Ncondezi Energy Limited
Annual Report and Financial Statements
for the year ended 31 December 2020
Contents
1 - 2
3 - 5
Overview and Highlights
Chairman’s Statement
6 - 10
Operations Review
11 - 12
Financial Review
13
14
Environmental and Social Responsibility
Directors’ Biographies
15 - 16
Directors' Report
17 - 21
Risk Factors
22 - 25
Corporate Governance Statement
26 - 27
Remuneration Committee Report
28
Statement of Directors' Responsibilities
29 - 35
Independent audit report to the members of Ncondezi Energy Limited
36
37
38
39
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
40 - 67
Notes to the consolidated financial statements
68
Company Information
Overview & Highlights
Our Vision
Ncondezi Energy Limited (the “Company” or “Ncondezi”) is an emerging African power development
company focused on providing reliable and accessible baseload energy and solar photovoltaic (“PV”)
and battery storage solutions to the Commercial & Industrial (“C&I”) sector in Mozambique.
We aim to support the Mozambique Government’s energy strategy of universal electricity access by
2030 through our flagship advanced stage, integrated 300MW thermal coal power plant and mine
project located in the Tete Province, northern Mozambique (collectively the “Project” or the “Ncondezi
Project”). According to the World Bank, only 30% of the Mozambican population had access to energy
in 2017.
Designed to provide greater grid stability, securing against the effects of water drought and the
intermittency of new large scale renewable projects, the Project will provide 300MW of reliable and
available power helping to close the infrastructure gap of the region and serving as a catalyst for
economic development. It will be equipped with state of the art emissions control technologies that will
reduce local air pollutants, minimising the power plant’s impact on the environment and ensuring its
compliance with the most stringent emission standards set by the World Bank.
We believe the C&I solar PV and battery storage sector offers the Company a significant growth
opportunity which builds on management experience in the power sector and accesses growing
demand for renewable energy and near-term low-risk annuity income streams. Our solar PV and
battery storage solutions will provide companies with a cheaper, more secure, green energy supply that
will also assist in delivering growing ESG goals.
Visit www.ncondezienergy.com for information on the Company and its activities.
Operational Highlights:
Ncondezi Power Project
• Submission of tariff proposal to the Mozambican Government and Electricidade de
Moçambique (“EDM”).
• Transmission Integration Study and Mozambican Power Market Outlook Study updates (the
“Independent Studies”) commissioned and submitted following initial tariff discussions with
EDM.
• Shareholders Agreement Term Sheet (“SHA TS”) signed with China Machinery Engineering
Corporation (“CMEC”).
• Submission of Historical Cost Audit to CMEC.
• Supplementary Agreement (“SA”) to the Joint Development Agreement (“JDA”) signed with
CMEC agreeing basis for accelerated development work to be carried out on the Project.
• Updated Feasibility Study submitted to EDM.
C&I Solar PV and Battery Storage Projects
• Force majeure notice issued on maiden C&I 400kWp solar PV plus 912kWh battery storage
project (“C&I Maiden Project”) following travel restrictions due to the global outbreak of COVID-
19.
• Relationship Agreement signed with GridX Africa Development (“GridX”) to fund a pipeline of
projects in Mozambique up to a total of US$5.5 million.
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Overview & Highlights
Corporate Highlights
• Scott Fletcher, the Company’s largest shareholder, appointed as a Non-Executive Director of
the Company.
Financial Highlights
• US$250,000 drawn down from the US$750,000 working capital facility. Facility expired end of
June 2020.
•
“In principle” support received from all Shareholder Loan holders for Shareholder Loan
restructuring proposal.
• Board and management signed a binding undertaking (“Undertaking”) not to call in the
Shareholder Loan before the later of 30 November 2022 or when the Restructuring is
completed.
• Two successful fund raises to finance general working capital, the first in May 2020 raising
£650,000 at 3.0p, the second in November 2020 raising £750,000 at 4.5p.
• Cash at bank of US$0.9 million as at 31 December 2020. Based on management projections
the Group is funded into September 2021 with further funding required to meet operating cash
flows under current forecasts before the end of Q3 202 or in the event of accelerated project
advancement.
Post balance sheet events
• US$21.0 million historical costs relating to the Ncondezi Project agreed “in principle” with
CMEC.
• Remobilisation of construction at C&I Maiden Project.
• Master Services Agreement (“MSA”) signed with Synergy Consulting (“Synergy”) to provide
financial and transaction advisory services to the Group for the Ncondezi Project.
• US$500,000 bridge loan (“Bridge Loan”) between the Company’s wholly owned renewables
subsidiary, Ncondezi Green Power Holding Ltd (“NGP”) and certain Company Directors to
finance the construction of C&I Maiden Project.
• NGP and Captive Power Limited (“CPL”) signed a binding Relationship Agreement under which
NGP has the right (but not the obligation) to fund a pipeline of C&I solar and battery storage
projects in Mozambique. The CPL Relationship Agreement supersedes the existing
Relationship Agreement signed with GridX. As part of the suspension process, GridX agreed
to novate to CPL all commercial agreements in relation to the C&I Maiden Project and to release
to CPL any rights in relation to 5 of the existing 6 projects in the pipeline.
• Term sheet with binding exclusivity signed between NGP and Nesa Capital (Pty) Ltd and Nesa
Engineering (Pty) Ltd (collectively “NESA”) detailing proposed formation of a new joint venture
company (“JVCo”) to create a leading regional Southern African champion in the C&I renewable
energy and battery storage sector.
• Binding agreement signed between NESA, Nesa Investment Holdings (“NIH”) and NGP
granting NESA and NGP exclusive rights to negotiate terms on which they would acquire,
through the proposed JVCo, a minimum 51% interest in a 15.5MWp solar PV plus 0.2MWh
battery storage C&I portfolio across 66 sites in South Africa (the “NIH Portfolio”) with a
subsequent option to acquire up to 100% within a 5 year period.
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Chairman’s Statement
Dear Shareholder,
2020 was an unprecedented year due to the COVID-19 pandemic. Despite the global shutdowns the
Company continued to make significant progress at the flagship Ncondezi Project and advance the C&I
renewable energy subsidiary NGP.
Whilst there is increasing global pressure for energy generation to transition away from coal, the needs
for developing countries, such as Mozambique, to implement a diversified generation mix on their grids
for greater energy security combined with the provision of low cost reliable power supply to support
economic growth provide a window in which such generation remains suitable. Within this global context,
we are at a critical stage in the Project’s development where a significant amount of work has been
completed establishing the Project as one of the most advanced baseload projects in Mozambique, with
strong support from China through our joint venture partner CMEC. The next phase to further de-risk the
Project involves finalisation of the Project tariff with EDM and a clearly laid out plan from Government to
achieve Financial Close (“FC”). These discussions are ongoing, and we believe the Project has been well
positioned for success having delivered on all milestones requested by EDM and Government in 2020.
Beyond the Ncondezi Project, the Company has an opportunity to further capitalise on its ten year
experience in power development in one of the most dynamic regions in the world. Having considered
the various opportunities available, we believe the C&I solar PV and battery storage sector provides a
unique opportunity where the Company has early mover advantage and can plan to become a regional
champion. With our C&I Maiden Project due for imminent commissioning, the recent signing of a
Relationship Agreement with CPL and a Joint Venture Term Sheet with NESA, we have a clear roadmap
for the formation of a cash generative business with a pipeline of projects to generate over 110MWp Solar
PV and 14.5MWh of battery storage. This would represent one of the largest C&I portfolios on the
continent. The recently announced cap increase on C&I projects in South Africa from 1MW to 100MW is
forecast to add up to 15,000MW of new projects over the coming 5 to 7 years representing approximately
ZAR100 billion in investment. The proposed new JVCo puts the Company in prime position to take
advantage of this.
As we look forward, we have to acknowledge the changing investor appetite in the West for renewable
versus fossil fuel projects. In order to ensure that both sides of the Business are able to achieve their full
value for Shareholders, the Company has initiated an internal review to assess the optimal ownership
structure for the Company’s coal baseload and C&I renewable energy projects. I look forward to sharing
the outcome of the review in due course.
Significant progress at the Ncondezi Project
A number of key milestones were delivered at our flagship Ncondezi Project, including submission of the
tariff proposal to EDM and the Mozambican Government, signing of the SHA TS with our partners CMEC,
submission of the Historical Cost Audit to CMEC and a SA to the JDA signed to accelerate development
work on the Project.
We believe the tariff proposal submitted is commercially attractive being competitive with existing gas
power plants in Mozambique and over 10% lower than the previously agreed EDM tariff in 2015. Despite
China shutting down at the start of the year, our partners CMEC worked tirelessly to ensure we delivered
the tariff proposal on time to EDM and the Mozambican Government. Subsequently, and in reaction to
the unfolding global crisis, EDM asked the Company to update two studies, the Transmission Integration
Study which focuses on the optimal integration point for the Project and the Power Market Outlook Study,
which reviewed the energy needs for Mozambique based on the latest data and how the Project would
meet them. Both studies were completed and submitted on time alongside the updated Project Feasibility
Study, and we believe they have further solidified the case for the Project.
In the meantime, at the end of August we were delighted to sign the SHA TS that sets out the agreed
basis for the long form Shareholders Agreement and Subscription Agreement with our partners CMEC.
Importantly it states that the Company will retain 40% equity in the Project and with the agreed Investment
Conditions, it provides a roadmap for CMEC’s investment into the Project.
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Chairman’s Statement
The signing of a SA to the JDA in November enabled CMEC to fund specified accelerated development
works at the Project. A provisional budget of US$1.8 million was approved. We also submitted our
historical cost audit to CMEC for review and received “in principle” agreement to repay US$21.0 million
providing a clear crystallisation of value for Ncondezi Shareholders. Finalisation of the historic costs will
take place once the tariff has been agreed by EDM.
Tariff negotiations continue with EDM. We appointed Synergy Consulting as Project Advisors in March
2021 to assist with a number of potential advisory services to the Company including finalisation of the
tariff, negotiations with CMEC over the subscription price and Project lenders for debt financing and for
capital raising to fund our share of the equity at FC.
Tariff negotiations with EDM, whilst taking longer than the agreed timetable, remain positive. We have
received approval from EDM and other relevant parties to conduct further work on an optimised
transmission integration solution that is expected to further reduce costs. This work is not expected to
impact the negotiations and will continue in parallel with them.
Advancing our C&I renewable energy strategy
Having successfully entered the C&I solar PV and battery storage sector in 2019 with the formation of
our wholly owned renewable energy subsidiary NGP, the travel restrictions put in place to combat the
COVID-19 pandemic resulted in force majeure being declared at our C&I Maiden Project. We were very
pleased to announce in the first quarter of 2021 that the force majeure had been lifted and construction
recommenced on what we believe to be the first fully off grid solar PV plus battery storage project of its
type in Mozambique. The business model for NGP is to identify quality projects and finance them through
either an Asset Finance Agreement (“AFA”) or a Power Purchase Agreement (“PPA”) over a 15 to 20
year period. This structure provides all the benefits of lower cost, more reliable and sustainable power
generation to the energy off-taker without the upfront cost of the equipment installation. NGP has
financed the C&I Maiden Project through an AFA structure which provides for fixed monthly payments by
the energy off-taker over a 15 year period. A Bridge Loan was provided by certain Company Directors,
including myself, at the NGP level to ensure the C&I Maiden Project is fully financed to commissioning.
Construction restarted in March and it remains on track to be commissioned imminently with the first
payments due to start in July.
Building on the recent Relationship Agreement NGP signed with CPL, that supersedes the previous
Relationship Agreement with GridX and secured our US$5.5 million Mozambique pipeline, we announced
that NGP had signed a term sheet with NESA proposing the formation of a new JVCo.
The new JVCo would create a regional champion in the southern African C&I renewable energy sector
with a proven management team, operational portfolio of 15.9MWp solar PV and 1.1MWh battery storage
across 67 sites in South Africa and Mozambique and a clear pathway to scale the business with a project
pipeline currently sitting at 94.5MWp solar PV and 13.5MWp battery storage.
We have received significant interest in our C&I strategy and a capital raising programme is already
underway targeting a fundraise directly into JVCo for working capital purposes and towards its acquisition
of NIH Portfolio and long term growth strategy. Non-binding offers have been received from multiple
parties to provide equity funding into JVCo and debt term sheets have been received from debt providers
to leverage the combined operational portfolio. We are looking to finalise this process during Q3 2021.
We remain very excited about the C&I solar PV and battery storage sector as it allows us access to near-
term low-risk annuity income streams and we continue to see significant growth potential as energy users
increasingly turn to self-generation solutions and regulations relax.
Financing
During the course of 2020 the Company successfully completed two fundraisings and we welcomed a
number of new investors to the register while also gaining support from existing holders. Further to this,
in order to minimise dilution to existing Shareholders and to demonstrate their commitment, CEO Hanno
Pengilly, members of the Senior Management Team and certain consultants agreed in May a deferral of
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Chairman’s Statement
30% of fees owed until the end of November 2020.
Of the US$750,000 working capital facility put in place in October 2019 to strengthen the balance sheet,
only US$250,000 was drawn down and it subsequently expired at the end of June 2020.
We continue to work to extend and restructure the Shareholder Loan which matured on 30 November
2019. “In principle” support was received from all Lenders to enter the Shareholder Loan restructuring
proposal in November 2019 and again in May 2020. To provide investors with confidence that the
Shareholder Loan will not be called in imminently, certain Board and Management who represent 39.6%
of the Shareholder Loan signed an Undertaking not to call it in before the later of 30 November 2022 or
when the Restructuring is completed. This ensures that the majority of 66.67% required to call in the
Shareholder Loan will not be reached. We remain 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 second largest Shareholder), the Board and Senior Management.
As at the end of the reporting period, the Company had cash reserves of approximately US$0.9 million.
Based upon projections that include corporate costs, salaries of staff and consultant fees, project costs
to progress the Project and C&I projects, the Group is funded into September 2021. Further funding will
also be required to meet operating cash flows under current forecasts before the end of Q3 2021 or in
the event of accelerated project advancement. Further details can be found in the Going Concern note
1.
Acknowledgements
Following his resignation from the Board in May 2020 I would like to thank Estevão Pale for his invaluable
support and guidance throughout his Directorship and we wish him well in his role as Chairman of
Mozambique national oil company, Empresa Nacional de Hidrocarbonetos. In October 2020 Scott
Fletcher, our largest Shareholder, was appointed to the Board. Scott is uniquely placed to represent
independent Shareholder interests and his input has been invaluable. I would also like to thank the team
and our Partners for their hard work during what has been a challenging time for everyone. They have
continued to make excellent progress across all our workstreams, despite the travel restrictions in place.
Finally, my thanks go to our loyal Shareholder base for their support and patience, and we look forward
to providing further positive updates going forwards.
Michael Haworth
Non-Executive Chairman
24 June 2021
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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 PV and battery storage sector to build and operate power
solutions for the Mozambique C&I sector.
Ncondezi Project
Project Tariff Process
As per the announcement on 31 March 2020, the Company submitted a formal tariff proposal to the
Mozambican Government and EDM. The Proposal was supported by:
• Executed JDA;
• Engineering, Procurement and Construction (“EPC”) and Operations and Maintenance (“O&M”)
proposals from CMEC and GE Energy Switzerland GmbH (“GE”);
Indicative debt financing terms from a leading financial institution; and
•
• A Letter of Interest from a leading export credit agency.
The proposal submission was the final milestone required to initiate tariff negotiations with EDM and
the Mozambican Government. Once approved, the tariff offer will confirm the Project economics and
viability, allowing the development process to focus on finalising the PPA and Power Concession
Agreement (“PCA”) ahead of FC.
Following the tariff submission, it was agreed between EDM and the Company that both the
Transmission Integration Study and Power Market Outlook Study would be updated. This work required
access to proprietary information from EDM which was only made available following the tariff
submission. The updated Transmission Integration Study was completed and submitted to EDM and
the Company have recently received all the relevant approvals needed to conduct further work on an
optimised transmission integration solution which is expected to further reduce costs.
The Power Market Outlook Study was submitted to EDM in December 2020 in conjunction with the
Developer Studies, which represented the last outstanding requirement from EDM following submission
of the tariff proposal earlier in the year. The third party Power Market Outlook Study confirmed the
Project’s strategic importance and that it is one of the most advanced and credible baseload power
supply options in Mozambique and one of the most competitive coal power projects in the region.
The next step is to receive a formal response from EDM on the tariff negotiation process, which was
originally targeted for Q1 2021, however at the time of writing is still outstanding.
The Company is proactively engaging with both EDM and Government to reach a conclusion on an
agreeable work plan and timetable as soon as possible. Agreement on the tariff is expected to unlock
the remaining milestones including; finalisation of the 60% subscription price to be paid by CMEC, the
PPA, PCA and FC.
Power Plant EPC Agreement
In parallel to the tariff negotiations, the Company has continued to progress the EPC agreement
contract for the power plant with CMEC. This is expected to be the largest construction contract for the
Project and a final draft of the power plant EPC contract has been submitted to CMEC for final review
and signature.
Shareholders Agreement Term Sheet
As per the announcement on 28 August 2020, the Company signed the SHA TS with CMEC, confirming
Ncondezi will retain a 40% equity interest in the Project. The SHA TS sets out the agreed basis for the
long form Shareholders Agreement and Subscription Agreements (the “Full Form Agreements”), which
will be finalised between the parties once the investment conditions are met.
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Operations Review
The key principles agreed include:
• CMEC (or its affiliate) to subscribe for 60% equity in the Project following execution of the Full
Form Agreements (subject to relevant corporate and regulatory approvals)
• Ncondezi to retain 40% equity participation in the Project
•
• CMEC and Ncondezi to fund agreed development costs from satisfaction of investment
Investment Conditions agreed for execution of Full Form Agreements
conditions up to FC on a 60:40 basis
• CMEC to lead debt financing process from Chinese financiers
• Defined governance and management structures for the Project
• Agreed that the board of the Project will consist of three Directors nominated by CMEC and two
Directors nominated by Ncondezi
• The Board will appoint a senior management team after signing of the Shareholder Agreement
but before FC when first drawdown of initial funds for construction commences
• The Shareholder Agreement is governed by and construed in accordance of English law
The Investment Conditions include:
• Approval of the tariff envelope by EDM
• Ncondezi historical costs agreed
• EPC Agreements signed
• O&M Agreements signed
• Agreement on the 60% subscription price to be paid by CMEC
• An adequate debt security package committed to by EDM and the Government of Mozambique
meeting the requirements of investors and lenders
• Agreement reached on the Work Program and Budget for development costs until FC
• All relevant approvals attained
The SHA TS is based on and builds on the JDA signed in July 2019. Whilst the Full Form Agreements
are being finalised, the JDA will remain in full force and effect. GE is not a signatory to the SHA TS but
is the Project’s technology partner. Following the announcement from GE on 21 September 2020
regarding their intention to exit the new build coal power market, the Company has held discussions
with GE Steam Power and CMEC and confirms any potential impact on the Project is not material to
the Project outcome. In the event that a new technology partner is required, CMEC has put in place a
contingency plan and compiled a preferred list of partners who are familiar with the Project. CMEC has
indicated that such a process would take approximately 1 month to complete, if required.
As per the announcement on the 16 November 2020, the Company signed a SA to the JDA with CMEC,
pursuant to which CMEC would fund specified accelerated development works at the Project. A
provisional budget of US$1.8 million was approved by the parties, to be funded by CMEC. Funds drawn
down as part of the SA will be treated as pre FC Project development costs to be reimbursed at FC
along with the Company’s approved historical development costs or by the Company or its affiliates in
certain circumstances including the Company achieving FC with a third party, or on the sale or
liquidation of the Project company holding the mine project or the power project. A form of share pledge
was agreed by the Company and CMEC as security for the funding made by CMEC. Development work
agreed within the provisional budget has commenced and is expected to accelerate as soon as a tariff
negotiation process is agreed with EDM.
Historical Cost Audit
As per the announcement on 29 September 2020, the Company submitted the historical cost audit
report to CMEC for review. The audit report covered Ncondezi development expenditure on the mine
and 300MW coal-fired power project over the last 10 years and was completed by an international
independent audit firm. The costs of carrying out the audit report have been covered by CMEC.
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Operations Review
In January 2021 US$26.7 million was “in principle” agreed as the target Project historical expenditure.
US$21.0 million expenditure was audited by a third-party and the audit report was accepted by CMEC
“in principle” to be reimbursed to the Company at FC. US$5.7 million of costs relating to historical senior
and Project management costs are still under negotiation. The historic costs will be finalised when the
Project power tariff has been approved by EDM. Agreement of the historical costs is a key condition
precedent for the Full Form Agreements between Ncondezi and CMEC and is in addition to the
subscription price to be agreed for the 60% share in the Project and the Project developer’s fee.
C&I Solar PV and Battery Storage
Ncondezi Green Power
NGP is a wholly owned subsidiary of Ncondezi which provides solar PV and battery storage solutions
for the African C&I sector to replace existing off-grid (normally diesel) power supplies, or to supplement
on-grid connections.
NGP provides a full turnkey solution to potential C&I clients, partnering with developers and EPC
providers to design, finance, construct and operate solar PV and battery storage installations. For
projects that meet its screening and credit approval process, NGP provides a full financing solution for
the installation, removing the upfront cost to potential C&I clients. Projects are financed through either
an AFA or PPA structure which splits payments over a 15 to 20 year period, to which NGP generates
its return. NGP works with tier 1 equipment suppliers and allocates key responsibilities to professionals
best suited to managing risk during both the construction and operation phase of a project’s life.
This process takes the complications out of delivering a suitable energy solution for companies
interested in lowering their energy bills, improving energy security, and utilising more sustainable forms
of energy generation to reduce carbon emissions, NGP entered the C&I sector in 2019 when the
Company announced its first investment in the C&I Maiden Project, believed to be the first project of its
type in Mozambique.
NGP has also secured the right to fund a US$5.5 million C&I project development pipeline in
Mozambique through a Relationship Agreement with CPL.
In June 2021 NGP signed a Term Sheet with NESA proposing the formation of a new JVCo to create a
leading regional southern African champion in the C&I renewable energy and storage sector.
C&I Maiden Project
The C&I Maiden Project achieved FC in October 2019, with NGP agreeing to finance the project through
a 15 year AFA. The key project parameters are summarised below:
• 400kWp solar PV plus 912kWh battery storage project
• Fully off-grid project, believed to be the first project of its type in Mozambique
• Utilising market leading equipment including JA Solar panels, ABB Inverters and Tesla Power
Pack
• Targeting generation of up to 600MWh and CO2 savings up to 517t per annum
• 15 year fixed price offtake agreement, denominated in US$ with annual price escalations
• Contracted income of US$3.1 million over the life of the project
Following the outbreak of COVID-19 travel restrictions were put in place by the Government of
Mozambique. In April 2020 the project off-taker for the C&I Maiden Project issued a force majeure notice
to the Company due to the inability to provide site access for construction. The project was placed on
hold pending the lifting of travel restrictions, which occurred in March 2021 when NGP remobilised
construction. A US$500,000 Bridge Loan between NGP our wholly owned subsidiary and certain
Company Directors was entered into in May 2021 to ensure the project was fully financed to
commissioning.
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Operations Review
As at the date of this report the mounting structures, solar panels, batteries, inverters and generator
have been installed, and are awaiting final testing for commissioning which is expected imminently.
Relationship Agreement with GridX
In May 2020, the Company announced that NGP had signed a binding Relationship Agreement with
GridX giving it a Right of First Refusal (“ROFR”) to fund up to US$5.5 million of GridX developed projects
in Mozambique. In June 2021 this agreement was suspended, it may be reinstated by mutual
agreement between the parties. As part of the suspension process, GridX has agreed to novate to CPL
all commercial agreements in relation to the C&I Maiden Project currently under construction, and to
release to CPL any rights in relation to 5 of the existing 6 projects in the pipeline.
As part of the GridX Relationship Agreement, GridX agreed to forego payment of the final amount of
the GridX Fee (US$130,000) payable under the previous arrangement signed in April 2019. There are
no further cash payments to be made to GridX. In the prior year an amount of US$0.5 million was
recognised as JV investment in regard to the ROFR and associated costs incurred. Following the
signing of the Relationship Agreement the right is now held in NGP instead of the JV and therefore the
JV investment was derecognised and an intangible asset of US$0.5 million was recognised in May
2020.
In addition, GridX AssetCo ("C&I SPV"), a special purpose vehicle set up specifically for the Company's
first solar PV and battery storage project investment, has become a wholly owned subsidiary of NGP
through the purchase of all GridX's A class shares at par value totalling US$100. Following the
acquisition and novation to CPL, GridX no longer has any management or acquisition rights in the C&I
SPV, and CPL 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 C&I Maiden Project, it shall
immediately transfer ownership of such plant and material to the C&I SPV for no additional
consideration. As at year end the C&I SPV did not have rights to the assets. Following the acquisition
in the year, a loan receivable of US$0.7 million was recognised for the funding provided by C&I SPV
under the AFA.
Relationship Agreement with CPL
In June 2021, the Company announced that NGP had signed a new binding Relationship Agreement
with CPL giving it the ROFR (but not the obligation) to fund a pipeline of C&I solar PV and battery
storage projects in Mozambique. This agreement supersedes the existing agreement signed with GridX
in May 2020.
Under the agreement, CPL has identified 6 Initial Projects for development with a combined potential
installed PV capacity of 2.8MWp and 6.2MWh battery storage. Capital costs range from US$250,000
to US$2.1 million. Should these Initial Projects meet the minimum KPI’s and NGP exercises its right to
fund, it would represent a potential annuity income stream of over US$750,000 per annum.
Each project must meet a minimum set of KPIs before being presented to NGP for funding. These
minimum KPIs include:
• Project must be located in Mozambique;
• Project size between US$100,000 and US$10,000,000;
• Use of proven technology;
• Minimum post tax unlevered equity IRR of at least 10% to NGP;
• Minimum credit requirements met;
• Bankable offtake denominated in US$;
• Completion of credit checks on potential clients with additional credit support in place
where required;
• Finalised EPC and O&M contracts in place; and
• All consents and permits required to start construction in place.
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Operations Review
NGP 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. The Company will look to identify the optimal financing strategy
for each project, particularly with respect to securing funding at the NGP 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 continue to grow.
If a project meets the minimum KPIs, NGP has the right not to fund that project without any financial
penalty. However, should NGP 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, CPL has the ability to substitute that project for alternative projects.
As part of its ordinary course of business as a developer, CPL is entitled to a capped development fee
for each project that NGP funds, included as part of the project capital cost.
CPL is expected to provide O&M services for each of the projects that achieves FC in accordance with
market-related commercial terms for projects of a similar nature, contracting directly with the power off-
taker.
Certain incentives to encourage CPL 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 NGP.
The Relationship Agreement will expire at the earlier of Ncondezi financing US$5.5 million of projects
or 24 months from the date of the Relationship Agreement.
Shareholder Loan
The Shareholder Loan term expired on 30 November 2019 with no extensions or restructuring legally
agreed as at period end. The Shareholder Loan was US$4.7 million as at period end, with interest of
12% continuing to be accrued on the outstanding balance.
As at 18 June 2021, the repayment amount due was US$5.0 million which includes principal, rolled up
premiums under the previous loans and interest.
The Company has received “in principle” support from all Lenders to enter the Shareholder 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 Shareholder 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 delays from the impact of COVID-19.
On 26 November 2019 and reconfirmed on 20 May 2020, all Lenders, including AFC, indicated that
they will not call in the Shareholder Loan whilst the Restructuring is being finalised. On 3 November
2020 certain Board and management, including Chairman Michael Haworth and CEO Hanno Pengilly,
who represent 39.6% of the Shareholder Loan signed an Undertaking not to call in the Shareholder
Loan before the later of 30 November 2022 or when the Restructuring is completed. The Undertaking
prevents the Shareholder Loan from being called as a majority agreement representing 66.7% of
Shareholder Loan holders is required.
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.
Page | 10
Financial Review
Results from operations
The Group made a loss after tax for the year of US$2.8 million compared to a loss of US$2.3 million for
the previous financial year. The basic loss per share for the year was 0.8 cents (2019: 0.7 cents).
Administrative expenses (excluding share based payment charges) totalled US$1.6 million (2019:
US$1.2 million). Administrative expenses refer principally to staff costs, professional fees and marketing
costs and underlying administrative expenses relating to advancing the integrated power and mining
project and C&I projects. The US$0.4 million increase mainly relates to professional fees and
amortisation charges in the year.
The expense arising from equity-settled share options made to Directors was US$0.3 million for the year
(2019: US$0.4 million) made to Directors, executive senior management and contracted personnel as
set out on note 19.
The loss after tax includes US$0.9 million (2019: US$0.7 million) finance cost comprising mainly of
US$0.5 million of effective interest charges on the Shareholder Loan and US$0.4 million of fair value
loss on the derivatives.
Financial Position
The Group’s statement of financial position at 31 December 2020 and comparatives at 31 December
2019 are summarised below:
Non-current assets
Current assets
Total assets
Current liabilities
Total liabilities
Net assets
2020
US$’000
19,371
965
20,336
6,324
6,324
14,012
2019
US$’000
19,032
748
19,780
4,668
4,668
15,112
Capitalised additions totalled US$0.15 million (2019: US$0.06 million) in respect of the development of
the Power Project, refer to note 7 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 increase in non current asset of US$0.4 million (2019: US$0.06 million) is in respect of the
capitalised additions noted above and additional funding provided under loans receivable for the
construction of the C&I Maiden Project as detailed in note 10, partly offset by the amortisation of
intangible asset as detailed in note 8.
The increase in current liabilities principally relates to new derivatives issued during the year,
Shareholder Loan interest charges and the drawdown of US$0.3 million from the working capital facility
entered in October 2019, together with accrued interest.
Cash Flows
The net cash outflow from operating activities for the year was US$1.3 million (2019: US$1.2 million).
The cash outflow principally represented administrative costs for the year with limited working capital
movements.
Net cash outflow from investing activities was US$0.6 million (2019: US$0.8 million), mainly related to
additional funding provided under loans receivable on C&I solar PV and battery storage equipment in
respect of the development of the C&I Maiden Project as detailed in notes 10 and 11.
Net cash inflow from financing activities was US$2.0 million (2019: US$2.3 million) mainly relating to
the net amount of US$1.8 million from placings of 38,333,333 Ordinary Shares in the Company at a
Page | 11
Financial Review
price of 4.5p and 3.0p per Ordinary Share and US$0.3 million relating to the drawdown from the working
capital facility.
The resulting year end cash and cash equivalents held totalled US$0.9 million (2019: US$0.7 million).
Outlook
Based upon projections that include corporate costs, salaries of staff and consultant fees, project costs
to progress the Project and C&I projects, the Group is funded into September 2021. Further funding
will also be required to meet operating cash flows under current forecasts before the end of Q3 2021 or
in the event of accelerated project advancement. The Directors are exploring a number of funding and
working capital solutions. At present there are no binding agreements in place and there can be no
certainty as to the Group’s ability to raise additional funding.
The Directors are also aware of the potential risk of delays as a result of the COVID-19 pandemic.
Operations are currently unaffected however there is no certainty that further delays may not occur in
the future which may lead to further funding requirements.
The Company continues to evaluate options to execute the Shareholder Loan restructuring process as
proposed on 26 November 2019. In the meantime, the Undertaking signed by certain Board and
management who represent 39.6% of the Shareholder Loan prevents the Shareholder Loan from being
called as a majority agreement representing 66.67% is required.
The financial statements have been prepared on a going concern basis in anticipation of a positive
funding outcome but it is important to highlight that there are no binding agreements in place and 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. Further details
can be found in Going Concern note 1.
Page | 12
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.
Social Development
Ncondezi’s Social Development Programme was put on hold pending further Project developments.
Following this the Company is working with its 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.
Commitment to Low Emissions
The Company is committed to maintaining the strictest emission standards at the Project where state
of the art emission control systems will be in place to ensure SOx and NOx emissions are below current
IFC and World Bank standards and will also comply with the latest OECD guidelines and Equator
Principles.
Ensuring Energy Security and Access to Low Cost Reliable Power
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 factor in improving Mozambique’s
energy security by reducing Mozambique’s dependence on hydroelectric power (particularly in the
north), where current generation is vulnerable to the extreme weather effects of climate change.
Whilst there is increasing global pressure for energy generation to transition away from coal, the needs
for developing countries, such as Mozambique, to implement a diversified generation mix on their grids
for greater energy security combined with the provision of low cost reliable power supply to support
economic growth provide a window in which such generation remains suitable. It will also allow for
deeper energy generation from intermittent renewable energy sources such as solar PV and wind.
Looking to the Future
As a Company we acknowledge the changing investor appetite in the West for renewable versus fossil
fuel projects. We recognise that future energy generation will increasingly focus on renewable energy
solutions. Our entry into the C&I solar PV and battery storage sector allows us to offer corporates an
opportunity to reduce their carbon emissions and source more sustainable forms of energy.
Page | 13
Directors’ Biographies
The following sets out the biographies of the directors as at 31 December 2020.
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.
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.
Scott Fletcher / Non-Executive Director (appointed on 29 October 2020)
Scott Fletcher is one of the UK’s leading entrepreneurs and boasts an MBE for services to business
and community in the north of England as well as an honorary Doctorate in Business Administration.
Mr Fletcher founded his first company in 1996 ANS Group, growing it to become a leading cloud
services provider in the UK today. Mr Fletcher is also an active investor in smaller companies both
private and public.
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.
Page | 14
Directors’ Report
The Directors present their annual report and the audited group financial statements headed by
Ncondezi for the year ended 31 December 2020.
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 also continues to
advance its solar PV and battery storage strategy in the C&I sector in Mozambique.
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 on pages 17
to 21.
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 22.
Key performance indicators
The key performance indicators of the Group are as follows:
Mine and Power development expenditure (US$’000)
C&I projects funding (US$’000)
Share price at 31 December (pence)
Cash at bank at 31 December (US$’000)
2020
152
418
5.50
853
2019
58
769
6.30
722
Results and dividends
The results of the Group for the year ended 31 December 2020 are set out on page 36.
The Directors do not recommend payment of a dividend for the year (2019: US$nil). The loss will be
transferred to reserves.
Events after the reporting date
See note 25 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 22 of the financial statements.
Going concern
Based upon projections that include corporate costs, salaries of staff and consultant fees, project costs
to progress the Project and C&I projects, the Group is funded into September 2021. While the C&I
Maiden Project, currently under construction, is fully funded by a US$500,000 bridge loan, projections
do not include any unforeseen further funding and assumes that the existing debt will be refinanced or
converted during Q3 2021. The Company will focus on raising funding at the subsidiary level for future
C&I projects to ensure cash reserves are prioritised for the immediate funding needs of the main Project.
The working capital facility of US$750,000 expired on 30 June 2020, during the period US$250,000
was drawn down. The Shareholder Loan of US$5.0 million as at 18 June 2021 (principal, historic
redemption premium and interest) matured on 30 November 2019. Certain lenders have signed an
Undertaking not to call in the Shareholder Loan before the later of 30 November 2022 or when the
restructuring is completed. Nevertheless, 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.
Page | 15
Directors’ Report
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
Michael Haworth
1
Estevão Pale 2
Aman Sachdeva 3
4
Scott Fletcher
Hanno Pengilly
Appointment
date
01.06.12
03.06.10
21.05.15
29.10.20
09.10.19
Ordinary Shares held
31 December 2020
16,759,462
-
-
63,489,687
291,375
Ordinary Shares held
31 December 2019
16,759,462
-
-
-
291,375
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 15.0% of the issued
Ordinary Shares as at 31.12.20 and 14.83% as at 18.06.21.
4. Scott Fletcher was appointed on 29 October 2020 and therefore comparative information is not provided as he was not
a Director on 31 December 2019.
Annual General Meeting
Resolutions will be proposed at the forthcoming Annual General Meeting, as set out in the Formal Notice
which will be sent to Shareholders in due course. In accordance with the Company’s Articles of
Association one third of the Directors are required to retire by rotation. Accordingly, Michael Howarth
and Aman Sachdeva will offer themselves for re-election at the forthcoming Annual General Meeting of
the Company.
Corporate Governance
The Company’s compliance with the principles of corporate governance is explained in the corporate
governance statement on pages 22 to 25.
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
24 June 2021
Page | 16
Risk Factors
Risk(s)
Potential Impact(s)
Mitigation Measure(s)
Financing risk
to complete
the
The Group needs
restructuring of its existing 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 CPL 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 CPL
projects.
To date the Company has successfully
raised capital via the issue of new shares
and has been funded by way of loans from
Shareholders and management. Going
forward
future capital raises and debt
funding will be subject to market conditions
at the time which may be impacted by
COVID-19, there is no guarantee these will
be successful.
The Company is in discussions with the
existing Shareholder Loan holders and has
received ‘in principle’ support regarding
restructuring of the loans, if necessary,
together with exploring funding solutions to
refinance the Shareholder Loan. Further to
this
and
certain Board Members
management who represent 39.6% of the
Shareholder Loan have
signed an
Undertaking not to call in the Shareholder
Loan before the later of 30 November 2022
or when the Restructuring is completed.
The Undertaking prevents the Shareholder
Loan from being called as a majority
agreement of 66.67% is required.
Ncondezi has signed a JDA with CMEC and
GE which provides financial support to the
Project both at the developmental stages to
FC as well as during construction.
The Company also signed a SA to the JDA
with CMEC, pursuant to which CMEC would
fund specified accelerated development
works at the Project with a provisional
budget of US$1.8 million being approved by
funded by CMEC.
the parties and
Development work agreed within
the
provisional budget has commenced and is
expected to accelerate as soon as a tariff is
agreed with EDM. It is important to highlight
that there is no certainty that additional
funding will be raised.
of
securing
The Company intends to engage with a
range of potential financing partners with the
objective
additional
development capital for the costs that will
not be covered by the JDA partners,
including selected corporate overheads.
Since October 2018, Ncondezi has had a
successful track record in raising additional
capital with £1.4million before expenses
raised during the 2020 financial year despite
challenging markets due to the COVID-19
outbreak.
The Project is at an advanced level of
development. Power Tariff negotiations are
underway with EDM and the Mozambique
Government. Negotiations have taken place
virtually to mitigate the travel restrictions
when in place due to COVID-19. Other key
workstreams are progressing ahead of
finalising the PPA and PCA.
The Company has agreed to fund US$1.1
million, towards the C&I Maiden Project, and
has sourced funding through a combination
of issuing new shares and a Bridge Loan.
The Bridge Loan structure provides the
Company with additional advantages
Page | 17
Risk Factors
Off-taker risk
In the event that the Group is unable to
renew the commercial deal with EDM or
finalise the PPA on acceptable terms, the
Group will need to secure an alternative
credible power off-taker(s) to raise finance
for the Project. There is no guarantee that, in
such circumstances, the Group will be able
to secure a credit worthy off-taker for the full
output with the plant operating at load
factors in excess of 80%.
Power off-taker for NGP’s C&I Maiden
Project defaults on AFA payments once
project is commissioned.
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 transmission line servitudes.
including the ringfencing of debt at the NGP
subsidiary level and additional optionality
and time to further explore refinancing
options. The Company is required to repay
or refinance the Bridge Loan in Q4 2021 and
plans to refinance the Bridge Loan once the
C&I Maiden Project enters commercial
operation and has been materially de-
risked, although discussions with potential
funders have already begun.
The Directors’ will monitor the monthly cash
burn rate to ensure the Group operates
within its cash resources for as long as
possible.
launched
the President of
In October 2018,
“National
the
Mozambique
targeting
Electricity Program
for All”,
expansion of energy access
in
rates
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. As part of this programme, EDM has
successfully achieved FC on a number of
power projects in 2020 and 2021.
Should EDM not be able to offtake the full
power supply from the Project, there is a
shortage of power in the region, with
Mozambique currently exporting power to
South Africa, Zimbabwe, Zambia, Botswana
and Namibia. Each of these countries could
provide a potential credible power off-taker
for the Power Project either as a substitute
or as additional power off-taker for an
expanded power plant. The Company
monitors this potential closely.
NGP completes a detailed credit review of
all potential C&I power off-takers to ensure
serviceability of the AFA or PPA before
committing to any funding. NGP also looks
to enhance credit support for its projects by
looking at asset pledges, priority ranking
security and debt service reserve accounts.
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. The
December 2020 Market study confirmed the
Project as one of the most competitive coal
power plant projects in the southern African
region.
Competing gas projects are mainly located
in the southern part of Mozambique and are
not able to supply the portion of the
Mozambican power grid that the Power
Project is to connect to in the north of the
country.
Page | 18
Risk Factors
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
to
commission.
take 2-3 years
longer
Resources
• Sign-off of resources by registered
Competent Person (“CP”).
• Reporting resources in accordance
with the JORC code.
• Classification of resources into a high
level of confidence category.
• Conduct detailed geological modelling
The
accredited
•
laboratories for the analyses of coal
samples.
utilisation
of
• QA/QC procedures according to best
practices.
Estimating
mineral reserve
and resource
The estimation of mineral reserves and
mineral resources is a subjective process
and the accuracy of reserve and resource
estimates is a function of the quantity and
quality of available data and
the
assumptions used and judgements made in
interpreting engineering and geological
information.
There
in any
is significant uncertainty
reserve or resource estimate and the actual
deposits encountered and the economic
viability of mining a deposit may differ
materially from the Group’s estimates.
The exploration of mineral
is
speculative in nature and is frequently
unsuccessful. The Group may therefore be
unable
to successfully discover and/or
exploit reserves.
rights
Reserves
• Sign-off of reserves by registered CP.
• Classification of reserves into proven
or probable reserves.
• Detailed mine design and scheduling.
Coal risk
Coal specification developed at the pre-
feasibility study and verified during the
feasibility stage may not be representative of
coal to be used in the plant.
Not properly characterised coal resources
may lead to incorrect boiler design and plant
underperformance.
Transmission grid
constraints
Available transmission capacity is allocated
to other power generators.
Further coal quality analysis will be
conducted and supplied
the boiler
supplier for finalisation of boiler design.
to
A transmission agreement heads of terms
has been signed with EDM and
the
Mozambican Government to ensure that
infrastructure
available
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. Approval
was received in May 2021 to conduct further
transmission
work on an optimised
integration solution which is expected to
further reduce costs.
transmission capacity
Page | 19
Risk Factors
Environmental
and other
regulatory
requirements
Climate Change
Risk
expense,
additional
Existing and possible future environmental
legislation, regulations and actions could
cause
capital
expenditures, restrictions and delays in the
activities of the Group, the extent of which
cannot be predicted. Before production can
commence on any properties, the Group
must obtain regulatory approval and there is
no assurance that such approvals will be
obtained. No assurance can be given that
new rules and regulations will not be
enacted or existing rules and regulations will
not be applied in a manner which could limit
or curtail the Group’s operations.
The Group adopts standards of international
best practice in environmental management
and community engagement in addition to
satisfying Mozambican
focussing on
environmental
and
requirements in all stages of development.
regulations
Environmental Management and Social
Development Plans have been advanced
and are being
to satisfy
national and international best practice.
implemented
The Mine and Power Plant Environmental
Social Impact Assessments (ESIA) have
been conducted by independent,
internationally recognised consultants, and
have been approved by the Mozambican
Government.
The Project will use state of the art emission
control systems, targeting 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.
The Company’s entry into the solar PV and
battery storage sector positions it to take
advantage of growing demand from
corporates to reduce their carbon
emissions and source more sustainable
forms energy.
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
coal
funding
appetite for the Project.
fired generation and
could affect
limit
that
Mozambique is a developing country with an
energy generation mix
is heavily
dependent on hydro power generation.
Power generation from coal is seen as a key
factor in improving Mozambique’s energy
reducing Mozambique’s
security
by
dependence
power
(particularly in the north), where current
generation is vulnerable to the extreme
weather effects of climate change. It will
also allow for deeper energy generation
from intermittent renewable energy sources
such as solar PV and wind.
hydroelectric
on
Foreign Country
Risk
The Group’s exploration
licences and
Project are in Mozambique. The Group
faces political risk whereby changes in
government policy or a change of governing
political party could place its exploration
licences and Project in jeopardy.
resulting
Mozambique defaulted on commercial loans
in 2016
the
International Monetary Fund (IMF) freezing
aid
to Mozambique, which may affect
financing of the Project at FC.
in donors and
Mozambique has been exposed to acts of
terrorism
in the Cabo Delgado region,
affecting businesses and resulting in people
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 FC 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 to restore confidence in
the country.
Page | 20
Risk Factors
relocating. This
business activities
country.
is expected
to
in the north of
impact
the
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.
Tariff Agreement
Risk
The Company is currently negotiating the
tariff for the Ncondezi Project with EDM and
the Government of Mozambique. Failure to
complete
the negotiations successfully
would have an adverse operational and
financial impact.
COVID-19
The COVID-19 outbreak in H1 2020 resulted
in travel restrictions in and to Mozambique.
This impacted the Company in a number of
ways preventing access to site for both the
main Ncondezi Project and the C&I Maiden
Project. As a result, force majeure was
declared by the C&I Maiden Project off-taker
and construction was halted until March
2021.
The travel restrictions also prevented the
Project Partners from holding in person
negotiations with EDM and existing and
potential investors.
in
Terrorism attacks
the north of
Mozambique are localised to the Cabo
Delgado region and are not expected to
have an impact on the Company’s business
operations.
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.
The Company has signed a relationship
agreement with CPL providing a pipeline of
potential off-grid solar PV battery storage
projects for 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.
The tariff negotiation process is underway
and will look to optimise the tariff structure
via a number of factors including capex and
opex optimisation and financing terms from
lenders. While there are no guarantees, the
Company remains confident an agreement
will be reached with EDM to ensure the
Project economics are maintained for all
Stakeholders.
The Company halted all travel and operated
on a remote basis during the lockdown.
Construction work on the C&I Maiden
Project in Mozambique was suspended and
only recommenced when travel restrictions
were lifted and access to site was granted in
March 2021.
travel
Meetings with our Project Partners,
and
consultants
all
advisors were
transferred
online. Negotiations with
Government and EDM also took place
online to ensure they could advance while
in place.
the
restrictions were
the
Following discussions with EDM
two
to carry out
Company agreed
independent studies which
into
took
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.
Page | 21
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 on pages 17 to 21.
In addition to the main Project, the Company continues to advance its solar PV and battery storage
strategy in the C&I sector in Mozambique.
A statement of the Directors’ responsibilities in respect of the financial statements is set out on page
28. 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 2020, the Board comprised a Non-Executive Chairman (Michael Haworth), two further
Non-Executive Directors (Aman Sachdeva, Scott Fletcher) 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 Scott Fletcher and Aman Sachdeva would not be viewed as
independent by virtue of the shares, options and loan that Scott Fletcher holds in the Company and, in
respect of Aman Sachdeva, his options and 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 Scott Fletcher and Aman
Sachdeva can be considered independent.
In addition, Michael Haworth has served on the Board for a concurrent period longer than nine years
and, in that respect only, does not meet the usual criteria for independence set out in the UK Corporate
Governance Code. On the basis that he had no association with, and was independent from, the Group
at the time of his appointment and his constructive contributions to Board discussions, the Directors
consider that he remains independent.
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 on page 14.
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.
Page | 22
Corporate Governance Statement
The Company has established Audit and Remuneration Committees of the Board with formally
delegated duties and responsibilities. In 2020 until his resignation on 5 May 2020 Estevão Pale
remained as second member of the Remuneration Committee together with Michael Haworth. Following
Estevão Pale’s resignation and Scott Fletcher’s appointment, the Remuneration Committee is made up
of Michael Haworth, Aman Sachdeva and Scott Fletcher.
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
Page | 23
Corporate Governance Statement
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 of our business in an honest and ethical manner. We take a zero-tolerance
approach to bribery and corruption and are committed to acting professionally, fairly and with integrity
in all our business dealings and relationships wherever we operate, implementing and enforcing
effective systems to counter bribery.
We will uphold all laws relevant to countering bribery and corruption in all the jurisdictions in which we
operate and remain bound by the laws of the UK, including the Bribery Act 2010, in respect of our
conduct both at home and abroad.
Board meetings
Board meetings are held on average every quarter 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 11 and attendance is outlined below:
Attendance by directors Board meetings
11
Michael Haworth
Estevão Pale* 2
Aman Sachdeva
10
Scott Fletcher** 3
11
Hanno Pengilly
* Estevão Pale resigned on 05.05.2020
** Scott Fletcher was appointed on 29.10.2020 and attended all 3 meetings held in 2020 following 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 2020, the Audit Committee members were Michael Haworth (Committee Chairman), Aman
Sachdeva and Hanno Pengilly. Since the year end, Scott Fletcher has been appointed to the Committee
and appointed as Committee Chairman.
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 twice in the year.
Page | 24
Corporate Governance Statement
The Remuneration Committee
The Remuneration Committee in 2020 was comprised of Scott Fletcher (Committee Chairman), Aman
Sachdeva and Michael Haworth.
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 on pages 26 to 27.
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.
Page | 25
Remuneration Committee Report
At the year end, being 31 December 2020, the Remuneration Committee comprised Scott Fletcher,
Aman Sachdeva and Michael Haworth.
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 2020 the following
awards to Director remained in place:
Non-Executives
Date of grant
Number
granted
Exercise
price
Estevão Pale*
Estevão Pale*
Estevão Pale*
Estevão Pale*
Aman Sachdeva
Aman Sachdeva
Hanno Pengilly
Hanno Pengilly
Hanno Pengilly
Hanno Pengilly
Hanno Pengilly
Hanno Pengilly
Hanno Pengilly
Hanno Pengilly
Scott Fletcher**
Scott Fletcher**
Scott Fletcher**
25 May 2018
25 May 2018
25 May 2018
26 Nov 2019
25 May 2018
26 Nov 2019
25 May 2018
25 May 2018
25 May 2018
25 May 2018
25 May 2018
25 May 2018
25 May 2018
26 Nov 2019
12 Nov 2020
12 Nov 2020
12 Nov 2020
75,000
1,000,000
300,000
750,000
1,000,000
750,000
550,000
150,000
300,000
2,375,132
1,187,566
1,187,566
1,187,566
6,333,332
5,000,000
2,500,000
2,500,000
8.625p
6.25p
nil
6.5p
6.25p
6.5p
8.625p
8.625p
5.0p
7.5p
10.0p
15.0p
8.625p
6.5p
3.0p
5.0p
7.5p
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
3 years
3 years
3 years
*Estevão Pale resigned on 5 May 2020.
**Scott Fletcher was appointed on 29 October 2020.
Refer to note 19 for details of the vesting conditions attached to certain of the awards.
Grant of Share Awards
During 2020 10,000,000 share options were issued to the Company’s Directors (2019: 7,833,332 all to
Company’s directors).
Directors’ Options
During 2020 all 10,000,000 share options were issued to the Company’s Directors (2019: 7,833,332).
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 and 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, Aman Sachdeva has waived his Directors fees since 1 April 2015
and Scott Fletcher since 29 October 2020.
Page | 26
Remuneration Committee Report
Directors’ remuneration
The following table sets out an analysis of the pre-tax remuneration for the year ended 31 December
2020 for individual directors who held office in the Company during the period.
Director
Michael Haworth
Estevão Pale**
Aman Sachdeva
Scott Fletcher***
Hanno Pengilly****
Total
Base
Salary/fee
US$’000
Bonus
US$’000
Share
based
payments*
US$’000
Total
2020
US$’000
Total
2019
US$’000
-
-
-
-
240
240
-
-
-
-
120
120
-
-
-
49
180
229
-
-
-
49
540
589
-
39
39
-
85
163
* Details in Note 19
** Estevão Pale resigned on 05.05.2020
*** Scott Fletcher was appointed on 29.10.2020
**** Hanno Pengilly – US$120k 2019/20 accrued bonus was paid in shares in 2021
On behalf of the Board
Michael Haworth
Non-Executive Chairman
24 June 2021
Page | 27
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.
Page | 28
Independent audit report to the members of Ncondezi
Energy Limited
Opinion
In our opinion, the financial statements:
•
•
give a true and fair view of the state of the Group’s affairs as at 31 December 2020 and its loss
for the year then ended;
have been prepared in accordance with IFRSs as adopted by the European Union.
We have audited the financial statements of Ncondezi Energy Limited (“the Parent Company”) and its
subsidiaries (the “Group”) for the year ended 31 December 2020 which comprises 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 Group financial
statements is applicable law and International Financial Reporting Standards (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 believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remain 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.
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 matured on 30 November 2019 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.
In auditing the financial statements, we have concluded that the Directors’ use of the going concern
basis of accounting in the preparation of the financial statements is appropriate.
Our evaluation of the Directors’ assessment of the Group’s ability to continue to adopt the going concern
basis of accounting and our audit procedures in response to this key audit matter included:
• We discussed the ongoing impact of COVID-19 with management, including 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.
Page | 29
Independent audit report to the members of Ncondezi
Energy Limited
• 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,restructure the shareholder loan and refinance loans, failure to
obtain tariff approval and delays in finalising the construction of the Azura battery project were
possible.
• We 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, refinancing loans and securing additional financing to meet
working capital requirements. In doing so, we inspected correspondence with the loan note
holders, agreement signed with 39.6% of shareholders, 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 against the
accounting standards.
Our responsibilities and the responsibilities of the Directors with respect to going concern are described
in the relevant sections of this report.
Overview
Coverage1
Key audit matters
Materiality
97% (2019: 95%) of Group loss before tax
99% (2019: 99%) of Group total assets
Going concern
Carrying value of the group’s
mining and power assets
2020
•
•
2019
•
•
Group financial statements as a whole
US$0.31m (2019: US$0.3m) based on 1.5% (2019:1.5%) of
total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its environment, including
the Group’s system of internal control, and assessing the risks of material misstatement in the financial
statements. We also addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have represented a risk of
material misstatement.
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 green energy subsidiary based in Mauritius.
1 These are areas which have been subject to a full scope audit by the group engagement team
Page | 30
Independent audit report to the members of Ncondezi
Energy Limited
A full scope audit was performed on these significant components by the Group audit team 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 the Group
audit team.
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) that 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 relating
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
2020 as detailed in note 7. The mining assets
are held at their recoverable value which is
below cost following impairments made in prior
years.
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 2020 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
impairment
Management
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, which sets out the key
judgements and estimates
the
impairment assessment.
involved
in
How the scope of our audit addressed
the key audit matter
We assessed
the appropriateness of
management’s conclusion that the mining
and power assets represented one cash
generating unit, against the requirements of
applicable accounting standards.
impairment
We reviewed management’s impairment
review and performed our own assessment
of
to
indicators
determine whether their assessment was
the
complete and
requirements of applicable accounting
standards.
in accordance with
in order
that
We obtained the integrated power and mine
asset
financial model, prepared by
management’s external consultant, and
the model demonstrated
checked
In
the carrying value.
headroom over
respect of key inputs in the model we
confirmed
the project costs were
consistent with quotes and supporting
information, compared the discount rate to
relevant third party rates and performed
the
sensitivity analysis. We assessed
independence and competence of
the
external consultant.
that
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
verbal
the Government
on
discussions
with
they
held
the Government
representatives
owned power company and we obtained
specific written representation to that effect.
based
had
from
Page | 31
Independent audit report to the members of Ncondezi
Energy Limited
We reviewed market reports and internal
correspondence to check that they were
consistent with the tariff used in the model
and agreed the rate to documents submitted
to the Government.
We reviewed
the signed shareholders
agreement term sheet with the project
partners
supporting
documents demonstrating progress and the
continued feasibility of the project at this
time.
obtained
and
assets,
notwithstanding
the
from
We assessed
the appropriateness of
management’s conclusion that no reversal
of impairment was required in respect of the
the
mining
headroom derived
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 factors which may indicate
a change in 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.
We reviewed the disclosures in note 2
against the requirements of the relevant
accounting
framework and considered
whether they appropriately reflected the key
judgements and estimates made by
management.
Key observations:
Based on the procedures performed, we
found management’s assessment of the
carrying value of the Group’s mining and
power assets and related 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.
In order to reduce to an appropriately low level the probability that any misstatements exceed
materiality, we use a lower materiality level, performance materiality, to determine the extent of testing
needed. 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.
Page | 32
Independent audit report to the members of Ncondezi
Energy Limited
Based on our professional judgement, we determined materiality for the financial statements as a whole
and performance materiality as follows:
Group financial statements
2020
2019
US$0.31 million
1.5% of total assets
US$0.30 million
1.5% of total assets
to be
consider
total
We
the
assets
appropriate benchmark
due to the focus of
stakeholders being on
the
the assets of
Group.
US$0.21 million
We consider total assets
the appropriate
to be
to
benchmark due
the
focus
stakeholders
of
being on the assets of the
Group.
US$0.20 million
for
70%
materiality
of
Group
70% of Group materiality
for
Materiality
Basis
determining
materiality
Rationale for the
benchmark
applied
Performance
materiality
Basis
determining
performance
materiality
Component materiality
We set materiality for each component of the Group based on a percentage of between 35% and 90%
of Group materiality dependent on the size and our assessment of the risk of material misstatement of
that component. Component materiality ranged from US$0.11 million (2019: US$0.11 million) to
US$0.27 million (2019: US$0.27 million). In the audit of each component, we further applied
performance materiality levels of 70% of the component materiality to our testing to ensure that the risk
of errors exceeding component materiality was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in
excess of US$15,000 (2019: US$15,000), 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.
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.
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
course of 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 this gives
rise to a material misstatement in the financial statements themselves. 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.
Page | 33
Independent audit report to the members of Ncondezi
Energy Limited
Responsibilities of Directors
As explained more fully in the statement of Directors’ responsibilities, the Directors are responsible for
the preparation of the financial statements and for being satisfied that they give a true and fair view,
and for such internal control as the Directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for assessing the Group’s and
Parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the Directors either intend to
liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but
to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole
are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect
of irregularities, including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
• Holding discussions with management and the Board to understand the laws and regulations
relevant to the Group and its components. These included elements of the financial reporting
framework, tax legislation, mining laws, AIM listing rules, QCA corporate governance code and
environmental regulations;
• Holding discussions with management and management to consider any known or suspected
instances of non-compliance with laws and regulations or fraud;
• Communicating relevant identified laws and regulations and potential fraud risks to all
engagement team members and remaining alert to any indications of fraud or non-compliance
with laws and regulations throughout the audit;
• Testing appropriateness of journal entries made throughout the period which met a specific risk
based criteria;
• Assessing the judgements made by management when making key accounting estimates and
judgements, and challenging management on the appropriateness of these judgements,
specifically around key audit matters as discussed above;
• Reviewing minutes from board meetings of those charges with governance and RNS
announcements to identify any instances of non-compliance with laws and regulations;
• Performing a detailed review of the Group’s period-end adjusting entries and investigating any
that appear unusual as to nature or amount and agreeing to supporting documentation; and
• Performing detailed testing on account balances which were considered to be at greater risk of
susceptibility to fraud.
Page | 34
Independent audit report to the members of Ncondezi
Energy Limited
Our audit procedures were designed to respond to risks of material misstatement in the financial
statements, recognising that the risk of not detecting a material misstatement due to fraud is higher
than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by,
for example, forgery, misrepresentations or through collusion. There are inherent limitations in the audit
procedures performed and the further removed non-compliance with laws and regulations is from the
events and transactions reflected in the financial statements, the less likely we are to become aware of
it.
A further description of our responsibilities is available on the Financial Reporting Council’s website at:
https://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. 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
24 June 2021
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
Page | 35
Consolidated statement of profit or loss and
other comprehensive income
for the year ended 31 December 2020
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 on pages 40 to 67 form part of these financial statements.
2020
2019
US$’000
US$’000
(1,611)
(292)
(1,903)
(910)
(2,813)
-
(1,216)
(402)
(1,618)
(680)
(2,298)
-
(2,813)
(2,298)
(0.8)
(0.7)
Page | 36
Consolidated statement of financial position
as at 31 December 2020
Note
2020
US$’000
2019
US$’000
Assets
Non-current assets
Property, plant and equipment
JV Investment
Intangible assets
Loan receivable
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalent
Total current assets
Total assets
Current liabilities
Trade and other payables
Loans and borrowings
Derivative financial liability
Total current liabilities
Total liabilities
Capital and reserves attributable to
shareholders
Share capital
Accumulated losses
Total capital and reserves
Total equity and liabilities
7
10
8
11
12
13
14
15
16
17
18,348
-
358
665
19,371
112
853
965
20,336
550
5,015
759
6,324
6,324
18,263
769
-
-
19,032
26
722
748
19,780
404
4,234
30
4,668
4,668
94,137
(80,125)
14,012
20,336
92,660
(77,548)
15,112
19,780
The financial statements were approved and authorised for issue by the Board of Directors on 24 June
2021 and were signed on its behalf by:
Michael Haworth
Non-Executive Chairman
The notes on pages 40 to 67 form part of these financial statements.
Page | 37
Consolidated statement of changes in equity
for the year ended at 31 December 2020
At 1 January 2020
Loss for the year
Other comprehensive loss for the year
Total comprehensive loss for the year
Issue of shares
Costs associated with issue of shares
Warrants issued
Exercise of share options
Equity settled share-based payments
At 31 December 2020
Share
capital
US$'000
92,660
-
-
-
1,910
(138)
(351)
56
-
Accumulated
Losses
US$'000
Total
US$'000
(77,548) 15,112
(2,813)
-
(2,813)
1,910
(138)
(351)
-
292
(2,813)
-
(2,813)
-
-
-
(56)
292
94,137
(80,125) 14,012
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
Share
capital
US$'000
88,796
-
-
-
2,380
(213)
98
1,344
255
-
Total
US$'000
Accumulated
Losses
US$'000
(75,554) 13,242
(2,298)
-
(2,298)
2,380
(213)
-
1,344
255
402
(2,298)
-
(2,298)
-
-
(98)
-
-
402
92,660
(77,548) 15,112
The notes on pages 40 to 67 form part of these financial statements.
Page | 38
Consolidated statement of cash flows
for the year ended at 31 December 2020
Loss before taxation
Adjustments for:
Finance expense
Share based payment charge
Reversal of accrual
Depreciation
Amortisation
Net cash flow from operating activities before
changes in working capital
Increase in payables
(Increase)/ decrease in receivables
Net cash flow from operating activities before tax
Income taxes refunded
Net cash flow from operating activities after tax
Investing activities
Power and Mine development costs capitalised
JV investment prior to acquisition (note 10)
Purchase of intangibles
Net cash flow from investing activities
Financing activities
Issue of ordinary shares
Cost of shares issued
Warrants exercised
Loan draw down
Net cash flow from financing activities
Net increase in cash and cash equivalents in the
year
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
The notes on pages 40 to 67 form part of these financial statements.
2020
US$’000
2019
US$’000
(2,813)
(2,298)
910
292
-
67
164
(1,380)
146
(86)
(1,320)
-
(1,320)
(152)
(384)
(35)
(571)
1,910
(138)
-
250
2,022
131
722
853
680
402
(150)
67
-
(1,299)
73
28
(1,198)
-
(1,198)
(58)
(769)
-
(827)
2,380
(213)
156
-
2,323
298
424
722
Page | 39
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
Based upon projections that include corporate costs, salaries of staff and consultant fees, project costs
to progress the Project and C&I projects, the Group is funded into September 2021. While the C&I
Maiden Project, currently under construction, is fully funded by a US$500,000 Bridge Loan, projections
do not include any unforeseen further funding and assumes that the existing debt will be refinanced or
converted during Q3 2021. The Company will focus on raising funding at the subsidiary level for future
C&I Projects to ensure cash reserves are prioritised for the immediate funding needs of the main Project.
The working capital facility of US$750,000 expired on 30 June 2020, during the period US$250,000 was
drawn down.
The Shareholder Loan of US$5.0 million as at 18 June 2021 (principal, historic redemption premium
and interest) matured on 30 November 2019. In November 2020 certain Board and management who
represent 39.6% of the Shareholder Loan have signed an Undertaking not to call in the Shareholder
Loan before the later of 30 November 2022 or when the restructuring is completed. The Undertaking
prevents the Shareholder Loan from being called as a majority agreement representing 66.67% of
Shareholder Loan holders is required. Nevertheless, the Company is currently evaluating options to
execute the restructuring process as proposed on 26 November 2019.
The Directors continue to explore options in respect of raising further funds to continue with the
Ncondezi Project development programmes, as well as fund 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. The Directors are also aware of the potential risk of delays as a result of the COVID-19
pandemic. Operations are currently unaffected however there is no certainty that further delays may not
occur in the future which may lead to further funding requirements.
In addition, notwithstanding the Shareholder Loan, further funding will be required as detailed above to
meet operating cash flows under current forecasts before the end of Q3 2021 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 there
can be no certainty that any of these initiatives will be successful.
The COVID-19 pandemic represents a risk to a number of aspects of the Group’s business, including
lack of access to the Project and in person meetings with the Project Partners, Government, EDM and
potential finance partners which may cause a delay to the Project. 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.
Page | 40
Notes to the consolidated financial statements
1. Principal accounting policies (continued)
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 judgements 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 2020, have been adopted in the current financial year.
Standard
IAS 28
IFRS 3
IAS 1
IAS 8
Description
Amendments to IAS 28 Sale of Long-Term Interest in
Associates and Joint Ventures
Amendments to IFRS 3 Business Combinations – Definition of
a business
Presentation of Financial Statements
IAS 8 Accounting Policies, Changes in Accounting Estimates
and Errors (Amendment Definition of Material)
Revised Conceptual Framework for Financial Reporting
The new standards effective from 1 January 2020, as listed above, do not have a material effect on the
Group’s financial statements.
Standards in issue but not yet effective
The following standards, amendments and interpretations which have been recently issued or revised
and are mandatory for the Group’s accounting periods beginning on or after 1 January 2021:
Page | 41
Notes to the consolidated financial statements
1. Principal accounting policies (continued)
Standard
IFRS 3
IAS 16
IAS 37
IAS 1
IFRS 16
IFRS 1, IFRS 9, IFRS 16 and
IAS 41
IFRS 9, IAS 39 and IFRS 7
Description
Amendments - Business Combinations
Property, Plant and Equipment: Proceeds before Intended
Use
Provisions, Contingent Liabilities and Contingent Assets
Amendments - Classification of Liabilities as Current or Non-
current
Amendments - Leases COVID-19 - Related Rent Concessions
Annual improvements to IFRSs (2018-2020 Cycle)
Amendments - interest rate benchmark reform - Phase 2
The Group is currently assessing the impact of these new accounting standards and amendments.
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.
Page | 42
Notes to the consolidated financial statements
1. Principal accounting policies (continued)
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.
Intangible assets
Intangible assets acquired as part of an acquisition of a business are capitalised separately from
goodwill, if these assets are separable and their fair value can be measured reliably. Intangible assets
acquired separately from the acquisition of a business are capitalised at cost. The cost of the other
intangible assets with finite useful economic lives is amortised over that period. The carrying values of
intangible assets are reviewed for impairment when events or changes in circumstances indicate that
the carrying values may not be recoverable. If impaired, they are written down to the higher of fair value
less costs to sell and value in use.
Amortisation and estimated useful lives
Intangible assets, excluding goodwill, are amortised on a straight-line basis over their estimated useful
lives and charged to administrative expenses in the consolidated statement of income. The estimated
useful lives of the ROFR to C&I projects pipeline.
Page | 43
Notes to the consolidated financial statements
1. Principal accounting policies (continued)
Power project costs
Power project expenditure is expensed until it is probable that future economic benefits associated with
the project will flow to the Group and the cost of the project can be measured reliably. When it is
probable that future economic benefits will flow to the Group, all costs associated with developing the
300MW power project are capitalised as power project expenditure within the property, plant and
equipment category of tangible non-current assets. The capitalised expenditure includes appropriate
technical and administrative expenses but not general overheads. Power project assets are not
depreciated until 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.
Page | 44
Notes to the consolidated financial statements
1. Principal accounting policies (continued)
The Group has two cash generating units being (1) the Power Project and Mine Project - this segment
is involved in the exploration for coal and development of the coal mine and the development of a
300MW integrated power plant and (2) a C&I solar PV and battery storage project - this segment is
focused on building and operating captive solar PV 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.
Page | 45
Notes to the consolidated financial statements
1. Principal accounting policies (continued)
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 comprise Trade and Other Receivables and Loan Receivables which 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 and loan receivables. The amount of
ECL is updated at each reporting date to reflect changes in credit risk since initial recognition of the
respective financial instruments. Impairment provisions for other receivables and loan receivables are
recognised based on a forward looking ECL 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 ECL along with gross interest income are
recognised. For those for which credit risk has increased significantly, lifetime ECL along with the gross
interest income are recognised. For those that are determined to be credit impaired, lifetime ECL 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.
Page | 46
Notes to the consolidated financial statements
1. Principal accounting policies (continued)
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
Shareholder 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 22). 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.
Page | 47
Notes to the consolidated financial statements
2. Critical accounting estimates and judgements (continued)
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, submission of the tariff
proposal, updates and submission of the Project Feasibility Study, Transmission Integration Study and
Power Market Outlook Study, Shareholders Agreement signed with CMEC, SA to JDA and submission
of historical cost audit to CMEC, 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. 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 formal 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 2020 and associated risks and uncertainties, the extent of progress made towards finalising
the JDA and subsequent FC and the period of time to final completion of a transaction, management
concluded that the criteria were not met.
(iii) Valuation of share options and warrants
Share options issued by the Company are fair valued when granted and warrants, which are classified
as financial liabilities, are revalued at each reporting date. This requires the Group to determine an
appropriate valuation methodology, which they have determined to be the Black-Scholes option pricing
model. The use of this model requires the determination of a number of key assumptions which can
have a significant effect on the valuation (note 16 and 19).
3. Administrative expenses
Staff costs
Professional and consultancy
Office expenses
Marketing and promotion
Travel and accommodation
Other expenses
Depreciation
Amortisation
Foreign exchange
Total administrative expenses
2020
US$’000
2019
US$’000
53
1,170
78
96
12
21
67
164
(50)
1,611
45
831
65
49
89
51
67
-
19
1,216
Page | 48
Notes to the consolidated financial statements
3. Administrative expenses (continued)
Auditors’ remuneration
Group auditors’ remuneration
- audit of the Group’s accounts
Other services
- interim review
Auditors’ remuneration is included within professional and consultancy costs.
Staff costs and Directors remuneration
Wages and salaries
Directors remuneration
Share based payment
Social security costs
2020
US$’000
2019
US$’000
73
2
75
69
4
73
2020
US$’000
51
360
292
2
705
2019
US$’000
45
240
402
-
687
During 2020 US$nil (2019: US$nil) included within wages and salaries has 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
Key management includes Directors and Consultants
4. Finance expenses, net
Interest on loans (note 15)
Fair value adjustment on the warrants (note 16)
Fair value adjustment on the loan derivative
2020
Number
1
3
4
2019
Number
1
3
4
2020
US$’000
442
253
695
2019
US$’000
268
214
482
2020
US$’000
2019
US$’000
531
379
-
910
1,146
(10)
(456)
680
Page | 49
Notes to the consolidated financial statements
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% (2019: 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%
(2019: 32%)
Differences arising from different tax rates
Foreign exchange effect originating in overseas companies
Unrecognised taxable losses in subsidiaries
Total tax for the year
2020
US$’000
-
2019
US$’000
-
(2,813)
(2,298)
(900)
(732)
837
21
42
-
667
2
63
-
During the exploration and development stages, the Group will accumulate tax losses which may be
carried forward. As at 31 December 2020, no deferred tax asset has been recognised for tax losses of
US$1,877,000 (2019: US$3,202,000) 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$64,000 will be available until 31 December 2025, 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$1,129,000 and will be available until 31 December 2021.
6. Loss per share
Basic loss per share is calculated by dividing the loss attributable to Ordinary Shareholders by the
weighted average number of Ordinary Shares outstanding during the year.
Due to the losses incurred during the year a diluted loss per share has not been calculated as this would
serve to reduce the basic loss per share. Out of 37,637,227 (2019: 31,930,854) share incentives
outstanding at the end of the year 12,294,058 (2019: 16,362,685) had already vested and there was also
32,999,999 warrants issued in the year, which if exercised could potentially dilute basic earnings per share
in the future.
2020
Weighted
average
number of
shares
(thousands)
Per share
amount
(cents)
Loss
US$'000
2019
Weighted
average
number of
shares
(thousands)
Per share
amount
(cents)
Loss
US$'000
Basic and
diluted EPS
(2,813) 341,193
(0.8)
(2,298)
312,117
(0.7)
Page | 50
Notes to the consolidated financial statements
7. Property, plant and equipment
Power
assets
US$’000
Mining
assets
US$’000
Buildings
US$’000
Plant and
equi.
US$’000
Other
US$’000
Cost (less impairment)
At 1 January 2019
9,462
Additions
58
9,520
At 1 January 2020
Additions 76
9,596
At 31 December 2020
7,661
-
7,661
76
7,737
Depreciation
At 1 January 2019
Depreciation charge
At 1 January 2020
Depreciation charge
At 31 December 2020
Net Book value 2020
Net Book value 2019
-
-
-
-
-
-
-
-
-
9,596
9,520
-
7,737
7,661
1,277
-
1,277
-
1,277
139
66
205
66
271
1,006
1,072
35
-
35
-
35
24
1
25
1
26
9
10
718
-
718
-
718
718
-
718
-
718
-
-
Total
US$’000
19,153
58
19,211
152
19,363
881
67
948
67
1,015
18,348
18,263
Power assets relate to the development of a 300MW power plant. In 2020, the Power assets remain
classified as property, plant and equipment as detailed in note 1.
Mine assets relate to the initial acquisition of the licences and subsequent expenditure incurred in
evaluating the Ncondezi mine project. These were transferred from intangible assets on receipt of the
mining concession in 2013.
8.
Intangible assets
Cost (less impairment)
At 1 January 2020
Additions (note 10)
At 31 December 2020
Amortisation
At 1 January 2020
Amortisation charge
At 31 December 2020
Net Book value 2020
ROFR to
C&I
projects
pipeline
US$’000
-
522
522
-
164
164
358
Total
US$’000
-
522
522
-
164
164
358
Page | 51
Notes to the consolidated financial statements
9. 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 Ltd
GridX Africa AssetCo
%
interest
2020
100
%
interest
2019
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
‘NGP’
100
100
BVI
‘C&I
SPV’’
100
-
Mauritius
exploration and
development
Holding
company
Energy
company
Green Energy
Holding
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. GridX Africa AssetCo is owned by
Ncondezi Green Power Holding Ltd (in 2021 GridX Africa AssetCo was renamed Mozambique Green
Power Limited) ‘MGPL’.
10. Acquisition of C&I SPV
On 6 May 2020 the Company entered into a Relationship Agreement with GridX and acquired the
remaining joint venture interest in the C&I SPV, a special purpose vehicle setup specifically for the
Company’s first C&I solar PV and battery storage project investment. C&I SPV became a wholly owned
subsidiary of NGP through the purchase of all GridX’s A class shares at par value totalling US$100.
Following the acquisition, GridX no longer has any management or acquisition rights in the C&I SPV,
but was to provide management services up until these were novated to CPL in June 2021. The
acquisition has been accounted for as an asset acquisition and the assets and liabilities have been
consolidated within the Group financial statements from May 2020, being the effective date of the
acquisition. The following table sets out the book values of the identifiable assets and liabilities acquired
at their fair value to the Group in respect of the acquisition:
Consideration paid by the Company:
Purchase of A shares
Investment in joint venture
Assets and liabilities of GridX Africa Asset Co acquired by the Company:
Loan receivable
Intangible assets
Total assets
2020
US$'000
-
1,152
665
487
1,152
Page | 52
Notes to the consolidated financial statements
11. Loan Receivable
Loan to C&I Project
Total non current assets
2020
US$'000
2019
US$'000
665
665
-
-
C&I SPV entered into an AFA to provide funding of US$1,189,000 for the construction of the C&I Maiden
Project in Mozambique. As at year end US$665,000 was provided out of the total funding. The AFA loan
is to be repaid in monthly installments in US$ over a term of 15 years from the date of commissioning with
annual escalations of 2.0%. AFA payments over the term of the loan will total US$3,100,000.
12. Trade and other receivables
Current assets:
Other receivables
Total trade and other receivables
2020
US$'000
2019
US$'000
112
112
26
26
During the year no expected credit losses were recognised (2019: US$nil). The Directors consider that
the carrying amount of other receivables approximates their fair value.
13. Cash and cash equivalents
Cash at bank and in hand
2020
US$'000
853
853
2019
US$'000
722
722
The Group’s cash and cash equivalents balances may be analysed by currency as follows:
US Dollars
Great British Pounds
Mozambique Meticais
2020
US$'000
354
493
6
853
2019
US$'000
444
268
10
722
Where possible cash is deposited in floating rate deposit accounts at reputable financial institutions
with high credit ratings.
14. Trade and other payables
Other payables
Accruals
2020
US$'000
57
493
550
2019
US$'000
214
190
404
Accruals includes US$nil (2019: US$nil) of interest in respect of the loans in note 15. The fair value of
payables is not significantly different from their carrying value.
Page | 53
Notes to the consolidated financial statements
15. Loans and borrowings
Shareholder Loans (unsecured)
Working capital facility (unsecured)
Total loans and borrowings
Shareholder Loans
2020
US$'000
4,742
273
5,015
2019
US$'000
4,234
-
4,234
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
Shareholder Loan (in multiples of US$1,000) into fully paid Ordinary Shares of the Company at
a 10.0p conversion price from 16 November 2018 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 Shareholder Loan from 1 November 2019 until maturity
provide a conversion notice to the Company, all amounts outstanding under the Shareholder
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.
The Shareholder Loan term expired on 30 November 2019 with no extensions or restructuring legally
agreed to date. On 26 November 2019, the Company received “in principle” support from all Lenders to
enter a Shareholder Loan restructuring proposal.
The restructuring proposal is set out below:
• 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
• 12 month extension from the future Restructuring approval date
• A right for Ncondezi to pay off the original principal amount of the Shareholder Loan along with
conversion of all interest into Ncondezi shares on AIM at a 25% to 30% premium to the 30 day
VWAP
In November 2020 certain Board and management who represent 39.6% of the Shareholder Loan
signed an Undertaking not to call in the Shareholder Loan before the later of 30 November 2022 or
when the restructuring is completed. The Undertaking prevents the Shareholder Loan from being called
as a majority agreement representing 66.67% of Shareholder Loan holders is required.
The Undertaking also reconfirms parties’ “in principle” support to enter the Shareholder Loan
restructuring proposal as set out above. The Restructuring is subject to all Lenders agreeing to the
documentation and the necessary AIM Rules related party transaction fair and reasonable opinion being
considered and approved by the Company’s Independent Directors.
Nevertheless, the Company is currently evaluating options to execute the restructuring process as
proposed on 26 November 2019.
Finance cost recognised for the year in relation to the loan was US$508,000 (2019: US$680,000).
Working capital facility
In 2019 the Company entered into a term loan with a company owned by a trust of which CEO, Hanno
Pengilly, is a potential beneficiary for an unsecured working capital facility of US$750,000. The working
capital facility was made available for drawdown from 1 January 2020 until 30 June 2020 at the
Page | 54
Notes to the consolidated financial statements
15. Loans and borrowings (continued)
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 default of the Shareholder Loan constituted an
event of default under the working capital facility therefore the Facility has been classified as current.
There was a drawdown on 24 January 2020 of US$250,000. Further drawdowns were not solicited and
the working capital facility expired at the end of June 2020.
The working capital facility attracted a 10% annual interest charge, payable at maturity or on repayment.
Finance cost recognised for the year in relation to the working capital facility was US$23,000 (2019:
US$nil).
16. Derivative financial liability
Warrants
Warrants
2020
US$'000
759
759
2019
US$'000
30
30
During the period 1,520,000 warrants issued in June 2018 expired. The remaining fair value of
US$29,135 was derecognised through the profit and loss.
On 29 May 2020 2,166,666 warrants at subscription price of 3.0p per share were issued to the
Company’s joint broker, Novum Securities Ltd, and 21,666,666 warrants at subscription price of 6.0p
per share were issued to investors. The warrants have an exercise period of 2 years from 29 May 2020.
The warrants are classified at fair value through profit and loss as the functional currency of the
Company is US Dollars and the exercise price is set in GBP.
The fair value on the grant date and reporting date were determined using the Black-Scholes Model.
The fair value was based on the following assumptions:
Share Price (£)
Expected volatility
Options life (years)
Expected dividends
Risk free rate
0.03 and 0.06
75%
2
0
0.74%
The fair value of the 2,166,666 warrants on the grant date was US$39,953. On initial recognition the
value of the warrants was deducted from the share capital balance. Subsequent changes in the fair
value of the warrants are recognised through profit or loss. The warrants were valued at US$89,486 at
the end of the period with the change of fair value of US$49,533 recognised through profit or loss.
The fair value of the 21,666,666 warrants on the grant date was US$220,081. On initial recognition the
value of the warrants was deducted from the share capital balance. Subsequent changes in the fair
value of the warrants are recognised through profit or loss. The warrants were valued at US$528,337
at the end of the period with the change of fair value of US$308,256 recognised through profit or loss.
On 16 December 2020 833,333 warrants at subscription price of 4.5p per share were issued to the
Company’s brokers and 8,333,334 warrants at subscription price of 7.5p per share were issued to
investors. The warrants have an exercise period of one year from 8 December 2020. The warrants are
classified at fair value through profit and loss as the functional currency of the Company is US Dollars
and the exercise price is set in GBP.
Page | 55
Notes to the consolidated financial statements
16. Derivative financial liability (continued)
The fair value on the grant date and reporting date were determined using the Black-Scholes Model.
The fair value was based on the following assumptions:
Share Price (£)
Expected volatility
Options life (years)
Expected dividends
Risk free rate
0.045 and 0.075
75%
1
0
0.25%
The fair value of the 833,333 warrants on the grant date was US$15,983. On initial recognition the value
of the warrants was deducted from the share capital balance. Subsequent changes in the fair value of
the warrants are recognised through profit or loss. The warrants were valued at US$22,763 at the end
of the period with the change of fair value of US$6,780 recognised through profit or loss.
The fair value of the 8,333,334 warrants on the grant date was US$77,602. On initial recognition the
value of the warrants was deducted from the share capital balance. Subsequent changes in the fair
value of the warrants are recognised through profit or loss. The warrants were valued at US$118,834
at the end of the period with the change of fair value of US$41,232 recognised through profit or loss.
The warrants have been deemed to be Level 2 liabilities under the fair value hierarchy.
17. Share capital
Number of shares
Allotted, called up and fully paid
Ordinary shares of no-par value
At 1 January 2020
Issue of shares
Issue of shares (exercised share awards)
Issue costs
Warrants issued
At 31 December 2020
At 1 January 2019
Issue of shares
Issue of shares (exercised share awards)
Issue of shares (loan equity conversion)
Issue of shares (exercised warrants)
Issue costs
At 31 December 2019
2020
2019
366,361,716 324,993,717
Shares
Issued
Number
324,993,717
40,799,999
568,000
-
-
366,361,716
Shares
Issued
Number
282,299,844
28,856,060
1,000,000
10,337,813
2,500,000
-
324,993,717
Share
capital
US$’000
92,660
1,910
56
(138)
(351)
94,137
Share
Capital
US$’000
87,796
2,380
98
1,344
255
(213)
92,660
Page | 56
Notes to the consolidated financial statements
18. Reserves
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
19. 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
2020
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)**
3p (3.96c)**
5p (6.61c)**
7.5p (9.91c)**
Total
WAEP (cents)
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
12.11.20
12.11.20
12.11.20
Outstanding
at start of
year
Granted
during the
year
Exercised
during the
year
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
-
-
-
-
-
-
-
-
-
-
-
-
-
5,000,000
2,500,000
2,500,000
10,000,000
6.11
-
-
-
-
(868,000)
-
-
-
-
-
-
-
-
-
-
-
(868,000)
-
Exercise price
per share
Grant
date
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
WAEP (cents)
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
Outstanding
at start of
year
Granted
during the
year
Exercised
during the
year
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)
-
* Vest on grant date
** Vest upon delivery of specific milestones
Lapsed/
cancelled
during
the year
(2,400,000)
(800,000)
-
(225,000)
(627)
-
-
-
-
-
-
-
-
-
-
-
(3,425,627)
-
Lapsed/
cancelled
during
the year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Outstanding
at year end
Final
exercise
date
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
11.11.23
11.11.23
11.11.23
Final
exercise
date
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
-
-
150,000
-
-
75,000
2,790,779
1,625,000
4,000,000
5,581,558
2,790,779
2,790,779
7,833,332
5,000,000
2,500,000
2,500,000
37,637,227
9.32
Outstanding
at year end
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
Page | 57
Notes to the consolidated financial statements
19. Share-based payments (continued)
The Company’s mid-market closing share price at 31 December 2020 was 5.50p (31 December 2019:
6.30p). The highest and lowest mid-market closing share prices during the year were 6.05p (2019: 8.95p)
and 2.85p (2019: 4.40p) respectively.
Of the total number of options outstanding at year end 12,294,058 (2019: 16,362,685) had vested and
were exercisable. The weighted average exercise price for the exercisable options at year end was 8.79p
(2019: 7.50p). The weighted average share price at the date of exercise of the 868,000 options was 3.65p.
The weighted average contractual life of the options outstanding at the year-end was four years and eight
months (2019: five and half years).
In respect of 10,000,000 options in the Company granted to its Directors 100% are performance related
and linked to delivery of specific milestones related to the Company’s share price. None of the
10,000,000 options issued during the year were vested at year end.
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:
Share
price at
date of
grant
Exercise
price per
share
5.50c
(nil)
5.50c 11.54c(8.625p)
5.50c
6.69c(5p)
10.04c(7.5p)
5.50c
13.38c(10p)
5.50c
20.07c(15p)
5.50c
8.36c(6.25p)
5.50c
8.37c(6.50p)
6.70c
3.96c(3p)
4.95c
4.95c
6.61c(5p)
9.91c(7.50p)
4.95c
Grant
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
12.11.20
12.11.20
12.11.20
Volatility
113.33%
113.33%
113.33%
113.33%
113.33%
113.33%
113.33%
113.51%
77.00%
77.00%
77.00%
Period
likely to
exercise
over
Risk-free
investment
rate
5 years
5 years
5 years
5 years
5 years
5 years
5 years
5 years
3 years
3 years
3 years
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.7%
0.6%
0.18%
0.18%
0.18%
Fair
value
5.50c
4.30c
4.46c
4.40c
4.20c
4.00c
4.50c
5.20c
2.72c
2.09c
1.60c
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
and consultants was US$0.3 million for the year (2019: US$0.4 million including Directors and employees).
20. Segmental analysis
In 2020 the Group had the following reportable segments, following the C&I project acquisition:
• C&I solar PV and battery storage project - this segment is involved in providing solar PV and battery
storage solutions for the African C&I sector to replace existing off-grid (normally diesel) power
supplies, or to supplement on-grid connections
• Power Project and Mine Project - this segment is involved in the exploration for coal and
development of coal mine and the development of a 300MW integrated power plant next to the
Group’s coal mine concession areas in Mozambique
• Corporate - this comprises head office operations and the provision of services to Group
companies
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
Page | 58
Notes to the consolidated financial statements
20. Segmental analysis (continued)
operating decision-maker. The chief operating decision-maker has been identified as the Board of
Directors.
The operating results of each of these segments are regularly reviewed by the Group's chief operating
decision-maker in order to make decisions about the allocation of resources and assess their
performance. The Group’s mine and power activities are interrelated and each activity is dependent on
the other. Accordingly, all significant operating decisions are based upon analysis of the mine and power
activities as one segment and corporate as one segment.
The segment results for the year ended 31 December 2020 are as follows:
Income statement
For the year ended 31 December 2020
Segment result after allocation of central
costs
Finance expense
Loss before taxation
Taxation
Loss for the year
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
(460)
(496)
(947)
(1,903)
-
(460)
-
(460)
-
(496)
-
(496)
(910)
(1,857)
-
(1,857)
(910)
(2,813)
-
(2,813)
The segment results for the year ended 31 December 2019 are as follows:
Income statement
For the year ended 31 December 2019
Segment result after allocation of central
costs
Finance expense
Loss before taxation
Taxation
Loss for the year
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
-
-
-
-
-
(464)
(1,154)
(1,618)
-
(464)
-
(464)
(680)
(1,834)
-
(1,834)
(680)
(2,298)
-
(2,298)
Other segment items included in the Income statement are as follows:
Solar PV
& Battery
Storage
project
US$’000
Income statement
For the year ended 31 December 2020
Depreciation charged to the income statement -
Amortisation charged to the income statement (164)
-
Share based payment
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
(67)
-
-
-
-
(292)
(67)
(164)
(292)
Page | 59
Notes to the consolidated financial statements
20. Segmental analysis (continued)
Income statement
For the year ended 31 December 2019
Depreciation charged to the income statement
Share based payment
Solar PV
& Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
-
-
(67)
-
-
(402)
(67)
(402)
The segment assets and liabilities at 31 December 2020 and capital expenditure for the year then ended
are as follows:
Statement of financial position
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
At 31 December 2020
1,720
Segment assets
(1)
Segment liabilities
Segment net assets
1,719
Property plant and equip. capital expenditure -
Intangible asset expenditure 35
17,486
(216)
17,270
152
-
1,130
(6,107)
(4,977)
-
-
20,336
(6,324)
14,012
152
35
The segment assets and liabilities at 31 December 2019 and capital expenditure for the year then ended
are as follows:
Statement of financial position
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
At 31 December 2019
Segment assets
Segment liabilities
Segment net assets
Property plant and equipment capital expenditure
769
-
769
-
18,490
(215)
18,275
58
521
(4,453)
(3,932)
-
19,780
(4,668)
15,112
58
Page | 60
Notes to the consolidated financial statements
21. Reconciliation of liabilities arising from financing activities
Loans and
borrowings
US$’000
Derivative
financial
liability
Total
US$’000 US$’000
4,234
250
531
-
-
-
5,015
30
-
-
(29)
353
405
759
4,264
250
531
(29)
353
405
5,774
Short term
loan
US$’000
4,182
-
(1,094)
1,146
-
-
-
4,234
Derivative
financial
liability
US$’000
5,027845
-
(250)
-
(456)
(99)
(10)
30
Total
US$’000
5,027
-
(1,344)
1,146
(456)
(99)
(10)
4,264
At 1 January 2020
Cash flows
Non-cash finance charges
Derecognition of warrants
Fair value of warrants issued
Fair value movement on warrants
At 31 December 2020
At 1 January 2019
Cash flows
Conversion of Loan to equity
Non-cash finance charge
Fair value movement on Loan Embedded Derivative
Exercise of warrants
Fair value movement on warrants
At 31 December 2019
22. Financial instruments
The Group is exposed to risks that arise from its use of financial instruments. This note describes the
Group’s objectives, policies and processes for managing those risks and the methods used to measure
them. Further quantitative information in respect of these risks is presented throughout these financial
statements.
The significant accounting policies regarding financial instruments are disclosed in note 1.
There have been no substantive changes in the Group’s objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods unless otherwise
stated in this note.
Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises, are
as follows:
Loans and receivables at amortised cost
Trade and other receivables
Loan receivable
Cash and cash equivalents
Financial liabilities held at amortised cost
Trade and other payables
Loans and borrowings
Financial liabilities at fair value through profit or loss
Derivative financial liability
2020
US$’000
2019
US$’000
46
665
853
9
-
722
550
5,015
404
4,234
759
30
Page | 61
Notes to the consolidated financial statements
22. Financial instruments (continued)
For details of the fair value hierarchy and valuation techniques relating to the determination of the fair
value of the derivative financial liability, refer to note 16.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives
and policies and retains ultimately responsibility for them.
The overall objective of the Board is to set polices that seek to reduce risk as far as possible without
unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are
set out below:
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due.
The Board receives cash flow projections on a monthly basis as well as information on cash balances.
2020
in 1
on
month
demand
US$’000 US$’000 US$’000
Total
Between 1
and 6
months
US$’000
Between 6
and 12
months
US$’000
Between 1
and 3
years
US$’000
Trade and other payables
Loans and borrowings
550
5,015
-
5,015
331
-
-
-
219
-
-
-
2019
on
demand
US$’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$’000
Trade and other payables
Loans and borrowings
404
-
4,234
4,234
185
-
-
-
219
-
-
-
The Group endeavours to match the maturity of its current assets with its current liabilities to mitigate
liquidity risk. Refer to note 1 for the material uncertainty regards going concern.
Borrowing facilities
The Group had US$nil undrawn and unconditional committed borrowing facilities available at 31
December 2020 (2019: US$750,000).
The Company put in place a US$750,000 working capital facility in October 2019. A US$250,000
drawdown was made in the year. The working capital facility expired on 30 June 2020.
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 GB Pounds, 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
Page | 62
Notes to the consolidated financial statements
22. Financial instruments (continued)
monthly basis. Currency exposures relating to monetary assets held by foreign operations are included
within the Group’s consolidated 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$26,950 (2019: US$8,718).
Currency exposures
As at 31 December the Group’s net exposure to foreign exchange risk was as follows:
US Dollars
2020
US$’000
Assets/(liabilities) held
MZN Total
ZAR
2019
US$’000
Assets/(liabilities) held
ZAR MZN Total
GBP
-
-
37
37
472
472
187
187
5
5
12
12
204
204
GBP
435
435
The Group is exposed to foreign exchange risk arising from various currency exposures primarily with
respect to the Mozambican Meticais and GB Pounds, but these are not significant as most of the
transactions are in US Dollars.
Credit risk
The Group’s exposure to credit risk mainly related to loan receivable in regards to the C&I Maiden
Project in Mozambique. Allowances are recognised as required under the IFRS 9 impairment model
and continue to be carried until there are indicators that there is no reasonable expectation of recovery.
Subject to COVID-19, the outlook for the energy industry is not expected to result in a significant change
in the Group’s exposure to credit losses. Allowances are calculated on a case-by-case basis based on
the credit risk applicable to individual projects.
The Group has established a credit policy under which each new project is analysed individually for
creditworthiness before the Group decides to make an offer to fund. The Group’s review includes
external ratings, if they are available, financial statements, credit agency information, industry
information, and in some cases bank references.
Exposure to credit risk is continually monitored in order to identify projects which experience a significant
change in credit risk. The Group monitors its exposure to credit risk on an ongoing basis at various
levels and only deal with financial counterparties that have a sufficiently high credit rating. The Group
considers a financial asset to have low credit risk if the asset has a low risk of default; the counterparty
has a strong capacity to meet its contractual cash flow obligations in the near term; and no adverse
changes in economic or business conditions have been identified which in the longer term may, but will
not necessarily, reduce the ability of the counterparty to fulfil its contractual cash flow obligations.
The Group continually monitors for indications that a financial asset has become credit impaired with
an allowance for credit impairment recognised when the loss is incurred.
Credit risk of the loan receivable has not increased significantly since its initial recognition and a low
risk of default was noted in relation to the loan receivable.
Page | 63
Notes to the consolidated financial statements
23. 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, the outstanding principal plus interest amount up to 31 December
2020 of US$1.5 million (2019: US$1.4 million) related to a Trust of which Non-Executive Chairman,
Michael Haworth is a potential beneficiary, US$0.14 million (2019: US$0.13 million), to Executive
Director, Hanno Pengilly, and US$0.11 million (2019: US$0.1 million), to previous Director Estevão Pale.
Refer to note 15 for details of the terms and conditions.
Hanno Pengilly – Executive Director of Ncondezi Energy Limited - Director of Herne Capital (Pty)
Ltd (“HCL”)
During the year US$360,000 (2019: US$240,000) was paid by the Company to HCL in respect of
services provided by Hanno Pengilly. There was US$48,000 related to consultancy fees and $120,000
related to 2019 and 2020 bonus outstanding balances at 31 December 2020 (2019: US$nil).
HCL provides leadership on key corporate activities such as capital raising, reporting and press
releases, investor relations strategy.
Working Capital Facility
The US$750,000 working capital facility expired at the end of June 2020. During the period US$250,000
had been drawn down. The facility was provided by a company owned by a trust of which CEO, Hanno
Pengilly, is a potential beneficiary. At the end of the period the loan had accumulated US$23,000 in
interest.
Aman Sachdeva – Non-Executive Director of Ncondezi Energy Limited - CEO of Synergy
Consulting Inc.
During the year US$110,000 (2019: US$121,000) was paid by the Company to Synergy Consulting Inc.
in respect of services provided by Synergy. At 31 December 2020 the outstanding balance was US$nil
(2019: US$nil).
Scott Fletcher - Non-Executive Director of Ncondezi Energy Limited
During the year Scott Fletcher subscribed 1,777,800 Ordinary Shares in the November Placing for a
total of £80,000. Under the Share Placing a total of 888,900 warrants were issued to Scott Fletcher.
Details of the warrants are contained in note 16.
Details of Key Management Remuneration are contained in note 3.
24. 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$2.0 million following an agreed programme. By December 2016 half of this budget has been
successfully spent in various initiatives. During the year there was no expenditure related to social
development programmes (2019: US$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$5.0 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.
Page | 64
Notes to the consolidated financial statements
24. Commitments (continued)
EMEM 5% investment in NCCML
Along with the issuance of the Mining Concession, Ncondezi’s local subsidiary NCCML also concluded
an Addendum to Mine Framework Agreement (“MFA”) with Mozambican Ministry of Mineral Resources
and Energy. Under the terms of the Addendum to the MFA, it has been agreed that the Government
owned Mozambican Mining Exploration Company (“EMEM”) will be granted a 5% free carry in the share
capital of NCCML up to the start of the Ncondezi mine’s construction. However, from the
commencement of construction EMEM will be required to pay, through an agreed funding mechanism,
for its share of any future equity funding obligations that may be required from the shareholders of
NCCML including its share of the construction and commissioning costs of bringing the Ncondezi mine
into commercial operation.
GridX Fees and first C&I solar PV and battery storage project Commitment
On 6 May 2020 the Company signed a Relationship Agreement with GridX to fund a pipeline of projects
in Mozambique up to a total of US$5.5 million. 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.
During the period out of the initial commitment by Ncondezi of US$1.1 million, US$665,000 has been
transferred to the C&I SPV to fund the C&I Maiden Project. Due to the COVID-19 outbreak in early April
2020 a force majeure notice was issued by the off-taker. Project construction was put on hold pending
further clarity on the impact of COVID-19 and the lifting of travel restrictions, which occurred in March
2021.
25. Events after the reporting date
• US$26.7 million was “in-principle” agreed as the target Project historical expenditure. US$21.0
million expenditure was audited by a third-party and the audit report was accepted by CMEC
“in principle”. US$5.7 million of costs relating to historical senior and project management costs
are still under negotiation.
• Following the lifting of the COVID-19 related force majeure in March 2021, remobilisation and
construction works has taken place at the C&I Maiden Project in Mozambique.
•
In March 2021 the Company entered into a MSA with Synergy to provide financial and
transaction advisory services to the Group for the Ncondezi Project.
The MSA covers potential advisory services to the Project up to FC, including:
finalisation of Project power tariff with EDM;
o
o negotiations with CMEC on Project subscription price;
o negotiations with Project lenders for debt financing and
o capital raising for Ncondezi’s equity contribution towards the Project at FC.
• A US$500,000 Bridge Loan was entered between its wholly owned renewables subsidiary, NGP
and certain Company Directors to finance the construction of the C&I Maiden project under the
AFA.
Director’s Bridge Loan key terms:
• Fixed 30% coupon payable by NGP at the earlier of:
o 6 months from first drawdown;
o 20 business days from commissioning of the Project; or
o 20 business days from termination of any of the Project key commercial
agreements together the “Repayment Date”.
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Notes to the consolidated financial statements
25. Events after the reporting date (continued)
If commissioning date is further delayed as a direct result of the COVID-19
pandemic, the Parties can agree an extension to the Repayment Date for up to 8
months from first drawdown.
•
Increased coupon rate of 50% if NGP fails to repay the Bridge Loan by the
Repayment Date.
The Bridge Loan constitutes a related party transaction for the purposes of AIM Rule 13 of the
AIM Rules for Companies. Accordingly, the Company’s Non-Executive Director Aman
Sachdeva (being the only director not involved in the Bridge Loan and therefore considered to
be independent for the purposes of the related party transaction) considers, having consulted
with Liberum Capital Limited, the Company’s Nominated Adviser, the terms of the Bridge Loan
to be fair and reasonable insofar as the Company’s Shareholders are concerned.
On 18 June 2021 US$228,000 was drawndown.
•
In March 2021 4,352,403 Ordinary Shares of no par value in the Company in aggregate were
issued in lieu of certain deferred salaries, awarded bonuses and outstanding contractor, adviser
and consultant fees.
o The CEO has subscribed for 3,240,401 Ordinary Shares in aggregate comprising:
▪ 1,996,755 Ordinary Shares at 4.5p per Ordinary Share in relation to contractual
bonuses due to him on the achievement of various milestones in 2019 and
2020; and
▪ 1,243,646 Ordinary Shares issued at 3.0p per Ordinary Share in relation to his
deferred salary between April 2020 and November 2020.
o 754,860 Ordinary Shares issued at 3.0p per share to certain employees, contractors
and consultants to the Company in relation to outstanding deferred salaries and fees
accrued between April 2020 and November 2020 and 357,142 Ordinary Shares issued
at 4.2p per share in lieu of outstanding adviser fees.
o The CEO has agreed to enter into a lock-in agreement with the Company in relation to
the 3,240,401 Ordinary Shares being issued to him such that he will not be able to sell
any of these shares for a period of 3 years from the date of issue without the prior
permission of the Company.
• NGP and CPL have signed a binding relationship agreement under which NGP has the right
(but not the obligation) to fund a pipeline of C&I solar and battery storage projects in
Mozambique. The CPL relationship agreement supersedes the existing relationship agreement
signed with GridX, announced on 6 May 2020. The rights and obligations of GridX and NGP
under the GridX relationship agreement have been suspended and may be reinstated by mutual
agreement between the parties. As part of the suspension process, GridX has agreed to novate
to CPL all commercial agreements in relation to NGP’s C&I project currently under construction
and to release to CPL any rights in relation to 5 of the existing 6 Projects in the pipeline. The
CPL relationship agreement includes a diversified portfolio of 6 potential projects in
Mozambique with a combined potential installed solar capacity of 2.8 MWp and 6.2 MWh of
battery storage.
•
In June 2021, the Company announced that a term sheet with binding exclusivity had been
signed between NGP and NESA detailing the proposed formation of a new JVCo to create a
leading regional Southern African champion in the C&I renewable energy and battery storage
sector. The key highlights of the term sheet are:
o Outlines proposed structure to create a regional champion in the southern African C&I
renewable energy sector;
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Notes to the consolidated financial statements
25. Events after the reporting date (continued)
o Provides NGP and NESA mutual exclusivity until 30 November 2021 to form JVCo and
raise capital for its activities; and
o Outlines the plan for JVCo to acquire a controlling stake in the NIH Portfolio, currently
under separate ownership by NIH.
The JVCo would be a newly incorporated company with assets from NGP and NES including:
o NGP’s 400kWp solar PV and 0.9MWh battery storage project currently under
construction
o NGP’s project pipeline in Mozambique
o NESA’s C&I renewable energy management team
o NESA’s EPC business
o NESA’s pipeline in South Africa
The term sheet provides that NGP will acquire a minimum 40% equity stake in JVCo pre new
equity capital with various options to increase its equity stake subject to certain terms. NESA,
NIH and NGP have entered into a binding agreement granting NESA and NGP exclusive rights
to negotiate terms on which they would acquire, through the proposed JVCo, a minimum 51%
interest in the NIH Portfolio by 30 November 2021 with a subsequent option to acquire up to
100% within a 5 year period. Following the proposed capital raise and transaction, JVCo will
have a combined operational portfolio of 15.9MWp solar PV and 1.1MWh battery storage across
67 sites in South Africa and Mozambique, subject to funding and acquisition of the NIH
Portfolio. This will have projected CO2 savings up to 22,000t per annum and projected US$40.0
million in contracted EBITDA with average contract life of 17 years. The current combined
project pipeline of the JVCo if successfully implemented would lead to 94.5MWp solar PV and
13.5MWp battery storage across a further 47 potential sites with potential CO2 savings up to
130,000t per annum.
Discussions regarding capital raising are already underway targeting a fund-raise directly into
JVCo for working capital purposes and towards its acquisition and long term growth
strategy. Non-binding offers have been received from multiple parties to provide equity funding
into JVCo and term sheets have been received from debt providers to leverage the combined
operational portfolio. The JVCo capital structure is expected to be finalised in Q3 2021.
Page | 67
Company Information
Directors
Company Secretary
Registered Office
Michael Haworth (Non-Executive Chairman)
Scott Fletcher (Non-Executive Director)
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
Joint Broker
Auditors
Registrar
Legal advisor to the Company
as to BVI law
Legal advisor to the Company
as to English law
Liberum Capital Limited
Ropemaker Place
Level 12
25 Ropemaker Street
London
EC2Y 9AR
Novum Securitites Ltrd
Lansdowne House
57 Berkeley Square
London
W1J 6ER
BDO LLP
55 Baker Street
London
W1U 7EU
Computershare Investor Services (BVI) Limited
Woodbourne Hall
PO Box 3162
Road Town
Tortola
British Virgin Islands
Ogier LLP
41 Lothbury
London
EC2R 7HF
Bryan Cave Leighton Paisner LLP
Governors House
5 Laurence Pountney Hill
London
EC4R 0BR
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