›
he›held›senior›management›positions›in›the›
Generation›Division,›where›he›successfully›
increased›plant›availability›from›78%›to›93%›
and›at›the›Transmission›Division,›where›he›
was›responsible›for›the›network›delivery,›
network›expansion›and›system›operations.›
He›gained›operational›experience›as›the›
manager›of›Kriel,›Arnot›and›Kendal›power›
stations.›He›holds›a›degree›in›mechanical›
engineering›and›is›a›patent›lawyer.
Mark Trevan
IndependentNon-ExecutiveDirector
Mark›Trevan›has›over›30›years'›experience›
in›the›mining›and›metals›sector.›He›is›
currently›the›Managing›Director›of›
Australian›coking›coal›producer,›Caledon›
Resources›Limited.›Prior›to›joining›Caledon›
in›September›2006,›he›spent›25›years›with›
Rio›Tinto›Ltd›where›he›held›senior›executive›
roles›in›the›areas›of›coal›marketing,›
general›commercial,›corporate›strategy›
and›project›feasibility.›Mr›Trevan›is›a›
graduate›in›Applied›Finance›and›Investment›
from›the›Securities›Institute›of›Australia›
and›holds›a›Diploma›of›Business›
(Accounting)›from›the›Preston›Institute›
of›Technology.
Christiaan Schutte
IndependentNon-ExecutiveDirector
(appointed4February2013)
Christiaan›Schutte›was›appointed›to›the›
Board›on›4›February›2013.›Mr›Schutte’s›
career›in›the›power›sector›spans›over›
20›years›during›which›time›he›worked›for›
Eskom,›the›South›African›electricity›public›
utility›which›is›the›largest›producer›of›
electricity›in›Africa,›and›held›a›number›
of›senior›management›positions.›
Most›recently›he›was›Senior›General›
Manager›of›the›Group›Technology›Division›
and›responsible›for›all›the›engineering›
functions›at›Eskom,›including›design›
accountability›for›new›power›stations,›
transmission›lines›and›distribution›
development.›Prior›to›this›he›was›Senior›
General›Manger›of›the›Generation›Division,›
managing›five›power›stations›with›over›
18,000MW›total›installed›capacity,›an›
operational›budget›of›3.8›billion›Rand›and›
a›capital›budget›just›under›4›billion›Rand.›
Operational›experience›was›gained›at›
Majuba›power›station,›which›he›also›
integrated›into›a›single›cluster›operation,›
and›Kendal›power›station.›He›holds›a›
degree›in›mechanical›engineering›as›
well›as›an›MBL›from›Unisa.›
15
Overview 02Business review 04Corporate governance 15Financial statements 30
Directors’ report
The Directors present their Annual Report and the audited Group financial statements for the year ended 31 December 2012.
Principal activities
The principal activity of the Group is the development of an integrated open pit mine and 300MW power plant to produce and supply
electricity to the Mozambican domestic market.
Business review and future developments
Details of the Group’s business and expected future developments are set out in the Chairman’s Statement on pages 4 and 5, the
Operations review on pages 6 to 9 and in the Financial review on page 10.
Principal risks and uncertainties
The Group operates in an uncertain environment that may result in increased risk, cost pressures and schedule delays. The key risk
factors that face the Group and their mitigation are set out on pages 18 to 22.
Additionally, the Group’s multi‑national operations expose it to a variety of financial risks such as market risk, foreign currency exchange
rates and interest rates, liquidity risk, and credit risk. These are considered further in note 17.
Key performance indicators
The key performance indicators of the Group are as follows:
Exploration expenditure (US$’000)
Metres drilled Ncondezi Project
Share price at 31 December (pence)
Cash at bank at 31 December (US$’000)
2012
2011
2010
10,565
3,674
24.00
12,008
14,966
39,333
52.25
30,044
5,078
20,653
200.5
38,068
Results and dividends
The results of the Group for the year ended 31 December 2012 are set out on page 30.
The Directors do not recommend payment of a dividend for the year (2011: Nil). The loss will be transferred to reserves.
Events after the reporting date
See note 22 for further information.
Financial instruments
Details of the use of financial instruments by the Company, its subsidiary undertakings and financial risk management are contained in
note 17 of the financial statements.
Directors and Directors’ interests
Director
Michael Haworth
Nigel Walls1
Richard Stuart
Graham Mascall
Estevão Pale
Nigel Sutherland
Colin Harris2
Mark Trevan
1 Resigned on 25 February 2013.
2 Resigned on 4 February 2013.
Ordinary
Shares held
31 December
2012
Ordinary
Shares held
31 December
2011
421,678
373,889
–
386,130
–
32,785
–
–
201,678
333,889
–
336,130
–
–
–
–
Michael Haworth and Richard Stuart are Directors of Strata Limited, which beneficially owns 54,289,641 Ordinary Shares, or 44.82%
of the Company’s issued shares.
16
Ncondezi Coal CompanyAnnual report and financial statements 2012 Annual General Meeting
Resolutions will be proposed at the forthcoming Annual General Meeting, as set out in the Formal Notice.
In accordance with the Company’s Articles of Association one third of the Directors are required to retire by rotation. Accordingly,
Mark Trevan and Nigel Sutherland will offer themselves for re‑election at the forthcoming Annual General Meeting of the Company.
The Company’s Articles of Association also require any Director appointed to the Board during the financial year to retire and stand for
re‑election at the Annual General Meeting following appointment. Accordingly Mr Haworth, Mr O’Connor, Mr Schutte and Mr Venter will
also retire and stand for re‑election.
Corporate Governance
The Company’s compliance with the principles of corporate governance is explained in the corporate governance statement on pages 23
to 25.
Ordinary Share Capital
The Company’s Ordinary Shares of no par value represent 100% of its total share capital. At a meeting of the Company every member
present in person or by proxy shall have one vote for every Ordinary Share of which he is the holder. Holders of Ordinary Shares are
entitled to receive dividends.
On a winding‑up or other return of capital, holders are entitled to share in any surplus assets pro rata to the amount paid up on their
Ordinary Shares. The shares are not redeemable at the option of either the Company or the holder. There are no restrictions on the
transfer of shares.
Disclosure of information to auditors
So far as each Director at the date of approval of this report is aware, there is no relevant audit information of which the Company’s
auditors are unaware and each Director has taken all steps that he ought to have taken to make himself aware of any relevant audit
information and to establish that the auditors are aware of that information.
Auditors
BDO LLP have expressed their willingness to continue in office as auditors, and a resolution to reappoint them will be proposed at the
Annual General Meeting.
By order of the Board
Elysium Fund Management Limited
Company Secretary
27 June 2013
17
Overview 02Business review 04Corporate governance 15Financial statements 30
Risk factors
Transmission grid constraints
Potential Impact(s)
Available transmission capacity is allocated to other
power generators.
Mitigation Measure(s)
Enter into negotiations with EdM and the Mozambican Government to ensure
that available transmission infrastructure allocation is secured early and
that proper evacuation infrastructure and capacities are available to the
Power Project in line with the Group’s strategy.
Explore and develop all potential future transmission options including new
transmission capacity in Mozambique as well as other countries including
Malawi and Zambia. Currently the Group is ideally positioned to connect to
new infrastructure build out, particularly the STE “backbone” transmission
project which will connect the cities of Tete and Maputo adding +3,000MW of
potential new capacity.
The Group has already initiated discussions with both Government and
EdM to be included in future allocation for this project, which is targeting
commissioning by 2020.
In addition, Malawi is looking to secure power from Mozambique and is
not currently connected to the Mozambican grid. The Power Project is
approximately 90km from Malawi’s main substation.
Off‑taker risk
Potential Impact(s)
Mitigation Measure(s)
The Group is unable to secure a credit worthy off‑taker
for the full output with the plant operating at load factors
in excess of 80%.
Enter into early PPA negotiations with EdM and other potential credible
power off‑taker(s) prior to initiating proceedings to raise finance for the
Power Project.
Use of CFB Technology
Potential Impact(s)
Mitigation Measure(s)
CFB technology has not been used in Mozambique as
there are currently no coal fired power plants. Although
CFB is proven technology, its application in Mozambique
is new.
Consequences may include not meeting guaranteed
numbers in terms of plant output, efficiency and emission
limits.
Operator & Maintenance issues may arise if the Group is
not familiar with this technology. This may have an impact
on plant reliability and availability.
Rigorously review plant performance in the country of origin as well as in
other countries where this technology is in use.
Visit and discuss with Power Project Sponsors/users identical installation
outside Mozambique to benefit from their experience.
Actively participate in erection and commissioning activities during project
execution.
Embed in the EPC contractor’s organisation the Group’s own personnel
during all phases of the project execution.
Subject the power plant to rigorous pre‑commissioning and commissioning
tests as well as performance guarantee tests on completion.
18
Ncondezi Coal CompanyAnnual report and financial statements 2012 Financial closure
Potential Impact(s)
Mitigation Measure(s)
The Group is unable to procure project financing, leading
to failure of the project or a delay.
The Group will engage with a Financial Advisor at an early stage in the
project development phase to ensure that the project is bankable.
Competition from other power stations in Mozambique
Potential Impact(s)
Mitigation Measure(s)
Other power stations are being developed in the Tete
region and competing for similar resources such as water
and transmission line servitudes.
The Group’s power project is currently the only dedicated integrated power
plant and mine project in Mozambique, maximising the Group’s flexibility to
develop the project. Being a thermal coal power station project, the Group
can implement commissioning of the power plant faster than competing
hydroelectric projects, which typically take two to three years longer
to commission.
Performance risk
Potential Impact(s)
Mitigation Measure(s)
The power plant may be unable to perform as per the EPC
proposal.
Performance warranties and guarantees will be required from the EPC
contractor as part of the EPC contract, including liquidated damages for
non‑performance.
The Minimum Functional Specification will define the operating
characteristics, including the net capacity and operational criteria such as
start‑up response times, dynamic response, and minimum load etc.
River water resource risk
Potential Impact(s)
Mitigation Measure(s)
The Revúbuè and Ncondezi Rivers are seasonal, should
there be insufficient water at the confluence (water
extraction point), the power plant operation will fail.
Detailed water investigations are being performed to ascertain the quantity
of water available to the Ncondezi Project (power plant and mine) and the
required extraction rates.
Investigations into the possibility of obtaining water from the Zambezi River
as a more reliable source of water will be performed, should inadequate
quantities be identified from the Revúbuè and Ncondezi Rivers.
Mitigation Measure(s)
Further coal quality analysis will be conducted and supplied to the boiler
supplier for finalisation of boiler design.
Coal risk
Potential Impact(s)
Coal specification developed at the pre‑feasibility study
and verified during the feasibility stage may not be
representative of coal to be used in the plant.
Not properly characterised coal resources may lead to
incorrect boiler design and plant underperformance.
19
Overview 02Business review 04Corporate governance 15Financial statements 30
Risk factors continued
Foreign country risk
Potential Impact(s)
Mitigation Measure(s)
The Group’s exploration licences and project are in
Mozambique. The Group faces political risk whereby
changes in government policy or a change of governing
political party could place its exploration licences and
project in jeopardy.
The Mozambique government has been stable for many years and fosters
a beneficial climate towards companies exploring for resources. It is not
anticipated that this situation is likely to change.
Power plant location geotechnical risks
Potential Impact(s)
Mitigation Measure(s)
Improper geotech investigation may lead to increase in
construction cost.
An initial geotechnical study was completed late in H2 2012 on the proposed
power plant site. No fatal flaws were identified.
Further work will be completed to reaffirm the geotechnical study results
ahead of any major construction.
Utilities availability and transportation
(water, limestone, coal, accessibility, heavy loads transportation)
Potential Impact(s)
Mitigation Measure(s)
The cost of the infrastructure related to plant resources
may increase if a proper assessment is not done.
Detailed utilities studies and surveys of the area and location to determine
logistics associated with the supply of utilities are ongoing.
Landmines
Potential Impact(s)
Mitigation Measure(s)
Existence of landmines in the Tete region and specifically
in the project area, which may lead to safety issues such
as fatalities and injury.
A comprehensive demining exercise has cleared the project site of any
landmine risks. However, additional work will be required around the areas
of the power evacuation route once this route has been confirmed.
20
Ncondezi Coal CompanyAnnual report and financial statements 2012 Exploration and mining
Potential Impact(s)
Mitigation Measure(s)
The business of exploration for and identification of coal
deposits, is speculative and involves a high degree of
risk. The coal deposits of any projects owned or acquired
by the Group may not contain economically recoverable
volumes of coal of sufficient quality or quantity. Even if
there are economically recoverable deposits, delays in
the construction and commissioning of mining projects or
other technical difficulties may make the deposits difficult
to exploit.
The exploration and development of any project may be
disrupted, damaged or delayed by a variety of risks and
hazards which are beyond the control of the Group. These
include (without limitation) geological, geotechnical
and seismic factors, environmental hazards, technical
failures, adverse weather conditions, acts of God and
government regulations or delays.
Exploration is also subject to general industrial operating
risks, such as environmental hazards, explosions, fires,
equipment failure and industrial accidents, which may
result in potential delays or liabilities, loss of life, injury,
environmental damage, damage to or destruction of
property and regulatory investigations. Although the
Group intends, itself or through operators, to maintain
insurance in accordance with industry practice, no
assurance can be given that the Group or the operator
of an exploration project will be able to obtain insurance
coverage at reasonable rates (or at all), or that any
coverage it obtains will be adequate and available to cover
any such claims. The Group may elect not to become
insured because of high premium costs or may incur a
liability to third parties (in excess of any insurance cover)
arising from pollution or other damage or injury.
Geology
•
Conduct comprehensive drill programmes to increase the understanding
of the deposit
Assessment of the optimum borehole spacing to increase the level of
confidence
Structural interpretation of deposit
Effective management of drill programmes
Core boreholes preferred over noncore boreholes, to provide an
observation point to satisfy both structural and coal quality requirements
Full suite of analysis conducted on coal samples
Data acquisition according to best practises
Geological modelling and resource determination
The utilisation of down‑hole geophysics
The refrigeration of coal samples to minimise degradation
•
•
•
•
•
•
•
•
•
Environmental
•
•
•
Detailed hydrological studies
Environmental baseline and impact studies
Social baseline and impact studies
Geotechnical
•
•
Detailed geotechnical studies
Specialised testing of drill core
Equipment
•
Regular maintenance of mechanical equipment
21
Overview 02Business review 04Corporate governance 15Financial statements 30
Risk factors continued
Estimating mineral reserve and resource
Potential Impact(s)
Mitigation Measure(s)
The estimation of mineral reserves and mineral
resources is a subjective process and the accuracy
of reserve and resource estimates is a function of the
quantity and quality of available data and the assumptions
used and judgements made in interpreting engineering
and geological information. There is significant
uncertainty in any reserve or resource estimate and the
actual deposits encountered and the economic viability
of mining a deposit may differ materially from the
Group’s estimates. The exploration of mineral rights is
speculative in nature and is frequently unsuccessful. The
Group may therefore be unable to successfully discover
and/or exploit reserves.
Resources
•
•
•
•
•
•
Sign off of resources by registered CP
Reporting resources in accordance with the JORC code
Classification of resources into a high level of confidence category
Conduct detailed geological modelling
The utilisation of accredited laboratories for the analyses of coal samples
QA/QC procedures according to best practices
Reserves
•
•
•
Sign off of reserves by registered CP
Classification of reserves into proven or probable reserves
Detailed mine design and scheduling
Environmental and other regulatory requirements
Potential Impact(s)
Mitigation Measure(s)
Existing and possible future environmental legislation,
regulations and actions could cause additional expense,
capital expenditures, restrictions and delays in the
activities of the Group, the extent of which cannot
be predicted. Before exploration and production can
commence on any properties, the Group must obtain
regulatory approval and there is no assurance that
such approvals will be obtained. No assurance can be
given that new rules and regulations will not be enacted
or existing rules and regulations will not be applied
in a manner which could limit or curtail the Group’s
operations.
The Group adopts standards of international best practice in environmental
management and community engagement in addition to focusing on
satisfying Mozambican environmental regulations and requirements in all
stages of development.
Environmental Management and Social Development Plans have been
advanced and are being implemented to satisfy national and international
best practice.
Impact assessment (ESIA) is being conducted by independent, internationally
recognised consultants on both the power plant and mine projects.
Financing risk
Potential Impact(s)
The development of the Group’s properties will depend
upon the Group’s ability to obtain financing primarily
through the raising of new equity capital, but also
by means of joint venture of projects, debt financing,
farm outs or other means. There is no assurance that
the Group will be successful in obtaining the required
financing. If the Group is unable to obtain additional
financing as needed some interests may be relinquished
and/or the scope of the operations reduced.
Mitigation Measure(s)
The Directors’ will monitor the monthly cash burn rate to ensure the Group
operates within its cash resources.
22
Ncondezi Coal CompanyAnnual report and financial statements 2012 Corporate governance statement
The Company, which is listed on AIM, is not formally required to comply with the UK Corporate Governance Code (formerly the Combined
Code, as amended in June 2008) (the “UK Corporate Governance Code”), which applies to companies which are fully listed on the London
Stock Exchange. However, the Board has given consideration to the provisions set out in Section 1 of the UK Corporate Governance Code.
The Directors support the objectives of this code and intend to comply with those aspects which they consider relevant to the Group’s size
and circumstances.
Details of the key areas relating to the UK Corporate Governance Code are set out below. A statement of the Directors’ responsibilities in
respect of the financial statements is set out on page 28. Below is a brief description of the role of the Board and its committees, including
a statement regarding the Group’s system of internal financial control.
The workings of the Board and its committees
The Board of Directors
The Board currently comprises a Non‑Executive Chairman, (Michael Haworth), one Executive Director (Paul Venter) and seven further
Non‑Executive Directors (Graham Mascall, Richard Stuart, Estevão Pale, Nigel Sutherland, Mark Trevan, Christiaan Schutte and Peter
O’Connor).
The Board considers that Estevão Pale, Nigel Sutherland, Mark Trevan, Christiaan Schutte and Peter O’Connor are independent of
management and free from any business or other relationships which could materially interfere with the exercise of their
independent judgement.
An agreed procedure exists for Directors in the furtherance of their duties to take independent professional advice. With the prior
approval of the Chairman, all Directors have the right to seek independent legal and other professional advice at the Company’s expense
concerning any aspect of the Company’s operations or undertakings in order to fulfil their duties and responsibilities as Directors. If the
Chairman is unable or unwilling to give approval, Board approval will be sufficient. Newly appointed Directors are made aware of their
responsibilities through the Company Secretary. The Company does not make any provision for formal training of new Directors.
The Company has established properly constituted audit and remuneration committees of the Board with formally delegated duties
and responsibilities.
Conflicts of interest
The Board confirms that it has instituted a process for reporting and managing any conflicts of interest held by Directors. Under the
Company’s Articles of Association, the Board has the authority to authorise, to the fullest extent permitted by law:
(a) any matter which would otherwise result in a Director infringing his duty to avoid a situation in which he has, or can have, a direct or
indirect interest that conflicts, or possibly may conflict, with the interests of the Company and which may reasonably be regarded as
likely to give rise to a conflict of interest (including a conflict of interest and duty or conflict of duties);
(b) a Director to accept or continue in any office, employment or position in addition to his office as a Director of the Company and may
authorise the manner in which a conflict of interest arising out of such office, employment or position may be dealt with, either before
or at the time that such a conflict of interest arises provided that for this purpose the Director in question and any other interested
Director are not counted in the quorum at any Board meeting at which such matter, or such office, employment or position, is approved
and it is agreed to without their voting or would have been agreed to if their votes had not been counted.
A Relationship Agreement was executed on 3 June 2010 between the Company and Strata Limited (“Strata”) in order to manage inter alia
potential conflicts of interest in respect of Directors nominated by Strata. Under the terms of this agreement Strata, has the right to
nominate up to two Directors to the Board of the Company, and has nominated Richard Stuart and Michael Haworth.
Company materiality threshold
The Board acknowledges that assessment on materiality and subsequent appropriate thresholds are subjective and open to change.
As well as the applicable laws and recommendations, the Board has considered quantitative, qualitative and cumulative factors when
determining the materiality of a specific relationship of Directors.
Ethical standards
The Board has not adopted a formal code of conduct however as part of the Board’s commitment to the highest standard of conduct,
the Board will consider adopting a code of conduct to guide executives, management and employees in carrying out their duties and
responsibilities. The code of conduct will cover such matters as:
• responsibilities to shareholders
• compliance with laws and regulations
• relations with customers and suppliers
• ethical responsibilities
• employment practices
• responsibility to the environment and the community.
23
Overview 02Business review 04Corporate governance 15Financial statements 30
Corporate governance statement continued
Bribery Act
It is our policy to conduct all of our business in an honest and ethical manner. We take a zero‑tolerance approach to bribery and
corruption and are committed to acting professionally, fairly and with integrity in all our business dealings and relationships wherever we
operate, implementing and enforcing effective systems to counter bribery.
We will uphold all laws relevant to countering bribery and corruption in all the jurisdictions in which we operate and remain bound by the
laws of the UK, including the Bribery Act 2010, in respect of our conduct both at home and abroad.
Board meetings
Board meetings are held on average every quarter. Decisions concerning the direction and control of the business are made by the Board.
Generally, the powers and obligations of the Board are governed by the Company’s Memorandum and Articles and the BVI Business
Companies Act 2004, as amended and the other laws of the jurisdictions in which it operates. The Board is responsible, inter alia, for
setting and monitoring Group strategy, reviewing trading performance, ensuring adequate funding, examining major acquisition
opportunities, formulating policy on key issues and reporting to the shareholders.
The Audit Committee
The Audit Committee comprised Mark Trevan (Committee Chairman) and Richard Stuart.
The Committee provides a forum for reporting by the Group’s external auditors. Meetings are held on average twice a year and are also
attended, by invitation, by the Non‑Executive Directors.
The Audit Committee is responsible for reviewing a wide range of financial matters including the annual and half year results, financial
statements and accompanying reports before their submission to the Board and monitoring the controls which ensure the integrity of the
financial information reported to the shareholders.
The Remuneration Committee
The Remuneration Committee comprises Nigel Sutherland (Committee Chairman) and Richard Stuart during the year.
The Committee is responsible for making recommendations to the Board, within agreed terms of reference, on the Company’s framework
of executive remuneration and its cost. The Remuneration Committee determines the contract terms, remuneration and other benefits for
the Executive Directors, including performance related bonus schemes, compensation payments and option schemes. The Board itself
determines the remuneration of the Non‑Executive Directors.
A report from the Remuneration Committee appears on pages 26 and 27.
Internal financial control
The Board is responsible for establishing and maintaining the Group’s system of internal financial controls. Internal financial control
systems are designed to meet the particular needs of the Group and the risk to which it is exposed, and by its very nature can provide
reasonable, but not absolute, assurance against material misstatement or loss.
The Directors are conscious of the need to keep effective internal financial control, particularly in view of the cash resources of the Group.
Due to the relatively small size of the Group’s operations, the Executive Director and senior management are very closely involved in the
day‑to‑day running of the business and as such have less need for a detailed formal system of internal financial control. The Directors
have reviewed the effectiveness of the procedures presently in place and consider that they are still appropriate to the nature and scale of
the operations of the Group.
Continuous disclosure and shareholder communication
The Board is committed to the promotion of investor confidence by ensuring that trading in the Company’s securities takes place in an
efficient, competitive and informed market. The Company has procedures in place to ensure that all price sensitive information is
identified, reviewed by management and disclosed to the AIM in a timely manner.
All information disclosed on AIM is posted on the Company’s website http://www.ncondezicoal.com. Shareholders are forwarded
documents relating to each Annual General Meeting, being the Annual Report, Notice of Meeting and Explanatory Memorandum and
Proxy Form, and are invited to attend these meetings.
24
Ncondezi Coal CompanyAnnual report and financial statements 2012 Managing business risk
The Board constantly monitors the operational and financial aspects of the Company’s activities and is responsible for the implementation
and ongoing review of business risks that could affect the Company. Duties in relation to risk management that are conducted by the
Directors include but are not limited to:
• Initiate action to prevent or reduce the adverse effects of risk
• Control further treatment of risks until the level of risk becomes acceptable
• Identify and record any problems relating to the management of risk
• Initiate, recommend or provide solutions through designated channels
• Verify the implementation of solutions
• Communicate and consult internally and externally as appropriate
• Inform investors of material changes to the Company’s risk profile.
Ongoing review of the overall risk management programme (inclusive of the review of adequacy of treatment plans) is conducted by
external parties where appropriate. The Board ensures that recommendations made by the external parties are investigated and, where
considered necessary, appropriate action is taken to ensure that the Company has an appropriate internal control environment in place to
manage the key risks identified.
25
Overview 02Business review 04Corporate governance 15Financial statements 30
Report of the Remuneration Committee
The Remuneration Committee (the “Committee”) comprised Nigel Sutherland (Committee Chairman) and Richard Stuart.
Remuneration packages are determined with reference to market remuneration levels, individual performance and the financial position
of the Company and the Group.
The Board determines the remuneration of Non‑Executive Directors within the limits set by the Company’s Articles of Association. They
have letters of engagement with the Company and their appointments are terminable on one months’ or three months’ written notice on
either side.
Long-term incentive plan (“LTIP”)
The Company adopted a LTIP which is administered by the Committee. The LTIP is discretionary and the Committee will decide whether to
make share awards under the LTIP at any time. As at 31 December 2012 the following awards were in place:
Director
Richard Stuart
Graham Mascall
Graham Mascall
Estevão Pale
Nigel Sutherland
Colin Harris
Mark Trevan
Date of grant
Number granted
Exercise price
11 June 2010
27 May 2010
27 May 2010
15 June 2010
15 June 2010
11 June 2010
11 June 2010
100,000
2,400,000
800,000
75,000
75,000
75,000
75,000
123p
Nil
25c
123p
123p
123p
123p
Date
exercisable
from
10 June 2011
27 May 2010
27 May 2010
10 June 2011
10 June 2011
10 June 2011
10 June 2011
Following the Company’s change in focus to power generation and the signing of the Power Framework Agreement with the Government
of Mozambique, the Board approved a restructuring of the existing share incentive scheme for Directors, senior management and
contracted personnel to ensure it is appropriate for a developing energy producer. The scheme has been aligned with the power project
milestones that will deliver the Ncondezi 300MW power project into commercial operation, as well as recognise the delivery of the key
technical aspects of the project to date, such as the Power and Mine Definitive Feasibility Studies.
Grant of share awards
On 26 April 2013, 4,300,000 share options, with an exercise price of 17.25p and exercisable within three years of vesting, were granted to
senior management and contracted personnel, of which 500,000 options vest as at the date of grant, 1,875,000 options are subject to
milestone based vesting conditions (“Milestone Based Awards”) and 1,925,000 options are subject to time based vesting conditions (“Time
Based Awards”). Simultaneously it was agreed to cancel and/or lapse prior unexercised share awards in respect of 2,762,500 Ordinary
Shares, with varying exercise prices between 59p and 143p.
The Milestone Based Awards provide that 1/3 of the Milestone Based Awards vest upon the successful conclusion with an offtaker of
Heads of Terms for a Power Purchase Agreement and the other 2/3 of the Milestone Based Awards are to vest upon the execution of a
Power Purchase Agreement for all or part of the first 300MW phase of the Ncondezi Power Project.
The Time Based Awards provide that the share options vest in two equal tranches on the first and second anniversary from the date
of grant.
Directors’ options
Paul Venter was granted 450,000 share options which are Milestone Based Awards and 550,000 share options which are Time
Based Awards.
375,000 share options have been granted to certain Directors (see table below). Messrs Michael Haworth (Chairman), Richard Stuart
(Non‑Executive Director) and Graham Mascall (Non‑Executive Director) have all waived any new share option awards.
Non‑Executives
Mark Trevan
Nigel Sutherland
Estevao Pale
Peter O’Connor
Christiaan Schutte
26
Options
75,000
75,000
75,000
75,000
75,000
Exercise
Price
Expiry
17.25p 3 years from vesting
17.25p 3 years from vesting
17.25p 3 years from vesting
17.25p 3 years from vesting
17.25p 3 years from vesting
Ncondezi Coal CompanyAnnual report and financial statements 2012 These share options vest in two equal tranches on the first and second anniversary from the date of grant. It has also been agreed to
cancel and/or lapse prior unexercised share awards granted to Directors in respect of 325,000 ordinary shares, with an exercise price of
123p. All of the cancelled share awards were granted at the Company’s listing under the Company’s LTIP and are fully vested.
Following the above restructuring of the Company’s share incentive scheme, the newly issued and unexercised share awards will jointly
represent 8.29% of the Company’s current issued share capital.
Directors’ service agreements
None of the Directors have a service contract which is terminable on greater than one year’s notice.
Non-Executive Directors’ fees
The Company has adopted a standard level of fees for Non‑Executive Directors of £40,000 per annum, and £70,000 for the Chairman.
Directors’ remuneration
The following table sets out an analysis of the pre‑tax remuneration for the year ended 31 December 2012 for individual Directors who
held office in the Company during the period.
Director
Michael Haworth
Nigel Walls
Richard Stuart
Graham Mascall
Estevão Pale
Nigel Sutherland1
Colin Harris
Mark Trevan
Base
salary/fee
US$’000
Bonus
US$’000
Pension
US$’000
Share‑based
payments
US$’000
Total 2012
US$’000
Total 2011
US$’000
–
231
46
245
63
63
64
64
776
–
–
–
–
–
–
–
–
–
–
10
–
30
–
–
–
–
40
–
384
16
–
12
12
12
12
448
–
625
62
275
75
75
76
76
–
–
149
710
92
92
92
92
1,264
1,227
1 This includes US$63,214 (2011: US$64,353) paid to Mines Value Management for services provided by Nigel Sutherland.
On behalf of the Remuneration Committee
Nigel Sutherland
Remuneration Committee Chairman
27 June 2013
27
Overview 02Business review 04Corporate governance 15Financial statements 30
Statement of Directors’ responsibilities
The Directors are responsible for preparing the Directors’ report and the financial statements for the Group. The Directors have prepared
the financial statements for each financial year which present fairly the state of affairs of the Group and of the profit or loss of the Group
for that year.
The Directors have chosen to use the International Financial Reporting Standards (“IFRS”) as adopted by the European Union in preparing
the Group‘s financial statements.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial
position of the Group, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other
irregularities and for the preparation of financial statements.
International Accounting Standards require that financial statements present fairly for each financial year the Company’s financial
position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and
conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the
International Accounting Standards Board’s ‘Framework for the preparation and presentation of financial statements’.
In virtually all circumstances a fair presentation will be achieved by compliance with all applicable International Financial Reporting
Standards. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for
companies trading securities on the Alternative Investment Market.
A fair presentation also requires the Directors to:
• consistently select and apply appropriate accounting policies;
• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and
understandable information;
• make judgements and accounting estimates that are reasonable and prudent;
• provide additional disclosures when compliance with the specific requirements in IFRS is insufficient to enable users to understand
the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance;
• state that the Group has complied with IFRS as adopted by the European Union, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue
in business.
The Directors are responsible for ensuring the Annual Report and the financial statements are made available on a website. In addition to
being mailed to shareholders, financial statements are published on the Company’s website in accordance with legislation in the United
Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company’s website is the responsibility of the Directors. The Directors’ responsibility also extends to the
ongoing integrity of the financial statements contained therein.
28
Ncondezi Coal CompanyAnnual report and financial statements 2012 Independent audit report to the
members of Ncondezi Coal
Company Limited
We have audited the financial statements of Ncondezi Coal Company Limited for the year ended 31 December 2012 which comprise the
consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of financial position, the
consolidated statement of changes in equity, the consolidated statement of cash flows and the related notes. The financial reporting framework
that has been applied in their preparation is International Financial Reporting Standards (“IFRS”) as adopted by the European Union.
This report is made solely to the Company’s members, as a body in accordance with our engagement letter dated 16 January 2013. Our
audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an
auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone
other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.
Directors’ responsibility for the financial statements
As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for the preparation and fair presentation of
the financial statements in accordance with IFRS as adopted by the European Union and for such internal control as the Directors determine is
necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with
International Standards on Auditing (as issued by the International Federation of Accountants (“IFAC”)). Those standards require that we
comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements
are free from material misstatement.
An audit includes performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The
procedures selected depend on the auditor’s judgement, including the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the entity’s preparation and
fair presentation of financial statements in order to design appropriate audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the
appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating
the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion on financial statements
In our opinion:
• the financial statements present fairly, in all material respects the state of the Group’s affairs as at 31 December 2012 and its loss for
the year then ended; and
• have been prepared in accordance with IFRS as adopted by the European Union.
Emphasis of matter – going concern
In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note
1 to the financial statements concerning the Group’s ability to continue as a going concern which is dependent on the Group’s ability to
raise further funds through debt or new equity placing. The Directors believe that the Group will secure the necessary funds. While the
Directors are continuing funding negotiations with certain third parties there are currently no binding agreements in place. These
conditions together with the other matters referred to in note 1 indicate the existence of a material uncertainty which may cast significant
doubt over the Group’s ability to continue as a going concern. The financial statements do not include any adjustments that would result if
the Group was unable to continue as a going concern.
Opinion on other matters
In our opinion the information given in the Directors’ report for the financial year for which the financial statements are prepared is
consistent with the financial statements.
BDO LLP
Chartered Accountants
55 Baker Street
London W1U 7EU
United Kingdom
27 June 2013
BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).
29
Overview 02Business review 04Corporate governance 15Financial statements 30
Consolidated income statement
for the year ended 31 December 2012
Note
2012
US$’000
2011
US$’000
3
3
3
3
15
4
5
(7,398)
97
–
(1,292)
(8,593)
88
–
(45)
(8,550)
(55)
(8,605)
(6,554)
(1,334)
(656)
(2,597)
(11,141)
43
4,166
(50)
(6,982)
(84)
(7,066)
(7.1)
(5.9)
2012
US$’000
2011
US$’000
(8,605)
(7,066)
20
19
(8,585)
(7,047)
Other administrative expenses
Research expenses
Impairment of exploration costs
Share‑based payments charge
Total administrative expenses and loss from operations
Finance income
Gain on derivative financial asset
Finance expense
Loss for the period before taxation
Taxation
Loss for the period attributable to equity shareholders of the Parent Company
Loss per share expressed in cents
Basic and diluted
Consolidated statement
of comprehensive income
for the year ended 31 December 2012
Loss after taxation
Other comprehensive income:
Exchange differences on translating foreign operations
Total comprehensive income for the period
The notes on pages 34 to 51 form part of these financial statements.
30
Ncondezi Coal CompanyAnnual report and financial statements 2012 Consolidated statement
of financial position
as at 31 December 2012
Assets
Non‑current assets
Intangible assets
Property, plant and equipment
Total non‑current assets
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Current tax payable
Trade and other payables
Total current liabilities
Total liabilities
Capital and reserves attributable to shareholders
Share capital
Foreign currency translation reserve
Retained earnings
Total capital and reserves
Total equity and liabilities
Note
2012
US$’000
2011
US$’000
6
7
9
10
11
12
39,081
2,328
41,409
28,563
2,592
31,155
26
3,030
12,008
15,064
56,473
–
2,979
30,444
33,423
64,578
56
2,631
2,687
81
3,418
3,499
2,687
3,499
76,108
44
(22,366)
53,786
56,473
76,108
24
(15,053)
61,079
64,578
The financial statements were approved and authorised for issue by the Board of Directors on 27 June 2013 and were signed on its
behalf by:
Paul Venter
Chief Executive Officer
The notes on pages 34 to 51 form part of these financial statements.
31
Overview 02Business review 04Corporate governance 15Financial statements 30
Consolidated statement of
changes in equity
for the year ended at 31 December 2012
At 1 January 2012
Loss for the period
Other comprehensive income for the period
Equity settled share‑based payments
At 31 December 2012
At 1 January 2011
Loss for the period
Other comprehensive income for the period
Exercise of warrants
Issue of shares
Costs associated with issue of shares
Share buy‑back and cancellation
Exercise of Dos Santos option
Reclassification of other reserves
Equity settled share‑based payments
At 31 December 2011
The notes on pages 34 to 51 form part of these financial statements.
Foreign
currency
translation
reserve
US$’000
24
–
20
–
44
Foreign
currency
translation
reserve
US$’000
5
–
19
–
–
–
–
–
–
–
24
Share
capital
US$’000
76,108
–
–
–
76,108
Other
reserves
US$’000
5,791
–
–
–
–
–
–
(20,770)
14,979
–
–
Retained
earnings
US$’000
(15,053)
(8,605)
–
1,292
Total
US$’000
61,079
(8,605)
20
1,292
(22,366)
53,786
Retained
earnings
US$’000
4,395
(7,066)
–
–
–
–
–
–
(14,979)
2,597
Total
US$’000
69,436
(7,066)
19
2,934
36,206
(1,399)
(20,878)
(20,770)
–
2,597
(15,053)
61,079
Share
capital
US$’000
59,245
–
–
2,934
36,206
(1,399)
(20,878)
–
–
–
76,108
32
Ncondezi Coal CompanyAnnual report and financial statements 2012 Consolidated statement of cash flows
for the year ended at 31 December 2012
Cash flow from operating activities
Loss before taxation
Adjustments for:
Finance income
Finance expense
Share‑based payments charge
Derivative financial asset
Unrealised foreign exchange movements
Disposal of property, plant and equipment
Depreciation and amortisation
Net cash flow from operating activities before changes in working capital
Increase in inventory
(Decrease)/increase in payables
Increase in receivables
Net cash flow from operating activities before tax
Income taxes paid
Net cash flow from operating activities after tax
Investing activities
Payments for property, plant and equipment
Payments for other intangibles
Interest received
Exploration costs capitalised
Net cash flow from investing activities
Financing activities
Issue of Ordinary Shares
Bank charges
Cost of share issue
Share buy‑back
Net cash flow from financing activities
Net decrease in cash and cash equivalents in the period
Cash and cash equivalents at the beginning of the period
Effect of foreign exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of the period
The notes on pages 34 to 51 form part of these financial statements.
Notes
2012
US$’000
2011
US$’000
(8,550)
(6,982)
3
7
6
6
(88)
45
1,292
–
15
7
427
(6,852)
(26)
(1,636)
(51)
(8,565)
(80)
(43)
50
2,597
(4,166)
5
14
328
(8,197)
–
670
(1,707)
(9,234)
(76)
(8,645)
(9,310)
(118)
–
88
(9,716)
(958)
(46)
43
(14,166)
(9,746)
(15,127)
–
(45)
–
–
(45)
39,140
(50)
(1,399)
(20,878)
16,813
(18,436)
(7,624)
30,444
38,068
–
–
12,008
30,444
33
Overview 02Business review 04Corporate governance 15Financial statements 30
Notes to the consolidated
financial statements
1. Principal accounting policies
General
The Company is a limited liability company incorporated on 30 March 2006 in the British Virgin Islands. The address of its registered office
is 2nd floor, Wickham’s Cay II, PO Box 2221, Road Town, Tortola, British Virgin Islands.
Going concern
In the absence of production revenues, the Group is dependent upon its existing cash resources and its ability to raise additional financing
through equity raisings in order to progress with the development of the power plant.
The Group has sufficient funding to finance its activities through to March 2014. The Directors are in negotiations with a number of parties
in respect of raising further funds to continue with the power plant development programme. Whilst progress is being made on a number
of potential transactions that would provide additional financing, at present there are no binding agreements in place.
Should the Group be unable to raise the necessary finance, it may be unable to realise its assets and discharge its liabilities in the normal
course of business.
Based on the current progress of negotiations with potential providers of finance and discussions with potential investors, the Directors
believe that the necessary funds to provide adequate financing to continue the power plant development programme will be raised as
required. Accordingly they are confident that the Group will continue as a going concern and have prepared the financial statements on
that basis.
These conditions indicate the existence of a material uncertainty that may cast significant doubt over the Group’s ability to continue as a going
concern. The financial statements do not include the adjustments that would result if the Group was not able to continue as a going concern.
As at 31 December 2012 the Group’s cash and cash equivalent stood at US$12m. The Group intends to operate within its cash resources.
Basis of preparation
The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. The policies
have been consistently applied to all the years presented, unless otherwise stated.
These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting
Standards and Interpretations (collectively “IFRS”) issued by the International Accounting Standards Board (“IASB”) as adopted by the
European Union (“adopted IFRS”).
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated
assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of
which form the basis of making judgements about carrying values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates. The areas involving a higher degree of judgement or complexity, or where
assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 2.
The Group financial information is presented in United States dollars (US$) and values are rounded to the nearest thousand dollars
(US$’000).
Loss from operations is stated after charging and crediting all operating items excluding finance income and expenses.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the
period in which the estimate is revised if the revision only affects that period or in the period of revision and future periods if the revision
affects both current and future periods.
Adoption of new and revised accounting standards
In 2012, several amended standards and interpretations became effective. These are IFRS 7 (amended) “Disclosures – transfers of
financial assets”, IFRS 1 (amended) “Severe hyperinflation and removal of fixed dates for first‑time adopters” and IAS 12 (amended)
“Deferred tax: recovery of underlying assets”. The adoption of these standards and interpretations has not had a material impact on the
financial statements of the Group.
At the date of authorisation of these financial statements, the following standards and relevant interpretations, which have not been
applied in these financial statements, were in issue but not yet effective (and some of which were pending endorsement by the EU):
• IFRS 1 (amended) “Government loans” – effective for accounting periods beginning on or after 1 January 2013.
• IFRS 7 (amended) “Disclosures: Offsetting financial assets and financial liabilities” – effective for accounting periods beginning on or
after 1 January 2013.
34
Ncondezi Coal CompanyAnnual report and financial statements 2012 1. Principal accounting policies continued
• IFRS 9 “Financial instruments – Classification and measurement” – effective for accounting periods beginning on or after
1 January 2015.
• IFRS 10 “Consolidated financial statements” – effective for accounting periods beginning on or after 1 January 2013.
• IFRS 11 “Joint arrangements” – effective for accounting periods beginning on or after 1 January 2013.
• IFRS 12 “Disclosure of interests in other entities” – effective for accounting periods beginning on or after 1 January 2013.
• IFRS 13 “Fair value measurement” – effective for accounting periods beginning on or after 1 January 2013.
• IAS 1 (amended) “Presentation of financial statements – other comprehensive income” – effective for accounting periods beginning
on or after 1 July 2012.
• IAS 19 (revised) “Employee benefits” – effective for accounting periods beginning on or after 1 January 2013.
• IAS 27 (revised) “Separate financial statements” – effective for accounting periods beginning on or after 1 January 2013.
• IAS 28 (revised) “Investments in associates and joint ventures” – effective for accounting periods beginning on or after 1 January 2013.
• IAS 32 (amended) “Offsetting financial assets and financial liabilities” – effective for accounting periods beginning on or after
1 January 2014.
• Annual improvements to IFRS 2009–2011 cycle (various standards) – effective for accounting periods beginning on or after
1 January 2013.
The Group is yet to assess the full impact of adoption of IFRS 9 and intends to adopt the standard no later than the accounting period
beginning on or after 1 January 2015, subject to endorsement by the EU.
Adoption of the other standards in future periods is not expected to have a material impact on the financial statements of the Group.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its
subsidiaries). The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from
the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the
financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All
intra‑group transactions, balances, income and expenses are eliminated on consolidation.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision‑maker.
The chief operating decision‑maker has been identified as the Board of Directors.
Share‑based payments
Equity‑settled share‑based payments to employees and Directors are measured at the fair value of the equity instrument. The fair value
of the equity‑settled transactions with employees and Directors is recognised as an expense over the vesting period. The fair value of the
equity instrument is determined at the date of grant, taking into account market based vesting conditions.
The fair value of the equity instrument is measured using the Black‑Scholes model. The expected life used in the model is adjusted, based
on management’s best estimate, for the effects of non‑transferability, exercise restrictions and behavioural considerations.
Property, plant and equipment
Property, plant and equipment are stated at cost on acquisition less depreciation. Depreciation is provided on a straight‑line basis at rates
calculated to write off the cost less the estimated residual value of each asset over its expected useful economic life. The residual value is
the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition
expected at the end of its useful life.
The annual rate of depreciation for each class of depreciable asset is:
Plant and equipment
Computers and related equipment
Furniture and fixtures
Motor vehicles
Buildings
25%
33%
20%–25%
25%
10%
The carrying value of property, plant and equipment is assessed annually and any impairment is charged to the income statement.
Assets in the course of construction are capitalised in the construction in progress account. Costs capitalised include the purchase price
of the asset and any costs directly attributable to bringing it into working condition for its intended use. On completion, the cost of
construction is transferred to the appropriate category of property, plant and equipment. Construction in progress is not depreciated.
35
Overview 02Business review 04Corporate governance 15Financial statements 30
Notes to the consolidated
financial statements continued
1. Principal accounting policies continued
Exploration and evaluation assets
All costs associated with exploring and evaluating prospects within licence areas, including the initial acquisition of the licence are
capitalised on a project‑by‑project basis pending determination of the feasibility of the project. Costs incurred include appropriate
technical and administrative expenses but not general overheads. When a decision is made to proceed to development, the related
expenditures will be transferred to proven mining properties. Where a licence is relinquished, a project is abandoned, or is considered to
be of no further commercial value to the Group, the related costs will be written off.
The recoverability of exploration and evaluation assets is dependent upon the discovery of economically recoverable reserves, the ability
of the Group to obtain necessary financing to complete the development of reserves and future profitable production or proceeds from the
disposition of recoverable reserves.
Impairment
The carrying amounts of non‑current assets are reviewed for impairment if events or changes in circumstances indicate the carrying
value may not be recoverable. If there are indicators of impairment, an exercise is undertaken to determine whether the carrying values
are in excess of their recoverable amount. Such review is undertaken on an asset by asset basis, except where such assets do not
generate cash flows independent of other assets, in which case the review is undertaken at the cash generating unit level.
A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a reversal of the conditions that
originally resulted in the impairment. This reversal is recognised in the income statement and is limited to the carrying amount that would
have been determined, net of depreciation, had no impairment loss been recognised in the prior years.
The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre‑tax discount rate that reflects current market assessments
of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of
those from other assets, the recoverable amount is determined for the cash‑generating unit to which the asset belongs. The Group’s
cash‑generating units are the smallest identifiable groups of assets that generate cash inflows that are largely independent of the cash
inflows from other assets or groups of assets.
Impairments are recognised in the income statement to the extent that the carrying amount exceeds the assets recoverable amount.
The revised carrying amounts are amortised in line with the Group’s accounting policies.
Operating leases
Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an ‘operating lease’) amounts
payable under the lease are charged to the income statement on a straight‑line basis over the lease term.
Borrowing costs
Borrowing costs incurred in respect of general borrowings are recognised in the income statement as they accrue, using the effective
interest method. There are no borrowings directly attributable to the acquisition, construction or production of qualifying assets.
Foreign currency
The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the
entity operates (its functional currency). For the purpose of the consolidated financial statements, the results of overseas Group entities
are translated into US$, which is the functional currency of the Company, the Mozambican and Mauritian subsidiaries and presentation
currency for the consolidated financial statements, at rates approximating to those ruling when the transactions took place, all assets and
liabilities of overseas Group entities are translated at the rate ruling at the reporting date. Exchange differences arising on translating the
opening net assets at opening rate and the results of overseas operations at actual rate are recognised in other comprehensive income
and accumulated in the foreign exchange translation reserve.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency
(foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary
items denominated in foreign currencies are retranslated at the rates prevailing on the reporting date.
Exchange differences arising on the settlement of monetary items and on the retranslation of monetary items are included in the
income statement.
36
Ncondezi Coal CompanyAnnual report and financial statements 2012 1. Principal accounting policies continued
Provisions
Provisions are recognised when the Group has a legal or constructive obligation, as a result of past events, for which it is probable that an
outflow of economic resources will result and that outflow can be reliably measured.
Taxation
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never
taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by
the reporting date.
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial statements and the
corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against
which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that
sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised.
Deferred tax is charged or credited to the income statement, except when it relates to items charged or credited directly to equity, in
which case the deferred tax is also dealt with in equity.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax
liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets
and liabilities on a net basis.
Inventory
Inventories relate to fuel stocks and are valued at the lower of the average cost and net realisable value.
Financial instruments
Financial assets and liabilities are recognised when the Group becomes party to the contractual provisions of the instrument.
Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending on the purpose for which the asset was
acquired. The Group did not have any financial assets designated at fair value through profit or loss and as held to maturity or held for
trading. Unless otherwise indicated, the carrying amounts of the Group’s financial assets are a reasonable approximation of their
fair values.
The Group’s accounting policy for each category is as follows:
Loans and receivables
Loans and receivables (including trade receivables) are measured on initial recognition at fair value and subsequently measured at
amortised cost using the effective interest rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand, deposits and other short‑term highly liquid investments that are readily
convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets
is impaired.
37
Overview 02Business review 04Corporate governance 15Financial statements 30
Notes to the consolidated
financial statements continued
1. Principal accounting policies continued
Financial liabilities
The Group classifies its financial liabilities only as held at amortised cost.
Held at amortised cost
Financial liabilities including trade payables and borrowings are initially recognised at fair value net of any transaction costs directly
attributable to the issue of the instrument. Such liabilities are subsequently measured at amortised cost using the effective interest rate
method, which ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried
in the statement of financial position.
Share capital
Financial instruments issued by the Group are treated as equity only to the extent that they do not meet the definition of a financial liability.
The Company’s Ordinary Shares are classified as equity instruments.
For the purposes of the disclosures given in note 12, the Company considers its capital to be total equity.
The Company is not subject to any externally imposed capital requirements.
2. Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future, which by definition will seldom result in actual results that match
the accounting estimate. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year are discussed below.
Accounting judgements
(i) Impairment of exploration and evaluation assets
In accordance with the accounting policy stated above, the Group tests annually to see whether exploration and evaluation assets have
suffered any impairment.
The recoverability of the amounts shown in the consolidated statement of financial position in relation to deferred exploration and
evaluation expenditure are dependent upon the discovery of economically recoverable reserves, continuation of the Group’s interest in the
underlying mining claims, the political, economic and legislative stability of the regions in which the Group operates, compliance with the
terms of the relevant mineral rights licences, the Group’s ability to obtain the necessary financing to fulfil its obligations as they arise and
upon future profitable production or proceeds from the disposal of properties.
(ii) Fair value of financial instruments and share‑based payments
The Group determines the fair value of financial instruments that are not quoted and equity‑settled share‑based payments, using
valuation techniques and models which are significantly affected by the assumptions used. In that regard, the derived fair value estimates
cannot always be substantiated by comparison with independent markets and, in many cases, may not be capable of being realised
immediately. The methods and assumptions applied, and valuations models used are disclosed in notes 14 and 17.
Accounting estimates
(i) Provisions for liabilities
As a result of exploration activities the Group is required to make a provision for rehabilitation. The Group’s exploration activities were
largely completed during the year however, no further development work has taken place and as such no significant damage has been
caused up to the reporting date.
(ii) Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of such
contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events.
38
Ncondezi Coal CompanyAnnual report and financial statements 2012 3. Administrative expenses
Staff costs
Professional and consultancy
Office expenses
Travel and accommodation
Other expenses
Foreign exchange loss/(gain)
Other administrative expenses
Research expenses1
Impairment of exploration costs2
Share‑based payments
Total administrative expenses
2012
US$’000
2011
US$’000
2,712
1,296
934
682
1,455
319
7,398
(97)
–
1,292
8,593
2,761
1,167
1,094
1,130
1,035
(633)
6,554
1,334
656
2,597
11,141
1 The research expenses relate to an infrastructure study in respect of logistics options available for transportation and export of coal reserves as well as future projects. The
2
positive charge in the year is a result of an over accrual in respect of the infrastructure study.
Impairment of exploration costs in 2011 relates to the write off of the exploration costs incurred in respect of licences 1314L and 1315L which were considered to be of no
further commercial value to the Group and a decision was made to relinquish these licences (note 6).
Auditors’ remuneration
Group auditors’ remuneration
– audit of the Group’s accounts
– audit of the Group’s subsidiaries
Other services
– other services relating to taxation
Staff costs (including Directors)
Wages and salaries
Share‑based payments
Social security costs
2012
US$’000
2011
US$’000
80
40
–
120
69
23
9
101
2012
US$’000
2011
US$’000
3,794
1,292
226
5,120
5,332
2,597
247
8,176
US$1,308,247 (2011: US$2,817,914) included within wages and salaries related to exploration and evaluation costs and have been
capitalised to intangible assets (note 6).
The average monthly number of employees (including executive Directors) of the Group were:
Operational
Administration
2012
Number
2011
Number
24
24
48
24
20
44
39
Overview 02Business review 04Corporate governance 15Financial statements 30
Notes to the consolidated
financial statements continued
3. Administrative expenses continued
Key management compensation:
Salary
Fees
Social security costs
Pension
Share‑based payments
2012
US$’000
2011
US$’000
1,503
139
157
1,799
52
920
2,771
1,765
–
235
2,000
82
1,838
3,920
Key management personnel are considered to be Directors and senior management of the Group.
4. Taxation
The Group entities subject to corporate income tax are Ncondezi Coal Company Mozambique Limitada which is subject to tax at the rate of
32% (2011: 32%) on its profits in Mozambique and Ncondezi Services (UK) Limited which is subject to tax at a rate of 24% (2011: 26%) on its
profits in the UK. No tax charge/(credit) arose in the current or prior year for Ncondezi Coal Company Mozambique Limitada.
Tax payable for 2012 has been estimated at US$55,000 and has been reconciled to the expected tax charge based on the Group losses at
the standard rate of taxation in the UK where the Group has generated taxable profits as follows:
Current tax – UK corporation tax
Group loss on ordinary activities before tax
Effects of:
Reconcile to UK corporation tax rate of 24.5% (2011: 26%)
Differences arising from different tax jurisdictions
Non‑deductible expenses
Foreign exchange effect originating in overseas companies
Unrecognised taxable losses carried forward
Total tax charge for the year
2012
US$’000
2011
US$’000
55
84
(8,550)
(6,982)
(2,095)
1,136
131
243
640
55
(1,815)
1,081
195
101
522
84
During the exploration and development stages, the Group will accumulate tax losses which may be carried forward. As at 31 December
2012, no deferred tax asset has been recognised for tax losses of US$1,442,000 (2011: US$802,000) carried forward within the Group’s
overseas subsidiaries, as the recovery of this benefit is dependent on the future profitability, the timing and certainty of which cannot be
reasonably foreseen.
Tax losses in Mozambique are available for use over a five year period. Of the total available Mozambican subsidiary tax credits,
US$640,000 will be available until 31 December 2017, US$522,000 will be available until 31 December 2016, and US$280,000 will be
available until 31 December 2015.
40
Ncondezi Coal CompanyAnnual report and financial statements 2012 5. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of Ordinary
Shares outstanding during the year.
Due to the losses incurred during the period a diluted loss per share has not been calculated as this would serve to reduce the basic loss
per share. There were share incentives outstanding at the end of the year that could potentially dilute basic earnings per share in the
future. There were no potential Ordinary Shares outstanding in the year (2011: Nil).
Basic and diluted EPS
6. Intangible assets
Cost
At 1 January 2012
Additions
Impairment
Foreign exchange
At 31 December 2012
At 1 January 2011
Additions
Impairment
At 31 December 2011
Amortisation
At 1 January 2012
Amortisation charge
At 31 December 2012
Net Book value 2012
Net Book value 2011
Net book value 2010
2012
Weighted
average
number
of shares
(thousands)
Loss
US$’000
Per share
amount
(cents)
Loss
US$’000
2011
Weighted
average
number
of shares
(thousands)
Per share
amount
(cents)
(8,605)
121,116
(7.1)
(7,066)
120,473
(5.9)
Exploration
and
evaluation
costs
US$’000
Other
intangible
assets
US$’000
28,459
10,565
–
–
39,024
13,493
15,622
(656)
28,459
–
–
–
39,024
28,459
13,493
149
–
–
5
154
103
46
–
149
45
52
97
57
104
93
Total
US$’000
28,608
10,565
–
5
39,178
13,596
15,668
(656)
28,608
45
52
97
39,081
28,563
13,586
Exploration and evaluation costs relate to the initial acquisition of the licences and subsequent exploration expenditure incurred in
evaluating the Ncondezi project.
The impairment in 2011 related to exploration and evaluation costs of US$656,000 incurred in respect of exploration licences 1314L and
1315L located in Tete, Mozambique. The results of exploration works carried out in these licence areas proved to be unsuccessful and
these licences were no longer considered to be of any commercial value to the Group. Consequently a decision was made to relinquish the
licences 1314L and 1315L and the related costs were written off to the income statement in 2011 (note 3).
41
Overview 02Business review 04Corporate governance 15Financial statements 30
Notes to the consolidated
financial statements continued
7. Property, plant and equipment
Cost
At 1 January 2011
Additions
Disposals
Transfer
At 1 January 2012
Additions
Disposals
At 31 December 2012
Depreciation
At 1 January 2011
Depreciation charge
Disposals
At 1 January 2012
Depreciation charge
Disposals
At 31 December 2012
Net Book value 2012
Net Book value 2011
Net book value 2010
Assets in the
course of
construction
US$’000
Buildings
US$’000
Plant and
equipment
US$’000
Office and
computer
equipment
US$’000
Furniture
and fixtures
US$’000
Motor
vehicles
US$’000
Total
US$’000
1,358
–
–
(1,358)
–
–
–
–
–
–
–
–
–
–
–
–
–
1,358
–
399
–
1,358
1,757
–
–
1,757
–
59
–
59
75
–
134
1,623
1,698
–
317
172
–
–
489
37
(13)
513
21
61
–
82
85
(6)
163
352
407
296
46
183
–
–
229
11
(2)
238
12
72
–
84
83
(2)
165
73
145
34
33
–
(6)
–
27
–
–
27
7
5
(4)
8
3
–
11
16
19
26
266
204
(16)
–
454
70
–
524
38
96
(3)
131
129
–
260
264
323
228
2,020
958
(22)
–
2,956
118
(15)
3,059
78
293
(7)
364
375
(8)
731
2,328
2,592
1,942
8. Subsidiaries
The Group has the following subsidiary undertakings:
Zambezi Energy Corporation Holdings 1 Limited
Zambezi Energy Corporation Holdings 2 Limited
Ncondezi Coal Company Mozambique Limitada (formerly
Zambezi Energy Corporation Limitada)
Ncondezi Services (UK) Limited
Ncondezi Power Holdings Limited
Ncondezi Power Company Limitada
% interest
2012
% interest
2011
100
100
100
100
100
100
100
100
100
100
–
–
Country of
incorporation
Mauritius
Mauritius
Activity
Holding company
Holding company
Mozambique
UK
Mauritius
Mozambique
Mining exploration
Holding company
Holding company
Energy company
“ZECH1”
“ZECH2”
“NCCML”
“NSUL”
“NPHL”
“NPCL”
Ncondezi Coal Company Mozambique Limitada (formerly Zambezi Energy Corporation Limitada) is owned by Zambezi Energy Corporation
Holdings 1 Limited and Zambezi Energy Corporation Holdings 2 Limited.
Ncondezi Power Company Limitada is owned by Zambezi Energy Corporation Holdings 2 Limited and Ncondezi Power Holdings Limited.
42
Ncondezi Coal CompanyAnnual report and financial statements 2012 9. Trade and other receivables
Current assets:
Other receivables
Total trade and other receivables
Included within other receivables is US$2,682,067 (2011: US$2,530,981) in respect of VAT recoverable in Mozambique.
The fair value of receivables is not significantly different from their carrying value.
10. Cash and cash equivalents
Cash at bank and in hand
The Group’s cash and cash equivalents balances may be analysed by currency as follows:
US dollars
Great British pounds
South African rand
Mozambique meticais
2012
US$’000
2011
US$’000
3,030
3,030
2,979
2,979
2012
US$’000
2011
US$’000
12,008
12,008
30,444
30,444
2012
US$’000
2011
US$’000
9,170
1,131
1,651
56
12,008
28,946
1,472
–
26
30,444
Where possible cash is deposited in floating rate deposit accounts at reputable financial institutions with high credit ratings.
11. Trade and other payables
Other payables
Other taxation and social security
Accruals and deferred income
2012
US$’000
2011
US$’000
1,057
93
1,481
2,631
2,223
464
731
3,418
Included within other taxation and social security is US$Nil (2011: US$372,892) in respect of withholding tax payable in Mozambique.
The fair value of payables is not significantly different from their carrying value.
12. Share capital
Number of shares allotted, called up and fully paid
Ordinary shares of no par value
At 1 January 2012
At 31 December 2012
2012
2011
121,115,682
121,115,682
Shares
issued
Number
121,115,682
121,115,682
Share
capital
US$’000
76,108
76,108
43
Overview 02Business review 04Corporate governance 15Financial statements 30
Notes to the consolidated
financial statements continued
12. Share capital continued
Number of shares allotted, called up and fully paid
At 1 January 2011
Issue of shares
Share buy‑back and cancellation
Exercise of warrants
At 31 December 2011
Shares
issued
Number
119,857,334
12,000,000
(12,189,474)
1,447,822
121,115,682
Share
capital
US$’000
59,245
34,807
(20,878)
2,934
76,108
13. Reserves
The following describes the nature and purpose of each reserve within owners’ equity.
Share capital
Foreign currency translation reserve
Other reserves
Retained earnings
Amount subscribed for share capital
Gains/losses arising on retranslating the net assets of overseas operations into US dollars
Equity element of Dos Santos Put and Call Options
Cumulative net gains and losses less distributions made
14. Share‑based payments
Share awards are granted to employees and Directors on a discretionary basis and the Remuneration Committee will decide whether to
make share awards under the LTIP or unapproved share option scheme at any time.
Long‑term incentive plan
At 31 December 2012 the following share awards were outstanding:
Year of grant
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
2010
Number
of options
shares
2,800,000
800,000
1,000,000
1,000,000
83,333
83,333
83,333
50,000
50,000
50,000
600,000
100,000
Start date
Vesting date
End date
Exercise
price per
share
27.05.10
27.05.10
10.06.10
10.06.10
11.06.10
11.06.10
11.06.10
15.06.10
15.06.10
15.06.10
30.12.10
30.12.10
27.05.10
27.05.10
30.09.11
30.09.12
10.06.11
10.06.12
10.06.13
10.06.11
10.06.12
10.06.13
30.09.11
30.09.12
Nil
26.05.20
25c
26.05.20
Nil
09.06.20
Nil
09.06.20
123p (179.58c)
10.06.20
123p (179.58c)
10.06.20
123p (179.58c)
10.06.20
123p (179.58c)
14.06.20
123p (179.58c)
14.06.20
14.06.20
123p (179.58c)
29.12.20 130.5p (201.08c)
143p (220.34c)
29.12.20
The Company’s mid‑market closing share price at 31 December 2012 was 24p (31 December 2011: 52.25p). The highest and lowest
mid‑market closing share prices during the year were 66.50p (2011: 230.50p) and 19.13p (2011: 51.50p) respectively.
There were no share awards issued during the year.
44
Ncondezi Coal CompanyAnnual report and financial statements 2012 14. Share‑based payments continued
The fair value of the remaining 3,900,000 share awards granted under the Group’s LTIP has been calculated using the Black‑Scholes
model and spread over the vesting period. The following principal assumptions were used in the valuation:
27.05.10
11.06.10
15.06.10
30.12.101
30.12.101
Share
price at date
of grant
132.44c
179.58c
179.58c
301.24c
301.24c
Exercise
price per
share
25c
179.58c
179.58c
201.08c
220.34c
Volatility
53.50%
53.50%
53.50%
33.86%
33.86%
Period
likely to
exercise
5 years
5 years
5 years
5 years
5 years
Risk‑free
investment
2.75%
2.75%
2.75%
2.26%
2.26%
Fair value
107.10c
88.50c
88.50c
139.40c
129.68c
1 Additional market conditions are attached to these share awards. The fair value at the date of grant was determined using a probability of meeting these market conditions.
The volatility of 53.50% was calculated using the share price of a similar company with coal assets in Mozambique. The volatility of 33.86%
was calculated using the Company’s own share price.
Unapproved share option scheme
At 31 December 2012 the following share awards were outstanding:
Year of grant
2012
2012
2012
Number
of options
shares
712,500
775,000
500,000
Start date
Vesting date
19.01.2012
19.01.2012
19.06.2012
19.01.2013
30.09.2012
19.06.2013
End date
18.01.22
18.01.22
18.06.22
Exercise
price per
share
59p (90.67c)
59p (90.67c)
30.5p (47.83c)
The Company’s mid‑market closing share price at 31 December 2012 was 24p (31 December 2011: 52.25p). The highest and lowest
mid‑market closing share prices during the year were 66.50p (2011: 230.50p) and 19.13p (2011: 51.50p) respectively.
The fair value of the 1,987,500 share awards granted under the Group’s unapproved share option scheme has been calculated using the
Black‑Scholes model and spread over the vesting period. The following principal assumptions were used in the valuation:
19.01.12
19.01.121
19.06.12
Share price
at date
of grant
90.67c
90.67c
47.83c
Exercise
price per
share
90.67c
90.67c
47.83c
Volatility
50%
50%
50%
Period likely to
exercise over
Risk‑free
investment rate
5 years
5 years
5 years
0.9%
0.9%
0.7%
Fair value
39.63c
34.67c
20.76c
1 Additional market conditions are attached to these share awards. The fair value at the date of grant was determined using a probability of meeting these market conditions.
The volatility of 50% was calculated using the share price of a similar company with coal assets in Mozambique.
Based on the above fair values, the expense arising from equity‑settled share options made to employees and Directors was
US$1,292,271 for the year (2011: US$2,597,325).
45
Overview 02Business review 04Corporate governance 15Financial statements 30
Notes to the consolidated
financial statements continued
15. Derivative financial asset
The late Denis Pereira Dos Santos was the registered owner of the 12,189,474 Ordinary Shares of the Company.
On 24 May 2010 the Company entered into a Put and Call option agreement with Rogerio Dos Santos (in his capacity as executor and heir
to the estates of certain members of the Dos Santos family) and Roberto Dos Santos (in his personal capacity and as heir to the estates of
certain members of the Dos Santos family).
As the Call Option was priced in Pound sterling whilst the functional currency of the Company is US dollar it was treated as a derivative
financial asset with corresponding increase in equity, and was accounted for at fair value through profit and loss.
The fair value of the derivative financial asset at the date the call option was exercised in 2011 was US$21,270,000. It was calculated using
the Black‑Scholes model with the following principal assumptions used in the valuation:
Share price on issue of loan notes
Strike price
Volatility
Risk‑free investment rate
Fair value
Initial
recognition
123.00p
110.70p
54%
1.50%
35.18p
At
20 January
2011
220.00p
110.7p
34%
1.5%
110.00p
There was no gain recognised during the year. In 2011 a gain of US$4,166,000 was recognised in the consolidated income statement in
respect of the fair value movement of the derivative financial asset.
16. Segmental analysis
The Group has two reportable segments:
• Exploration
– this segment is involved in the exploration of coal within the Group’s licence areas in Mozambique and development of
• Corporate
– this segment comprises head office operations and the provision of services to Group companies
power supply project
The operating results of each of these segments are regularly reviewed by the Group’s chief operating decision‑maker in order to make
decisions about the allocation of resources and assess their performance.
The segment results for the year ended 31 December 2012 are as follows:
Income statement
For the year ended 31 December 2012
Segment result before and after allocation of central costs
Finance expense
Finance income
Loss before taxation
Taxation
Loss for the year
The segment results for the year ended 31 December 2011 are as follows:
Income statement
For the year ended 31 December 2011
Segment result before and after allocation of central costs
Finance expense
Finance income
Loss before taxation
Taxation
Loss for the year
46
Exploration
US$’000
Corporate
US$’000
Group
US$’000
(3,369)
(18)
1
(3,386)
–
(5,224)
(27)
87
(5,164)
(55)
(8,593)
(45)
88
(8,550)
(55)
(3,386)
(5,219)
(8,605)
Exploration
US$’000
Corporate
US$’000
Group
US$’000
(2,894)
(14)
–
(2,908)
–
(2,908)
(8,247)
(36)
4,209
(4,074)
(84)
(4,158)
(11,141)
(50)
4,209
(6,982)
(84)
(7,066)
Ncondezi Coal CompanyAnnual report and financial statements 2012 16. Segmental analysis continued
Other segment items included in the Income statement are as follows:
Income statement
For the year ended 31 December 2012
Depreciation charged to the income statement
Share‑based payments
Income tax expense
Income statement
For the year ended 31 December 2011
Depreciation charged to the income statement
Share‑based payments
Income tax expense
Exploration
US$’000
Corporate
US$’000
Group
US$’000
(356)
–
–
(71)
(1,292)
(55)
(427)
(1,292)
(55)
Exploration
US$’000
Corporate
US$’000
Group
US$’000
(270)
–
–
(58)
(2,597)
(84)
(328)
(2,597)
(84)
The segment assets and liabilities at 31 December 2012 and capital expenditure for the year then ended are as follows:
Statement of financial position
At 31 December 2012
Segment assets
Segment liabilities
Segment net assets
Property, plant and equipment capital expenditure
Exploration capital expenditure
Exploration
US$’000
Corporate
US$’000
Group
US$’000
41,101
(2,230)
38,871
116
10,565
15,372
(457)
14,916
2
–
56,473
(2,687)
53,786
118
10,565
The segment assets and liabilities at 31 December 2011 and capital expenditure for the year then ended are as follows:
Statement of financial position
At 31 December 2011
Segment assets
Segment liabilities
Segment net assets
Property, plant and equipment capital expenditure
Exploration capital expenditure
Exploration
US$’000
Corporate
US$’000
Group
US$’000
30,703
(1,543)
29,160
956
14,966
33,875
(1,956)
31,919
2
–
64,578
(3,499)
61,079
958
14,966
17. Financial instruments
The Group is exposed to risks that arise from its use of financial instruments. This note describes the Group’s objectives, policies and
processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is
presented throughout these financial statements.
The significant accounting policies regarding financial instruments are disclosed in note 1.
There have been no substantive changes in the Group’s exposure to financial instrument risks, its objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods unless otherwise stated in this note.
47
Overview 02Business review 04Corporate governance 15Financial statements 30
Notes to the consolidated
financial statements continued
17. Financial instruments continued
Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises, are as follows:
Loans and receivables at amortised cost
Trade and other receivables
Cash and cash equivalents
Financial liabilities held at amortised cost
Trade and other payables
2012
US$’000
2011
US$’000
348
12,008
448
30,444
2,538
2,954
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives and policies and retains ultimate
responsibility for them.
The overall objective of the Board is to set polices that seek to reduce risk as far as possible without unduly affecting the Group’s
competitiveness and flexibility. Further details regarding these policies are set out below:
Credit risk
Credit risk arises principally from the Group’s investments in cash deposits.
The Group holds its cash balances with four different banks in Guernsey, London, Mauritius and Mozambique. The Group seeks to deposit
cash with reputable financial institutions with strong credit ratings.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital and the finance charges and principal repayments on its debts. It is
the risk that the Group will encounter difficulty in meeting its financial obligations as they fall due.
The Board receives cash flow projections on a monthly basis as well as information on cash balances.
Maturity analysis
2012
Trade and other payables
2011
Trade and other payables
Total
US$’000
On demand
US$’000
In 1 month
US$’000
Between
1 and 6
months
US$’000
Between
6 and 12
months
US$’000
Between
1 and 3
years
US$’000
2,538
–
2,538
–
–
–
Total
US$’000
On demand
US$’000
In 1 month
US$’000
Between
1 and 6
months
US$’000
Between
6 and 12
months
US$’000
Between
1 and 3
years
US$’000
2,954
–
2,954
–
–
–
The Group endeavours to match the maturity of its current assets with its current liabilities to mitigate liquidity risk.
Borrowing facilities
The Group had no undrawn committed borrowing facilities available at 31 December 2012 (2011: Nil).
Market risk
The Group does not currently sell any electricity. As such there is no specific market risk at the date of this report. However, there is a risk
that the Group is unable to secure a credit‑worthy off‑taker for the full output of the power plant, with the plant operating at load factors
in excess of 80%.
48
Ncondezi Coal CompanyAnnual report and financial statements 2012 17. Financial instruments continued
Currency risk
The Group is exposed to currency risk through its activities in Mozambique due to certain costs arising in Mozambique Meticais, whilst the
functional currency is US dollars. The Group has no formal policy in respect of foreign exchange risk, however, it reviews its currency
exposures on a monthly basis. Currency exposures relating to monetary assets held by foreign operations are included within the Group
Income Statement. The Group also manages its currency exposure by retaining the majority of its cash balances in US dollars, being a
relatively stable currency.
A 5% appreciation in the value of the US dollar against the Meticais, GB pounds and ZAR will increase net assets by US$198,614 (2011:
US$191,258).
Currency exposures
As at 31 December the Group’s net exposure to foreign exchange risk was as follows:
US dollars
2012 US$’000
Assets/(liabilities) held
2011 US$’000
Assets/(liabilities) held
USD
8,388
8,388
GBP
823
823
ZAR
2,783
2,783
MZN
392
392
Total
USD
12,386
12,386
27,159
27,159
GBP
626
626
MZN
2,684
2,684
Total
30,469
30,469
Fair value
Fair value is the amount at which a financial instrument could be exchanged in an arm’s length transaction between informed and willing
parties, other than a forced or liquidation sale and excludes accrued interest. Where available, market values have been used to
determine fair values. Where market values are not available, fair values have been calculated by discounting expected cash flows at
prevailing interest rates and by applying year end exchange rates.
The fair values of short‑term deposits, loans and overdrafts with a maturity of less than one year are assumed to approximate to their
book values.
Fair value measurement hierarchy
IFRS 7 requires certain disclosures which require the classification of financial assets and financial liabilities measured at fair value
using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurement. The fair value hierarchy
has the following levels:
(a) quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
(b) inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices) (Level 2); and
(c) inputs for the asset or liability that are not based on observable market data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within which the financial asset or financial liability is determined on the basis of the lowest level input
that is significant to the fair value measurement. Financial assets and financial liabilities are classified in their entirety into only one of the
three levels.
Level 3 fair value measurements
Opening balance
Additions
Net gains recognised in income statement
Disposal
Closing balance
Derivative financial asset
2012
US$’000
2011
US$’000
–
–
–
–
–
17,104
–
4,166
(21,270)
–
49
Overview 02Business review 04Corporate governance 15Financial statements 30
Notes to the consolidated
financial statements continued
18. Contingent liabilities
Inherent uncertainties in interpreting tax legislation
The Group is subject to uncertainties relating to the determination of its tax liabilities.
The tax system and tax legislation in Mozambique have been in force for only a relatively short time and are subject to frequent changes
and varying interpretations. The Directors‘ interpretations of such legislation in applying it to business transactions of the Group may be
challenged by the relevant tax authorities and, as a result, the Group may be assessed on additional tax payments including fines,
penalties and interest charges, which could have a material adverse effect on the Group’s financial position and results of operations.
The Directors believe that the Group is in substantial compliance with tax legislation and any contractual terms entered into that relate
to tax which affect its operations and that, consequently, no additional tax is expected to arise in excess of those recognised in the
financial statements.
19. Related party transactions
Parties are considered to be related if one party has the ability to control the other party, is under common control, or can exercise
significant influence over the other party in making financial and operational decisions. In considering each possible related party
relationship, attention is directed to the substance of the relationship, not merely the legal form.
The nature of the related party relationships with whom the Group entered into transactions or had balances outstanding at 31 December
2012 and 31 December 2011 is determined by management as transactions where the Group has the ability to control the decisions taken
by management of the related parties through the Group’s shareholders. All companies were classified as “other related parties”
according to requirements of IAS 24.
Strata Limited (“Strata”) – relationship agreement
A relationship agreement dated 3 June 2010 (“Relationship Agreement”) between the Company and Strata was executed to regulate the
ongoing relationship between the Company and Strata. The principal purpose of the Relationship Agreement is to ensure that the
Company is capable of carrying on its business independently of Strata and its subsidiary undertakings (“Strata Group”) and that
transactions and relationships with the Strata Group are at arm’s length and on normal commercial terms. The Relationship Agreement
will continue for so long as the Ordinary Shares are admitted to trading on AIM and Strata owns or controls in aggregate 15% or more of
the issued shares or voting rights of the Company.
As at 31 December 2012 Strata held 44.82% of the Company.
Strata Capital UK LLP
Strata Capital UK LLP charged the Company US$118,650 (2011: US$160,756) in respect of legal services.
MMDN Financial Services LLP (“MMDN”)
During the year MMDN a firm which Manish Kotecha is a partner charged the Company US$4,975 (2011: US$36,681) in respect of financial
services. The balance outstanding at 31 December 2012 was US$380 (2011: US$370).
Mines Value Management
During the year US$63,213 (2011: US$64,353) was paid to Mines Value Management in respect of services provided by Nigel Sutherland.
PIP Global IP Limited “PIP”
During the year PIP a company of which Nigel Sutherland is a Director, provided an independent mine plan and cost review on the
Company’s feasibility study. The total charge was US$287,561 (2011: US$Nil).
Graham Mascall
During the year Graham Mascall charged the company US$139,280 (2011: US$Nil) for consulting services.
50
Ncondezi Coal CompanyAnnual report and financial statements 2012 20. Lease commitments
Operating lease commitments – minimum lease payments
Ncondezi Services (UK) Limited administration office
In November 2011 the Group entered into a three‑year lease for offices in London, United Kingdom. The annual rent for these offices is
US$350,049 (£216,505).
Future minimum lease payments under non‑cancellable operating leases as at 31 December 2012 are as follows:
Within one year
After one year but not more than five years
Minimum lease payments
2012
US$’000
2011
US$’000
350
350
700
335
670
1,005
21. Commitments
In December 2011 a Memorandum of Understanding was signed with the Ministry of Mineral Resources in respect of a three‑year Social
Development Programme, with a committed spend of US$2m. During the year US$340,000 was spent as part of this programme.
22. Events after the reporting date
On 26 April 2013 the Company granted 4,300,000 share options to its senior management and contracted personnel of which 500,000
options vest as at the date of grant, 1,875,000 options are subject to milestone based vesting conditions (“Milestone Based Awards”) and
1,925,000 options are subject to time based vesting conditions (“Time Based Awards”). The options have an exercise price of 17.25p and
are exercisable within three years of vesting. Simultaneously it has been agreed to cancel and/or lapse prior unexercised share awards
in respect of 2,762,500 Ordinary Shares, with varying exercise prices between 59p and 143p.
The Milestone Based Awards provide that 1/3 of the Milestone Based Awards vest upon the successful conclusion with an offtaker
of Heads of Terms for a Power Purchase Agreement and the other 2/3 of the Milestone Based Awards are to vest upon the execution
of a Power Purchase Agreement for all or part of the first 300MW phase of the Ncondezi Power Project.
The Time Based Awards provide that the share options vest in two equal tranches on the first and second anniversary from the date
of grant.
51
Overview 02Business review 04Corporate governance 15Financial statements 30
Company information
Directors
Company Secretary
Registered Office
Michael Haworth (Non‑Executive Chairman)
Paul Venter (Chief Executive Officer)
Christiaan Schutte (Non‑Executive Director)
Peter O’Connor (Non‑Executive Director)
Graham Mascall (Non‑Executive Director)
Richard Stuart (Non‑Executive Director)
Estevão Pale (Non‑Executive Director)
Nigel Sutherland (Non‑Executive Director)
Mark Trevan (Non‑Executive Director)
Elysium Fund Management Limited
PO Box 650, 1st Floor, Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey
GY1 3JX
2nd Floor
Wickham’s Cay II
PO Box 2221
Road Town
Tortola
British Virgin Islands
Company number
1019077
Nominated Advisor and Joint Broker
Joint Broker
Auditors
Registrar
Legal advisor to the Company as to BVI law
Legal advisor to the Company as to English law
52
Liberum Capital Limited
Ropemaker Place
Level 12
25 Ropemaker Street
London
EC2Y 9AR
finnCap
60 New Broad Street
London
EC2M 1JJ
BDO LLP
55 Baker Street
London
W1U 7EU
Computershare Investor Services (BVI) Limited
Woodbourne Hall
PO Box 3162
Road Town
Tortola
British Virgin Islands
Ogier LLP
41 Lothbury
London
EC2R 7HF
Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London
EC4R 9HA
Ncondezi Coal CompanyAnnual report and financial statements 2012 N
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