NEWS RELEASE
www.ncondezienergy.com
Audited Final Results for Year Ended 31 December 2017
29 June 2018: Ncondezi Energy Limited ("Ncondezi" or the “Company”) (AIM: NCCL) is pleased to
announce its audited final results for the year ended 31 December 2017.
Highlights
During the year
On 11 May 2017, the Company agreed an amendment to extend the Shareholder Loan
repayment date to 2 September 2017. The Shareholder Loan included the original Shareholder
Loan and Tranche A provided by African Finance Corporation (“AFC”).
On 26 May 2017, exclusive negotiations with Shanghai Electric Power Co., Ltd (“SEP”) were
suspended ending the Joint Development Agreement (“JDA”) and the Company launched a
new partner search process.
On 26 May 2017, Christiaan Schutte resigned as Chief Operating Officer but remained as a
non-executive director.
On 23 June 2017, the Company obtained funding of an additional US$350,000 under the
amended Shareholder Loan (“New Loan”). The New Loan provided 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 of US$232,000 into the existing Shareholder Loan (“Employee Shareholder Loan”).
On 2 September 2017, the Company agreed a further amendment to extend the Shareholder
Loan repayment date to 2 September 2018. The Shareholder Loan includes the Shareholder
Loan, Tranche A provided by AFC the New Loan and Employee Shareholder Loan.
On 18 October 2017, the Company raised a total of £750,000 before expenses through an
oversubscribed placing of 15,000,000 ordinary shares in the Company at a price of 5 pence
per ordinary share.
On 20 October 2017, the Company announced that it had agreed in principle the terms of a
Non-Binding Offer (“NBO”) with China Machinery Engineering Corporation (“CMEC”) and
General Electric South Africa (PTY) Limited (“GE”) (together the “Consortium”) to enter into
exclusive negotiations to develop, construct and operate the Power Project and Mine Project.
The Company formally signed the NBO on 9 November 2017 at a signing ceremony in Beijing.
On 27 December 2017, the Company announced that the JDA conclusion date with CMEC and
GE had been extended to 31 July 2018.
Post balance sheet events
In principle support received from Electricity de Mozambique (“EDM”) and the Ministry of
Mineral Resources and Energy (“MIREME”) for proposed strategic partners, CMEC and GE
announced on 18 April 2018.
The Project integrated financial model (“FM”) updated with proposals for engineering,
procurement, and construction (“EPC”) and operations and maintenance (“O&M”) contracts,
and approved by CMEC and GE for submission to MIREME and EDM in June 2018.
Raised a total of £950,000 before expenses through a placing of 15,200,000 ordinary shares
in the Company at a price of 6.25 pence per ordinary share on 4 May 2018.
On 25 May 2018, as part of the Company’s management incentive scheme, the Company
granted share options in respect of 22,897,522 shares in the Company to its directors,
executive senior management team and contracted personnel representing 8.2 per cent of the
issued share capital of the Company.
On 11 June 2018, the Company announced that the FM and updated tariff proposal had been
accepted by its potential partners for submission to EDM and MIREME.
The Company will post its Annual Report and Accounts for the year ended 31 December 2017 ("2017
Annual Report and Accounts”) to shareholders on 29 June 2018. A copy of the 2017 Annual Report
and Accounts will be available on the Company's website www.ncondezienergy.com.
Enquiries
For further information please visit www.ncondezienergy.com or contact:
Ncondezi Energy:
Hanno Pengilly
+27 71 362 3566
Liberum Capital Limited:
NOMAD & Broker
Neil Elliot / Richard Crawley
+44 (0) 20 3100 2000
Note:
The information contained within this announcement is deemed by the Company to constitute
inside information as stipulated under the Market Abuse Regulation ("MAR"). Upon the
publication of this announcement via Regulatory Information Service ("RIS"), this inside
information is now considered to be in the public domain. If you have any queries on this, then
please contact Hanno Pengilly, Chief Development Officer of the Company (responsible for
arranging release of this announcement) on +27 (0) 71 362 3566.
Ncondezi Energy owns 100% of the Ncondezi Project which is strategically located in the power
generating hub of the country, the Tete Province in northern Mozambique. The Company is developing
an integrated thermal coal mine and power plant in phases of 300MW up to 1,800MW. The first 300MW
phase is targeting domestic consumption in Mozambique using reinforced existing transmission
capacity to meet current demand.
Chairman’s Statement
Dear Shareholder,
The 2017 financial year has seen the identification of new potential strategic partners in CMEC and GE,
who are global leaders in the power sector with specific expertise operating in Mozambique. Successful
capital raisings in October 2017 and May 2018 through the placing of new shares raised £1.7 million
before expenses, putting the Company in a position of financial strength to finalise the JDA process
with its potential partners.
Operations
The Project remains one of the most advanced development coal power projects in the region and, with
the recently updated and approved Financial Model (FM), is well positioned to re-start tariff negotiations
in Mozambique with a more attractive tariff proposal for the Government.
Currently only 25% of Mozambicans have access to electricity and the Government wants to improve
access to 58% by 2023 and 100% by 2030. To achieve this will require significant expansion in
generation capacity, of which coal is expected to play a significant role with 1,250 MW planned from
coal fired projects. Coal is seen as a key factor in reducing the country’s dependence on hydroelectric
power (particularly in the north), where current generation is vulnerable to the extreme weather effects
of climate change.
In May 2017, following over three years of negotiations and ongoing delays in SEP providing funding
for the Power Project, the board of Directors (the “Board”) suspended exclusive discussions with SEP
and engaged with alternative potential partners which had expressed an interest in developing the
Power Project.
In October 2017, in principle terms were agreed between CMEC, GE and Ncondezi. The proposed
terms represent a material opportunity to de-risk the delivery of the Integrated Project. From a technical
perspective the terms propose that the Power Project and Mine Project be treated as an integrated
project, and that the Power Project return to Circulating Fluidized-Bed (“CFB”) boiler technology from
Pulverized Coal (“PC”), where technical work is more advanced. From a commercial perspective,
CMEC and GE are looking to acquire a minimum 60% equity stake in the Integrated Project, be
responsible for the EPC and O&M for the Integrated Project on a build own operate basis and lead
project debt financing in conjunction with Ncondezi for the Integrated Project at Financial Close (“FC”).
The terms are to be finalised in a binding JDA which is subject to CMEC and GE successfully completing
their due diligence and agreeing the terms of the JDA. As part of this process, the Company has
submitted to CMEC and GE a draft JDA and updated the FM based on new EPC and O&M proposals
received from its potential partners in April 2018.
The updated FM has generated positive results indicating Project economics can be maintained with a
more than 10% reduction in the previously agreed tariff envelope. This lower tariff proposal strengthens
the commercial negotiating position of the Project in Mozambique.
In early June 2018, the results of the FM were accepted by CMEC and GE, and the Company has
subsequently prepared an updated tariff proposal to be submitted to MIREME and EDM in early July to
seek in principle support to initiate negotiations for a new power tariff envelope. This represents a key
milestone in confirming the Project economics, re-starting tariff negotiations and completing the JDA
process.
Receipt of this support is being treated as a main priority and is a key factor in finalising the JDA process
which is currently targeted for end of July 2018.
All development work streams for the Ncondezi Project, including FC, are expected to remain on hold
until the JDA is concluded, and are expected to take at least 12 to 18 months to complete once initiated.
Financing
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 note 11 of the financial
statements.
In October 2017, The Company raised £750,000 before expenses through an oversubscribed placing
of 15,000,000 ordinary shares in the Company at a price of 5 pence per ordinary share. This was the
first time the Company had looked to the equity markets for capital since January 2015, and was a good
indicator of growing interest in the Company by new investors as it delivers on its milestones towards
the JDA and FC. This was followed up by a second placing in May 2018, where the Company raised
£950,000 before expenses through placing of 15,200,000 ordinary shares in the Company at a price of
6.25 pence per ordinary share. This second placing represented a 25% premium over the previous
placing and further demonstrated the growing support from new investors for the Company.
On 25 May 2018, the Company granted share options in respect of 22,897,522 shares in the Company
to its directors, executive senior management team and contracted personnel. Of the options granted,
61% are performance related and linked to delivery of specific milestones, 17% are in lieu of director
remuneration and the balance of 22% is in lieu of deferred payments to senior management, ex-
employees and consultants remuneration.
Cost saving initiatives and strict budget control allowed the Company to reduce administrative
expenses, from US$2.4million in 2016 to US$1.1 million in 2017, despite additional unbudgeted third
party consultancy work being carried out to search for new strategic partner.
With the new JDA process underway and the focus on cost control during this time, the Company
regretfully announced that Mr Christiaan Schutte had 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 report directly to and are actively managed by the Board.
A total of US$2.8 million has been drawn down under the Shareholder Loan and the repayment amount
is now US$5.1 million on 2 September 2018 including principal and return. The Directors are exploring
a number of refinancing and extension solutions for the Shareholder Loan ahead of the 2 September
2018 maturity date. The financial statements have been prepared in anticipation of a positive outcome
but it is important to highlight that the new partner negotiations are in their 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
28 June 2018
Operations Review
Ncondezi is focused on the phased development of an integrated coal fired power plant and mine,
commencing with 300MW first phase. The project is located near Tete in northern Mozambique.
Non-Binding Offer
On 20 October 2017, the Company announced that it had agreed in principle terms of a NBO with
CMEC and GE. On 9 November 2017, the Company announced that the NBO had been signed. The
NBO was part of a new partner process which was launched in May 2017.
The NBO sets out the terms, work program and timetable by which the parties will work together to
execute a legally binding JDA by 31 July 2018 or such later date agreed between the parties.
The key terms of the NBO include:
CMEC and GE to acquire a minimum 60% stake in both the Power Project and Mine Project
holding companies which currently hold 100% of each project respectively.
JDA will set out the commercial terms on which the parties will complete the acquisition and
jointly develop and fund the Integrated Project up to and including FC.
The Power Project and the Mine Project will be developed as an integrated project, with CMEC
and GE taking full responsibility for EPC and O&M contracting.
CMEC and GE will take full responsibility for managing the EPC process for the Transmission
Line, which will be constructed on a Build Transfer model, subject to EDM approval.
CMEC and GE to lead project debt financing in conjunction with Ncondezi for both the Power
Project and Mine Project at FC.
Funding ratios to be adjusted should CMEC and GE take an equity stake larger than 60%.
The power plant generation technology will return to CFB boiler technology from PC boiler
technology. This provides a number of advantages to the project including the technical
feasibility work being more advanced on a CFB solution, reduced time required to reach FC
and lower coal costs as CFB fuel requirements are more suitable for Mozambican coal qualities.
Conditions
The terms of the NBO were subject to a number of conditions including:
CMEC and GE completing satisfactory due diligence on the project including development
status, permits, project economics and security package.
CMEC and GE completing satisfactory audit of the historic development costs.
CMEC and GE having exclusivity on the EPC and O&M for the Integrated Project, and
submitting binding offers that support the agreed tariff envelope.
Confirmation of the process to award the Power Concession Agreement and Power Purchase
Agreement from Mozambican Government and EDM respectively.
Execution of a binding JDA.
Compliance with relevant CMEC and GE compliance rules and guidelines.
Compliance with Mozambique and relevant governmental regulations and approvals.
JDA process update
As part of the JDA process, the following milestones have been achieved:
Submission by Ncondezi of the draft JDA for review by CMEC and GE.
Site visit by CMEC and GE to inspect the Ncondezi Project’s proposed development sites.
In principle support received from EDM and MIREME for proposed strategic partners.
Updated EPC and O&M proposals received and reviewed for the Integrated Project
FM updated and accepted for submission to MIREME and EDM by CMEC, GE and the
Company.
Results of Integrated Financial Model
At the end of April 2018, the Company received updated and completed EPC and O&M proposals and
began a process to review and update the FM. The Company completed its review of the FM on 3 May
2018 and submitted it to its potential partners for review and acceptance. The Company’s potential
partners have now completed their review of the FM and approved its submission to EDM and MIREME.
The updated FM has been completed targeting a revised tariff that the Company and its potential
partners believe will be attractive to EDM. Meetings with EDM in January 2018 indicated that the
historical tariff agreed was no longer competitive given downward pressure in regional tariff rates and
would need to be revised down. Based on benchmarking of new and competing projects in Mozambique
and the southern African region, the Company and its potential partners targeted a new tariff lower than
the previously agreed tariff envelope with EDM.
The specific tariff rate and target returns in the updated FM are commercially sensitive and still to be
negotiated with EDM. The FM is based on the Project generating a gross 300MW at a target tariff rate
in excess of 10% lower than the tariff envelope previously agreed with EDM, paid on an annual basis
for 25 years.
With the lower tariff target, it was essential that improvements were identified to protect the Project
equity IRR agreed in the previous tariff envelope. This was achieved primarily through the choice of
technology (moving from Pulverized Coal to Circulating Fluidized-Bed boiler technology), integration of
the power and mine projects and optimisation of common infrastructure capex. Of key importance was
the ability to link boiler design to the most cost effective coal product produced from the mine. This
allows the Project to minimise coal costs to the power plant which is achieved through integration of a
dedicated coal supply. Ncondezi is the only power project in Mozambique with a dedicated coal fuel
source for in country power generation.
In addition to the lower proposed tariff envelope, the Project is also expected to significantly benefit
Mozambique through tax receipts and royalties over the life of the Project which are estimated to be
between US$1.1 to 1.4 billion. This is in addition to local skills development and thousands of jobs
during construction and hundreds of jobs during operation, as well as the economic multiplier effect of
providing stable cost effective power to the north of Mozambique.
The FM results are not final and subject to change based on a number of factors including the
finalisation of tariff negotiations with EDM, debt terms with commercial banks, technical and operating
assumptions and EPC and O&M contracts.
Next steps
The Company prepared an updated tariff proposal for submission to EDM and MIREME in early July
2018 and will be seeking in principle support to start negotiations on a new power tariff envelope for the
Power Project. Receipt of this support is being treated as a main priority and is a key factor in finalising
the JDA process which is currently targeted to be completed by the end of July 2018.
Background to Non-Binding Offer
The NBO was signed as part of a new partner search launched in June 2017, which focused on
identifying a partner capable of providing a leadership role in the financing, construction and operation
of the Power Project, with a credible track record in both the global and African power sectors.
CMEC is a large Chinese integrated company with international reach and engineering contracting as
its core business. CMEC’s project experience, technical ability, and financing capacity, has allowed it
to undertake projects in more than 150 countries in the fields of international contracting and general
international trade. CMEC’s contracting business involves a broad range of areas such as electric power
& energy, transportation, electronic communication, water supply & treatment, housing & architecture,
manufacturing and processing plant, environmental protection, mining and resource prospecting. As a
world-renowned engineering contractor, CMEC has been ranked among China’s top 10 contractors by
business turnover from overseas contracted projects by the Chinese Ministry of Commerce for many
consecutive years.
GE is a world energy leader that provides technology, solutions and services across the entire energy
value chain from the point of generation to consumption. GE’s Power business is transforming the
electricity industry by uniting all the resources and scale of the world’s first Digital Industrial Company.
GE’s customers operate in more than 150 countries, and together power more than a third of the world
to illuminate cities, build economies and connect the world.
CMEC and GE have jointly worked on numerous projects across the world and successfully completed
a number of power projects in the sub Saharan African region. Most relevant to Ncondezi, the two
parties are currently working together on the Thar Block II Power Plant project in Pakistan, which is a
660MW integrated coal fired power plant and mine which utilises two 330MW CFB boilers and due to
be commissioned in 2019.
Experience in Mozambique
Both CMEC and GE have successful track records operating in Mozambique.
CMEC has been involved in supplying and installing transmission infrastructure to EDM, improving
access to electricity for Mozambicans and new industry development. In 2015, CMEC completed a
110kV transmission line project in Nacala City in northern Mozambique, and in 2017, CMEC signed an
EPC contract for a 400kV transmission line project in the same location. CMEC is also an EPC
contractor for the Moatize to Macuse railway and port project designed to provide a new coal transport
corridor from the Tete region.
GE has been present in Mozambique for over four years with offices in Maputo and over 44 employees.
GE is active in multiple sectors including the transport, health care, oil and gas and energy sectors. To
date, GE has supplied over 120 locomotives, installed 10 4.4MW power units for the Kuvaninga gas
IPP project and is to provide technology solutions and services to ENI’s US$7 billion Coral South LNG
project in the Rovuma Basin. In addition, GE is working on initiatives to improve access and quality of
basic and diagnostic services of rural healthcare and reduce infant mortality rates. This work is run in
parallel to GE’s local skills development programs which include scholarships, funding of educational
facilities and the provision of local courses.
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. This
process led to the signing of a NBO with CMEC and GE in November 2017.
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 bridge funding for its corporate
overheads while it completed the SEP Investment Conditions to make the JDA effective.
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 11 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 due on 2
September 2017. On 2 September 2017, the Company entered into a formal agreement to extend the
total Shareholder Loan repayment date to 2 September 2018.
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 and increased to 2.0x if repayment was post 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 June 2017, the Company entered into an amendment (“New Loan”) to the original Shareholder
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 a percentage 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.
At 5 July 2017, a total of US$2,774,545 had been drawn down under the total Shareholder Loan, this
total includes the US$232,000 deferred salaries. The repayment amount will be US$5,054,591 which
is due on 2 September 2018.
Development Program to Financial Close
The Power Project and Mine Project are at an advanced level of development and will be advanced
once the JDA has been executed and the Company focusses on achieving Financial Close. The
Company expects Financial Close to take between 12 and 18 months post JDA execution.
Financial Review
Results from operations
The Group made a loss after tax for the year of US$1.7 million compared to a loss of US$3.0 million for
the previous financial year. The basic loss per share for the year was 0.7 cents (2016: 1.2 cents).
Administrative expenses totalled US$1.1 million (2016: US$2.4 million). Administrative expenses refer
principally to staff costs, professional fees and travel costs and underlying administrative expenses,
which have reduced due to cost cutting measures.
The loss after tax includes a US$0.64 million (2016: US$0.65 million) finance cost associated with the
amortisation of the redemption premiums on the Shareholder Loan. This comprises US$2.7 million of
finance costs arising from the original and revised amortisation periods as the loans were rescheduled
and gains on rescheduling of US$2.1 million.
Financial Position
The Group’s statement of financial position at 31 December 2017 and comparatives at 31 December
2016 are summarised below:
Non-current assets
Current assets
Non-current assets held for sale
Total assets
Current liabilities
Total liabilities
Net assets
2017
US$’000
18,313
697
-
19,010
4,620
4,620
14,390
2016
US$’000
8,995
242
9,389
18,626
3,374
3,374
15,252
The movement in non-current assets of US$9.3 million was largely due to reclassification of US$9.4
million power related assets from non-current asset held for sale to Property, Plant and Equipment. This
reclassification arose as the transaction with SEP was terminated in the year. Given the recently signed
NBO with CMEC and GE is still in early stages with significant conditions required to be met for
completion, the IFRS 5 criteria are not considered to be met and hence the Power assets have been
reclassified as PPE.
Capitalised additions totalled US$0.05 million (2016: US$0.2 million) 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$0.9 million (2016: US$1.9 million).
The cash outflow principally represented administrative costs for the year with limited working capital
movements.
Net cash from investing activities was US$0.08 million (2016: US$(0.3) million), mainly related to
disposal of plant and equipment from Mozambican subsidiary and development activities incurred on
the Power Project.
Net cash from financing activities was US$1.3 million (2016: US$1.9 million) mainly related to the short
term loans described above and share issues in 2017.
The resulting year end cash and cash equivalents held totalled US$0.6 million (2016: US$0.2 million).
As at 18 June 2018 the Company held cash and cash equivalents totalling US$1.34 million.
Outlook
As at 18 June 2018 the Group had cash reserves of approximately US$1.34 million. Based upon
projections the current cash reserves will cover non project corporate costs until the beginning of July
2019, subject to the Shareholder Loan being extended or restructured. The Shareholder Loan matures
on 2 September 2018, and the Company is currently evaluating options to extend or restructure the
loan together with proposals received from a number of parties for refinancing of the loans.
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 US$5.1 million Shareholder Loan (principal and
redemption premium) in equity by their maturity date, of which US$0.91 million of the principal was lent
by Directors. In addition, further funding will be required by the end of June 2019 to meet operating
cash flows under current forecasts or in the event of accelerated project advancement. The Directors
are exploring a number of funding and working capital solutions beyond the 2 September 2018 maturity
of the Shareholder Loan. The financial statements have been prepared on a going concern basis in
anticipation of a positive outcome but it is important to highlight that there are no binding agreements
in place and there can be no certainty that the Shareholder Loan will be restructured, settled in equity
or refinanced and that additional funding will be raised.
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.
Environmental and Social Responsibility
Ncondezi Social Development Programme
Ncondezi’s Social Development Programme has been put on hold pending positive development being
made on the JDA.
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 more remote 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.
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 / 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 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$12 billion. Mr Sachdeva is also
an advisor to the World Bank, Energy Sector for Central Asia, South Asia and Africa on a variety of
projects.
Directors’ Report
The Directors present their Annual Report and the audited group financial statements headed by
Ncondezi Energy Limited for the year ended 31 December 2017.
Principal activities
The principal activity of the Group is the development of an integrated 300MW power plant and mine to
produce and supply electricity to the Mozambican domestic market.
Business review and future developments
Details of the Group’s business and expected future developments are set out in the Chairman’s
Statement, the Operations Review and in the Financial Review.
Principal risks and uncertainties
The Group operates in an uncertain environment that may result in increased risk, cost pressures and
schedule delays. The key risk factors that face the Group and their mitigation are set out below.
Additionally, the Group’s multi-national operations expose it to a variety of financial risks such as market
risk, foreign currency exchange rates and interest rates, liquidity risk, and credit risk. These are
considered further in notes 1 and 17.
Key performance indicators
The key performance indicators of the Group are as follows:
Mine exploration expenditure (US$’000)
Power development expenditure (US$’000)
Share price at 31 December (pence)
Cash at bank at 31 December (US$’000)
2017
3
48
3.63
614
2016
2015
13
249
5.3
152
21
939
3.6
402
Results and dividends
The results of the Group for the year ended 31 December 2017 are set out below.
The Directors do not recommend payment of a dividend for the year (2016: nil). The loss will be
transferred to reserves.
Events after the reporting date
See note 20 for further information.
Financial instruments
Details of the use of financial instruments by the Company, its subsidiary undertakings and financial
risk management are contained in note 17 of the financial statements.
Going concern
As at 18 June 2018 the Group had cash reserves of approximately US$1.34 million. The current cash
reserves are sufficient to fund ongoing costs until beginning of July 2019, subject to the Shareholder
Loan being extended or restructured. Details on going concern are contained in note 1 of the financial
statements.
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 2017
16,468,087
-
-
-
-
Ordinary Shares held
31 December 2016
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 which holds 20,754,161 ordinary shares representing 7.82% of the
issued Ordinary Shares as at 31.12. 2017 and 7.36% as at 29.06.18.
3. Aman Sachdeva is AFC’s nominated director. AFC holds 54,988,520 ordinary shares representing 20.73% of the
issued Ordinary Shares as at 31.12.17 and 19.51% as at 29.06.18.
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, Christiaan Schutte and Estevão Pale 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 set out below.
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
28 June 2018
Risk Factors
Risk(s)
Potential Impact(s)
Mitigation Measure(s)
Financing risk
The Group will need to restructure its
existing loans by 2 September 2018 and
secure investment from strategic investors
and/or investment from co-developers to
provide sufficient working capital for the next
12 months. 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 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 Project,
to progress
the Group will also need
conclude some of its on-going negotiations
on key project agreements, including the
Power Concession Agreement (“PCA”) and
the Power Purchase Agreement (“PPA”).
Failure or delay in doing so may lead to
failure of the 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 project. There is no guarantee that, in
such circumstances, the Group will be able
to secure a credit worthy off-taker for the full
output with the plant operating at load
factors in excess of 80 per cent.
The Project is at an advanced level of
development with the majority of technical
work completed and advanced form PPA
and PCA documents being agreed.
and
partners
strategic
Ncondezi has signed a NBO with new
potential
is
negotiating a JDA which will 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 there is no certainty that the
JDA will occur or additional funding will be
raised.
The Company is in discussions with the
existing loan holders regarding restructuring
of the loans, if necessary, together with
exploring funding solutions to refinance the
loans.
of
securing
The Company intends to engage with a
range of potential financing partners with the
additional
objective
development capital for the costs that will
not be covered by a new partner, including
select corporate overheads. Since October
2017, Ncondezi has had a successful track
record in raising additional capital with £1.7
million before expenses raised to cover
development costs during the year and
since year end.
The Directors’ will monitor the monthly cash
burn rate to ensure the Group operates
within its cash resources for as long as
possible.
its willingness
The Company has substantially advanced
the PPA and PCA
through previous
negotiations with EDM and Ministry of
Mineral Resources and Energy. EDM has
to continue
indicated
negotiations once the Company introduces
an acceptable strategic partner and a new
tariff proposal. Subsequent to signing the
NBO, the Company received in principle
support for its new partners and is planning
to submit an updated tariff proposal in early
July 2018 which is more attractive that the
previously agreed tariff envelope.
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
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.
has responded to a Request for Information
(‘RFI’) from the South African government
regarding potential cross border power
supply.
The 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.
Additionally, being a thermal coal power
station project, the Group can implement
commissioning of the power plant faster
than competing hydroelectric projects which
to
typically
commission.
take 2-3
longer
years
Estimating
mineral reserve
and resource
The estimation of mineral reserves and
mineral resources is a subjective process
and the accuracy of reserve and resource
estimates is a function of the quantity and
quality of available data and
the
assumptions used and judgements made in
interpreting engineering and geological
information.
There
in any
is significant uncertainty
reserve or resource estimate and the actual
deposits encountered and the economic
viability of mining a deposit may differ
materially from the Group's estimates.
The exploration of mineral
is
speculative in nature and is frequently
unsuccessful. The Group may therefore be
unable
to successfully discover and/or
exploit reserves.
rights
Resources
Sign-off of resources by registered
Competent Person (“CP”).
Reporting resources in accordance
with the JORC code
Classification of resources into a high
level of confidence category
Conduct detailed geological modelling
utilisation
accredited
The
laboratories for the analyses of coal
samples
of
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.
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.
Further coal quality analysis will be
conducted and supplied to the boiler
supplier for finalisation of boiler design.
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.
A Transmission Agreement Heads of Terms
the
has been signed with EDM and
Mozambican Government to ensure that
available
infrastructure
allocation is secured early and that proper
evacuation infrastructure and capacities are
available to the Project in line with the
Group’s strategy.
transmission
The Group will explore and develop all
transmission options
potential
future
Environmental
and other
regulatory
requirements
expense,
additional
Existing and possible future environmental
legislation, regulations and actions could
cause
capital
expenditures, restrictions and delays in the
activities of the Group, the extent of which
cannot be predicted. Before 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.
Foreign Country
risk
The Group’s exploration licences and project
faces
in Mozambique. The Group
are
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 Project at Financial Close.
in
including new
Mozambique as well as other countries
including Malawi and Zambia.
transmission capacity
The Group adopts standards of international
best practice in environmental management
and community engagement in addition to
satisfying Mozambican
focussing on
environmental
and
requirements in all stages of development.
regulations
Environmental Management and Social
Development Plans have been advanced
and are being
to satisfy
national and international best practice.
implemented
The Mine and Power Plant Environmental
Social Impact Assessment (ESIA) have
been conducted by independent,
internationally recognised consultants, and
have approved by the Mozambican
Government.
The Mozambican Government has been
fosters a
stable
beneficial climate
towards companies
exploring for resources.
for many years and
The Mozambican Government is working
with donors and the IMF to restore aid to the
country, and an audit report
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.
into
Corporate Governance Statement
The Company’s shares are admitted to trading on AIM and so it is not 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 the 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
Statement of the Directors’ Responsibilities. 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 2017, the Board comprised a Non-Executive Chairman, (Michael Haworth), and four
further Non-Executive Directors (Aman Sachdeva, Christiaan Schutte, Estevão Pale, and Jacek
Glowacki).
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 2017 Estevão Pale was appointed as second member of the remuneration
committee together with Michael Haworth.
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.
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 2017, the Audit Committee members were Jacek Glowacki (Committee Chairman) and
Christiaan Schutte.
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) and Estevão Pale.
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.
Internal financial control
The Board is responsible for establishing and maintaining the Group’s system of internal financial
controls. Internal financial control systems are designed to meet the particular needs of the Group and
the risk to which it is exposed, and by its very nature can provide reasonable, but not absolute,
assurance against material misstatement or loss.
The Directors are conscious of the need to keep effective internal financial control, particularly in view of
the cash resources of the Group. Due to the relatively small size of the Group’s operations, the Executive
Director and senior management are very closely involved in the day-to-day running of the business and
as such have less need for a detailed formal system of internal financial control. The Directors have
reviewed the effectiveness of the procedures presently in place and consider that they are still appropriate
to the nature and scale of the operations of the Group.
Continuous disclosure and shareholder communication
The Board is committed to the promotion of investor confidence by ensuring that trading in the
Company’s securities takes place in an efficient, competitive and informed market. The Company has
procedures in place to ensure that all price sensitive information is identified, reviewed by management
and disclosed to the market through a Regulatory Information Service in a timely manner.
All information disclosed through a Regulatory Information Service is posted on the Company’s website
http://www.ncondezienergy.com. Shareholders are forwarded documents relating to each Annual
General Meeting, being the Annual Report, Notice of Meeting and Explanatory Memorandum and Proxy
Form, and are invited to attend these meetings.
Managing business risk
The Board constantly monitors the operational and financial aspects of the Company’s activities and is
responsible for the implementation and on-going review of business risks that could affect the Company.
Duties in relation to risk management that are conducted by the Directors include but are not limited to:
Initiate action to prevent or reduce the adverse effects of risk;
Identify and record any problems relating to the management of risk;
Initiate, recommend or provide solutions through designated channels;
Control further treatment of risks until the level of risk becomes acceptable;
Verify the implementation of solutions;
Communicate and consult internally and externally as appropriate; and
Inform investors of material changes to the Company’s risk profile.
Ongoing review of the overall risk management programme (inclusive of the review of adequacy of
treatment plans) is conducted by external parties where appropriate. The Board ensures that
recommendations made by the external parties are investigated and, where considered necessary,
appropriate action is taken to ensure that the Company has an appropriate internal control environment
in place to manage the key risks identified.
Remuneration Committee Report
At the year ended 31 December 2017, the Remuneration Committee (the “Committee”) comprised
Michael Haworth and Estevão Pale.
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 2017 the following
awards to Directors remained in place:
Non-Executives
Date of grant
Number
granted
Exercise
price
Estevão Pale
5 May 2015
75,000
17.25p
Christiaan Schutte
5 May 2015
75,000
17.25p
Expiry
10 years from
vesting
10 years from
vesting
Grant of Share Awards
During 2017 no share options were issued to the Company’s executive senior management and
contracted personnel (2016: nil).
Directors’ Options
During 2017 no share options were issued to the Company’s Directors (2016: 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
and Christiaan Schutte and Estevao Pale since 1 April 2017. £66,000 of the current year fees was
converted into the existing Shareholder loan.
Awards post year end
On 25 May 2018, as part of the Company’s management incentive scheme, the Company granted share
options in respect of 22,897,522 shares in the Company to its directors, executive senior management
team and contracted personnel representing 8.2 per cent of the issued share capital of the Company.
Directors related share options amounts to 8,987,542 of the total.
Directors’ remuneration
The following table sets out an analysis of the pre-tax remuneration for the year ended 31 December
2017 for individual directors who held office in the Company during the period.
Director
Michael Haworth
Christiaan Schutte
Estevão Pale
Jacek Glowacki
Aman Sachdeva
Total
Base
Salary/fee
US$’000
Note
Benefits
US$’000
Share
based
payments
US$’000
Total
2017
US$’000
Total
2016
US$’000
-
60
12
-
-
72
-
-
-
-
-
-
-
-
-
-
-
-
-
60
12
-
-
72
-
324
61
-
-
385
£66,000 of the current year fees was converted into the existing Shareholder loan.
On behalf of the Board
Jacek Glowacki
Non-Executive Director
28 June 2018
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 AIM.
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.
Independent audit report to the members of Ncondezi Energy Limited
Opinion
We have audited the financial statements of Ncondezi Energy Limited (the ‘parent company’) and its
subsidiaries (the ‘group’) for the year ended 31 December 2017 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 notes to the financial statements, including a summary of significant
accounting policies.
The financial reporting framework that has been applied in the preparation of the financial statements
is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European
Union.
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 2017 and of its financial performance and its cash flows for
the year ended; and
have been prepared in accordance with IFRS as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the Auditor’s
responsibilities for the audit of the financial statements section of our report. We are independent of the
group in accordance with the ethical requirements that are relevant to our audit of the financial
statements in the UK, including the FRC’s Ethical Standard as applied to listed entities, and we have
fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Material uncertainty relating to going concern
We draw attention to Note 1 to the financial statements concerning the group’s ability to continue as a
going concern which states that the group will need to extend, refinance or settle existing loans by their
maturity date of 2 September 2018 and raise further funds to enable the group to meet its liabilities as
they fall due for a period of at least 12 months form the date of signing these financial statements.
The matters explained in note 1 indicate that a material uncertainty exists that may cast significant doubt
on the group’s ability to continue as a going concern. The financial statements do not include the
adjustments that would result if the group were unable to continue as a going concern. Our opinion is
not modified in respect of this matter.
Given the conditions and uncertainties noted above we considered going concern to be a Key Audit
Matter.
We performed the following procedures in respect of this key audit matter:
We obtained management’s cash flow forecasts to 30 June 2019 and critically assessed the
key assumptions. In doing so, we compared the operating cash flows to historical operating
expenditure and reviewed the group’s licences, board minutes and market announcements for
indications of additional cash requirements.
We reviewed the terms of the existing loans and recalculated the repayment on maturity on 2
September 2018.
We considered management’s judgment that they had a reasonable expectation of refinancing,
extending or settling the loans in equity and securing additional financing to meet working
capital requirements. In doing so, we made specific inquiries of the Board, reviewed term sheets
for prospective funding being negotiated by the group and obtained written representations from
the Board.
Our assessment also included making enquiries of management of the future financing plans
and options and evaluating the adequacy of the disclosure made in the financial statements in
respect of going concern to confirm that they are consistent with the relevant accounting
framework and set out the material risks and uncertainties.
We found the key underlying assumptions in the forecasts to be within an acceptable range and the
disclosures in the financial statements in respect of going concern to be appropriate.
Key audit matters
In addition to the matter described in the material uncertainty related to going concern section, key audit
matters are those matters that, in our professional judgment, were of most significance in our audit of
the financial statements of the current period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters were addressed in the context of our audit of the financial statements
as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these
matters.
How we addressed the matter
Matter identified
Carrying value of the group’s mining and power assets and appropriateness of disclosures of
key judgments and estimates in the financial statements
The group’s mining and power assets represent
its most significant assets and total US$17
million as at 31 December 2017. The mining
assets are held at their recoverable value of
US$7.7 million which is below cost following
previous impairment.
We assessed the appropriateness management’s
conclusion that the mining and power assets
represented separate cash generating units,
notwithstanding the planned integrated project
development plan, against the relevant accounting
framework.
The Board are required to assess whether they
consider there are any indications that the
group’s mining and power assets may be
impaired as at 31 December 2017.
Management
impairment
performed
assessments for the mining and power assets
and concluded that no impairment of the power
assets was required and
further
impairment or reversal of impairment on the
mining assets was required as detailed in note
2 and 6 which sets out the key judgments and
estimates
impairment
assessment.
involved
that no
the
in
The carrying value of mining and power assets
represented a significant risk for our
audit given the significant judgements required
in the impairment assessment, together with
the appropriateness of associated disclosures.
We obtained the power asset financial models,
prepared by an external consultant, and confirmed
that the models demonstrated significant headroom
over the carrying value of the power assets. In
respect of key inputs we confirmed that the project
costs were consistent with updated quotes and
supporting information, compared the discount rate
to relevant
third party rates and performed
sensitivity analysis. We determined that the project
development is dependent on the electricity tariff
which remains subject to agreement with the
Government. Management confirmed that the tariff
rate represented their best estimate of the rate
required by the Government based on verbal
discussions they had held and we obtained specific
written representation to that effect. We reviewed
market reports and internal correspondence to
confirm that they were consistent with the tariff
used in the model.
We reviewed the agreements with the project
partners and obtained supporting documents
demonstrating progress against the conditions
precedent and the continued feasibility of the
project at this time. We obtained correspondence
demonstrating the review and approval of the
financial models and key assumptions by the
project partners.
In respect of the mining assets we obtained the Life
of Mine Plan and obtained evidence supporting key
inputs such as confirming the coal reserves to the
Competent Person’s Report, agreeing the coal
price to the associated coal costs in the power
Accounting for debt instruments
As detailed in notes 2 and 11, the group holds
a number of loan instruments which are
repayable inclusive of redemption premiums
and which were extended during the year.
Where an amendment to a loan agreement
results in substantially different terms from the
original agreement, the loan is derecognised
and new loan recognised initially at fair value
resulting in gains or losses.
for
the
instruments
is
The accounting
considered complex and required management
to apply judgement in the accounting treatment
of gains arising on modification of the loans,
together with the determination of the effective
interest rate applied for the amended loans in
order to arrive at a fair value.
models and confirming the costs to quotations. We
found the mine valuation to be highly sensitive to
changes in discount rate and considered whether
the discount rate was in an acceptable range given
the status of the project, risks and uncertainties.
We reviewed the disclosures in notes 2 and 6
against the requirements of the relevant accounting
framework
they
appropriately reflected the key judgments and
estimates.
considered whether
and
the
reviewed
We
loan agreements and
amendments to those agreements to assess the
key terms. We verified amounts drawn down to
bank and deferred salary/fee arrangements.
We assessed the accounting treatment adopted by
management for the loan modifications against the
relevant accounting requirements. In doing so, we
confirmed that the amendments represented a
those
significant modification of
standards. We
the gain on
recalculated
modification based on the terms of the agreements
and determined whether the discount rate applied
in the calculations was in an acceptable range
based on the terms of the original loans and the
group’s financial position.
terms under
in
to
the
the gain
We considered whether management’s recognition
income statement was
of
the gains being
appropriate, as opposed
considered in whole or in part a capital contribution
with loan holders acting in their capacity as
shareholders.
determining whether
management’s treatment was appropriate we made
inquiries of management as to the discussions at
the time, reviewed the shareholding levels of the
loan holders and considered relevant facts and
circumstances around the transactions, including
the group financial position.
In
We reviewed the calculation of the amortised cost
of the loans before and after modification and
assessed the appropriateness of the effective
interest rate used.
We reviewed the disclosures in notes 2 and 11
against the requirements of the relevant accounting
they
framework
appropriately reflected the key judgments and
estimates.
considered whether
and
Our application of materiality
The materiality for the group financial statements as a whole was set at US$0.28 million (2016: US$0.37
million). This was based on 1.5% (2016: 2.0%) of total assets which we consider to be an appropriate
benchmark due to the focus of stakeholders being the assets of the group.
Whilst materiality for the financial statements as a whole was US$0.28 million (2016: US$0.37million),
the significant components of the group were audited to a lower materiality of US$0.1millon to
US$0.17million (2016: US$0.12 million to US$0.23million).
Performance materiality was set at US$0.20million (2016: US$0.26million) which represents 70% of the
above materiality levels.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in
excess of US$6,000 (2016: US$7,000), which was set at 2% of materiality, as well as differences below
that threshold that, in our view, warranted reporting on qualitative grounds. We evaluated any
uncorrected misstatements against both quantitative measures of materiality discussed above and in
light of other relevant qualitative considerations when forming our opinion.
We apply the concept of materiality both in planning and performing our audit, and in evaluating the
effect of misstatements. We consider materiality to be the magnitude by which misstatements, including
omissions, could influence the economic decisions of reasonable users that are taken on the basis of
the financial statements. Importantly, misstatements below these levels will not necessarily be evaluated
as immaterial as we also take account of the nature of identified misstatements, and the particular
circumstances of their occurrence, when evaluating their effect on the financial statements as a whole.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the group and its environment, as well as
assessing the risks of material misstatement in the financial statements at group level.
In approaching the audit, we considered how the group is organised and managed. We completed a full
scope audit on the group’s financial information and the components we deemed significant. The group
comprises seven components of which we identified two to be significant and performed a full scope
audit on these components. The non-significant components were subject to analytical review
procedures.
Other information
The directors are responsible for the other information. The other information comprises the information
included in the annual report, other than the financial statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information
and, in doing so, consider whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If
we identify such material inconsistencies or apparent material misstatements, we are required to
determine whether there is a material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we have performed, we conclude that there
is a material misstatement of this other information, we are required to report that fact. We have nothing
to report in this regard.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on the Statement of Director’s
Responsibilities, the directors are responsible for the preparation of the financial statements and for
being satisfied that they give a true and fair view, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the
parent company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the directors either intend to
liquidate the group or the parent company or to cease operations, or have no realistic alternative but to
do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the
Financial Reporting Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with our engagement
letter dated 1 June 2018. Our audit work has been undertaken so that we might state to the company’s
members those matters we are required to state to them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than
the company and the company’s members as a body, for our audit work, for this report, or for the
opinions we have formed.
BDO LLP
Chartered Accountants
55 Baker Street
London
W1U 7EU
United Kingdom
28 June 2018
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
Consolidated statement of profit or loss
for the year ended 31 December 2017
Other administrative expenses
Total administrative expenses and loss
from operations
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
11
4
5
2017
2016
US$’000
US$’000
(1,051)
(2,356)
(1,051)
(644)
(1,695)
-
(2,356)
(648)
(3,004)
58
(1,695)
(2,946)
(0.7)
(1.2)
Consolidated statement of other comprehensive income
for the year ended 31 December 2017
Loss after taxation
Other comprehensive income:
Exchange differences on translating foreign
operations*
Total comprehensive loss for the year
attributable to equity holders of the parent
company
2017
US$’000
2016
US$’000
(1,695)
(2,946)
6
(10)
(1,689)
(2,956)
*Items that may be reclassified to profit or loss subject to certain future events.
Consolidated statement of financial position
as at 31 December 2017
Note
2017
US$’000
2016
US$’000
Assets
Non-current assets
Property, plant and equipment
Total non-current assets
Current assets
Inventory
Trade and other receivables
Cash and cash equivalents
Total current assets
Non-current assets held for sale (diluted
interest in relation to SEP transaction)
Total assets
Liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Derivative financial liability
Total current liabilities
Total liabilities
Capital and reserves attributable to
shareholders
Share capital
Foreign currency translation reserve
Accumulated losses
Total capital and reserves
Total equity and liabilities
6
8
9
6
10
11
17
12
18,313
18,313
-
83
614
697
-
8,995
8,995
2
88
152
242
9,389
19,010
18,626
1,018
3,495
107
4,620
4,620
1,205
2,169
-
3,374
3,374
87,384
-
(72,994)
14,390
19,010
86,557
(6)
(71,299)
15,252
18,626
The financial statements were approved and authorised for issue by the Board of Directors on 28 June
2018 and were signed on its behalf by:
Jacek Glowacki
Non-Executive Director
The notes to the consolidated financial statements form part of these financial statements.
Consolidated statement of changes in equity
for the year ended at 31 December 2017
At 1 January 2017
Loss for the year
Other comprehensive loss for the year
Total comprehensive loss for the year
Issue of shares
Costs associated with issue of shares
Equity settled share-based payments
At 31 December 2017
At 1 January 2016
Loss for the year
Other comprehensive income for the year
Total comprehensive loss for the year
Issue of shares
Costs associated with issue of shares
Equity settled share-based payments
At 31 December 2016
Foreign
Currency
Translation
reserve
US$'000
(6)
6
6
-
-
-
-
Share
capital
US$'000
86,557
-
-
-
987
(160)
-
87,384
Accumulat
ed Losses
US$'000
(71,299)
(1,695)
-
(1,695)
-
-
-
(72,994)
Total
US$'000
15,252
(1,695)
6
(1,689)
987
(160)
-
14,390
Share
capital
US$'000
86,557
-
-
-
-
-
-
86,557
Foreign
Currency
Translation
reserve
US$'000
4
-
(10)
(10)
-
-
-
(6)
Accumulat
ed Losses
US$'000
(68,353)
(2,946)
-
(2,946)
-
-
-
(71,299)
Total
US$'000
18,208
(2,946)
(10)
(2,956)
-
-
-
15,252
The notes to the consolidated financial statements form part of these financial statements.
Consolidated statement of cash flows
for the year ended at 31 December 2017
Cash flow from operating activities
Loss before taxation
Adjustments for:
Finance expense
Unrealised foreign exchange movements
(Gain)/loss on disposal of property plant and equipment
Deferred payroll costs capitalised to Shareholder Loan
Depreciation and amortisation
Net cash flow from operating activities before
changes in working capital
Decrease in inventory
Increase in payables
Decrease in receivables
Net cash flow from operating activities before tax
Income taxes refunded
Net cash flow from operating activities after tax
Investing activities
Sales of property plant and equipment
Power development costs capitalised
Mine development costs capitalised
Net cash flow from investing activities
Financing activities
Issue of ordinary shares
Cost of share issue
Bank charges
Short term loan
Net cash flow from financing activities
Net increase/(decrease) in cash and cash
equivalents in the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
2017
US$’000
2016
US$’000
(1,695)
(3,004)
644
3
(89)
132
78
(927)
2
13
5
(907)
-
(907)
133
(48)
(3)
82
987
(50)
-
350
1,287
462
152
614
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
The notes to the consolidated financial statements form part of these financial statements.
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 Ground Floor, Coastal Building, Wickham's Cay II, PO Box 2136,
Road Town, Carrot Bay, VG1130 Tortola, British Virgin Islands.
Going concern
The Directors have reviewed future cash forecasts for a period of at least the next 12 months. As at 18
June 2018 the Group had cash reserves of approximately US$1.34 million. Based upon projections the
current cash reserves will cover non project corporate costs until the beginning of July 2019, subject to
the Shareholder Loan being extended or restructured. The Shareholder Loan matures on 2 September
2018, and the Company is currently evaluating options to extend or restructure the loan together with
proposals with a number of parties for refinancing of the loans.
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 US$5.1 million Shareholder Loan (principal and
redemption premium) in equity by their maturity date, of which US$0.91 million of the principal was lent
by Directors. In addition, further funding will be required by the end of June 2019 to meet operating
cash flows under current forecasts or in the event of accelerated project advancement. The Directors
are exploring a number of funding and working capital solutions beyond the 2 September 2018 maturity
of the Shareholder Loan. The financial statements have been prepared on a going concern basis in
anticipation of a positive outcome but it is important to highlight that there are no binding agreements in
place and there can be no certainty that the Shareholder Loan will be restructured, settled in equity or
refinanced and that additional funding will be raised.
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.
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.
Standards in issue but not yet effective
The following standards, amendments and interpretations which have been recently issued or revised
and are mandatory for the Group’s accounting periods beginning on or after 1 January 2018 or later
periods have not been adopted early:
Standard
IFRS 9
IFRS 15
IFRS 16
IFRS 2
Description
Financial Instruments
Revenue from Contracts with Customers
Leases
Amendment – Classification and
measurement of share based payment
transactions
Effective date
1 Jan 2018
1 Jan 2018
1 Jan 2019
1 Jan 2018
The only standard which is anticipated to be significant or relevant to the Group is IFRS 9 “Financial
Instruments”. Both IFRS 15 and IFRS 16 are not expected to have a material impact on the Group
based on its current operations.
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: amortised 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. The level of credit
risk that the Group is exposed to is not expected to give rise to material allowances within this new
model. The Group is in the process of completing their assessment of the classification and
measurement of the Group’s existing financial assets and liabilities under the requirements of IFRS 9
and do not anticipate any material impact to the financial statements upon adoption of this standard.
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 are not exercised the previously recognised share
based payment charge is not reversed.
Property, plant and equipment
Property, plant and equipment are stated at cost on acquisition less depreciation. Depreciation is
provided on a straight-line basis at rates calculated to write off the cost less the estimated residual value
of each asset over its expected useful economic life. The residual value is the estimated amount that
would currently be obtained from disposal of the asset if the asset were already of the age and in the
condition expected at the end of its useful life.
The annual rate of depreciation for each class of depreciable asset is:
Plant and equipment
Other
Buildings
25%
20%-33%
10%
The carrying value of property plant and equipment is assessed annually and any impairment is charged
to the profit or loss.
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 an
administrative expenses but not general overheads. Power project assets are not depreciated until the
asset is ready and available for use.
Exploration and evaluation assets
Exploration and evaluation assets include all costs associated with exploring and evaluating prospects
within licence areas, including the initial acquisition of the licence are capitalised on a project-by-project
basis. Costs incurred include appropriate technical and administrative expenses but not general
overheads. Where a licence is relinquished, a project is abandoned, or is considered to be of no further
commercial value to the Group, the related costs will be written off.
The recoverability of exploration and evaluation assets is dependent upon the discovery of economically
recoverable reserves, the ability of the Group to obtain necessary financing to complete the development
of reserves and future profitable production or proceeds from the disposition of recoverable reserves.
Mining assets
When the technical feasibility of the exploration project is determined, mining licence concession is
obtained and a decision is made to proceed to development stage the related exploration and evaluation
assets are assessed for potential impairment and then transferred to non-current mining assets and
included within property, plant and equipment.
Mining properties are depleted over the estimated life of the reserves on a ‘unit of production’ basis.
Commercial reserves are proven and probable reserves. Changes in commercial reserves affecting unit
of production calculations are dealt with prospectively over the revised remaining reserves.
Impairment
The carrying amounts of non-current assets are reviewed for impairment if events or changes in
circumstances indicate the carrying value may not be recoverable. If there are indicators of impairment,
an exercise is undertaken to determine whether the carrying values are in excess of their recoverable
amount. Such review is undertaken on an asset by asset basis, except where such assets do not
generate cash flows independent of other assets, in which case the review is undertaken at the cash
generating unit level.
A previously recognised impairment loss is reversed if the recoverable amount increases as a result of
a reversal of the conditions that originally resulted in the impairment. This reversal is recognised in the
statement of profit or loss and is limited to the carrying amount that would have been determined, net
of depreciation, had no impairment loss been recognised in the prior years.
The recoverable amount of assets is the greater of their value in use and fair value less costs to sell. In
assessing value in use, the estimated future cash flows are discounted to their present value using a
pre-tax discount rate that reflects current market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate cash inflows largely independent of those from
other assets, the recoverable amount is determined for the cash-generating unit to which the asset
belongs. The Group’s cash-generating units are the smallest identifiable groups of assets that generate
cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Impairments are recognised in the statement of profit or loss to the extent that the carrying amount
exceeds the assets recoverable amount. The revised carrying amounts are amortised in line with the
Group's accounting policies.
The Group has two cash generating units being the coal mining asset and the power plant project.
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.
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
Financial liabilities 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.
Where there is a significant modification to a financial liability, the financial original liability is de-
recognised and a new financial liability is recognised at fair value in accordance with the Group’s policy.
Financial liabilities at fair value through profit or loss
This category comprises only warrants instruments classified as derivative financial liability due to the
warrant resulting in the issue of a variable number of shares. They are carried in the consolidated
statement of financial position at fair value with changes in fair value recognised in the consolidated
statement of comprehensive income. Other than these derivative financial instruments, the Group does
not have any liabilities held for trading nor has it designated any other financial liabilities as being at fair
value through profit or loss.
Fair value measurement hierarchy
The Group classifies its financial liabilities measured at fair value using a fair value hierarchy that reflects
the significance of the inputs used in making the fair value measurement (note 17). The fair value
hierarchy has the following levels:
a) Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1);
b) Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices) (Level 2);
c) Inputs for the asset or liability that are not based on observable market data (unobservable inputs)
(Level 3).
The level in the fair value hierarchy within the financial liability is determined on the basis of the lowest
level input that is significant to the fair value measurement.
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.
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 subject only to customer conditions; 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 and estimates
(i) Impairment of mining assets
The Group’s mining assets were impaired to US$7.7 million in 2014 and are 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 which are in turn linked to the Power Project tariff, IRR and commercial development, 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 proposed coal prices for supply to the Power Project. Refer to (ii) for details of key judgments
and estimates associated with the Power Project which impact the carrying value of the mining asset.
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) Power Project development
The carrying value of the power plant costs in note 6 is dependent on the success of the power plant
project. Management have considered key milestones, signing of NBO, 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. The carrying value of the assets and feasibility of the project is supported by the current financial
models. However, the Government have indicated that a more competitive tariff is required compared
to the previous tariff envelope agreed in principle under the SEP transaction. The financial model is
based on an approximate 10% reduction in the previous tariff which management anticipate being
acceptable to the Government following benchmarking and discussions with EDM to date. However,
negotiations are continuing and should an acceptable tariff not be agreed or other cost efficiencies
realised the project may not proceed and the power assets may not be recoverable.
(iii) Asset classified as held for sale
Subsequent to suspension of exclusivity discussion with SEP on the 26 May 2017 the Group has
reclassified the ‘Non-current asset held for sale’ to Property, plant and equipment. The assets reclassified
total US$9.4m from PPE held at net book value which is below fair value less cost to sell (note 6).
Management have considered whether the NBO with CMEC was such that the power and mining assets
met the criteria of IFRS 5. Having considered the status of the proposals at 31 December 2017, the
significance and nature of conditions required for a JDA and subsequent financial closure and the period
of time to final completion of a transaction and concluded that the criteria were not met.
(v) Amendments to shareholder loans
Judgement and estimate was required in accounting for the Group’s shareholder loans which were
extended during the year. The extensions were considered to represent significant modifications with the
maturity extended without additional redemption premiums. Judgement was required in assessing
whether the holders were acting principally in their capacity as debt holders or shareholders with gains on
modification recorded in the income statement under the former or equity under the latter. Management
concluded that the holders were acting principally in their capacity as debt holders based on assessment
of the size of their shareholdings, the financial position of the Group at the time which was considered to
be such that the holders accepted the terms to maximise their potential for eventual recovery of the loans
(including premium) and other facts and circumstances.
Judgement and estimation was required in determining the market rate of return to apply in calculating the
fair value of the loan instruments on extension in May 2017 and September 2017. Management estimated
the market rate of return and this was applied to arrive at the fair value of the loan instruments.
3. Administrative expenses
Staff costs
Professional and consultancy
Office expenses
Travel and accommodation
Other expenses
Gain on disposal of PPE
Depreciation
Foreign exchange
Total administrative expenses
Auditors’ remuneration
Group auditors’ remuneration
- audit of the Group’s accounts
- audit of the Group’s subsidiaries
Other services
- interim review
Auditors’ remuneration is included within professional and consultancy costs.
Staff costs (including Directors)
Wages and salaries
Social security costs
2017
US$’000
2016
US$’000
167
763
75
12
57
(89)
78
(12)
1,051
581
1,201
128
253
60
(10)
126
16
2,356
2017
US$’000
2016
US$’000
48
-
3
51
40
15
12
67
2017
US$’000
188
1
189
2016
US$’000
694
6
700
US$21,561 (2016: US$119,000) included within wages and salaries have been capitalised to the power
project asset.
The average monthly number of employees (including executive Directors) of the Group were:
Operational
Administration
Key management compensation:
Salary
Fees
Social security costs
2017
Number
1
3
4
2016
Number
8
5
13
2017
US$’000
72
23
-
95
2016
US$’000
385
121
6
512
Key management personnel are considered to be Directors and senior management of the Group.
The average monthly number of employees (including executive Directors) of the Group were:
Operational
Administration
2017
Number
8
5
13
2016
Number
11
9
20
4. Taxation
The Group entities subject to corporate income tax are Ncondezi Coal Company Mozambique Limitada
and Ncondezi Power Company S.A. which are subject to tax at the rate of 32% (2016: 32%) on their
profits in Mozambique. No tax charge/ (credit) arose in the current or prior year for Ncondezi Coal
Company Mozambique Limitada and Ncondezi Power Company S.A.
Current tax – UK corporation tax
Group loss on ordinary activities before tax
Effects of:
Reconcile to Mozambique corporation tax rate of 32%
(2016: 32%)
Differences arising from different tax rates
Taxable losses utilised not previously recognised
Under/over provision from previous period
Foreign exchange effect originating in overseas companies
Unrecognised taxable losses in subsidiaries
Total tax for the year
2017
US$’000
-
2016
US$’000
(58)
(1,695)
(3,004)
(542)
499
(77)
-
95
25
-
(962)
862
-
(58)
(229)
329
(58)
During the exploration and development stages, the Group will accumulate tax losses which may be
carried forward. As at 31 December 2017, no deferred tax asset has been recognised for tax losses of
US$7,978,000 (2016: USD$7,867,000) 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$52,000 will be available until 31 December 2022, 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, and US$1,834,000 will be available until 31 December 2018.
5. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the year.
Due to the losses incurred during the year a diluted loss per share has not been calculated as this would
serve to reduce the basic loss per share. Out of 7,525,000 (2016: 13,550,000) share incentives
outstanding at the end of the year 6,775,000 (2016: 11,225,000) had already vested, which if exercised
could potentially dilute basic earnings per share in the future.
2017
Weighted
average
number of
shares
(thousands)
Per share
amount
(cents)
Loss
US$'000
2016
Weighted
average
number of
shares
(thousands)
Loss
US$'000
Per share
amount
(cents)
(1,695) 253,349
(0.7)
(2,946)
250,075
(1.2)
Basic and
diluted EPS
6. Property, plant and equipment
Cost (less impairment)
At 1 January 2016
Additions
Disposals
Transfer to held for sale
At 1 January 2017
Additions
Disposals
Reclassified from non-current
assets held for sale
At 31 December 2017
Depreciation
At 1 January 2016
Depreciation charge
At 1 January 2017
Depreciation charge
Disposals
At 31 December 2017
Net Book value 2017
Net Book value 2016
Power
assets
US$’000
Mining
assets
US$’000
Buildings
US$’000
Plant and
equipment
US$’000
Other
US$’000
Total
US$’000
9,140
249
-
(9,389)
-
48
-
9,389
7,638
13
-
-
7,651
3
-
-
1,736
-
-
-
1,736
-
(337)
-
447
-
(1)
-
446
-
(404)
-
718
-
-
-
718
-
-
-
19,679
262
(1)
(9,389)
10,551
51
(741)
9,389
9,437
7,654
1,399
42
718
19,250
-
-
-
-
-
-
-
-
-
-
-
-
359
73
432
70
(312)
190
9,437
-
7,654
7,651
1,209
1,304
353
53
406
8
(385)
29
13
40
718
-
718
-
-
718
1,430
126
1,556
78
(697)
937
-
-
18,313
8,995
Power assets relate to the development of a 300MW power plant. In 2017, the Power assets were
reclassified from ‘Non-current asset held for sale to Property, plant and equipment as detailed in note
2.
Mine assets relate to the initial acquisition of the licences and subsequent expenditure incurred in
evaluating the Ncondezi mine project. These were transferred from intangible assets on receipt of the
mining concession in 2013.
The mine assets are stated net of an impairment of US$32 million recorded in 2014 which is considered
to remain appropriate based on the impairment test at 31 December 2017. 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$1.23/Gj being the transfer price at 31st December 2017 escalated thereafter.
- Capital costs of US$104.5m based on contractor quotations
- Discount rate - 12% including allowances for project risk
- 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 anticipated 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, US CPIX,
RSA producer purchase index, Coal CPI Index, Fuel Supply Index, Mining Contractor Index and
CHPP Index.
The impairment is highly sensitive to changes in the discount rate with a 1% increase in the discount
rate increasing impairment by US$7.0 million. The coal price payable by the power station to the mine
is consistent with the power project financial model which itself includes a critical estimate regarding the
electricity tariff. The electricity tariff in the power project model is subject to ongoing negotiations with
EDM as detailed in note 2. In the event of changes to operating inputs the pricing mechanism is revised
to maintain the return on equity of the asset, subject to the economic viability of the power project and
its return on equity.
7. Subsidiaries
The Group has the following subsidiary undertakings:
%
interest
2017
100
‘ZECH1’
%
interest
2016
100 Mauritius
Country of
incorporation
Zambezi Energy Corporation
Holdings 1 Limited
Zambezi Energy Corporation
Holdings 2 Limited
Ncondezi Coal Company
Mozambique Limitada
‘ZECH2’
100
100 Mauritius
‘NCCML’
100
100 Mozambique
Ncondezi Power Holdings
Limited
Ncondezi Power Holdings 2
Limited
Ncondezi Power Company SA
Ncondezi Power Mozambique
Limitada
‘NPHL’
-
100 Mauritius
‘NPH2L’
100
100
UAE
‘NPCSA’
‘NPML’
100
100
100 Mozambique
100 Mozambique
Activity
Holding
company
Holding
company
Mining
exploration and
development
Holding
company
Holding
company
Energy company
Energy company
Ncondezi Coal Company Mozambique Limitada is owned by Zambezi Energy Corporation Holdings 1
Limited and Zambezi Energy Corporation Holdings 2 Limited. Ncondezi Power Holdings 2 Limited is
owned by Ncondezi Energy Limited. Ncondezi Power Company SA is owned by Ncondezi Energy Limited,
Zambezi Energy Corporation Holdings 1 Limited and Ncondezi Power Holdings 2 Limited. Ncondezi
Power Mozambique Limitada is owned by Zambezi Energy Corporation Holdings 2 Limited.
Ncondezi Power Holdings Limited was dissolved during the year.
8. Trade and other receivables
Current assets:
Other receivables
Total trade and other receivables
2017
US$'000
2016
US$'000
83
83
88
88
The fair value of receivables is not significantly different from their carrying value.
There are no receivables that are past due or impaired at year end.
9. Cash and cash equivalents
Cash at bank and in hand
2017
US$'000
614
614
2016
US$'000
152
152
The Group’s cash and cash equivalents balances may be analysed by currency as follows:
US Dollars
Great British Pounds
Mozambique Meticais
2017
US$'000
77
535
2
614
2016
US$'000
104
25
23
152
Where possible cash is deposited in floating rate deposit accounts at reputable financial institutions
with high credit ratings.
10. Trade and other payables
Other payables
Other taxation and social security
Accruals
2017
US$'000
213
-
805
1,018
2016
US$'000
220
2
983
1,205
Accruals includes US$0.5 million (2016: US$0.6 million) of interest in respect of the loans in note 11. The
fair value of payables is not significantly different from their carrying value.
11. Short term loan
Short term loan (unsecured)
Unamortised related costs
Total Short term loan
31 December
2017
Audited
31 December
2016
Audited
US$’000
3,495
-
3,495
US$’000
2,193
(24)
2,169
On 11 May 2016, the Group entered into a US$1.32 million loan facility (“Shareholder Loan”) 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$3.0 million, with an initial tranche of
US$1.0 million (“Tranche A”) and a further tranche of US$2.0 million (“Tranche B”) which was conditional
amongst other things upon the fulfilment of certain conditions precedent, the completion of the JDA and
Ncondezi providing an appropriate security package. Tranche B was never drawn and lapsed.
The repayment terms of the Shareholder Loan were as follows:
o
o
o
if the SEP JDA became effective before December 2016 the full drawn down amount was
repayable on 10 May 2017 and a 0.5 times return on the drawn down amount was repayable 6
months from 10 May 2017
if the SEP JDA became effective after December 2016 the full drawn down amount and the 0.5
times return was repayable on 10 May 2017
if the repayment occurred after 10 May 2017, then an additional return of 0.5 times the total
drawings is repayable in addition to the 1.5 times of the full drawn down amount
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 was recognised over
the period of the loan through the effective interest rate.
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. On 11 May 2017, the
Company agreed an amendment to the repayment terms, with repayment of the principal and
redemption premium on 2 September 2017. Subsequently on 2 September 2017 the Company was
able to agree an amendment to the repayment terms of the Shareholder Loan, with repayment now due
on 2 September 2018.
On 23 of June 2017 the Company entered into an amendment (“New Loan”) to the original Shareholder
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 and was due to mature on 2 September 2017. The loan has
subsequently been extended to 2 September 2018 with no additional return.
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 a percentage of their salary
since February 2017 into the existing Shareholder Loan. The total amount of US$232,000 was initially
due to mature 2 September 2017without interest. The maturity date was subsequently extended to 2
September 2018 with no additional return.
At the date of the extensions the loans, held at principal plus redemption premiums, were extinguished
and replaced with the amended loans discounted at market rates of return (see note 2). The difference
between the carrying value of the previous loan and the fair value of the amended loan was taken to
finance costs as a gain. The discount is then accreted to the date of maturity with charges recorded in
finance costs.
Finance costs of US$0.6 million comprise US$2.7 million of finance charges and US$2.1 million of gains
on significant modification of the loans. The finance charges include the redemption premiums
amortised to original maturity together with the additional redemption premium on the 2016 loan for non-
payment, amortisation of the amended Shareholder Loan discount between 11 May 2017 and 2
September 2017 and amortisation of the discount of each loan from 3 September 2017 to 31 December
2017.
As at 31 December 2017, a total of US$2,774,545 has been drawn down under the total Shareholder
Loan, this includes US$232,000 deferred salaries, and the repayment amount will be US$5,054,591 on
2 September 2018.
Net financial cost for the year totalled in relation to short term loan was US$644,000 (2016:
US$648,000).
Accrued interest is recorded in other payables.
12. Share capital
Number of shares
Allotted, called up and fully paid
Ordinary shares of no par value
At 1 January 2017
Issue of shares
Issue costs
At 31 December 2017
2017
2016
265,299,844 250,299,844
Shares
Issued
Number
250,299,844
15,000,000
-
265,299,844
Share
capital
US$’000
86,557
987
(160)
87,384
At 1 January 2016
Issue of shares
At 31 December 2016
Shares
Issued
Number
249,849,844
450,000
250,299,844
Share
capital
US$’000
86,557
-
86,557
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
2017
Outstanding
at start of
year
Granted
during
the year
Lapsed/
cancelled
during
the year
Outstanding
at year end
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
1,800,000
3,450,000
13,550,000
14.92
-
-
-
-
-
-
-
-
-
-
(500,000)
(2,825,000)
-
(2,700,000)
(6,025,000)
21.2
2,400,000
800,000
-
1,775,000
1,800,000
750,000
7,525,000
9.94
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
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 2017 was 3.63p (31 December 2016:
5.3p). The highest and lowest mid-market closing share prices during the year were 9.87p (2016: 6.4p)
and 1.75p (2016: 3.5p) respectively.
Of the total number of options outstanding at year end 6,775,000 (2016: 11,225,000) had vested and were
exercisable. The weighted average exercise price for the exercisable options at year end was 8.86p
(2016: 13.96p).
The weighted average contractual life of the options outstanding at the year-end was six years (2016:
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
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
90.67c
47.83c
26.32c
26.32c
26.32c
26.32c
26.32c
26.32c
10.77c
10.77c
10.77c
Exercise
price per
share
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 (2016: nil).
Warrants
During the year ended 31 December 2017, 1,500,000 warrants at subscription price of 5 pence per
share, were granted to Novum Securities Limited as part of the placing agreement entered in October
2017. The warrants have an exercise period of 2 years from 20 October 2017. The warrants are
classified at fair value profit and loss as the functional currency of the Company is US Dollars and the
exercise price is set in GBP.
The fair value on the grant date and reporting date were determined using the Black Scholes Model.
The fair value was based on the following assumptions:
Share Price (£)
Expected volatility
Options life (years)
Expected dividends
Risk free rate
0.06
119%
2
0
0.74%
The fair value of the 1,500,000 warrants on the grant date was US$110,229. On initial recognition the
warrants’ cost was deducted from share capital balance as it represents the cost of issuing shares.
Subsequent changes in the fair value of the warrants are recognised through profit or loss. The warrants
were valued at US$106,559 at the year end with the change of fair value of US$3,670 recognised through
profit or loss 3.63p). The highest and lowest mid-market closing share prices during the year were 6.4p
(2016: 5.5p) and 3.5p (2016: 1.63p) respectively.
15. Segmental analysis
The Group has three reportable segments:
Mine project - this segment is involved in the exploration for coal and development of coal mine
within the Group's licence areas in Mozambique
Power project – this segment relates to the development of a 300MW integrated power plant next
to the Group’s coal mine concession areas in Mozambique
Corporate - this comprises head office operations and the provision of services to Group
companies
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker and are based on differences in products from which each reportable segment
will derive its future revenues. The chief operating decision-maker has been identified as the Board of
Directors.
The operating results of each of these segments are regularly reviewed by the Group's chief operating
decision-maker in order to make decisions about the allocation of resources and assess their
performance.
The segment results for the year ended 31 December 2017 are as follows:
Income statement
For the year ended 31 December 2017
Segment result after allocation of central
costs
Finance expense
Finance income
Loss before taxation
Taxation
Loss for the year
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
(615)
-
-
(615)
-
(615)
44
-
-
44
-
44
(480)
(1,051)
(644)
-
(1,124)
-
(1,124)
(644)
-
(1,695)
-
(1,695)
The segment results for the year ended 31 December 2016 are as follows:
Income statement
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
168*
(486)
(2,038)
(2,356)
For the year ended 31 December 2016
Segment result after allocation of central
costs
Finance expense
Finance income
Loss before taxation
Taxation
Loss for the year
(648)
-
(3,004)
58
(2,946)
*The gain includes the effect of gains on intercompany transactions with offsetting losses incurred in the corporate segment.
(645)
-
(2,683)
58
(2,625)
(2)
-
(488)
-
(488)
(1)
-
167
-
167
Other segment items included in the Income statement are as follows:
Income statement
For the year ended 31 December 2017
Depreciation charged to the income
statement
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
-
(78)
-
(78)
Income statement
For the year ended 31 December 2016
Depreciation charged to the income statement
Share based payments
Income tax credit
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
-
-
-
(124)
-
-
(2)
-
58
(126)
-
58
The segment assets and liabilities at 31 December 2017 and capital expenditure for the year then
ended are as follows:
Statement of financial position
At 31 December 2017
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital
expenditure
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
9,439
(210)
9,229
8,643
(11)
8,632
928
(4,399)
(3,471)
19,010
(4,620)
14,390
48
3
-
51
The segment assets and liabilities at 31 December 2016 and capital expenditure for the year then ended
are as follows:
Statement of financial position
At 31 December 2016
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital
expenditure
Power
project
US$’000
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
9,399
(209)
9,190
9,090
(36)
9,054
137
(3,129)
(2,992)
18,626
(3,374)
15,252
249
13
-
262
16. Reconciliation of liabilities arising from financing activities
At 1 January 2017
Cash flows
Deferred payroll costs capitalised to
shareholder loan
Non cash finance charges net of modification
gains
Non cash change in accruals
FV of warrants issued
Change in fair value
At 31 December 2017
Accrued
interest
Short term
loan
US$’000
610
-
-
US$’000
2,169
350
232
Derivative
financial
liability
US$’000
-
-
-
Total
US$’000
2,779
350
232
-
744
-
744
(100)
-
-
510
-
-
-
3,495
-
110
(3)
107
(100)
110
(3)
4,112
17. Financial instruments
The Group is exposed to risks that arise from its use of financial instruments. This note describes the
Group’s objectives, policies and processes for managing those risks and the methods used to measure
them. Further quantitative information in respect of these risks is presented throughout these financial
statements.
The significant accounting policies regarding financial instruments are disclosed in note 1.
There have been no substantive changes in the Group’s objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods unless otherwise
stated in this note.
Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises, are
as follows:
Loans and receivables at amortised cost
Trade and other receivables
Cash and cash equivalents
Financial liabilities held at amortised cost
Trade and other payables
Loans and borrowings
Financial liabilities at fair value through profit or loss
Derivative financial liability
2017
US$’000
2016
US$’000
44
614
1,018
3,495
107
33
152
1,203
2,169
-
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives
and policies and retains ultimate responsibility for them.
The overall objective of the Board is to set polices that seek to reduce risk as far as possible without
unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies
are set out below:
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due.
The Board receives cash flow projections on a monthly basis as well as information on cash balances.
2017
in 1
on
month
demand
US$’000 US$’000 US$’000
Total
Between 1
and 6
months
US$’000
Between 6
and 12
months
US$’000
Between 1
and 3
years
US$’000
Trade and other payables
Loans and borrowings
1,018
5,100
-
-
228
-
265
-
525
5,100
-
-
2016
on
demand
US$’000 US$’000
Total
in 1
month
US$’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
Loans and borrowings
1,203
2,678
-
-
216
-
610
2,678
377
-
-
-
Loans and borrowings represent the loan principal and premium less interest accrued whilst accrued
interest to 31 December 2017 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
2017 (2016: Nil).
Market risk
The Group does not currently sell any coal or electricity. As such there is no specific market risk at the
date of this report. However, there is a risk that the Group is unable to secure a credit worthy off-taker
for the full output of the power plant, with the plant operating at load factors in excess of 80%.
Currency risk
The Group is exposed to currency risk through its activities due to certain costs arising in Mozambique
Meticais and cash held in GBP, 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 and GB pounds will decrease net
assets by US$20,803 (2016: decreased net assets by US$5,701).
Currency exposures
As at 31 December the Group’s net exposure to foreign exchange risk was as follows:
2017
US$’000
Assets/(liabilities) held
GBP
MZN Total
2016
US$’000
Assets/(liabilities)
held
GBP MZN Total
US dollars
485
39
524
(73)
42
(31)
485
39
524
(73)
42
(31)
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.
18. 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 Shareholder Loan as at 31 December 2017 US$671,591 (2016: US$331,439) was
drawn by a Trust of which Non-Executive Chairman, Michael Haworth, is a potential beneficiary.
US$185,864 (2016: US$101,864) was drawn by Director, Christiaan Schutte, US$55,011 (2016:
US$33,011) from Director, Estevão Pale. Refer to note 11 for details of the terms and conditions.
Christiaan Schutte
During the year US$23,400 (2016: US$60,000) were paid to CPS Consulting in respect of services
provided by Christiaan Schutte. There was no outstanding balance at 31 December 2017 (2016: Nil).
Details of Key Management Remuneration are contained in Note 3.
There is no ultimate controlling party.
19. Commitments
Social development programme
In December 2012 a Memorandum of Understanding was signed with the Mozambican Ministry of
Mineral Resources and Energy in respect of a 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 there were no expenditure related to social development
programmes (2016: US$21,180). 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.
EMEM 5% investment in NCCML
Along with the issuance of the Mining Concession, Ncondezi’s local subsidiary NCCML also concluded
an Addendum to Mine Framework Agreement (“MFA”) with Mozambican Ministry of Mineral Resources
and Energy. Under the terms of the Addendum to the MFA, it has been agreed that the Government
owned Mozambican Mining Exploration Company (“EMEM”) will be granted a 5% free carry in the share
capital of NCCML up to the start of the Ncondezi mine’s construction. However, from the
commencement of construction EMEM will be required to pay, through an agreed funding mechanism,
for its share of any future equity funding obligations that may be required from the shareholders of
NCCML including its share of the construction and commissioning costs of bringing the Ncondezi mine
into commercial operation.
20. Events after the reporting date
Power project update
On 18 April 2018 Company announced in principle support received from Electricity de Mozambique
(“EDM”) and the Ministry of Mineral Resources and Energy (“MIREME”) for proposed strategic partners,
CMEC and GE.
On 3 May the new integrated financial model (“FM”) was updated with proposals for engineering,
procurement, and construction (“EPC”) and operations and maintenance (“O&M”) contracts.
On 11 June 2018, the Company announced that the FM and new tariff proposal had been accepted
by its potential partners for submission to EDM and MIREME.
Placing
On 4th May 2018 Company raised a total of £950,000 before expenses through a conditional placing of
15,200,000 ordinary shares in the Company at a price of 6.25 pence per ordinary share.
Share Options
On 25 May 2018, as part of the Company’s management incentive scheme, the Company granted share
options in respect of 22,897,522 shares in the Company to its directors, executive senior management
team and contracted personnel representing 8.2 per cent of the issued share capital of the Company.
This provides the Company with more time to progress the project and new Strategic Partner search
and better develop loan repayment options.
Company Information
Directors
Company Secretary
Registered Office
Michael Haworth (Non-Executive Chairman)
Christiaan Schutte (Non-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
Ground Floor, Coastal Building
Wickham's Cay II
PO Box 2136
VG1130
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
Bryan Cave Leighton Paisner LLP
Adelaide House
London Bridge
London
EC4R 9HA