Ncondezi Energy Limited Annual Report 2014

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FY2014 Annual Report · Ncondezi Energy Limited

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Ncondezi Energy Limited
Annual Report and Financial Statements
for the year ended 31 December 2014

Contents

2 - 3

4 - 5

7 - 9

Overview and Highlights

Chairman’s Statement

Operations Review

Financial Review

Resource Summary

Environmental and Social Responsibility

11 - 12

Directors’ Biographies

13 - 14

Directors' Report

15 - 18

Risk Factors

19 - 21

Corporate Governance Statement

22 - 23

Report of the Remuneration Committee

Statement of Directors' Responsibilities

25 - 26

Independent audit report to the members of Ncondezi Energy Limited

Consolidated statement of profit or loss and other comprehensive income

Consolidated statement of financial position

Consolidated statement of changes in equity

Consolidated statement of cash flows

31 – 54

Notes to the consolidated financial statements

Company Information

Overview & Highlights

Our Vision
Ncondezi Energy is an emerging power development company with an integrated thermal coal mine
and power plant project located near Tete in northern Mozambique (the “Ncondezi Project”).
Ncondezi is aiming to develop the project in phases, subject to additional financing, with the first
phase targeting 300MW and ultimately scalable to 1,800MW.

Visit www.ncondezienergy.com for regular updates and additional information on the Company and
its activities.

Project Achievements
• Power plant binding EPC bids received
• Binding bids received for mine contractor turnkey solution
• Commercial deal agreed with Electricidade de Mozambique (“EDM”) on the sale of electricity from

the Ncondezi Power Plant

• Power Purchase Agreement and Power Concession Agreement substantially advanced
• Binding bids received for transmission line contractor turnkey solution
• Land use agreement for power plant received from Mozambican Government

Corporate Highlights
• Raised £3.18 million (US$5 million) from African Finance Corporation (“AFC”) in December 2014
• Non-binding Memorandum of Understanding signed with Shanghai Electric Power Company

Limited (“SEP”). Negotiations continue with SEP, the Company’s existing shareholders and other
financial and strategic investors

• £0.76 million (US$1.16 million) raised via an Open Offer following the placing to AFC in January

2015

• Christiaan Schutte appointed Chief Operating Officer in February 2015
• Aman Sachdeva appointed Non-Executive Director in May 2015 as AFC’s nominated director
• On 21 May 2015, Paul Venter resigned as a Director and Chief Executive Officer
• Cash balance as at 5 June 2015 of US$2.2 million

Page | 1

Chairman’s Statement

Dear Shareholder,

During the 2014 financial year, the Company progressed the on-going development of its 300MW
integrated thermal coal mine and power plant project which is located near Tete in Northern
Mozambique (the “Ncondezi Project”).

The main focus for Ncondezi during 2014 was to advance the key commercial power plant agreements
with both the Mozambican Ministry of Mineral Resources and Energy (“MMRE”) and the state power
utility Electricidade de Mozambique (“EDM”). Negotiations on the Power Purchase Agreement (“PPA”)
and Power Concession Agreement (“PCA”) began in January 2014 and both documents have been
extensively negotiated between EDM, the MMRE and Ncondezi.

In March 2014, Ncondezi announced that it had received a number of binding Engineering,
Procurement and Construction (“EPC”) bids to provide turnkey contracts to build both the power plant
and mine projects. These binding EPC bids provided an important basis to finalise the electricity tariff
negotiations with EDM.

In September 2014, the Company announced that it had reached a conditional commercial deal with
EDM on the sale of electricity from the Ncondezi Project. The agreed commercial deal includes the
range for the starting electricity tariff to be paid by EDM, which will then be subject to adjustments
during the 25 year operational life of the Ncondezi Project. The starting tariff range is based on a
number of assumptions including indexation, financing costs, coal costs, operator & maintenance costs
and the technical parameters and capital costs contained in the binding Power Plant EPC bids. Based
on a target project capital structure of 70 per cent. debt and 30 per cent. equity, the Company believes
that the conditional commercial deal supports the economics of the Ncondezi Power Plant and provides
a regionally competitive US$ based project equity IRR.

The Company has been working to satisfy the conditions precedent of the commercial deal and agree a
provisional timetable to financial close with EDM. Notwithstanding the progress that was made, the
conditions precedent for the commercial deal were not met prior to the end of 2014 and in March 2015
the Company received an extension from EDM until 30 September 2015 to satisfy the conditions
precedent.

Ncondezi has been working with a number of international power companies to explore the potential for
investment in both the power project and the mine project as part of its strategic partner process. In
October 2014, Ncondezi signed a non-binding Memorandum of Understanding (“MoU") with Shanghai
Electric Power Company Limited (“SEP”). Negotiations with SEP have taken longer than agreed and
the Company continues to engage with SEP, its existing shareholders and other financial and strategic
investors.

In October 2014, the Company received a number of binding EPC bids on the 92km transmission line
and substations to connect the Ncondezi Project to the Mozambican Northern Grid. These bids are
currently under evaluation.

On 18 December 2014, the Company completed a placing to African Finance Corporation (“AFC”) of
54,998,520 new Ordinary Shares in the Company which raised £3.18 million (US$5 million) before
expenses. AFC is a leading African-led multilateral development financial institution which has
significant experience of investing in African power and infrastructure projects. Recently AFC
announced the ground breaking of the US$900 million Kpone Independent Power Project (“Kpone IPP”)
in Ghana, implemented by the Cenpower Generation Company Limited. The Kpone IPP reached
Financial Close in December 2014 and is a 350MW, light crude oil and gas fired, combined cycle power
plant. AFC is the lead project developer, mandated lead arranger and largest equity investor in the
Kpone IPP. We are very pleased to have AFC as a significant shareholder in Ncondezi and look
forward to working with them and leveraging their experience and expertise to successfully deliver the
Ncondezi Project.

Page | 2

Chairman’s Statement

On 12 January 2015, the Company announced that it had raised an additional £0.76 million (US$1.16
million) through the Open Offer that was conducted following the placing to AFC. The intention of the
Open Offer was to allow existing shareholders to acquire further shares in the Company at the same
price as AFC and which allowed shareholders to reduce their dilution from the AFC placing. The net
proceeds of the placing and open offer has ensured that the Company is funded into Q1 2016.

The Directors are in negotiations with a number of parties in respect of raising further funds to continue
with the development programme of the Ncondezi Project. If a transaction with a potential co-developer
or strategic partner is concluded as currently targeted during 2015, the Group will have sufficient funds
to continue with the full development programme of the Ncondezi Project. 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 and fund working
capital 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.

During 2014, as a result of the continued decline in global thermal coal prices and the commercial deal
with EDM, Ncondezi wrote down the value of its coal asset by US$31.8 million. The carrying value of
the coal asset now reflects the value of the coal resource that will supply the Ncondezi 300MW power
station.

In February 2015, Christiaan Schutte agreed to become the Chief Operations Officer and Executive
Director. Christiaan has been on the Board of Ncondezi since February 2013 and has extensive
experience in the building of and operation of power stations in South Africa having held senior
positions at Eskom in both the engineering and generation divisions. Christiaan’s appointment
significantly enhances Ncondezi’s in house technical expertise.

In May 2015, the Company announced that Paul Venter was stepping down as a Director and Chief
Executive Officer. Paul led Ncondezi’s transition from a mining company to a power development
company and I would like to take this opportunity to thank Paul for his efforts and wish him well for the
future.

Also in May 2015, the Company announced that Aman Sachdeva has been appointed as a Non-
Executive Director of Ncondezi and will act as AFC’s nominated director. Aman brings a wealth of
project finance and power expertise and we welcome his appointment and look forward to working with
him.

Despite the extremely challenging coal and equity market conditions, Ncondezi continues to advance
the Ncondezi Project and continues to target meeting the conditions precedent to the commercial deal
with EDM and securing a strategic partner for the Ncondezi Project. Progress was achieved during
2014 and we intend to build on this in 2015 for the benefit of Ncondezi shareholders and all
stakeholders.

Michael Haworth
Non-Executive Chairman

Page | 3

Operations Review

Ncondezi is focused on the phased development of an integrated thermal coal fired power plant and
mine, commencing with 300MW as Phase 1. The Ncondezi Project is located near Tete in Northern
Mozambique.

Commercial Deal with EDM
In September 2014, the Company announced that it had reached a conditional commercial deal with
EDM on the sale of electricity from the Ncondezi Project. The agreed commercial deal includes the
range for the starting electricity tariff to be paid by EDM, which will then be subject to adjustments
during the 25 year operational life of the Ncondezi Project. The starting tariff range is based on a
number of assumptions including indexation, financing costs, coal costs, operator and maintenance
costs and the technical parameters and capital costs contained in the binding power plant EPC bids.
Based on a target project capital structure of 70% debt and 30% equity the Company believes that the
conditional commercial deal supports the economics of the Ncondezi Power Plant and provides a
regionally competitive US$ based project equity IRR.

Ncondezi has been working to satisfy the commercial deal conditions precedent and agree with EDM
an indicative timetable to Financial Close. In March 2015, EDM granted the Company an extension
until 30 September 2015 to satisfy the conditions precedent.

The commercial deal was the result of negotiations during 2014 between Ncondezi, EDM and the
MMRE on critical matters to the Ncondezi Project’s viability, including the structure and content of key
project agreements (in particular the PPA and the PCA), the PPA tariff (level, structure and
indexation) and the terms of credit support to be provided for the Ncondezi Project.

Power Plant EPC Process
In March 2014, the Company announced that it had received four bids from internationally recognised
firms for the EPC contract for its 300MW power plant project. The bidders all submitted fixed price
lump sum turnkey contracts for the engineering, procurement, construction and commissioning of a
300MW power plant consisting of two 150MW generating units using Circulating Fluidised Bed
(“CFB”) technology.

The initial evaluation of the bids has confirmed that the power plant’s capital costs and build times are
in line with expectations previously announced to the market, and that project financing up to 85% of
the EPC contract price may be achievable. The EPC’s project capital expenditure binding quotes form
a key basis for the PPA tariff.

Common Infrastructure Tender Processes
The common infrastructure tender process commenced in Q1 2014 and included infrastructure that
will be shared between the mine and the power plant including, but not limited to, accommodation and
other service buildings, water services, electrical reticulation, roads and general earthworks. Work in
relation to the common infrastructure is continuing.

Strategic Partner Selection
In October 2014, the Company announced that it had entered into a non-binding MOU with SEP,
which may lead to SEP becoming a strategic shareholder in the power project. Negotiations with SEP
have taken longer than agreed and the Company continues to engage with SEP, its existing
shareholders and other financial and strategic investors.

In December 2014, AFC became a strategic investor in Ncondezi with a 22% shareholding as at 31
May 2015. AFC is a leading African-led multilateral development financial institution which has
significant experience of investing in African power and infrastructure projects. Recently AFC
announced the ground breaking of the US$900 million Kpone IPP in Ghana, implemented by the
Cenpower Generation Company Limited. The Kpone IPP is a 350MW, light crude oil and gas fired,
combined cycle power plant and reached Financial Close in December 2014. AFC is the lead project
developer, mandated lead arranger and largest equity investor in the Kpone IPP.

Page | 4

Operations Review

Power Plant Permitting
In November 2014, the Company received its land use agreement, or DUAT in Mozambique, from the
Mozambican Government granting exclusive use for power plant operations. The DUAT covers an
area of 9,500 hectares.

Transmission
During the reporting period, the Company launched the transmission line EPC tender process for the
dedicated transmission infrastructure to connect the Ncondezi Project with the Mozambican national
transmission network. The tender process includes a 92km 2x400kV transmission line and 220/33kV
substation. The Company appointed Norconsult Africa (Pty) Ltd to run the process and in October
2014, the Company received a number of binding bids. Ncondezi and its technical and commercial
advisors are currently evaluating the bids.

Ncondezi Open Pit Mine
During 2014, the focus was largely on completing a binding bid process to receive a turnkey solution
for the design, engineering, commissioning, operation and maintenance of the Ncondezi coal mine,
including the coal processing plant, associated coal handling facilities and infrastructure. This follows
completion and publication of the optimised mine feasibility study in December 2013.

Eleven firms submitted expressions of interest, following site visits, and binding bids were received
during Q2 2014. For the mine infrastructure, mine establishment and mine operation, three bids were
received. For the coal handling and processing establishment and operation, five bids were received.
The bids were reviewed by a technical and commercial team led by KPMG Services (Pty) Ltd in South
Africa.

The bids provided Ncondezi with a binding input coal price for the Coal Sales Agreement (“CSA”)
between the mine and power station. The CSA, in turn, will form a key part of the PPA between the
Ncondezi power station and EDM. The Final Form CSA will be completed in parallel with the PPA.

The planned open pit mine is located within Ncondezi’s South Block concession (the “South Mine”),
and as such has been termed the South Pit. This designated mining block was chosen due to the
proximity of the coal to surface resulting in favourable strip ratios, as well as higher yielding coal than
some of the adjacent areas. At present, the target product for the power plant is a 16 – 17 MJ/kg
(NAR) domestic grade thermal coal product.

The South Mine covers 200 ha and has the resources to provide coal to the 2x150MW CFB power
station for a period of 25 years, plus a contingency of approximately 50% or an additional 15 years.

The South Mine is expected to be an open pit, truck and shovel, contract mining operation supplying
domestic grade coal to the Ncondezi power station with an average annual production of 1.5 million
tonnes of domestic grade coal, a Life of Mine (“LoM”) average strip ratio of 0.6 BCM/tonne and a LoM
average yield of 92%.

Mine Permitting
Ncondezi was issued a Mining Concession in 2013 and in May 2014 submitted its application for land
use agreement, or DUAT, to the Mozambican Government. Due to the large area, over 25,000 ha, the
process is now being analysed by the Ministry of Land, Environment and Rural Development and the
Company hopes to receive the documents during H2 2015.

Insurance Advisor Appointed
The Company has appointed Marsh Ltd (“Marsh”) as the Ncondezi Project’s Insurance Advisor, one
of the global leaders in insurance broking and risk management. Marsh has been mandated to advise
on the design and procurement of the complete insurance program required for the Ncondezi Project
during the construction and operational phases.

Page | 5

Financial Review

Results from operations
The Group made a loss after tax for the year of US$37.7m compared to a loss of US$7.1m for the
previous financial year. The basic loss per share for the year was 20.5 cents (2013: 5.8 cents).

Administrative expenses totalled US$37.6m (2013: US$7.0m). This included a share based payments
charge of US$0.2m (2013: US$0.7m) and impairment charge of US$31.8m (2013: nil) relating to
provision against the carrying value of the Group’s coal mining asset, following a review of the value
of the coal mining asset at the year end. The carrying value of the coal asset now reflects the value of
the coal resource that will supply the Ncondezi 300MW power station. Refer to note 7 for further
information.

Financial Position
The Group’s statement of financial position at 31 December 2014 and comparatives at 31 December
2013 are summarised below:

Non-current assets
Current assets
Total assets
Current liabilities
Total liabilities
Net assets

2014
US$’000
17,464
4,831
22,295
3,079
3,079
19,216

2013
US$’000
45,599
9,109
54,708
2,752
2,752
51,956

The movement in non-current assets of US$28.1m was largely due to US$31.8m impairment charge
following a review of the value of the coal mining asset at the year end, depreciation charge for the
year of US$0.3m and a decrease of US$0.4m in restricted cash balance, reduced by US$4.5m
additions arising on the continued development of Ncondezi Mining and Power Projects.

Cash Flows
The net cash outflow from operating activities for the year was US$4.3m (2013: US$5.2m).

Net cash used in investing activities was US$2.7m (2013: US$4.6m), including US$3.1m on
development activities (2013: US$4.2m) incurred on the Ncondezi Project, and the transfer of
US$0.4m from restricted cash.

The resulting year end cash and cash equivalents held totalled US$4.5m (2013: US$6.8m).

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 Ncondezi Project for 2015,
which is focused on satisfying the conditions precedent to the commercial deal with EDM. The Group
has implemented a cost reduction strategy and based upon projections the current cash reserves will
fund overhead expenditure for approximately 8 months.

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 and fund working capital 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. Further disclosures on going concern are included in note 1.

Page | 6

Resource Summary

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fer
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r

o
t
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e

limit
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p
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ely
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ely
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im
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e
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t
n
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(
Mt

ply
m
u

minim

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et
m
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0
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n

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plic
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h
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t
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elo
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k,
c
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sifie
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fig
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sit
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g
a
n
n
o
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s
s
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Gr
(
IS
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o
t
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limit
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h
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d
y
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c
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r
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h
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o
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g
cin
a
p
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h
t
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er
h
w
s
a
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ar
hin
wit
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d
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w
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at
dic
In

r.
u
h
ulp
S
al
t
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=
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olatile

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=
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Yield

h
s
A
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sis.

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slim
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h
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fig
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n
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ble
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e limit

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ar
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h
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at
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w
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ig
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w-
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al
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ulativ

m
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tilis
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p
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min
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p
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c
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k
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s in

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c
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m
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fr
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clu
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v
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m
m
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v
w
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s.
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c
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f
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k
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Blo
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Riv

Page | 7

al.
o
c
e
h
f t
o
ield
y
h
s
a
w
a
r
e
h
t
o
t
d
e

elat
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s
r
o
t
c
fa
t
n
e
m
st
dju
a
d
n
a
sis
a
b
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h
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, a
y
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d
a
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al
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d
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min
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et
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s
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g
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olatile

v
al
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c
e
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T

Resource Summary

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s
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e
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s:
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p
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(
e
c
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d
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h
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Page | 8

-
t
u
c
s
s
e
n
k
hic
t
ply
m
u

minim
m
0.5
f a
o
n
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a
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wit

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n
a
g
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limit

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tir
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fig
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u
sit
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(g
IS
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ff.
o

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m
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n
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t
n

millio
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Mt

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7.5
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h
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m
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fig
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a
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limit
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f
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p
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p
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M

TIS
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m, t
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at
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t
t
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fig
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ble
(min
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r.
u
h
ulp
S
al
t
o
T
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S
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V
rific
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t
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t
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Yield

h
s
A
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e,
r
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t
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h
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=
IM
sis.

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b
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d
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air
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t
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u
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q
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k
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k
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ple
m
a
e s
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o
c

slim
m
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fr
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at
m
m
m
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0
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h
t
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ield
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t
c
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r
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elatio

r
r
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c
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n

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t
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ally
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s
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w
%
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o

limit
ield
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h
s
a
w
a
r
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s
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ield
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Resource Summary

Competent Person’s statement
The information in this Annual Report that relates to coal resources has been reviewed by and is
based on information compiled by Mark C Stewardson and Gavin Andrews of Mineral Corporation
Consultancy (Pty) Limited. Both Mr Stewardson and Mr Andrews are Competent Persons who are
registered as Professional Natural Scientists in the field of Geological Science with the South African
Council for Natural Scientific Professions, a Recognised Professional Organisation included in a list
that is posted on the ASX website from time to time. Neither Mineral Corporation Consultancy (Pty)
Limited nor any of its Directors, staff or sub-consultants who contributed to this resource estimation
has any material interest in Ncondezi or in the assets under consideration.

Both Mr Stewardson and Mr Andrews have sufficient experience that is relevant to the type of coal
deposit under consideration and to the activity being undertaken to qualify as Competent Persons as
defined in the 2013 Edition of the Australasian Code for Reporting of Exploration Results, Mineral
Resources and Ore Reserves (the JORC Code). Mr Stewardson and Mr Andrews consent to the
inclusion in this Annual Report of the information based on their work in the form and context in which
it appears.

The JORC Code sets out minimum standards, recommendations and guidelines for Public Reporting
of Exploration Results, Mineral Resources and Ore Reserves. The information contained in this
release has been presented in accordance with the JORC Code and references to "Measured"
Resources are relevant to that term as defined in the JORC Code.

A Competent Person’s Consent Form from 18 May 2015 relating to this report is held on record by
Ncondezi.

The Project Resource report was compiled in accordance with the 2004 version of the JORC Code
and the Measured Resource report was compiled in accordance with the 2013 version of the JORC
Code.

The references for the supporting reports to the resource estimations are:

• The Mineral Corporation, February 2013: Coal Resource Estimates for Licences 804L and

805L, Tete Province, Mozambique; and

• The Mineral Corporation, November 2013: Measured Coal Resource Estimate for South

Block, Ncondezi Project, Tete Province, Mozambique.

Page | 9

Environmental & Social Responsibility

Ncondezi Social Development Programme

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 International Finance Corporation performance
standards and to Mozambican legislative requirements.

In 2012, Ncondezi formalised its CSR policy with the signing of a three year Social Development
Programme (“SDP”) with the Government of Mozambique. The SDP is being implemented as a
public-private partnership between the Company, the local communities in the Moatize District and
the Government.

During 2013, Ncondezi planted various crops incorporating different varieties as a demonstration
exercise. Ncondezi cleared and planted a 10 hectare block of land in the Catabua 2 area adjacent to
the Ncondezi River. This was fenced off to protect the crops from local animal damage. Within the
fenced area 20 plots were demarcated and allocated to the local community together with seed and
fertilizer. The crops that were harvested produced exceptional yields using the conservation farming
methods.

During 2014, the highlight and main focus of the SDP was the agricultural project. The objective of
the project was to train and educate the local community in all aspects of plant management and
animal husbandry.

In 2014 the initial 10 hectare fenced block was upgraded from a “rain” planted block into a small
irrigation scheme. This made the project more intensive with an additional 20 recipients joining the
original 20 plot holders.

With the construction of 2 night storage dams and a canal that dissected the 40 plot holders the
Company added 3 solar pumps with which to enable the locals to have access to water from the
perennial Ncondezi River. The Company built a shade house nursery to produce vegetable and other
seedlings which were distributed to the local farmers.

Vegetables that were successfully grown by the recipients included tomatoes, cabbages, okra, onions
and sweet potatoes. The Company has included trials on various other crops that could have the
potential to produce high yields and that would give the farmers worthwhile returns. These include
bananas, cassava, sugar cane and paw paws.

The introduction of groundnuts into the area as a possible cash crop last year was very successful
and the trials plots ended up yielding over 1,350 kilograms of unshelled nuts per hectare. The
Company will be retaining enough seed so as the local farmers can embark on an expanded program
this coming season.

As part of the program, it is imperative to demonstrate the importance of crop rotations to avoid
disease and exhausting the soil fertility. To this end Ncondezi opened up an additional block of 5
hectares adjacent to the original 10 hectare block. This was where an additional 23 local recipients
planted maize. The crop yields are still to be determined as the reaping is still on going.

The project’s success has come under the District and Provincial spotlight and at their request
Ncondezi have recently hosted a field day that was attended by all the major mining companies and
local and provincial authorities. A total of over 300 attended to tour the project and speak to the local
recipients.

Alongside the agricultural project, Ncondezi also sponsored the following activities during 2014:

• Two students completed their Masters degree in Mining Engineering at Coimbra University on full

bursary from Ncondezi.

• Ncondezi built a new school at Waenera village after the old school was badly affected by storms.
This project was made special through the active participation of Ncondezi staff and families in
the construction of the school and its equipment.

• A 4x4 ambulance was purchased to assist villagers in remoter areas within the project area get to

the local clinic.

Page | 10

Directors’ Biographies

Michael Haworth / Non-Executive Chairman
Michael Haworth is a Senior Partner of Greenstone Capital LLP, a Director of Greenstone
Management Limited, a Non-Executive Director of Zanaga Iron Ore Company Limited and a Director
of Strata Limited (“Strata”).

Mr Haworth has over 17 years finance 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.

Christiaan Schutte / Chief Operating Officer
Christiaan 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 Manager 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.

Peter O’Connor / Independent Non-Executive Director
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 1,050MW 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.

Estevão Pale / Independent Non-Executive Director
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.

Page | 11

Directors’ Biographies

Jacek Glowacki / Non-Executive Director
Jacek Glowacki has over 30 years of international experience in the power sector and is currently
Chief Executive Officer and Chairman of the Board of Polenergia Group, a Polish Independent Power
Producer and a subsidiary of Kulczyk Investments S.A., a significant shareholder in Ncondezi.

During his career, he has held senior executive positions at Kulczyk Investments, AEI Corporation
(USA), Trakya Elektrik (Turkey) and Prisma Energy Europe. Mr Glowacki’s operating experience
includes General Manager of Nowa Sarzyna, which was owned by ENRON and Chief Production
Engineer at Cracow Combined Heat and Power Plant, owned by EDF. He holds a degree in
engineering from the University of Mining and Metallurgy in Cracow and an MBA from the University
of Chicago.

Aman Sachdeva / Non-Executive Director (appointed in May 2015)
Aman Sachdeva was appointed to the Ncondezi Board on 21 May 2015 and brings a wealth of
experience having spent more than 20 years in the infrastructure industry, specializing in the energy
sector; ranging from project finance, management consulting, regulatory affairs, mergers and
acquisitions, power system planning, energy conservation and marketing. Mr Sachdeva is currently
the founder and Chief Executive Officer of Synergy Consulting, an independent consulting practice
with a focus on project finance, which has to date closed projects worth US$12 billion. Mr Sachdeva
is also an advisor to the World Bank, Energy Sector for Central Asia, South Asia and Africa on a
variety of projects.

Paul Venter / Chief Executive Officer (resigned in May 2015)
Paul Venter was appointed CEO in February 2013. He joined the Company as Chief Operating Officer
in June 2012 and was responsible for delivering the Company’s power strategy. Mr Venter has over
40 years' experience across Africa, Mongolia, China and Russia in the mining, power generation and
transport industries and served for the full year ended 31 December 2014. Mr Venter resigned as a
Director and CEO on 21 May 2015.

Page | 12

Directors’ Report

The Directors present their Annual Report and the audited group financial statements headed by
Ncondezi Energy Limited for the year ended 31 December 2014.

Principal activities
The principal activity of the Group is the development of an integrated 300MW power plant and mine
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 2 to 3, the Operations Review on pages 4 and 5 and in the Financial Review on
page 6.

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 15
to 18.

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 16.

Key performance indicators
The key performance indicators of the Group are as follows:

Mine exploration expenditure (US$’000)
Power development expenditure (US$’000)
Metres drilled Ncondezi Project
Share price at 31 December (pence)
Cash at bank at 31 December (US$’000)

2014

580
3,848
-
5.5p
4,515

2013

2012

2,095
2,109
9,723
6.12p
6,756

8,321
2,244
3,674
24.00p
12,008

Results and dividends
The results of the Group for the year ended 31 December 2014 are set out on page 27.

The Directors do not recommend payment of a dividend for the year (2013: nil). The loss will be
transferred to reserves.

Events after the reporting date
See note 20 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 16 of the financial statements.

Going concern
As at 5 June 2015 the Group had cash reserves of approximately $2.2m. The Group has
implemented a cost reduction strategy and based upon projections the current cash reserves will fund
overhead expenditure for approximately 8 months. Details on going concern are contained in note 1
of the financial statements.

Page | 13

Directors’ Report

Directors and Directors’ interests

1
2

Director Note
Michael Haworth
Jacek Glowacki
Graham Mascall
Peter O’Connor
Estevão Pale
Christiaan Schutte
Nigel Sutherland
Mark Trevan
Paul Venter
Aman Sachdeva

3
4

Appointment
date

Resignation
date

28.10.13

04.02.13

26.04.13
21.05.15

14.02.14

14.02.14
14.02.14

Ordinary
Shares held
31 December
2014
12,726,743
-
504,195
-
-
-
32,785
-
-
-

Ordinary
Shares held
31 December
2013
5,936,349
-
504,195
-
-
-
32,785
-
-
-

1.
2.

Includes shares held by a trust of which Michael Haworth is a potential beneficiary.
Jacek Glowacki is a director of Polenergia Group, a subsidiary of Kulczyk Investments S.A. which holds 29,111,719
ordinary shares representing 11.7% of the issued Ordinary Shares as at 31 May 2015.

3. Paul Venter resigned on 21 May 2015.
4. Aman Sachdeva is AFC’s nominated director. AFC holds 54,988,520 ordinary shares representing 22.0% of the

issued Ordinary Shares as at 31 May 2015.

Annual General Meeting
Resolutions will be proposed at the forthcoming Annual General Meeting, as set out in the Formal
Notice. Following his appointment in May 2015 and in accordance with the Company’s Articles of
Association, Aman Sachdeva will retire and offer himself for re-election at the forthcoming Annual
General Meeting of the Company. In accordance with the Company’s Articles of Association one third
of the Directors are required to retire by rotation. Accordingly, Peter O’Connor and Christiaan Schutte
will offer themselves for re-election at the forthcoming Annual General Meeting of the Company.

Corporate Governance
The Company’s compliance with the principles of corporate governance is explained in the corporate
governance statement on pages 19 to 21.

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
25 June 2015

Page | 14

Risk Factors

Risk(s)
Off-taker risk

Financial closure

Mitigation Measure(s)
The Company is working to satisfy the
conditions precedent of the commercial deal
with EDM which has been extended to 30
September 2015

The Company has substantially advanced
the PPA and PCA through negotiations with
EDM and Ministry of Mineral Resources and
Energy.

The Company is working with international
experts to ensure the bankability of the
commercial deal with EDM.

The Company continues to engage with a
number of potential financing partners with
the objective of securing additional
development capital.

The Directors’ will monitor the monthly cash
burn rate to ensure the Group operates
within its cash resources for as long as
possible.

Potential Impact(s)
While the Company has announced that it
has reached a conditional commercial deal
with EDM as to the starting tariff for the PPA
which supports the power plant project
economics, these terms and the PPA
remain subject to contract. In the event that
the Group is unable to finalise the PPA on
acceptable terms, the Group will need to
secure an alternative credible power off-
taker(s) to raise finance for the power plant
project. There is no guarantee that, in such
circumstances, the Group will be able to
secure a credit worthy off-taker for the full
output with the plant operating at load
factors in excess of 80 per cent.

The Group will need to secure project
financing, investment from strategic
investors and/or investment from co-
developers to complete the Ncondezi
Project. Failure to do so may lead to the
Group not being a going concern (see note
1) and failure of the Ncondezi Project and/or
delay in its execution.

To achieve Financial Close of the Ncondezi
Project, the Group will also need to
progress, and possibly conclude, some of
its on-going negotiations on key project
agreements, including the PCA and the
PPA. Failure or delay in doing so may lead
to failure of the Ncondezi Project and/or
delay in its execution.

Competition from
other power
stations in
Mozambique

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.

Performance risk The power plant may be unable to perform

as per the EPC proposal, which may lead to
a delay.

Being a thermal coal power station project,
the Group can implement commissioning of
the power plant faster than competing
hydroelectric projects which typically take 2-
3 years longer to commission.

As the power plant project progresses,
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.

Page | 15

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.

The Company has received binding EPC
bids from internationally recognised EPC
contactors to develop the mine and power
plant.

The Company will look to appoint owners
engineers and operations and maintenance
contractors with the appropriate experience
and track record to manage the
development and operations of the Power
Plant and Mine.

The Company may look to partner with a
strategic investor that has a track record of
managing the development of similar mine
and power projects.

Rigorously review the 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 of 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.

Risk Factors

River water
resource risk

The Revúbuè and Ncondezi Rivers are
seasonal, should there be insufficient water
at the confluence (water extraction point),
the power plant operation will fail.

There can be no assurance that the Group
will be able to manage effectively the
expansion of its operations or that the
Group’s current personnel, systems,
procedures and controls will be adequate to
support the Group’s operations, including
the Ncondezi Project. This includes, inter
alia, the Group managing the acquisition of
required land tenure, infrastructure
development, contracting, procurement,
technology, financing and any issues
affecting local and indigenous populations,
their cultures and religions. Any failure of
the Board to manage effectively the Group’s
growth and development could have a
material adverse effect on the Ncondezi
Project economics and the Group’s
business, financial condition and results of
operations. There is no certainty that all or,
indeed, any of the elements of the Group’s
current strategy will develop as anticipated
and that the Ncondezi Project will be
realised or that the Group will be profitable.
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 and maintenance issues may
arise if the Group is not familiar with this
technology. This may have an impact on
plant reliability and availability.

Project
development risks

Use of CFB
Technology

Page | 16

Risk Factors

Power plant
location
geotechnical risks

Utilities
availability and
transportation
(water, limestone,
coal, accessibility,
heavy loads
transportation)
Mining

Estimating
mineral reserve
and resource

Improper geotechnical investigation may
lead to increase in construction cost.

The cost of the infrastructure related to
plant resources may increase if a proper
assessment is not done.

Delays in the construction and
commissioning of the mining project.

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.

Coal risk

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.

Transmission grid
constraints

Available transmission capacity is allocated
to other power generators.

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.
Detailed utilities studies and surveys of the
area and location to determine logistics
associated with the supply of utilities have
been completed and confirm there are no
major impediments.

As the mine project progresses,
performance warranties and guarantees will
be required from the mine contractor as part
of the mine EPC contract, including
liquidated damages for non-performance.

Resources
• Sign-off of resources by registered

Competent Person (“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.

Further coal quality analysis will be
conducted and supplied to the boiler
supplier for finalisation of boiler design.

A Transmission Agreement Heads of Terms
has been signed 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.

The Group will explore and develop all
potential future transmission options
including new transmission capacity in
Mozambique as well as other countries
including Malawi and Zambia.

Page | 17

Risk Factors

Environmental
and other
regulatory
requirements

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.

Landmines

Existence of landmines in the Tete region
and specifically in the project area, which
may lead to safety issues such as fatalities
and injury.

Foreign Country
risk

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 Group adopts standards of international
best practice in environmental management
and community engagement in addition to
focussing 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.

The Mine and Power Plant Environmental
Social Impact Assessment have been
conducted by independent, internationally
recognised consultants and approved by
the Mozambican Government.

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.

The Mozambique government has been
stable for many years and fosters a
beneficial climate towards companies
exploring for resources.

Page | 18

Corporate Governance Statement

The Company’s shares are admitted to trading on AIM and so it is not formally required to comply with
the UK Corporate Governance Code, which applies to companies which are officially listed and
admitted to trading on the Main Market of the London Stock Exchange with a Premium Listing.
Although the Company does not comply with UK Corporate Governance Code, 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 24.
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
During the year ended 31 December 2014, the Board comprised a Non-Executive Chairman, (Michael
Haworth), one Executive Director (Paul Venter) and seven further Non-Executive Directors (Christiaan
Schutte, Jacek Glowacki, Peter O’Connor, Estevão Pale, Mark Trevan, Graham Mascall and Nigel
Sutherland).

Graham Mascall, Nigel Sutherland and Mark Trevan resigned as Non-Executive Directors on 14
February 2014. On 1 February 2015 Christiaan Schutte was appointed Chief Operating Officer and
Executive Director. On 21 May 2015 Paul Venter announced he would be stepping down as Chief
Executive Officer and Executive Director. Also on 21 May 2015, Aman Sachdeva was appointed as a
Non-Executive Director.

The Board considers that, Peter O’Connor and Estevão Pale 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.

Page | 19

Corporate Governance Statement

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.

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 comprises Peter O’Connor (Committee Chairman) and Michael Haworth.

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 comprised Christiaan Schutte (Committee Chairman) and Michael
Haworth. Christiaan Schutte stood down from the Remuneration Committee when he was appointed
Chief Operating Officer in February 2015. An additional member of the Remuneration Committee is
to be appointed. Until an additional member is appointed, matters of remuneration will be reserved for
the Board.

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 22 to 23.

Page | 20

Corporate Governance Statement

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 AIM in a timely manner.

disclosed

information

All
website
is
http://www.ncondezienergy.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.

Company’s

posted

AIM

the

Managing business risk
The Board constantly monitors the operational and financial aspects of the Company’s activities and
is responsible for the implementation and on-going 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.

Page | 21

Report of the Remuneration Committee

During the year ended 31 December 2014, the Remuneration Committee (the ‘Committee’) comprised
Christiaan Schutte (Committee Chairman) and Michael Haworth. Christiaan Schutte stood down from
the Remuneration Committee when he was appointed Chief Operations Officer in February 2015. An
additional member of the Remuneration Committee is to be appointed. Until an additional member is
appointed, matters of remuneration will be reserved for the Board.

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. The Non-Executive Directors 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”) and unapproved share option scheme
The Company adopted an LTIP and unapproved share option scheme which are administered by the
Committee. These are discretionary and the Committee will decide whether to make share awards
under the LTIP or unapproved share option scheme at any time. As at 31 December 2014 the
following awards remained in place:

Director

Paul Venter
Paul Venter
Graham Mascall
Graham Mascall
Paul Venter
Paul Venter

Date of grant

19 June 2012
26 April 2013
27 May 2010
27 May 2010
31 January 2014
31 January 2014

Number
granted

Exercise
price

Date exercisable
from

500,000
1,000,000
2,400,000
800,000
1,125,000
1,125,000

30.5p
17.25p
Nil
25c
Nil
6.5p

19 June 2013
26 April 2013
27 May 2010
27 May 2010
31 January 2014
Financial close

Non-Executives

Date of grant

Number
granted

Exercise
price

Expiry

Mark Trevan
Estevao Pale
Peter O’Connor
Christiaan Schutte

26 April 2013
26 April 2013
26 April 2013
26 April 2013

75,000
75,000
75,000
75,000

17.25p 3 years from vesting
17.25p 3 years from vesting
17.25p 3 years from vesting
17.25p 3 years from vesting

Grant of Share Awards
On 31 January 2014, 5,700,000 share options were issued to the Company’s executive senior
management team and contracted personnel. Of the total share options granted, 3,375,000 options
were awarded in lieu of an annual bonus payment for 2013 and vested on the date of grant;
2,250,000 with a zero strike price and 1,125,000 at an exercise price of 6.5p per share. The
remaining 2,325,000 options will vest, subject to achieving Financial Close of the Company’s 300MW
power plant project, at an exercise price of 6.5p per share.

Directors’ Options
On 31 January 2014, Paul Venter was granted 1,125,000 share options that vest on the date of grant
at a zero exercise price. In addition Mr Venter was granted share options in respect of a further
1,125,000 shares that vest subject to Financial Close at an exercise price of 6.5p per share.

Following the restructuring of the Company’s share incentive scheme, the newly issued and
unexercised share awards jointly represent 15,425,000 shares or 6.5% of the Company’s current
issued share capital.

Page | 22

Report of the Remuneration Committee

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. The current Chairman has waived all fees.

Directors’ remuneration
The following table sets out an analysis of the pre-tax remuneration for the year ended 31 December
2014 for individual directors who held office in the Company during the period.

Director

Michael Haworth
Jacek Glowacki
Graham Mascall
Peter O’Connor
Estevão Pale
Christiaan Schutte
Nigel Sutherland
Mark Trevan
Paul Venter

Total

Base
Salary/fee
US$’000

Note

Benefits
US$’000

Share
based
payments
US$’000

Total
2014
US$’000

Total
2013
US$’000

2
1

-
66
25
66
67
66
25
25
371

711

-
-
-
-
-
-
-
-
20

-
-
-
3
3
3
-
3
77

-
66
25
69
70
69
25
28
468

820

-
12
62
61
68
60
68
68
560

959

1. Resigned 14 February 2014
2. This includes US$24,615 (2013: US$63,214) paid to Mines Value Management for services provided by Nigel

Sutherland. Resigned 14 February 2014.

On behalf of the Remuneration Committee

Michael Haworth
Remuneration Committee

25 June 2015

Page | 23

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 on-going integrity of the financial
statements contained therein.

Page | 24

Independent audit report to the members of Ncondezi
Energy Limited

Report on financial statements
We have audited the financial statements of Ncondezi Energy Limited (formerly Ncondezi Coal
Company Limited) for the year ended 31 December 2014 which comprise the consolidated statement
of profit or loss, the consolidated statement of other 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 5 February 2015. Our audit work has been undertaken so that we might state to the
Company’s Directors 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 Directors 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 and
its financial position as at 31 December 2014 and of its financial performance and its cash flows
for the year then ended; and
have been prepared in accordance with IFRS as adopted by the European Union.

•

Page | 25

Independent audit report to the members of Ncondezi
Energy Limited

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. The
Directors believe that the Group will secure the necessary funds. While the Directors are continuing
funding negotiations with a number of 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 which would principally relate to impairment of the Group’s
non-current assets.

Opinion on other matters
We read the other information contained in the annual report and consider the implications for our
report if we become aware of any apparent misstatements or material inconsistencies with the
financial statements. The other information comprises the Directors’ report. 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

25 June 2015

BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).

Page | 26

Consolidated statement of profit or loss
for the year ended 31 December 2014

Other administrative expenses
Impairment
Share-based payments charge
Total administrative expenses and loss
from operations
Finance income
Finance expense
Loss for the year before taxation
Taxation
Loss for the year attributable to
equity holders of the parent company

Loss per share expressed in cents
Basic and diluted

Note

3
3, 7
3

2014

2013

US$’000

(5,562)
(31,838)
(226)

(37,626)
3
(41)
(37,664)
(37)

(6,368)
-
(673)

(7,041)
38
(42)
(7,045)
(65)

(37,701)

(7,110)

(20.5)

(5.8)

Consolidated statement of other comprehensive income
for the year ended 31 December 2014

Loss after taxation
Other comprehensive income:
Exchange differences on translating foreign
operations*
Total comprehensive loss for the year

*Items that may be reclassified to profit or loss

The notes on pages 31 to 54 form part of these financial statements.

2014
US$’000

2013
US$’000

(37,701)

(7,110)

(48)
(37,749)

20
(7,090)

Page | 27

Consolidated statement of financial position
as at 31 December 2014

Note

2014
US$’000

2013
US$’000

Assets
Non-current assets
Intangible assets
Property, plant and equipment
Restricted cash deposits
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

6
7

9
10

-
17,464
-
17,464

12
304
4,515
4,831
22,295

35
3,044
3,079

16
45,154
429
45,599

29
2,324
6,756
9,109
54,708

68
2,684
2,752

3,079

2,752

85,478
16
(66,278)
19,216
22,295

80,695
64
(28,803)
51,956
54,708

The financial statements were approved and authorised for issue by the Board of Directors on 25
June 2015 and were signed on its behalf by:

Christiaan Schutte

Chief Operating Officer

The notes on pages 31 to 54 form part of these financial statements.

Page | 28

Consolidated statement of changes in equity
for the year ended at 31 December 2014

At 1 January 2014
Loss for the year
Other comprehensive income for the year
Total comprehensive loss for the year
Issue of shares
Costs associated with issue of shares
Equity settled share-based payments
At 31 December 2014

At 1 January 2013
Loss for the year
Other comprehensive income for the year
Total comprehensive loss for the year
Issue of shares
Costs associated with issue of shares
Equity settled share-based payments
At 31 December 2013

Foreign
Currency
Translation
reserve
US$'000

Share
capital
US$'000

Retained
earnings
US$'000

Total
US$'000

80,695
-
-
80,695
5,000
(217)
-
85,478

64
-
(48)
16
-
-
-
16

(28,803)
(37,701)
-
(66,504)
-
-
226
(66,278)

51,956
(37,701)
(48)
14,207
5,000
(217)
226
19,216

Foreign
Currency
Translation
reserve
US$'000

Share
capital
US$'000

Retained
earnings
US$'000

Total
US$'000

76,108
-
-
76,108
4,951
(364)
-
80,695

44
-
20
64
-
-
-
64

(22,366)
(7,110)
-
(29,476)
-
-
673
(28,803)

53,786
(7,110)
20
46,696
4,951
(364)
673
51,956

The notes on pages 31 to 54 form part of these financial statements.

Page | 29

Consolidated statement of cash flows
for the year ended at 31 December 2014

Note

2014
US$’000

2013
US$’000

6
6

Cash flow from operating activities
Loss before taxation
Adjustments for:
Finance income
Finance expense
Share-based payments charge
Unrealised foreign exchange movements
Disposal of property plant and equipment
Impairment
Depreciation and amortisation
Net cash flow from operating activities before
changes in working capital
Decrease/(increase) in inventory
(Decrease)/increase in payables
Decrease/(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
Sale proceeds from disposal of property, plant and
equipment
Interest received
Transfer from/ (to) restricted cash
Power development costs capitalised
Mine development costs capitalised
Net cash flow from investing activities

Financing activities
Issue of ordinary shares
Bank charges
Cost of share issue
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

Cash and cash equivalents at the end of the
period

The notes on pages 31 to 54 form part of these financial statements.

(37,701)

(7,045)

(3)
41
226
(8)
7
31,838

318

(5,282)
17
(991)
2,020
(4,236)
(65)
(4,301)

(38)
42
673
19
45
-
396

(5,908)
(3)
53
706
(5,152)
(53)
(5,205)

(31)

(1)

-
3
429
(2,328)
(755)
(2,682)

5,000
(41)
(217)
4,742

4
38
(429)
(1,627)
(2,577)
(4,592)

4,951
(42)
(364)
4,545

(2,241)

(5,252)

6,756

12,008

4,515

6,756

Page | 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.

The group has entered into a conditional commercial deal with EDM for the sale of electricity. Under
the conditional agreement, a number of operational conditions precedent, including demonstration of
financial capability, must be satisfied by 30 September 2015.

The Directors are currently in negotiations with a number of parties in relation to providing financing.
Based on the current progress of negotiations with potential providers of finance, the Directors are
confident that sufficient funds can be raised in the necessary time frame. Accordingly they are
confident that the Group will continue as a going concern and have prepared the financial statements
on that basis, however, there can be no guarantee that a binding transaction can be concluded.

Should the Group be unable to raise the necessary finance within the required time, it may not be
able to realise the value of its assets and discharge its liabilities in the ordinary course of business.

These factors indicate the existence of a material uncertainty which may cast significant doubt about
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 unable to continue as a going concern. Such
adjustments would principally be the write down of the Group’s non-current assets.

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
judgments, 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 judgments 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 judgment 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.

Page | 31

Notes to the consolidated financial statements (continued)

1. Principal accounting policies (continued)

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 2014, several amended standards and interpretations became effective. 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):

Standard
IAS 19
(Amendment)
IFRIC 21

Defined Benefit Plans: Employee Contributions

Interpretation of IAS 37 Provisions, Contingent
Liabilities and Contingent Assets on the accounting for
levies imposed by governments.
2010-2012 Cycle

2011-2013 Cycle

Annual
Improvements to
IFRSs
Annual
Improvements to
IFRSs
IFRS 11
(Amendment)
IAS 27
(Amendment)
IAS 16 and IAS 38
(Amendments)
IFRS 10 and IAS
28 (Amendments)
IAS 1 (Amendment) Disclosure initiative
Annual
Improvements to
IFRSs
IFRS10, IFRS 12
and IAS 28
(Amendments)
IFRS 9

2012-2014 Cycle

Financial Instruments

Accounting for Acquisitions of Interests in Joint
Operations
Equity Method in Separate financial statements

Clarification of Acceptable Methods of Depreciation
and Amortisation
Sale or contribution of assets between an investor and
its associate or joint venture

Investment Entities: Applying the Consolidation
Exception

Effective date
1 February 2015

17 June 2014

1 February 2015

1 January 2015

1 January 2016*

1 January 2016*
1 January 2016*

1 January 2016*

1 January 2018*

The Group is yet to assess the full impact of adoption of IFRS 9 and intends to adopt the standard
when it has been endorsed 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.

Page | 32

Notes to the consolidated financial statements (continued)

1. Principal accounting policies (continued)

Basis of consolidation

Subsidiaries
Subsidiaries are all entities (including structured entities) over which the group has control. The group
controls an entity when the group is exposed to, or has rights to, variable returns from its involvement
with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries
are fully consolidated from the date on which control is transferred to the group. They are
deconsolidated from the date that control ceases. 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.

Business combinations
The acquisition method of accounting is used to account for business combinations by the Group. The
consideration transferred for the acquisition of a business is the fair value of the assets transferred,
liabilities incurred and the equity interests issued by the Group. The consideration transferred includes
the fair value of any asset or liability resulting from a contingent consideration arrangement.
Acquisition related costs are expensed as incurred. Identifiable assets acquired and liabilities and
contingent liabilities assumed in a business combination are measured initially at their fair values at
the acquisition date.

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.

When grant of equity instruments is cancelled or settled during the vesting period the cancellation is
accounted for as an acceleration of vesting and the amount that otherwise would have been
recognised for services received over the remainder of the vesting period is immediately expensed.

If, after the vesting date, fully vested options are forfeited or not exercised the previously recognised
share based payment charge is not reversed.

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
Other
Buildings

25%
20%-33%
10%

The carrying value of property plant and equipment is assessed annually and any impairment is
charged to the profit or loss.

Page | 33

Notes to the consolidated financial statements (continued)

1. Principal accounting policies (continued)

Power project costs
Power project expenditure is expensed until it is probable that future economic benefits associated
with the project will flow to the Group and the cost of the project can be measured reliably. When it is
probable that future economic benefits will flow to the Group, all costs associated with developing the
300MW power project are capitalised as power project expenditure within property, plant and
equipment category of tangible non-current assets. The capitalised expenditure includes appropriate
technical and administrative expenses but not general overheads. Power project assets are not
depreciated until after the start of commercial operation.

Exploration and evaluation assets
Exploration and evaluation assets include 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. Costs incurred include appropriate technical and administrative expenses but not general
overheads. 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.

Mining assets
When the technical feasibility of the exploration project is determined, mining licence concession is
obtained and a decision is made to proceed to development stage the related exploration and evaluation
assets are transferred to non-current mining assets and included within property, plant and equipment.

Mining properties are depleted over the estimated life of the reserves on a ‘unit of production’ basis.

Commercial reserves are proven and probable reserves. Changes in commercial reserves affecting unit
of production calculations are dealt with prospectively over the revised remaining 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.

The Group has two cash generating units being the coal mining asset and the power plant project.

Page | 34

Notes to the consolidated financial statements (continued)

1. Principal accounting policies (continued)

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 profit or loss on a
straight-line basis over the lease term.

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.

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 profit or loss 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.

Page | 35

Notes to the consolidated financial statements (continued)

1. Principal accounting policies (continued)

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.

Financial liabilities
The Group classifies its financial liabilities only as held at amortised cost.

Held at amortised cost
Financial liabilities including trade and other 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.

Page | 36

Notes to the consolidated financial statements (continued)

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, evaluation and mining assets
Determination as to whether, and by how much, an asset or cash generating unit is impaired involves
management estimates on highly uncertain matters such as future commodity prices, estimates of
future operating expenses, discount rates, production profiles and the outlook for regional market
power demand in Mozambique. The expected future cash flows are estimated using management’s
best estimates which are based on currently available information such as reserves reports and are
consistent with the 25 year conditional agreement with EDM for the supply of electricity.

As disclosed in note 1, the value of the Group’s coal mining asset and power project is dependent on
the Group’s ability to raise the required finance for the construction of the coal processing facilities
and the power plant.

The key estimates and assumptions are disclosed in note 7.

(ii) Capitalisation of power project expenditure
The power plant costs are capitalised when it is probable that future economic benefits will flow to the
Group. When determining the probability of the success of the power plant project Management have
considered key milestones, risks and de-risking events and determined that it is more likely than not
that the power plant will be developed.

The final outcome of the power plant development is dependent on a number of technical, financial
and political factors; however Management assess these factors to have been suitably mitigated and
de-risked.

(iii) Impairment of power project assets
In accordance with the accounting policy stated above, the Group tests annually to see whether
power project assets have suffered impairment.

The recoverability of the amounts shown in the consolidated statement of financial position in relation
to power project assets are dependent upon the successful completion of a power purchase off take
agreement, the political, economic and legislative stability of the region in which the plant is to
operate, the Group’s ability to obtain the necessary financing to fulfil its obligations as they arise and
the future profitable electricity production or proceeds from the disposal of properties.

(iv) Fair value of share-based payments
The Group determines the fair value of 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 note 14.

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.

Page | 37

Notes to the consolidated financial statements (continued)

2. Critical accounting estimates and judgements (continued)

(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.

3. Administrative expenses

2014
US$’000

2013
US$’000

2,415
1,143
1,071
354
637
(58)
5,562
31,838
226
37,626

2,806
1,168
717
457
991
229
6,368
-
673
7,041

2014
US$’000

2013
US$’000

70
22

23
115

68
30

-
98

Staff costs
Professional and consultancy
Office expenses
Travel and accommodation
Other expenses
Foreign exchange
Other administrative expenses
Impairment (Note 7)
Share-based payments
Total administrative expenses

Auditors’ remuneration

Group auditors’ remuneration
- audit of the Group’s accounts
- audit of the Group’s subsidiaries
Other services
- other services relating to consulting

Page | 38

Notes to the consolidated financial statements (continued)

3. Administrative expenses (continued)

Staff costs (including Directors)

Wages and salaries
Share based payments
Social security costs

2014
US$’000
2,480
226
148
2,854

2013
US$’000
2,767
673
190
3,630

US$212,490 (2013: US$151,240) 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

Key management compensation:

Salary
Fees
Social security costs

Benefits
Share based payments

2014
Number
19
20
39

2013
Number
22
24
46

2014
US$’000
1,202
170
110
1,482
35
173
1,690

2013
US$’000
1,464
-
136
1,600
33
648
2,281

Key management personnel are considered to be Directors and senior management of the Group.

Page | 39

Notes to the consolidated financial statements (continued)

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% (2013: 32%) on its profits in Mozambique and
Ncondezi Services (UK) Limited which is subject to tax at a rate of 21.5% (2013: 23.25%) 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 2014 has been estimated at US$37,263 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 21.5% (2013:
23.25%)
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

2014
US$’000
37

(37,664)

(8,098)

370
7,774
(415)
406
37

2013
US$’000
65

(7,045)

(1,638)

1,023
217
(124)
587
65

During the exploration and development stages, the Group will accumulate tax losses which may be
carried forward. As at 31 December 2014, no deferred tax asset has been recognised for tax losses of
US$7,609,000 (2013: USD$6,340,000) 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$1,269,000 will be available until 31 December 2019,
US$1,834,000 will be available until 31 December 2018, US$2,000,000 will be available until 31
December 2017, US$1,631,000 will be available until 31 December 2016, and US$875,000 will be
available until 31 December 2015.

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 year a diluted loss per share has not been calculated as this would
serve to reduce the basic loss per share. Out of 15,425,000 share incentives outstanding at the end of
the year 12,500,000 (2013: 6,300,000) had already vested, which if exercised could potentially dilute
basic earnings per share in the future. There were no potential ordinary shares outstanding in the year
(2013: nil).

2014
Weighted
average
number of
shares
(thousands)

Per share
amount
(cents)

Loss
US$'000

2013
Weighted
average
number of
shares
(thousands)

Per share
amount
(cents)

Loss
US$'000

(37,701) 183,486

(20.5)

(7,110)

122,447

(5.8)

Basic and
diluted EPS

Page | 40

Notes to the consolidated financial statements (continued)

Intangible assets

Mine
exploration
and evaluation
costs
US$’000

Other intangible
assets
US$’000

Cost
At 1 January 2013
Additions
Transfer to property, plant and equipment (Note 7)
Foreign exchange
At 31 December 2013

39,024
2,577
(41,601)
-
-

At 1 January 2014
Foreign exchange
At 31 December 2014

Amortisation
At 1 January 2013
Amortisation charge
Foreign exchange
At 31 December 2013

At 1 January 2014
Amortisation charge
Foreign exchange
At 31 December 2014

Net Book value 2014
Net Book value 2013
Net book value 2012

-
-
-

-
-
-
-

-
-
39,024

154
-
-
5
159

159
(9)
150

97
42
4
143

143
15
(8)
150

-
16
57

Total
US$’000

39,178
2,577
(41,601)
5
159

159
(9)
150

97
42
4
143

143
15
(8)
150

-
16
39,081

Page | 41

Notes to the consolidated financial statements (continued)

7. Property, plant and equipment

Power
assets
US$’000

Mining
assets
US$’000

Buildings
US$’000

Plant and
equipment
US$’000

Other
US$’000

Total
US$’000

Cost
At 1 January 2013
Additions
Transfer from intangible assets (Note 6)
Disposals
At 1 January 2014
Additions
Impairment
Disposals
At 31 December 2014

-
1,627
2,726
-
4,353
3,848
-
-
8,201

-
-
38,875
-
38,875
580
(31,838)
-
7,617

1,757
-
-
(21)
1,736
-
-
-
1,736

134
80
(4)
210
76
-
286

513
1
-
-
514
-
-
(67)
447

161
71
-
232
96
(59)
269

178
282
352

789
-
-
(67)
722
31

(35)
718

3,059
1,628
41,601
(88)
46,200
4,459
- (31,838)
(102)
18,719

436
203
(35)
604
131
(35)
700

18
118
353

731
354
(39)
1,046
303
(94)
1,255

17,464
45,154
2,328

-
-
-
-
-
-
-

8,201
4,353
-

7,617
38,875
-

1,450
1,526
1,623

Depreciation
At 1 January 2013
Depreciation charge
Disposals
At 1 January 2014
Depreciation charge
Disposals
At 31 December 2014

Net Book value 2014
Net Book value 2013
Net book value 2012

Power assets relate to the development of a 300MW power plant.

Mine assets relate to the initial acquisition of the licences and subsequent expenditure incurred in
evaluating the Ncondezi mine project. These were transferred from intangible assets on receipt of the
mining concession in 2013.

The impairment charge relates to provisions against the carrying value of the Group’s coal mining
asset, following a review of the value of the coal mining asset at the year end. Although the Group
has reached a conditional commercial deal with EDM, coal prices have significantly decreased during
the year and this has led to the impairment of the Group’s mining asset. The carrying value of the coal
asset now reflects the value of the coal resource that will supply the Ncondezi 300MW power station.

Impairment for the coal mining asset has been assessed based on a value in use calculation. The key
estimates used in the value in use calculation are as follows:

- Pre tax discount rate – 11.7% (2013: 11.7%)
-
-

Life of the coal asset (based on the conditional EDM deal) – 25 years
Inflation – 2.21% (2013: 3%)

Of the US$41.6 million that was transferred from intangible assets in 2013, US$2.7 million related to
the power assets.

Page | 42

Notes to the consolidated financial statements (continued)

8. Subsidiaries

The Group has the following subsidiary undertakings:
%
interest
2014
100

‘ZECH1’

%
interest
2013
100 Mauritius

Country of
incorporation

Zambezi Energy Corporation
Holdings 1 Limited
Zambezi Energy Corporation
Holdings 2 Limited
Ncondezi Coal Company
Mozambique Limitada
Ncondezi Services (UK) Limited

‘ZECH2’

100

100 Mauritius

‘NCCML’

100

100 Mozambique

‘NSUL’

100

Ncondezi Power Holdings Limited

‘NPHL’

100

100 Mauritius

Ncondezi Power Company SA

‘NPCSA’

100

Mozambique

Ncondezi Power Mozambique
Limitada

‘NPML’

100

100 Mozambique

Activity
Holding
company
Holding
company
Mining
exploration
Service
Company
Holding
company
Energy
company
Energy
company

Ncondezi Coal Company Mozambique Limitada is owned by Zambezi Energy Corporation Holdings 1
Limited and Zambezi Energy Corporation Holdings 2 Limited.

Ncondezi Power Company SA is owned by Ncondezi Energy Limited, Zambezi Energy Corporation
Holdings 1 Limited and Zambezi Energy Corporation Holdings 2 Limited.

Ncondezi Power Mozambique Limitada is owned by Zambezi Energy Corporation Holdings 2 Limited
and Ncondezi Power Holdings Limited.

9. Trade and other receivables

Current assets:
Other receivables
Total trade and other receivables

2014
US$'000

2013
US$'000

304
304

2,324
2,324

The fair value of receivables is not significantly different from their carrying value.

There are no receivables that are past due or impaired at year end.

Page | 43

Notes to the consolidated financial statements (continued)

10. Cash and cash equivalents

Cash at bank and in hand

2014
US$'000
4,515
4,515

2013
US$'000
6,756
6,756

The Group’s cash and cash equivalents balances may be analysed by currency as follows:
2014
US$'000
3,885
178
412
40
4,515

US Dollars
Great British Pounds
South African Rand
Mozambique Meticais

2013
US$'000
560
5,212
332
652
6,756

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

2014
US$'000
1,358
38
1,648
3,044

2013
US$'000
631
49
2,004
2,684

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 2014
Issue of shares
Issue costs
At 31 December 2014

At 1 January 2013
Issue of shares
Issue costs
At 31 December 2013

Page | 44

2014

2013

236,662,043

181,673,523

Shares
issued
Number
181,673,523
54,988,520
-
236,662,043

Shares
Issued
Number
121,115,683
60,557,840
-
181,673,523

Share
capital
US$’000
80,695
5,000
(217)
85,478

Share
capital
US$’000
76,108
4,951
(364)
80,695

Notes to the consolidated financial statements (continued)

13. Reserves

The following describes the nature and purpose of each reserve within owners’ equity.

Share capital
Foreign currency translation
reserve
Retained earnings

Amount subscribed for share capital
Gains/losses arising on retranslating the net assets of overseas
operations into US Dollars
Cumulative net gains and losses less distributions made

Page | 45

Notes to the consolidated financial statements (continued)

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 and unapproved share option scheme

Exercise price
per share

Grant
date

Outstanding
at start of
year

Granted
during
the year

Lapsed/
cancelled
during the
year

Outstanding at
year end

2013

Nil
25c
Nil
123p (179.58c)
123p (179.58c)
130.5p (201.08c)
143p(220.34c)
59p (90.67c)
30.5p (47.83c)
17.25p (26.32c)
Total
WAEP (cents)

Exercise price
per share

2014

Nil
25c
Nil
59p (90.67c)
30.5p (47.83c)
17.25p (26.32c)
Nil
6.5p (10.77c)
Total
WAEP (cents)

27.05.10
27.05.10
10.06.10
11.06.10
15.06.10
30.12.10
30.12.10
19.01.12
19.06.12
26.04.13

2,800,000
800,000
2,000,000
250,000
150,000
600,000
100,000
1,487,500
500,000
-
8,687,500
45.27

-
-
-
-
(800,000)
-
(250,000)
-
(150,000)
-
(600,000)
-
(100,000)
-
(1,262,500)
-
-
-
4,675,000
(75,000)
4,675,000 (3,237,500)
104.03

26.32

2,800,000
800,000
1,200,000
-
-
-
-
225,000
500,000
4,600,000
10,125,000
18.31

Grant
date

Outstanding
at start of
year

Granted
during the
year

Exercised
during the
year

Outstanding
at year end

27.05.10
27.05.10
10.06.10
19.01.12
19.06.12
26.04.13
30.01.14
30.01.14

2,800,000
800,000
1,200,000
225,000
500,000
4,600,000
-
-
10,125,000
18.31

-
-
-
-
-
-
2,250,000
3,450,000
5,700,000
6.5

(400,000)
-
-
-
-
-
-
-
(400,000)
-

2,400,000
800,000
1,200,000
225,000
500,000
4,600,000
2,250,000
3,450,000
15,425,000
14.43

Final
exercise
date

26.05.20
26.05.20
09.06.20
10.06.20
14.06.20
29.12.20
29.12.20
25.08.15
18.06.22
25.04.23

Final
exercise
date

26.05.20
26.05.20
09.06.20
25.08.15
18.06.22
25.04.23
30.06.20
30.06.20

The Company’s mid-market closing share price at 31 December 2014 was 5.5p (31 December 2013:
6.12p). The highest and lowest mid-market closing share prices during the year were 8.25p (2013:
24.25p) and 4.88p (2013: 5.75p) respectively.

During the year 400,000 share awards were exercised with the shares being distributed from the
Ncondezi Trust No.1 Ogier Employee Benefit Trustee Limited holding. No new shares were issued as
part of the exercise.

Of the total number of options outstanding at year end,12,500,000 (2013: 6,300,000) had vested and
were exercisable. The weighted average exercise price for the exercisable options at year end was
12.8p (2013: 12.3p).

The weighted average contractual life of the options outstanding at the year-end was seven years
(2013: eight years).

Page | 46

Notes to the consolidated financial statements (continued)

14. Share-based payments (continued)

The fair value of the 15,425,000 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:

Grant
dated

Note

Share price
at date of
grant

Exercise
price per
share

19.01.12
19.06.12
26.04.13
26.04.13
26.04.13
26.04.13
26.04.13
26.04.13
31.01.14
31.01.14
31.01.14

1
1
1
1
1

90.67c
47.83c
26.32c
26.32c
26.32c
26.32c
26.32c
26.32c
10.77c
10.77c
10.77c

90.67c
47.83c
26.32c
26.32c
26.32c
26.32c
26.32c
26.32c
-
10.77c
10.77c

Period
likely to
exercise

5 years
5 years
3-5 years
3-5 years
3-5 years
3-5 years
3-5 years
4-5 years
5 years
2 years
5 years

Volatility

50%
50%
37.65%
37.65%
37.65%
37.65%
37.65%
37.65%
34.17%
43.57%
34.17%

Risk-free
investment

Fair
value

0.9%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
2.4%
2.4%
2.4%

39.63c
20.76c
8.10c
8.09c
8.08c
7.87c
8.23c
8.50c
10.77c
3.18c
3.66c

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, and the volatility of 37.65% was calculated using the Company’s own share price over 90
days.

The volatility of 43.57% and 34.17% was based on a statistical analysis of daily prices over the last two
and five years respectively.

Based on the above fair values, the expense arising from equity-settled share options made to
employees and Directors was US$225,769 for the year (2013: US$673,222).

Page | 47

Notes to the consolidated financial statements (continued)

15. Segmental analysis

The Group has three reportable segments:
• Mine project - this segment is involved in the exploration for coal and development of coal mine

within the Group's licence areas in Mozambique

• Power project – this segment relates to the development of a 300MW integrated power plant

next to the Group’s coal mine concession areas in Mozambique

• Corporate - this comprises head office operations and the provision of services to Group

companies

Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker and are based on differences in products from which each reportable
segment will derive its future revenues. The chief operating decision-maker has been identified as the
Board of Directors.

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 2014 are as follows:

Income statement

For the year ended 31 December 2014
Segment result before and after allocation
of central costs
Finance expense
Finance income
Loss before taxation
Taxation
Loss for the year

Power
project
US$’000

Mine
project
US$’000

Corporate
US$’000

Group
US$’000

(94)
(5)
-
(99)
-
(99)

(33,538)
(12)
-
(33,550)
-
(33,550)

(3,994)
(24)
3
(4,015)
(37)
(4,052)

(37,626)
(41)
3
(37,664)
(37)
(37,701)

The segment results for the year ended 31 December 2013 are as follows:

Income statement

For the year ended 31 December 2013
Segment result before and after allocation of
central costs
Finance expense
Finance income
Loss before taxation
Taxation
Loss for the year

Power
project
US$’000

Mine
project
US$’000

Corporate
US$’000

Group
US$’000

(62)
(5)
2
(65)
-
(65)

(2,265)
(16)
-
(2,281)
-
(2,281)

(4,714)
(21)
36
(4,699)
(65)
(4,764)

(7,041)
(42)
38
(7,045)
(65)
(7,110)

Page | 48

Notes to the consolidated financial statements (continued)

15. Segmental analysis (continued)

Other segment items included in the Income statement are as follows:

Income statement
For the year ended 31 December 2014
Depreciation charged to the income
statement
Impairment charge
Share based payments
Income tax expense

Power
project
US$’000

Mine
project
US$’000

Corporate
US$’000

Group
US$’000

-
-
-

(298)

(20)

(318)

(31,838)
-
-

-
(226)
(37)

(31,838)
(226)
(37)

Income statement
For the year ended 31 December 2013
Depreciation charged to the income statement
Share based payments
Income tax expense

Power
project
US$’000

Mine
project
US$’000

Corporate
US$’000

Group
US$’000

-
-
-

(347)
-
-

(49)
(673)
(65)

(396)
(673)
(65)

The segment assets and liabilities at 31 December 2014 and capital expenditure for the year then
ended are as follows:

Statement of financial position

At 31 December 2014
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital
expenditure

Power
project
US$’000

Mine
project
US$’000

Corporate
US$’000

Group
US$’000

8,715
(935)
7,780

3,848

9,889
(410)
9,479

611

3,691
(1,734)
1,957

22,295
(3,079)
19,216

4,459

The segment assets and liabilities at 31 December 2013 and capital expenditure for the year then
ended are as follows:

Statement of financial position

At 31 December 2013
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital
expenditure
Exploration capital expenditure

Power
project
US$’000

Mine
project
US$’000

Corporate
US$’000

Group
US$’000

4,353
(770)
3,583

-
2,109

40,717
(590)
40,127

1
2,095

9,638
(1,392)
8,246

-
-

54,708
(2,752)
51,956

1
4,204

Page | 49

Notes to the consolidated financial statements (continued)

16. 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.

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

2014
US$’000

2013
US$’000

168
4,515

224
6,756

3,006

2,635

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:

Page | 50

Notes to the consolidated financial statements (continued)

16. Financial instruments (continued)

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

2014

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

Trade and other payables

3,006

2013

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

Trade and other payables

2,635

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 2014 (2013: Nil).

Market risk
The Group does not currently sell any coal or 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%.

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
decrease net assets by US$35,408 (2013: increased net assets by US$343,766).

Page | 51

Notes to the consolidated financial statements (continued)

16. Financial instruments (continued)

Currency exposures
As at 31 December the Group’s net exposure to foreign exchange risk was as follows:

2014

2013

US$’000
Assets/(liabilities) held
ZAR MZN Total

USD

GBP

USD

GBP

US$’000
Assets/(liabilities) held
Total
ZAR MZN

US dollars

2,375

(751)

105

(52) 1,677 (1,765)

5,414

332

364

4,345

2,375

(751)

105

(52) 1,677 (1,765)

5,414

332

364

4,345

17. 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 parties with whom the Group entered into transactions or had balances
outstanding at 31 December 2014 and 31 December 2013 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.

MMDN Financial Services LLP (“MMDN”)
During the year MMDN a firm which Manish Kotecha is a partner charged the Company US$4,767
(2013: US$4,505) and the Company charged MMDN $18,111 (2013: nil) in respect of financial
services. The net balance receivable at 31 December 2014 was US$9,099 (2013: payable US$375).

Mines Value Management Limited
During the year US$24,615 (2013: US$62,280) was paid to Mines Value Management Limited in
respect of services provided by Nigel Sutherland. There was no balance outstanding at 31 December
2014.

Greenstone Capital LLP
The Company re-charged to Greenstone Capital LLP, a partnership of which Michael Haworth is a
Partner, US$183,383 (2013: US$145,246) in respect of shared office expenses. There was no
balance outstanding at 31 December 2014.

Zanaga UK Services Ltd
The Company re-charged to Zanaga UK Services Ltd, a subsidiary of Zanaga Iron Ore Company
Limited, of which Michael Haworth is a Non-Executive Director, US$159,157 (2013: US$230,082) in
respect of shared office expenses. There was no outstanding balance at 31 December 2014.

Polenergia Sp. zo.o (“Polenergia”)
Polenergia, a subsidiary of Polenergia International S.arl, a company of which Jacek Glowacki is a
Director, charged the Company US$400,173 (2013: US$51,000) in respect of consulting services.
The outstanding balance at 31 December 2014 was US$102,490 (2013: US$ nil).

Christiaan Schutte
During the year Christiaan Schutte charged the Company US$61,650 (2013: US$10,810) in respect
of consulting services. The balance outstanding at 31 December 2014 was US$8,520 (2013:
US$ nil).

Page | 52

Notes to the consolidated financial statements (continued)

18. Lease commitments

Operating lease commitments – minimum lease payments

Ncondezi Services (UK) Limited administration office
In November 2011 the Group entered into a 3 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 2014
are as follows:

Within one year
After one year but not more than five years
Minimum lease payments

2014
US$’000
-
-
-

2013
US$’000
350
-
350

Page | 53

Notes to the consolidated financial statements (continued)

19. Commitments

Social development programme
In December 2012 a Memorandum of Understanding was signed with the Mozambican Ministry of
Mineral Resources and Energy in respect of a three year Social Development Programme, with a
committed spend of US$2m. During the year US$118,087 (2013: US$352,000) was spent as part of
this programme.

In addition, upon receiving the mining concession a further US$5m was committed. The expenditure
programme is still to be negotiated with the Ministry of Mineral Resources and Energy.

Environmental licence fee
An environmental licence fee of 0.2% of the capital cost of construction is payable before
commencement of construction.

Project finance fees
In September 2013 an engagement letter with KPMG was signed in respect of financial advisory
services. A fee of US$750,000 will become payable when the PPA is executed.

EMEM 5% investment in NCCML
Along with the issuance of the Mining Concession, Ncondezi’s local subsidiary NCCML also
concluded an Addendum to Mine Framework Agreement (“MFA”) with Mozambican Ministry of
Mineral Resources and Energy. Under the terms of the Addendum to the MFA, it has been agreed
that the Government owned Mozambican Mining Exploration Company (“EMEM”) will be granted a
5% free carry in the share capital of NCCML up to the start of the Ncondezi mine’s construction.
However, from the commencement of construction EMEM will be required to pay, through an agreed
funding mechanism, for its share of any future equity funding obligations that may be required from
the shareholders of NCCML including its share of the construction and commissioning costs of
bringing the Ncondezi mine into commercial operation.

20. Events after the reporting date

In January 2015 the Company raised aggregate gross proceeds of £762,255 ($1,1565,264) through
the open offer of 13,187,801 ordinary shares at 5.78p per share. The total number of shares
outstanding as at 31 May 2015 was 249,849,844.

In February 2015, Christiaan Schutte was appointed Chief Operating Officer.

In May 2015, Paul Venter resigned as a Director and Chief Executive Officer.

In May 2015, Aman Sachdeva was appointed Non-Executive Director acting as AFC’s nominated
director.

Page | 54