Ncondezi Energy Limited
Annual Report and Financial Statements
for the year ended 31 December 2021
Contents
1 - 3
Overview and Highlights correct
4 - 6
Chairman’s Statement
7 - 12
Operations Review
13 - 14
Financial Review
15
Environmental and Social Responsibility
16
Directors’ Biographies
17 - 19
Directors' Report
20 - 24
Risk Factors
25 - 28
Corporate Governance Statement
29 - 30
Remuneration Committee Report
31
Statement of Directors' Responsibilities
32 - 38
Independent audit report to the members of Ncondezi Energy Limited
39
Consolidated statement of profit or loss and other comprehensive income
40
Consolidated statement of financial position
41
Consolidated statement of changes in equity
42
Consolidated statement of cash flows
43 - 70
Notes to the consolidated financial statements
71
Company Information
Overview & Highlights
Page | 1
Our Vision
Ncondezi Energy Limited (the “Company” or “Ncondezi”) is an African power development company
with an advanced staged, integrated 300MW thermal coal power plant and mine project located in the
Tete Province, Northern Mozambique (collectively the “Project” or the “Ncondezi Project”).
The Company is focused on providing reliable, affordable and accessible baseload energy to
Mozambique and secure against the effects of water drought and intermittency of new renewables. The
Project seeks to support Mozambique’s energy strategy of universal electricity access by 2030.
According to the World Bank, only 30% of the Mozambican population had access to energy in 2017.
The Ncondezi Project would provide 300MW of reliable and available power helping to close the
infrastructure gap of the region and serve as a catalyst for economic development.
The power plant will be equipped with state-of-the-art emissions controls technologies that will reduce
local air pollutants, minimising the plant’s impact on the environment and aiming to ensuring its
compliance with the most stringent emission standards.
In addition, the Company continues to leverage its power development experience in Mozambique for
potential new projects, particularly in the solar photovoltaic (“PV”) and battery storage sector.
Visit www.ncondezienergy.com for information on the Company and its activities.
Operational Highlights:
Ncondezi Power Project
•
US$21.0 million historical costs relating to the Ncondezi Project agreed “in principle” with China
Machinery Engineering Corporation (“CMEC”)
•
Master Services Agreement ("MSA") signed with Synergy Consulting ("Synergy") to provide
financial and transaction advisory services to the Group for the Project
•
Engineering, Procurement and Construction (“EPC”) power plant contract for the Project signed
with CMEC at a virtual signing ceremony
•
Updated Transmission Integration Study submitted for review and approval to Electricidade de
Moçambique (“EDM”)
C&I Solar PV and Battery Storage Projects
•
Ncondezi Green Power (“NGP”) and Captive Power Limited ("CPL") signed a binding
Relationship Agreement, which superseded the Relationship Agreement with GridX announced
on 6 May 2020 under which NGP has the right (but not the obligation) to fund a pipeline of C&I
solar and battery storage projects in Mozambique; all rights and obligations under the GridX
Relationship Agreement were suspended and 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
•
Successful commissioning of the Company’s C&I Maiden Project
•
Mozambique Green Power (“MGP”), a subsidiary which owns the group’s C&I Maiden Project,
was sold for US$1.3 million to Green Energy SPV PLC (“Green Energy”) in December 2021
Overview & Highlights
Page | 2
Financial Highlights
•
US$500,000 bridge loan ("Bridge Loan") between the Company's wholly owned renewables
subsidiary, NGP and certain Company Directors to finance the balance of construction costs to
commission the C&I Maiden Project. The full amount had been drawn down as of 28 September
2021 and was repaid in full following completion of the sale of MGP in December 2021
•
CEO, Hanno Pengilly subscribed for 1,243,646 at 3p per Ordinary Shares in lieu of deferred
salary between April 2020 and November 2020 and 1,996,755 at 4.5p per Ordinary Shares in
lieu of contractual bonuses due on the achievement of various milestones in 2019 and 2020
•
754,860 Ordinary Shares were issued at 3p to certain employees, contractors and consultants
in relation to outstanding deferred salaries and fees accruing between April 2020 and
November 2020
•
Employees Benefit Trusts 1 & 2 were terminated as part of the Company’s measures to
conserve funds. Accordingly, the 2,869,840 Ordinary Shares that remained in the EBT were
transferred to the Company and are held in treasury by the Company as at year end
•
Successful fundraising to finance general working capital completed in August 2021 raising
£600,000 at 1.5p per Ordinary Shares
•
Cash at bank US$0.9 million as at 31 December 2021
Post balance sheet events
Ncondezi Power Project
•
CMEC confirms ongoing commitment to the Project in January 2022 and continues to lead the
process to unlock project financing
•
Tariff negotiations awaiting further clarity on Project financing from Chinese Government
following announced policy not to fund new coal power projects abroad
Grid Scale Solar Project
•
Internal review and preliminary studies identify potential for a grid scale solar plus battery
storage power project at the Ncondezi Project site (the “Solar Project”) without compromising
delivery of the main Ncondezi Project
•
Company is finalising development plans and permissions to commission feasibility study work
for a grid scale solar project
Working Capital
•
Seritza Limited (“Seritza”) confirmed it would extend the period in which it would not call in the
working capital facility term loan (“Working Capital Facility”) to 30 June 2022, whilst
restructuring discussions are still being finalised (the “Seritza Restructuring”)
•
Cash conservation strategy implemented potentially extending working capital runway from
August 2022 to Q1 2023, depending on the Seritza Restructuring outcome. Based on
management projections the Group is funded into August 2022 with potential to extend into Q1
2023 depending on loan restructuring negotiations with Seritza
Overview & Highlights
Page | 3
Corporate
•
Non-executive Director Scott Fletcher purchased an aggregate of 5,000,000 ordinary shares of
no par value increasing his holding to 81,823,020 Ordinary Shares, representing 19.9 per cent.
of the Company's issued share capital.
Chairman’s Statement
Page | 4
Dear Shareholder,
The 2021 financial year was focused on positioning the Ncondezi Project within an increasingly
challenging market for coal and coal power generation, as well as commissioning our first solar PV and
battery storage project in the C&I sector, which we have subsequently sold.
We had a solid start to the year with “in principle” agreement with our partners CMEC to repay US$21
million of historical costs. Meanwhile, an optimised transmission integration solution was submitted to
EDM for review with a new preferred route being identified that has the potential to significantly reduce
Project capex. We were also pleased to conclude the EPC contract for the power plant with CMEC at a
virtual Signing Ceremony in September 2021. The EPC contract is the main construction contract for the
Project and is a material de-risking event as well as providing a further demonstration of CMEC support
for the Project.
Despite the positive progress, global pressures to transition energy generation away from coal have
continued, ultimately leading to the sector’s largest financier, China, committing to end the building of
new coal fired power projects abroad at the United Nations General Assembly on 22 September 2021.
Further clarity is required to confirm if the ban applies to more advanced projects, such as the Ncondezi
Project.
Financing confirmation from China is critical to the success of the Project and it is important to highlight
that a positive outcome from the Chinese Government is out of the Company’s control. However, the
Company is aiming for a swift resolution and is working closely with CMEC, which is leading the financing
process, to gain further clarity on the availability of Chinese financing for the Project. CMEC has re-
emphasised its support for the Project and, in parallel to gaining clarity from China, is also exploring
several potential alternative financing solutions. All workstreams to progress and finalise the tariff remain
ready to proceed as soon as financing is confirmed.
While we await an update on financing for the Project the current situation in Ukraine, growing pains in
China and South Africa's widening energy supply deficit all create potential opportunities to unlock the
Project’s potential.
Following Russia’s invasion of Ukraine in February (post year end), global thermal coal prices have more
than doubled as the world prioritises energy security over decarbonisation. The fundamentals of all key
energy commodities (coal, gas and oil) are going through a structural change, forcing many countries to
rethink their energy strategies. Developing nations, such as Mozambique, have less optionality than their
more developed neighbours and the changing global energy environment further emphasises the need
to implement a diversified generation mix on the grid for greater energy security. Combined with the ability
to provide a low cost, reliable power supply to support economic growth, this provides a window in which
coal power generation remains suitable as a transition solution whilst renewable energy technologies
continue to advance.
The impact of China’s ongoing lockdown policy has led to negative GDP growth forecasts, currency
depreciation in China and global commodity price inflation. The situation has the potential for China to
turn to historically proven tools to resolve growth, including increased credit and policy support for sectors
such as infrastructure build out, potentially delaying recent commitments such as restrictions on coal
power financing.
South Africa’s state run utility, Eskom, has indicated that it currently has a 4,000MW to 6,000MW power
deficit and will be forced to retire a further 10,000MW over the next 8 years due to ageing power stations.
Mozambique, as the largest exporter of power to South Africa, stands in a good position to take advantage
of this.
Any one of these factors could influence a material shift to the benefit of the Project, emphasising the
need for continued patience whilst the dust is allowed to settle and clarity is sought on the potential for
Chinese funding.
Chairman’s Statement
Page | 5
While awaiting clarity on the Project, the Board has carried out a review of other potential opportunities
to unlock shareholder value through its wholly owned green energy subsidiary, NGP. Preliminary studies
have been completed and confirm the potential for a grid scale solar plus battery storage power project
providing an opportunity to unlock significant value for Shareholders and broaden the Company’s
investment appeal. The Company has confirmed that it can use existing Project studies to fast track a
development programme, whilst also leveraging its recent experience in delivering a fully off-grid C&I
solar plus battery storage system in Mozambique last year. The Company is currently engaging with the
relevant local authorities and expects the Solar Project development programme to accelerate quickly
once the requisite authorisations have been granted.
The Solar Project opportunity follows the successful commissioning and sale of the 400kWp solar PV
plus 912kWh battery storage C&I Maiden Project in Q4 2021 to Green Energy. The project is believed to
be the largest fully off-grid renewable energy system installed in Mozambique to date and was delivered
despite the difficulties caused by the global pandemic. The sale was completed at a premium valuation
and not only allowed the Company to direct more focus on progressing the Ncondezi Project, but also
provided the opportunity to apply newly gained skills in solar PV and battery storage towards additional
renewable energy potential at the Project site.
Following the sale of the C&I Maiden Project the Company will continue to monitor the C&I sector for
potential opportunities however this sector will no longer be a priority. As part of the C&I Maiden Project
sale process the term sheets with Nesa Capital (Pty) Ltd and Nesa Engineering (Pty) Ltd (Collectively
“NESA”) and Nesa Investment Holdings (“NIH”) were terminated in December 2021.
Financing
In August 2021, the Company successfully completed a £600,000 placing, before expenses, via the issue
of 40,000,000 Ordinary Shares of no par value in the Company at a price of 1.5 pence per share.
In line with the commitment to Shareholders the Company utilised alternative funding structures to finance
the balance of construction costs to commission its C&I Maiden Project. This was done through the
delivery of a US$500,000 Bridge Loan between certain Directors, myself included, and NGP. The Bridge
Loan was fully repaid following the sale of the C&I Maiden Project to Green Energy which provided a non
dilutive solution to repay the loan and an injection of additional working capital to focus on the main
Project.
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 Shareholder Loan 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.
The Working Capital Facility of $250,000 plus interest became repayable on 24 February 2022, however
positive restructuring discussions are ongoing and Seritza has agreed not to call in the loan before 30
June 2022.
On 29 March 2022, the Company announced the completion of a cash conservation strategy which had
extended the Company’s cash reserves to between August 2022 and Q1 2023, depending on
restructuring negotiations on the Working Capital Facility and before repayment of the Shareholder Loan.
The strategy included further overhead cost optimisations and reducing management salaries including
a 40% reduction for Company CEO, Hanno Pengilly.
As at the end of the reporting period, the Company had cash reserves of approximately US$0.9 million.
Chairman’s Statement
Page | 6
Based upon projections that include corporate costs, salaries of staff and consultant fees, project costs
to progress the Project and Solar Project, the Group is funded into August 2022 with the potential to
extend this to Q1 2023, depending on the Seritza Restructuring outcome and the Shareholder Loans.
Further funding will also be required to meet operating cash flows under current forecasts in the event of
accelerated project advancement. For more details please see note 1 of the Financial Statements.
Acknowledgements
I would like to thank our team and Partners for their continued hard work and commitment. I am aware of
the hard work that goes on behind the scenes. We are grateful for Shareholders’ continued support and
patience and look forward to providing further updates going forward.
Michael Haworth
Non-Executive Chairman
24 June 2022
Operations Review
Page | 7
Ncondezi Project
About the Ncondezi Project
The Project is an integrated project including a coal fired power plant, open pit coal mine and
transmission integration solution connecting with the Mozambique grid that is being developed in
phases of 300MW. The Project is located near Tete in northern Mozambique.
The Project has been designed to meet the objectives of the Mozambique Government’s Integrated
Electricity Master Plan and will be equipped with state-of-the-art emissions controls technologies that
will reduce local air pollutants, minimising the plant’s impact on the environment and ensuring its
compliance with the most stringent emission standards.
The Project’s objective is to provide reliable, affordable and accessible baseload energy to Mozambique
securing against the effects of drought and intermittency of new renewables to assist with providing a
balanced and stable grid supply.
The Project remains one of the most advanced baseload projects in Mozambique and continues to
receive strong support from our joint venture partner CMEC, which is focused on becoming the
Project’s strategic partner, with a proposed 60% equity shareholding.
Historical Costs Agreed “In Principle”
In January 2021 the Company agreed “in principle” US$21.0 million in historical costs to be reimbursed
by CMEC at Financial Close (“FC”), on the following basis:
•
US$26.7 million agreed as the target Project historical expenditure
•
US$21.0 million third party audited and accepted by CMEC “in principle”
•
US$5.7 million relating to historical senior and project management costs still under negotiation
•
Finalisation of historical development cost expected once Project power tariff approved
Agreement on the historical costs to be reimbursed is a key condition precedent for the full form
Shareholders agreement 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.
Power Plant EPC Contract
In September 2021 the power plant EPC Contract was signed at a virtual signing ceremony with CMEC.
The EPC contract confirmed CMEC as the main contractor to provide design, engineering,
manufacturing, procurement, construction, erection, installation and commissioning of the Ncondezi
Project 2x 150MW coal-fired power station on an EPC turnkey basis. The EPC contract is valid for 3
years and subject to standard conditions being met before construction can start, including the
achievement of FC at the Project.
Through CMEC, the EPC agreement formed a key part of the information package submitted to the
relevant Chinese authorities to confirm the Project’s advanced level of development.
Transmission Integration Solution
In December 2021 the Transmission Integration Study for the Project was submitted for review and
approval by EDM. The study reviewed a number of potential transmission integration solutions following
discussions with EDM, with each optimised for cost, capacity on existing infrastructure and, for new
infrastructure and timing of delivery. The study identified a technically more robust integration point 40
km from the Project (representing a reduction of +50km) with potential for a closer integration point in
the future. This provides a high degree of confidence in delivering significant cost savings to the Project.
The next phase is to receive sign off from EDM for the Transmission Integration Study, which is
expected to be finalised once the Project financing has been resolved.
Operations Review
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Ncondezi Work Programme Status
The next major development milestone for the Project is finalisation of the power tariff. At the end of
2020, the Company submitted an updated Project feasibility study and tariff proposal to EDM for review
and comment. Although positive steps to progress the tariff were made during 2021, further progress
awaits clarity on China’s position on the availability of financing for the Project following President Xi’s
announcement regarding financing restrictions for coal power projects abroad in September 2021.
Although the outcome on financing from China is outside of the Company’s control, we continue to work
closely with CMEC to resolve the issue. In addition, the Company and CMEC have initiated steps to
identify potential alternative financing solutions, however securing financing from China remains the
priority.
All key development studies for the power plant, mine and transmission line have been finalised and
submitted to the relevant Mozambique authorities and EDM and are awaiting sign off. The key
commercial agreements, namely the Power Purchase Agreement (“PPA”) and Power Concession
Agreement (“PCA”) are in near final form and are expected to be finalised once a tariff has been agreed.
The Company will provide further updates at the appropriate time.
Ncondezi Green Power
About Ncondezi Green Power
NGP is a wholly owned subsidiary of Ncondezi which is focussed on providing solar PV and battery
storage solutions in southern Africa focused on two sectors:
1) The grid scale sector focused on supplying power to the national grid; and
2) The C&I sector to replace existing off-grid (normally diesel) power supplies, or to supplement
on-grid connections.
NGP utilises a conventional Independent Power Producer business model when developing grid scale
projects, identifying potential projects with a strategic advantage to supply competitively priced power
within national power generation growth requirements. These projects are typically funded through the
use of a PPA over a 15 to 20 year period with the local power utility.
For the C&I sector, NGP seeks to provide 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 Asset Finance Agreement (“AFA”) or PPA structure which splits payments
over a 15 to 20 year period, to which NGP seeks to generate 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.
Grid Scale Solar Project
On 9 May 2022, the Company announced that the Board had concluded an internal review on the
Project and believes that there is potential for a grid scale solar plus battery storage power project at
the Project site. Preliminary studies confirm the existing Project site enjoys favourable solar conditions
and access to the Mozambique grid. The Company has confirmed with its technical and financial
advisors that Solar Project development programme and costs can be streamlined through utilisation
of existing Project studies.
Importantly, the Solar Project is feasible without compromising delivery of the main Project. The Board
believes that the Solar Project brings an opportunity to unlock significant value to shareholders and
Operations Review
Page | 9
broaden the Company’s investment appeal. Further updates will be made as the development strategy
and engagement with key counterparties progresses.
C&I Maiden Project
Work restarted at our C&I Maiden Project in March 2021 following a delay in construction due to COVID-
19 travel restrictions. The project was fully commissioned on 12 October 2021 following final installation
handover to the main power offtaker. The project is a fully off-grid solution which includes a 400kWp
solar PV installation plus 912kWh battery storage and is targeting generation of up to 600MWh and
CO2 savings up to 517t per annum. The project is believed to be the largest fully off-grid renewables
project in Mozambique.
On 3 December 2021, the Company announced that NGP had entered into a sale and purchase
agreement (“SPA”) with Green Energy and sold MGP, the group company which owned the C&I Maiden
Project. Key highlights:
•
Acquisition price US$1.3 million paid in cash (the “Consideration”)
•
Green Energy is a newly formed company controlled by Ncondezi Energy Non-Executive
Director, Scott Fletcher
•
Proceeds used to repay the Bridge Loan and the remainder of the proposed Consideration,
$650,000 is being used for general working capital purposes
Pursuant to the terms of the SPA :
•
NGP terminated certain exclusivity agreements with NESA Capital (Pty) Ltd, and Nesa Venture
Capital Investments (Pty) Limited; and
•
Ncondezi waived certain contractual rights in relation to Hanno Pengilly and Scott Fletcher
under their letter of appointment and service agreement with Ncondezi, respectively such that
they will both be permitted to participate in any commercial and industrial solar photovoltaic and
battery storage projects carried out by Green Energy.
The Company also guaranteed performance by NGP of its obligations under the agreement. NGP gave
customary warranties in relation to its authority to enter into the transaction, its ownership of the shares
and the business of MGP. NGP also gave an indemnity regarding the financial position of MGP and
certain other matters. The warranties relating to the business of MGP and the indemnities are subject
to a number of limitations.
Both the sale of MGP to Green Energy and the requirement to repay the Bridge Loan from the proceeds
of the sale constituted a related party transaction for the purposes of AIM Rule 13.
The sale concluded during December 2021.
Relationship Agreement with CPL
In June 2021, the Company announced that NGP had signed a new binding Relationship Agreement
with CPL giving it the right of first refusal (“ROFR”) (but not the obligation) to fund a pipeline of C&I solar
PV and battery storage projects in Mozambique. This agreement supersedes the agreement signed
with GridX in May 2020.
Under the agreement, CPL has identified 6 Initial Projects for development with a combined potential
installed solar PV capacity of 2.8MWp and 6.2MWh battery storage, representing a potential total
investment value of US$5.5m. Capital costs range from US$250,000 to US$2.1 million. Should these
Initial Projects meet the minimum KPIs 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:
Operations Review
Page | 10
•
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 Operations and Maintenance (“O&M”) contracts in place; and
•
All consents and permits required to start construction in place.
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.
NESA Power Joint Venture Term Sheet and NIH Exclusivity Agreement
In June 2021 the Company announced the signing of a term sheet with binding exclusivity between
NGP and NESA detailing the proposed formation of a JVCo to create a regional player in the southern
African C&I renewable energy and storage sector.
In addition, NESA, NIH and NGP 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.
Both the NESA term sheet and NIH exclusivity agreements were terminated as part of the C&I Maiden
Project SPA with Green Energy.
Master Services Agreement
In March 2021 the Company signed an MSA with Synergy to provide financial and transaction advisory
services to the Group for the integrated Ncondezi 300MW coal fired power project and coal mine in
Tete, Mozambique. The MSA covers potential advisory services to the Project up to FC including:
•
Finalisation of the Project power tariff with EDM
•
Negotiations with CMEC on Project subscription price
•
Negotiations with Project lenders for debt financing
•
Capital raising for Ncondezi’s equity contribution towards the Project at FC
Operations Review
Page | 11
Synergy is a leading international project finance advisory firm specialising in the power sector. They
have significant Project experience having assisted the Company in achieving major milestones to date
including, negotiation of the JDA with CMEC and the tariff submission to EDM. The services also include
potential support for capital raising for the Company’s renewable energy strategy in the C&I sector.
A capped fee structure has been agreed and all services will require approval by the Company on a
workstream by workstream basis allowing the Company to efficiently manage cashflows.
By virtue of the fact that Aman Sachdeva, a director of the Company, is also a director, founder and
majority shareholder of Synergy, the MSA constituted a related party transaction for the purposes of
AIM Rule 13.
Working Capital Facility
In October 2019, the Company entered a term loan with Seritza for an unsecured working capital facility
of up to US$750,000 for the continued development of the Ncondezi Project. Seritza is a private
company owned by a trust of which CEO of Ncondezi, Hanno Pengilly, is a potential beneficiary and so
is a related party for the purposes of the AIM Rules.
This Working Capital Facility was available for drawdown from 1 January 2020 until 30 June 2020 at
the Company’s election and was repayable within 24 months from first drawdown, unless there was an
event of default or the Company elected to prepay the facility. The Working Capital Facility attracts a
10% annual interest charge, payable at maturity or on repayment. During the drawdown period,
Ncondezi elected to drawdown US$250,000 in total during February 2020.
As at 30 June 2022, the repayment amount due will be US$0.3 million.
The Working Capital Facility matured on 22 February 2022, however Ncondezi has entered positive
restructuring discussions with Seritza which include the potential for a maturity extension and/or
potential non-cash settlement solutions. Whilst these discussions are ongoing, Seritza has agreed not
to call in the loan until 30 June 2022.
The proposed Seritza Restructuring would likely constitute a related party transaction for the purposes
of AIM Rule 13 for Companies. Accordingly, should the Restructuring be accepted by Seritza and before
signing, the Company’s Independent Directors would need to consider whether the terms of the
Restructuring are fair and reasonable insofar as its Shareholders are concerned.
Whilst discussions are ongoing, there can be no certainty that the transactions contemplated above will
occur.
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$5.2 million as at period end, with interest of
12% continuing to be accrued on the outstanding balance.
As of 30 June 2022, the repayment amount due will be US$5.4 million which includes principal, rolled
up premiums under the previous loans and interest.
The Company received “in principle” support in November 2019 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.
Operations Review
Page | 12
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.
Financial Review
Page | 13
Results from operations
The Group made a loss after tax for the year of US$1.7 million including discontinued operations,
US$1.8 million from continuing operations compared to a loss of US$2.8 million for the previous
financial year. This includes a gain of US$0.1 million from discontinued operations. The basic loss per
share for the year for continuing operations was 0.5 cents (2020: 0.8 cents) whereas the diluted loss
per share for the year for continuing operations was 0.4 cents (2020: 0.7 cents).
Administrative expenses (excluding share based payment charges) totalled US$1.5 million (2020:
US$1.6 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 income after tax includes US$0.2 million (2020: loss US$0.9 million) finance income comprising
mainly of US$0.6 million (2020: US$0.5 million) of effective interest charges on the Shareholder Loan.
The US$0.8 million decrease in the fair value liability of warrants during the period (2020 US$0.4 million
increase), further information can be found in note 21.
Financial Position
The Group’s statement of financial position at 31 December 2021 and comparatives at 31 December
2020 are summarised below:
2021
US$’000
2020
US$’000
Non-current assets
18,632
19,371
Current assets
974
965
Total assets
19,606
20,336
Current liabilities
5,871
6,324
Total liabilities
5,871
6,324
Net assets
13,735
14,012
Capitalised additions totalled US$0.17 million (2020: US$0.15 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 decrease in non-current assets of US$0.7 million (2020: US$0.4 million increase) is in respect of
the disposal of the C&I Maiden project, this resulted in decreased costs and a reversal of loans
receivable due to the sale of MGP, as detailed in note 10 and 11.
The US$0.4 million decrease in current liabilities principally relates to a US$0.7 million decrease in the
revaluation of derivatives previously issued and new derivatives issued during the year, a US$0.5 million
increase in the Shareholder Loan and working capital facility accrued interest charges and a US$0.2
million decrease in creditors. The Company’s mid-market closing share price decreased and as at 31
December 2021 was 0.95p (31 December 2020: 5.50p) this resulted in a significant decrease in the
derivative financial liability. For further information refer to note 21.
Cash Flows
The net cash outflow from operating activities for the year was US$1.4 million (2020: US$1.3 million).
The cash outflow principally represented administrative costs for the year with limited working capital
movements.
Net cash outflow from investing activities was US$0.2 million (2020: US$0.6 million), all relating to
development activities incurred on the Power Project as detailed in note 7.
Net cash inflow from financing activities was US$1.6 million (2020: US$2.0 million) mainly relating to
the net amount of US$1.0 million from the placing of 40,000,000 Ordinary Shares in the Company at a
price of 1.5p per Ordinary Share, US$1.3 million relating to the sale of MGP and USD$0.65million bridge
loan repayment.
The resulting year end cash and cash equivalents held totalled US$0.9 million (2020: US$0.9 million).
Financial Review
Page | 14
Outlook
Based upon projections that include corporate costs, salaries of staff and consultant fees, project costs
to progress the Project and Solar Project, the Group is funded into August 2022 with the potential to
extend this to Q1 2023, depending on the Seritza Restructuring outcome and the Shareholder Loan.
Further funding will also be required to meet operating cash flows 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.
At the end of 2020, the Company submitted an updated Project feasibility study and tariff proposal to
EDM for review and comment. Although positive steps to progress the tariff were made during 2021,
further progress awaits clarity on China’s position on the availability of financing for the Project following
President Xi’s announcement regarding financing restrictions for coal power projects abroad in
September 2021. While the outcome on financing from China is outside of the Company’s control, we
continue to work closely with CMEC to resolve the issue. In addition, the Company and CMEC have
initiated steps to identify potential alternative financing solutions.
The Shareholder Loan which will amount to US$5.4 million as of 30 June 2022 (including principal,
historic redemption premium and interest) matured on 30 November 2019, and the Company is
currently evaluating options to execute the restructuring process as proposed on 26 November 2019.
The Working Capital Facility which will amount to US$0.3 million as of 30 June 2022 (including principal
and interest) matured on 24 February 2022 and the Company is currently evaluating options to extend,
restructure or repay the loan. Whilst these discussions are ongoing, Seritza has agreed not to call in
the loan until 30 June 2022.
In addition, notwithstanding the Shareholder Loan and Working Capital Facility, further funding will be
required as detailed above to meet operating cash flows under current forecasts beyond August 2022
or in the event of accelerated project advancement. 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.
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 note 1 of the Financial Statements.
Environmental and Social Responsibility
Page | 15
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 allowed us to demonstrate our
expertise in delivering solar PV plus battery storage projects in Mozambique, and we have recently
announced the potential for a grid scale solar PV project at our main Project site.
Directors’ Biographies
Page | 16
The following sets out the biographies of the directors as at 31 December 2021.
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
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 12 years. Hanno joined the Company in 2010 and has been the Company’s Chief
Executive Officer since October 2019. 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.
Directors’ Report
Page | 17
The Directors present their annual report and the audited group financial statements headed by
Ncondezi for the year ended 31 December 2021.
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 grid scale and C&I sectors 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 20
to 24.
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:
2021
2020
Mine and Power development expenditure (US$’000)
169
152
C&I projects funding (US$’000)
-
418
Share price at 31 December (pence)
0.95
5.50
Cash at bank at 31 December (US$’000)
900
853
Results and dividends
The results of the Group for the year ended 31 December 2021 are set out on page 39.
The Directors do not recommend payment of a dividend for the year (2020: 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 Solar Project, the Group is funded into August 2022 with the potential to
extend this to Q1 2023, depending on the Seritza Restructuring outcome. Further funding will also be
required to meet operating cash flows 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.
At the end of 2020, the Company submitted an updated Project feasibility study and tariff proposal to
EDM for review and comment. Although positive steps to progress the tariff were made during 2021,
further progress awaits clarity on China’s position on the availability of financing for the Project following
President Xi’s announcement regarding financing restrictions for coal power projects abroad in
Directors’ Report
Page | 18
September 2021. While the outcome on financing from China is outside of the Company’s control, we
continue to work closely with CMEC to resolve the issue. In addition, the Company and CMEC have
initiated steps to identify potential alternative financing solutions.
The Shareholder Loan which will amount to US$5.4 million as of 30 June 2022 (including principal,
historic redemption premium and interest) matured on 30 November 2019, and the Company is
currently evaluating options to execute the restructuring process as proposed on 26 November 2019.
The Working Capital Facility which will amount to US$0.3 million as of 30 June 2022 (including principal
and interest) matured on 24 February 2022 and the Company is currently evaluating options to extend,
restructure or repay the loan. Whilst these discussions are ongoing, Seritza has agreed not to call in
the loan until 30 June 2022.
In addition, notwithstanding the Shareholder Loan and Working Capital Facility, further funding will be
required as detailed above to meet operating cash flows under current forecasts beyond August 2022
or in the event of accelerated project advancement. 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.
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 note 1 of the Financial Statements.
Directors and Directors’ interests
Director Note
Appointment
date
Ordinary Shares held
31 December 2021
Ordinary Shares held
31 December 2020
Michael Haworth
1
01.06.12
16,759,462
16,759,462
Aman Sachdeva 2
21.05.15
-
-
Scott Fletcher
29.10.20
76,823,020
63,489,687
Hanno Pengilly
09.10.19
3,531,776
291,375
1.
Includes shares held by a trust of which Michael Haworth is a potential beneficiary.
2.
Aman Sachdeva is AFC’s nominated director. AFC holds 54,988,520 Ordinary Shares representing 13.39% of the
issued Ordinary Shares as at 31.12.21 and 13.39% as at 24.06.22.
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, Hanno Pengilly will
offer himself for re-election at the forthcoming Annual General Meeting of the Company.
In addition, Michael Haworth has been a Director of the Company for more than 9 years and although
the Board do not consider his independence to be compromised, in line with best practice, he will offer
himself for re-election at the forthcoming Annual General Meeting of the Company and annually
thereafter.
Corporate Governance
The Company’s compliance with the principles of corporate governance is explained in the corporate
governance statement on pages 25 to 28.
Ordinary Share Capital
The Company’s Ordinary Shares of no-par value represent 99.3% of its total share capital. The remaining
0.7% are held in treasury by the Company and do not hold voting rights. 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
Directors’ Report
Page | 19
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 2022
Risk Factors
Page | 20
Risk(s)
Potential Impact(s)
Mitigation Measure(s)
Financing risk
The
Group
needs
to
complete
the
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 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, 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
certain
Board
Members
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 of 66.67% is required.
Ncondezi has signed a Joint Development
Agreement (“JDA”) with CMEC and GE
Energy Switzerland GmbH (“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 Supplementary Agreement
(“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 the parties.
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.
The Company intends to engage with a
range of potential financing partners with the
objective
of
securing
additional
development capital for the costs that will
not be covered by the JDA partners,
including selected corporate overheads.
Since October 2018, Ncondezi has had a
successful track record in raising additional
capital with £2.0million before expenses
raised during the 2020 and 2021 financial
years despite challenging markets due to
the COVID-19 outbreak.
The Company has had discussions with a
number of potential debt and equity
investors and intends to further develop
these potential sources of capital at the
appropriate time.
The Directors’ will monitor the monthly cash
burn rate to ensure the Group operates
within its cash resources for as long as
possible.
Project financing
risk
The
Project
is
targeting
construction
financing from China, however China
committed to end financing of new coal fired
China’s policy on funding overseas coal
power projects is not clear and requires
additional
clarification,
particularly
for
Risk Factors
Page | 21
power projects abroad at the United Nations
General Assembly on 22 September 2021.
Several
China
backed
coal
power
development
projects
overseas
have
subsequently been terminated following the
announcement.
Failure
to
secure
construction financing for the Project will
prevent it from finalising a power tariff and
there is no guarantee it will be developed.
The Company has limited control over
China’s decision to include or exclude the
Project from its financing restrictions. CMEC
as a Chinese state owned entity may also be
impacted by Chinese policy on coal power
financing.
advanced projects or projects dubbed as
priority projects by the Chinese government.
The Project is at an advanced level of
development and believed to be the most
developed
coal
power
project
in
Mozambique. The Project was also selected
as a priority Project at the China-
Mozambique Cooperation Forum in 2019.
The Company continues to work closely
with CMEC to gain further clarity on the
availability of Chinese financing for the
Project. CMEC has re-emphasised its
support for the Project and is leading the
financing process. In addition, the Company
and CMEC have initiated steps to identify
potential alternative financing solutions.
Finally, the Company has received no
communication from Chinese authorities to
terminate the Project.
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%. Failure to complete
the negotiations successfully would have an
adverse operational and financial impact.
In
October
2018,
the
President
of
Mozambique
launched
the
“National
Electricity
Program
for
All”,
targeting
expansion of energy access rates in
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 financial close 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, although
there is no guarantee another offtaker will
be secured.
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.
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.
Risk Factors
Page | 22
Competition from solar and wind projects is
limited in that they are not baseload plants.
Additionally, being a thermal coal power
station project, the Group can implement
commissioning of the power plant faster
than competing hydroelectric projects which
typically
take
2-3
years
longer
to
commission.
The Company has also initiated studies to
look at introducing a solar project at the
Ncondezi Project site to take advantage of
the growing demand for renewable energy.
Estimating
mineral reserve
and resource
The estimation of mineral reserves and
mineral resources is a subjective process
and the accuracy of reserve and resource
estimates is a function of the quantity and
quality
of
available
data
and
the
assumptions used and judgements made in
interpreting engineering and geological
information.
There is significant uncertainty in any
reserve or resource estimate and the actual
deposits encountered and the economic
viability of mining a deposit may differ
materially from the Group’s estimates.
The
exploration
of
mineral
rights
is
speculative in nature and is frequently
unsuccessful. The Group may therefore be
unable to successfully discover and/or
exploit reserves.
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.
•
Detailed
geological
modelling
conducted.
•
The
utilisation
of
accredited
laboratories for the analyses of coal
samples.
•
QA/QC procedures according to best
practices.
Reserves
•
Sign-off of reserves by registered CP.
•
Classification of reserves into proven
or probable reserves.
•
Detailed mine design and scheduling.
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.
Further coal quality analysis will be
conducted and supplied to the boiler
supplier for finalisation of the boiler design.
Transmission grid
constraints
Available transmission capacity is allocated
to other power generators.
A transmission agreement heads of terms
has been signed with EDM and the
Mozambican Government to ensure that
available
transmission
infrastructure
allocation is secured early and that proper
evacuation infrastructure and capacities are
available to the Project in line with the
Group’s strategy.
In
December
2021,
an
updated
Transmission
Integration
Study
was
submitted for review and approval by EDM.
The study confirmed the availability of
several potential transmission integration
solutions for the Project.
Risk Factors
Page | 23
Environmental
and other
regulatory
requirements
Existing and possible future environmental
legislation, regulations and actions could
cause
additional
expense,
capital
expenditures, restrictions and delays in the
activities of the Group, the extent of which
cannot be predicted. Before 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
focussing
on
satisfying
Mozambican
environmental
regulations
and
requirements in all stages of development.
Environmental Management and Social
Development Plans have been advanced
and are being implemented to satisfy
national and international best practice.
The Mine and Power Plant Environmental
Social Impact 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.
Climate Change
Risk
Increased awareness and action against
climate change will put pressure on
governments and financing organisations to
reduce exposure to fossil fuel related power
generation.
This
could
affect
future
Mozambican Government policy towards
coal fired generation and limit funding
appetite for the Project.
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. It will
also allow for deeper energy generation
from intermittent renewable energy sources
such as solar PV and wind.
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.
Mozambique defaulted on commercial loans
in 2016 resulting in donors and the
International Monetary Fund (IMF) freezing
aid to Mozambique, which may affect
financing of the Project at FC.
The Mozambican Government has been
stable for many years and fosters a
beneficial
climate
towards
companies
exploring for resources.
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.
Terrorism
attacks
in
the
north
of
Mozambique are localised to the Cabo
Risk Factors
Page | 24
Mozambique has been exposed to acts of
terrorism in the Cabo Delgado region,
affecting businesses and resulting in people
relocating. This is expected to impact
business activities in the north of the
country.
Delgado region and are not expected to
have an impact on the Company’s business
operations.
Project
Development
Risk
The Company’s assets are all at a
development stage. Failure to successfully
execute and complete the development
projects, or to execute and complete the
projects on time and on budget, would have
an adverse operational and financial impact.
The Company has signed a JDA with CMEC
and GE who have a track record of
delivering integrated coal-fired power and
mine projects on time and budget. Regular
Project update meetings are held with the
Executive Team to ensure all workstreams
are progressing as planned and ongoing
monitoring, reporting and control processes
are in place.
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.
Tariff Pricing Risk
Global commodity price increases and
supply chain restrictions have had an
inflationary impact on construction costs
which may impact the Project capex. This
would result in a higher tariff requirement to
achieve the same level of returns.
The Company is constantly looking at ways
to further optimise the Project costs to
maintain a competitive tariff offer and
believes there is sufficient scope to counter
any negative inflationary capex effects. The
recently completed transmission integration
study identified a shorter transmission
connection route which has the potential to
further reduce Project capex.
The
Mozambique
government
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.
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 the main
Ncondezi Project.
The travel restrictions and more recently
China’s no-COVID policy also prevented the
Project Partners from holding in person
negotiations with EDM and existing and
potential investors.
While
the
risk
from
COVID-19
has
decreased the Company continues to
closely monitor the situation and to develop
appropriate
response
plans
to
new
outbreaks. Since the initial outbreak, the
Company restricted travel and promoted
online meetings to limit any impact on
operations.
Senior management have been vaccinated
however the Company remains cognisant of
the threat posed by new variants.
Corporate Governance Statement
Page | 25
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 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 20 to 24.
In addition to the main Project, the Company continues to advance its solar PV and battery storage
strategy in the grid scale and C&I sectors in Mozambique.
A statement of the Directors’ responsibilities in respect of the financial statements is set out on page
31. 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 2021, the Board comprised a Non-Executive Chairman (Michael Haworth), two further
Non-Executive Directors (Aman Sachdeva and 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 16.
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.
Corporate Governance Statement
Page | 26
The Company has established Audit and Remuneration Committees of the Board with formally
delegated duties and responsibilities. The Audit Committee comprises all of the Directors of the
Company. 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.
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.
Corporate Governance Statement
Page | 27
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 9 and attendance is outlined below:
Attendance by directors Board meetings
Michael Haworth
9
Aman Sachdeva
8
Scott Fletcher 5
Hanno Pengilly
9
Generally, the powers and obligations of the Board are governed by the Company’s Memorandum and
Articles and the BVI Business Companies Act 2020 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 2021, the Audit Committee members were Scott Fletcher (Committee Chairman), Michael
Haworth, Aman Sachdeva and Hanno Pengilly.
The Committee provides a forum for reporting by the Group’s external auditors. Meetings are held on
average twice a year and are also attended, by invitation, by the Non-Executive Directors.
The Audit Committee is responsible for reviewing a wide range of financial matters including the annual
and half year results, financial statements and accompanying reports before their submission to the
Board and monitoring the controls which ensure the integrity of the financial information reported to the
Shareholders. The Audit Committee meets with the Group’s auditors to review reports in respect of the
annual audit and considers the significant accounting policies, judgements and estimates involved in
the Group’s financial reporting, together with the scope of the audit and the auditor fees and
independence.
The Board notes that additional information supplied by the Audit Committee has been disseminated
across the whole of this Annual Report, rather than included as separate Committee Reports. The Audit
Committee met once in the year.
The Remuneration Committee
The Remuneration Committee in 2021 was comprised of Scott Fletcher (Committee Chairman), Michael
Haworth and Aman Sachdeva.
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 29 to 30.
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.
Corporate Governance Statement
Page | 28
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;
•
Control further treatment of risks until the level of risk becomes acceptable;
•
Identify and record any problems relating to the management of risk;
•
Initiate, recommend or provide solutions through designated channels;
•
Verify the implementation of solutions;
•
Communicate and consult internally and externally as appropriate; and
•
Inform investors of material changes to the Company’s risk profile.
Ongoing review of the overall risk management programme (inclusive of the review of adequacy of
treatment plans) is conducted by external parties where appropriate. The Board ensures that
recommendations made by the external parties are investigated and, where considered necessary,
appropriate action is taken to ensure that the Company has an appropriate internal control environment
in place to manage the key risks identified.
Remuneration Committee Report
Page | 29
At the year end, being 31 December 2021, 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 2021 the following
awards to Director remained in place:
Non-Executives
Date of grant
Number
granted
Exercise
price(GBP)
Expiry
Aman Sachdeva
25 May 2018
1,000,000
6.25p
10 years
Aman Sachdeva
26 Nov 2019
750,000
6.5p
10 years
Hanno Pengilly
25 May 2018
550,000
8.625p
10 years
Hanno Pengilly
25 May 2018
150,000
8.625p
10 years
Hanno Pengilly
25 May 2018
300,000
8.625p
10 years
Hanno Pengilly
25 May 2018
2,375,132
7.5p
10 years
Hanno Pengilly
25 May 2018
1,187,566
5.0p
10 years
Hanno Pengilly
25 May 2018
1,187,566
10.0p
10 years
Hanno Pengilly
25 May 2018
1,187,566
15.0p
10 years
Hanno Pengilly
26 Nov 2019
6,333,332
6.5p
10 years
Scott Fletcher
12 Nov 2020
5,000,000
3.0p
3 years
Scott Fletcher
12 Nov 2020
2,500,000
5.0p
3 years
Scott Fletcher
12 Nov 2020
2,500,000
7.5p
3 years
.
Refer to note 19 for details of the vesting conditions attached to certain of the awards.
Grant of Share Awards
During 2021 no share options were issued to the Company’s Directors (2020: 10,000,000 all to the
Company’s Directors).
Directors’ Options
During 2021 no share options were issued to the Company’s Directors (2020: 10,000,000).
Directors’ service agreements
None of the Directors have a service contract which is terminable on greater than one year’s notice.
Non-Executive Directors’ fees
The Company has adopted a standard level of fees for Non-Executive 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.
Directors’ remuneration
The following table sets out an analysis of the pre-tax remuneration for the year ended 31 December
2021 for individual directors who held office in the Company during the period.
Remuneration Committee Report
Page | 30
Base
Salary/fee
US$’000
Bonus
US$’000
Share
based
payments
US$’000
Total
2021
US$’000
Total
2020
US$’000
Michael Haworth
-
-
-
-
-
Aman Sachdeva
-
-
-
-
-
Scott Fletcher
-
-
-
-
49
Hanno Pengilly
240
-
-
240
540
Total
240
-
-
240
589
On behalf of the Board
Michael Haworth
Non-Executive Chairman
24 June 2022
Statement of Directors’ Responsibilities
Page | 31
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 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 UK governing the preparation and
dissemination of financial statements, which may vary from legislation in other jurisdictions. The
maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors'
responsibility also extends to the on-going integrity of the financial statements contained therein.
Independent audit report to the members of Ncondezi
Energy Limited
Page | 32
Opinion on the financial statements
In our opinion, the financial statements:
•
give a true and fair view of the state of the Group's affairs as at 31 December 2021 and of its loss
for the year then ended
•
have been properly 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 2021 which comprises the consolidated
statement of profit or loss and other comprehensive income, the consolidated statement of financial
position, the consolidated statement of changes in equity, the consolidated statement of cash flows and
notes to the consolidated 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 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 in respect of the Group’s ability to continue as
a going concern. As stated in Note 1, the Group will need to restructure its existing shareholder loans
and working capital loan, as well as extend the working capital loan. The Group will need to obtain
clarity on the Chinese funding of the project and the project tariff approval is still pending which restricts
the Group from trading.
As stated in Note 1, these events or conditions, along with other matters as set forth in Note 1, indicate
that a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a
going concern. Our opinion is not modified in respect of this 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.
We considered the ability of the Group to continue as a going concern to be a key audit matter based
on our assessment of the significance of the risk and the effect on our audit strategy.
Our evaluation of the Directors’ assessment of the Group’s ability to continue to adopt the going concern
basis of accounting and in response to the key audit matter included:
•
We discussed the potential risks and uncertainties regarding going concern assessment and
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.
•
We assessed the Directors’ 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 the shareholder loan and working capital agreements
to assess committed project expenditure, the correspondence pertaining to raising additional
financing through a share placing and evaluated the repayment terms of the loan facilities in
Independent audit report to the members of Ncondezi
Energy Limited
Page | 33
respect to the base cash flow forecasts. We have inspected the confirmation from the
shareholders that they will not call in the loan, despite being in default.
•
We performed a stress testing analysis on the Directors’ base cashflow forecast considering
the potential of the inability to secure anticipated funding, accelerated repayment on the Seritza
loan on default and the inability to refinance loans.
•
We further reviewed board minutes and market announcements for indications of additional
cash requirements.
•
We considered the Directors’ judgement 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
Coverage
93% (2020: 97%) of Group loss before tax
92% (2020: 99%) of Group total assets
Key audit matters
2021
2020
Going concern
•
•
Carrying value of the Group’s
mining and power assets
•
•
Materiality
Group financial statements as a whole
US$0.29m (2020:US$0.31m) based on 1.5% (2020:1.5%) 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 with the green energy subsidiary based in Mauritius
being disposed of in the current financial period. A full scope audit was performed on significant
components identified by BDO LLP as accounting records are maintained in the UK and management
are based in the UK. Non-significant components were subject to analytical review procedures. All
procedures on the non-significant components were performed by BDO LLP.
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
Independent audit report to the members of Ncondezi
Energy Limited
Page | 34
had the greatest effect on: the overall audit strategy, the allocation of resources in the audit, and
directing the efforts of the engagement team. These matters were addressed in the context of our audit
of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. In addition to the matter described in the Material uncertainty related
to going concern section, we have determined the matter described below to be the key audit matter to
be communicated in our report.
Key audit matter
How the scope of our audit addressed
the key audit matter
Carrying value of the Group’s mining and
power assets
Refer to note 1 and 7
The Group’s mining and power assets represent
its most significant assets as at 31 December
2021. The mining assets are held at their
recoverable value which is below cost following
impairments
made
in
prior
years.
The
recoverability of the carrying value of the
Group’s mining and power assets is dependent
on a number of uncertain events, including
raising funding to construct the power plant and
agreement of a satisfactory tariff with the
Government of Mozambique.
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 2021 and whether
any reversals of historic impairments are
appropriate. Management determined that the
mine and power assets represent one cash
generating unit.
Management
performed
an
impairment
assessment for the mining and power assets ,
with sensitivities applied considering inflationary
adjustments and concluded that no impairment
on the power and mine assets was necessary
and that no reversal of impairment on the mining
assets was required, which sets out the key
judgements and estimates involved in the
impairment assessment.
Management have considered the impact of the
announcement
made
by
the
Chinese
Government that they will no longer support coal
mining projects going forward.
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.
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.
We reviewed management’s impairment
review and performed our own assessment
of impairment indicators in order to
determine whether their assessment was
complete and in accordance with the
requirements of such standards.
We
challenged
management
on
the
Chinese Government announcement to
divest from abroad-based coal projects.
Further consultation revealed that the
announcement is yet to be legislated and we
further corroborated, through inspection of
letters from CMEC and the virtual signing of
the Power Plant EPC that CMECs continued
support on the project with no noted
withdrawal evidenced to date
We obtained the integrated power and mine
asset
financial
model,
prepared
by
management’s external consultant, and
confirmed that in the event that the power
project receives funding and is constructed
the model demonstrated headroom over the
carrying value. In respect of key inputs in the
model we confirmed that the project costs
are consistent with quotes and supporting
information, compared the discount rate to
relevant third party rates and performed
sensitivity
analysis.We
assessed
the
independence and competence of the
external consultant.
In respect of the electricity tariff, upon which
the project development is dependent,
which remains subject to agreement with the
Mozambique Government, we obtained
confirmation from management that the
tariff rate represented their best estimate of
Independent audit report to the members of Ncondezi
Energy Limited
Page | 35
the rate required by the Government based
on recent discussions they had held with
management and representatives from the
Government, and we obtained specific
written representation to that effect. We
reviewed market reports and internal
correspondence to confirm that they were
consistent with the tariff used in the model
and agreed the rate to documents submitted
to the Government.
We reviewed the only signed shareholders
agreement term sheet with the project
partners
and
obtained
supporting
documents demonstrating progress and the
continued feasibility of the project at this
time.
We assessed the appropriateness of
management’s conclusion that no reversal
of impairment was required in respect of the
mining
assets,
notwithstanding
the
headroom derived from the integrated
model when compared to the power and
mining assets as a whole under certain
assumptions. We discussed this judgment
with the Audit Committee, which included
consideration of 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.
Key observations:
Based on the procedures performed, we
found
management’s
assessment
of
Carrying value of the Group’s mining and
power assets and disclosures in the
financial statement to be appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit, and in evaluating the
effect of misstatements. We consider materiality to be the magnitude by which misstatements, including
omissions, could influence the economic decisions of reasonable users that are taken on the basis of
the financial statements.
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.
Based on our professional judgement, we determined materiality for the financial statements as a whole
and performance materiality as follows:
Independent audit report to the members of Ncondezi
Energy Limited
Page | 36
Group financial statements
2021
2020
Materiality
US$0.29 million
US$0.31 million
Basis for
determining
materiality
1.5% of total assets
1.5% of total assets
Rationale for the
benchmark
applied
We
consider
total
assets
to
be
the
appropriate benchmark
due to the focus of
stakeholders being on
the
assets
of
the
Group.
We consider total assets
to be the appropriate
benchmark due to the
focus
of
stakeholders
being on the assets of the
Group.
Performance
materiality
US$0.21 million
US$0.21 million
Basis for
determining
performance
materiality
70%
of
Group
materiality, set after
considering a number
of factors including the
expected
value
of
known
and
likely
misstatements
70% of Group materiality,
set after considering a
number
of
factors
including
the
expected
value of known and likely
misstatements
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$0.10million (2020:US$0.11million) to
US$0.26 million (2020: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 individual audit differences in
excess of US$14, 550 (2020: US$15,000). We also agreed to report differences below this threshold
that, in our view, warranted reporting on qualitative grounds.
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, except to the extent otherwise explicitly stated in our report, 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.
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.
Independent audit report to the members of Ncondezi
Energy Limited
Page | 37
In preparing the financial statements, the Directors are responsible for assessing the 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 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:
•
We obtained an understanding of the legal and regulatory frameworks that are applicable for
the Group and the industry in which it operates, and considered the risk of acts by the Group
that were contrary to applicable laws and regulations, including fraud. We consider the
significant laws and regulations to be AIM listing rules, QCA corporate governance, tax and
mining laws specific to Mozambique.
•
Based on our understanding we designed our audit procedures to identify non-compliance with
such laws and regulations impacting the Group. Our procedures involved making enquiries of
Management and those charged with governance to understand their awareness of any non-
compliance of laws or regulations, inquiring about the policies that have been established to
prevent non-compliance of laws or regulations by officers and employees of the Group,
inquiring about the Group’s methods of enforcing and monitoring compliance with such policies
and reviewing board minutes to identify any instances of non-compliance. We have noted no
such instances.
•
We assessed the susceptibility of the Group’s financial statements to material misstatement,
including how fraud might occur by obtaining an understanding of the controls that the Group
has established to address risks identified by the entity, or that otherwise seek to prevent, deter
or detect fraud. We considered the significant fraud risk areas to be in relation to revenue
recognition and Management override of controls
•
We addressed the risk of management override of internal controls, including testing a risk
based selections of journals and evaluating whether there was evidence of bias in
Management’s estimates (Refer to the key audit matters’ section) that represented a material
misstatement due to fraud.
•
We communicated relevant identified laws and regulations and potential fraud risks to all
engagement team members and remained alert to any indications of fraud or non-compliance
with laws and regulations throughout the audit.
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.
Independent audit report to the members of Ncondezi
Energy Limited
Page | 38
Use of our report
This report is made solely to the Parent Company’s members, as a body, in accordance with the terms
of our engagement letter dated 17 June 2022. 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 2022
BDO LLP is a limited liability partnership registered in England and Wales (with registered number
OC305127).
Consolidated statement of profit or loss and
other comprehensive income
for the year ended 31 December 2021
Page | 39
Note
2021
2020*
restated
US$’000
US$’000
Continuing operations:
Other administrative expenses
3
(1,530)
(1,556)
Share-based payment charge
3
(529)
(292)
Total administrative expenses and loss
from operations
(2,059)
(1,848)
Net finance income/(expense)
4
212
(910)
Loss for the year before taxation from
continuing operations
(1,847)
(2,758)
Taxation
5
-
-
Discontinued operations:
Profit earned on the disposal of the
discontinued operations
10
111
-
Gain/(Loss) for the year for discontinued
operations
27
(55)
Gain/(Loss) for the year before taxation
from discontinued operations
138
(55)
Taxation
5
-
-
Loss and total comprehensive loss for the
year attributable to equity holders of the
parent company
(1,709)
(2,813)
Loss per share expressed in cents
Basic
6
(0.5)
(0.8)
Diluted
6
(0.4)
(0.7)
*The restatement relates to the discontinued operations
The notes on pages 43 to 70 form part of these financial statements.
Consolidated statement of financial position
as at 31 December 2021
Page | 40
Note
2021
2020
US$’000
US$’000
Assets
Non-current assets
Property, plant and equipment
7
18,450
18,348
Intangible assets
8
182
358
Loan receivable
11
-
665
Total non-current assets
18,632
19,371
Current assets
Trade and other receivables
12
74
112
Cash and cash equivalent
13
900
853
Total current assets
974
965
Total assets
19,606
20,336
Liabilities
Current liabilities
Trade and other payables
14
363
550
Loans and borrowings
15
5,493
5,015
Derivative financial liability
16
15
759
Total current liabilities
5,871
6,324
Total liabilities
5,871
6,324
Capital and reserves attributable to
shareholders
Share capital
17
95,009
94,137
Accumulated losses
(81,274)
(80,125)
Total capital and reserves
13,735
14,012
Total equity and liabilities
19,606
20,336
The financial statements were approved and authorised for issue by the Board of Directors on 24 June
2022 and were signed on its behalf by:
Michael Haworth
Non-Executive Chairman
The notes on pages 43 to 70 form part of these financial statements.
Consolidated statement of changes in equity
for the year ended at 31 December 2021
Page | 41
Share
capital
US$'000
Accumulated
Losses
US$'000
Total
US$'000
At 1 January 2021
94,137
(80,125)
14,012
Loss for the year
-
(1,709) (1,709)
Other comprehensive loss for the year
-
-
-
Total comprehensive loss for the year
-
(1,709) (1,709)
Issue of shares
1,040
-
1,040
Costs associated with issue of shares
(168)
-
(168)
Broker’s warrants issued
-
20
20
Trusts dissolution
-
11
11
Equity settled share-based payments
-
529
529
At 31 December 2021
95,009
(81,274)
13,735
Share
capital
US$'000
Accumulated
Losses
US$'000
Total
US$'000
At 1 January 2020
92,660
(77,548)
15,112
Loss for the year
-
(2,813) (2,813)
Other comprehensive loss for the year
-
-
-
Total comprehensive loss for the year
-
(2,813) (2,813)
Issue of shares
1,910
-
1,910
Costs associated with issue of shares
(138)
-
(138)
Broker warrants issued
(351)
-
(351)
Exercise of share options
56
(56)
-
Equity settled share-based payments
-
292
292
At 31 December 2020
94,137
(80,125)
14,012
The notes on pages 43 to 70 form part of these financial statements.
Consolidated statement of cash flows
for the year ended at 31 December 2021
Page | 42
2021
2020
US$’000
US$’000
Loss before taxation
(1,709)
(2,813)
Adjustments for:
Finance (income)/expense
(212)
910
Share-based payment charge
529
292
Amortisation
176
164
Depreciation
67
67
Gain from disposal of discontinued operations (note 10)
(111)
-
Unrealised foreign exchange movements
(10)
-
Net cash flow from operating activities before
changes in working capital
(1,270)
(1,380)
(Decrease)/increase in payables
(187)
146
Decrease/(increase) in receivables
38
(86)
Net cash flow from operating activities before tax
(1,419)
(1,320)
Income taxes refunded
-
-
Net cash flow from operating activities after tax
(1,419)
(1,320)
Investing activities
Power and Mine development costs capitalised
(169)
(152)
JV investment prior to acquisition
-
(384)
Purchase of intangibles
-
(35)
Net cash flow from investing activities
(169)
(571)
Financing activities
Issue of ordinary shares
1,040
1,910
Cost of shares issued
(55)
(138)
Proceeds from sale of discontinued operation
1,300
-
Working capital facility draw down
-
250
Repayment of bridge loan including interest
(650)
-
Net cash flow from financing activities
1,635
2,022
Net increase in cash and cash equivalents in the
year
47
131
Cash and cash equivalents at the beginning of the year
853
722
Cash and cash equivalents at the end of the year
900
853
The notes on pages 43 to 70 form part of these financial statements.
Notes to the consolidated financial statements
Page | 43
1. Principal accounting policies
General
The Company is a public limited liability company incorporated on 30 March 2006 in the British Virgin
Islands. The address of its registered office is Coastal Building, Wickham's Cay II, PO Box 2221, Road
Town, Carrot Bay, Tortola, British Virgin Islands.
Going concern
As at 31 December 2022 the Group had cash reserves of approximately US$900,000. Based upon
projections that include corporate costs, salaries of staff and consultant fees, project costs to progress
both the Project and Solar Project, the Group is funded into August 2022 with the potential to extend
this to Q1 2023, depending on the outcome of Restructuring discussions with Seritza for the Working
Capital Facility and the Shareholder Loan.
The Shareholder Loan of US$5,197,000 as at period end (including principal, historic redemption
premium and interest) matured on 30 November 2019. The 3 November 2020 Undertaking not to call
in the Shareholder Loan before the later of 30 November 2022 or when the Restructuring is completed
is still valid. 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.
The Working Capital Facility of US$296,000 as at 31 December 2021 (including principal and interest)
and was repayable in March 2022. On 1 June 2022 the repayment date was extend to 30 June 2022,
whilst restructuring discussions are still being finalised. The Company is currently evaluating options to
extend, restructure or repay the loan.
The Bridge Loan of US$650,000 was repaid in December 2021.
The Directors continue to explore options in respect of raising further funds to continue with the power
plant and mine development programmes, as well as funding potential C&I Projects. At present there
are no binding agreements in place and there can be no certainty as to the Group’s ability to raise
additional funding.
In addition, notwithstanding the Shareholder loan and Working Capital Facility further funding will be
required as detailed above to meet operating cash flows under current forecasts beyond August 2022
at the earliest, or Q1 2023 at the latest 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.
At the end of 2020, the Company submitted an updated Project feasibility study and tariff proposal to
EDM for review and comment. Although positive steps to progress the tariff were made during 2021,
further progress awaits clarity on China’s position on the availability of financing for the Project following
President Xi’s announcement regarding financing restrictions for coal power projects abroad in
September 2021. While the outcome on financing from China is outside of the Company’s control, we
continue to work closely with CMEC to resolve the issue. In addition, the Company and CMEC have
initiated steps to identify potential alternative financing solutions.
While the risk presented by COVID-19 has decreased it potentially still 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. The Group is cognisant new variants may result in further lockdowns and continues to closely
monitor the situation and to develop appropriate response plans.
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.
Notes to the consolidated financial statements
Page | 44
1. Principal accounting policies (continued)
The lack of clarity on Chinese funding for the Project, finalisation of the tariff, restructuring of the loans
and funding beyond August 2022 indicate the existence of a material uncertainty which may cast
significant doubt about the Group’s ability to continue as a going concern. The financial statements do
not include the adjustments that would result if the Group was unable to continue as a going concern.
Such adjustments would principally be the write down of the Group’s non-current assets.
Basis of preparation
The principal accounting policies adopted in the preparation of these consolidated financial statements
are set out below. The policies have been consistently applied to all the years presented, unless
otherwise stated.
These financial statements have been prepared in accordance with International Financial Reporting
Standards, International Accounting Standards and Interpretations (collectively “IFRS”) issued by the
International Accounting Standards Board (“IASB”) as adopted by the European Union (“adopted
IFRS”).
The preparation of financial statements in conformity with IFRS requires management to make
judgements, estimates and assumptions that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and associated assumptions are based on
historical experience and factors that are believed to be reasonable under the circumstances, the results
of which form the basis of making 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 2021, have been adopted in the current financial year.
(a) New standards, interpretations and amendments adopted from 1 January 2021
One new standard impacting the Group that has been adopted in the annual financial statements
for the year ended 31 December 2021:
•
COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendments to IFRS 16).
Upon review of the amendment, it was concluded that there was no impact from the perspective
of the Group’s results.
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 2022:
Notes to the consolidated financial statements
Page | 45
1. Principal accounting policies (continued)
•
Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37);
•
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16);
•
Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16
and IAS 41);
•
References to Conceptual Framework (Amendments to IFRS 3).
The following amendments are effective for the period beginning 1 January 2023:
•
Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
•
Definition of Accounting Estimates (Amendments to IAS 8); and
•
Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to
IAS 12).
The financial impact of new standards, interpretations and amendments not yet effective has not yet
been determined by the Group.
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
Notes to the consolidated financial statements
Page | 46
1. Principal accounting policies (continued)
liabilities assumed in a business combination are measured initially at their fair values at the acquisition
date.
Segmental reporting
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker has been identified as the Board of
Directors.
Share-based payments
Equity-settled share-based payments to employees and Directors are measured at the fair value of the
equity instrument. The fair value of the equity-settled transactions with employees and Directors is
recognised as an expense over the vesting period. The fair value of the equity instrument is determined
at the date of grant, taking into account market based vesting conditions.
The fair value of the equity instrument is measured using the Black-Scholes model. The expected life
used in the model is adjusted, based on management’s best estimate, for the effects of non-
transferability, exercise restrictions and behavioural considerations.
When grant of equity instruments is cancelled or settled during the vesting period the cancellation is
accounted for as an acceleration of vesting and the amount that otherwise would have been recognised
for services received over the remainder of the vesting period is immediately expensed.
When equity instruments are modified, if the modification increases the fair value of the award, the
additional cost must be recognised over the period from the modification date until the vesting date of
the modified award.
If, after the vesting date, fully vested options lapse or are not exercised the previously recognised share-
based payment charge is not reversed.
Property, plant and equipment
Property, plant and equipment are stated at cost on acquisition less depreciation. Depreciation is
provided on a straight-line basis at rates calculated to write off the cost less the estimated residual value
of each asset over its expected useful economic life. The residual value is the estimated amount that
would currently be obtained from disposal of the asset if the asset were already of the age and in the
condition expected at the end of its useful life.
The annual rate of depreciation for each class of depreciable asset is:
Plant and equipment
25%
Other
20%-33%
Buildings
10%
Power
Life of Mine (“LOM”)
Mining assets
LOM
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.
Notes to the consolidated financial statements
Page | 47
1. Principal accounting policies (continued)
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 profit or loss. The 36
months estimated useful lives of the intangible asset and started from the date of the ROFR relating to
the C&I projects pipeline.
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, a 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.
Notes to the consolidated financial statements
Page | 48
1. Principal accounting policies (continued)
Impairments are recognised in the statement of profit or loss to the extent that the carrying amount
exceeds the assets recoverable amount. The revised carrying amounts are amortised in line with the
Group's accounting policies.
The Group has three 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, (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 and
(3) the corporate sector – this segment relates to the day to day of the business.
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.
Notes to the consolidated financial statements
Page | 49
1. Principal accounting policies (continued)
Financial instruments
Financial assets and liabilities are recognised when the Group becomes party to the contractual
provisions of the instrument.
Financial assets
The Group classifies its financial assets into one of the categories discussed below, depending on the
purpose for which the asset was acquired. The Group did not have any financial assets designated at
fair value through profit or loss. Unless otherwise indicated, the carrying amounts of the Group's financial
assets are a reasonable approximation of their fair values.
The Group's accounting policy for each category is as follows:
Financial 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 convertible
Notes to the consolidated financial statements
Page | 50
1. Principal accounting policies (continued)
borrowing, the fair value of the embedded derivative is determined and the residual value is recorded
as a host liability initially at fair value and subsequently at amortised cost.
Issue costs are apportioned between the components based on their respective carrying amounts when
the instrument was issued.
The finance costs recognised in respect of the convertible borrowings includes the accretion of the
liability.
Financial liabilities at fair value through profit or loss
This category comprises warrants instruments classified as derivative financial liabilities due to the
warrant resulting in the issue of a variable number of shares and the embedded derivative within the
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
Notes to the consolidated financial statements
Page | 51
2. Critical accounting estimates and judgements (continued)
significant risk of causing a material adjustment to the carrying amount of assets and liabilities within
the next financial year are discussed below.
Accounting judgements and estimates
(i) Impairment of power and mining assets
The carrying value of the power plant and mining assets in note 7 are dependent on the success of the
power plant project. Management’s judgement is that no indicators of impairment have occurred during
the year. This has included consideration of the potential sources of impairment indicators prescribed
under IAS 36. Management have considered key milestones including the “in principle” agreement of
the historical costs with CMEC, signing of the power plant EPC contract with CMEC and the continued
commitment of CMEC to the Project and submission of the Upgraded Transmission Integration Study,
and risks including Project capex inflation impacting the tariff and China’s new policy on overseas coal
power financing. The wording of the new policy and the exact scope of the ban remains unclear in
particular for “Priority Projects” of which the Ncondezi Project is one, nor has the Company received
any formal communication from either CMEC or the Chinese Government that the Project is to be
shelved or cancelled. Meanwhile China is undergoing negative GDP growth forecasts as a result of their
ongoing lockdown policy, currency depreciation and commodity price inflation. This situation has the
potential for China to turn to historically proven tools to restore growth including increased credit and
policy support for sectors such as infrastructure build out, potentially delaying recent commitments such
as the restrictions on coal financing. It must be noted that Ncondezi has no control over the Chinese
Government’s application of the coal power funding policy towards the Project.
Tariff negotiations with EDM to date have been positive however the tariff can not be finalised until
clarity is gained on financing from China. The financial model which has been used as a basis for the
tariff negotiations has been stress tested for cost inflation and management are confident that they will
still be able to agree a tariff within the range indicated by EDM and the Mozambique Government.
Management have also considered the impact of the Russian invasion of Ukraine in the post reporting
period which has seen a dramatic rise in global thermal coal prices and structural change in the
fundamentals for all key energy commodities (oil, gas and coal) which has forced many countries to
rethink their energy strategies. Developing countries such as Mozambique have little optionality over
their energy sources. The changing global energy environment emphasises the need for a diversified
generation mix on the grid for greater energy security. In South Africa the energy supply deficit continues
to grow with Eskom, the state run power utility, forecasting a current power deficit of 4,000MW to
6,000MW which is set to increase over the coming years as they are forced to retire ageing power
stations. Mozambique, as the largest exporter of power to South Africa, is in a good position to take
advantage of this. Management, having considered the risks and de-risking events, have determined
that at this point in time 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 or if clarity is not gained on
the availability of Project construction financing, 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 2021 and associated risks and uncertainties, the extent of progress made towards finalising
Notes to the consolidated financial statements
Page | 52
2. Critical accounting estimates and judgements (continued)
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 (notes 16 and 19).
3. Administrative expenses
2021
US$’000
2020*
restated
US$’000
Staff costs
77
53
Professional and consultancy
1,042
1,115
Office expenses
74
78
Marketing and promotion
83
96
Travel and accommodation
9
12
Other expenses
7
21
Depreciation
67
67
Amortisation
176
164
Foreign exchange
(5)
(50)
Total administrative expenses
1,530
1,556
*The restatement relates to the discontinued operations
Auditors’ remuneration
2021
US$’000
2020
US$’000
Group auditors’ remuneration
- audit of the Group’s accounts
75
73
Other services
- interim review
2
2
77
75
Auditors’ remuneration is included within professional and consultancy costs.
Staff costs and Directors remuneration
2021
US$’000
2020
US$’000
Wages and salaries
74
51
Directors remuneration
240
360
Share-based payment
529
292
Social security costs
3
2
846
705
During 2021 US$nil (2020: US$nil) included within wages and salaries has been capitalised to the power
project asset.
Notes to the consolidated financial statements
Page | 53
3. Administrative expenses (continued)
The average monthly number of employees (including executive Directors) of the Group were:
2021
Number
2020
Number
Operational
1
1
Administration
2
3
3
4
Key management compensation:
2021
US$’000
2020
US$’000
Fees
240
442
Share-based payment
529
253
769
695
Key management includes Directors and Consultants.
4. Net finance income
2021
US$’000
2020
US$’000
Interest on loans (note 15)
627
531
Fair value adjustment on the warrants (note 16)
(839)
379
Fair value adjustment on the loan derivative
-
-
(212)
910
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% (2020: 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.
2021
US$’000
2020
US$’000
Current tax
-
-
Group loss on ordinary activities before tax*
(1,847)
(2,813)
Effects of:
Reconcile to Mozambique corporation tax rate of 32%
(2020: 32%)
(591)
(900)
Differences arising from different tax rates
512
837
Foreign exchange effect originating in overseas companies
(36)
21
Unrecognised taxable losses in subsidiaries
115
42
Total tax for the year
-
-
* Pertains to continuing operations
During the exploration and development stages, the Group will accumulate tax losses which may be
carried forward. As at 31 December 2021, no deferred tax asset has been recognised for tax losses of
US$1,071,000 (2020: US$1,877,000) 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.
Notes to the consolidated financial statements
Page | 54
5. Taxation (continued)
Tax losses in Mozambique are available for use over a five year period. Of the total available Mozambican
subsidiary tax credits, US$292,000 will be available until 31 December 2026, 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$52,000 and will be available until 31 December 2022.
6. Loss per share
Basic loss per share is calculated by dividing the loss attributable to Ordinary Shareholders by the
weighted average number of Ordinary Shares outstanding during the year. Diluted loss per share is
calculated by dividing the loss attributable to Ordinary Shareholders by the sum of the weighted average
number of shares outstanding and dilutive shares (unvested share options and warrants).
Due to the losses incurred during the year a diluted loss per share has not been calculated as this would
serve to reduce the basic loss per share. Out of 37,637,227 (2020: 37,637,227) share incentives
outstanding at the end of the year 12,294,058 (2020: 12,294,058) had already vested.
2021
2020
Loss
US$'000
Weighted
average
number of
shares
(thousands)
Per share
amount
(cents)
Loss
US$'000
Weighted
average
number of
shares
(thousands)
Per share
amount
(cents)
Basic EPS
(1,847)*
382,029
(0.5)
(2,813)
341,193
(0.8)
Diluted EPS
(1,847)*
447,142
(0.4)
(2,813)**
372,887
(0.7)
* Pertains to continuing operations
** Stating from PY before discontinued operations was adjusted for
7. Property, plant and equipment
Power
assets
US$’000
Mining
assets
US$’000
Buildings
US$’000
Plant and
equi.
US$’000
Other
US$’000
Total
US$’000
Cost (less impairment)
At 1 January 2020
9,520
7,661
1,277
35
718
19,211
Additions
76
76
-
-
-
152
At 31 December 2021
9,596
7,737
1,277
35
718
19,363
Additions
135
34
-
-
-
169
At 31 December 2021
9,731
7,771
1,277
35
718
19,532
Depreciation
At 1 January 2020
-
-
205
25
718
948
Depreciation charge
-
-
66
1
-
67
At 31 December 2021
-
-
271
26
718
1,015
Depreciation charge
-
-
66
1
-
67
At 31 December 2021
-
-
337
27
718
1,082
Net Book value 2021
9,731
7,771
940
8
-
18,450
Net Book value 2020
9,596
7,737
1,006
9
-
18,348
Power assets relate to the development of a 300MW power plant. In 2021, the Power assets remain
classified as property, plant and equipment as detailed in note 1.
Mine assets relate to the initial acquisition of the licences and subsequent expenditure incurred in
Notes to the consolidated financial statements
Page | 55
7. Property, plant and equipment (continued)
evaluating the Ncondezi mine project. These were transferred from intangible assets on receipt of the
mining concession in 2013.
Management has prepared an impairment assessment under IAS 36 as impairment indicators have
been identified. The 2020 financial model was sensitized for inflationary adjustments indicating that the
net present value is in excess of the carrying value thus no impairment was necessary. Management
did not deem a reversal of impairment appropriate.
8. Intangible assets
ROFR to
C&I
projects
pipeline
US$’000
Total
US$’000
Cost
At 1 January 2020
-
-
Additions
522
522
At 1 January 2021
522
522
Additions
-
-
At 31 December 2021
522
522
Amortisation
At 1 January 2020
-
-
Amortisation charge
164
164
At 1 January 2021
164
164
Amortisation charge
176
176
At 31 December 2021
340
340
Net Book value 2021
182
182
9. Subsidiaries
The Group has the following subsidiary undertakings:
%
interest
2021
%
interest
2020
Country of
incorporation
Activity
Zambezi Energy Corporation
Holdings 1 Limited
‘ZECH1’
100
100
Mauritius
Holding
company
Zambezi Energy Corporation
Holdings 2 Limited
‘ZECH2’
100
100
Mauritius
Holding
company
Ncondezi Coal Company
Mozambique Limitada
‘NCCML’
100
100
Mozambique
Mining
exploration and
development
Ncondezi Power Holdings 2
Limited
‘NPH2L’
100
100
UAE
Holding
company
Ncondezi Power Company
SA
‘NPCSA’
100
100
Mozambique
Energy
company
Ncondezi Green Power
Holding Ltd
‘NGP’
100
100
BVI
Green Energy
Holding
company
Mozambique Green Power
Ltd
‘MGP’
-
100
Mauritius
Green Energy
company
Notes to the consolidated financial statements
Page | 56
9. Subsidiaries (continued)
NCCML is owned by ZECH1 and ZECH2. NPH2L is owned by Ncondezi Energy Limited. NPCSA is owned
by Ncondezi Energy Limited, ZECH1 and NPH2L. NGP is owned by Ncondezi Energy Limited. MGP was
owned by NGP and was sold in the year.
10. Discontinued operations
Following the strategic review launched in June 2021 the Board decided that due to an increasingly
challenging post COP26 environment, selling the C&I subsidiary would allow the Company to fully focus
on progressing the Company’s main project.
On 3 December 2021, under a sale and purchase agreement NGP sold MGP to Green Energy a company
controlled by Ncondezi Non-Executive Director Scott Fletcher for a total consideration of US$1,300,000 in
cash. This was a related party transaction, refer to note 23.
This discontinued operation was part of the Solar PV & Battery Storage segment.
2021
US$'000
Consideration paid to the Company:
Proceeds from sale of discontinued operations
1,300
Subsidiary net equity at disposal
Non-current assets
Loan receivable
1,020
Total non-current assets
1,020
Current assets
Trade and other receivables
32
Cash and cash equivalents
163
Total current assets
195
Total net assets
1,215
Current liabilities
Trade and other payables
(26)
Total net liabilities
(26)
Net equity of discontinued operations
1,189
Gain on disposal of discontinued operations
111
11. Loan Receivable
2021
US$'000
2020
US$'000
Balance at start of year
665
-
Provided during the year
355
Disposed due to discontinued operations
(1,020)
665
Total non-current assets
-
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 the date of the MGP disposal US$1,020,000 was provided out of the total
funding.
Notes to the consolidated financial statements
Page | 57
12. Trade and other receivables
2021
US$'000
2020
US$'000
Current assets:
Other receivables
74
112
Total trade and other receivables
74
112
During the year no expected credit losses were recognised (2020: US$nil). The Directors consider that
the carrying amount of other receivables approximates their fair value.
13. Cash and cash equivalents
2021
US$'000
2020
US$'000
Cash at bank and in hand
900
853
900
853
The Group’s cash and cash equivalents balances may be analysed by currency as follows:
2021
US$'000
2020
US$'000
US Dollars
650
354
Great British Pounds
247
493
Mozambique Meticais
3
6
900
853
Where possible cash is deposited in floating rate deposit accounts at reputable financial institutions
with high credit ratings.
14. Trade and other payables
2021
US$'000
2020
US$'000
Other payables
55
57
Accruals
308
493
363
550
Accruals includes US$nil (2020: US$nil) of interest in respect of the loans detailed in note 15. The fair
value of payables is not significantly different from their carrying value.
15. Loans and borrowings
2021
US$'000
2020
US$'000
Shareholder Loans (unsecured)
5,197
4,742
Working capital facility (unsecured)
296
273
Total loans and borrowings
5,493
5,015
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$5,197,000 as at period end (2020:
US$4,742,000), with interest of 12% continuing to be accrued on the outstanding balance.
Notes to the consolidated financial statements
Page | 58
15. Loans and borrowings (continued)
On 26 November 2019, the Company received “in principle” support from all Lenders to enter a
Shareholder Loan restructuring proposal. The Loan term expired on 30 November 2019 with no extensions
or restructuring legally agreed as at the end of the period. The restructuring proposal is set out as 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 Loan along with conversion of all
interest into Ncondezi shares on AIM at a 25% to 30% premium to the 30 day VWAP
The restructuring process is currently waiting for 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.
Finance cost recognised for the year in relation to the loan was US$454,000 (2020: US$508,000).
Working Capital Facility
The US$750,000 working capital facility was made available for drawdown from 1 January 2020 until
30 June 2020 at the Company’s election and was repayable within 24 months from first drawdown,
unless there was an event of default or the Company elected 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 and funds were received on 24 February
2020 the repayment date being two years from this date. Further drawdowns were not solicited and the
working capital facility expired at the end of June 2020.
The Working Capital Facility attracts a 10% annual interest charge, payable at maturity or on repayment.
Finance cost recognised for the period in relation to the Working Capital Facility was US$23,000 (2020:
US$23,000).
Bridge Loan:
2021
US$'000
At 1 January 2021
-
Bridge Loan amount
500
30% coupon
150
Repayment
(650)
Total loans and borrowings as at 31 December 2021
-
Below are the loans and borrowings that have been settled during the current financial year.
The key terms of the Bridge Loan of US$500,000 were as follows:
•
Entered into on 3 May 2021
Notes to the consolidated financial statements
Page | 59
15. Loans and borrowings (continued)
•
Fixed 30% coupon payable by NGP at the earlier of:
o
6 months from first drawdown;
o
20 business days from commissioning of the C&I Maiden Project; or
o
20 business days from termination of any of the C&I Maiden Project key commercial
agreements (together, the “Repayment Date”). Should the commissioning date be 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.
•
NGP agreed to enter a subordination deed with the Lenders pursuant to which the claims of the
Lenders against NGP under the Bridge Loan shall rank ahead of and in priority to the claims of the
Company against NGP under various intra Group loans made by the Company to NGP.
•
Lenders’ conversion rights:
o
Right to convert the Bridge Loan into equity of NGP at a price of US$6,650 per ordinary share
should NGP fail to repay by the Repayment Date or under events of default typical for a project
of this nature (“Ordinary Conversion”).
o
Ordinary Conversion would equate to the Lenders holding 53% of the then issued share capital
of NGP in aggregate.
o
NGP has the right to repay the Bridge Loan at any time before the Ordinary Conversion is
completed.
•
Lenders’ material default conversion rights:
o
Right to convert the Bridge Loan into equity of NGP at a price of US$396 per ordinary share
should NGP become insolvent, enter a creditors process, issue shares without Lender
approval or following 20 business days of a C&I Maiden Project event of default, fail to
implement a written request by a Lender to sell the assets of the C&I Maiden Project (“Material
Default Conversion”).
o
Material Default Conversion would equate to the Lenders holding 95% of the then issued share
capital of NGP in aggregate.
o
NGP has the right to repay the Bridge Loan at any time before a Material Default Conversion
is completed.
In December 2021 US$650,000 drawdown plus 30% coupon was repaid to lenders. Finance cost
recognised for the period in relation to the Directors’ Bridge Loan was US$150,000 (2020: US$nil).
16. Derivative financial liability
2021
US$'000
2020
US$'000
Warrants
15
759
15
759
Warrants
The fair value of the warrants on the grant date and reporting date were determined using the Black-
Scholes Model and based on the following assumption:
Notes to the consolidated financial statements
Page | 60
16. Derivative financial liability (continued)
Year ended 31 December 2021
Share Price (£)
0.03
0.03
0.06
0.045
0.075
Number issued
20,000,000
2,166,666
21,666,666
833,333
8,333,334
Expected volatility
76%
75%
75%
75%
75%
Options life (years)
1.5
2
2
1
1
Expiring date
10.03.23
29.05.2022
29.05.2022
08.12.2021
08.12.2021
Expected dividends
0
0
0
0
0
Risk free rate
0.47%
0.74%
0.74%
0.25%
0.25%
2021
US$'000
FV at 1 January 2021
-
89,486
528,337
22,763
118,834
759,420
FV at recognition
94,152
-
-
-
-
94,152
Revaluation
(79,483)
(89,414)
(528,331)
-
- (697,228)
Expired in the period
-
-
-
(22,763)
(118,834) (141,597)
FV at period end
14,669
72
6
-
-
14,747
Year ended 31 December 2020
Share Price (£)
0.0625
0.03
0.06
0.045
0.075
Number issued
1,520,000
2,166,666
21,666,666
833,333
8,333,334
Expected volatility
90%
75%
75%
75%
75%
Options life (years)
2
2
2
1
1
Expiring date
10.06.2020
29.05.2022
29.05.2022
08.12.2021
08.12.2021
Expected dividends
0
0
0
0
0
Risk free rate
0.74%
0.74%
0.74%
0.25%
0.25%
2020
US$'000
FV at 1 January 2020
30,135
-
-
-
-
30,135
FV at recognition
-
39,953
220,081
15,983
77,602
353,619
Revaluation
-
49,533
308,256
6,780
41,232
405,801
Expired in the period
(30,135)
-
-
-
-
(30,135)
FV at period end
-
89,486
528,337
22,763
118,834
759,420
The warrants are classified at fair value through profit and loss as the functional currency of the
Company is US$ and the exercise price is set in GBP. The remaining total fair value of expired warrants
are derecognised through the profit and loss.
On initial recognition the value of the warrants is deducted from the share capital balance. Subsequent
changes in the fair value of the warrants are recognised through profit or loss.
During the period 833,333 warrants at a subscription price of 4.5p and 8,333,334 warrants at a
subscription price of 7.5p issued in December 2020 expired. The remaining total fair value of
US$141,597 was derecognised through the profit and loss.
On 26 August 2021 2,000,000 warrants at a subscription price of 1.5p per share were issued to the
Company’s brokers this has been transferred to share based payment during the year. The 20,000,000
warrants at a subscription price of 3.0p per share were issued to investors. The warrants have an
exercise period of eighteen months from 10 September 2021, the date the new shares were admitted
to trading on AIM.
The warrants have been deemed to be Level 2 liabilities under the fair value hierarchy.
Notes to the consolidated financial statements
Page | 61
17. Share capital
Number of shares
2021
2020
Allotted, called up and fully paid
Ordinary shares of no-par value
410,714,119
366,361,716
Shares
Issued
Share
capital
Number
US$’000
At 1 January 2020
366,361,716
94,137
Issue of shares
40,000,000
830
Issue of shares (creditors & bonuses)
4,352,403
210
Issue costs
-
(168)
At 31 December 2021
410,714,119
95,009
Shares
Issued
Share
Capital
Number
US$’000
At 1 January 2020
324,993,717
92,660
Issue of shares
40,799,999
1,910
Issue of shares (exercised share awards)
568,000
56
Issue costs
-
(138)
Warrants issued
-
(351)
At 31 December 2020
366,361,716
94,137
18. Reserves
The following describes the nature and purpose of each reserve within owners’ equity.
Share capital
Amount subscribed for share capital, net of costs of issue
Retained earnings
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
Outstanding
at start of
year
Granted
during the
year
Exercised
during the
year
Lapsed/
cancelled
during
the year
Outstanding
at year end
Final
exercise
date
2021
17.25p (26.3c)
26.04.13
150,000
-
-
-
150,000
25.04.23
Nil**
25.05.18
75,000
-
-
-
75,000
31.01.24
5p (6.7c)**
25.05.18
2,790,779
-
-
-
2,790,779
25.05.28
8.625p (11.5c)*
25.05.18
1,625,000
-
-
-
1,625,000
05.02.25
6.25p (8.4c)*
25.05.18
4,000,000
-
-
-
4,000,000
25.05.28
Notes to the consolidated financial statements
Page | 62
19. Share-based payments (continued)
Exercise price
per share
Grant
date
Outstanding
at start of
year
Granted
during the
year
Exercised
during the
year
Lapsed/
cancelled
during
the year
Outstanding
at year end
Final
exercise
date
2021 (continued)
7.5p (10c)**
25.05.18
5,581,558
-
-
-
5,581,558
25.05.28
10p (13.4c)**
25.05.18
2,790,779
-
-
-
2,790,779
25.05.28
15p (20.1c)**
25.05.18
2,790,779
-
-
-
2,790,779
25.05.28
6.5p (8.4c)**
26.11.19
7,833,332
-
-
-
7,833,332
26.11.29
3p (3.96c)**
12.11.20
5,000,000
-
-
-
5,000,000
11.11.23
5p (6.61c)**
12.11.20
2,500,000
-
-
-
2,500,000
11.11.23
7.5p (9.91c)**
12.11.20
2,500,000
-
-
-
2,500,000
11.11.23
Total
37,637,227
-
-
-
37,637,227
WAEP (cents)
9.32
-
-
-
9.32
Exercise price
per share
Grant
date
Outstanding
at start of
year
Granted
during the
year
Exercised
during the
year
Lapsed/
cancelled
during
the year
Outstanding
at year end
Final
exercise
date
2020
Nil
27.05.10
2,400,000
-
-
(2,400,000)
-
26.05.20
25c
27.05.10
800,000
-
-
(800,000)
-
26.05.20
17.25p (26.3c)
26.04.13
150,000
-
-
-
150,000
25.04.23
Nil
31.01.14
225,000
-
-
(225,000)
-
30.06.20
Nil*
25.05.18
868,627
-
(868,000)
(627)
-
24.05.28
Nil**
25.05.18
75,000
-
-
-
75,000
31.01.24
5p (6.7c)**
25.05.18
2,790,779
-
-
-
2,790,779
25.05.28
8.625p (11.5c)*
25.05.18
1,625,000
-
-
-
1,625,000
05.02.25
6.25p (8.4c)*
25.05.18
4,000,000
-
-
-
4,000,000
25.05.28
7.5p (10c)**
25.05.18
5,581,558
-
-
-
5,581,558
25.05.28
10p (13.4c)**
25.05.18
2,790,779
-
-
-
2,790,779
25.05.28
15p (20.1c)**
25.05.18
2,790,779
-
-
-
2,790,779
25.05.28
6.5p (8.4c)**
26.11.19
7,833,332
-
-
-
7,833,332
26.11.29
3p (3.96c)**
12.11.20
-
5,000,000
-
-
5,000,000
11.11.23
5p (6.61c)**
12.11.20
-
2,500,000
-
-
2,500,000
11.11.23
7.5p (9.91c)**
12.11.20
-
2,500,000
-
-
2,500,000
11.11.23
Total
31,930,854
10,000,000
(868,000)
(3,425,627)
37,637,227
WAEP (cents)
9.71
6.11
-
-
9.32
* Vest on grant date
** Vest upon delivery of specific milestones
The Company’s mid-market closing share price at 31 December 2021 was 0.95p (31 December 2020:
5.50p). The highest and lowest mid-market closing share prices during the year were 6.10p (2020: 6.05p)
and 0.775p (2020: 2.85p) respectively.
Of the total number of options outstanding at year end no options had vested during the period (2020:
12,294,058). The weighted average exercise price for the exercisable options at year end was 10.31p
(2020: 8.79p).
The weighted average contractual life of the options outstanding at the year-end was five years and four
months (2020: six years and four months).
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:
Notes to the consolidated financial statements
Page | 63
19. Share-based payments (continued)
Grant
date
Share
price at
date of
grant
Exercise
price per
share
Volatility
Period
likely to
exercise
over
Risk-free
investment
rate
Fair
value
25.05.18
5.50c
(nil)
113.33%
5 years
0.7%
5.50c
25.05.18
5.50c
11.54c(8.625p)
113.33%
5 years
0.7%
4.30c
25.05.18
5.50c
6.69c(5p)
113.33%
5 years
0.7%
4.46c
25.05.18
5.50c
10.04c(7.5p)
113.33%
5 years
0.7%
4.40c
25.05.18
5.50c
13.38c(10p)
113.33%
5 years
0.7%
4.20c
25.05.18
5.50c
20.07c(15p)
113.33%
5 years
0.7%
4.00c
25.05.18
5.50c
8.36c(6.25p)
113.33%
5 years
0.7%
4.50c
26.11.19
6.70c
8.37c(6.50p)
113.51%
5 years
0.6%
5.20c
12.11.20
4.95c
3.96c(3p)
77.00%
3 years
0.18%
2.72c
12.11.20
4.95c
6.61c(5p)
77.00%
3 years
0.18%
2.09c
12.11.20
4.95c
9.91c(7.50p)
77.00%
3 years
0.18%
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$0.5 million for the year (2020: US$0.3 million including Directors and
consultants).
20. Segmental analysis
In 2020 and 2021 the Group had the following reportable segments, following the C&I project
acquisition:
•
C&I solar PV and battery storage project - this segment is involved in providing solar PV and battery
storage solutions for the African C&I sector to replace existing off-grid (normally diesel) power
supplies, or to supplement on-grid connections
•
Power Project and Mine Project - this segment is involved in the exploration for coal and
development of coal mine and the development of a 300MW integrated power plant next to the
Group’s coal mine concession areas in Mozambique
•
Corporate - this comprises head office operations and the provision of services to Group
companies
Operating segments are reported in a manner consistent with the internal reporting provided to the chief
operating decision-maker. The chief operating decision-maker has been identified as the Board of
Directors.
The operating results of each of these segments are regularly reviewed by the Group's chief operating
decision-maker in order to make decisions about the allocation of resources and assess their
performance. The Group’s mine and power activities are interrelated and each activity is dependent on
the other. Accordingly, all significant operating decisions are based upon analysis of the mine and power
activities as one segment and corporate as one segment.
Notes to the consolidated financial statements
Page | 64
20. Segmental analysis (continued)
The segment results for the year ended 31 December 2021 are as follows:
Income statement for continuing
operations
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
For the year ended 31 December 2021
Segment result after allocation of central
costs
(512)
(352)
(1,195)
(2,059)
Finance income
(150)
-
362
212
Loss before taxation
(662)
(352)
(833)
(1,847)
Taxation
-
-
-
-
Loss for the year
(662)
(352)
(833)
(1,847)
Income statement for discontinued
operations
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
For the year ended 31 December 2021
Segment result after allocation of central
costs
138
-
-
138
Finance expenses
-
-
-
-
Loss before taxation
-
-
-
-
Taxation
-
-
-
-
Gain for the year
138
-
-
138
Other segment items included in the Income statement are as follows:
Income statement for continuing and
discontinued operations
Solar PV
&
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
For the year ended 31 December 2021
Depreciation charged to the income statement
-
(67)
-
(67)
Share-based payment
-
-
(529)
(529)
The segment assets and liabilities at 31 December 2021 and capital expenditure for the year then ended
are as follows:
Statement of financial position for
continuing operations
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
At 31 December 2021
Segment assets
754
18,221
631
19,606
Segment liabilities
(1)
(217)
(5,653)
(5,871)
Segment net assets
753
18,004
(5,022)
13,735
Property plant and equip. capital expenditure -
169
-
169
Notes to the consolidated financial statements
Page | 65
20. Segmental analysis (continued)
Statement of financial position for
discontinued operations
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
At 31 December 2021
Segment assets
-
-
-
-
Segment liabilities
-
-
-
-
Segment net assets
-
-
-
-
Property plant and equip. capital expenditure -
-
-
-
The segment results for the year ended 31 December 2020 are as follows:
Income statement
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
For the year ended 31 December 2020
Segment result after allocation of central
costs
(460)
(496)
(947)
(1,903)
Finance expense
-
-
(910)
(910)
Loss before taxation
(460)
(496)
(1,857)
(2,813)
Taxation
-
-
-
-
Loss for the year
(460)
(496)
(1,857)
(2,813)
Other segment items included in the Income statement are as follows:
Income statement
Solar PV
& Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
For the year ended 31 December 2020
Depreciation charged to the income statement
-
(67)
-
(67)
Amortisation charged to the income statement
(164)
-
-
(164)
Share-based payment
-
-
(292)
(292)
The segment assets and liabilities at 31 December 2020 and capital expenditure for the year then ended
are as follows:
Statement of financial position
Solar PV &
Battery
Storage
project
US$’000
Power &
Mine
project
US$’000
Corporate
US$’000
Group
US$’000
At 31 December 2020
Segment assets
1,720
17,486
1,130
20,336
Segment liabilities
(1)
(216)
(6,107)
(6,324)
Segment net assets
1,719
17,270
(4,977)
14,012
Property plant and equip. capital expenditure -
152
-
152
Intangible asset expenditure 35
-
-
35
Notes to the consolidated financial statements
Page | 66
21. Reconciliation of liabilities arising from financing activities
Loans and
borrowings
Derivative
financial
liability
Total
US$’000
US$’000
US$’000
At 1 January 2021
5,015
759
5,774
Interest charges
478
-
478
Derecognition of warrants
-
(141)
(141)
Fair value of warrants issued
-
94
94
Fair value movement on warrants
-
(697)
(697)
At 31 December 2021
5,493
15
5,508
Loans and
borrowings
Derivative
financial
liability
Total
US$’000
US$’000
US$’000
At 1 January 2020
4,234
30
4,264
Cash flows
250
-
250
Interest charges
531
-
531
Derecognition of warrants
-
(29)
(29)
Fair value of warrants issued
-
353
353
Fair value movement on warrants
-
405
405
At 31 December 2020
5,015
759
5,774
22. Financial instruments
The Group is exposed to risks that arise from its use of financial instruments. This note describes the
Group’s objectives, policies and processes for managing those risks and the methods used to measure
them. Further quantitative information in respect of these risks is presented throughout these financial
statements.
The significant accounting policies regarding financial instruments are disclosed in note 1.
There have been no substantive changes in the Group’s objectives, policies and processes for
managing those risks or the methods used to measure them from previous periods unless otherwise
stated in this note.
Principal financial instruments
The principal financial instruments used by the Group from which financial instrument risk arises, are
as follows:
2021
US$’000
2020
US$’000
Loans and receivables at amortised cost
Trade and other receivables
46
46
Loan receivable
-
665
Cash and cash equivalents
900
853
Financial liabilities held at amortised cost
Trade and other payables
363
550
Loans and borrowings
5,493
5,015
Financial liabilities at fair value through profit or loss
Derivative financial liability
15
759
Notes to the consolidated financial statements
Page | 67
22. Financial instruments (continued)
For details of the fair value hierarchy and valuation techniques relating to the determination of the fair
value of the derivative financial liability, refer to notes 2 and 16, respectively.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group’s risk management objectives
and policies and retains ultimately responsibility for them.
The overall objective of the Board is to set polices that seek to reduce risk as far as possible without
unduly affecting the Group’s competitiveness and flexibility. Further details regarding these policies are
set out below:
Liquidity risk
Liquidity risk arises from the Group’s management of working capital. It is the risk that the Group will
encounter difficulty in meeting its financial obligations as they fall due.
The Board receives cash flow projections on a monthly basis as well as information on cash balances.
2021
Total
on
demand
in 1
month
Between 1
and 6
months
Between 6
and 12
months
Between 1
and 3
years
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Trade and other payables
363
-
144
-
219
-
Loans and borrowings
5,493
5,493
-
-
-
-
2020
Total
on
demand
in 1
month
Between 1
and 6
months
Between 6
and 12
months
Between 1
and 3
years
US$’000
US$’000
US$’000
US$’000
US$’000
US$’000
Trade and other payables
550
-
331
-
219
-
Loans and borrowings
5,015
5,015
-
-
-
-
The Group endeavours to match the maturity of its current assets with its current liabilities to mitigate
liquidity risk. Refer to note 1 for the material uncertainty regarding going concern.
Borrowing facilities
The Group had US$nil undrawn and unconditional committed borrowing facilities available at 31
December 2021 (2020: US$nil).
Market risk
The Group does not currently sell any coal or electricity. As such there is no specific market risk at the
date of this report. However, there is a risk that the Group is unable to secure a credit worthy off-taker
for the full output of the power plant, with the plant operating at load factors in excess of 80%.
Currency risk
The Group is exposed to currency risk through its activities due to certain costs arising in Mozambique
Meticais and cash held in GBP, whilst the functional currency is US$. The Group has no formal policy
in respect of foreign exchange risk; however, it reviews its currency exposures on a monthly basis.
Currency exposures relating to monetary assets held by foreign operations are included within the
Group’s consolidated statement of profit or loss. The Group also manages its currency exposure by
retaining the majority of its cash balances in US$, being a relatively stable currency.
Notes to the consolidated financial statements
Page | 68
22. Financial instruments (continued)
A 5% appreciation in the value of the US$ against the Meticais and GBP would increase net assets by
US$4,943 (2020: US$26,950).
Currency exposures
As at 31 December the Group’s net exposure to foreign exchange risk was as follows:
2021
2020
US$’000
Assets/(liabilities) held
US$’000
Assets/(liabilities) held
GBP
ZAR
MZN
Total
GBP
ZAR
MZN
Total
US Dollars
143
-
46
189
435
-
37
472
143
-
46
189
435
-
37
472
The Group is exposed to foreign exchange risk arising from various currency exposures primarily with
respect to the Mozambican Meticais and GBP, but these are not significant as most of the transactions
are in US$.
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
2021 of US$1.6 million (2020: US$1.5 million) related to a Trust of which Non-Executive Chairman,
Michael Haworth is a potential beneficiary and US$0.16 million (2020: US$0.14 million), to Executive
Director, Hanno Pengilly.
In relation to the Bridge Loan, of the US$650,000 (principal plus interest) repayment amount on 7
December 2021 US$65,000 relates to Non-Executive Chairman, Michael Haworth, US$455,000 to Non-
Executive Director, Scott Fletcher and US$130,000 to Executive Director, Hanno Pengilly.
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$240,000 (2020: US$360,000) was paid by the Company to HCL in respect of
services provided by Hanno Pengilly.
HCL provides leadership on key corporate activities such as capital raising, reporting and press releases
and investor relations strategy.
Working Capital Facility
The US$750,000 working capital facility expired at the end of June 2020. In total 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$46,000 in interest. On
1 June 2022 the repayment date was extend to 30 June 2022, whilst restructuring discussions are still
being finalised.
Notes to the consolidated financial statements
Page | 69
23. Related party transactions (continued)
Aman Sachdeva – Non-Executive Director of Ncondezi Energy Limited - CEO of Synergy
During the year US$86,000 (2020: US$110,000) was paid by the Company to Synergy in respect of
services provided by Synergy. At 31 December 2021 the outstanding balance was US$7,000 (2020:
US$nil).
Scott Fletcher - Non-Executive Director of Ncondezi Energy Limited
During the year Scott Fletcher subscribed 3,333,333 Ordinary Shares in the November 2021 Placing
for a total of £50,000. Under the Share Placing a total of 1,666,667 warrants were issued to Scott
Fletcher. Details of the warrants are contained in note 16.
The subsidiary MGP was sold for US$1,300,000 to Green Energy, a company controlled by Scott
Fletcher.
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$2.0 million following an agreed programme. By December 2016 half of this budget has been
successfully spent in various initiatives. During the year there was no expenditure related to social
development programmes (2020: US$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.
EMEM 5% investment in NCCML
Along with the issuance of the Mining Concession, Ncondezi’s local subsidiary NCCML also concluded
an Addendum to the 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.
25. Events after the reporting date
Ncondezi Power Project
•
CMEC confirms ongoing commitment to the Project January 2022 and continues to lead the
process to unlock Project financing
Grid Scale Solar Project
•
Internal review and preliminary studies identify potential for a grid scale solar plus battery
storage power project at the Project site (the “Solar Project”) without compromising delivery of
the main project
Notes to the consolidated financial statements
Page | 70
25. Events after the reporting date (continued)
Working Capital
•
Seritza has confirmed that it will extend the period in which it will not call in the Working Capital
Facility to 30 June 2022, whilst restructuring discussions are still being finalised
•
Cash conservation strategy implemented potentially extending working capital runway from
August 2022 to Q1 2023, depending on the Restructuring outcome and Shareholder Loan
Corporate
•
On 9 May 2022 Scott Fletcher purchased an aggregate of 5,000,000 Ordinary Shares of no par
value. Following this transaction, Scott Fletcher’s beneficial interest in Ordinary Shares in the
Company is 81,823,020 Ordinary Shares, representing 19.9 per cent. of the Company's issued
share capital.
Company Information
Page | 71
Directors
Michael Haworth (Non-Executive Chairman)
Scott Fletcher (Non-Executive Director)
Aman Sachdeva (Non-Executive Director)
Hanno Pengilly (Executive Director)
Company Secretary
Elysium Fund Management Limited
PO Box 650, 1st Floor, Royal Chambers
St Julian’s Avenue
St Peter Port
Guernsey
GY1 3JX
Registered Office
Coastal Building
Wickham's Cay II
PO Box 2221
Tortola
British Virgin Islands
Company number
1019077
Nominated Advisor and Corporate Broker
Liberum Capital Limited
Ropemaker Place
Level 12
25 Ropemaker Street
London
EC2Y 9AR
Joint Broker
Novum Securitites Ltrd
Lansdowne House
57 Berkeley Square
London
W1J 6ER
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Registrar
Computershare Investor Services (BVI) Limited
Woodbourne Hall
PO Box 3162
Road Town
Tortola
British Virgin Islands
Legal advisor to the Company
Ogier LLP
as to BVI law
41 Lothbury
London
EC2R 7HF
Legal advisor to the Company
Bryan Cave Leighton Paisner LLP
as to English law
Governors House
5 Laurence Pountney Hill
London
EC4R 0BR