NEWS RELEASE
www.ncondezienergy.com
Audited Final Results for Year Ended 31 December 2019
22 June 2020: Ncondezi Energy Limited ("Ncondezi" or the “Company”) (AIM: NCCL) is pleased to
announce its audited final results for the year ended 31 December 2019.
Project Highlights
• On 28 February 2019, the Company announced that following positive meetings with the
Liaison Committee, chaired by the Ministry of Mineral Resources and Energy (“MIREME”), the
updated Project work programme and timetable targeting power on the grid by 2023 had been
approved and the Company’s strategic partners had confirmed that the process to conclude
the Joint Develop Agreement (“JDA”) could now move forward.
• On 23 July 2019, the Company signed the JDA with China Machinery Engineering
Corporation (“CMEC”) and General Electric Switzerland GmbH (“GE”) to co-develop and
construct the integrated Ncondezi 300MW coal fired power project and coal mine. CMEC is
expected to act as the lead development partner and GE the main technology partner for the
boilers, steam turbine, generator and emission control systems.
• On 21 October 2019 a technical due diligence site visit was successfully completed by the
Company’s strategic partner CMEC as part of the process to prepare the Engineering,
Procurement and Construction (“EPC”) and Operations and Maintenance (“O&M”) contracts.
• On 12 December 2019 Synergy Consulting (“Synergy”) was selected as preferred financial
advisor to prepare the Project financial model and finalise the tariff submission and
negotiation process with Electricidade de Moçambique (“EDM”). KPMG Auditores e
Consultores S.A. (“KPMG”) was also appointed to provide tax services related to the Project
financial model.
• On 31 December 2019, the Company received updated EPC and O&M bids as well as
indicative debt financing terms and the preliminary tax and financial incentives report for the
Project.
C&I Solar and Battery Storage Highlights
On 5 April 2019, the Company announced it had entered into a term sheet with GridX, an African
power developer, enabling it to enter into a Joint Venture (“JV) focused on building and operating
captive solar and battery storage solutions for the African C&I sector.
• On 23 October 2019, the Company entered into a Subscription Agreement and a
Shareholders’ Agreement with GridX and GridX Africa AssetCo (“GridX SPV”) to finance the
development of a 400 kWp fully off grid, ground mounted solar photovoltaic (“PV”) facility plus
228 kW/912 energy storage facility for a commercial customer in Mozambique.
Corporate Highlights
• On 9 October 2019 Hanno Pengilly was appointed as a Director of the Company and the
Company's new Chief Executive Officer ("CEO").
• On 15 October 2019, Christiaan Schutte was appointed as the Company's interim Chief
Operating Officer ("COO") and Pimlico Advisory Ltd was appointed to provide Investor
Relations services to the Company.
• On 25 November 2019 Jacek Glowacki resigned from the Board of the Company and his role
as Non-Executive Director.
• On 26 November 2019, as part of the Company’s management incentive scheme, The
Company granted share options in respect of 7,833,332 shares in the Company to its Non-
Executive Directors and CEO representing 2.4 per cent. of the issued share capital of the
Company.
Financial Highlights
• On 19 March and 1 April 2019 a total of 1,000,000 warrants at subscription price of 5 pence
per share issued on 25 May 2018 were exercised and following this 1,000,000 new ordinary
shares of no par value were issued.
• On 5 April 2019, the Company raised a total of £1.88 million before expenses, through a
conditional placing and direct subscriptions of 28,856,060 ordinary shares in the Company at
a price of 6.50 pence per ordinary share.
• On 17 May 2019 a total of 1,000,000 nil value subscription price share options vested at grant
on 25 May 2018 were exercised. Following this 1,000,000 new ordinary shares of no par
value were issued.
• On 30 July 2019 a total of 1,500,000 warrants at subscription price of 5 pence per share
issued on 20 October 2017 were exercised and following this 1,500,000 new ordinary shares
of no par value were issued.
• On 23 October 2019, the Company entered into a US$750,000 working capital facility for the
continued development of the Ncondezi Project. The working capital facility is available for
drawdown until 30 June 2020 at the Company’s election and is repayable within 24 months
from first drawdown, unless there is an event of default or the Company elects to prepay the
facility. The working capital facility will attract a 10% annual interest charge, payable at
maturity or on repayment.
• On 26 November 2019, the Company received “in principle” support from all Shareholder
Loan holders (“Lenders”) to enter a Shareholder Loan (“Loan”) restructuring proposal. The
loan term expired on 30 November 2019 with no extensions or restructuring legally agreed as
at year end. The Company has received “in principle” support from all Lenders to enter the
Loan restructuring proposal.
• On 26 November 2019 as part of the Company’s management incentive scheme, the
Company granted share options in respect of 7,833,332 shares in the Company to its Non-
Executive Directors and CEO representing 2.4 per cent of the issued share capital of the
Company.
• During 2019, a total of US$1,344,000 of loan principal, rolled up previous redemption
premiums plus interest was converted into equity at a price of 10.0 pence per ordinary share
which resulted in an aggregated of 10,337,813 ordinary shares being issued over the year.
Post balance sheet events
•
In January 2020, US$250,000 has been drawndown from the working capital facility put in
place in October 2019 with the remaining facility of US$500,000 available until end of June
2020 although it is not currently intended to utilise it further.
• On 31 March 2020, the Company submitted a firm tariff proposal to the Mozambican
Government and EDM. The proposal was supported by:
o Executed JDA;
o Detailed EPC and O&M proposals from CMEC and GE;
o
o A Letter of Interest from a leading export credit agency.
Indicative debt financing terms from a leading financial institution; and
• On 9 April 2020, project construction for the C&I solar and battery project in Mozambique was
put on hold pending further clarity of the impact of COVID-19 and lifting of travel restrictions.
A force majeure notice was issued by the project offtaker in Mozambique due to the inability to
provide site access for construction.
• On 5 May 2020, Estevão Pale resigned from the Board of the Company and his role as Non-
Executive Director.
• On 6 May 2020, the Company finalised a binding Relationship Agreement (“RA”) with GridX
for a US$5.5 million pipeline of solar and battery storage projects in the C&I sector and
agreed to acquire the remainder of the 100% of the SPV set up for the first solar and battery
storage project investment which it did not hold for US$100. Under the RA the obligation to
pay the remaining $130,000 GridX fees relating to ROFR under the original term sheet was
terminated.
• On 15 May 2020, the Company raised a total of £650,000 before expenses, through a placing
of 21,666,666 ordinary shares in the Company at a price of 3 pence per Ordinary Share
(“Placing Price”) together with 1 warrant to subscribe for an Ordinary Share at 6 pence per
new Ordinary Share. The Company also received subscriptions for a total of 2,466,666
Ordinary Shares in the Company at the Placing Price for a further £74,000 being equal to the
amounts owed to certain creditors. In addition the Senior Management Team and certain
consultants to the Company have agreed to defer 30% of salaries and fees until 30 November
2020. In principle agreement has been reached to subscribe for shares at the Placing Price in
relation to salaries and fees that have been agreed to be deferred. Such subscription, if
implemented, would be made in December 2020 and represent a potential total of 1,603,800
new Ordinary Shares at the Placing Price for a further £48,114. Separately CEO Hanno
Pengilly agreed to defer 30% of his salary until 30 November 2020.
• Mozambique brought in nationwide restrictions to stem the spread of the COVID-19 pandemic
on 1 April 2020 which have been extended at least until the end of June 2020. The Company
suspended all travel to Mozambique while continuing to work with its partners remotely. The
impact of the travel restrictions has resulted in the halting of construction of and force majeure
declared on the C&I solar and battery project. During tariff negotiation discussions it was
highlighted that available technical and market assumptions critical to the Project are out of
date. The Company has agreed to update its transmission integration study and conduct an
independent market study for energy supply and demand forecasts in Mozambique and
potential export markets (“Independent Studies”). The studies will also take into account the
potential impact of COVID-19. These studies are anticipated to add at least 2 months to the
Project development programme moving the tariff agreement to H2 2020. Other workstreams
have also been impacted by the travel restrictions, the Shareholder Agreement Term Sheet,
historical audit and finalisation of the EPC contracts are all now expected in Q3 2020.
The Company will post its Annual Report and Accounts for the year ended 31 December 2019 ("2019
Annual Report and Accounts”) to shareholders on 22 June 2020. A copy of the 2019 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 (0) 71 362 3566
Liberum Capital Limited
NOMAD & Joint Broker
Scott Mathieson, Edward Thomas, Kane
Collings
+44 (0) 20 3100 2000
Novum Securities Limited
Joint Broker
Colin Rowbury
+44 (0) 20 7399 9427
Pimlico Advisory Ltd
Investor Relations
Elizabeth Johnson
+44 (0) 777 56 55 927
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
Executive Officer of the Company (responsible for arranging release of this announcement) on +27 (0)
71 362 3566.
About Ncondezi Energy
Ncondezi is an African power development company with an advanced staged, integrated 300MW
thermal coal power plant and mine project located in the Tete Province, Northern Mozambique.
The Company is focused on providing reliable, affordable and accessible baseload energy to
Mozambique and secure against the effects of water drought and intermittency of new renewables.
This project supports Mozambique’s energy strategy of universal electricity access by 2030. According
to the World Bank, only 30% of the Mozambican population had access to energy in 2017. The
Ncondezi Project would provide 300MW of reliable and available power helping to close the
infrastructure gap of the region and serving as a catalyst for economic development.
The power plant will be designed to be equipped with state-of-the-art emissions controls technologies
that will reduce local air pollutants, minimizing the plant’s impact on the environment and ensuring its
compliance with the most stringent emission standards
In 2019, the Company entered into the Commercial and Industrial ("C&I") renewable and battery
storage sector and in October 2019 announced its first investment in an off grid solar battery project.
The Company has also secured the right to fund a US$5.5m C&I project development pipeline in
Mozambique through a Relationship Agreement with GridX Africa Development announced in May
2020. The move into the C&I solar and battery storage sector offers a significant opportunity for the
Company to complement the existing large-scale baseload power project and access near-term low-
risk annuity income streams which have significant growth potential.
Chairman’s Statement
Dear Shareholder,
The developing impact of the COVID-19 crisis has highlighted the global importance of the energy
sector in maintaining essential services, hospitals, and communications. Post the crisis, the energy
sector is expected to play a leading role in driving economic recovery and development. In Africa the
situation is more acute with 70% of the world’s population without access to electricity located in Sub-
Saharan Africa. The Mozambique government has targeted universal energy access by 2030, to
achieve this significant expansion in generation capacity is required. The Ncondezi Project is aligned
with these objectives and is one of the most advanced projects in Mozambique capable of providing
reliable, affordable and accessible baseload energy helping to close the infrastructure gap of the
region and serving as a catalyst for economic development.
The proposed power plant will be equipped with state-of-the-art emissions control technologies that
will reduce local air pollutants, minimising the plant impact on the environment and ensuring its
compliance with the most stringent emission standards.
The 2019 financial year has seen the Company make significant progress with the flagship Ncondezi
Project. A JDA was concluded in July with partners, CMEC and GE. The JDA formalises certain of
the key terms on which the Project will be co-developed and constructed and represents a major
milestone for the Company enhancing its credibility and setting a clear pathway to closing out project
investment and financing.
From a commercial perspective, the JDA confirms that Ncondezi is expected to maintain a 40% equity
interest in the Project at Financial Close (“FC”) and is expected to receive a reimbursement of
historical development costs and payment of a subscription price for the 60% equity share to the
project company. It is expected that the historical development costs and subscription price will be
agreed between the parties before the Power Purchase Agreement (“PPA”) and Power Concession
Agreement (“PCA”) are finalised, subject to Government and lender approvals, and will likely be
allocated towards the Company’s 40% equity contribution at FC. Further details of the JDA are set
out below.
Following signature of the JDA, the focus moved to the next value enhancing milestones, namely the
confirmation of a tariff offer with EDM. This process saw the achievement of a number of key
deliverables, including detailed EPC and O&M proposals from CMEC and GE, indicative debt
financing terms from a leading global financial institution and a Letter of Interest from a leading export
credit agency. These achievements led to the formal tariff submission to EDM on 31 March 2020.
The Board believes the tariff proposal to be commercially attractive being competitive with existing gas
power plants in Mozambique and over 10% lower than the previously agreed EDM tariff in 2015.
Negotiations with EDM are currently underway and progressing well despite the travel restrictions due
to the COVID-19 outbreak. However, I am mindful that the implications of the global COVID-19
outbreak are developing rapidly and whilst we are taking all pragmatic steps to respond to this
unprecedented situation, including suspending all travel and moving all workstreams that we can
online the impact on our business remains uncertain.
In parallel to the tariff negotiation process, the Company and its partners have agreed to progress the
finalisation of Ncondezi historic development costs, Shareholder Agreement Term Sheet and the EPC
Contract. All of these steps are expected to be achieved in the coming months and play a crucial role
in further de-risking the Project.
Following a request from EDM to update the transmission integration study and to conduct an
independent market study the Company has submitted an updated timetable and work programme to
EDM targeting the finalisation of the power tariff and other deliverables during the second half of 2020.
A more detailed timetable update will be provided to investors at the appropriate time.
The Project achievements in 2019 would not have been possible without continued government
support highlighted by the Project’s inclusion by Chinese and Mozambique Governments on the list of
key infrastructure projects at the 2nd China-Mozambique International Cooperation Summit held in the
first half of 2019. The Company was subsequently invited to present to the Inter-Ministerial
Committee for China and Mozambique (the “Committee”) as a China-Mozambique priority investment
project in December 2019.
The 2019 financial year also saw the formal entry by the Company into the exciting C&I solar and
battery storage sector with the signing of a term sheet with GridX. The Board believes the move into
this sector represents a significant opportunity for the Company to complement its existing large scale
baseload power project and access near-term low-risk annuity income streams which the Company
believes has significant growth potential.
The continued decline in solar panel and battery costs are setting the foundation for a tide of
disruptive technology in African energy markets, allowing African countries to leapfrog to the next
generation of sustainable energy supply. In a similar way to wireless cellular phones allowing African
countries to bypass fixed line infrastructure and adopt mobile technology. At the same time, significant
investment appetite is growing in the sector as investors increasingly recognise smaller renewable
captive generation projects as a source of steady returns.
In October 2019, the Company entered into a Subscription Agreement to finance the development of
its first off grid solar and battery storage project for a commercial customer in Mozambique. This
project is currently under construction but following the receipt of a force majeure notice from the
Project offtaker remains on hold pending further clarity on the impact of COVID-19 and the lifting of
travel restrictions, further updates will be made to shareholders in due course.
In May 2020, the Company finalised a binding RA with GridX replacing the previous term sheet to
form a JV and securing a right of first refusal (subject to certain conditions) to fund 100% of a GridX
pipeline of 7 Mozambique C&I solar and battery storage projects up to a total investment value of
approximately US$5.5 million. This structure provides the opportunity for a phased and low risk entry
point into the sector, with GridX responsible for the development and delivery of construction ready
projects for investment consideration and, over time, a diversified portfolio approach spreading
investment risk across multiple projects.
All projects will be housed under the Company’s newly formed renewable energy subsidiary Ncondezi
Green Power Holding Ltd (“NGPHL”) and will be 100% owned by the Company.
To implement the Company’s strategy, the Board appointed Hanno Pengilly as CEO and Chris
Schutte as COO in October 2019. Both have significant experience with the Project and operating in
Mozambique and their appointments highlight their continued commitment to the Company whilst
providing confidence in the Company’s future.
On 25 November 2019, the Company announced that Jacek Glowacki resigned from the Board of the
Company and his role as Non-Executive Director due to personal issues. Additionally, on 5 May 2020,
the Company announced that Estevão Pale resigned from the Board of the Company and his role as a
Non-Executive Director to focus on his newly appointed role as Chairman of Mozambique national oil
company, Empresa Nacional de Hidrocarbonetos. Both Jacek and Estavao provided invaluable
support and guidance throughout their Directorships and we wish them well in the future.
Financing
In April 2019, the Company raised £1.88 million before expenses through placing of 28,856,060
ordinary shares in the Company at a price of 6.50 pence per ordinary share.
The Shareholder Loan matured on 30 November 2019 and the repayment amount due up to 19 June
2020 was US$4.5 million which includes principal, rolled up premiums under the previous loans and
interest. Since the successful restructuring in November 2018, over US$1.3 million of debt has been
converted into equity at a price of 10p per ordinary share, representing a significant premium to the
share price during this period. The Company intends to extend and restructure the outstanding loan
and received “in principle” support from all Lenders to enter the Loan restructuring proposal in
November 2019 and again in May 2020. Draft documentation was submitted to Lenders in December.
The Company is confident of a positive outcome as there is significant alignment between the loan
holders and the major shareholder and senior management of the Company with 87% of the loan
outstanding held between Africa Finance Corporation (“AFC”) (the Company’s largest shareholder),
the Board and senior management. The restructuring process is currently waiting for key Lender
internal approval from AFC, which has incurred recent delays due to the impact of COVID-19. Despite
the delays AFC has indicated that it is supportive of the Restructuring however, there can be no
certainty that the holders of the Shareholder Loan will agree to an extension or restructure or the
terms on which they will agree to do so.
The Company put in place a US$750,000 working capital facility in October 2019 to strengthen the
balance sheet as the Company continued to deliver on its strategy for the main Ncondezi Project. The
working capital facility was provided by a company owned by a trust of which CEO, Hanno Pengilly, is
a potential beneficiary. To date US$250,000 has been drawndown, with the remaining facility of
US$500,000 available until the end of June 2020 although it is not currently intended to utilise it
further.
The Company successfully raised a total of £650,000 before expenses, despite challenging markets
on 15 May 2020 through a conditional placing of 21,666,666 ordinary shares in the Company at a
price of 3 pence per Ordinary Share together with 1 warrant to subscribe for an Ordinary Share at 6
pence per new Ordinary Share. Separately CEO Hanno Pengilly, members of the Senior
Management Team and certain consultants agreed a deferral of 30% of fees owed until the end of
November 2020 demonstrating the support and commitment of the Ncondezi team.
As at 1 June 2020, the Company had cash reserves of approximately US$0.9 million. Based upon
projections, which are subject to the Shareholder Loans being converted, extended and restructured,
the Group will be funded until Q4 2020. Further details can be found in the Going Concern note 1.
Michael Haworth
Non-Executive Chairman
19 June 2020
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.
Ncondezi has also entered the captive solar and battery storage sector to build and operate power
solutions for the Mozambique C&I sector.
Joint Development Agreement with CMEC and GE
On 23 July 2019, the Company signed a JDA with CMEC and GE to co-develop and construct the
integrated Ncondezi 300MW coal-fired power project and coal mine in Tete, Mozambique.
The JDA formalised certain of the key terms on which the Project will be co-developed and
constructed by Ncondezi, CMEC and GE (together the “Parties”).
The key terms of the JDA include:
• Ncondezi is expected to hold a 40% equity interest in the Project.
• Project Steering Committee to be setup with representatives from each Party to manage the
development process to FC, the point at which first funds are drawn for Project construction.
• CMEC will be the main EPC and O&M contractor for the Project.
• GE will be the exclusive subcontractor for the power project core technology, including the
boiler, steam turbine, generator and air quality control solutions which will ensure the plant
meets the emission standards established by the World Bank. GE will also support the
maintenance of the GE supplied core equipment during operation.
• Parties to initially focus on finalising a set of development co-funding investment conditions
which include finalisation of the electricity tariff and PPA with EDM. Ncondezi to be
responsible for any agreed additional third-party development costs during this phase other
than the EPC and O&M tendering related costs which will be the responsibility of CMEC and
GE.
• Ncondezi responsible for 40% of development costs to FC based on an agreed budget once
the development co-funding investment conditions have been satisfied or waived.
• A subscription price and terms for the 60% share in the Project to be agreed once the
electricity tariff with EDM has been confirmed, utilising an accredited asset valuation firm to be
appointed by the Parties, it is expected to be paid at an agreed date when the Project
transaction agreements, internal and government approvals are obtained.
• Ncondezi’s historical development costs to date and the Parties’ future development costs for
the Project will be reimbursed in cash as part of the Project capital costs at FC through debt
and equity financing, subject to approval by the Parties and Project debt financing institutions.
• The JDA includes a one year non-compete for any party that terminates the JDA where it no
longer intends to proceed with the Project. Ncondezi will refund any CMEC or GE
development costs approved by the Parties should the JDA be terminated and the Project
reach FC with a new partner, be sold or liquidated, provided that in the case of a liquidation
such payment shall not exceed the amount raised for distribution following such liquidation.
Background to Joint Development Agreement
On 20 October 2017, the Company announced that it had agreed in principle terms of a Non-Binding
Offer with CMEC and GE. On 9 November 2017, the Company announced that the NBO had been
signed.
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 and energy, transportation, electronic communication, water supply and treatment, housing and
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. In addition and most
relevant to Ncondezi, the two parties worked 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. Commercial operations at the plant began in July 2019.
Experience of JDA parties 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, healthcare, oil and gas and energy
sectors. To date, GE has supplied over 120 locomotives, installed ten 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 programmes which include
scholarships, funding of educational facilities and the provision of local courses.
Following the signing of the JDA, the Project development program will focus on delivering the key
milestones to achieve first power on the grid in 2024. This process started with the submission of a
formal tariff offer to the Liaison Committee and EDM for review and approval in March 2020. Following
agreement of the tariff, the Company expects to formally enter into PPA and PCA negotiations with
EDM and MIREME respectively. The two agreements represent the final commercial negotiations
before the Project enters the project financing phase, which is followed by commencement of Project
construction at FC.
From a timing perspective, an updated development timetable has been submitted to EDM for
approval following the request for the Company to carry out additional Independent Studies. Further
updates will be made to investors at the appropriate time.
Updated Financial Model and Tariff Submission
Following signing of the JDA in July 2019 the Company and its Partners began work on the tariff
submission proposal for EDM. Tariff financial model meetings were held with its Partners, advisors
and lenders in Beijing in Q4 2019 and work programmes were agreed for tariff finalisation and
submission to EDM.
Finalisation of the Project power tariff for submission to EDM required the financial model (“FM”) which
drives the Project power tariff calculation, and its key inputs to be updated. A key component of this
process was the receipt of firm EPC and O&M proposals from the Company’s partners, which provide
capex and opex assumptions for the financial model. Following successful site visits and Q&A
Sessions held in October 2019, the Company’s Partners submitted initial EPC and O&M bids to the
Company in December 2019 with supporting information received in early 2020.
In parallel with the EPC and O&M process the Company also worked with its partners to engage with
lenders to receive preliminary financing terms for the debt component of the Project financing. The
Company received a Letter of Interest (“LoI”) from a leading global financial institution to provide debt
financing for the Project, targeting a minimum of 70% debt finance of the Project capital costs.
Indicative funding terms were received in December 2019. The financial institution has a strong
relationship with the Project partners, having worked with them on providing debt facilities to their
recently completed Thar power plant in Pakistan, a project which is approximately double the size of
the Ncondezi Project at 660MW, utilising similar generation technology and with an integrated coal
mine.
Following receipt of all the key updated information including EPC and O&M proposals, indicative debt
terms and tax and accounting assumptions from KPMG. The FM was submitted to the Company’s
Partners for internal review in January 2020. The FM received final approval from the Company’s
Board of Directors and its Partners and a formal tariff proposal was submitted to EDM in March 2020.
This represented the last major agreed milestone to initiate formal tariff negotiations with EDM.
The Project targets the provision of 24hr reliable, affordable and accessible power in northern
Mozambique, a key growth region currently reliant on expensive emergency generation and exposed
to the effects of prolonged droughts. It targets an attractive energy solution that is competitive with
existing gas power plants in Mozambique and up to 60% cheaper than the emergency power plants
currently in use. Designed to use state-of-the-art emission control technologies to seek to reduce local
air pollutants, minimise the plant’s impact on the environment and ensuring its compliance with the
World Bank’s most stringent emission standards.
The Project is also fully aligned with the Government’s energy generation strategy for additional coal
power in the power generation mix from 2023. 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 and the term sheet terminated.
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.
Relationship Agreement with GridX
On 5 April 2019, the Company announced that it entered into a Term Sheet with GridX, an African
power developer, enabling it to enter into a JV focused on building and operating captive solar and
battery storage solutions for the African C&I sector. In October 2019 the Company announced that it
had entered into a Subscription Agreement and a Shareholder’s agreement with GridX to finance the
development of a 400kWp fully off grid, ground mounted solar PV facility plus 228 KW/912 energy
storage facility for a commercial customer in Mozambique. In May 2020 the Company announced it
had finalised a binding RA with GridX for a pipeline of solar and battery storage projects in the C&I
sector in Mozambique.
Background
Since Ncondezi transitioned from a coal exploration business into an integrated power plant and mine
project, the Company has built up significant Sub-Saharan African power development expertise and
has been evaluating a number of alternative power projects that would complement its existing
300MW Ncondezi Project in Tete, Mozambique. This process led to the identification of the GridX
opportunity in the C&I sector, and is outlined in more detail below.
C&I Solar and Battery Storage Sector Overview
Inadequate access to electricity in Africa both in terms of connections and reliability has driven
demand in the C&I sector for self-generation (or “Captive”/”Embedded”) power solutions. Renewable
energy solutions are estimated by the International Renewable Energy Agency (IRENA) to make up
nearly half of African supply by 2030 and the Company estimates that this market could be worth up to
US$34 billion a year. 1
Traditionally, captive power solutions have relied heavily on diesel generation. The Company
Directors believe this dynamic has the potential to change with the advent of low cost solar and
battery storage. Solar and battery storage solutions are increasingly making economic sense with
potential cost savings of 30% or more versus traditional off grid diesel generation solutions and
providing a price shield against escalating fuel and grid prices. In particular, cost effective battery
storage has allowed greater solar penetration into the market by removing its intermittent power
constraints and maximising energy generated. Solar and battery storage equipment is modular and
pre-fabricated, making it easy and quick to install and in more places. Generation regulations are also
less onerous as installations typically do not require additional licensing.
Solar and battery storage meets the growing pressure for corporate sustainability and zero emissions
from investors and consumers. It also has low maintenance costs primarily due to the lack of moving
parts compared to a diesel generator.
According to Bloomberg New Energy Finance, solar and battery storage costs have fallen 84% and
76% since 2012, and are expected to become even more cost competitive with the cost of solar PV
panels expected to fall a further 37% by 20252 and battery storage costs by a further 67% by 2030 3.
In addition, there are significant ancillary benefits of solar and battery storage projects, including:
• Reduced fuel storage and theft risks
• Reduced fuel logistics costs
• Reduced emissions
• Reduced noise pollution
• Peak shaving – reduces peak period high cost energy demand from grid
• Supply stability – backup, frequency & voltage control
Overview of GridX
GridX is a power developer focused on delivering competitive sustainable energy solutions in the
African C&I sector. GridX identifies C&I energy users who have either no or poor quality grid access
and are dependent on diesel power generation. Capital requirements per target project average
between US$0.5 million and US$2.0 million, and typically each project has a projected 9-12 month
construction timeframe. Each project will seek to have a 10 to 15 year US$ denominated power
offtake contract. Targeted project returns are attractive with minimum targeted post tax unlevered
equity IRR between 10% and 15%, compared with 6% and 10% in developed economies. Ncondezi
believes that these returns can be further increased through leverage.
GridX has in-house resources to produce construction ready projects and is technology agnostic
which allows for competitive technology selection on every project.
In January 2019, GridX delivered its first project in Tanzania. The project was designed for Singita
Grumeti, a luxury game lodge, and involved the installation of a 189 kWp solar plant and 522kWh
battery storage unit from Tesla. The battery storage unit is believed to be the first Tesla installation in
Tanzania. GridX expects that the project will replace over 100,000 litres of diesel consumption
annually and result in an annual US$150,000 reduction in diesel costs.
GridX’s Directors own 70% of GridX, 15% is held by Eden Renewables, an international solar and
storage development company, currently developing projects in the US and UK, 10% by Pan African
1 IRENA: “ 2030: Roadmap for a Renewable Energy Future” (2015)
2 Bloomberg NEF: “Solar for Businesses in Sub-Saharan Africa” (2019)
3 Bloomberg NEF: “New Energy Outlook 2018” (2018)
Group, a private equity and investment banking firm focused exclusively on Sub-Saharan Africa, and
the balance of 5% is held by a private individual. GridX was founded by Executive Directors Chalker
Kansteiner and Justin Pengilly, who have both been working in the African power development sector
for a number of years. Chalker was previously at Blackstone’s large scale African energy project
developer, Black Rhino, whilst Justin previously worked at Pele Green Energy, one of South Africa’s
leading independent power producers in the renewable energy sector (and is the brother of Hanno
Pengilly, the Company’s CEO).
GridX Pipeline
GridX’s current development pipeline in Mozambique includes 7 projects at an early stage of
development, the first funding requirement is not expected until Q4 2020 / Q1 2021. The potential
pipeline projects cover a diverse range of sectors from hospitality and tourism to food and drink
manufacturing and retail centres securing against a downturn in any one industry. The 7 identified
potential projects have a combined potential installed solar capacity of 2.8MWp and 4.5MWh of
battery storage. The current estimated project cost for the portfolio is US$5.5 million (100% equity
basis), with the right of first refusal given to Ncondezi to fund 100% of the Projects.
In October 2019 the Company announced that it had entered into a Subscription Agreement and a
Shareholder’s agreement with GridX to finance the development of a 400kWp fully off grid, ground
mounted solar PV facility plus 228 KW/912 energy storage facility for a commercial customer in
Mozambique. An initial commitment by Ncondezi of US$1.1 million was made to the GridX SPV to
fund the project, to date US$665,680 has been invested. The Project has forecast annual revenues of
US$198,000 through a 15 year fixed price offtake agreement (escalated 2.0% annually). The project
will replace existing generators and is expected to provide cost savings to the offtaker of US$80,000
per year, equivalent to a 29% cost reduction. Commisioning was targeted for Q2 2020 within 8
months of entering into the agreements. Due to the COVID-19 outbreak in early April 2020 a force
majeure notice was issued by the offtaker due to the inability to provide site access for construction.
Project construction was put on hold pending further clarity on the impact of COVID-19 and the lifting
of travel restrictions. All equipment is in secure storage facilities ready for future deployment once
restrictions are lifted and no further construction costs are envisaged. The Company will finalise its
funding strategy for this project once the full impact of COVID-19 becomes clearer. Further updates
will be provided to shareholders as the situation becomes clearer.
Relationship Agreement Overview
In April 2019 Ncondezi signed a Term Sheet with GridX to acquire a right of first refusal (“ROFR”) to
fund GridX C&I projects through a newly setup JV. The Term Sheet envisaged payment of a fee in two
stages to GridX of US$390,000 (the “GridX Fee”) allowing the Company to enter into definitive
agreements to formalise the JV. The first stage was an upfront fee of US$260,000 which was paid
upfront to GridX at the time of signing the Term Sheet. The Term Sheet was replaced in May 2020
with the signing of a binding RA with GridX and remaining instalment of the GridX fee was terminated.
Under the new RA Ncondezi has the ROFR to fund up to US$5.5 million of GridX developed projects
in Mozambique. The ROFR will be managed under a newly formed subsidiary NGPHL. Under the
agreement GridX has identified 7 potential Projects under development with a combined potential
installed PV capacity of 2.8 MWp and 4.5 MWh battery storage. Capital costs range from US$250,000
to US$ 2.1 million. Should these Initial Projects meet the minimum KPI’s and Ncondezi exercise its
right to fund, it would represent a potential annuity revenue stream of over US$750,000 per annum.
Each Project must meet a minimum set of KPIs before being presented to Ncondezi for funding.
These minimum KPIs include:
• Project must be located in Mozambique;
• Project size between US$100,000 and US$10,000,000;
• Use of proven technology;
• Minimum post tax unlevered equity IRR of at least 10% to Ncondezi;
• Minimum credit requirements met;
• Bankable offtake denominated in US$;
• Completion of credit checks on potential clients with additional credit support in place where
required;
• Finalised Engineering Procurement and Construction and Operations & Maintenance
contracts in place; and
• All consents and permits required to start construction in place.
Ncondezi will have the right to fund 100% of each Project’s equity requirement, and Projects will be
assessed for funding on a project by project basis. Ncondezi will look to identify the optimal financing
strategy for each Project, particularly with respect to securing funding at the NGPHL subsidiary level,
and will look at both debt and equity options with gearing of up to 50%. Discussions with potential
investors and debt providers to date have been positive as investment mandates and appetites to
fund energy access and renewable power projects continues to grow.
The first Projects are anticipated to be presented for funding review during Q4 2020 / Q1 2021.
Even if a Project does meet the minimum KPIs, Ncondezi has the right not to fund that Project without
any penalty. However, should Ncondezi elect not to fund any further Projects that meet the minimum
KPIs, it will lose its ROFR over the remaining Projects. If a Project does not achieve the KPIs within
the proposed time frame allocated, GridX has the ability to substitute that Project for alternative
projects.
As part of the RA, GridX has agreed to forego payment of the final amount of the GridX Fee
US$130,000 which would have been payable under the previous arrangement upon completion of a
number of conditions that were not met, and this is no longer a potential payment requirement. Other
than the capped development fee and profit sharing fee which may be due to GridX if Ncondezi elects
to fund a Project, there are no further cash payments to be made to GridX.
In addition, GridX SPV, a special purpose vehicle setup specifically for the Company’s first solar and
battery storage project investment, will become a wholly owned subsidiary of NGPHL through the
purchase of all GridX’s A class shares at par value totalling US$100. Following the acquisition, GridX
will no longer have any management or acquisition rights in the GridX SPV, but will continue to
provide management services. Furthermore, GridX has agreed that as soon as it becomes the owner
of any plant and materials relating to the first solar and battery project currently under construction, it
shall immediately transfer ownership of such plant and material to GridX SPV for no additional
consideration.
As part of its ordinary course of business as a developer, GridX is entitled to a capped development
fee for each Project that Ncondezi funds, included as part of the Project capital cost.
GridX is expected to provide O&M services for each of the Projects that achieves financial close in
accordance with market-related commercial terms for projects of a similar nature, contracting directly
with the power offtaker.
Certain incentives to encourage GridX to achieve the best returns for each Project, will be paid
through a profit sharing mechanism where an equity IRR hurdle of above 10% is achieved by
Ncondezi.
The RA will expire at the earlier of Ncondezi financing US$5.5 million of Projects or 36 months.
Advantages to Ncondezi
The Company Directors believe the RA with GridX has the potential to deliver a number of advantages
for Ncondezi, namely:
1. Complementary to existing Ncondezi Project
JV provides diversification from coal baseload power generation into captive solar and battery
storage small scale renewable and energy storage projects. From a cash flow perspective the
smaller, easier to install solar and battery storage projects potentially provide near term cash
flows before the Ncondezi Project target commissioning in 2024. The smaller capital cost
requirements also negate the need for a large strategic partner.
2. ROFR Structure
ROFR structure provides minimal distraction and additional resources to the Company, as
GridX will take full responsibility for development work and costs to deliver construction ready
projects for funding review. The decision to fund only projects in Mozambique allows
Ncondezi to focus on a geography and jurisdiction that it has expertise in again minimizing
distractions from the main project.
3. Strong Market Fundamentals
Solar and battery storage projects have become economically competitive with traditional
captive power solutions (diesel generators), and further reductions in the cost of solar and
battery storage will ensure competitiveness continues into the future. Added to this, the
ancillary benefits (noise and emission reductions etc.) and increased pressure for sustainable
energy sourcing further strengthen customer investment rational to invest in these solutions.
4. Potential low risk annuity business with significant growth potential
Ncondezi has an option to fund 100% of potential US$5.5 million GridX project portfolio, with 7
potential Projects already identified. At the time of presentation to Ncondezi these are
expected to be construction ready projects with attractive US$ denominated 10-15 year
bankable offtake contracts significantly reducing risks. In addition, over time, the diversified
portfolio approach has a de-risking effect on portfolio level returns which is potentially
attractive to external investors in the future.
5. Attractive project fundamentals and target returns
C&I projects are generally low capex and will usually be expected to generate cash flows
within 12 months. The minimum 10% unlevered post tax equity IRR KPI sets a projected
return floor for each project. These returns represent a premium return when compared to
those in more developed power markets and it is expected that this can be improved further
through higher delivered project IRRs and gearing.
6. First mover advantage
The African market is at an early stage of development with annuity income investors, utilities
and oil companies seeking to enter the sector but slow to move. As Ncondezi builds a
diversified portfolio of renewable C&I projects in one structure the Company believes that this
could ultimately represent an attractive investment opportunity to development funding
institutions, annuity income renewable energy funds, utilities and energy companies and
private equity funds.
Shareholder Loan
The loan term expired on 30 November 2019 with no extensions or restructuring legally agreed as at
year end. As such the loan was in default as at year end, with interest of 12% continuing to be
accrued on the outstanding balance.
As at 19 June 2020, the repayment amount due on 30 November 2019 is US$4.5 million which
includes principal, rolled up premiums under the previous loans and interest.
Conversion notices in relation to 10,337,813 shares have been received throughout the 2019 financial
year up to 30 days prior to the Loan repayment date, have reduced the Shareholder Loan by
US$1,344,000 of principal, rolled up previous redemption premiums and interest.
The Company has received “in principle” support from all Lenders to enter the Loan restructuring
proposal as set out below:
• 12 month extension on existing terms, including 12% annual interest rate and ability for
Lenders to swap debt for equity in part or in full at a conversion price of 10.0p per share.
• A right for Ncondezi to pay off the original principal amount of the Loan along with conversion
of all interest into Ncondezi shares on AIM at a 25% to 30% premium to the 30 day volume
weighted average price (“VWAP”).
The restructuring process is currently subject to the completion of key Lender internal approval from
AFC, which has incurred recent delays from the impact of COVID-19.
All Lenders, including AFC, have indicated that they will not call in the Loan whilst the Restructuring is
being finalised.
The Restructuring is subject to the lenders agreeing to the documentation and the necessary related
party transaction process being completed by the Company’s Independent Directors.
Development Program to Financial Close
The Project is at an advanced level of development following the execution of the JDA and submission
of the tariff proposal to EDM. The Company remains focused on achieving FC which is targeted for H1
2021.
Financial Review
Results from operations
The Group made a loss after tax for the year of US$2.3 million compared to a loss of US$3.5 million
for the previous financial year. The basic loss per share for the year was 0.7 cents (2018: 1.3 cents).
Administrative expenses (excluding sharebased payment charges) totalled US$1.2 million (2018:
US$1.5 million). Administrative expenses refer principally to staff costs, professional fees and travel
costs and underlying administrative expenses relating to advancing the integrated power and mining
project and C&I projects. The decrease mainly relates to cost cutting measures.
The expense arising from equity-settled share options made to Directors was US$0.4 million for the year
(2018: US$1.2 million made to Directors, executive senior management and contracted personnel) as
set out on note 17.
The loss after tax includes US$0.7 million (2018: US$0.7 million) finance cost comprising mainly of
US$1.1 million of effective interest charges on the convertible loan note liability and US$0.4 million of
fair value gains on the derivative due to the derecognition.
Financial Position
The Group’s statement of financial position at 31 December 2019 and comparatives at 31 December
2018 are summarised below:
Non-current assets
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
2019
US$’000
19,032
748
19,780
4,668
4,668
15,112
2018
US$’000
18,272
478
18,750
5,508
5,508
13,242
Capitalised additions totalled US$0.06 million (2018: US$0.01 million) principally in respect of the
Power Project. The remaining increase in non-current assets is a result of US$0.8 million investment
in joint venture recognised in the year in respect of development of C&I Solar and Battery Storage
platform and projects, refer to note 9 for more details. The carrying value of the non-current assets
was assessed for impairment and no impairment was noted as detailed in note 2.
The decrease in current liabilities principally relates to the Shareholder Loan convertions in 2019,
together with accrued interest.
Cash Flows
The net cash outflow from operating activities for the year was US$1.2 million (2018: US$1.4 million).
The cash outflow principally represented administrative costs for the year with limited working capital
movements.
Net cash outflow from investing activities was US$0.8 million (2018: US$0.02 million inflow), mainly
related to investment on C&I Solar and Battery Storage platform and projects as detailed in note 9.
Net cash inflow from financing activities was US$2.3 million (2018: US$1.2 million) mainly relating to
the net amount of US$2.2 million from an oversubscribed placing of 28,856,060 ordinary shares in the
Company at a price of 6.5 pence per ordinary share and US$0.1 million (2018: US$nil) relating to the
exercise of 2,500,000 warrants at subscription price of 5 pence per share.
The resulting year end cash and cash equivalents held totalled US$0.7 million (2018: US$0.4 million).
Outlook
As at 1 June 2020 the Group had cash reserves of approximately US$0.9 million. Based upon
projections, which are subject to the Shareholder Loans being converted, extended and restructured
and include corporate costs, deferrals of salaries of staff and consultant fees, project costs to progress
the Project and planned expenditure related to a pipeline of C&I projects, the Group is funded until Q4
2020. Projections do not include further funding of the initial C&I solar battery project, currently under
construction and on hold due to COVID-19 restrictions. The Company will finalise its funding strategy
for this project once the full impact of COVID-19 becomes clearer. The working capital facility expires
on the 30 June 2020, to date US$250,000 has been drawn down and no further drawdowns are
anticipated. The forecasts remain subject to the Shareholder Loan being extended and restructured.
The Loan of US$4.5 million as at 19 June 2020 (principal, historic redemption premium and interest)
matured on 30 November 2019, and the Company is currently evaluating options to execute the
restructuring process as proposed on 26 November 2019.
The Board also recognises the uncertainty surrounding the potential impacts from the COVID-19 virus.
To date the Company has experienced a delay to the completion of the first solar battery storage
project and associated revenue stream, due to travel restrictions put in place to limit the spread of
COVID-19. The Company does not anticipate further construction costs related to the project until the
force majeure has been lifted however there are costs associated with the storage of equipment. The
Company is reviewing a number of options to ensure costs associated with the project are kept to a
minimum. Power tariff negotiations are currently taking place virtually with EDM, the Mozambique
Government and the Company’s Partners due to the travel restrictions. EDM has requested the
Company carries out two Independent Studies which has resulted in a delay to the tariff negotiations.
An updated work programme has been submitted to EDM for review and the Company will provide a
more detailed timetable update to investors at the appropriate time.
The Directors continue to explore options in respect of raising further funds to continue with the power
plant and mine development programmes and any potential C&I projects. 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.
In addition, notwithstanding the Shareholder Loan, further funding will be required as detailed above
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. 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 although the
Company has also been exploring options to raise additional funding and refinance or convert the
Shareholder Loan; there can be no certainty that any of these initiatives will be successful.
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
Sustainability
Ncondezi is committed to operating in a sustainable and responsible manner. The Company takes a
long-term strategic approach to the conduct of its business, with corporate responsibility as a key
priority. We are focused on achieving the highest standards of ethical behaviour, health and safety,
environmental stewardship and governance, while sharing the benefits of our operations with our host
communities and host country.
Ncondezi’s Social Development Programme was put on hold pending further Project developments.
Following this the Company is working with their partners to put in place a road map to ensure the
Company meets the highest levels of sustainability at all stages of development. Further updates will
be provided to shareholders in due course.
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 surrounding the
Ncondezi Project.
• 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
The following sets out the biographies of the directors as at 31 December 2019.
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. Mr Haworth was previously a Managing Director at J.P.
Morgan and Head of Mining and Metals Corporate Finance in London.
Estevão Pale / Non-Executive Director (resigned on 5 May 2020)
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.
On 5 May 2020, the Company announced that Estevão Pale resigned from the Board of the Company
and his role as a Non-Executive Director to focus on his newly appointed role as Chairman of
Mozambique national oil company, Empresa Nacional de Hidrocarbonetos.
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. Mr Sachdeva was nominated to serve as a Non-Executive Director by AFC.
Hanno Pengilly / Chief Executive Officer
Hanno has considerable knowledge in the power and mine sectors on the back of his experience in
the business over the last 10 years. Hanno joined the Company in 2010 and has been the Company’s
Chief Development Officer since May 2012. Hanno has been responsible for managing key project
milestones including the delivery of the power plant and mine feasibility studies in 2013 and 2014.
Since May 2017, Hanno has led the Company’s strategic partner process, which successfully resulted
in the signing of a binding JDA in July 2019, and led the Company in key negotiations with the
Mozambique government and state power utility EDM.
Prior to joining the Company, he was an investment banker at JP Morgan, based in the United
Kingdom and South Africa, and predominantly focused on natural resources. He holds a BSc in
Economics.
Director’s Report
The Directors present their annual report and the audited group financial statements headed by
Ncondezi for the year ended 31 December 2019.
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. The Group has also entered
the African C&I solar and battery storage sector.
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 20.
Key performance indicators
The key performance indicators of the Group are as follows:
Mine exploration expenditure (US$’000)
Power development expenditure (US$’000)
JV investment expenditure (US$’000)
Share price at 31 December (pence)
Cash at bank at 31 December (US$’000)
2019
-
58
769
6.30
722
2018
7
25
-
5.65
424
Results and dividends
The results of the Group for the year ended 31 December 2019 are set out below.
The Directors do not recommend payment of a dividend for the year (2018: US$nil). The loss will be
transferred to reserves.
Events after the reporting date
See note 23 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 20 of the financial statements.
Going concern
As at 1 June 2020 the Group had cash reserves of approximately US$0.9 million. Based upon
projections, which are subject to the Shareholder Loans being converted, extended and restructured
and include corporate costs, deferrals of salaries of staff and consultant fees, the working capital
facility of which US$250,000 has been drawn down to date and expires on 30 June 2020, project
costs to progress the Project and planned expenditure related to a pipeline of C&I projects, the Group
is funded until Q4 2020. However, the forecasts remain subject to the Shareholder Loan being
extended and restructured. The Loan of US$4.5 million as at 19 June 2020 (principal, historic
redemption premium and interest) matured on 30 November 2019, and the Company is currently
evaluating options to execute the restructuring process as proposed on 26 November 2019. Details on
going concern are contained in note 1 of the financial statements.
The COVID-19 pandemic represents a risk to a number of aspects of the Company’s business and
there is considerable uncertainty relating to the pandemic duration and its impact. The Company
continues to closely monitor the impacts on its projects and to develop appropriate response plans.
Directors and Directors’ interests
Director Note
1
Michael Haworth
Estevão Pale 2
Aman Sachdeva 3
Hanno Pengilly
Appointment
date
01.06.12
03.06.10
21.05.15
09.10.19
Ordinary Shares held
31 December 2019
16,759,462
-
-
291,375
Ordinary Shares held
31 December 2018
16,468,087
-
-
-
Includes shares held by a trust of which Michael Haworth is a potential beneficiary.
1.
2. Estevão Pale resigned on 05.05.20.
3. Aman Sachdeva is AFC’s nominated director. AFC holds 54,988,520 ordinary shares representing 16.92% of the
issued Ordinary Shares as at 31.12.19 and 15.75% as at 01.06.20.
Annual General Meeting
Resolutions will be proposed at the forthcoming Annual General Meeting, as set out in the Formal
Notice. In accordance with the Company’s Articles of Association one third of the Directors are
required to retire by rotation. Accordingly, Michael Howarth will offer himself 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 are 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/she 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
19 June 2020
Risk Factors
Risk(s)
Potential Impact(s)
Mitigation Measure(s)
Financing risk
its existing
to complete
the
The Group needs
restructuring of
loans 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 Project and/or delay in its
execution.
To achieve FC of the Project, the Group will
also need to conclude some of its on-going
negotiations on key project agreements,
including the Project Power Tariff, PCA and
the PPA. Failure or delay in doing so may
lead to failure of the Project and/or delay in
its execution.
To achieve investment in any GridX C&I
projects that meet the minimum KPIs, the
Group will need to secure investment from
strategic investors and/or investment from
co-developers. Failure to do so may lead to
loss of the Group’s ROFR on future GridX
projects.
To date the Company has successfully
raised capital via the issue of new shares.
Going forward future capital raises will be
subject to market conditions at the time
which may be impacted by COVID-19,
there
these will be
successful.
is no guarantee
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
The Company is in discussions with the
existing loan holders and has received ‘in
principle’ support regarding restructuring of
the
together with
exploring funding solutions to refinance the
loans.
if necessary,
loans,
The Company intends to engage with a
range of potential financing partners with
the objective of securing additional
development capital for the costs that will
not be covered by the JDA partners,
including select corporate overheads.
Since October 2018, Ncondezi has had a
successful track record in raising additional
capital with £2.53 million before expenses
raised during the year and since year end
despite challenging markets due to the
COVID-19 outbreak. The Company has
also successfully put in place a working
capital facility for US$750,000.
The Project is at an advanced level of
development. Power Tariff negotiations are
underway with EDM and the Mozambique
Government. Negotiations are taking place
virtually to mitigate the travel restrictions
currently in place due to COVID-19. Other
key workstreams are progressing ahead of
finalising the PPA and PCA.
Ncondezi has signed a JDA with CMEC
and GE which provides financial support to
the developmental
the project both at
stages
to FC as well as during
construction. It is important to highlight that
there is no certainty that additional funding
will be raised.
The Company has agreed to fund US$1.1
million, towards the first GridX C&I project
that meets all the KPI’s and is approved by
the Group, of which US$665,680 has been
spent to date. This project is currently on
hold due to the ongoing impact of COVID-
19. The Company has held discussions
with a number of potential debt and equity
investors, and intends to further develop
these potential sources of capital at the
appropriate time.
The Directors’ will monitor the monthly
the Group
cash burn rate
operates within its cash resources for as
long as possible.
to ensure
In October 2018,
the
Mozambique
Electricity Program
for All”,
expansion of energy access
the President of
“National
targeting
in
rates
launched
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.
Competition from
other power
stations in
Mozambique
Other power stations are being developed
in the Tete region and are competing for
offtake from EDM as well as resources
such as water and
line
servitudes.
transmission
Mozambique from 31% in 2018 to 62% in
2024 and 100% by 2030. The program
specifies that up to 650MW of new coal
power generation is to come online from
2023.
The Company has substantially advanced
the PPA and PCA
through previous
negotiations with EDM and MIREME. EDM
has indicated its willingness to continue
negotiations once the Company introduces
an acceptable strategic partner and a new
tariff proposal. These were completed on
31 March 2020, and the Company has
started the tariff negotiation process with
tariff
EDM. The Company’s updated
than the
is over 10%
proposal
previously agreed tariff with EDM.
lower
In June 2020 the Company agreed to
update the transmission integration study
and Mozambican power market outlook
study. The results of the studies should
verify certain technical assumptions and
provide greater certainty around
the
business case for the Project alongside the
tariff proposal, facilitating negotiations on
the Project tariff.
There is a shortage of power in the region,
currently exporting
with Mozambique
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.
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.
Competition from solar and wind projects is
limited in that they are not baseload plants.
Additionally, being a thermal coal power
station project, the Group can implement
commissioning of the power plant faster
than competing hydroelectric projects
which typically take 2-3 years longer to
commission.
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
Resources
• Sign-off of resources by registered
Competent Person (“CP”).
• Reporting resources in accordance
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
Coal specification developed at the pre-
feasibility study and verified during the
feasibility stage may not be representative
of coal to be used in the plant.
Not properly characterised coal resources
may lead to incorrect boiler design and
plant underperformance.
Coal risk
Transmission grid
constraints
Available transmission capacity is allocated
to other power generators.
Environmental
and other
regulatory
requirements
expense,
additional
Existing and possible future environmental
legislation, regulations and actions could
capital
cause
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.
with the JORC code.
• Classification of resources into a high
level of confidence category.
• Conduct detailed geological modelling
The
accredited
•
laboratories for the analyses of coal
samples.
utilisation
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.
Further coal quality analysis will be
the boiler
conducted and supplied
supplier for finalisation of boiler design.
to
A transmission agreement heads of terms
have been signed with EDM and the
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
An updated transmission integration study
commenced
to explore,
in June 2020
develop and identify potential optimisations
of all potential future transmission options
including new
in
Mozambique as well as other countries
including Malawi and Zambia.
transmission capacity
standards
The Group
of
adopts
international best practice in environmental
management and community engagement
focussing on satisfying
in addition
to
Mozambican environmental
regulations
and
in all stages of
development.
requirements
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
independent,
internationally recognised consultants, and
have been approved by the Mozambican
Government.
conducted
by
Climate Change
Risk
Foreign Country
risk
Increased awareness and action against
climate change will put pressure on
governments and financing organisations to
reduce exposure to fossil fuel related power
generation. This
future
Mozambican Government policy towards
funding
coal
appetite for the Project.
fired generation and
could affect
limit
The Group’s exploration
licences and
project are in Mozambique. The Group
faces political risk whereby changes in
government policy or a change of governing
political party could place its exploration
licences and project in jeopardy.
Mozambique defaulted on commercial
loans in 2016 resulting in donors and the
International Monetary Fund (IMF) freezing
aid
to Mozambique, which may affect
financing of the Project at FC.
control
systems,
the art
The Project will use state of
targeting
emission
particulates, SOx and NOx emissions
below the current IFC and World Bank
standards. The project will also be
compliant with the latest OECD guidelines
and equator principles.
factor
Mozambique is a developing country with
an energy generation mix that is heavily
dependent on hydro power generation.
Power generation from coal is seen as a
key
improving Mozambique’s
energy security by reducing Mozambique’s
power
dependence
(particularly in the north), where current
generation is vulnerable to the extreme
weather effects of climate change.
hydroelectric
on
in
The Mozambican Government has been
stable
fosters a
beneficial climate
towards companies
exploring for resources.
for many years and
The IMF and potential multilateral lenders’
groups continue towards a resolution for
Mozambique’s default. Settlement between
the Mozambican Government and creditors
in October 2019 and
the successful
financial close on Mozambique LNG are
seen as positive steps towards
future
funding of projects in Mozambique. All
parties have committed to resolving the
issue in a reasonable and transparent
manner
the
country.
restore confidence
to
in
Project
Development
Risk
The Company’s assets are all at a
development stage. Failure to successfully
execute and complete the development
projects, or to execute and complete the
projects on time and on budget, would have
an adverse operational and
financial
impact.
The Company has signed a JDA with
CMEC and GE who have a track record of
delivering integrated coal-fired power and
mine projects on time and budget. Regular
project update meetings are held with the
Executive Team to ensure all workstreams
are progressing as planned and ongoing
monitoring, reporting and control processes
are in place.
battery
The Company has signed a RA with GridX
providing a pipeline of potential off-grid
solar
for
storage
investment. Projects are only put forward
for investment when they meet strict KPIs.
The Company has a ROFR over the
pipeline and can reject one project that
meets the KPIs without losing their ROFR.
projects
The COVID-19 crisis has resulted in force
majeure being declared on the first off-grid
solar battery project due to the travel
restrictions in place and delays to the tariff
Independent
negotations while
Studies are carried out. The Company
continues to monitor the situation and is
further
reviewing all options to ensure the initial
for
investment
shareholders.
provides
return
a
COVID-19
impacted
The COVID-19 outbreak in H1 2020 has
resulted in travel restrictions in and to
the
This has
Mozambique.
Company in a number of ways preventing
access to site for both the main Power
Project and the initial C&I solar and battery
storage project. As a result force majeure
was declared by the C&I battery solar
project offtaker and construction has been
halted.
The travel restrictions have also prevented
the Project Partners from holding in person
negotiations with EDM and existing and
potential investors.
The Company has halted all travel and is
operating on a remote basis.
Construction work on the C&I solar and
battery project in Mozambique has been
suspended.
All equipment has been
securely stored ready to be installed once
the travel ban has been lifted and safe
access to site can be provided.
Meetings with our Project Partners,
consultants and advisors have all been
Negotiations with
transferred online.
Government and EDM are also taking
place online to ensure they can advance
while the travel restrictions are in place.
the
Following discussions with EDM
Company has agreed to carry out two
independent studies which will take into
account the developments in Mozambique
and the region over the last 2 years
including the potential impact of COVID-19.
The Company continues to closely monitor
the impacts on its projects and to develop
appropriate response plans.
Corporate Governance Statement
The Directors of the Company have elected to follow the principles of the QCA Corporate Governance
Code. The QCA Corporate Governance Code identifies ten principles that focus on the pursuit of
medium to long-term value for shareholders without stifling the entrepreneurial spirit in which the
company was created. In addition to the details provided below, governance disclosures can be found
on the Company’s website at http://www.ncondezienergy.com/corporate-governance.aspx
The Company is focused on the phased development of its large scale, long life, integrated thermal
coal mine and 300MW power plant project (the “Project”) which it believes offers the most achievable
and financeable route to production, thereby delivering value for shareholders. The key risk factors
that face the Group and their mitigation are set out above.
The Company has also entered the high growth C&I solar and battery storage market. The signing of
a biding RA with GridX in May 2020 offers a phased entry to the sector with low development risk
A statement of the Directors’ responsibilities in respect of the financial statements is set out on the
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 2019, the Board comprised a Non-Executive Chairman (Michael Haworth), two
further Non-Executive Directors (Aman Sachdeva, Estevão Pale) and one Executive Director (Hanno
Pengilly).
Under the UK Corporate Governance Code the independence or otherwise of the Directors is a
judgement for the Board. As part of this consideration the Board has reflected on the fact that under
the UK Corporate Governance Code Estevão Pale or Aman Sachdeva would not be viewed as
independent by virtue of the options that they each hold in the Company and, in respect of Aman
Sachdeva, his role as CEO of Synergy Consulting (which provides consultancy services to the
Company). Despite this, the Directors believe that independence is not a state of mind that can be
measured objectively and, given the character, judgement and decision making process of the
individuals concerned, the Directors believe that Estevão Pale and Aman Sachdeva can be
considered independent. Estevão Pale resigned as a director on 5 May 2020.
The Board is satisfied that, between the Directors, it has an effective and appropriate balance of skills
and experience, including in the areas of natural resources, infrastructure and finance. For details of
the Directors past experience, please refer to ‘Director’s Biographies’ session set out below.
All Directors receive regular and timely information on the Group’s operational and financial
performance. Relevant information is circulated to the Directors in advance of meetings. As explained
above, due to the relatively small size of the Group’s operations, Directors 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 financial reporting.
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 2019 Estevão Pale remained as second member of the
remuneration committee together with Michael Haworth. Following Estevão Pale’s resignation, the
remuneration committee is made up of Michael Haworth and Aman Sachdeva.
Since the appointment of Michael Haworth as Non-Executive Chairman, and given that due to the size
of operations the Company does not currently have a nominations committee he has been assessing
the individual contributions of each of the members of the team to ensure that:
their contribution is relevant and effective;
that they are committed; and
•
•
• where relevant, they have maintained their independence.
Over the next 12 months, the Company intends to continue to review the performance of the team as
a unit to ensure that the members of the Board collectively function in an efficient and productive
manner.
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.
Culture
It is the Company’s policy to conduct all of its business in an honest and ethical manner. The Directors
believe that the main determinant of whether a business behaves ethically and with integrity is the
quality of its people. As the Board currently fulfils the responsibilities that might otherwise be assumed
by a nominations committee, the Directors have responsibility for ensuring that individuals employed
by the Group demonstrate the highest levels of integrity.
The Board has also 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); and
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.
It is our policy to conduct all 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 and more frequently when required. Decisions
concerning the direction and control of the business are made by the Board. The Board is satisfied
that each of the Directors are able to allocate sufficient time to the Group to discharge their
responsibilities effectively. The number of meetings held during the year was 15 and attendance is
outlined below:
Attendance by directors Board meetings
15
Michael Haworth
Jacek Glowacki
10
Estevão Pale 11
12
Aman Sachdeva
4
Hanno Pengilly
* Jacek Glowacki resigned on 25.11.2019 and Hanno Pengilly was appointed on 09.10.2019 and attended all 4 meetings held
since his appointment.
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 2019, the Audit Committee members were Jacek Glowacki (Committee Chairman) and Michael
Haworth. Jacek Glowacki was replaced by Michael Haworth as committee chairman and Aman
Sachdeva as the second member of the Audit Committee following Jarek Glowacki’s resignation on 25
November 2019. The Board intends to appoint a new independent Director in the near future.
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 Audit Committee meets with the Group’s auditors to review reports
in respect of the annual audit and considers the significant accounting policies, judgements and
estimates involved in the Group’s financial reporting, together with the scope of the audit and the
auditor fees and independence.
The Board notes that additional information supplied by the Audit Committee has been disseminated
across the whole of this Annual Report, rather than included as separate Committee Reports. The
Audit Committee met once in the year.
The Remuneration Committee
The Remuneration Committee in 2019 were comprised of 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. The Remuneration
Committee met once in the year.
A Remuneration Committee Report appears is set out below.
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 Directors
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 end, being 31 December 2019, the Remuneration 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 2019 the
following awards to Director remained in place:
Non-Executives
Date of grant
Number
granted
Exercise
price
25 May 2018
Estevão Pale
25 May 2018
Estevão Pale
25 May 2018
Estevão Pale
26 Nov 2019
Estevão Pale
25 May 2018
Aman Sachdeva
26 Nov 2019
Aman Sachdeva
25 May 2018
Jacek Glowacki
25 May 2018
Hanno Pengilly
25 May 2018
Hanno Pengilly
25 May 2018
Hanno Pengilly
25 May 2018
Hanno Pengilly
25 May 2018
Hanno Pengilly
25 May 2018
Hanno Pengilly
25 May 2018
Hanno Pengilly
Hanno Pengilly
26 Nov 2019
* as considered a good leaver Jacek Glowacki has 30 months from 25.11.19 to exercise these options.
75,000
1,000,000
300,000
750,000
1,000,000
750,000
1,000,000
550,000
150,000
300,000
2,375,132
1,187,566
1,187,566
1,187,566
6,333,332
8.625p
6.25p
nil
6.5p
6.25p
6.5p
6.25p
8.625p
8.625p
5.0p
7.5p
10.0p
15.0p
8.625p
6.5p
Expiry
7 years
10 years
10 years
10 years
10 years
10 years
10 years*
10 years
10 years
10 years
10 years
10 years
10 years
10 years
10 years
Refer to note 17 for details of the vesting conditions attached to certain of the awards.
Grant of Share Awards
During 2019 7,833,332 share options were issued to the Company’s directors (2018: 22,897,522
included Company’s directors, executive senior management and contracted personnel).
Directors’ Options
During 2019 all 7,833,332 share options were issued to the Company’s Directors (2018: 8,987,542 out
of the 22,897,522).
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 Estevão Pale since 1 April 2017.
Directors’ remuneration
The following table sets out an analysis of the pre-tax remuneration for the year ended 31 December
2019 for individual directors who held office in the Company during the period.
Director
Base
Salary/fee
US$’000
Benefits
US$’000
Share
based
payments*
US$’000
Total
2019
US$’000
Total
2018
US$’000
Michael Haworth
Christiaan Schutte*
Estevão Pale
Jacek Glowacki**
Aman Sachdeva
Hanno Pengilly***
Total
* Christiaan Schutte resigned on 30.09.2018.
** Jacek Glowacki resigned on 25.11.2019.
*** Hanno Pengilly was appointed on 09.10.2019 – the base fees reflects three months diretorship.
-
-
39
-
39
25
103
-
-
-
-
-
60
60
-
-
-
-
-
-
-
-
-
39
-
39
85
163
-
396
110
81
81
-
668
On behalf of the Board
Michael Haworth
Non-Executive Chairman
19 June 2020
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 2019 which comprise the consolidated
statement of profit or loss and other comprehensive income, consolidated statement of financial
position, consolidated statement of changes in equity, consolidated statement of cash flows 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:
•
•
give a true and fair view of the state of the Group’s affairs as at 31 December 2019 and its loss for
the year ended; and
have been prepared in accordance with IFRSs 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 and the Parent Company 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 related 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 and restructure its existing shareholder
loans which are in default 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.
As stated in note 1, these events or conditions indicate that a material uncertainty exists that may cast
significant doubt on the Group’s ability 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.
Our audit procedures in response to this key audit matter included:
• We discussed
the potential
impact of COVID-19 with management,
their
assessment of potential risks and uncertainties associated with areas such as the Group’s
operations, ability to secure funding and restructure the loan and the potential impact on
finalisation of the power project tariff that are relevant to the Group’s business model and
operations. We formed our own assessment of risks and uncertainties based on our
understanding of the business.
including
• We obtained management’s reverse stress testing analysis which was performed to
determine the point at which liquidity breaks and considered whether such scenarios,
including the inability to secure anticipated funding and restructure the shareholder loan,
failure to obtain tariff approval and delays in finalising the construction of the first C&I solar
and battery storage were possible.
• We critically assessed management’s base case cash flow forecasts and the underlying key
assumptions which have been approved by the Board. In doing so, we compared the
operating cost forecast to historical expenditure rates, reviewed agreements to assess
committed project expenditure, reviewed agreements for the deferral of consulting fees and
evaluated the repayment terms of the loan facilities. We reviewed board minutes and market
announcements for indications of additional cash requirements.
• We considered management’s judgment that they had a reasonable expectation of
restructuring the shareholder loans and securing additional financing to meet working capital
requirements. In doing so, we inspected correspondence with the loan note holders, made
specific inquiries of the Board, considered the Group’s history of fundraising and obtained
written representations from the Board.
• We reviewed and considered the adequacy of the disclosure within the financial statements
relating to the Directors’ assessment of the going concern basis of preparation.
Key audit matters
Key audit matters are those matters that, in our professional judgement, 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. In addition to the matter described in the Material uncertainty related to
going concern section, we have determined the matters described below to be the key audit matters to
be communicated in our report.
Key audit matter
Carrying value of the group’s mining and power assets
The Group’s mining and power assets
represent its most significant assets as at 31
December 2019 as detailed in note 7. The
mining assets are held at their recoverable
value which
following
is below
impairments made in prior years.
cost
How we addressed the key matter in our audit
the
assessed
appropriateness
We
of
management’s conclusion that the mining and
power assets represented one cash generating
unit, against
requirements of applicable
accounting standards.
the
Management are required to assess whether
they consider there to be any indicators that
the group’s mining and power assets may be
impaired as at 31 December 2019 and
whether any reversals of historic impairments
are appropriate. Management determined that
the mine and power assets represent one
cash generating unit as detailed in note 2.
an
performed
Management
impairment
assessment for the mining and power assets
and concluded that no impairment of the
power or further impairment of the mine assets
from the prior years was necessary and that
no reversal of impairment on the mining
assets was required as detailed in note 2,
judgements and
the key
which sets out
estimates
impairment
the
assessment.
involved
in
indicators
We critically reviewed management’s impairment
review and performed our own assessment of
in accordance with
impairment
applicable accounting standards
to
their assessment was
determine whether
complete and in accordance with the requirements
of such standards.
in order
We obtained the integrated power and mine asset
financial model, prepared by management’s
external consultant, and confirmed that the model
demonstrated headroom over the carrying value.
In respect of key inputs in the model we confirmed
that the project costs were consistent with quotes
and supporting
the
discount rate to relevant third party rates and
performed sensitivity analysis. We assessed the
independence and competence of the external
consultant.
information, compared
The appropriateness of the carrying value of
mining and power assets represented a key
audit matter given the significant judgements
required in the impairment assessment.
In respect of the electricity tariff , upon which the
project development is dependent, which remains
subject to agreement with the Government, we
obtained confirmation from management that the
tariff rate represented their best estimate of the
rate required by the Government based on verbal
they had held and we obtained
discussions
specific written representation to that effect. We
internal
reports
reviewed market
correspondence
they were
to confirm
consistent with the tariff used in the model and
agreed the rate to documents submitted to the
Government.
and
that
We reviewed
the signed Joint Development
Agreement with the project partners and obtained
supporting documents demonstrating progress
and the continued feasibility of the project at this
time.
the
assessed
appropriateness
We
of
management’s conclusion that no reversal of
impairment was required in respect of the mining
assets, notwithstanding the headroom derived
from the integrated model when compared to the
power and mining assets as a whole under certain
assumptions. We discussed this judgment with the
Audit Committee, which included consideration of
in
factors which may
circumstances in respect of the underlying mining
asset that gave rise to the original impairment on
the mining assets and uncertainties that remain in
the absence of a binding Joint Development
Agreement or electricity tariff.
indicate a change
We reviewed the disclosures in note 2 against the
accounting
requirements
framework
they
appropriately reflected the key judgements and
estimates made by management.
relevant
the
considered whether
of
and
Key observations:
Based on the procedures performed, we found
management’s assessment and disclosures in the
financial statement to be appropriate.
Our application of materiality
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.
The materiality for the financial statements as a whole was set at US$0.3 million (2018: US$0.28
million). This was based on 1.5% (2018: 1.5%) of total assets which we consider to be an appropriate
benchmark due to the focus of stakeholders being on the assets of the Group.
The significant components of the Group were audited to a lower materiality of US$0.11million to
US$0.27million.
Performance materiality is the application of materiality at the individual account or balance level set at
an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds materiality for the financial statements as a whole.
Performance materiality was set at US$0.21million (2018: US$0.20million) 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$15,000 (2018: US$14,000), which was set at 5% 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.
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 three to be significant, being the parent
company, one subsidiary based in Mozambique and the subsidiary holding the joint venture
investment. A full scope audit was performed on these significant components by BDO LLP as
accounting records are maintained in the UK and management are based in the UK. Non-significant
components were subject to analytical review procedures. All procedures were performed by BDO
LLP.
Other information
The Directors are responsible for the other information. The other information comprises the
information included in the annual report and financial statements, other than the financial statements
and our auditor’s report thereon. Our opinion on the financial statements does not cover the other
information and 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 statement of Directors’ responsibilities set out Statement of Directors
Responsibility above, 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 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 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 : 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 Parent Company’s members, as a body, in accordance with the
terms of our engagement letter dated May 2020. Our audit work has been undertaken so that we
might state to the Parent 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 Parent Company and the Parent Company’s members
as a body, for our audit work, for this report, or for the opinions we have formed
BDO LLP
Chartered Accountants
London
United Kingdom
19 June 2020
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
Consolidated statement of profit or loss and other comprehensive
income
for the year ended 31 December 2019
Other administrative expenses
Share-based payment charge
Total administrative expenses and loss
from operations
Finance expense, net
Loss for the year before taxation
Taxation
Loss and total comprehensive loss for the
year attributable to equity holders of the
parent company
Loss per share expressed in cents
Basic and diluted
Note
3
3
4
5
6
The notes form part of these financial statements.
2019
2018
US$’000
US$’000
(1,216)
(402)
(1,618)
(680)
(2,298)
-
(1,461)
(1,297)
(2,758)
(722)
(3,480)
-
(2,298)
(3,480)
(0.7)
(1.3)
Consolidated statement of financial position
as at 31 December 2019
Note
2019
US$’000
2018
US$’000
Assets
Non-current assets
Property, plant and equipment
JV Investment
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Loans and borrowings
Derivative financial liability
Total current liabilities
Total liabilities
Capital and reserves attributable to
shareholders
Share capital
Accumulated losses
Total capital and reserves
Total equity and liabilities
7
9
10
11
12
13
14
15
18,263
769
19,032
26
722
748
19,780
404
4,234
30
4,668
4,668
18,272
-
18,272
54
424
478
18,750
481
4,182
845
5,508
5,508
92,660
(77,548)
15,112
19,780
88,796
(75,554)
13,242
18,750
The financial statements were approved and authorised for issue by the Board of Directors on 19 June
2020 and were signed on its behalf by:
Michael Haworth
Non-Executive Chairman
The notes form part of these financial statements.
Consolidated statement of changes in equity
for the year ended at 31 December 2019
At 1 January 2019
Loss for the year
Other comprehensive loss for the year
Total comprehensive loss for the year
Issue of shares
Costs associated with issue of shares
Exercise of share options
Shareholders Loan conversion into equity
Exercise of warrants
Equity settled share-based payments
At 31 December 2019
At 1 January 2018
Loss for the year
Other comprehensive income for the year
Total comprehensive loss for the year
Issue of shares
Costs associated with issue of shares
Exercise of share options
Equity settled share-based payments
At 31 December 2018
The notes form part of these financial statements.
Share
capital
US$'000
88,796
-
-
-
2,380
(213)
98
1,344
255
-
92,660
Share
capital
US$'000
87,384
-
-
-
1,310
(204)
306
-
88,796
Foreign
Currency
Translation
reserve
US$'000
Accumulated
Losses
US$'000
Total
US$'000
13,242
(2,298)
-
(2,298)
2,380
(213)
-
1,344
255
402
(75,554)
(2,298)
-
(2,298)
-
-
(98)
-
-
402
(77,548)
15,112
-
-
-
-
-
-
-
-
-
-
-
Foreign
Currency
Translation
reserve
US$'000
-
-
-
-
-
-
-
Accumulated
Losses
US$'000
(72,994)
(3,480)
-
(3,480)
-
-
(306)
1,226
Total
US$'000
14,390
(3,480)
-
(3,480)
1,310
(204)
-
1,226
(75,554)
13,242
Consolidated statement of cash flows
for the year ended at 31 December 2019
Cash flow from operating activities
Loss before taxation
Adjustments for:
Finance expense
Share based payment charge
Unrealised foreign exchange movements
Reversal of accrual
Gain on disposal of property plant and equipment
Depreciation and amortisation
Net cash flow from operating activities before
changes in working capital
Increase/(decrease) in payables
Decrease in receivables
Net cash flow from operating activities before tax
Income taxes refunded
Net cash flow from operating activities after tax
Investing activities
Sales of property plant and equipment
Power development costs capitalised
Mine development costs capitalised
JV investment
Net cash flow from investing activities
Financing activities
Issue of ordinary shares
Cost of share issue
Warrants exercised
Net cash flow from financing activities
Net increase/(decrease) in cash and cash
equivalents in the year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes form part of these financial statements.
2019
US$’000
2018
US$’000
(2,298)
(3,480)
680
402
-
(150)
-
67
(1,299)
73
28
(1,198)
-
(1,198)
-
(58)
-
(769)
(827)
2,380
(213)
156
2,323
298
424
722
722
1,297
2
-
(44)
68
(1,435)
(25)
29
(1,431)
-
(1,431)
47
(25)
(7)
-
15
1,310
(84)
-
1,226
(190)
614
424
Notes to the consolidated financial statements
1. Principal accounting policies.
General
The Company is a public limited liability company incorporated on 30 March 2006 in the British Virgin
Islands. The address of its registered office is Coastal Building, Wickham's Cay II, PO Box 2221, Road
Town, Carrot Bay, Tortola, British Virgin Islands.
Going concern
As at 1 June 2020 the Group had cash reserves of approximately US$0.9 million. Based upon
projections, which are subject to the Shareholder Loans being converted, extended and restructured
and include corporate costs, deferrals of salaries of staff and consultant fees, project costs to progress
the Project and planned expenditure related to a pipeline of C&I projects, the Group is funded until Q4
2020. Projections do not include further funding of the initial C&I solar battery project, currently under
construction and on hold due to COVID-19 restrictions. The Company will finalise its funding strategy
for this project once the full impact of COVID-19 becomes clearer. The working capital facility expires
on 30 June 2020, to date US$250,000 has been drawn down and no further drawdowns are
anticipated. The forecasts remain subject to the Shareholder Loan being extended and restructured.
The Loan of US$4.5 million as at 19 June 2020 (principal, historic redemption premium and interest)
matured on 30 November 2019, and the Company is currently evaluating options to execute the
restructuring process as proposed on 26 November 2019 and the confirmation of the Loan Holders on
20 May 2020.
The restructuring process is currently waiting for key Lender internal approval from AFC, which has
incurred recent delays due to the impact of COVID-19. Despite the delays AFC has indicated that it is
supportive of the Restructuring however, there can be no certainty that the holders of the Shareholder
Loan will agree to an extension or restructure or the terms on which they will agree to do so.
In addition, notwithstanding the Shareholder Loan, further funding will be required as detailed above
to meet operating cash flows under current forecasts or in the event of accelerated project
advancement.
The Directors continue to explore options in respect of raising further funds to continue with the power
plant and mine development programmes as well as C&I projects. 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 COVID-19 pandemic represents a risk to a number of aspects of the Group’s business, including
lack of access to the Projects and in person meetings with the Project Partners, Government, EDM
and potential finance partners which may cause a delay to the Projects. There remains considerable
uncertainty relating to the pandemic duration and its impact. The Group continues to closely monitor
the impacts on its projects and to develop appropriate response plans. There is also a significant
uncertainty as regards to the ability of the Group to raise funds in the current market conditions due to
the COVID-19 pandemic which may result in the Group having to raise funds at whatever terms are
available at the time.
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.
These matters 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
judgements, estimates and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and associated assumptions are based on
historical experience and factors that are believed to be reasonable under the circumstances, the
results of which form the basis of making 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.
New and amended standards which are effective for these Financial Statements
The following new and revised standards and interpretations, all of which are effective for accounting
periods beginning on or after 1 January 2019, have been adopted in the current financial year.
• Amendments to IAS 28 Sale of Long-Term Interest in Associates and Joint Ventures.
• IFRS 16 Leases.
• IFRIC 23 Uncertainty over Income Tax Treatments.
• Annual Improvements to IFRS Standards 2015-2017 Cycle.
• Amendments to IAS 19: Plan Amendment, Curtailment or Settlement.
• Amendments to IFRS 9 Prepayment Features with Negative Compensation.
The new standards effective from 1 January 2019, as listed above, do not have a material effect on
the Group’s financial statements. IFRS 16 Leases does not impact the Group as it does not have any
leases.
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 1 January 2020:
Standard
IAS 1
IFRS 3
Description
Presentation of Financial Statements and IAS 8 Accounting
Policies, Changes in Accounting Estimates and Errors
(Amendment Definition of Material)
Amendments to IFRS 3 Business Combinations – Definition of a
business
The Group is currently assessing the impact of these new accounting standards and amendments.
The Group is in the process of completing their assessment of the accounting of the acquisition of the
GridX shares in their current joint venture interest (note 9) and whether the transaction constitutes an
asset purchase or business combination under the requirements of IFRS 3.
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.
Joint Arrangements
Certain Group activities are conducted through joint arrangements in which two or more parties have
joint control. A joint arrangement is classified as either a joint operation or a joint venture, depending on
the rights and obligations of the parties to the arrangement.
Joint operations arise when the Group has a direct ownership interest in jointly controlled assets and
obligations for liabilities. The Group does not currently hold this type of arrangement.
Joint ventures arise when the Group has rights to the net assets of the arrangement. For these
arrangements, the Group uses equity accounting and recognises initial and subsequent investments at
cost, adjusting for the Group’s share of the joint venture’s income or loss, less dividends received
thereafter. When the Group’s share of losses in a joint venture equals or exceeds its interest in a joint
venture it does not recognise further losses.
Joint ventures are tested for impairment whenever objective evidence indicates that the carrying amount
of the investment may not be recoverable. The impairment amount is measured as the difference
between the carrying amount of the investment and the higher of its fair value less costs of disposal and
its value in use. Impairment losses are reversed in subsequent periods if the amount of the loss
decreases and the decrease can be related objectively to an event occurring after the impairment was
recognised.
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.
When equity instruments are modified, if the modification increases the fair value of the award, the
additional cost must be recognised over the period from the modification date until the vesting date of
the modified award.
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 the 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 and 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 Power Project and Mine Project - this segment is
involved in the exploration for coal and development of coal mine and the development of a 300MW
integrated power plant and a Solar project (JV GridX) – this segment is focused on building and
operating captive solar and battery storage solutions for the African C&I sector.
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. 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:
Assets at amortised cost
Assets at amortised cost 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.
Impairment of Financial Assets
The Group recognizes a loss allowance for expected credit losses (“ECL”) on financial assets that are
measured at amortised cost which comprise mainly of receivables. The amount of expected credit
losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the
respective financial instrument. Impairment provisions for other receivables are recognised based on a
forward looking expected credit loss model. The methodology used to determine the amount of the
provision is based on whether there has been a significant increase in credit risk since initial
recognition of the financial asset. For those where the credit risk has not increased significantly since
initial recognition of the financial asset, twelve month expected credit losses along with gross interest
income are recognised. For those for which credit risk has increased significantly, lifetime expected
credit losses along with the gross interest income are recognised. For those that are determined to be
credit impaired, lifetime expected credit losses along with interest income on a net basis are
recognised.
Financial liabilities
Financial liabilities held at amortised cost
Financial liabilities refer to trade and other payables and loans and borrowings (including the host debt
in a convertible instrument) 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 modification to a financial liability, the original financial liability is de-recognised and a
new financial liability is recognised at fair value in accordance with the Group’s policy.
Convertible loan
Convertible loan notes are assessed in accordance with IAS 32 Financial Instruments: Presentation to
determine whether the conversion element meets the fixed-for-fixed criterion. Where this is met, the
instrument is accounted for as a compound financial instrument with appropriate presentation of the
liability and equity components.
Where the fixed-for-fixed criterion is not met, the conversion element is accounted for separately as an
embedded derivative which is measured at fair value through profit or loss. On issue of a convertible
borrowing, the fair value of embedded derivative is determined and the residual is recorded as a host
liability initially at fair value and subsequently at amortised cost.
Issue costs are apportioned between the components based on their respective carrying amounts
when the instrument was issued.
The finance costs recognised in respect of the convertible borrowings includes the accretion of the
liability.
Financial liabilities at fair value through profit or loss
This category comprises warrants instruments classified as derivative financial liabilities due to the
warrant resulting in the issue of a variable number of shares and the embedded derivative within the
Shareholders Loan. They are carried in the consolidated statement of financial position at fair value
with changes in fair value recognised in the consolidated statement of profit or loss. 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 20). 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 power and mining assets
The carrying value of the power plant and mining assets in note 7 are dependent on the success of
the power plant project. Management’s judgement is that no indicators of impairment have occurred
during the year. This has included consideration of the potential sources of impairment indicators
prescribed under IAS 36. Management have considered key milestones, signing of the JDA, 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 integrated financial model. However, the Government have indicated that a more
competitive tariff is required compared to the previous tariff envelope agreed in principle. The
integrated 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.
Following the JDA with CMEC and GE and the new integrated strategy in 2018 the power and mining
projects are considered as one cash generating unit. This required judgement and factors considered
included the integrated nature of the development project versus the previous development plans, the
interdependent nature of the assets and project economics and the extent to which the assets could
feasibly be developed independently.
(ii) Asset classified as held for sale
Management have considered whether the JDA with CMEC and GE was such that the power and
mining assets met the criteria of IFRS 5. Having considered the non-binding status of the proposals at
31 December 2019 and associated risks and uncertainties, the extent of progress made towards
finalising the JDA and subsequent financial closure and the period of time to final completion of a
transaction, management concluded that the criteria were not met.
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
2019
US$’000
2018
US$’000
45
831
114
89
51
-
67
19
1,216
41
1,149
78
32
34
(44)
68
103
1,461
Auditors’ remuneration
Group auditors’ remuneration
- audit of the Group’s accounts
Other services
- interim review
2019
US$’000
2018
US$’000
69
4
73
60
3
63
Auditors’ remuneration is included within professional and consultancy costs.
Staff costs (including Directors)
Wages and salaries
Share based payment
Social security costs
2019
US$’000
45
402
-
447
2018
US$’000
40
1,226
-
1,266
2019 US$nil (2018: US$nil) 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:
Fees
Share based payment
4. Finance expenses, net
Interest on loan (note 13)
Fair value adjustment on the warrants (note 14)
Fair value adjustment on the loan derivative (note 14)
2019
Number
1
3
4
2018
Number
1
3
4
2019
US$’000
268
214
482
2018
US$’000
268
921
1,189
2019
US$’000
2018
US$’000
1,146
(10)
(456)
680
1,170
(157)
(291)
722
5. 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% (2018: 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
Group loss on ordinary activities before tax
Effects of:
Reconcile to Mozambique corporation tax rate of 32%
(2018: 32%)
Differences arising from different tax rates
Taxable losses utilised not previously recognised
Foreign exchange effect originating in overseas companies
Unrecognised taxable losses in subsidiaries
Total tax for the year
2019
US$’000
-
2018
US$’000
-
(2,298)
(3,480)
(732)
(1,113)
667
-
2
63
-
1,044
26
14
29
-
During the exploration and development stages, the Group will accumulate tax losses which may be
carried forward. As at 31 December 2019, no deferred tax asset has been recognised for tax losses of
US$3,202,000 (2018: US$4,253,000) 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$179,000 will be available until 31 December 2024, US$77,000
will be available until 31 December 2023, US$52,000 will be available until 31 December 2022,
US$1,129,000 will be available until 31 December 2021, and US$760,000 will be available until 31
December 2020.
6. Loss per share
Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the
weighted average number of ordinary shares outstanding during the year.
Due to the losses incurred during the year a diluted loss per share has not been calculated as this would
serve to reduce the basic loss per share. Out of 31,930,854 (2018: 25,097,522) share incentives
outstanding at the end of the year 16,362,685 (2018: 13,071,906) had already vested, which if exercised
could potentially dilute basic earnings per share in the future.
2019
Weighted
average
number of
shares
(thousands)
Per share
amount
(cents)
Loss
US$'000
2018
Weighted
average
number of
shares
(thousands)
Loss
US$'000
Per share
amount
(cents)
(2,298) 312,117
(0.7)
(3,480)
276,187
(1.3)
Basic and
diluted EPS
7. Property, plant and equipment
Power
assets
US$’000
Mining
assets
US$’000
Buildings
US$’000
Plant and
equipmen
t US$’000
Other
US$’000
Total
US$’000
Cost (less impairment)
At 1 January 2018
Additions
Disposals
At 1 January 2019
Additions
At 31 December 2019
Depreciation
At 1 January 2018
Depreciation charge
Disposals
At 1 January 2019
Depreciation charge
At 31 December 2019
Net Book value 2019
Net Book value 2018
9,437
25
-
9,462
58
9,520
7,654
7
-
7,661
-
7,661
-
-
-
-
-
-
-
-
-
-
-
9,520
9,462
-
7,661
7,661
1,399
-
(122)
1,277
-
1,277
190
67
(118)
139
66
205
1,072
1,138
42
-
(7)
35
-
35
29
1
(6)
24
1
25
10
11
-
-
718 19,250
32
(129)
718 19,153
58
718 19,211
-
718
-
937
68
-
(124)
718
-
881
67
718
948
- 18,263
- 18,272
Power assets relate to the development of a 300MW power plant. In 2019, the Power assets remains
classified as 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.
8. Subsidiaries
The Group has the following subsidiary undertakings:
Zambezi Energy Corporation
Holdings 1 Limited
Zambezi Energy Corporation
Holdings 2 Limited
Ncondezi Coal Company
Mozambique Limitada
Ncondezi Power Holdings 2
Limited
Ncondezi Power Company
SA
Ncondezi Green Power
Holding Limited
%
interest
2019
100
%
interest
2018
100
‘ZECH1’
‘ZECH2’
100
100
Country of
incorporation Activity
Holding
Mauritius
company
Holding
company
Mauritius
‘NCCML’
100
100
Mozambique Mining
‘NPH2L’
100
100
UAE
‘NPCSA’
100
100
Mozambique
‘NGPHL’
100
100
BVI
exploration and
development
Holding
company
Energy
company
Green 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 Green Power Holdings Limited is owned by Ncondezi Energy Limited.
9. Joint Venture
The Group holds a joint venture interest in GridX SPV through its 100% owned subsidiary NGPHL.
GridX SPV has 2 classes of shares, A shares and B shares. The Group, through its subsidiary, holds the
B shares and the joint venture partner holds the A shares. B shares will be ordinary equity in GridX SPV
and have full economic rights subject to economic rights due to A shares. A shares have management
rights and economic rights. A shares economic rights are linked to the cashflow performance of
individual projects owned and financed by GridX SPV A class shareholders are entitled to between 20%
and 57.5% of additional free cashflows above a post tax equity IRR greater than 10%, with the maximum
entitlement achieved on cashflows of a particular project above a post-tax equity IRR of 17%.
Under the terms of the shareholder agreement, strategic decisions which affect the relevant activities of
the venture are subject to shareholding voting requirements which require that the joint venture partners
must agree such decisions. As a result, joint control exists.
GridX SPV was incorporated in Mauritius, with its first C&I project, having operations in Mozambique.
The primary activity of GridX SPV is the building and operating of captive solar and battery storage
solutions for the African C&I sector, which is in line with the Company’s C&I segment strategy. Under
IFRS 11 this joint arrangement was classified as a joint venture and has been included in the
consolidated financial statements using the equity method.
The investment is assessed at each reporting period date for impairment in accordance with IAS 36. An
impairment is recognised if there is objective evidence that events after the recognition of the investment
have had an impact on the estimated future cash flows which can be reliably estimated.
Summarised financial information in relation to the joint venture is presented below:
ASSETS
Non-current assets - Investments
EPC Disbursement
Total non-current assets
Current assets
Cash and cash equivalents
Total current assets
Total assets
EQUITY AND LIABILITY
Capital and reserves attributable to
shareholders
Share capital
Accumulated losses
Total capital and reserves
Total equity and liabilities
2019
US$’000
2018
US$’000
185
185
97
97
282
282
(0.1)
282
282
-
-
-
-
-
-
-
-
-
As at 31 December 2019 the group has invested US$0.8 million (2018: US$nil) at the development of
the GridX Asset Co.
C&I platform
Right of First Refusal (ROFR)
First C&I Project
2019
US$’000
227
260
282
769
2018
US$’000
-
-
-
-
As a result of the RA with GridX announced on 6 May 2020 the GridX Asset Co will be a wholly owned
subsidiary of the group in the next financial year.
10. Trade and other receivables
Current assets:
Other receivables
Total trade and other receivables
2019
US$'000
2018
US$'000
26
26
54
54
During the year no expected credit losses were recognised (2018: US$nil). The Directors consider that
the carrying amount of other receivables approximates their fair value.
11. Cash and cash equivalents
Cash at bank and in hand
2019
US$'000
722
722
2018
US$'000
424
424
The Group’s cash and cash equivalents balances may be analysed by currency as follows:
US Dollars
Great British Pounds
Mozambique Meticais
2019
US$'000
444
268
10
722
2018
US$'000
67
354
3
424
Where possible cash is deposited in floating rate deposit accounts at reputable financial institutions
with high credit ratings.
12. Trade and other payables
Other payables
Accruals
2019
US$'000
214
190
404
2018
US$'000
189
292
481
Accruals includes US$nil (2018: US$nil) of interest in respect of the loans in note 13.
The fair value of payables is not significantly different from their carrying value.
13. Short term loan
Short term loan (unsecured)
Unamortised related costs
Total Short-term loan
2019
US$'000
4,234
-
4,234
2018
US$'000
4,182
-
4,182
On 16 November 2018 the Shareholder Loan was modified with the maturity date extended to 30
November 2019 and an interest coupon of 12%. Under the terms the lenders have the right to convert
the loan into equity as follows:
(a)
(b)
First Conversion: lenders shall be entitled to convert all or part of their portion of the Loan (in
multiples of US$1,000) into fully paid ordinary shares of the Company at a 10.0p conversion
price from the date of this announcement until 1 November 2019; and
Second Conversion: if Lenders who are owed (in aggregate) not less than 50.1% of the
outstanding principal amount of the Loan from 1 November 2019 until maturity provide a
conversion notice to the Company, all amounts outstanding under the Loan shall convert into
fully paid Ordinary Shares of the Company at a conversion price the higher of the 30%
discount to the 60 day VWAP at 30 November 2019 or 5.2p.
At the date of the restructuring the carrying value of the previous loans was US$5.1 million and the
loan was extinguished and replaced with the convertible loan notes. The fair value of the new
instrument was determined to be equivalent to the fair value of the old instrument, with no gain or loss
being recognised on extinguishment. The potential issuance of a variable number of shares meant the
instrument was treated as a host debt liability with a separate embedded derivative (note 14)
representing the conversion right. The embedded derivative was valued at US$1.0 million and the
residual attributed to the host debt liability. Subsequently the host debt liability has been recorded at
amortised cost and interest recorded at the effective interest rate and the embedded derivative
recorded at fair value through profit and loss.
During the period a total of US$1,344,000 of the Shareholder Loan was converted into equity at a
price of 10 pence per share, and 10,337,813 shares were issued.
At year end the remaining shareholder loan, including interest, of US$4,234,000 was in default. The
equity conversion rights expired as a result and the embedded derivative was valued at nil at year
end.
Net finance cost for the year in relation to the short term loan was US$680,000 (2018: US$879,000)
comprising mainly of US$1.1 million of effective interest charges on the convertible loan host liability
and US$0.4 million of fair value changes on the derivative following the expiry of the conversion right.
14. Derivative financial liability
Warrants
Loan derivative (note 13)
Warrants
2019
US$'000
30
-
30
2018
US$'000
138
707
845
During the period 1,000,000 warrants issued in May 2018 and 1,500,000 issued in October 2017 were
exercised. The fair value of the warrants at exercise date was US$99,000, resulting in a gain in fair value
of US$20,000 going through the statement of profit or loss. US$99,000, together with the amount
received upon exercise of US$156,000 was recognised as share capital
The remaining 1,520,000 warrants were valued at US$30,135 at the year end with the change of fair
value of US$30,463 recognised through profit or loss.
The fair value on the grant date and reporting date were determined using the Black Scholes Model. The
fair value as at 31 December 2019 was based on the following assumptions:
Share Price (£)
Expected volatility
Options life (years)
Expected dividends
Risk free rate
0.0625
90%
2
0
0.74%
The warrants have been deemed to be Level 2 liabilities under the fair value hierarchy.
Loan derivative
The loan derivative, measured at fair value through profit or loss, has been deemed to be Level 2
liabilities under the fair value hierarchy, based on the valuation method used. The Monte Carlo model
was used in arriving at the fair value of the derivative at prior year and year end respectively. At year
end the loan was in default and the conversion rights expired resulting in the loan derivative having a
value of nil at year end. Refer to note 13 and 20 for further details.
15. Share capital
Number of shares
Allotted, called up and fully paid
Ordinary shares of no-par value
At 1 January 2019
Issue of shares
Issue of shares (exercised share awards)
Issue of shares (loan equity conversion)
Issue of shares (exercised warrants)
Issue costs
At 31 December 2019
At 1 January 2018
Issue of shares
Issue of shares (exercised share awards)
Issue costs
At 31 December 2018
16. Reserves
2019
2018
324,993,717 282,299,844
Shares
Issued
Number
282,299,844
28,856,060
1,000,000
10,337,813
2,500,000
-
324,993,717
Shares
Issued
Number
265,299,844
15,200,000
1,800,000
-
282,299,844
Share
capital
US$’000
88,796
2,380
98
1,344
255
(213)
92,660
Share
Capital
US$’000
87,384
1,310
306
(204)
88,796
The following describes the nature and purpose of each reserve within owners’ equity.
Share capital
Retained earnings
Amount subscribed for share capital, net of costs of issue
Cumulative net gains and losses less distributions made, together
with share based payment equity increases
17. 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
Outstandin
g at start of
year
Granted
during the
year
Exercised
during the
year
Lapsed/
cancelled
during
the year
Final
exercise
date
Outstanding
at year end
2019
Nil
25c
17.25p (26.3c)
Nil
Nil*
Nil**
5p (6.7c)**
8.625p (11.5c)*
6.25p (8.4c)*
7.5p (10c)**
10p (13.4c)**
15p (20.1c)**
6.5p (8.4c)**
Total
27.05.10
27.05.10
26.04.13
31.01.14
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
26.11.19
2,400,000
800,000
150,000
225,000
1,868,627
75,000
2,790,779
1,625,000
4,000,000
5,581,558
2,790,779
2,790,779
-
25,097,522
9.73
-
-
-
-
-
-
-
-
-
-
-
-
7,833,332
7,833,332
8.4
-
-
-
-
(1,000,000)
-
-
-
-
-
-
-
-
(1,000,000)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
2,400,000
800,000
150,000
225,000
868,627
75,000
2,790,779
1,625,000
4,000,000
5,581,558
2,790,779
2,790,779
7,833,332
31,930,854
9.71
26.05.20
26.05.20
25.04.23
30.06.20
24.05.28
31.01.24
25.05.28
05.02.25
25.05.28
25.05.28
25.05.28
25.05.28
26.11.29
WAEP (cents)
Exercise price
per share
Grant
date
Outstandin
g at start of
year
Granted
during the
year
Exercised
during the
year
Lapsed/
cancelled
during
the year
Outstandin
g
at year end
Final
exercise
date
2018
Nil
25c
17.25p (26.3c)
Nil
6.5p (10.8c)
Nil*
Nil**
5p (6.7c)**
8.625p (11.5c)*
6.25p (8.4c)*
7.5p (10c)**
10p (13.4c)**
15p (20.1c)**
Total
27.05.10
27.05.10
26.04.13
31.01.14
31.01.14
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
WAEP (cents)
2,400,000
800,000
1,775,000
1,800,000
750,000
-
-
-
-
-
-
-
-
-
-
-
-
-
2,568,627
750,000
2,790,779
1,625,000
4,000,000
5,581,558
2,790,779
2,790,779
7,525,000 22,897,522
8.77
9.94
-
-
-
(1,575,000)
-
(700,000)
(675,000)
-
-
-
-
-
-
(2,950,000)
-
-
-
(1,625,000)
-
(750,000)
-
-
-
-
-
-
-
-
(2,375,000)
2.03
2,400,000
800,000
150,000
225,000
-
1,868,627
75,000
2,790,779
1,625,000
4,000,000
5,581,558
2,790,779
2,790,779
25,097,522
9.73
26.05.20
26.05.20
25.04.23
30.06.20
30.06.20
24.05.28
31.01.24
25.05.28
05.02.25
25.05.28
25.05.28
25.05.28
25.05.28
* Vest on grant date
** Vest upon delivery of specific milestones
The Company’s mid-market closing share price at 31 December 2019 was 6.30p (31 December 2018:
5.65p). The highest and lowest mid-market closing share prices during the year were 8.95p (2018:
9.45p) and 4.40p (2018: 3.87p) respectively.
Of the total number of options outstanding at year end 16,362,685 (2018: 13,071,906) had vested and
were exercisable. The weighted average exercise price for the exercisable options at year end was 7.5p
(2018: 7.40p). The weighted average share price at the date of exercise of the 1,000,000 options was
6.95p.
The weighted average contractual life of the options outstanding at the year-end was five and half years
(2018: six years).
In respect of 7,833,332 shares in the Company granted to its directors, executive senior management
team and contracted personnel 81% are performance related and linked to delivery of specific
milestones, 19% are in lieu of director remuneration. Out of the total options granted in the year,
1,500,000 vested at grant date.
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 in the current and prior year:
Grant
dated
date
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
25.05.18
26.11.19
Exercise price
per share
Share
price at
date of
grant
(nil)
5.50c
5.50c 11.54c(8.625p)
5.50c
6.69c(5p)
10.04c(7.5p)
5.50c
13.38c(10p)
5.50c
5.50c
20.07c(15p)
8.36c(6.25p)
5.50c
8.37c(6.50p)
6.70c
Period
likely to
exercise
over
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
Risk-free
investmen
Fair
value
t rate
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.6%
5.50c
4.30c
4.46c
4.40c
4.20c
4.00c
4.50c
5.20c
Volatility
113.33%
113.33%
113.33%
113.33%
113.33%
113.33%
113.33%
113.51%
The volatility rates have been calculated using analysis of historic Company share price volatility.
Based on the above fair values, the expense arising from equity-settled share options made to Directors
was US$0.4 million for the year (2018: US$1.2 million including Directors and employees).
18. Segmental analysis
In 2019 the Group had an extra reportable segment, following the JV with GridX:
• Solar project (JV GridX) – this segment is focused on building and operating captive solar and
battery storage solutions for the African C&I sector
• Power Project and Mine Project - this segment is involved in the exploration for coal and
development of coal mine and the development of a 300MW integrated power plant next to the
Group’s coal mine concession areas in Mozambique
• Corporate - this comprises head office operations and the provision of services to Group
companies
Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision-maker has been identified as the Board
of Directors.
The operating results of each of these segments are regularly reviewed by the Group's chief operating
decision-maker in order to make decisions about the allocation of resources and assess their
performance. The Group’s mine and power activities are interrelated and each activity is dependent
on the other. Accordingly, all significant operating decisions are based upon analysis of the mine and
power activities as one segment and corporate as one segment.
The segment results for the year ended 31 December 2019 are as follows:
Income statement
For the year ended 31 December 2019
Segment result after allocation of central
costs
Finance expense
Loss before taxation
Taxation
Loss for the year
Solar
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
-
-
-
-
-
(464)
(1,154)
(1,618)
-
(464)
-
(464)
(680)
(1,834)
-
(1,834)
(680)
(2,298)
-
(2,298)
The segment results for the year ended 31 December 2018 are as follows:
Income statement
For the year ended 31 December 2018
Segment result after allocation of central costs
Finance expense
Loss before taxation
Taxation
Loss for the year
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
(559)
-
(559)
-
(559)
(2,199)
(722)
(2,921)
-
(2,921)
(2,758)
(722)
(3,480)
-
(3,480)
Other segment items included in the Income statement are as follows:
Income statement
For the year ended 31 December 2019
Depreciation charged to the income statement -
-
Share based payment
Solar
project
US$’000
Income statement
For the year ended 31 December 2018
Depreciation charged to the income statement
Share based payment
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
(67)
-
-
(402)
(67)
(402)
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
(68)
-
-
(1,297)
(68)
(1,297)
The segment assets and liabilities at 31 December 2019 and capital expenditure for the year then
ended are as follows:
Statement of financial position
Solar
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
At 31 December 2019
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital expenditure
769
-
769
18,490
(215)
18,275
58
521
(4,453)
(3,932)
-
19,780
(4,668)
15,112
58
The segment assets and liabilities at 31 December 2018 and capital expenditure for the year then
ended are as follows:
Statement of financial position
At 31 December 2018
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital expenditure
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
18,032
(224)
17,808
32
718
(5,284)
(4,566)
-
18,750
(5,508)
13,242
32
19. Reconciliation of liabilities arising from financing activities
At 1 January 2019
Cash flows
Conversion of Loan to equity
Non-cash finance charges
FV movement on Loan Embedded Derivative
Exercise of warrants
Fair value movement on warrants
At 31 December 2019
At 1 January 2018
Cash flows
Non-cash finance charges
Restructuring of loan
FV of warrants issued
FV of loan derivative
Change in fair value
At 31 December 2018
20. Financial instruments
Short term
loan
US$’000
4,182
-
(1,094)
1,146
-
-
-
4,234
Derivative
financial
liability
US$’000
845
-
(250)
-
(456)
(99)
(10)
Total
US$’000
5,027
-
(1,344)
1,146
(456)
(99)
(10)
30
4,264
Accrued
interest
Short term
loan
Derivative
financial liability
Total
US$’000
510
-
1,050
(1,560)
-
-
-
-
US$’000
3,495
-
124
1,560
-
(997)
-
4,182
US$’000
107
-
-
-
189
997
(448)
845
US$’000
4,112
-
1,174
-
189
-
(448)
5,027
The Group is exposed to risks that arise from its use of financial instruments. This note describes the
Group’s objectives, policies and processes for managing those risks and the methods used to measure
them. Further quantitative information in respect of these risks is presented throughout these financial
statements.
The significant accounting policies regarding financial instruments are disclosed in note 1.
There have been no substantive changes in the Group’s objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods unless otherwise
stated in this note.
Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises, are
as follows:
Loans and receivables at amortised cost
Trade and other receivables
Cash and cash equivalents
Financial liabilities held at amortised cost
Trade and other payables
Loans and borrowings
Financial liabilities at fair value through profit or loss
Derivative financial liability
2019
US$’000
2018
US$’000
9
722
404
4,234
16
424
481
4,182
30
845
For details of the fair value hierarchy and valuation techniques relating to the determination of the fair
value of the derivative financial liability, refer to note 14.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives
and policies and retains ultimately responsibility for them.
The overall objective of the Board is to set polices that seek to reduce risk as far as possible without
unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies
are set out below:
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due.
The Board receives cash flow projections on a monthly basis as well as information on cash balances.
2019
Total
US$’000
in 1
on
month
demand
US$’000 US$’000
Between 1
and 6
months
US$’000
Between 6
and 12
months
US$’000
Between 1
and 3
years
US$’000
Trade and other payables
Loans and borrowings
404
4,234
-
4,234
185
-
-
-
219
-
-
-
2018
on
demand
US$’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
481
5,661
-
-
112
-
-
-
369
5,661
-
-
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 US$750,000 undrawn and unconditional committed borrowing facilities available at 31
December 2019 (2018: US$nil).
The Company put in place a US$750,000 working capital facility in October 2019. No drawdowns
were made in the year. In 2020, US$250,000 has been drawndown, with the remaining facility of
US$500,000 available until end of June 2020 although it is not currently intended to utilise it further.
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 increase net
assets by US$8,718 (2018: US$16,069).
Currency exposures
As at 31 December the Group’s net exposure to foreign exchange risk was as follows:
2019
US$’000
Assets/(liabilities) held
2018
US$’000
Assets/(liabilities)
held
GBP
ZAR MZN
Total
GBP MZN Total
US dollars
187
187
5
5
12
12
204
204
323
323
1
1
324
324
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.
21. 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 2019 none of the Directors have converted
their loan into equity and there were no Director’s drawn down. The outstanding principal plus interest
amount up to 31 December 2019 of US$1.4 million (2018: US$nil) related to a Trust of which Non-
Executive Chairman, Michael Haworth is a potential beneficiary, US$0.13 million (2018: US$0.1
million), to Executive Director, Hanno Pengilly, and US$0.1 million (2018: US$0.1 million), to Director
Estevão Pale.
Refer to note 13 for details of the terms and conditions.
Hanno Pengilly – Executive Director of Ncondezi Energy Limited, appointed on 9 October 2019
- Director of Herne Capital (Pty) Ltd (“HCL”)
During the year US$240,000 (2018: US$240,000) was paid by the Company to HCL in respect of
services provided by Hanno Pengilly. There was no outstanding balance at 31 December 2019 (2018:
US$nil).
HCL provides leadership on key corporate activities such as capital raising, reporting and press
releases, investor relations strategy.
Working Capital Facility
The Company put in place a US$750,000 working capital facility in October 2019. The facility was
provided by a company owned by a trust of which CEO, Hanno Pengilly, is a potential beneficiary. As
at year end, no draw down had been made.To date US$250,000 has been drawndown, with the
remaining facility of US$500,000 available until the end of June 2020.
Aman Sachdeva – Non-Executive Director of Ncondezi Energy Limited - CEO of Synergy
Consulting Inc.
During the year US$121,000 (2018: US$160,000) was paid by the Company to Synergy Consulting
Inc. in respect of services provided by Synergy. At 31 December 2019 the outstanding balance was
US$nil (2018: US$41,000).
As announced on 12 December 2019 Synergy was selected as preferred financial advisor to prepare
the Project financial model and finalise the tariff submission and negotiation process with EDM. The
contract has a fixed fee of US$75,000 and a maximum additional fee of US$30,000.
Synergy is a global independent consultancy specialising in infrastructure advisory and project
finance, and has experience in achieving financial closure for deals worth approx. US$25 billion and
M&A advisory for deals worth US$5.0 billion.
Details of Key Management Remuneration are contained in note 3.
22. 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$2 million following an agreed programme. By December 2016 half of this budget has
been successfully spent in various initiatives. During the year there was no expenditure related to
social development programmes (2018: US$nil). Further to an Addendum, the program was
postponed to be completed during the mining phase. In addition, upon receiving the mining
concession in 2013 a further US$5 million 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.
Working Capital Facility
The Company put in place a US$750,000 working capital facility in October 2019. The facility was
provided by a company owned by a trust of which CEO, Hanno Pengilly, is a potential beneficiary. To
date US$250,000 has been drawndown, with the remaining facility of US$500,000 available until end
of June 2020 although it is not currently intended to utilise it further.
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.
GridX Fees and first C&I solar and battery storage project Commitment
On 5 April 2019 the Company signed a Term Sheet with GridX to acquire ROFR to fund GridX C&I
projects through a newly setup JV. The Term Sheet envisaged payment of a fee in two stages to
GridX of US$390,000 (the “GridX Fee”) allowing the Company to enter into definitive agreements to
formalise the JV. The first stage was an upfront fee of US$260,000 which was paid to GridX at the
time of signing the Term Sheet. The remaining US$130,000 is payable upon meeting certain
conditions. These conditions were not yet met at year end.
As part of the RA, on 6 May 2020 GridX agreed to forego payment of the final amount of the GridX
Fee of US$130,000 which would have been payable under the previous arrangement upon
completion of a number of conditions that were not met, and this is no longer a potential payment
requirement.
An initial commitment by Ncondezi of US$1.1 million was made to the GridX SPV to fund the first C&I
solar and battery storage project under the shareholder agreement signed on 23 October 2019, to date
US$665,680 has been invested. Due to the COVID-19 outbreak in early April 2020 a force majeure
notice was issued by the offtaker. Project construction was put on hold pending further clarity on the
impact of COVID-19 and the lifting of travel restrictions.
23. Events after the reporting date
In January 2020 US$250,000 has been drawndown from the working capital, facility put in place in
October 2019 with the remaining facility of US$500,000 available until end of June 2020 although it is
not currently intended to utilise it further.
On 31 March 2020, the Company submitted a firm tariff proposal to the Mozambican Government and
EDM. The proposal was supported by:
o Executed JDA;
o Detailed EPC and O&M proposals from CMEC and GE;
o
o A Letter of Interest from a leading export credit agency.
Indicative debt financing terms from a leading financial institution; and
On 9 April Project construction for the C&I solar and battery project in Mozambique was put on hold
pending further clarity of the impact of COVID-19 and lifting of travel restrictions. A force majeure
notice was issued by the Project offtaker in Mozambique due to the inability to provide site access for
construction.
On 5 May 2020 Estevão Pale resigned from the Board of the Company and his role as Non-Executive
Director.
On 6 May 2020, the Company finalised a binding RA with GridX for a US$5.5 million pipeline of solar
and battery storage projects in the C&I sector and agreed to acquire 100% of the SPV set up for the
first solar and battery storage project investment for US$100. The remaining $130,000 GridX fees
related to ROFR were terminated under the new RA. In addition, GridX SPV, will become a wholly
owned subsidiary of NGPHL through the purchase of all GridX’s A class shares at par value totalling
US$100. Following the acquisition, GridX will no longer have any management or acquisition rights in
the GridX SPV, but will continue to provide management services. Furthermore, GridX has agreed
that as soon as it becomes the owner of any plant and materials relating to the first solar and battery
project currently under construction, it shall immediately transfer ownership of such plant and material
to GridX SPV for no additional consideration. As part of its ordinary course of business as a
developer, GridX is entitled to a capped development fee for each Project that Ncondezi funds,
included as part of the Project capital cost. GridX is expected to provide O&M services for each of the
Projects that achieves financial close in accordance with market-related commercial terms for projects
of a similar nature, contracting directly with the power offtaker. Certain incentives to encourage GridX
to achieve the best returns for each Project, will be paid through a profit sharing mechanism where an
equity IRR hurdle of above 10% is achieved by Ncondezi.The RA will expire at the earlier of Ncondezi
financing US$5.5 million of Projects or 36 months.
On 15 May 2020, the Company raised a total of £650,000 before expenses, through a conditional
placing of 21,666,666 ordinary shares in the Company at a price of 3 pence per Ordinary Share
(“Placing Price”) together with 1 warrant to subscribe for an Ordinary Share at 6 pence per new
Ordinary Share. The Company also received subscriptions for a total of 2,466,666 Ordinary Shares in
the Company at the Placing Price for a further £74,000 being equal to the amounts owed to certain
creditors. In addition the Senior Management Team and certain consultants to the Company have
agreed to defer 30% of salaries and fees until 30 November 2020. In principle agreement has been
reached to subscribe for shares at the Placing Price in relation to salaries and fees that have been
agreed to be deferred. Such subscription, if implemented, would be made in December 2020 and
represent a potential total of 1,603,800 new Ordinary Shares at the Placing Price for a further
£48,114. Separately CEO Hanno Pengilly has agreed to defer 30% of his salary until 30 November
2020.
Mozambique brought in nationwide restrictions to stem the spread of the COVID-19 pandemic on 1
April which have been extended to the end of June. The Company suspended all travel to
Mozambique while continuing to work with their Partners remotely. The impact of the travel restrictions
has resulted in the halting of construction of and force majeure declared on the C&I solar and battery
project. During tariff negotiation discussions it was highlighted that available technical and market
assumptions critical to the Project are out of date. The Company has agreed to update its
transmission integration study and conduct an independent market study for energy supply and
demand forecasts in Mozambique and potential export markets (“Independent Studies”). The studies
will also take into account the potential impact of COVID-19. These studies are anticipated to add at
least 2 months to the Project development programme moving the tariff agreement to H2 2020. Other
workstreams have also been impacted by the travel restrictions, the Shareholder Agreement Term
Sheet, historical audit and finalisation of the EPC contracts are all now expected in Q3 2020.
Company Information
Directors
Company Secretary
Registered Office
Michael Haworth (Non-Executive Chairman)
Aman Sachdeva (Non-Executive Director)
Hanno Pengilly (Executive Director)
Elysium Fund Management Limited
PO Box 650, 1st Floor, Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey
GY1 3JX
Coastal Building
Wickham's Cay II
PO Box 2221
Tortola
British Virgin Islands
Company number
1019077
Nominated Advisor and Corporate Broker
Auditors
Registrar
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
Legal advisor to the Company
as to BVI law
Ogier LLP
41 Lothbury
London
EC2R 7HF
Legal advisor to the Company
as to English law
Bryan Cave Leighton Paisner LLP
Governors House
5 Laurence Pountney Hill
London
EC4R 0BR