Ncondezi Energy Limited
Annual Report and Financial Statements
for the year ended 31 December 2016
Contents
1
2 - 3
4 - 5
6 - 7
Overview and Highlights
Chairman’s Statement
Operations Review
Financial Review
8 - 10
Resource Summary
11
12
Environmental and Social Responsibility
Directors’ Biographies
13 - 14
Directors' Report
15 - 19
Risk Factors
20 - 22
Corporate Governance Statement
23 - 24
Remuneration Committee Report
25
Statement of Directors' Responsibilities
26 - 27
Independent audit report to the members of Ncondezi Energy Limited
28
29
30
31
Consolidated statement of profit or loss and consolidated statement of other
comprehensive income
Consolidated statement of financial position
Consolidated statement of changes in equity
Consolidated statement of cash flows
32 – 54
Notes to the consolidated financial statements
55
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
During the year
Binding Joint Development Agreement (“JDA”) with Shanghai Electric Power Co., Ltd (“SEP”)
(Shanghai Stock Exchange code 600021) signed in January 2016 to develop the Ncondezi 300
MW integrated thermal coal power plant (the “Power Project”) and transmission line
US$1.32 million raised via loan facility from certain of Ncondezi’s Directors, management and
long term shareholders in May 2016 and originally due for repayment in May 2017 (the “2016
Shareholder Loan”)
Key meetings in Mozambique in July 2016 between the Company, SEP, the Minister of Mineral
Resources and Energy and representatives of Electricidade de Moçambique (“EDM”)
Up to US$3.0 million loan facility agreed with Africa Finance Corporation (“AFC”) in August
2016, with AFC acceding to the terms of the existing Shareholder Loan in two tranches:
o Tranche A for a total of US$1.0 million on the same terms as the existing Shareholder Loan
originally due to be repayable on 10 May 2017. US$0.96 million drawn down in August
2016
o Tranche B is a conditional US$2.0 million loan with a 24 month term from first drawdown
subject to certain conditions, including the completion of the JDA with SEP and Ncondezi
providing an appropriate security package
Since year end
Amended repayment terms of the Shareholder Loan (comprising the existing Shareholder Loan
and Tranche A provided by AFC) agreed with repayment extended until 2 September 2017
Suspension of exclusive negotiations with SEP regarding the JDA and launch of new partner
search process in May 2017
On 23 June 2017, the Company announced that it has finalised the agreement for an additional
US$350,000 (“New Loan”) under the amended Shareholder Loan. The New Loan provides the
Company with sufficient funding to progress the new partner search and cover working capital
costs until the beginning of September 2017. In addition, the senior management team agreed
to convert their deferred salaries into the existing Shareholder Loan. The total amount to be
converted into Shareholder Loan is US$232,000.
On 26 May 2017, Christiaan Schutte resigned as Chief Operating Officer but remains as non-
executive director.
Page | 1
Chairman’s Statement
Dear Shareholder,
The 2016 financial year was expected to be a milestone year for the Company with the signing of the
binding JDA with SEP in January 2016. Disappointingly and despite the Company’s best efforts, the SEP
Investment Conditions to complete JDA had not been met by the end of the financial year.
During Q1 2017 the Company worked to agree a Development Agreement with SEP which would have
provided interim funding to Ncondezi to finalise the JDA. However by May 2017 SEP had not provided
funding to the project and the Board made the decision to suspend exclusive discussions with SEP. The
ongoing delays in SEP providing funding for the Power Project had become unsustainable and the Board
believed that this decision was in the best interests of the Company and its shareholders following more
than three years of negotiations and work with SEP. This decision allows the Company to engage with
alternative potential development partners.
During 2016, the Company made good progress towards completing all the SEP Investment Conditions
that were within its control including the receipt of in principle support from EDM for SEP to become the
Strategic Partner in the Power Project and the change to Pulverized Coal (“PC”) boiler technology. In
addition, Ncondezi incorporated the UAE holding company, signed a non-binding Shareholders’
Agreement Term Sheet and the audit of Ncondezi’s US$17 million of historic power plant cost1 had been
completed and was awaiting final submission when the exclusive discussions were suspended.
The key attractions of the Power Project however remain unchanged, with all the technical work
substantially complete, advanced form Power Purchase Agreement (“PPA”) and Power Concession
Agreement (“PCA”) negotiated, an “in principle” agreement with EDM on the electricity tariff and the mine
concession and all key Environmental and Social Impact Assessment studies either awarded or
approved. Additionally, the positive work completed during 2016 and previously is not specific to SEP
and can be utilised by any strategic partner.
The Company holds one of the most advanced development coal power projects in the region and in May
2017, the Company initiated a new partner search to identify and select an alternative Strategic Partner
to participate in the Power Project. The Company has received a number of expressions of interest from
potential Strategic Partners and project developers, and expects to provide initial feedback on the process
before the end of July 2017.
All development work streams, including those related to the mine, are expected to remain on hold until
further progress on the Strategic Partner search is complete. The Company expects all work streams
including Financial Close will take at least 12 months to complete once a new partner is in place.
In May 2016, the Company secured a US$1.32 million loan facility from its Directors, management and
long term shareholders. In August 2016, the Company announced another key stage of funding when
AFC joined the Shareholder Loan facility with an additional commitment of up to US$3.0 million with
US$1.0 million immediately available for draw down and US$2.0 million subject to further conditions. In
May 2017, the Company agreed an amendment to the repayment terms of the Shareholder Loan, with
repayment extended to 2 of September 2017, providing additional time to progress the project and better
develop additional financing options.
In June 2017, the Company announced an additional US$0.35 million had been secured through existing
Shareholder Loan holders to fund the Company until the beginning of September 2017 in order to
progress with the new partner search process. In addition, senior management deferred salaries totalling
US$0.23m were satisfied through issuance of an additional loan of the same value. Further details of the
terms of the loans are set out in the Operations Review and in notes 11 and 19 of the financial statements.
A total of US$ 2.4 million has been drawn down under the Shareholder Loan and the repayment amount
is now US$ 5.1 million on 2 September 2017 including principal and return.
1 Historic cost for the purposes of the JDA refers to both expenditure capitalised under IFRS and costs incurred
that did not meet capitalisation criteria and were expensed under IFRS.
Page | 2
Chairman’s Statement
Cost saving initiatives activated in 2015 allowed the Company to reduce administrative expenses,
excluding accrual reversals and share based payment charges, from US$2.7million in 2015 to
US$2.4milion in 2016, despite the ongoing delays and significant additional unbudgeted third party
consultancy work being carried out to meet the SEP Investment Conditions. The current run rate has
been reduced significantly from these levels.
With the new partner search underway and the focus on cost control during this time, the Company
regretfully announced that Mr Christiaan Schutte has resigned as Chief Operating Officer with effect from
26 May 2017 but remains on the board as a Non-Executive Director. The finance function, financial
advisor and Mozambican operations will report directly to and be actively managed by the Board.
The Directors are exploring a number of funding and working capital solutions beyond the 2 September
2017 maturity of the Shareholder Loan. This will to a large extent depend on positive progress being
made with the partner search process ahead of this date. The financial statements have been prepared
on a going concern basis in anticipation of a positive outcome but it is important to highlight that the new
partner search is in its early stages and that there are no binding agreements in place with no certainty
that the Shareholder Loan will be restructured and that additional funding will be raised.
Michael Haworth
Non-Executive Chairman
Page | 3
Operations Review
Ncondezi is focused on the phased development of an integrated thermal coal fired power plant and
mine, commencing with 300MW as Phase 1. The project is located near Tete in northern Mozambique.
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
would be developed. Key terms of the JDA included:
SEP to become the strategic investor in the Power Project
SEP to invest up to US$25.5 million to fund the development costs to Financial Close in return
for a controlling 60% equity interest in Ncondezi Power Company S.A (“NPC”), a subsidiary
that would hold 100% of the Power Project
Power Project boiler technology would change from Circulating Fluidized-Bed (“CFB”) to PC
NPC would pay Ncondezi an additional US$35 million on initial draw down of funds after
Financial Close of the Power Project
Despite good progress having been made on the SEP Investment Conditions, particularly with respect
to the conditions that were within the Company’s control, the SEP Investment Conditions were not
satisfied by 31 December 2016. On 30 March 2017, the Company announced that it was in advanced
negotiations with SEP to finalise a development funding agreement whereby SEP would provide up to
$3.0 million to fund a development program and budget to finalise the JDA. The development funding
was due to be signed by SEP in March of 2017.
Suspension of Exclusive Discussions with SEP
On 26 May 2017, the Company announced that it had suspended exclusive discussions with SEP.
Exclusivity arrangements with SEP had lapsed and Ncondezi had engaged with additional strategic
partners which had expressed an unsolicited interest in developing the project alongside Ncondezi.
New Partner Search
The Power Project is at an advanced stage and is supported by attractive economics. Key highlights
of the project remain:
Advanced form PPA and PCA with “in principle” agreement with EDM on the electricity tariff
Technical work substantially complete
Environmental and Social Impact Assessment studies complete for the mine and power plant
Mine Concession awarded and large thermal coal resource of 4 billion tonnes
Access to power grid approved
Clear pathway to Financial Close, subject to funding
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 was intended to provide the Company with bridging funding for its corporate
overheads while it completed the SEP Investment Conditions to make the JDA effective.
Page | 4
Operations Review
On 31 August 2016, AFC agreed to accede to the existing Shareholder Loan and its terms, advancing
Ncondezi up to US$3.0 million, with an initial tranche of $1.0 million (“Tranche A”) and a further tranche
of US$2.0 million (“Tranche B”) with Tranche B conditional amongst other things upon the fulfilment of
certain conditions precedent, the completion of the JDA and Ncondezi providing an appropriate security
package.
Tranche A was drawn down in accordance with the existing Shareholder Loan terms (set out in the
announcement dated 11 May 2016), some of which have been amended since year end as detailed in
note 19 to the financial statements. A catch up advance of US$960,000 was paid to Ncondezi as an
upfront payment on 2 September 2016, which was equivalent to AFC’s pro rata payment alongside the
existing drawdown from Lenders.
Tranche A was utilised to fund project development costs in accordance with an agreed budget.
Repayment of the Shareholder Loan (comprising the existing Shareholder Loan and initial US$1.0
million Tranche A from AFC) was initially payable by no later than 10 May 2017, however on 11 May
2017, the Company agreed an amendment to the repayment terms, with repayment now due on 2
September 2017.
Under the terms of the Shareholder Loan the cost of the loan was 1.5x (comprising 1.0x principal and
0.5x return) if repayment was made by 10 May 2017. The cost of the Shareholder Loan is now 2.0x
the drawn down amount (comprising 1.0x principal and 1.0x return).
Tranche B has lapsed and is not available for drawn down as it was subject to certain conditions
precedent including the finalisation of the JDA with SEP.
On 23 of June 2017 the Company entered into an amendment (“New Loan”) to the original Shareholders
Loan with an additional funding of US$350,000. The financing has been committed by the Chairman
Michael Haworth (US$200,000) and other existing long term shareholders (US$150,000). The New
Loan will receive a 1.25x return at its maturity on 2 September 2017.
As part of this same amendment the senior management team of the Company have agreed to convert
their deferred 50% salary between November 2016 and January 2017, and 100% of their salary since
February 2017 into the existing Shareholder Loan. The total amount is US$232,000, but this sum will
not attract any interest and matures on 2 September 2017.
As at 27 June 2017, a total of US$ 2,392,545 has been drawn down under the total Shareholder Loan
and the repayment amount will be US$5,054,591 on 2 September 2017.
Development Program to Financial Close
Following the suspension of exclusive discussions with SEP and the launch of the new partner process,
all key development work streams have been put on hold pending an outcome with a new potential
strategic partner.
The Power Project and Mine are however at an advanced level of development and can be rapidly
advanced once any the decision to proceed is made. The Company expects Financial Close to take at
least 12 months from the date of a new partner being confirmed.
Page | 5
Financial Review
Results from operations
The Group made a loss after tax for the year of US$3.0m compared to a loss of US$2.1m for the
previous financial year. The basic loss per share for the year was 1.2 cents (2015: 0.8 cents).
Administrative expenses totalled US$2.4m (2015: US$2.1m) noting that 2015 included a US$0.7m non-
cash gain in respect of reversal of accruals. Administrative expenses refer principally to staff costs,
professional fees and travel costs and underlying administrative expenses have reduced due to cost
cutting measures.
The loss after tax includes a US$0.7m (2015: Nil) finance cost associated with the amortisation of the
redemption premium on the Shareholder Loan. Financial Position
The Group’s statement of financial position at 31 December 2016 and comparatives at 31 December
2015 are summarised below:
Non-current assets
Current assets
Non-current assets held for sale
Total assets
Current liabilities
Total liabilities
Net assets
2016
US$’000
8,995
242
9,389
18,626
3,374
3,374
15,252
2015
US$’000
18,249
514
-
18,763
555
555
18,208
The movement in non-current assets of US$9.3m was largely due to transfer of US$9.4m power related
assets to non-current asset held for sale. This reclassification arises as the Group had signed a JDA in
the year with SEP for disposal of a 60% controlling equity interest in return for SEP providing up to
US$25.5m towards development costs and as at 31 December 2016 the Group anticipated that the
investment conditions would be met in due course and that the transaction would complete.
Capitalised additions totalled US$0.2m (2015: US$1.0m) principally in respect of the Power Project.
The increase in current liabilities principally relates to the Shareholder Loan, together with accrued
interest.
Cash Flows
The net cash outflow from operating activities for the year was US$2.0m (2015: US$4.5m). The cash
outflow principally represented administrative costs for the year with limited working capital movements.
The 2015 cash outflow included US$2.1m of creditor payments in addition to the operating costs for the
year.
Net cash used in investing activities was US$0.3m (2015: US$0.7m), mainly related to development
activities incurred on the Power Project.
Net cash from financing activities was US$2.0m (2015: US$1.1m) mainly related to the short term loans
described above in 2016 and share issues in 2015.
The resulting year end cash and cash equivalents held totalled US$0.2m (2015: US$0.4m).
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 2017, which is focused on securing a new Strategic Partner to progress the Power Project.
Based upon projections the current cash reserves together with the undrawn loan facility will fund
overhead expenditure to 2 September 2017 at which point the Shareholder Loan matures totalling
$5.1m and becomes repayable.
Page | 6
Financial Review
The Directors continue to explore options in respect of raising further funds to continue with the power
plant and mine development programmes. 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 Group will need to extend, refinance or settle the Shareholder Loan in equity by their maturity date,
of which US$0.96m of the principal was lent by Directors. In addition, further funding will be required
to meet liabilities as they fall due after September 2017. The Directors are exploring a number of funding
and working capital solutions beyond the 2 September 2017 maturity of the Shareholder Loan. This will
to a large extent depend on positive progress being made with the partner search process ahead of this
date. The financial statements have been prepared on a going concern basis in anticipation of a positive
outcome but it is important to highlight that the new partner search is in its early stages and that there
are no binding agreements in place with no certainty that the Shareholder Loan will be restructured and
that additional funding will be raised.
Page | 7
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 Coal Mine, Tete Province, Mozambique.
There has been no changes since the last review on May 2015.
Page | 10
Environmental and Social Responsibility
Ncondezi Social Development Programme
Ncondezi concentrated most of its SDP resources during 2016 on the Agricultural Project. The initial 20
hectares remained the same in 2016 and the program has continued to involve and benefit the local
communities.
Ncondezi’s objective is to transfer the management of the agricultural project to the local government
and community. 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. By end of Q2 2017 Ncondezi should have withdrawn from this project area.
During 2016, the Ncondezi Agricultural Project continued to receive positive feedback through the
Moatize District Agricultural Department which has performed a number of mini field days including a
visit by all the Provincial Agricultural Directors of Mozambique as well as the National Deputy Minister
of Agriculture.
Achievements from previous years include:
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.
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. Mr Haworth was previously a Managing Director at J.P. Morgan and Head of
Mining and Metals Corporate Finance in London.
Christiaan Schutte / Non-Executive Director (resigned as Chief Operating Officer in May 2017)
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
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$12 billion. Mr Sachdeva is also
an advisor to the World Bank, Energy Sector for Central Asia, South Asia and Africa on a variety of
projects.
Page | 12
Director’s Report
The Directors present their Annual Report and the audited group financial statements headed by
Ncondezi Energy Limited for the year ended 31 December 2016.
Principal activities
The principal activity of the Group is the development of an integrated 300MW power plant and mine to
produce and supply electricity to the Mozambican domestic market.
Business review and future developments
Details of the Group’s business and expected future developments are set out in the Chairman’s
Statement on pages 2 to 3, the Operations Review on page 4 to 5 and in the Financial Review on pages
6 to 7.
Principal risks and uncertainties
The Group operates in an uncertain environment that may result in increased risk, cost pressures and
schedule delays. The key risk factors that face the Group and their mitigation are set out on pages 15
to 19.
Additionally, the Group’s multi-national operations expose it to a variety of financial risks such as market
risk, foreign currency exchange rates and interest rates, liquidity risk, and credit risk. These are
considered further in notes 1 and 16.
Key performance indicators
The key performance indicators of the Group are as follows:
Mine exploration expenditure (US$’000)
Power development expenditure (US$’000)
Share price at 31 December (pence)
Cash at bank at 31 December (US$’000)
2016
13
249
5.3p
152
2015
2014
21
939
3.6p
402
580
3,848
5.5p
4,515
Results and dividends
The results of the Group for the year ended 31 December 2016 are set out on page 28.
The Directors do not recommend payment of a dividend for the year (2015: nil). The loss will be
transferred to reserves.
Events after the reporting date
See note 19 for further information.
Financial instruments
Details of the use of financial instruments by the Company, its subsidiary undertakings and financial
risk management are contained in note 16 of the financial statements.
Going concern
As at 27 June 2017 the Group had cash reserves of approximately US$0.23m. The current cash
reserves and undrawn loan facility of US$150,000 are sufficient to fund ongoing costs until beginning
of September 2017. Details on going concern are contained in note 1 of the financial statements.
Page | 13
Director’s Report
Directors and Directors’ interests
Director Note
Michael Haworth
Jacek Glowacki
Estevão Pale
Christiaan Schutte
Aman Sachdeva
1
2
3
Appointment
date
01.06.12
28.10.13
03.06.10
04.02.13
21.05.15
Ordinary Shares held
31 December 2016
16,438,296
-
-
-
-
Ordinary Shares held
31 December 2015
16,438,296
-
-
-
-
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 2,220,881
ordinary shares representing 0.89% of the issued Ordinary Shares as at 14 June 2017.
3. Aman Sachdeva is AFC’s nominated director. AFC holds 54,988,520 ordinary shares representing 21.9% of the issued
Ordinary Shares as at 14 June 2017.
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, Michael Haworth and Aman Sachdeva 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 20 to 22.
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 2017
Page | 14
Risk Factors
Risk(s)
Financing risk
Potential Impact(s)
The Group has limited financial resources
that are only expected to last until beginning
of September 2017.
The Group will need to restructure its
existing loans by 2 September 2017 and
secure investment from strategic investors
and/or investment from co-developers to
provide working capital beyond this date.
Failure to do so may lead to the Group not
being a going concern (see note 1).
Additionally, project financing will be
required to complete the Power Project and
failure to secure such financing would result
in failure of the Power Project and/or delay
in its execution.
To achieve Financial Close of the Power
Project, the Group will also need to
progress 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
Power Project and/or delay in its execution.
Off-taker risk
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.
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)
The Power Project is at an advanced level
of development with the majority of
technical work completed and advanced
form PPA and PCA documents being
agreed.
Ncondezi has launched a new partner
process and expects any new partner to
provide financial support to the project
both at the developmental stages to
Financial Close as well as during
construction. It is important to highlight that
the new partner search is in its early
stages and that there are no binding
agreements in place with no certainty that
additional funding will be raised.
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 a new partner, including
select corporate overheads.
The Directors’ will monitor the monthly
cash burn rate to ensure the Group
operates within its cash resources for as
long as possible.
The Company has substantially advanced
the PPA and PCA through previous
negotiations with EDM and Ministry of
Mineral Resources and Energy. EDM has
indicated its willingness to continue
negotiations once the Company introduces
an acceptable strategic partner.
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 off-taker for the Power Project
either as a substitute or as additional
power off-taker 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.
The Power Project is one of the most
advanced projects in the region, making
competition from nearby projects more
difficult due to the time they require to
catch up.
Competing gas projects are mainly located
in the southern part of Mozambique and
are not able to supply the portion of the
Mozambican power grid that the Power
Project is to connect to in the north of the
country.
Page | 15
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
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 Power 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 Power
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 Power Project will be realised
or that the Group will be profitable.
Additionally, 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 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 Power 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 partnership with
an internationally recognised partner in the
power sector with the prerequisite
development and operational expertise.
The Group will look to 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.
Page | 16
Risk Factors
Use of PC Boiler
Technology
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
technology. This may have an impact on
plant reliability and availability.
Power plant
location
geotechnical risks
Improper geotechnical investigation may
lead to increase in construction cost.
The cost of the infrastructure related to
plant resources may increase if a proper
assessment is not done.
Delays in the construction and
commissioning of the mining project.
Utilities
availability and
transportation
(water, limestone,
coal, accessibility,
heavy loads
transportation)
Mining
Estimating
mineral reserve
and resource
Rigorously review the plant performance in
the country of origin as well as in other
countries where this technology is in use.
Visit and discuss with power project
sponsors/users of identical installation
outside Mozambique to benefit from their
experience.
Actively participate in erection and
commissioning activities during project
execution.
Embed in the EPC contractor’s
organisation the Group’s own personnel
during all phases of the project execution.
Subject the power plant to rigorous pre-
commissioning and commissioning tests
as well as performance guarantee tests on
completion.
The power plant technology will be
finalised post successful completion of the
new partner process, with the potential for
the boiler technology to revert back to
circulating fluidized bed (CFB) boiler
technology. In such a situation, the same
potential impacts and mitigations will
apply.
An initial geotechnical study was
completed late in H2 2012 on the
proposed power plant site. No fatal flaws
were identified.
Further work will be completed to reaffirm
the geotechnical study results ahead of
any major construction.
Detailed utilities studies and surveys of the
area and location to determine logistics
associated with the supply of utilities have
been completed and confirm there are no
major impediments.
As the mine project progresses,
performance warranties and guarantees
will be required from the mine contractor
as part of the mine EPC contract, including
liquidated damages for non-performance.
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.
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
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.
Conduct detailed geological
modelling
Page | 17
Risk Factors
The exploration of mineral rights is
speculative in nature and is frequently
unsuccessful. The Group may therefore be
unable to successfully discover and/or
exploit reserves.
Coal risk
Coal specification developed at the pre-
feasibility study and verified during the
feasibility stage may not be representative
of coal to be used in the plant.
Not properly characterised coal resources
may lead to incorrect boiler design and
plant underperformance.
Transmission grid
constraints
Available transmission capacity is allocated
to other power generators.
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.
The utilisation of accredited
laboratories for the analyses of coal
samples
QA/QC procedures according to best
practices
Reserves
Sign-off of reserves by registered CP
Classification of reserves into proven
or probable reserves
Detailed mine design and scheduling.
Further coal quality analysis will be
conducted and supplied to the boiler
supplier for finalisation of boiler design.
A Transmission Agreement Heads of
Terms has been signed with EDM and the
Mozambican Government to ensure that
available transmission infrastructure
allocation is secured early and that proper
evacuation infrastructure and capacities
are available to the Power Project in line
with the Group’s strategy.
The Group will explore and develop all
potential future transmission options
including new transmission capacity in
Mozambique as well as other countries
including Malawi and Zambia.
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 (ESIA) have
been conducted by independent,
internationally recognised consultants. The
Mine ESIA 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 ESIA study
previously submitted and approved by the
Mozambican Government. Ncondezi is
currently working on the revised ESIA
submission to the Mozambican
Government.
Page | 18
Risk Factors
Landmines
Foreign Country
risk
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.
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.
Mozambique has recently defaulted on
commercial loans resulting in donors and
the International Monetary Fund (IMF)
freezing aid to Mozambique, which may
affect financing of the Power Project at
Financial Close.
The Mozambican Government has been
stable for many years and fosters a
beneficial climate towards companies
exploring for resources.
The Mozambican Government is working
with donors and the IMF to restore aid to
the country, and an audit report into the
defaulting loans has been commissioned
as a first step to reaching a resolution. All
parties have committed to resolving the
issue in a reasonable and transparent
manner to restore confidence in the
country.
Page | 19
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. 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.
A statement of the Directors’ responsibilities in respect of the financial statements is set out on page
25. 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 2016, the Board comprised a Non-Executive Chairman, (Michael Haworth), one
Executive Director (Christiaan Schutte) and three further Non-Executive Directors (Jacek Glowacki,
Estevão Pale, and Aman Sachdeva).
On 26 May 2017 Christiaan Schutte resigned as Chief Operating Officer but remains as Non-Executive
Director.
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. In 2016 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.
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.
Page | 20
Corporate Governance Statement
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 2016, the Audit Committee was chaired by Michael Haworth (Committee Chairman). 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 Michael Haworth (Committee Chairman). 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 23 to 24.
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
Page | 21
Corporate Governance Statement
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 | 22
Remuneration Committee Report
At the year ended 31 December 2016, the Remuneration Committee (the ‘Committee’) comprised
Michael Haworth. 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 2016 the following
awards to Directors remained in place:
Non-Executives
Date of grant
Number
granted
Exercise
price
Estevão Pale
26 April 2013
75,000
17.25p
Christiaan Schutte
26 April 2013
75,000
17.25p
Expiry
3 years from
vesting
3 years from
vesting
Grant of Share Awards
During 2016 no share options were issued to the Company’s executive senior management and
contracted personnel (2015: nil).
Directors’ Options
During 2016 no share options were issued to the Company’s Directors (2015: nil).
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 since his original
appointment. In addition, Jacek Glowacki and Aman Sachdeva have waived their Directors fees since
1 April 2015.
Page | 23
Remuneration Committee Report
Directors’ remuneration
The following table sets out an analysis of the pre-tax remuneration for the year ended 31 December
2016 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
2016
US$’000
Total
2015
US$’000
-
324
61
-
-
-
-
385
1
2
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
324
61
-
-
-
-
385
-
302
63
20
-
40
376
801
1. Peter O’Connor resigned on 28 September 2015
2. Paul Venter resigned on 21 May 2015
On behalf of the Board
Michael Haworth
Non-Executive Chairman
29 June 2017
Page | 24
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 IFRS
as adopted by the European Union. 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 as
adopted by the European Union 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 | 25
Independent audit report to the directors of Ncondezi
Energy Limited
We have audited the financial statements of Ncondezi Energy Limited for the year ended 31 December
2016 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 Directors, as a body in accordance with our engagement
letter dated 14 March 2017. 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.
Respective responsibilities of directors and auditors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for
the preparation and fair presentation of the financial statements and for being satisfied that they give a
true and fair view. Our responsibility is to audit and express an opinion on the financial statements in
accordance with International Standards on Auditing (UK and Ireland). Those standards require us to
comply with the Financial Reporting Council’s Ethical Standards for Auditors.
Scope of the audit of the financial statements
An audit involves obtaining evidence about the amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the financial statements are free from material
misstatement, whether caused by fraud or error. This includes an assessment of: whether the
accounting policies are appropriate to the company’s circumstances and have been consistently applied
and adequately disclosed; the reasonableness of significant accounting estimates made by the
directors; and the overall presentation of the financial statements. In addition, we read all the financial
and non-financial information in the annual report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently materially incorrect based on, or
materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or inconsistencies we consider the implications
for our report.
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 2016 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.
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 extend, refinance or settle the
Group’s existing loans in equity by their maturity date of 2 September 2017 and raise further funds.
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.
Page | 26
Independent audit report to the directors of Ncondezi
Energy Limited
Opinion on other matters
In our opinion the information given in the Directors’ Report for the financial year for which the financial
statements are prepared is consistent with the financial statements.
BDO LLP
Chartered Accountants
55 Baker Street
London W1U 7EU
United Kingdom
29 June 2017
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
Page | 27
Consolidated statement of profit or loss
for the year ended 31 December 2016
Other administrative expenses
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
3,10
3
10
4
5
2016
2015
US$’000
US$’000
(2,356)
-
-
(2,356)
-
(648)
(3,004)
58
(2,731)
656
(42)
(2,117)
1
(18)
(2,134)
17
(2,946)
(2,117)
(1.2)
(0.8)
Consolidated statement of other comprehensive income
for the year ended 31 December 2016
Loss after taxation
Other comprehensive income:
Exchange differences on translating foreign
operations*
Total comprehensive loss for the year
attributable to equity holders of the parent
company
2016
US$’000
2015
US$’000
(2,946)
(2,117)
(10)
(12)
(2,956)
(2,129)
*Items that may be reclassified to profit or loss subject to certain future events.
The notes on pages 32 to 54 form part of these financial statements.
Page | 28
Consolidated statement of financial position
as at 31 December 2016
Note
2016
US$’000
2015
US$’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
Non-current assets held for sale (diluted
interest in relation to SEP transaction)
Total assets
Liabilities
Current liabilities
Current tax payable
Trade and other payables
Loans and borrowings
Total current liabilities
Total liabilities
Capital and reserves attributable to
shareholders
Share capital
Foreign currency translation reserve
Accumulated losses
Total capital and reserves
Total equity and liabilities
6
8
9
6
10
11
12
8,995
8,995
2
88
152
242
9,389
18,249
18,249
8
104
402
514
-
18,626
18,763
-
1,205
2,169
3,374
3,374
-
555
-
555
555
86,557
(6)
(71,299)
15,252
18,626
86,557
4
(68,353)
18,208
18,763
The financial statements were approved and authorised for issue by the Board of Directors on 29 June
2017 and were signed on its behalf by:
Michael Haworth
Non-Executive Chairman
The notes on pages 32 to 54 form part of these financial statements.
Page | 29
Consolidated statement of changes in equity
for the year ended at 31 December 2016
At 1 January 2016
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 2016
At 1 January 2015
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 2015
Foreign
Currency
Translation
reserve
US$'000
4
-
(10)
(10)
-
-
-
(6)
Share
capital
US$'000
86,557
-
-
-
-
-
-
86,557
Accumulated
Losses
US$'000
(68,353)
(2,946)
-
(2,946)
-
-
-
(71,299)
Total
US$'000
18,208
(2,946)
(10)
(2,956)
-
-
-
15,252
Share
capital
US$'000
85,478
-
-
-
1,184
(105)
-
86,557
Foreign
Currency
Translation
reserve
US$'000
16
-
(12)
(12)
-
-
-
4
Accumulated
Losses
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
The notes on pages 32 to 54 form part of these financial statements.
Page | 30
Consolidated statement of cash flows
for the year ended at 31 December 2016
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
Deferred payroll costs capitalised to Shareholder Loan
Reversal of accrual
Depreciation and amortisation
Net cash flow from operating activities before
changes in working capital
Decrease in inventory
Increase/(decrease) in payables
Decrease in receivables
Net cash flow from operating activities before tax
Income taxes refunded/ (paid)
Net cash flow from operating activities after tax
Investing activities
Interest received
Power development costs capitalised
Mine development costs capitalised
Net cash flow from investing activities
Financing activities
Issue of ordinary shares
Cost of share issue
Bank charges
Short term loan
Net cash flow from financing activities
Net decrease in cash and cash equivalents
in the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 32 to 54 form part of these financial statements.
Note
2016
US$’000
2015
US$’000
(3,004)
(2,134)
3
10
-
648
-
(34)
1
231
-
126
(2,032)
6
16
16
(1,994)
58
(1,936)
-
(249)
(13)
(262)
-
-
(13)
1,961
1,948
(250)
402
152
(1)
18
42
1
-
-
(656)
175
(2,555)
4
(2,100)
200
(4,451)
(35)
(4,486)
1
(669)
(21)
(689)
1,184
(105)
(17)
-
1,062
(4,113)
4,515
402
Page | 31
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 27 June 2017 the Group had cash reserves of approximately US$0.23m and an available undrawn
loan facility of US$0.15m. Based upon projections the current cash reserves plus the available loan
facility will fund cash flow requirements until the beginning of September 2017 at which point the Group’s
loans and borrowings (principal plus return) set out in note 11 and 19 fall due for repayment.
The Group will need to extend, refinance or settle the Shareholder Loan in equity by their maturity date,
of which US$0.96m of the principal was lent by Directors. In addition, further funding will be required to
meet liabilities as they fall due after September 2017. The Directors are exploring a number of funding
and working capital solutions beyond the 2 September 2017 maturity of the Shareholder Loan. This will
to a large extent depend on positive progress being made with the partner search process ahead of this
date. The financial statements have been prepared on a going concern basis in anticipation of a positive
outcome but it is important to highlight that the new partner search is in its early stages and that there
are no binding agreements in place with no certainty that the Shareholder Loan will be restructured and
that additional funding will be raised.
Should the Group be unable to restructure the current loans and 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 | 32
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
The following new standards and amendments to standards are mandatory for the first time for the
Group for financial year beginning 1 January 2016. The implementation of these standards did not have
a material effect on the Group.
Standard
Effective date
Annual Improvements to IFRSs (2012 - 2014 Cycle)
1 Jan 2016
IAS1 – Presentation of Financial Statements
IFRS 10, IFRS 12, IAS 28 – Investment Entities
1 Jan 2016
1 Jan 2016
IAS 16 and IAS 38 – Depreciation and Amortisation
1 Jan 2016
IFRS 11 – Joint Operations
IAS 27 - Separate Financial Statements
1 Jan 2016
1 Jan 2016
Impact on
initial
application
No impact
No impact
No impact
No impact
No impact
No impact
Standards, amendments and interpretations, which are effective for reporting periods beginning after
the date of this financial information which have not been adopted early:
Standard
IFRS 9
IFRS 15
IFRS 16
IAS 12
IAS 7
IFRS 2
Description
Financial Instruments
Revenue from Contracts with Customers
Leases
Amendment – Recognition of deferred tax
assets for unrealised losses
Amendment – Disclosure initiative
Amendment – Classification and
measurement of share based payment
transactions
Effective date
1 Jan 2018
1 Jan 2018
1 Jan 2019*
1 Jan 2017
1 Jan 2017
1 Jan 2018
*Not yet been endorsed by the European Union at the date that this financial information was approved and
authorised for issue by the Board.
IFRS 15 is intended to introduce a single framework for revenue recognition and clarify principles of
revenue recognition. This standard modifies the determination of when to recognize revenue and how
much revenue to recognize. The core principle is that an entity recognizes revenue to depict the transfer
of promised goods and services to the customer of an amount that reflects the consideration to which
the entity expects to be entitled in exchange for those goods or services. Management anticipate
commencing sales in future and are in the process of assessing the impact of this standard.
IFRS 16 introduces a single lease accounting model. This standard requires lessees to account for all
leases under a single on-balance sheet model. Under the new standard, a lessee is required to
recognize all lease assets and liabilities on the balance sheet; recognize amortization of leased assets
and interest on lease liabilities over the lease term; and separately present the principal amount of cash
paid and interest in the cash flow statement. Management are currently assessing the impact of this
standard as whilst there are no material operating leases in the Group it may be relevant to future
operations.
Page | 33
Notes to the consolidated financial statements (continued)
1. Principal accounting policies (continued)
IFRS 9 “Financial instruments” addresses the classification and measurement of financial assets and
financial liabilities. The complete version of IFRS 9 was issued in July 2014. It replaces the guidance
in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but
simplifies the mixed measurement model and establishes three primary measurement categories for
financial assets: amortized cost, fair value through other comprehensive income (OCI) and fair value
through profit or loss. The basis of classification depends on the entity’s business model and the
contractual cash flow characteristics of the financial asset. Investments in equity instruments are
required to be measured at fair value through profit or loss with the irrevocable option at inception to
present changes in fair value in OCI. There is now a new expected credit loss model that replaces the
incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to
classification and measurement except for the recognition of changes in credit risk in other
comprehensive income, for liabilities designated at fair value through profit or loss. Contemporaneous
documentation is still required but is different to that currently prepared under IAS 39. Management are
currently assessing the standard’s full impact.
Basis of consolidation
Subsidiaries
Subsidiaries are all 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.
Page | 34
Notes to the consolidated financial statements (continued)
1. Principal accounting policies (continued)
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.
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.
Page | 35
Notes to the consolidated financial statements (continued)
1. Principal accounting policies (continued)
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.
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 and its primary operating 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 with a non US$ functional currency 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.
Page | 36
Notes to the consolidated financial statements (continued)
1. Principal accounting policies (continued)
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.
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 loans and borrowings 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. Where loans and borrowings include
a redemption premium, the estimated premium is included in the calculation of the effective interest
rate.
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 | 37
Notes to the consolidated financial statements (continued)
1. Principal accounting policies (continued)
Non-current assets held for sale and disposal groups
Non-current assets and disposal groups are classified as held for sale when: they are available for
immediate sale; management is committed to a plan to sell; it is unlikely that significant changes to the
plan will be made or that the plan will be withdrawn; an active programme to locate a buyer has been
initiated; the asset or disposal group is being marketed at a reasonable price in relation to its fair value;
and a sale is expected to complete within 12 months from the date of classification.
Non-current assets and disposal groups classified as held for sale are measured at the lower of: their
carrying amount immediately prior to being classified as held for sale in accordance with the group's
accounting policy; and fair value less costs to sell. Following their classification as held for sale, non-
current assets (including those in a disposal group) are not depreciated.
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
The Group’s mining assets were impaired to US$ 7.6m in 2014 and is held at its estimated value in use
which is below cost. Assessment of the carrying value, potential additional impairment or reversal of
impairment 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. Whilst the conditional agreement expired in December 2015, the Company
expects the agreed "in principle" tariff range to remain in future negotiations.
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 further 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 given the progress to date. 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 assessed these factors to have been suitably mitigated and de-
risked during the year. Whilst exclusivity with SEP has ended subsequent to the year end, the Group
remain confident of securing a project partner and the work streams to date are considered to have
demonstrated the project feasibility.
Page | 38
Notes to the consolidated financial statements (continued)
2. Critical accounting estimates and judgements (continued)
(iii) Non-current asset held for sale classification
The power assets were reclassified as non-current assets held for sale as detailed in note 6 during
2016. Whilst exclusive discussions with Shanghai Electric Power Co., Ltd (“SEP”) regarding its Joint
Development Agreement (“JDA”) ended in May 2017 the criteria for classification as non-current assets
held for sale were considered to be met at 31 December 2016.
(iv) Impairment of power project assets classified as non-current asset held for sale
The power project assets are held at the lower of cost and fair value less cost to sell (note 6). 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. In assessing the carrying
value of the power assets at 31 December 2016 the Board considered the net present value indicated
by the economic model for the power project, together with the proposed contribution by SEP of up to
US$25.5m to fund development through to financial close under the JDA in return for a 60% interest in
the power assets. The economic model and the proposed transaction demonstrated substantial
headroom above carrying value.
Accounting estimates
(i) 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. Refer to note 11 for details.
(ii) Reversal of accruals
In 2015, Management assessed the appropriateness of the level of accruals based on information
available. US$656,000 of accruals were released in respect of historic project costs following
Management’s assessment based on factors such as the status of agreements, the passage of time
and communication with counterparties. The potential for payment of the accruals is determined to be
remote.
Page | 39
Notes to the consolidated financial statements (continued)
3. Administrative expenses
Staff costs
Professional and consultancy
Office expenses
Travel and accommodation
Other expenses
Foreign exchange
Other administrative expenses
Reversal of accrual (Note 10)
Share-based payments
Total administrative expenses
Auditors’ remuneration
Group auditors’ remuneration
- audit of the Group’s accounts
- audit of the Group’s subsidiaries
Other services
- other non-audit services
- interim review
Auditors’ remuneration is included within professional and consultancy costs.
Staff costs (including Directors)
Wages and salaries
Share based payments
Social security costs
2016
2015
US$’000 US$’000
581
1,201
128
253
176
16
2,356
-
-
2,356
1,005
903
312
197
290
24
2,731
(656)
42
2,117
2016
US$’000
2015
US$’000
40
15
-
12
67
48
22
23
13
106
2016
US$’000
694
-
6
700
2015
US$’000
1,148
42
22
1,212
US$119,000 (2015: US$165,000) included within wages and salaries have been capitalised to the
power project asset.
The average monthly number of employees (including executive Directors) of the Group were:
Operational
Administration
2016
Number
8
5
13
2015
Number
11
9
20
Page | 40
Notes to the consolidated financial statements (continued)
3. Administrative expenses (continued)
Key management compensation:
Salary
Fees
Social security costs
Other short-term Benefits
Termination benefits
Post-employment benefits
Share based payments
2016
US$’000
385
121
6
512
-
-
-
-
512
2015
US$’000
455
123
12
590
5
86
109
34
824
Key management personnel are considered to be Directors and senior management of the Group.
4. Taxation
The Group entities subject to corporate income tax are Ncondezi Coal Company Mozambique Limitada
which is subject to tax at the rate of 32% (2015: 32%) on its profits in Mozambique and Ncondezi
Services (UK) Limited which was subject to tax rate of 20.25% on its profits in the UK in 2015 No tax
charge/ (credit) arose in the current or prior year for Ncondezi Coal Company Mozambique Limitada.
Tax refundable for 2016 has been estimated at US$57,635 and has been reconciled to the expected
tax charge based on the Group losses at the standard rate of taxation in Mozambique as follows:
Current tax – UK corporation tax
Group loss on ordinary activities before tax
Effects of:
Reconcile to Mozambique corporation tax rate of 32%
(2015: UK corporation tax rate of 20.25%)
Differences arising from different tax rates
Non-deductible expenses
Under/over provision from previous period
Foreign exchange effect originating in overseas companies
Unrecognised taxable losses carried forward
Total tax for the year
2016
US$’000
(58)
2015
US$’000
(17)
(3,004)
(2,134)
(962)
862
-
(58)
(229)
329
(58)
(432)
13
2,853
-
(2,644)
193
(17)
During the exploration and development stages, the Group will accumulate tax losses which may be
carried forward. As at 31 December 2016, no deferred tax asset has been recognised for tax losses of
US$7,867,000 (2015: USD$8,369,000) carried forward within the Group’s overseas subsidiaries, as the
recovery of this benefit is dependent on the future profitability, the timing and certainty of which cannot be
reasonably foreseen.
Tax losses in Mozambique are available for use over a five year period. Of the total available Mozambican
subsidiary tax credits, US$1,129,000 will be available until 31 December 2021, 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, and US$2,000,000 will be available until 31 December 2017.
Page | 41
Notes to the consolidated financial statements (continued)
5. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the year.
Due to the losses incurred during the year a diluted loss per share has not been calculated as this would
serve to reduce the basic loss per share. Out of 13,550,000 share incentives outstanding at the end of
the year 11,225,000 (2015: 11,675,000) had already vested, which if exercised could potentially dilute
basic earnings per share in the future.
2016
Weighted
average
number of
shares
(thousands)
Per share
amount
(cents)
Loss
US$'000
2015
Weighted
average
number of
shares
(thousands)
Loss
US$'000
Per share
amount
(cents)
(2,946) 250,075
(1.2)
(2,117)
249,415
(0.8)
Basic and
diluted EPS
6. Property, plant and equipment
Cost (less impairment)
At 1 January 2015
Additions
Disposals
At 1 January 2016
Additions
Disposals
Transfer to held for sale
At 31 December 2016
Depreciation
At 1 January 2015
Depreciation charge
At 1 January 2016
Depreciation charge
Disposals
At 31 December 2016
Net Book value 2016
Net Book value 2015
Power
assets
US$’000
Mining
assets
US$’000
Buildings
US$’000
Plant and
equipment
US$’000
Other
US$’000
Total
US$’000
8,201
939
-
9,140
249
-
(9,389)
-
7,617
21
-
7,638
13
-
-
7,651
-
-
-
-
-
-
-
-
-
-
-
-
1,736
-
-
1,736
-
-
1,736
286
73
359
73
-
432
-
9,140
7,651
7,638
1,304
1,377
447
-
-
447
(1)
-
446
269
84
353
53
-
406
40
94
718
-
-
718
-
-
718
700
18
718
-
-
718
18,719
960
-
19,679
262
(1)
(9,389)
10,551
1,255
175
1,430
126
-
1,556
-
-
8,995
18,249
Power assets relate to the development of a 300MW power plant. In 2016 the power assets have been
reclassified to non-current assets held for sale as detailed below. 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.
Page | 42
Notes to the consolidated financial statements (continued)
.
6. Property, plant and equipment (continued)
The mine assets are stated net of an impairment of US$32m recorded in 2014 which is considered to
remain appropriate based on the impairment test at 31 December 2016. The carrying value for the coal
mining asset has been assessed based on a value in use calculation using the economic model for the
mine. The key estimates used in the value in use calculation are as follows:
- Coal price of US$1.81/kj being the transfer price at 1 Jan 2013 escalated thereafter.
- Capital costs of US$71.1m based on contractor quotations
- Discount rate - 10%
- Coal production of 1.4mt to meet the power assets requirements. The resource is supported
-
-
by a JORC compliant resource estimate.
Life of the coal asset (based on the conditional EDM deal) – 25 years
Inflation rates have been calculated based on a mixed basket of inflation rates in order to
determine appropriate escalation factors. The baskets includes Mozambique CPIX, PPI and
PPI for imported products, the DME petroleum index, Mozambique wage inflation and US PPI.
The impairment is sensitive to changes in the discount rate with a 1% increase in the discount rate
increasing impairment by US$3.8m. The coal price payable by the power station to the mine is
consistent with the ‘in principle’ tariff with EDM and in the event of changes to operating inputs the
pricing mechanism is revised to maintain the return on equity of the asset.
Asset classified as held for sale
The Group entered an agreement to develop the power assets in the year, subject to conditions
precedent being satisfied, under which the Group would contribute a 60% effective interest in the
Group’s power assets and Shanghai Electric Power Co., Ltd (“SEP”) would contribute with funding of
development costs to financial close up to US$25.5m. Subsequent to completion, SEP would hold a
controlling interest in the power assets and the Group would retain a 40% non-controlling interest with
appropriate minority protection rights.
Under IFRS 5, such a transaction meets the 'Non-current asset held for sale' when the transaction is
considered sufficiently probable and other relevant criteria are met. The Board consider the progress of
the transaction in the period to be such that the reclassification criteria were met at 31 December 2016
as detailed in market announcements during the year and in early 2017.
Whilst the progression of the transaction during 2016 was such that the classification criteria for ‘non-
current assets held for sale’ were met at year end, the Board notes that subsequently in May 2017 the
Group ended its exclusive discussions with SEP under the Joint Development Agreement which
represented a non-adjusting subsequent event.
The assets reclassified total US$9.4m from PPE held at net book value which is below fair value less
cost to sell. There was no gain or loss associated with the reclassification. The assets are included in
the ‘power project’ segment in note 15.
Page | 43
Notes to the consolidated financial statements (continued)
7. Subsidiaries
The Group has the following subsidiary undertakings:
%
interest
2016
100
‘ZECH1’
%
interest
2015
100 Mauritius
Country of
incorporation
Zambezi Energy Corporation
Holdings 1 Limited
Zambezi Energy Corporation
Holdings 2 Limited
Ncondezi Coal Company
Mozambique Limitada
‘ZECH2’
100
100 Mauritius
‘NCCML’
100
100 Mozambique
Ncondezi Services (UK) Limited
‘NSUL’
-
100
UK
Ncondezi Power Holdings
Limited
Ncondezi Power Holdings 2
Limited
Ncondezi Power Company SA
Ncondezi Power Mozambique
Limitada
‘NPHL’
100
100 Mauritius
‘NPH2L’
100
100
UAE
‘NPCSA’
‘NPML’
100
100
100 Mozambique
100 Mozambique
Activity
Holding
company
Holding
company
Mining
exploration and
development
Service
Company
Holding
company
Holding
company
Energy company
Energy company
Ncondezi Coal Company Mozambique Limitada is owned by Zambezi Energy Corporation Holdings 1
Limited and Zambezi Energy Corporation Holdings 2 Limited. Ncondezi Power Holdings 2 Limited is
owned by Ncondezi Energy Limited. Ncondezi Power Company SA is owned by Ncondezi Energy Limited,
Zambezi Energy Corporation Holdings 1 Limited and Ncondezi Power Holdings 2 Limited. Ncondezi
Power Mozambique Limitada is owned by Zambezi Energy Corporation Holdings 2 Limited and Ncondezi
Power Holdings Limited.
Ncondezi Services (UK) Limited was dissolved during the year.
8. Trade and other receivables
Current assets:
Other receivables
Total trade and other receivables
2016
US$'000
2015
US$'000
88
88
104
104
The fair value of receivables is not significantly different from their carrying value.
There are no receivables that are past due or impaired at year end.
9. Cash and cash equivalents
Cash at bank and in hand
2016
US$'000
152
152
2015
US$'000
402
402
Page | 44
Notes to the consolidated financial statements (continued)
9. Cash and cash equivalents (continued)
The Group’s cash and cash equivalents balances may be analysed by currency as follows:
US Dollars
Great British Pounds
South African Rand
Mozambique Meticais
2016
US$'000
104
25
-
23
152
2015
US$'000
326
56
12
8
402
Where possible cash is deposited in floating rate deposit accounts at reputable financial institutions
with high credit ratings.
10. Trade and other payables
Other payables
Other taxation and social security
Accruals
2016
US$'000
220
2
983
1,205
2015
US$'000
202
4
349
555
Accruals includes US$0.6m (2015: Nil) of interest in respect of the loans in note 11. The fair value of
payables is not significantly different from their carrying value. Refer to note 2 for details of reversal of
accruals in 2015.
11. Short term loan
Short term loan (unsecured)
Unamortised related costs
Total Short term loan
31 December
2016
Audited
31 December
2015
Audited
US$’000
2,193
(24)
2,169
US$’000
-
-
-
On 11 May 2016, the Group entered into a US$1.32m loan facility with certain of Ncondezi’s Directors,
Management and long term shareholders. On 31 August 2016, AFC acceded to the existing loan facility
agreement, providing a facility of US$3.0m, with an initial tranche of US$1.0m (“Tranche A”) and a
further tranche of US$2.0m (“Tranche B”) with Tranche B conditional amongst other things upon the
fulfilment of certain conditions precedent, the completion of the JDA and Ncondezi providing an
appropriate security package. US$2,192,545 of the Shareholder Loan (comprising of the existing
Shareholder Loan of US$1.32m and Tranche A provided by AFC) was drawn down as at year end.
The repayment terms of the Shareholder Loan are as follows:
o if the JDA became effective before December 2016 the full drawn down amount is repayable on 10
May 2017 and a 0.5x multiple return on the drawn down amount is repayable 6 months from 10 May
2017
o if the JDA becomes effective after December 2016 the full drawn down amount and the 0.5 x multiple
return is repayable on 10 May 2017
o if the repayment occurs after 10 May 2017, then an additional return of 0.5x the total drawings is
repayable in addition to the 1.5x multiple of the full drawn down amount
Page | 45
Notes to the consolidated financial statements (continued)
11. Short term loan (continued)
The repayment terms of the ‘Tranche B’ facility are as follows:
o repayment is due within 24 months of first drawdown.
o the total amount drawn down should be repaid at a 2.5x multiple (comprising 1.0x principal and 1.5x
return).
o if repayment occurs after 24 months of first drawdown, the repayment multiple increases to 3.0x.
o a commitment fee of 0.35% per annum, or US$7,000 per annum, will be charged on the undrawn
amount of Tranche B.
The Shareholder Loan was initially recorded at fair value, being the proceeds received, and
subsequently at amortised cost. The estimated repayment premium of 0.5x capital is recognised over
the period of the loan through the effective interest rate. Accrued interest is recorded in other payables.
Interest charged for the year totalled US$648,000 (2015: US$18,000) with the amount in 2016 related
to the loans above.
As at 31 December 2016, the additional 0.5x return which applied if the JDA became effective after 31
December 2016 and the loan was not repaid by 10 May 2017 represented a contingent liability as the
additional obligation would only be triggered on 10 May 2017. Further, as at 31 December 2016 the Board
anticipated that funds would be available through the SEP transaction to settle the liability by 10 May 2017.
Owing to delays and ultimate cessation of exclusive discussions with SEP the payment was not made and
the maturity date was extended as detailed in the subsequent events note 19.
12. Share capital
Number of shares6
Allotted, called up and fully paid
Ordinary shares of no par value
At 1 January 2016
Issue of shares (exercised share awards)
Issue costs
At 31 December 2016
At 1 January 2015
Issue of shares
Issue costs
At 31 December 2015
2016
2015
250,299,844 249,849,844
Shares
Issued
Number
249,849,844
450,000
-
250,299,844
Shares
Issued
Number
236,662,043
13,187,801
-
249,849,844
Share
capital
US$’000
86,557
-
-
86,557
Share
capital
US$’000
85,478
1,184
(105)
86,557
Page | 46
Notes to the consolidated financial statements (continued)
13. Reserves
The following describes the nature and purpose of each reserve within owners’ equity.
Share capital
Foreign currency translation
reserve
Retained earnings
Amount subscribed for share capital, 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
14. Share-based payments
Share awards are granted to employees and Directors on a discretionary basis and the Remuneration
Committee will decide whether to make share awards under the LTIP or unapproved share option
scheme at any time.
Long term incentive plan and unapproved share option scheme
Exercise price
per share
Grant
date
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
31.01.14
31.01.14
Outstanding
at start of
year
Granted
during
the year
Lapsed/
cancelled
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
-
-
-
-
-
-
-
-
-
-
-
-
(1,200,000)
(225,000)
-
-
-
-
(1,425,000)
-
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
Exercise price
per share
Grant
date
Outstanding
at start of
year
Granted
during
the year
Exercised
during
the year
Outstanding
at year end
2016
Nil
25c
30.5p (47.8c)
17.25p (26.3c)
Nil
6.5p (10.8c)
Total
WAEP (cents)
27.05.10
27.05.10
19.06.12
26.04.13
31.01.14
31.01.14
2,400,000
800,000
500,000
4,600,000
2,250,000
3,450,000
14,000,000
14.44
-
-
-
-
-
-
-
-
-
-
-
-
(450,000)
-
(450,000)
-
2,400,000
800,000
500,000
4,600,000
1,800,000
3,450,000
13,550,000
14.92
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
18.06.22
25.04.23
30.06.20
30.06.20
The Company’s mid-market closing share price at 31 December 2016 was 5.3p (31 December 2015:
3.63p). The highest and lowest mid-market closing share prices during the year were 6.4p (2015: 5.5p)
and 3.5p (2015: 1.63p) respectively.
During the year 450,000 share awards were exercised for nil consideration.
Page | 47
Notes to the consolidated financial statements (continued)
14. Share-based payments (continued)
Of the total number of options outstanding at year end, 11,225,000 (2015: 11,675,000) had vested and
were exercisable. The weighted average exercise price for the exercisable options at year end was 13.96p
(2015: 15.16p).
The weighted average contractual life of the options outstanding at the year-end was six years (2015:
seven years).
The fair value of the 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
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%
The volatility rates have been calculated using the share price of a similar company with coal assets in
Mozambique and analysis of historic Company share price volatility.
Based on the above fair values, the expense arising from equity-settled share options made to employees
and Directors was nil for the year (2015: US$41,961).
15. Segmental analysis
The Group has three reportable segments:
Mine project - this segment is involved in the exploration for coal and development of coal mine
within the Group's licence areas in Mozambique
Power project – this segment relates to the development of a 300MW integrated power plant next
to the Group’s coal mine concession areas in Mozambique
Corporate - this comprises head office operations and the provision of services to Group
companies
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker and are based on differences in products from which each reportable segment
will derive its future revenues. The chief operating decision-maker has been identified as the Board of
Directors.
The operating results of each of these segments are regularly reviewed by the Group's chief operating
decision-maker in order to make decisions about the allocation of resources and assess their
performance.
Page | 48
Notes to the consolidated financial statements (continued)
15. Segmental analysis (continued)
The segment results for the year ended 31 December 2016 are as follows:
Income statement
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
168*
(486)
(2,038)
(2,356)
For the year ended 31 December 2016
Segment result before and after
allocation of central costs
Finance expense
Finance income
Loss before taxation
Refund on Taxation
Loss for the year
(648)
-
(3,004)
58
(2,946)
*The gain includes the effect of gains on intercompany transactions with offsetting losses incurred in the corporate segment.
(645)
-
(2,683)
58
(2,625)
(2)
-
(488)
-
(488)
(1)
-
167
-
167
The segment results for the year ended 31 December 2015 are as follows:
Income statement
For the year ended 31 December 2015
Segment result before and after allocation of
central costs
Finance expense
Finance income
Loss before taxation
Taxation
Loss for the year
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
(1,382)
(282)
(453)
(2,117)
(2)
1
(1,383)
-
(1,383)
(4)
-
(286)
-
(286)
(12)
-
(465)
17
(448)
(18)
1
(2,134)
17
(2,117)
Page | 49
Notes to the consolidated financial statements (continued)
15. Segmental analysis (continued)
Other segment items included in the Income statement are as follows:
Income statement
For the year ended 31 December 2016
Depreciation charged to the income
statement
Share based payments
Income tax credit
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
-
-
-
(124)
-
-
(2)
-
58
(126)
-
58
Income statement
For the year ended 31 December 2015
Depreciation charged to the income statement
Share based payments
Income tax credit
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
-
-
-
(172)
-
-
(3)
(42)
17
(175)
(42)
17
The segment assets and liabilities at 31 December 2016 and capital expenditure for the year then
ended are as follows:
Statement of financial position
At 31 December 2016
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital
expenditure
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
9,399
(209)
9,190
9,090
(36)
9,054
137
(3,129)
(2,992)
18,626
(3,374)
15,252
249
13
-
262
The segment assets and liabilities at 31 December 2015 and capital expenditure for the year then ended
are as follows:
Statement of financial position
At 31 December 2015
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital
expenditure
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
9,158
(247)
8,911
9,254
(79)
9,175
351
(229)
122
18,763
(555)
18,208
939
21
-
960
Page | 50
Notes to the consolidated financial statements (continued)
16. Financial instruments
The Group is exposed to risks that arise from its use of financial instruments. This note describes the
Group’s objectives, policies and processes for managing those risks and the methods used to measure
them. Further quantitative information in respect of these risks is presented throughout these financial
statements.
The significant accounting policies regarding financial instruments are disclosed in note 1.
There have been no substantive changes in the Group’s objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods unless otherwise
stated in this note.
Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises, are
as follows:
Loans and receivables at amortised cost
Trade and other receivables
Cash and cash equivalents
Financial liabilities held at amortised cost
Trade and other payables
Loans and borrowings
2016
US$’000
2015
US$’000
33
152
1,203
2,169
30
402
551
-
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives
and policies and retains ultimate responsibility for them.
The overall objective of the Board is to set polices that seek to reduce risk as far as possible without
unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies
are set out below:
Page | 51
Notes to the consolidated financial statements (continued)
16. Financial instruments (continued)
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due.
The Board receives cash flow projections on a monthly basis as well as information on cash balances.
Maturity analysis based on contractual terms
2016
Total
US$’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$’000
Trade and other payables
1,203
Loans and borrowings
2,193
-
-
216
987
-
2,193
-
-
-
-
2015
Total
US$’000
in 1
on
demand
month
US$’000 US$’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
-
-
-
Loans and borrowings represent the loan principal whilst accrued interest to 31 December 2016 is
included in trade and other payables. Refer to note 11. The Group endeavours to match the maturity of
its current assets with its current liabilities to mitigate liquidity risk. Refer to note 1 for the material
uncertainty regards going concern.
Borrowing facilities
The Group had no undrawn and unconditional committed borrowing facilities available at 31 December
2016 (2015: Nil). Refer to note 11 for the conditional Tranche B facilities.
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$5,701 (2015: decreased net assets by US$1,044).
Page | 52
Notes to the consolidated financial statements (continued)
16. Financial instruments (continued)
Currency exposures
As at 31 December the Group’s net exposure to foreign exchange risk was as follows:
2016
2015
US$’000
Assets/(liabilities) held
GBP
ZAR
MZN Total
GBP
US$’000
Assets/(liabilities)
held
ZAR MZN Total
US dollars
(73)
(73)
-
-
42
(31)
42
(31)
9
9
13
(9)
13
(9)
13
13
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.
17. Related party transactions
Parties are considered to be related if one party has the ability to control the other party, is under
common control, or can exercise significant influence over the other party in making financial and
operational decisions. In considering each possible related party relationship, attention is directed to the
substance of the relationship, not merely the legal form.
In relation to the Shareholders Loan as at 31 December 2016 US$331,439 was drawn by a Trust of
which Non-Executive Chairman, Michael Haworth, is a potential beneficiary. US$101,864 was drawn
by Director, Chris Schutte, US$33,011 from Director, Estevão Pale. There was no ‘Shareholders Loan’
at 31 December 2015. Refer to note 11 for details of the terms and conditions.
Christiaan Schutte
During the year US$60,000 (2015: US$49,600) were paid to CPS Consulting in respect of services
provided by Christiaan Schutte. There was no outstanding balance at 31 December 2016 (2015: Nil).
Details of Key Management Remuneration are contained in Note 3.
There is no ultimate controlling party.
18. 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$2m following an agreed programme. By December 2016 half of this budget has been successfully
spent in various initiatives. During the year US$ 21,180 (2015: US$28,881) was spent as part of this
programme. Further to an Addendum, the program was postponed to be completed during the mining
phase. 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.
Page | 53
Notes to the consolidated financial statements (continued)
18. Commitments (continued)
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.
19. Events after the reporting date
SEP transaction update
On 26 May 2017 the Company announced that it had suspended exclusive discussions with Shanghai
Electric Power Co., Ltd (“SEP”) regarding its Joint Development Agreement (“JDA”). Exclusivity
arrangements with SEP have lapsed and the Company is now engaging with additional strategic
partners who have expressed an unsolicited interest in developing the project alongside the Company.
As at 31 December 2016 the power assets were classified as non-current assets held for sale based
on the JDA and its progress at that date. Accordingly, the asset will be reclassified to property, plant
and equipment.
Extension of Tranche A loans (note 11)
On 11 May 2017 the Company announced that agreement has been reached to extend the Shareholder
Loan repayment date (comprising the existing Shareholder Loan and Tranche A provided by AFC). The
Company has been able to agree an amendment to the repayment terms, with repayment now due on
2 September 2017. All other terms of the Shareholder Loan remain the same.
Loans
On 23 of June 2017 the Company entered into an amendment (“New Loan”) to the original Shareholders
Loan with an additional funding of US$350,000. The financing has been committed by the Chairman
Michael Haworth (US$200,000) and other existing long term shareholders (US$150,000). The New
Loan will receive a 1.25x return at its maturity on 2 September 2017.
As part of this same amendment the senior management team of the Company have agreed to convert
their deferred 50% salary between November 2016 and January 2017, and 100% of their salary since
February 2017 into the existing Shareholder Loan. The total amount is US$232,000, but this sum will
not attract any interest and matures on 2 September 2017.
This provides the Company with more time to progress the project and new Strategic Partner search
and better develop loan repayment options.
Page | 54
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 | 55