Ncondezi Energy Limited
Annual Report and Financial Statements
for the year ended 31 December 2015
Contents
1
2 - 3
4 - 6
7
Overview and Highlights
Chairman’s Statement
Operations Review
Financial Review
8 - 10
Resource Summary
11
Environmental and Social Responsibility
12 - 13
Directors’ Biographies
14 - 15
Directors' Report
16 - 20
Risk Factors
21 - 23
Corporate Governance Statement
24 - 25
Remuneration Committee Report
26
Statement of Directors' Responsibilities
27 - 28
Independent audit report to the members of Ncondezi Energy Limited
29
30
31
32
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
33 – 53
Notes to the consolidated financial statements
54
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 Coal Mine” and
“Power Project” respectively). Ncondezi is aiming to develop the projects in phases, subject to
additional financing, with the first phase targeting 300MW and ultimately scalable to 1,800MW.
Visit www.ncondezienergy.com for updates and additional information on the Company and its
activities.
Highlights
Binding Joint Development Agreement (“JDA”) with Shanghai Electric Power Co., Ltd (“SEP”)
(Shanghai Stock Exchange code 600021) signed in January 2016 to develop the Power Project
and transmission line
Completion of the transmission line Environmental Social Impact Assessment (“ESIA”)
Completion of water optimisation study
US$1.32 million raised via loan facility from certain of Ncondezi’s Directors, Management and long
term shareholders in May 2016
US$1.18 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
On 28 September 2015, Peter O’Connor resigned as a Non-Executive Director
Cash balance as at 6 June 2016 of US$0.3 million with undrawn loan facility of US$0.7 million
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Chairman’s Statement
Dear Shareholder,
The 2015 financial year saw the Company make significant progress in its stated strategy to finalise the
development pathway for the Ncondezi Power Project.
The work carried out by the Company during the financial year culminated in the signing of the binding
Joint Development Agreement (“JDA”) in January 2016 with Shanghai Electric Power Company Ltd
(“SEP”), a subsidiary of State Power Investment Corporation (“SPIC”) which is one of the largest power
generation groups in China with a total group installed capacity of over 100,000 MW.
The JDA with SEP was the result of nearly two years of due diligence, relationship building and
negotiations. In SEP, the Company has identified a partner with expertise in owning, constructing and
operating coal fired power stations, and the recent in principle approval from Electricity de Mozambique
(“EDM”) for SEP to become the strategic partner for the Power Project reflects this.
Crucially, the JDA provides substantial financial and operational clarity on how the Power Project will be
financed, built and operated fundamentally de-risking the project. Once the JDA has been made effective,
SEP will provide up to US$25.5m towards development costs against an agreed milestone based work
program together with 60% of the equity and 100% of the debt at financial close. SEP will also take the
lead on the engineering, procurement and construction (“EPC”) and operations and maintenance (“O&M”)
work streams leveraging SEPs expertise in coal fired power generation to change the boiler to Pulverised
Coal (“PC”) boiler technology. The change in boiler technology is expected to have both operational and
environmental benefits.
Ncondezi continues to make good progress with SEP and significant progress has been achieved since
the signing of the JDA in January 2016. In particular:
EDM has indicated its in principle support for SEP to become the Strategic Partner in the Ncondezi
Power Project and for the change PC boiler technology , on the understanding that EDM will be
afforded the opportunity to perform due diligence on SEP’s development plan, technical solution,
project costs and financial model as soon as such information is available.
A milestone driven work program and budget for the Power Plant development has been agreed
between Ncondezi and SEP
The audit of Ncondezi’s historic power plant development costs by SEP is progressing well. The
historic expenditure has been reviewed and agreed and both parties are awaiting the incorporation
of UAE Co so that the final audit report can be completed.
Ncondezi and SEP are finalising the key terms of the shareholders agreement that will govern the
UAE holding company
Ncondezi is in the process of a group restructuring and the incorporation of a UAE holding company
structure. This process is being led by Ncondezi and the target for completion is the end of July 2016.
SEP’s parent company SPIC has independently reviewed and approved the revised PC Boiler
Feasibility Study.
The Company continues to target completion of the JDA conditions precedent during Q3 and will provide
further updates as appropriate.
During 2015, the Company secured an extension from EDM in relation to the conditional commercial deal
for the sale of electricity from the Power Project. The conditional commercial deal expired on 31
December 2015 and at this stage a further extension has not been requested. Signing the JDA with SEP
represented one of the critical conditions precedent to the commercial deal and negotiations with EDM
and the Mozambican Ministry of Mineral Resources and Energy (“MIREME”) are expected to progress
once the JDA has been made effective, with SEP joining the negotiating table as Ncondezi’s strategic
partner. The two key commercial agreements under negotiation, the Power Purchase Agreement (“PPA”)
and Power Concession Agreement (“PCA”), are both in draft form following negotiations between EDM,
the MIREME and Ncondezi.
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Chairman’s Statement
The Ncondezi Coal Mine development programme is being run in parallel with the Power Project, and will
accelerate during the 2016 financial year with the objective of ensuring that financial close is achieved
consecutively on both projects.
Other key work streams completed in the 2015 financial year include the completion of the transmission
line ESIA and the water optimisation study.
On 11 May 2016, the Company announced that it had raised an additional US$1.32 million through a loan
facility provided by certain of Ncondezi’s Directors, Management and long term shareholders. The loan
ensures the Company is funded until the end of Q3 2016. Further funding will be required to cover certain
corporate and mine development costs that will not be funded by SEP or in the event that completion of
the SEP JDA is further delayed.
The Company implemented significant cost savings during 2015 including the closure of the London
Service office and a significant reduction in the number of employees outside of Mozambique. This
resulted in administrative expenses falling from US$5.6m in 2014 to US$2.7m in 2015. The full impact of
these costs savings initiatives will only be felt in 2016.
The Directors are exploring a number of funding solutions and expect to be in a strong position to raise
additional capital once the SEP JDA is effective. The Directors believe that once the SEP JDA is effective
the necessary funds to provide adequate financing to continue both the power plant and mine
development programmes and fund working capital will be raised in due cause as required. Accordingly
they are confident that the Group will continue as a going concern and have prepared the financial
statements on that basis. However it is important to highlight that there are no binding agreements in
place and there can be no certainty that additional funding will be raised.
2015 continued the trend of extremely challenging coal and equity market conditions for natural resources
companies. Despite this, Ncondezi achieved a number of its goals in securing the future of the Power
Project and its benefits to Ncondezi shareholders and all stakeholders. The platform has now been set
for these goals to be fully realised with SEP joining as the Company’s operational and financing partner
in 2016.
Michael Haworth
Non-Executive Chairman
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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.
Binding JDA with SEP
On 11 January 2016, the Company announced that it had signed the JDA with SEP. The JDA is a
binding agreement between Ncondezi and SEP and sets out the terms on which the Power Project will
be developed. The Ncondezi Coal Mine will continue to be wholly owned by Ncondezi and will be
developed and financed separately. It is envisaged that an arms length Coal Supply Agreement will be
entered into between the relevant entities.
SEP will fund up to US$25.5 million (“Subscription Price”) into a newly incorporated holding company
that will own Ncondezi Power Company S.A (“NPC”), a subsidiary that will own and operate the Power
Project, and which will be used to fund all development costs of the Power Project (inclusive of
transmission and project infrastructure) to Financial Close.
The Subscription Price will be paid in instalments as per a milestone based budget and work program
that has been agreed between the Parties for the period from 1 January 2016 until Financial Close. The
first instalment will be funded once the JDA is effective, at which point Ncondezi will also be refunded
for certain agreed project costs incurred from 1 January 2016. The JDA becomes effective once all of
the SEP Investment Conditions (as defined below) have been satisfied, at which point SEP will be
issued with an indirect 60% interest in NPC.
The SEP Subscription Price is based on 1.5 times Ncondezi’s historic Power Project costs of US$17
million and is capped at US$25.5 million. The Subscription Price will be inclusive of SEP’s historic costs
of RMB 8 Million (c. US$1.25 million). SEP are in the process of finalising the audit of Ncondezi’s historic
power project costs of US$17 million with the key outstanding items being the incorporation of UAE Co
and completion of the agreed restructuring process.
It is anticipated that the Subscription Price will be sufficient to fund the development costs to Financial
Close of the Power Project. Any additional costs are expected to be funded on a pro-rata basis by the
Company and SEP respectively. Once the JDA has become effective, SEP will provide a bank
guarantee for US$10 million in favour of the Company against the instalment payments of the
Subscription Price.
If on Financial Close the Subscription Price is not fully utilised, any balance will be used to fund the first
project equity beyond Financial Close.
SEP will have effective control of the Power Project following satisfaction or waiver of the SEP
Investment Conditions. The parties are finalising the shareholders agreement which will contain
appropriate corporate governance and minority protections.
SEP will lead the procurement of the EPC agreements, the O&M agreements and the debt financing to
achieve Financial Close and SEP has undertaken to use reasonable endeavours to procure the best
possible commercial terms from Chinese financiers for the proposed debt financing facilities for the
Power Project on a non-recourse basis to Ncondezi
Based on SEP’s expertise and experience in coal fired power generation, the power plant will change
from CFB to PC technology based on an updated feasibility study prepared by SEP. The PC technology
feasibility study demonstrates comparable economic returns to the CFB solution and supports the
existing tariff envelope agreed with EDM (the “Commercial Deal”).
The transaction is targeting the satisfaction or waiver of a number of conditions including:
Formal approval by EDM of the change to PC technology and confirmation of the existing
Commercial Deal
Completion of the independent audit of the Ncondezi historical Power Project costs
Finalisation of the work program and budget to Financial Close
Finalisation of the relevant transaction documents including the Shareholders’ Agreement
Page | 4
Operations Review
SEP obtaining the required Chinese regulatory and parent company approvals
No material adverse change having occurred to the Project
Ncondezi continues to make good progress with SEP and significant progress has been achieved since
the signing of the JDA in January. In particular:
EDM has indicated its in principle support for SEP to become the Strategic Partner in the Ncondezi
Power Project and for the change to PC boiler technology, on the understanding that EDM will be
afforded the opportunity to perform due diligence on SEP’s development plan, technical solution,
project costs and financial model as soon as such information is available.
A milestone driven work program and budget for the Power Plant development has been agreed
between Ncondezi and SEP
The audit of Ncondezi’s historic power plant development costs is progressing well. The historic
expenditure has been reviewed and agreed and both parties are awaiting the incorporation of UAE
Co so that the final review can be completed.
Ncondezi and SEP are finalising the key terms of the shareholders agreement that will govern the
UAE holding company.
Ncondezi is in the process of a group restructuring and the incorporation of a UAE holding company
structure
SEP’s parent company SPIC has independently reviewed and approved the revised PC Boiler
Feasibility Study.
The Company continues to target completion of the JDA conditions precedent during Q3 2016 and will
provide further updates as appropriate.
Background information regarding SEP
SEP is incorporated in the People’s Republic of China and listed on the Shanghai Stock Exchange with
the majority of its shares held by State Power Investment Corporation (“SPIC”). SPIC is one of the
largest power generation groups in China with an installed capacity of over 100,000 MW. SEP has
experience of owning, constructing and operating coal fired power stations and has a stated strategy of
international growth.
Shareholder Loan
On 11 May 2016, the Company announced that it had secured a US$1.32 million loan facility
(“Shareholder Loan”) with certain of Ncondezi’s Directors, Management and long term shareholders
(together the “Lenders”). The Shareholder Loan is being made to provide the Company with additional
funding for its corporate overheads while it completes the JDA investment conditions to make the
agreement effective.
Of the US$1.32 million Shareholder Loan, US$500,000 is being provided by a Trust of which Non-
Executive Chairman, Michael Haworth, is a potential beneficiary. US$108,000 is being provided by
Executive Director and Chief Operations Officer, Chris Schutte, $35,000 from Non-Executive Director,
Estevão Pale, and US$147,000 from Ncondezi management. The Shareholder Loan has a maturity of
12 months and, based upon management’s latest cash flow forecasts, is expected to provide sufficient
funding until the end of Q3 2016.
Once the JDA has been made effective, repayment of the Shareholder Loan will be on the earlier of
either 12 months from the date of the Shareholder Loan agreement or 5 days from the date of the
receipt of the SEP Refund. The total amount drawn down prior to the SEP JDA effectiveness will attract
a 1.5x multiple (comprising 1.0x principal and 0.5x return). If the JDA has not been made effective within
6 months of the date of the Shareholder Loan agreement, then the drawn down portion of the
Shareholder Loan becomes immediately repayable at a 1.5x multiple.
In addition, the Lenders have the right to appoint an additional Board member to the Ncondezi Board.
A further announcement will be made in due course as and when the Lender’s director is nominated
and appointed.
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Operations Review
The Shareholder Loan is subject to customary termination rights and events of default, including if the
project is abandoned which, if triggered, will make the drawn down portion of the Shareholder Loan
immediately repayable at a 1.5x multiple. Lenders also have the option to request security over the
assets and loans of the Company.
As at 6 June 2016, US$650,000 had been drawn down under the loan facility and US$670,000
remained available and undrawn.
Commercial Deal with EDM
During 2015, the Company secured an extension from EDM in relation to the conditional commercial
deal for the sale of electricity from the Power Project. The conditional commercial deal expired on 31
December 2015 and at this stage a further extension has not been requested.
Signing the JDA with SEP represented one of the critical conditions precedent in the commercial deal
and negotiations with EDM and the Mozambican Ministry of Mineral Resources and Energy (“MIREME”)
are expected to progress once the JDA has been made effective, with SEP joining the negotiating table
as Ncondezi’s strategic partner.
Power Plant EPC
Following signing of the JDA with SEP, the boiler technology has been changed from circulating
fluidized bed (“CFB”) to PC technology. SEP and the Company are working on the revised EPC process
which will be based on the updated PC Feasibility Study and where possible will leverage the work
previously completed by Ncondezi.
Power Plant Permitting
The change to PC technology includes proposals for a flue gas desulphurisation system which will result
in the Power Project producing less emissions (both in relation to solid particles and sulphur oxides)
than the original CFB proposal. This has resulted in the change to PC technology requiring a review
and resubmission of the ESIA study previously submitted and approved by the Mozambican
Government.
Commercial Agreements and Financial Close
Progress on the key commercial agreements, namely the PPA and PCA, has been on hold whilst the
Company finalised its negotiations with SEP as the strategic partner on the Power Project. The
Company expects to re-engage with EDM and MIREME once the JDA with SEP has been made
effective.
The current timetable under discussion with SEP is targeting Power Project Financial Close by the end
of H1 2017. Ncondezi will provide further guidance once the timetable has been finalised.
Coal Mine Update
The Ncondezi Coal Mine will be required to sign a bankable coal supply agreement with the Power
Project before financial close targeted at the end of H1 2017. The change to PC technology requires
that a higher CV coal product be supplied by the mine, which requires an update to the EPC and contract
miner bids to account for the additional washing and change in mine planning. Preliminary work has
already been completed, and the Company expects to finalise EPC and contract miner bids in Q4 2016.
The coal supply agreement is expected to be further progressed in parallel during this time.
Transmission Line ESIA
During March 2015, the Company received official notification from the Ministry of Land, Environment
and Rural Development (“MITADER”) regarding the approval of the ESIA for the 92km transmission
line that will connect the Project to the Mozambican national grid. This follows ESIA approvals that have
already been granted on both the mine and power plant.
Water Optimisation and ESIA
During the period, the Company received the final water optimisation study with cost estimates which
are currently being reviewed by the Company.
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Financial Review
Results from operations
The Group made a loss after tax for the year of US$2.1m compared to a loss of US$37.7m for the
previous financial year. The basic loss per share for the year was 0.8 cents (2014: 20.5 cents).
Administrative expenses totalled US$2.1m (2014: US$37.6m). This included a share based payments
charge of US$0.04m (2014: US$0.2m). No impairment charge was recorded in 2015 (2014:
US$31.8m).The administrative expenses include a US$0.65 million credit in respect of the release of
an accrual as detailed in note 10.
Financial Position
The Group’s statement of financial position at 31 December 2015 and comparatives at 31 December
2014 are summarised below:
Non-current assets
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
2015
US$’000
18,249
514
18,763
555
555
18,208
2014
US$’000
17,464
4,831
22,295
3,079
3,079
19,216
The movement in non-current assets of US$0.8m was largely due to additions of US$1.0m arising on
the continued development of Ncondezi Power Project, reduced by a depreciation charge for the year
of US$0.2m.
Cash Flows
The net cash outflow from operating activities for the year was US$4.5m (2014: US$4.3m).
Net cash used in investing activities was US$0.7m (2014: US$2.7m), mainly related to development
activities incurred on the Ncondezi Project.
Net cash from financing activities was US$1.1m (2014: US$4.7m) mainly related to share issues.
The resulting year end cash and cash equivalents held totalled US$0.4m (2014: US$4.5m).
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 Power Project and Ncondezi
Coal Mine for 2016, which is focused on satisfying the conditions precedent to the JDA with SEP. Based
upon projections the current cash reserves together with the undrawn loan facility will fund overhead
expenditure to the end of Q3 2016.
The Directors continue to explore options in respect of raising further funds to continue with the power
plant and mine development programmes. Future Power Project development costs will be covered by
SEP once the JDA has been made effective. At present there are no binding agreements in place and
there can be no certainty as to the Group’s ability to raise additional funding.
The Directors believe that the necessary funds to provide adequate financing to continue the power
plant and mine development programmes 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.
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Resource Summary
Page | 8
Overall Project Resources (February 2013 - reviewed by Mineral Corp in May 2015)Indicated867.0772.8742.51.851.453.518.127.013.831.0171.31.444.420.533.717.611.09Inferred 3,605.23,035.82,367.41.941.957.718.621.911.791.0062.62.044.722.231.117.071.13Indicated819.5737.6723.91.911.951.87.538.712.730.8871.71.942.69.146.417.291.01Inferred 264.8225.1172.81.921.852.17.638.512.780.8370.81.842.59.046.717.410.98Indicated1,686.51,510.41,466.41.881.752.712.932.813.290.9471.51.643.514.940.017.451.05Inferred 3,870.03,260.92,540.11.941.957.417.823.011.860.9963.21.944.621.232.317.091.12 TotalInd & Inf5,556.64,771.34,006.51.921.855.616.026.612.380.9766.21.844.118.735.417.241.09RDMTIS Qualities (air-dried basis)RawTS%High VolatileCoal typeResource CategoryGTISMtTTISMtLow-mid VolatileSub-totals/Averages17MJ/kg CV Primary ProductYield%IM%AS%VM%FC%CVMJ/kgMTISMtIM%AS%VM%FC%CVMJ/kgTS%Notes:Indicated resources were defined within areas where the spacing of boreholes with raw coal quality data is approximately 500 metres. Extrapolation of these areas was limited to approximately 250 metres.Inferred resources were defined within areas where the spacing of boreholes with raw coal quality data is approximately 2 000metres. Extrapolation of these areas was limited to approximately 1 000 metres.Mt (million tonnes).GTIS (Gross Tonnage in situ) figures represent the entire classified resource for the block, below the observed limit of weathering, with application of a 0.5 metre minimum ply thickness cut-off, but no depth restriction (in the Central Block, classified resources reach approximately 400m depth; in the North Block 600m; in the South and West Blocks 300m, in the East Block 330m and in the River Block 500m).TTIS (Total Tonnes in situ) figures for high and low volatile coals were calculated from the GTIS tonnage by applying GeologicalLosses. The losses applied were generally 10% for Indicated resources and 15% for Inferred resources. In the Central Block, these were increased to 15% and 20% respectively.MTIS (Mineable Tonnes in situ) figures represent that part of the TTIS which exists above a depth of 250m.All qualities are quoted on an air-dried-basis. IM=Inherent Moisture, AS=Ash Yield, VM=Volatile Matter Content, FC=Fixed Carbon, CV=Calorific Value, TS=Total Sulphur.Product yields are theoretical yields for +0.5mm material derived from slim core samples.The coal volatile category was determined using raw coal volatile contents on a dry, ash-free basis and adjustment factors related to the raw ash yield of the coal.Low-mid volatile coals have been devolatilised by igneous intrusions. A Pre-feasibility study by Hugh Brown and Associates indicates that these are suitable for power generation.Low volatile coals are not common in the Central, West and River Blocks and have been excluded from resources in those blocks.The Central, North, South and East Block models comprise detailed ply models suitable for mine planning purposes. The West and River Block models utilise a cumulative coal thickness methodology that is appropriate only to the classification of Inferred Resources.No allowance has been made for potential sterilisation of resources below the limits of the Ncondezi or Revuboe Rivers' floodlines. This could affect resources in the Central, North, West and River Blocks.
Resource Summary
Page | 9
South Block Measured Resource (November 2013 - reviewed by Mineral Corp in May 2015)(The Measured Resources are a subset of the Indicated and Inferred Resources reported in February 2013)Low-mid52.9048.931.851.250.49.339.113.261.1578.72.043.010.144.916.720.99High39.0436.111.720.945.819.933.417.171.2292.91.344.520.234.117.521.09Low-mid26.6624.661.981.162.18.827.98.810.7748.41.844.910.243.016.180.84High10.8610.051.900.759.315.524.511.140.9156.31.047.318.133.616.320.92Low-mid79.5573.591.891.154.39.235.411.771.0368.52.043.510.144.416.590.96High49.9046.161.760.948.718.931.515.861.1684.91.244.919.934.017.351.07Overall averages & tonnages:129.45119.741.841.052.212.933.913.351.0874.81.644.114.439.916.921.01Sub-totalplies A02-A16TotalAll pliesTTIS/MTIS Qualities (air-dried basis)Sub-totalplies A18-A48CVMJ/kgTS%TS%Yield%IM%AS%VM%FC%Raw16.12MJ/kg CV Product (theoretical)RDIM%AS%VM%FC%CVMJ/kgPly GroupingVolatilecategoryGTISMtTTIS/MTISMtNotes:Measured Resources were defined within an area where the spacing of boreholes with raw coal quality data is approximately 250m. Extrapolation of this area was limited to 125 metres beyond the outermost qualifying boreholes.Mt (million tonnes).GTIS (gross tonnage in situ) figures represent the entire Measured Resource below the observed limit of weathering and with application of a 0.5m minimum ply thickness cut-off.TTIS (total tonnage in situ) figures were calculated from the GTIS tonnage by applying Geological Losses of 7.5%.MTIS (mineable tonnage in situ) figures represent that part of the TTIS which exists above a depth of 250m. As all the MeasuredResource is shallower than 120m, the TTIS in this case equals the MTIS.A raw ash yield limit of 70% was generally applied at the time of ply definition and correlation.All qualities are quoted on an air-dried-basis. IM=Inherent Moisture, AS=Ash Yield, VM=Volatile Matter Content, FC=Fixed Carbon, CV=Calorific Value, TS=Total Sulphur.Product yields are theoretical yields for +0.5mm material derived from slim core samples.Ply thicknesses were weighted against TTIS/MTIS coal seam area to obtain average resource ply thicknesses.Relative Densities (RD) were weighted against TTIS/MTIS coal volume to obtain average resource RDs.Raw qualities and product yields were weighted against TTIS/MTIS tonnage to obtain average yields.The 16.12MJ/kg CV target product specification was provided by Ncondezi.Product qualities were weighted against wash yield and TTIS/MTIS tonnage to obtain average product qualities.Low-mid volatile coals have been devolatilised by igneous intrusions. A Pre-feasibility study by Hugh Brown and Associates indicates that these are suitable for power generation.The coal volatile category was determined using raw coal volatile contents on a dry, ash-free basis and adjustment factors related to the raw ash yield of the coal.Certain amounts of averaged 'control' data were included in the quality database, where adequate analytical data did not exist in pre-2013 boreholes.Based on the relative distribution of coal plies, partings and dolerite sills, and the coal ply qualities, the mining packagewill likely generally comprise plies A18 to A44, with plies A46 and A48 taken at the top where possible. Sub-totals have therefore been supplied for ply groupings A02-A16 and A18-A48.
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. There were no changes to the coal resources since 18 May 2015.
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.
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Environmental and Social Responsibility
Ncondezi Social Development Programme
During 2015 Ncondezi completed its formalised CSR policy which consisted of a three year Social
Development Programme (“SDP”) with the Government of Mozambique. The SDP was implemented
as a public-private partnership between the Company, the local communities in the Moatize District and
the Government. Since the programme started a number of important initiatives were completed:
The drilling of 14 boreholes in several villages within the Tete province.
Four students completed their Master’s degree in Mining Engineering at Coimbra University
benefiting from a full bursary from Ncondezi.
A 4x4 ambulance was purchased to assist villagers in remoter areas.
Ncondezi built a new primary school at Waenera village.
Upgrading of the Mameme clinic and the construction of a new maternity wing.
An Agricultural Project based on conservation Farming. This included the villages of Catabua and
Canjedza as an initial model. The objective being a platform to educate the local communities in all
aspects of Crop Husbandry using their own resources.
Ncondezi concentrated most of its SDP resources during 2015 on the Agricultural Project. The initial
area of 10 hectares opened up in 2013 has been increased to just under 20 hectares and the program
has enjoyed increased participation and interest from the local communities as a result of the benefits
reaped by the existing participants.
Ncondezi’s long term objective is to establish similar agricultural projects at each village. To this end
Ncondezi is encouraging each village to form an association with the assistance of the Moatize
Administration (Agricultural department). This will give the local communities more autonomy whereby
they are also able to get additional funding/materials from local Government or NGO’s. Ncondezi will
then gradually withdraw from the successful locations and concentrate on setting up new projects
elsewhere in the project area.
The Ncondezi Agricultural Project received positive publicity through the Moatize District Agricultural
Department which was highlighted with a number of mini field days including the visit by all the Provincial
Agricultural Directors of Mozambique as well as the National Deputy Minister of Agriculture. There is a
planned visit by The Minister of Agriculture during 2016.
Page | 11
Director’s Biographies
Michael Haworth / Non-Executive Chairman
Michael Haworth has over 20 years finance experience, predominantly in emerging markets and natural
resources. Mr Haworth co-founded Greenstone Resources a private equity fund specialising in the
mining and metals sector in 2013 and is a Senior Partner of Greenstone Capital LLP and a Director of
Greenstone Management Limited. In addition, Mr Haworth is a Non-Executive Director of Zanaga Iron
Ore Company Limited and a Director of Strata Limited (“Strata”). 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 (appointed in February 2015)
Christiaan Schutte’s career in the power sector spans over 20 years during which time he held a number
of senior management positions at Eskom, the South African electricity public utility which is the largest
producer of electricity in Africa.
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.
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.
Between 1996 and 2005, Mr Pale 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.
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. one of Poland’s largest private investment
companies.
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 is the AFC nominated Director and was appointed to the Ncondezi Board on 21 May
2015. Mr Sachdeva has more than 20 years experience 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.
Page | 12
Director’s Biographies
Peter O’Connor / Independent Non-Executive Director (resigned in September 2015)
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 Mr O’Connor 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.
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 | 13
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 2015.
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 to 6 and in the Financial Review on page
7.
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 16
to 20.
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 15.
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)
2015
21
939
-
3.6p
402
2014
2013
580
3,848
-
5.5p
4,515
2,095
2,109
9,723
6.12p
6,756
Results and dividends
The results of the Group for the year ended 31 December 2015 are set out on page 29.
The Directors do not recommend payment of a dividend for the year (2014: nil). The loss will be
transferred to reserves.
Events after the reporting date
See note 18 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 15 of the financial statements.
Going concern
As at 6 June 2016 the Group had cash reserves of approximately US$0.3m. The current cash reserves
and undrawn loan facility of US$670,000 are sufficient to fund ongoing costs until the end of Q3 2016.
Details on going concern are contained in note 1 of the financial statements.
Page | 14
Directors’ Report
Directors and Directors’ interests
Director Note
Michael Haworth
Jacek Glowacki
Peter O’Connor
Estevão Pale
Christiaan Schutte
Paul Venter
Aman Sachdeva
1
2
3
4
5
Appointment
date
01.06.12
28.10.13
04.02.13
03.06.10
04.02.13
26.04.13
21.05.15
Resignation
date
28.09.15
21.05.15
Ordinary
Shares held
31 December
2015
16,438,296
-
-
-
-
-
-
Ordinary
Shares held
31 December
2014
12,726,743
-
-
-
-
-
-
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 2016.
3. Peter O’Connor resigned on 28 September 2015.
4. Paul Venter resigned on 21 May 2015.
5. 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 December 2015.
Annual General Meeting
Resolutions will be proposed at the forthcoming Annual General Meeting, as set out in the Formal
Notice. In accordance with the Company’s Articles of Association one third of the Directors are required
to retire by rotation. Accordingly, Estevão Pale and Jacek Glowacki 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 21 to 23.
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
29 June 2016
Page | 15
Risk Factors
Risk(s)
Off-taker risk
Potential Impact(s)
In the event that the Group is unable to
renew the commercial deal with EDM or
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.
Financing risk
The Group has limited financial resources
that are only expect to last until the end of
Q3 2016.
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 are competing for
offtake to EDM as well as resources such
as water and transmission line servitudes.
Mitigation Measure(s)
EDM has provided in principle support for
SEP to become the Strategic Partner, a key
conditions precedent of the conditional
commercial deal with EDM that expired on
31 December 2015. EDM has indicated its
willingness to continue negotiations once
the JDA with SEP has been made effective.
The Company has substantially advanced
the PPA and PCA through previous
negotiations with EDM and Ministry of
Mineral Resources and Energy.
There is a shortage of power in the region,
with Mozambique currently exporting power
to South Africa, Zimbabwe, Zambia,
Botswana and Namibia. Each of these
countries could provide a potential credible
power offtaker for the Power Project either
as a substitute or as additional power
offtaker for an expanded power plant. The
Company monitors this potential closely and
has responded to a Request for Information
(‘RFI’) from the South African government
regarding potential cross border power
supply.
Ncondezi has signed a JDA with SEP
which, once effective, will provide up to
US$25.5m of development funding for the
Power Project to Financial Close. SEP will
also take the lead in securing debt financing
for the Power Project.
EDM has given its in principle support for
SEP to become Ncondezi’s strategic
partner for the Power Project, a key
condition precedent of the Commercial Deal
with EDM to progress negotiations on the
PPA and PCA. Ncondezi expects that
progress will continue on the PPA and PCA
once the JDA has been made effective.
The Company intends to engage with a
range of potential financing partners with
the objective of securing additional
development capital for the costs that will
not be covered by SEP under the JDA,
including select corporate overheads and
the Mine development costs.
The Directors’ will monitor the monthly cash
burn rate to ensure the Group operates
within its cash resources for as long as
possible.
EDM has given its in principle support for
SEP to become Ncondezi’s strategic
partner for the Power Project, a key
condition precedent of the Commercial Deal
with EDM to progress negotiations on the
PPA and PCA. Ncondezi expects that
progress will continue on the PPA and PCA
once the JDA has been made effective.
Page | 16
Risk Factors
Performance risk The power plant may be unable to perform
as per the EPC proposal, which may lead to
a delay.
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.
Project
development risks
Use of PC Boiler
Technology
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.
PC technology has not been used in
Mozambique as there are currently no coal
fired power plants. Although PC is proven
technology, its application in Mozambique is
new.
Consequences may include not meeting
expected performance in terms of plant
output, efficiency and emission limits.
Operator and maintenance issues may
arise if the Group is not familiar with this
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.
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 Group believes that it can mitigate a
significant part of any development risks of
the Power Project through the
implementation of the JDA with SEP. SEP
has a track record of managing the
development of similar power projects, and
will lead the procurement of the EPC
agreements and the O&M agreements for
the Power Project.
The Group and SEP will look to jointly
appoint an owners engineer with the
appropriate experience and track record to
manage the development phase of the
Power Plants in southern Africa.
The Group is working closely with select
mining contractors in relation to the mine
development.
SEP has significant experience in using PC
Boiler technology at its existing power
plants.
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.
Page | 17
Risk Factors
technology. This may have an impact on
plant reliability and availability.
Actively participate in erection and
commissioning activities during project
execution.
Power plant
location
geotechnical risks
Improper geotechnical investigation may
lead to increase in construction cost.
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.
An initial geotechnical study was completed
late in H2 2012 on the proposed power
plant site. No fatal flaws were identified.
Further work will be completed to reaffirm
the geotechnical study results ahead of any
major construction.
Utilities
availability and
transportation
(water, limestone,
coal, accessibility,
heavy loads
transportation)
The cost of the infrastructure related to
plant resources may increase if a proper
assessment is not done.
Detailed utilities studies and surveys of the
area and location to determine logistics
associated with the supply of utilities have
been completed and confirm there are no
major impediments.
Mining
Delays in the construction and
commissioning of the mining project.
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.
Estimating
mineral reserve
and resource
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
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
Page | 18
Risk Factors
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.
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.
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.
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. The Mine
Environmental Social Impact Assessment
has been approved by the Mozambican
Government. The change from CFB to PC
boiler technology has resulted in the
requirement for a review and resubmission
of the Environmental and Social Impact
Assessment study previously submitted and
approved by the Mozambican Government.
Ncondezi and SEP are currently working on
the revised ESIA submission to the
Mozambican Government.
Page | 19
Risk Factors
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.
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.
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 Mozambique government has been
stable for many years and fosters a
beneficial climate towards companies
exploring for resources.
Page | 20
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 26. 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
At 31 December 2015, the Board comprised a Non-Executive Chairman, (Michael Haworth), one
Executive Director (Chris Schutte) and three further Non-Executive Directors (Jacek Glowacki, Estevão
Pale, and Aman Sachdeva).
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, and Aman Sachdeva was appointed Non-Executive Director. On 28 September
2015 Peter O’Conner resigned as Non-Executive Director.
The Board considers that, Estevão Pale is independent of management and free from any business or
other relationships which could materially interfere with the exercise of his 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 audit and remuneration committees of the Board with formally delegated
duties and responsibilities. Following the retirement of Peter O’Connor in September 2015, Michael
Haworth remained the sole member of both committees. As a result, the company has reserved matters
of audit and remuneration to the Board until additional members are appointed.
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 | 21
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
During 2015, the Audit Committee comprised Peter O’Connor (Committee Chairman) and Michael
Haworth. Mr O’Connor resigned from the Board on 28 September 2015. An additional member of the
Audit Committee is to be appointed. Until an additional member is appointed, audit related matters will
be reserved for the Board.
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 Remuneration Committee Report appears on pages 24 to 25.
Page | 22
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 the market through a Regulatory Information Service in a timely manner.
All information disclosed through a Regulatory Information Service is posted on the Company’s website
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.
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;
Identify and record any problems relating to the management of risk;
Initiate, recommend or provide solutions through designated channels;
Control further treatment of risks until the level of risk becomes acceptable;
Verify the implementation of solutions;
Communicate and consult internally and externally as appropriate and
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 | 23
Remuneration Committee Report
At the year ended 31 December 2015, 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 2015 the following
awards to Directors remained in place:
Director
Note
Date of grant
Number
granted
Exercise
price
Date exercisable
from
Paul Venter
Paul Venter
Paul Venter
Paul Venter
1
1
1
1
19 June 2012
26 April 2013
31 January 2014
31 January 2014
500,000
1,000,000
1,125,000
1,125,000
30.5p
17.25p
Nil
6.5p
19 June 2013
26 April 2013
31 January 2014
Financial close
Non-Executives
Note
Date of grant
Estevão Pale
Peter O’Connor
Christiaan Schutte
1. Paul Venter resigned on 21 May 2015.
2. Peter O’Connor resigned on 28 September 2015
26 April 2013
26 April 2013
26 April 2013
2
Number
granted
Exercise
price
Expiry
75,000
75,000
75,000
17.25p
17.25p
17.25p
3 years from vesting
3 years from vesting
3 years from vesting
Grant of Share Awards
During 2015 no share options were issued to the Company’s executive senior management and
contracted personnel (2014: 5,700,000).
Directors’ Options
During 2015 no share options were issued to the Company’s Directors (2014: 2,250,000).
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. In addition, Jacek Glowacki
and Aman Sachdeva have waived their Directors fees since 1 April 2015.
Page | 24
Remuneration Committee Report
Directors’ remuneration
The following table sets out an analysis of the pre-tax remuneration for the year ended 31 December
2015 for individual directors who held office in the Company during the period.
Director
Michael Haworth
Christiaan Schutte
Estevão Pale
Jacek Glowacki
Aman Sachdeva
Peter O’Connor
Paul Venter
Total
Base
Salary/fee
US$’000
Note
Benefits
US$’000
Share
based
payments
US$’000
Total
2015
US$’000
Total
2014
US$’000
-
302
63
20
-
40
153
578
-
-
-
-
-
-
200
200
1
2
3
-
-
-
-
-
-
23
23
-
302
63
20
-
40
376
801
-
69
70
66
-
69
468
742
1. Aman Sachdeva was appointed on 21 May 2015
2. Peter O’Connor resigned on 28 September 2015
3. Paul Venter resigned on 21 May 2015.
On behalf of the Board
Michael Haworth
29 June 2016
Page | 25
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 | 26
Independent audit report to the members of Ncondezi
Energy Limited
Report on financial statements
We have audited the financial statements of Ncondezi Energy Limited for the year ended 31 December
2015 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 April 2016. 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 2015 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 | 27
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 to
explore options for additional funding 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
29 June 2016
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
Page | 28
Consolidated statement of profit or loss
for the year ended 31 December 2015
Other administrative expenses
Impairment
Reversal of accrual
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, 6
10
3
4
5
2015
2014
US$’000
US$’000
(2,731)
-
656
(42)
(2,117)
1
(18)
(2,134)
17
(5,562)
(31,838)
(226)
(37,626)
3
(41)
(37,664)
(37)
(2,117)
(37,701)
(0.8)
(20.5)
Consolidated statement of other comprehensive income
for the year ended 31 December 2015
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 33 to 53 form part of these financial statements.
2015
US$’000
2014
US$’000
(2,117)
(37,701)
(12)
(48)
(2,129)
(37,749)
Page | 29
Consolidated statement of financial position
as at 31 December 2015
Note
2015
US$’000
2014
US$’000
Assets
Non-current assets
Property, plant and equipment
Total non-current assets
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Current tax payable
Trade and other payables
Total current liabilities
Total liabilities
Capital and reserves attributable to
shareholders
Share capital
Foreign currency translation reserve
Retained earnings
Total capital and reserves
Total equity and liabilities
6
8
9
10
11
18,249
18,249
8
104
402
514
18,763
-
555
555
555
17,464
17,464
12
304
4,515
4,831
22,295
35
3,044
3,079
3,079
86,557
4
(68,353)
18,208
18,763
85,478
16
(66,278)
19,216
22,295
The financial statements were approved and authorised for issue by the Board of Directors on 29 June
2015 and were signed on its behalf by:
Christiaan Schutte
Chief Operating Officer
The notes on pages 33 to 53 form part of these financial statements.
Page | 30
Consolidated statement of changes in equity
for the year ended at 31 December 2015
At 1 January 2015
Loss for the year
Other comprehensive loss 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 2015
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
Share
capital
US$'000
85,478
-
-
-
1,184
(105)
-
86,557
Share
capital
US$'000
80,695
-
-
-
5,000
(217)
-
85,478
Foreign
Currency
Translation
reserve
US$'000
16
-
(12)
(12)
-
-
-
4
Foreign
Currency
Translation
reserve
US$'000
64
-
(48)
(48)
-
-
-
16
Retained
earnings
US$'000
(66,278)
(2,117)
-
(2,117)
-
-
42
(68,353)
Total
US$'000
19,216
(2,117)
(12)
(2,129)
1,184
(105)
42
18,208
Retained
earnings
US$'000
(28,803)
(37,701)
-
(37,701)
-
-
226
(66,278)
Total
US$'000
51,956
(37,701)
(48)
(37,749)
5,000
(217)
226
19,216
The notes on pages 33 to 53 form part of these financial statements.
Page | 31
Consolidated statement of cash flows
for the year ended at 31 December 2015
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
Reversal of accrual
Depreciation and amortisation
Net cash flow from operating activities before
changes in working capital
Decrease in inventory
Decrease in payables
Decrease 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
Interest received
Transfer from 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
Note
2015
US$’000
2014
US$’000
(2,134)
(37,664)
3
10
6
(1)
18
42
1
-
-
(656)
175
(2,555)
4
(2,100)
200
(4,451)
(35)
(4,486)
-
1
-
(669)
(21)
(689)
1,184
(17)
(105)
1,062
(3)
41
226
(30)
7
31,838
-
303
(5,282)
17
(991)
2,020
(4,236)
(65)
(4,301)
(31)
3
429
(2,328)
(755)
(2,682)
5,000
(41)
(217)
4,742
Net decrease in cash and cash equivalents in the
year
Cash and cash equivalents at the beginning of the
year
(4,113)
(2,241)
4,515
6,756
Cash and cash equivalents at the end of the year
402
4,515
The notes on pages 33 to 53 form part of these financial statements.
Page | 32
Notes to the consolidated financial statements
1. Principal accounting policies
General
The Company is a limited liability company incorporated on 30 March 2006 in the British Virgin Islands.
The address of its registered office is 2nd floor, Wickham's Cay II, PO Box 2221, Road Town, Tortola,
British Virgin Islands.
Going concern
As at 6 June 2016 the Group had cash reserves of approximately US$0.3m and an available undrawn
loan facility of US$0.7m. Based upon projections the current cash reserves plus the available loan
facility will fund expenditure until the end of Q3 2016.
The Company has signed a binding JDA with SEP which provides for SEP to invest up to US$25.5m to
fund power development expenditure to Financial Close. The JDA is subject to a number of conditions
which are detailed in the Operations Review. These conditions indicate the existence of a material
uncertainty over the JDA becoming effective in the necessary time frame.
Additional funding will be required to cover select overheads not funded by SEP as well the mine
development costs. As such, additional funding will be required to meet liabilities as they fall due beyond
Q3 2016. The Directors are exploring a range of financing options and 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 | 33
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 2015, 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):
Clarification of Acceptable Methods of Depreciation
and Amortisation - Amendments
Effective date
1 January 2016
1 January 2016
1 January 2016
Standard
IAS 16 and IAS 38
(Amendments)
IAS 1 (Amendment) Disclosure initiative
Annual
Improvements to
IFRSs
IFRS 9
IFRS 16
2012-2014 Cycle
Financial Instruments: Classification and Measurement 1 January 2018*
1 January 2019*
Leases
The Group is still considering the impact of IFRS 9 and 16 and it is not anticipated the other new
standards issued but not effective for the year would be relevant for adoption by the Group.
Page | 34
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 lapse 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 | 35
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 assessed for potential impairment and then 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
statement of profit or loss 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 statement of profit or loss 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 | 36
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 statement of profit or loss.
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 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 statement of profit or loss, 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 | 37
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 refer to trade and other payables and 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.
The Company considers its capital to be total equity.
The Company is not subject to any externally imposed capital requirements.
Page | 38
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 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. Management have performed an impairment test using the current economic
model for the mine as at year end. The expected future cash flows were estimated using management’s
best estimates which are based on currently available information such as reserves reports and are
consistent with the previously agreed 25 year conditional agreement with EDM for the supply of
electricity which expired on 31 December 2015.
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 6.
(ii) Capitalisation of power project expenditure
The power plant costs in note 6 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. Judgement is required in determining
whether internal costs are directly attributable to the project and certain payroll costs are capitalised
based on analysis of the nature of the work performed by employees.
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.
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 are largely complete and no further development work has taken place
and as such no significant damage has been caused up to the reporting date.
(ii) Contingencies
By their nature, contingencies will only be resolved when one or more future events occur or fail to occur.
The assessment of such contingencies inherently involves the exercise of significant judgement and
estimates of the outcome of future events.
Page | 39
Notes to the consolidated financial statements (continued)
2. Critical accounting estimates and judgements (continued)
(iii) Reversal of accruals
At year end, Management assessed the appropriateness of the level of accruals based on information
available. US$656,000 of accruals have been released in respect of historic project costs following
Management’s assessment based on factors such as the status of agreements, the passage of time
and communication with counterparties. The potential for payment of the accruals is determined to be
remote.
3. Administrative expenses
Staff costs
Professional and consultancy
Office expenses
Travel and accommodation
Other expenses
Foreign exchange
Other administrative expenses
Impairment (Note 6)
Reversal of accrual (Note 10)
Share-based payments
Total administrative expenses
Auditors’ remuneration
Group auditors’ remuneration
- audit of the Group’s accounts
- audit of the Group’s subsidiaries
Other services
- other non-audit services (consulting)
Auditors’ remuneration is included within Professional and consultancy costs.
2015
US$’000
2014
US$’000
1,005
903
312
197
290
24
2,731
-
(656)
42
2,117
2,415
1,143
1,071
354
637
(58)
5,562
31,838
-
226
37,626
2015
US$’000
2014
US$’000
48
22
-
70
70
22
23
115
Page | 40
Notes to the consolidated financial statements (continued)
3. Administrative expenses (continued)
Staff costs (including Directors)
Wages and salaries
Share based payments
Social security costs
2015
US$’000
1,148
42
22
1,212
2014
US$’000
2,480
226
148
2,854
US$169,000 (2014: US$212,490) included within wages and salaries have been capitalised to the
power project asset.
The average monthly number of employees (including executive Directors) of the Group were:
Operational
Administration
Key management compensation:
Salary
Fees
Social security costs
Other short-term Benefits
Termination benefits
Post-employment benefits
Share based payments
2015
Number
11
9
20
2014
Number
19
20
39
2015
US$’000
455
123
12
590
5
86
109
34
824
2014
US$’000
1,202
170
110
1,482
35
-
-
173
1,690
Key management personnel are considered to be Directors and senior management of the Group.
Page | 41
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% (2014: 32%) on its profits in Mozambique and Ncondezi
Services (UK) Limited which is subject to tax at a rate of 20.25% (2014: 21.5%) on its profits in the UK.
No tax charge/ (credit) arose in the current or prior year for Ncondezi Coal Company Mozambique
Limitada.
Tax refundable for 2015 has been estimated at US$17,000 and has been reconciled to the expected
tax charge based on the Group losses at the standard rate of taxation in the UK where the Group has
generated taxable profits as follows:
Current tax – UK corporation tax
Group loss on ordinary activities before tax
Effects of:
Reconcile to UK corporation tax rate of 20.25% (2014:
21.5%)
Differences arising from different tax jurisdictions
Non deductible expenses
Foreign exchange effect originating in overseas companies
Unrecognised taxable losses carried forward
Total tax for the year
2015
US$’000
(17)
2014
US$’000
37
(2,134)
(37,664)
(432)
13
2,853
(2,644)
193
(17)
(8,098)
370
7,774
(415)
406
37
During the exploration and development stages, the Group will accumulate tax losses which may be
carried forward. As at 31 December 2015, no deferred tax asset has been recognised for tax losses of
US$8,369,000 (2014: USD$7,609,000) 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$760,000 will be available until 31 December 2020, 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, and US$1,631,000 will be available until 31 December 2016.
5. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the year.
Due to the losses incurred during the year a diluted loss per share has not been calculated as this would
serve to reduce the basic loss per share. Out of 14,000,000 share incentives outstanding at the end of
the year 11,675,000 (2014: 12,500,000) had already vested, which if exercised could potentially dilute
basic earnings per share in the future. There were no potential ordinary shares outstanding in the year
(2014: nil).
2015
Weighted
average
number of
shares
(thousands)
Per share
amount
(cents)
Loss
US$'000
2014
Weighted
average
number of
shares
(thousands)
Per share
amount
(cents)
Loss
US$'000
Basic and
diluted EPS
(2,117) 249,415
(0.8)
(37,701)
183,483
(20.5)
Page | 42
Notes to the consolidated financial statements (continued)
6. Property, plant and equipment
Cost
At 1 January 2014
Additions
Impairment
Disposals
At 1 January 2015
Additions
Impairment
Disposals
At 31 December 2015
Depreciation
At 1 January 2014
Depreciation charge
Disposals
At 1 January 2015
Depreciation charge
Disposals
At 31 December 2015
Net Book value 2015
Net Book value 2014
Net Book value 2013
Net book value 2012
Power
assets
US$’000
Mining
assets
US$’000
Buildings
US$’000
Plant and
equipment
US$’000
Other
US$’000
Total
US$’000
4,353
3,848
-
-
8,201
939
-
-
9,140
38,875
580
(31,838)
-
7,617
21
-
-
7,638
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1,736
-
-
-
1,736
-
-
-
1,736
210
76
-
286
73
-
359
9,140
8,201
4,353
-
7,638
7,617
38,875
-
1,377
1,450
1,526
1,623
514
-
-
(67)
447
-
-
-
447
232
96
(59)
269
84
-
353
94
178
282
352
722
31
-
(35)
718
-
-
-
718
604
131
(35)
700
18
-
718
-
18
118
353
46,200
4,459
(31,838)
(102)
18,719
960
-
-
19,679
1,046
303
(94)
1,255
175
-
1,430
18,249
17,464
45,154
2,328
Power assets relate to the development of a 300MW power plant.
Mine assets relate to the initial acquisition of the licences and subsequent expenditure incurred in
evaluating the Ncondezi mine project. These were transferred from intangible assets on receipt of the
mining concession in 2013.
The 2014 impairment charge relates to provisions against the carrying value of the Group’s coal mining
asset, following a review of the value of the coal mining asset at the year end. The carrying value of the
coal asset now reflects the value of the coal resource that will supply the Ncondezi 300MW power
station. There was no impairment charge in 2015 (2014: USD$ 32m).
Impairment for the coal mining asset in 2014 had been assessed based on a value in use calculation.
The key estimates used in the value in use calculation were as followed:
- 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%)
Page | 43
Notes to the consolidated financial statements (continued)
7. Subsidiaries
The Group has the following subsidiary undertakings:
%
interest
2015
100
‘ZECH1’
%
interest
2014
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
Ncondezi Power Holdings
Limited
Ncondezi Power Company SA
Ncondezi Power Mozambique
Limitada
‘ZECH2’
100
100 Mauritius
‘NCCML’
100
100 Mozambique
‘NSUL’
100
100
UK
‘NPHL’
100
100 Mauritius
‘NPCSA’
100
100 Mozambique
‘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.
8. Trade and other receivables
Current assets:
Other receivables
Total trade and other receivables
2015
US$'000
2014
US$'000
104
104
304
304
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 | 44
Notes to the consolidated financial statements (continued)
9. Cash and cash equivalents
Cash at bank and in hand
2015
US$'000
402
402
2014
US$'000
4,515
4,515
The Group’s cash and cash equivalents balances may be analysed by currency as follows:
2015
US$'000
326
56
12
8
402
US Dollars
Great British Pounds
South African Rand
Mozambique Meticais
2014
US$'000
3,885
178
412
40
4,515
Where possible cash is deposited in floating rate deposit accounts at reputable financial institutions
with high credit ratings.
10. Trade and other payables
Other payables
Other taxation and social security
Accruals
2015
US$'000
202
4
349
555
2014
US$'000
1,358
38
1,648
3,044
The fair value of payables is not significantly different from their carrying value.
US$656,000 of accruals was reversed in the year due to the possibility that these accruals will be called
upon for payment being considered remote. Refer to note 2.
11. Share capital
Number of shares
Allotted, called up and fully paid
Ordinary shares of no par value
At 1 January 2015
Issue of shares
Issue costs
At 31 December 2015
At 1 January 2014
Issue of shares
Issue costs
At 31 December 2014
2015
2014
249,849,844
236,662,043
Shares
Issued
Number
236,662,043
13,187,801
-
249,849,844
Shares
Issued
Number
181,673,523
54,988,520
-
236,662,043
Share
capital
US$’000
85,478
1,184
(105)
86,557
Share
capital
US$’000
80,695
5,000
(217)
85,478
Page | 45
Notes to the consolidated financial statements (continued)
12. 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, net of costs of issue
Gains/losses arising on retranslating the net assets of overseas
operations into US Dollars
Cumulative net gains and losses less distributions made, together
with share based payment equity increases
13. 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
2014
Nil
25c
Nil
59p (90.7c)
30.5p (47.8c)
17.25p (26.3c)
Nil
6.5p (10.8c)
27.05.10
27.05.10
10.06.10
19.01.12
19.06.12
26.04.13
30.01.14
30.01.14
Total
WAEP (cents)
Outstanding
at start of
year
Granted
during
the year
2,800,000
800,000
1,200,000
225,000
500,000
4,600,000
-
-
-
-
-
-
- 2,250,000
- 3,450,000
10,125,000 5,700,000
6.5
18.31
Exercise price
per share
Grant
date
2015
Nil
25c
Nil
59p (90.7c)
30.5p (47.8c)
17.25p (26.3c)
Nil
6.5p (10.8c)
Total
WAEP (cents)
27.05.10
27.05.10
10.06.10
19.01.12
19.06.12
26.04.13
30.01.14
30.01.14
Outstanding
at start of
year
Granted
during the
year
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
-
-
-
-
-
-
-
-
-
-
Lapsed/
cancelled
during the
year
(400,000)
-
-
-
-
-
-
-
(400,000)
-
Exercised/
lapsed
during the
year
-
-
(1,200,000)
(225,000)
-
-
-
-
(1,425,000)
-
Outstanding at
year end
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
Outstanding
at year end
2,400,000
800,000
-
-
500,000
4,600,000
2,250,000
3,450,000
14,000,000
14.44
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
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 2015 was 3.63p (31 December 2014:
5.5p). The highest and lowest mid-market closing share prices during the year were 5.5p (2014: 8.25p)
and 1.63p (2014: 4.88p) respectively.
During the year 225,000 have lapsed and 1,200,000 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.
Page | 46
Notes to the consolidated financial statements (continued)
Of the total number of options outstanding at year end, 11,675,000 (2014: 12,500,000) had vested and
were exercisable. The weighted average exercise price for the exercisable options at year end was
15.16p (2014: 12.8p).
The weighted average contractual life of the options outstanding at the year-end was seven years (2014:
seven years).
The options granted in 2010 vested immediately at the date of grant.
The vesting conditions of the 500,000 options awarded on 19 June 2012 were that they would vest over
a three year period, subject to employees remaining in service over the period.
Out of the 4,600,000 options granted on 26 April 2013, 500,000 options vested at the date of grant,
1,875,000 options were subject to milestone based vesting conditions and 2,225,000 were subject to time
based vesting conditions.
The Milestone based awards provide that one third of the awards vest upon successful conclusion of
Head of Terms for a Power Purchase Agreement and two third vest upon the execution of a Power
Purchase Agreement for all or part of the first 300MW phase of Ncondezi Power Project, subject to
employees remaining in service.
The Time based awards provide that the options vest in two equal tranches on the first and second
anniversary from the date of grant, subject to employees remaining in service during that period.
Out of the 5,700,000 options granted on 30 January 2014, 3,375,000 vested on the date of grant and the
remaining 2,325,000 options will vest subject to achieving financial close of the 300MW Power Plant
project, subject to employees remaining in service.
The fair value of the 14,000,000 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
date
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
Share price
at date of
grant
Exercise
price per
share
Note
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
over
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
Risk-free
investment
rate
0.9%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
2.4%
2.4%
2.4%
Fair
value
39.63c
20.76c
8.10c
8.09c
8.08c
7.87c
8.23c
8.50c
10.77c
3.18c
3.66c
Volatility
50%
50%
37.65%
37.65%
37.65%
37.65%
37.65%
37.65%
34.17%
43.57%
34.17%
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$41,961 for the year (2014: US$225,769).
Page | 47
Notes to the consolidated financial statements (continued)
14. Segmental analysis
The Group has three reportable segments:
Mine project - this segment is involved in the exploration for coal and development of coal mine
within the Group's licence areas in Mozambique
Power project – this segment relates to the development of a 300MW integrated power plant next
to the Group’s coal mine concession areas in Mozambique
Corporate - this comprises head office operations and the provision of services to Group
companies
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker and are based on differences in products from which each reportable
segment will derive its future revenues. The chief operating decision-maker has been identified as the
Board of Directors.
The operating results of each of these segments are regularly reviewed by the Group's chief operating
decision-maker in order to make decisions about the allocation of resources and assess their
performance.
The segment results for the year ended 31 December 2015 are as follows:
Income statement
For the year ended 31 December 2015
Segment result before and after allocation
of central costs
Finance expense
Finance income
Loss before taxation
Refund on Taxation
Loss for the year
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
(1,382)
(282)
(453)
(2,117)
(2)
1
(1,383)
-
(1,383)
(4)
-
(286)
-
(286)
(12)
-
(465)
17
(448)
(18)
1
(2,134)
17
(2,117)
The segment results for the year ended 31 December 2014 are as follows:
Income statement
For the year ended 31 December 2014
Segment result before and after allocation of
central costs
Finance expense
Finance income
Loss before taxation
Taxation
Loss for the year
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
(94)
(5)
-
(99)
-
(99)
(33,538)
(12)
-
(33,550)
-
(33,550)
(3,994)
(24)
3
(4,015)
(37)
(4,052)
(37,626)
(41)
3
(37,664)
(37)
(37,701)
Page | 48
Notes to the consolidated financial statements (continued)
14. Segmental analysis (continued)
Other segment items included in the Income statement are as follows:
Income statement
For the year ended 31 December 2015
Depreciation charged to the income
statement
Share based payments
Income tax refund
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
-
-
-
(172)
(3)
(175)
-
-
(42)
17
(42)
17
Income statement
For the year ended 31 December 2014
Depreciation charged to the income statement
Impairment charge
Share based payments
Income tax expense
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
-
-
-
-
(298)
(31,838)
-
-
(20)
-
(226)
(37)
(318)
(31,838)
(226)
(37)
The segment assets and liabilities at 31 December 2015 and capital expenditure for the year then
ended are as follows:
Statement of financial position
At 31 December 2015
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital
expenditure
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
9,158
(247)
8,911
9,254
(79)
9,175
351
(229)
122
18,763
(555)
18,208
939
21
-
960
The segment assets and liabilities at 31 December 2014 and capital expenditure for the year then ended
are as follows:
Statement of financial position
At 31 December 2014
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital
expenditure
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
8,715
(935)
7,780
9,889
(410)
9,479
3,691
(1,734)
1,957
22,295
(3,079)
19,216
3,848
611
-
4,459
Page | 49
Notes to the consolidated financial statements (continued)
15. Financial instruments
The Group is exposed to risks that arise from its use of financial instruments. This note describes the
Group’s objectives, policies and processes for managing those risks and the methods used to measure
them. Further quantitative information in respect of these risks is presented throughout these financial
statements.
The significant accounting policies regarding financial instruments are disclosed in note 1.
There have been no substantive changes in the Group’s exposure to financial instrument risks, its
objectives, policies and processes for managing those risks or the methods used to measure them from
previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises, are
as follows:
Loans and receivables at amortised cost
Trade and other receivables
Cash and cash equivalents
Financial liabilities held at amortised cost
Trade and other payables
2015
US$’000
2014
US$’000
30
402
551
168
4,515
3,006
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives
and policies and retains ultimate responsibility for them.
The overall objective of the Board is to set polices that seek to reduce risk as far as possible without
unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies
are set out below:
Page | 50
Notes to the consolidated financial statements (continued)
15. Financial instruments (continued)
Credit risk
Credit risk arises principally from the Group’s investments in cash deposits.
The Group holds its cash balances with four different banks in Guernsey, London, Mauritius and
Mozambique. The Group seeks to deposit cash with reputable financial institutions with strong credit
ratings.
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due.
The Board receives cash flow projections on a monthly basis as well as information on cash balances.
Maturity analysis based on contractual terms
2015
Total
US$’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$’000
Trade and other payables
551
-
551
-
-
-
2014
Total
US$’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
-
3,006
-
-
-
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 2015 (2014: 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 statement of profit or loss. 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$1,044 (2014: decreased net assets by US$35,408).
Page | 51
Notes to the consolidated financial statements (continued)
15. Financial instruments (continued)
Currency exposures
As at 31 December the Group’s net exposure to foreign exchange risk was as follows:
2015
2014
US$’000
Assets/(liabilities) held
USD GBP
ZAR MZN
Total USD GBP
US$’000
Assets/(liabilities) held
Total
MZN
ZAR
US dollars
(132)
(132)
9
9
13
13
(9)
(119)
2,375
(751) 105
(52)
1,677
(9)
(119)
2,375
(751) 105
(52)
1,677
The Group is exposed to foreign exchange risk arising from various currency exposures primarily with
respect to the Mozambican Meticais and Sterling, but these are not significant as most of the
transactions are in USD.
16. 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 2015 and 31 December 2014 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.
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$16,451 (2014: US$159,157) in
respect of shared office expenses. There was no outstanding balance at 31 December 2015 (2014: nil).
Christiaan Schutte
During the year US$49,600 (2014: US$61,650) were paid to CPS Consulting in respect of services
provided by Christiaan Schutte. There was no outstanding balance at 31 December 2015 (2014: US$
8,520).
Page | 52
Notes to the consolidated financial statements (continued)
17. 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 Social Development Programme, with a committed spend
of US$2m following an agreed programme. By December 2015 half of this budget has been successfully
spent in various initiatives. During the year US$ 38,881 (2014: US$118,087) 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.
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.
18. Events after the reporting date
In May 2016 the Company raised US$1.32 million via loan facility from certain of Ncondezi’s Directors,
Management and long term shareholders in May 2016.
In January 2016, the Company signed a binding JDA with SEP which sets out the terms on which the
Power Project will be jointly developed. Under the JDA, SEP will fund up to US$25.5 million of power
plant development costs to Financial Close in return for a 60% equity interest in the Power Project. SEP
will also lead the procurement of the EPC agreements, the O&M agreements and the debt financing to
achieve Financial Close. Further details can be found in the Operations Review.
Page | 53
Company Information
Directors
Company Secretary
Registered Office
Michael Haworth (Non-Executive Chairman)
Christiaan Schutte (Executive Director)
Estevão Pale (Non-Executive Director)
Jacek Glowacki (Non-Executive Director)
Aman Sachdeva (Non-Executive Director)
Elysium Fund Management Limited
PO Box 650, 1st Floor, Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey
GY1 3JX
2nd Floor
Wickham's Cay II
PO Box 2221
Road Town
Tortola
British Virgin Islands
Company number
1019077
Nominated Advisor and Corporate Broker
Auditors
Registrar
Legal advisor to the Company
as to BVI law
Legal advisor to the Company
as to English law
Liberum Capital Limited
Ropemaker Place
Level 12
25 Ropemaker Street
London
EC2Y 9AR
BDO LLP
55 Baker Street
London
W1U 7EU
Computershare Investor Services (BVI) Limited
Woodbourne Hall
PO Box 3162
Road Town
Tortola
British Virgin Islands
Ogier LLP
41 Lothbury
London
EC2R 7HF
Berwin Leighton Paisner LLP
Adelaide House
London Bridge
London
EC4R 9HA
Page | 54