TIDMNCCL
RNS Number : 8012D
Ncondezi Energy Limited
28 June 2019
www.ncondezienergy.com
News Release
Audited Final Results for Year Ended 31 December 2018
28 June 2019: Ncondezi Energy Limited ("Ncondezi" or the
"Company") (AIM: NCCL) is pleased to announce its audited final
results for the year ended 31 December 2018.
Highlights
During the year
-- On 18 April 2018, the Company announced in principle support
from Electricity de Mozambique ("EDM") and the Ministry of Mineral
Resources and Energy ("MIREME") for proposed strategic partners,
China Machinery Engineering Corporation ("CMEC") and General
Electric South Africa (PTY) Limited ("GE").
-- On 25 April 2018, updated information for the engineering,
procurement, and construction ("EPC") and operations and
maintenance ("O&M") proposals were received from CMEC and
GE.
-- On 4 May 2018, the Company raised a total of GBP950,000
before expenses through an oversubscribed placing of 15,200,000
ordinary shares in the Company at a price of 6.25 pence per
ordinary share.
-- On 25 May 2018, the Company, as part of the Company's
management incentive scheme, granted share options in respect of
22,897,522 shares in the Company to its directors, executive senior
management team and contracted personnel representing 8.2% of the
issued share capital of the Company.
-- On 11 June 2018, the Company announced that the Financial
Model ("FM") and updated tariff proposal had been accepted by CMEC
and GE for submission to EDM and MIREME.
-- On 26 July 2018, the Company announced the formal submission
of the updated tariff proposal to the Mozambican state power
utility EDM and MIREME.
-- On 30 September 2018, the Company announced that Christiaan
Schutte had resigned as a non-executive director of the Company,
and from the board of the Company (the "Board").
-- On 5 November 2018, the Company announced it had received a
Letter of Support ("LoS") for the Project from MIREME and a signed
Memorandum of Understanding ("MoU") with EDM.
-- On 16 November 2018, the Company announced that a formal
agreement to amend the US$2.77 million loan facility ("Shareholder
Loan") with certain of Ncondezi's Directors, Management and long
term shareholders (together the "Lenders") had been reached with
loan holders
-- On 26 November 2018, the Company announced it had finalised
the work program and timetable for the Project with CMEC and GE and
submitted it to the liaison committee (the "Liaison Committee")
setup and chaired by the Mozambican MIREME with representatives
from EDM.
Post balance sheet events
-- On 28 February 2019, the Company announced that following
positive meetings with the Liaison Committee, the updated Project
work programme and timetable targeting power on the grid by 2023
had been approved and the Company's strategic partners had
confirmed that the process to conclude the Join Develop Agreement
("JDA") could now move forward.
-- On 14 March 2019 a total of 1,000,000 share options nil value
subscription price vested at grant on 25 May 2018 were requested to
be exercised. The equivalent to 1,000,000 new ordinary shares of no
par value were issued.
-- On 19 March and 1 April of 2019 a total of 1,000,000 warrants
at subscription price of 5 pence per share issued on 25 May 2018
were requested to be converted into equity. The equivalent of
1,000,000 new ordinary shares of no par value were issued.
-- On 5 April 2019, the Company announced it had entered into a
term sheet with GridX, an African power developer, enabling it to
enter into the JV focused on building and operating captive solar
and battery storage solutions for the African C&I sector (the
"Term Sheet").
-- On 5 April 2019, the Company raised a total of GBP1.88m
(US$2.48m) before expenses, through a conditional placing and
direct subscriptions of 28,856,060 ordinary shares in the Company
at a price of 6.50 pence per ordinary share.
-- On 29 April 2019, the Company announced it had joined the
Mozambique government delegation in Beijing, China, for the Second
Belt and Road Forum for International Cooperation. During the
visit, Ncondezi, CMEC and GE held successful meetings with His
Excellency Mr Filipe Nyusi, President of the Republic of
Mozambique, the Governor of Tete and the Deputy Minister of
MIREME.
-- In the first half of 2019 a total of US$935,000 of loan
principal, rolled up previous redemption premiums plus interest was
converted into equity equivalent to 7,193,328 ordinary shares being
issued.
The Company will post its Annual Report and Accounts for the
year ended 31 December 2018 ("2018 Annual Report and Accounts") to
shareholders on 28 June 2019. A copy of the 2018 Annual Report and
Accounts will be available on the Company's website
www.ncondezienergy.com.
Enquiries
For further information please visit www.ncondezienergy.com or
contact:
Ncondezi Energy: Hanno Pengilly +27 71 362 3566
Liberum Capital Limited: Andrew Godber, Edward Thomas, +44 (0) 20 3100
NOMAD & Broker Kane Collings 2000
Novum Securities +44 (0) 20 7399
Limited Joint Broker Colin Rowbury 9427
Note:
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation ("MAR"). Upon the publication of this
announcement via Regulatory Information Service ("RIS"), this
inside information is now considered to be in the public domain. If
you have any queries on this, then please contact Hanno Pengilly,
Chief Development Officer of the Company (responsible for arranging
release of this announcement) on +27 (0) 71 362 3566.
Ncondezi Energy owns 100% of the Ncondezi Project which is
strategically located in the power generating hub of the country,
the Tete Province in northern Mozambique. The Company is developing
an integrated thermal coal mine and power plant in phases of 300MW
up to 1,800MW. The first 300MW phase is targeting domestic
consumption in Mozambique using reinforced existing transmission
capacity to meet current demand.
Chairman's Statement
Dear Shareholder,
The Company's core focus during the 2018 financial year has been
to complete all necessary milestones required to conclude a binding
JDA with potential strategic partners, CMEC and GE. Successful
capital raisings in May 2018 and March 2019 through the placing of
new shares raised GBP2.8 million before expenses, putting the
Company in a position of financial strength to finalise the JDA
process with its potential partners, enter into the JV with GridX
and the resources to fund the first GridX C&I solar and battery
storage project.
Operations
The Company signed a Non-Binding Offer ("NBO") with CMEC and GE
in October 2017, outlining their desire to acquire a minimum 60%
equity stake in the Project, be responsible for all EPC and O&M
services on a build own operate basis and lead project debt
financing in conjunction with Ncondezi at Financial Close
("FC").
Large infrastructure projects like the Ncondezi Project, require
access to significant capital and expertise in construction and
operation to be realised. For any developer, identifying a credible
partner with these traits represents a key project de-risking
event. In CMEC and GE, Ncondezi has identified partners with the
prerequisite expertise in development, construction and financing
for projects such as Ncondezi. More specifically, CMEC and GE have
existing operational experience in Mozambique and have recently
commissioned a similar 660MW integrated coal mine and power plant
project in Pakistan in early 2019, making them uniquely suited as
the Company's potential strategic partners.
Since signing the NBO, Ncondezi has successfully completed all
milestones set out by CMEC and GE to provide the necessary comfort
to enter into the JDA. These included updating the Project
financial model with input from CMEC and GE, delivering an updated
power tariff proposal to EDM, receiving a LoS from MIREME for the
development of the Project and sign off from the Mozambican
Government appointed Liaison Committee on the Project's target
commissioning date in 2023. As a result of this progress, CMEC and
GE confirmed in late February 2019 that they were prepared to
finalise the JDA and progress towards signature.
The JDA is currently at an advanced phase, with drafting near
agreed form and CMEC and GE close to completing their necessary
internal approval processes.
From a project perspective, the Company remains confident that
it has one of the most advanced and competitive base load power
projects in the region. Project optimisations during the financial
year, resulted in a more than 10% reduction in the previously
agreed tariff envelope and appears to sit at the lower end of
previously agreed tariffs for operational projects in the country.
The Project's advanced nature also puts it in the position of being
one of the few, if only, projects which can deliver base load power
onto the Mozambique grid by 2023, in line with current Government
and EDM generation planning. In April 2019, the Company's
successful attendance as part of the Mozambican Government
delegation in China for the Second Belt and Road Forum for
International Cooperation provided an opportunity to raise the
profile of the Project and provide the Company's strategic partners
with further support and comfort from government. These factors in
combination with quality potential strategic partners, CMEC and GE,
ensure that the project stands out as a unique opportunity for both
the Mozambican Government and future potential investors.
From a market perspective, Mozambique's economy has benefitted
from robust monetary policy implementation, and is expected to
continue to improve despite the devastating damage caused by
cyclones so far in 2019. National tariff price increases have been
successfully implemented as part of Government's target to have
cost reflective tariffs by 2021, further strengthening the
financial position of EDM, the Project's 100% power off taker.
Within the Southern African Power Pool, the average day ahead
market prices have increased by 89% since the first introductory
meetings held between EDM, CMEC, GE and the Company in February
2018, reflecting an improving export power market environment, a
key revenue sector for EDM as one of the region's largest power
exporters. All of these act as supportive market indicators from
which to develop the Project.
In addition to the main Project, in early 2019 the Company
announced its intention to enter into the solar and battery storage
sector through a JV with GridX. The Company believes this
represents a significant opportunity to complement its existing
large scale baseload power project and access near-term low-risk
annuity income streams which the Company believes has significant
growth potential. GridX has a pipeline portfolio of over 15
potential African C&I solar and battery storage projects, 6 of
which are considered to be at an advanced stage. Through the JV,
Ncondezi will have the right (subject to certain conditions) to
fund at least 50% of GridX projects that meet minimum Key
Performance Indicators ("KPI's"), including minimum 10% unlevered
post tax internal rate of returns ("IRR"). Ncondezi has entered
into a Term Sheet with GridX and paid US$260,000 to secure
exclusivity, the binding right of first refusal to fund at least
50% of GridX's projects, and initiate drafting of definitive
agreements (the "Definitive Agreements") to enter into the JV. The
Company expects to finalise the JV Definitive Agreements during Q3
2019. In addition, GridX has presented the first project for
investment approval, which the Company is currently reviewing.
Financing
In May 2018, The Company raised GBP950,000 before expenses
through placing of 15,200,000 ordinary shares in the Company at a
price of 6.25 pence per ordinary share.
On 25 May 2018, the Company granted share options in respect of
22,897,522 shares in the Company to its directors, executive senior
management team and contracted personnel. Of the options granted,
61% are performance related and linked to delivery of specific
milestones, 17% are in lieu of director remuneration and the
balance of 22% is in lieu of senior management, ex-employees and
consultants remuneration.
On 28 September 2018, the Company announced the Christiaan
Schutte had resigned as non-executive director of the Company and
from the Board due to a new senior role at a large power company in
South Africa that would not allow him to continue in his existing
role at the Company. Christiaan was a significant contributor to
the development of the Company over the last 5 years, and his deep
experience in the southern African power sector has been
invaluable. Since his resignation, the Company has maintained close
relations with Christiaan and has looked to work with him on a
contracting basis for specific work streams suited for his
expertise.
On 16 November 2018, the Company announced that formal agreement
to amend the Shareholder Loan had been reached with loan holders.
The amendments extended the maturity date of the Shareholder Loan
to 30 November 2019 at an interest rate of 12%. Loan holders also
have an option to swap debt for equity in full or in part at a
conversion price of 10.0p per share until the 30 days before the
new maturity date of the Loan with a further conversion right based
on a 30% discount to 60 day volume weighted average price ("VWAP")
at 30 November 2019, subject to certain restrictions outlined
further on note 12. A total of US$2.8 million has been drawn down
under the Shareholder Loan and the repayment amount at maturity is
now US$4.7 million as at 26 June 2019 (US$5.6 million as at 31
December 2018) as at 26 June 2019 including principal, rolled up
previous redemption premiums, interest and loan holder conversion
notices of US$0.9m of principal, rolled up previous redemption
premiums and interest received since year end. The Directors are
exploring a number of potential refinancing and extension solutions
for the Loan ahead of the 30 November 2019 maturity date. The
financial statements have been prepared in anticipation of a
positive outcome, but it is important to highlight that although
negotiations with the new partner are at an advanced stage, there
are no binding agreements in place. The Company has also been
exploring options to raise additional funding and refinance or
convert the Loan however there can be no certainty that any of
these initiatives will be successful.
In April 2019, the Company raised GBP1.88 million before
expenses through placing of 28,856,060 ordinary shares in the
Company at a price of 6.50 pence per ordinary share.
Michael Haworth
Non-Executive Chairman
27 June 2019
Operations Review
Ncondezi is focused on the phased development of an integrated
coal fired power plant and mine, commencing with 300MW first phase.
The project is located near Tete in northern Mozambique.
Ncondezi has also entered the captive solar and battery storage
sector through a proposed JV with GridX, to develop, build and
operate power solutions for the African C&I sector.
Joint Development Agreement with CMEC and GE
Non-Binding Offer
On 20 October 2017, the Company announced that it had agreed in
principle terms of a NBO with CMEC and GE. On 9 November 2017, the
Company announced that the NBO had been signed. The NBO was part of
a new partner process which was launched in May 2017.
The NBO sets out the terms, work programme and timetable by
which the parties will work together to execute a legally binding
JDA.
The key terms of the NBO include:
-- CMEC and GE to acquire a minimum 60% stake in both the Power
Project and Mine Project holding companies which currently hold
100% of each project respectively.
-- JDA will set out the commercial terms on which the parties
will complete the acquisition and jointly develop and fund the
integrated project up to and including FC.
-- The Power Project and the Mine Project will be developed as
an integrated project, with CMEC and GE taking full responsibility
for EPC and O&M contracting.
-- CMEC and GE will take full responsibility for managing the
EPC process for the transmission line, which will be constructed on
a Build Transfer model, subject to EDM approval.
-- CMEC and GE to lead project debt financing in conjunction
with Ncondezi for both the Power Project and Mine Project at
FC.
-- Funding ratios to be adjusted should CMEC and GE take an equity stake larger than 60%.
-- The power plant generation technology will return to
circulating fluidised-bed ("CFB") boiler technology from pulverized
coal ("PC") boiler technology. This provides a number of advantages
to the Project including the technical feasibility work being more
advanced on a CFB solution, reduced time required to reach FC and
lower coal costs as CFB fuel requirements are more suitable for
Mozambican coal qualities.
Background to Non-Binding Offer
The NBO was signed as part of a new partner search launched in
May 2017, which focused on identifying a partner capable of
providing a leadership role in the financing, construction and
operation of the Power Project, with a credible track record in
both the global and African power sectors.
CMEC is a large Chinese integrated company with international
reach and engineering contracting as its core business. CMEC's
project experience, technical ability, and financing capacity, has
allowed it to undertake projects in more than 150 countries in the
fields of international contracting and general international
trade. CMEC's contracting business involves a broad range of areas
such as electric power
and energy, transportation, electronic communication, water
supply and treatment, housing and architecture, manufacturing and
processing plant, environmental protection, mining and resource
prospecting. As a world-renowned engineering contractor, CMEC has
been ranked among China's top 10 contractors by business turnover
from overseas contracted projects by the Chinese Ministry of
Commerce for many consecutive years.
GE is a world energy leader that provides technology, solutions
and services across the entire energy value chain from the point of
generation to consumption. GE's power business is transforming
the
electricity industry by uniting all the resources and scale of
the world's first digital industrial company. GE's customers
operate in more than 150 countries, and together power more than a
third of the world to illuminate cities, build economies and
connect the world.
CMEC and GE have jointly worked on numerous projects across the
world and successfully completed a number of power projects in the
sub Saharan African region. Most relevant to Ncondezi, the two
parties are currently working together on the Thar Block II Power
Plant project in Pakistan, which is a 660MW integrated coal fired
power plant and mine which utilises two 330MW CFB boilers and due
to be commissioned in 2019.
Experience in Mozambique
Both CMEC and GE have successful track records operating in
Mozambique.
CMEC has been involved in supplying and installing transmission
infrastructure to EDM, improving access to electricity for
Mozambicans and new industry development. In 2015, CMEC completed a
110kV transmission line project in Nacala City in northern
Mozambique and in 2017, CMEC signed an EPC contract for a 400kV
transmission line project in the same location. CMEC is also an EPC
contractor for the Moatize to Macuse railway and port project
designed to provide a new coal transport corridor from the Tete
region.
GE has been present in Mozambique for over four years with
offices in Maputo and over 44 employees. GE is active in multiple
sectors including the transport, health care, oil and gas and
energy sectors. To date, GE has supplied over 120 locomotives,
installed ten 4.4MW power units for the Kuvaninga gas IPP project
and is to provide technology solutions and services to ENI's US$7
billion Coral South LNG project in the Rovuma Basin. In addition,
GE is working on initiatives to improve access and quality of basic
and diagnostic services of rural healthcare and reduce infant
mortality rates. This work is run in parallel to GE's local skills
development programmes which include scholarships, funding of
educational facilities and the provision of local courses.
JDA process update
As part of the JDA process, the following milestones have been
achieved:
-- Site visit by CMEC and GE to inspect the Ncondezi Project's proposed development sites.
-- In principle support received from EDM and MIREME for CMEC
and GE to act as Project strategic partners.
-- Updated Project EPC and O&M proposals submitted by CMEC and GE for review.
-- FM updated and accepted for submission to MIREME and EDM by CMEC, GE and the Company.
-- Receipt of LoS for the Project from MIREME.
-- Sign off on the Project work program and timetable from the
Liaison Committee, setup and chaired by MIREME.
-- Confirmation from CMEC and GE that all key milestones had
been met to proceed with final negotiations to conclude the
JDA.
The JDA is currently at an advanced phase, with drafting near
agreed form and CMEC and GE close to completing their necessary
internal approval processes.
The JDA is expected to formally set out the terms on which the
Project will be developed, funded and operated by all parties. At
this stage, the Company does not expect the terms of the JDA to
materially differ from those outlined in the signed NBO. Key terms
expected to be covered in the JDA include:
-- Project equity ownership structure
-- Project investment structure
-- Project management and budgeting process
Once executed, the Project development program will focus on
delivering the key milestones to achieve first power on the grid in
2023. This process is expected to start with the submission of a
final tariff offer
to the Liaison Committee and EDM for review and approval, which
the parties are looking at fast tracking with the existing EPC and
O&M proposals. Following this, the Company expects to formally
enter into Power Purchase Agreement ("PPA") and Power Concession
Agreement ("PCA") negotiations with EDM and MIREME respectively.
The two agreements represent the final commercial negotiations
before the Project enters the project financing phase, which is
followed by commencement of Project construction at Financial
Close.
From a timing perspective, the current development timetable has
been agreed as follows:
-- Q4 2019 - Formal submission of final tariff
-- Q1 2020 - Tariff agreed, initiation of PPA and PCA negotiations
-- H1 2020 - PPA and PCA finalised
-- H1/2 2020 - Financial Close
-- 2023 - Project commissioning - first power on the grid
Results of Integrated Financial Model
At the end of April 2018, the Company received updated and
completed EPC and O&M proposals and began a process to review
and update the FM. The Company completed its review of the FM on 3
May 2018 and submitted it to its potential partners for review and
acceptance. The Company's potential partners completed their review
of the FM and approved its submission to EDM and MIREME in June
2018.
The updated FM has been completed targeting a revised tariff
that the Company and its potential partners believe will be
attractive to EDM. Meetings with EDM in January 2018 indicated that
the historical tariff agreed was no longer competitive given
downward pressure in regional tariff rates and would need to be
revised down. Based on benchmarking of new and competing projects
in Mozambique and the southern African region, the Company and its
potential partners targeted a new tariff lower than the previously
agreed tariff envelope with EDM.
The specific tariff rate and target returns in the updated FM
are commercially sensitive and still to be negotiated with EDM. The
FM is based on the Project generating a gross 300MW at a target
tariff rate in excess of 10% lower than the tariff envelope
previously agreed with EDM, paid on an annual basis for 25
years.
With the lower tariff target, it was essential that improvements
were identified to protect the Project equity IRR agreed in the
previous tariff envelope. This was achieved primarily through the
choice of technology (moving from PC to CFB boiler technology),
integration of the power and mine projects and optimisation of
common infrastructure capex. Of key importance was the ability to
link boiler design to the most cost effective coal product produced
from the mine. This allows the Project to minimise coal costs to
the power plant which is achieved through integration of a
dedicated coal supply. Ncondezi is the only power project in
Mozambique with a dedicated coal fuel source for in country power
generation.
In addition to the lower proposed tariff envelope, the Project
is also expected to significantly benefit Mozambique through tax
receipts and royalties over the life of the Project which are
estimated to be between US$1.1 to 1.4 billion. This is in addition
to local skills development and thousands of jobs during
construction and hundreds of jobs during operation, as well as the
economic multiplier effect of providing stable cost effective power
to the north of Mozambique.
The FM results are not final and subject to change based on a
number of factors including the finalisation of tariff negotiations
with EDM, debt terms with commercial banks, technical and operating
assumptions and EPC and O&M contracts.
Joint Venture with GridX
On 5 April 2019, the Company announced that it entered into the
Term Sheet with GridX, an African power developer, enabling it to
enter into a JV focused on building and operating captive solar and
battery storage solutions for the African C&I sector.
Background to the GridX JV
Since Ncondezi transitioned from a coal exploration business
into an integrated power plant and mine project, the Company has
built up significant Sub-Saharan African power development
expertise and has been evaluating a number of alternative power
projects over the last 8 months that would complement its existing
300MW Ncondezi Project in Tete, Mozambique. This process led to the
identification of the GridX opportunity in the C&I sector, and
is outlined in more detail below.
C&I Solar and Battery Storage Sector Overview
Inadequate access to electricity in Africa both in terms of
connections and reliability has driven demand in the C&I sector
for self-generation (or "Captive"/"Embedded") power solutions.
Renewable energy solutions are estimated by the International
Renewable Energy Agency (IRENA) to make up nearly half of African
supply by 2030 and the Company estimates that this market could be
worth up to US$34 billion a year.
Traditionally, captive power solutions have relied heavily on
diesel generation. The Company Directors believe this dynamic has
the potential to change with the advent of low cost solar and
battery storage. Solar and battery storage solutions are
increasingly making economic sense with potential cost savings of
30% or more versus traditional off grid diesel generation solutions
and providing a price shield against escalating fuel and grid
prices. In particular, cost effective battery storage has allowed
greater solar penetration into the market by removing its
intermittent power constraints and maximising energy generated.
Solar and battery storage equipment is modular and pre-fabricated,
making it easy and quick to install and in more places. Generation
regulations are also less onerous as installations typically do not
require additional licensing.
Solar and battery storage meets the growing pressure for
corporate sustainability and zero emissions from investors and
consumers. It also has low maintenance costs primarily due to the
lack of moving parts compared to a diesel generator.
According to Bloomberg New Energy Finance, solar and battery
storage costs have fallen 84% and 76% since 2012, and are expected
to become even more cost competitive with the cost of solar PV
panels expected to fall a further 37% by 2025 and battery storage
costs by a further 67% by 2030.
In addition, there are significant ancillary benefits of solar
and battery storage projects, including:
-- Reduced fuel storage and theft risks
-- Reduced fuel logistics costs
-- Reduced emissions
-- Reduced noise pollution
-- Peak shaving - reduces peak period high cost energy demand from grid
-- Supply stability - backup, frequency & voltage control
Finally, increasing amounts of capital is flowing into the
sector with approximately US$130 million raised in the African
captive power renewables sector (C&I and home solutions) over
the last 15 months. The World Bank has also committed over US$1
billion for investments in battery storage for developing and
middle income countries. Increasingly, smaller scale solar and
battery storage projects are being recognised for their low risk
and stable returns. Growth potential and sustainability goals are
also driving major utilities and oil majors into the sector with
Enel, Engie, EDF, Shell and Total all entering the sector (mainly
through acquisitions and partnerships).
Overview of GridX
GridX is a power developer focused on delivering competitive
sustainable energy solutions in the African C&I sector. GridX
identifies C&I energy users who have either no or poor quality
grid access and are dependent on diesel power generation. Capital
requirements per target project average between US$0.5 million and
US$2.0 million, and typically has a projected 9-12 month
construction timeframe. Each project will seek to have a 10 to 15
year US$ denominated power offtake contract. Project returns are
attractive with minimum targeted post tax unlevered equity IRR
between 10% and 15%+, compared with 6% and10% in developed
economies. Ncondezi believes that these returns can be further
increased through leverage.
GridX has in-house resources to produce construction ready
projects and is technology agnostic which allows for competitive
technology selection on every project.
In January 2019, GridX delivered its first project in Tanzania.
The project was designed for Singita Grumeti, a luxury game lodge,
and involved the installation of a 189 kWp solar plant and 522kWh
battery storage unit from Tesla. The battery storage unit is
believed to be the first Tesla installation in Tanzania. GridX
expects that the project will replace over 100,000 litres of diesel
consumption annually and result in an annual US$150,000 reduction
in diesel costs.
GridX's Directors own 70% of GridX, 15% is held by Eden
Renewables, an international solar and storage development company,
currently developing projects in the US and UK, 10% by Pan African
Group, a private equity and investment banking firm focused
exclusively on Sub-Saharan Africa, and the balance of 5% is held by
a private individual. GridX was founded by Executive Directors
Chalker Kansteiner and Justin Pengilly, who have both been working
in the African power development sector for a number of years.
Chalker was previously at Blackstone's large scale African energy
project developer, Black Rhino, whilst Justin previously worked at
Pele Green Energy, one of South Africa's leading independent power
producers in the renewable energy sector (and is the brother of
Hanno Pengilly, the Company's Chief Development Officer).
GridX Pipeline
GridX's current development pipeline includes 15 projects in
various stages of development with 6 advanced stage projects
projected to enter construction in the next 18 months. Potential
pipeline projects include luxury resorts, manufacturing facilities,
port facilities and agri-businesses, with flexible design solutions
for either off grid or on grid requirements. The advanced stage
projects have a potential 1.4MWp of solar and 8.9MWh of battery
storage, and are concentrated in Mozambique, Djibouti and Zambia.
The current estimated project cost for the advanced stage projects
is US$9.5 million (100% equity basis), with the right of first
refusal giving Ncondezi the right to fund a minimum of 50% of the
equity requirement.
GridX is targeting its first new project to start construction
in Q3 2019 with first cash flows by the end of Q4 2019/beginning of
Q1 2020. GridX has indicated a total capital cost for the first
project to be US$1.1m, which the Company has provisionally
allocated funds for from the successful April 2019 fundraising,
subject to the approval of the project and relevant documentation.
In addition, GridX has presented the first project for investment
approval, which the Company is currently reviewing.
Term Sheet Overview
Ncondezi has signed a Term Sheet with GridX to acquire a ROFR to
fund GridX C&I projects through a newly setup JV.
It is intended that GridX's role under the JV will be to deliver
US$20m of construction ready African C&I projects to the JV
(the "GridX Pipeline"). Each project must either meet a minimum set
of KPI's or have the KPI's waived by both parties before funding
takes place ("Approved Project"). Ncondezi will have the right to
elect to fund a minimum of at least 50% of the Approved Projects'
equity requirement. Funding from Ncondezi will be provided on a
project by project basis. GridX will have the right to fund up to
15% of the Approved Projects' equity requirement as well as a right
to introduce a third party investor to fund the remaining 35%.
Ncondezi will have an additional right to elect to fund any
funding
shortfalls should funding from either GridX or a third party
investor not materialise, in the event that Ncondezi wishes the
project to proceed.
The key KPI's include:
-- projects located in approved jurisdictions;
-- project size between US$100,000 and US$10,000,000;
-- minimum post tax unlevered equity IRR of 10% to the JV;
-- use of proven technologies;
-- bankable offtake denominated in US$;
-- completion of credit checks on potential clients with
additional credit support in place where required;
-- finalised EPC and O&M contracts in place; and
-- all consents and permits required to start construction are in place.
The Term Sheet sets out a phased approach to setting up the JV
and funding projects:
1. Phase I
Ncondezi has made an upfront payment of 2/3rds of the GridX Fee
of US$390,000 to GridX on 24 April 2019 to secure an initial 120
day exclusivity and the ROFR for the GridX Pipeline to give both
parties time to agree Definitive Agreements. GridX will use funds
of US$260,000 (the "Initial Payment") to cover third party legal,
structuring and tax advice costs to setup the JV and draft the
Definitive Agreements to be entered into between the parties.
2. Phase II
Payment of the Initial Payment will give Ncondezi a ROFR to fund
at least 50% of the equity requirement of any Approved Projects.
Whilst the Definitive Agreements are being finalised and to
facilitate delivery of the first projects, Ncondezi has
conditionally agreed to evaluate funding of the 6 advanced stage
projects with a total funding of up to US$2.0 million on a combined
project basis. Ncondezi has the right to elect whether to fund such
projects before the Definitive Agreements are entered into (the
"Initial Investments"), and has provisionally allocated US$1.1
million from the successful April 2019 fundraising towards the
first project, once approved and documentation for this project is
agreed.
3. Phase III
A final payment of 1/3rd of the GridX Fee is due on the later of
execution of the Definitive Agreements or the first project
reaching commercial operations. The Definitive Agreements will
create a clear framework for making future investments and the
management of the portfolio of operational projects.
The phased approach allows the Company and GridX to deliver
certain projects (subject to available funding) before finalisation
of the Definitive Agreements demonstrating proof of concept, and
the setup of the appropriate investment vehicle to warehouse all of
the future projects before additional funding is considered for the
rest of the portfolio.
The JV investment structure will be designed to optimise
warehousing of Approved Projects in various African jurisdictions;
minimising operational costs and minimising tax leakage. GridX will
be responsible for the JV setup costs. Before the Definitive
Agreements have been executed, the parties intend to agree a simple
special purpose vehicle funding structure for Approved Projects,
with the intention that these projects will be incorporated into
the JV structure at a later stage.
As part of its ordinary course business as a developer, GridX is
expected to be entitled to a capped development fee for each
Approved Project, included as part of the project capital cost.
Ncondezi will have a right to participate in any development fee
for projects it sources that are funded through the JV.
GridX is expected to provide O&M services for each Approved
Project in accordance with market-related commercial terms for
projects of a similar nature, contracting directly with the power
offtaker. GridX is also expected to be appointed to manage the JV
for an annual fee of approximately 1.5%
drawn project capital. It is expected that the management
agreement can be terminated by the Company should GridX fail to
meet agreed KPI's.
Certain incentives to encourage GridX to achieve the best
returns for each project, will be paid through a profit sharing
mechanism where an equity IRR hurdle of above 10% is achieved by
Ncondezi.
Advantages to Ncondezi
The Company Directors believe the JV with GridX has the
potential to deliver a number of advantages for Ncondezi,
namely:
1. Complementary to existing Ncondezi Project
JV provides diversification from coal baseload power generation
into captive solar and battery storage small scale renewable and
energy storage projects. From a cash flow perspective the smaller,
easier to install solar and battery storage projects potentially
provide near term cash flows before the Ncondezi Project target
commissioning in 2023. The smaller capital cost requirements also
negate the need for a large strategic partner.
2. JV Structure
JV structure provides minimal distraction and additional
resources to the Company, as GridX will take full responsibility
for development work and costs to deliver construction ready
projects for funding review. This also minimises potential
distractions from the main Ncondezi Project.
3. Strong market fundamentals
Solar and battery storage projects have become economically
competitive with traditional captive power solutions (diesel
generators), and further reductions in the cost of solar and
battery storage will ensure competitiveness continues into the
future. Added to this, the ancillary benefits (noise and emission
reductions etc.) and increased pressure for sustainable energy
sourcing further strengthen customer investment rational to invest
in these solutions.
4. Potential low risk annuity business with significant growth potential
The JV provides an option to fund 50% of potential US$20m GridX
project portfolio, with 6 projects in an advanced stage targeted to
be operational over the next 18 months. These construction ready
projects with attractive US$ denominated 10 to 15 year bankable
offtake contracts significantly reduce risks. In addition, the
diversified portfolio approach has de-risking effect on portfolio
level returns which is potentially attractive to external investors
in the future.
5. Attractive project fundamentals and target returns
The proposed projects are low capex and generate cash flows
within 12 months. The minimum 10% unlevered post tax IRR KPI sets a
projected return floor for each project. These returns represent a
premium return when compared to those in more developed power
markets and can be improved further through higher delivered
project IRRs and gearing.
6. First mover advantage
The African market is at an early stage of development with
annuity income investors, utilities and oil companies seeking to
enter the sector but slow to move. With a diversified portfolio of
renewable C&I projects in one structure, the Company believes
that the JV could ultimately represent an attractive investment
opportunity to development funding institutions, annuity income
renewable energy funds, utilities and energy companies and private
equity funds.
7. Risk Mitigation
-- Technology risk - utilising established solar and battery
technologies from leading suppliers
-- Regulatory risk - utilising existing land and permitting licenses
-- Tariff risk - negotiating unregulated tariffs directly with power consumers
-- Payment risk - credit checks, shareholder guarantees and termination payments
-- Performance risk - equipment performance guarantees from
suppliers for the life of the offtake agreement
Exclusivity and Right of First Refusal
Following payment of the Initial Payment, Ncondezi has
exclusivity and a ROFR for 120 days to conclude and execute the
Definitive Agreements, subject to it electing to fund any initial
projects presented during this period which meet the KPI's (up to a
maximum of US$2.0 million in aggregate).
This is automatically extended for up to an additional 180 days
if the Definitive Agreements have not been executed and Ncondezi
has elected to fund all Approved Projects as they become available
for funding during the first period of exclusivity (up to a maximum
of US$2.0 million in aggregate) and continues to fund at least 50%
of all projects presented during this 180 day period which meet the
KPI's.
After this second period of exclusivity, if the Definitive
Agreements remain unexecuted, but Ncondezi continues to fund at
least 50% of all projects presented during this period which meet
the KPI's, Ncondezi has a right to match any project funding for a
further 180 days.
If the Term Sheet is terminated by either party during the
initial 120 day exclusivity period or in the 180 days after that,
provided that the second 180 day extension to the exclusivity
period is not triggered, GridX will refund US$100,000 of the
Initial Payment to Ncondezi.
Following execution of the Definitive Agreements and the first
project being successfully commissioned, it is expected that
Ncondezi's ROFR will allow it to accept or reject funding of
Approved Projects, however there are limits to the number of
rejections Ncondezi can give and it will no longer have a ROFR if
it exceeds these limits over a 6 to 12 month period.
It is emphasised that notwithstanding that it has agreed the
Term Sheet there can be no certainty that Ncondezi will elect to
fund any projects in order to maintain ROFR during the exclusivity
period, that it will agree the terms on which any such investments
will be made or agree the definitive documentation for the JV.
Shareholder Loan
Background
On 11 May 2016, the Company announced that it had secured the
Shareholder Loan with the Lenders.
The Shareholder Loan was intended to provide the Company with
bridge funding for its corporate overheads while it completed a set
of investment conditions to make a JDA effective with a previous
potential strategic partner Shanghai Electric Power Co. Ltd
("SEP").
On 31 August 2016, Africa Finance Corporation ("AFC") agreed to
accede to the existing Shareholder Loan and its terms, advancing
Ncondezi up to US$3.0 million, with an initial tranche of US$1.0
million ("Tranche A") and a further tranche of US$2.0 million
("Tranche B") with Tranche B conditional amongst other things upon
the fulfilment of certain conditions precedent, the completion of
the JDA and Ncondezi providing an appropriate security package.
Tranche A was drawn down in accordance with the existing
Shareholder Loan terms (set out in the announcement dated 11 May
2016), some of which have been amended subsequently. A catch up
advance of US$960,000 was paid to Ncondezi as an upfront payment on
2 September 2016, which was equivalent to AFC's pro rata payment
alongside the existing drawdown from Lenders.
Tranche A was utilised to fund project development costs in
accordance with an agreed budget.
Repayment of the Shareholder Loan (comprising the existing
Shareholder Loan and initial US$1.0 million Tranche A from AFC) was
initially payable by no later than 10 May 2017, however on 11 May
2017, the Company agreed an amendment to the repayment terms, with
repayment due on 2 September 2017. On 2 September 2017, the Company
entered into a formal agreement to extend the total Shareholder
Loan repayment date to 2 September 2018.
Under the terms of the Shareholder Loan the cost of the loan was
1.5x (comprising 1.0x principal and 0.5x return) if repayment was
made by 10 May 2017 and increased to 2.0x if repayment was post
10
May 2017. The cost of the Shareholder Loan was 2.0x the draw
down amount (comprising 1.0x principal and 1.0x return) as
repayment was not made by 10 May 2017.
Tranche B has lapsed and is not available for drawn down as it
was subject to certain conditions precedent including the
finalisation of the previous JDA with SEP.
On 23 June 2017, the Company entered into an amendment ("New
Loan") to the original Shareholder Loan with an additional funding
of US$350,000. The financing was committed by the Chairman Michael
Haworth (US$200,000) and other existing long term shareholders
(US$150,000). The New Loan received a 1.25x return at its maturity
on 2 September 2017. On 2 September 2017, the Company entered into
a formal agreement to extend the New Loan repayment date to 2
September 2018.
As part of this same amendment the senior management team of the
Company agreed to convert their deferred 50% salary between
November 2016 and January 2017, and a percentage of their salary
since February 2017 into the existing Shareholder Loan. The total
amount is US$232,000, but this sum does not attract any
interest.
At July 2017, a total of US$2,774,545 had been drawn down under
the total Shareholder Loan, this total includes the US$232,000
deferred salaries. Refer to note 12 for further details.
Current year restructuring
On 16 November 2018, the Company announced that a formal
agreement to amend the Shareholder Loan (the "Loan") has been
reached (the "Loan Restructuring") with loan holders the key terms
of which are detailed below.
At the date of the restructuring the Loan payable stood at
US$5.1m. At 26 June 2019 the repayment amount due on 30 November
2019 will be US$4,712,973 which includes principal, rolled up
premiums under the previous loans, interest. The Company has
received loan holder conversion notices of US$935,133 of principal
and interest since year end.
Loan Restructuring Amended terms
1. Loan Repayment Date:
The Loan term has been extended from 2 September 2018 to 30
November 2019.
2. Interest:
Interest on the outstanding Loan amount shall accrue from 15
November 2018 at the rate of 12% per annum payable in arrears on
the earlier of conversion into equity or repayment of the Loan
(specific to each Lender). Interest shall be calculated on the
basis of a 365-day year.
The interest rate represents a significant reduction in the
effective interest rates historically incurred on the Loan e.g. in
June 2017, the Company raised an additional US$350,000 at a 1.25x
return.
3. Voluntary Prepayment:
The Company may, at any time prior to 1 November 2019, prepay
the whole or any part of the Loan provided that:
(a) the Company gives the Lenders written notice specifying the
aggregate amount the Company wishes to prepay and the specific
amount to be paid; and
(b) the lenders have 3 business days to exercise the First
Conversion and give the Company a conversion notice.
4. Debt for Equity Swap:
For so long as any part of the Loan remains outstanding:
(a) First Conversion: Lenders shall be entitled to convert all
or part of their portion of the Loan (in multiples of US$1,000)
into fully paid ordinary shares of the Company at a 10.0p
conversion price from the date of this announcement until 1
November 2019 (the "First Conversion"); and
(b) Second Conversion: if Lenders who are owed (in aggregate)
not less than 50.1% of the outstanding principal amount of the Loan
from 1 November 2019 until maturity provide a conversion notice to
the Company, all amounts outstanding under the Loan shall convert
into fully paid ordinary shares of the Company at a conversion
price the higher of the 30% discount to the 60 day VWAP at 30
November 2019 or 5.2p (the "Second Conversion").
The First Conversion price represents a premium of 50% to the
closing share price on 15 November 2018, the day before the Loan
Restructuring was announced.
The maximum number of shares that can be issued under the First
Conversion is 38.9 million new shares, or a 12.1% dilution. To
date, conversion notices in relation to 7,193,328 shares have been
executed since the year end, reducing the Shareholder Loan by
US$935,133 of principal, rolled up previous redemption premiums and
interest.
The Second Conversion is only executable if Lenders representing
no less than 50.1% of the outstanding Loan principle at the time
elect to convert. This prevents any single Lender from having
negative control over a decision to convert. The minimum conversion
price represents a discount of 22% to the closing price on 15
November 2018, and restricts the maximum number of shares that can
be converted to 84.6 million, which would represent a maximum
dilution of 23.1% to shareholders. The Second Conversion has been
agreed to provide Lenders and the Company with an alternative
repayment mechanism in the event that the Company has not repaid
the Loan during the new term.
The US Dollar to British Pound exchange rate has been fixed for
any debt for equity swap at US$1.3 to GBP1.0. Refer to note 12 for
further details.
Development Program to Financial Close
The Project is at an advanced level of development and will be
advanced once the JDA has been executed and the Company focusses on
achieving FC. The Company expects FC to take between 12 and 18
months post JDA execution.
Financial Review
Results from operations
The Group made a loss after tax for the year of US$3.5 million
compared to a loss of US$1.7 million for the previous financial
year. The basic loss per share for the year was 1.3 cents (2017:
0.7 cents).
Administrative expenses totalled US$1.5 million (2017: US$1.1
million). Administrative expenses refer principally to staff costs,
professional fees and travel costs and underlying administrative
expenses, which have increased due to restarting the processes of
engaging with new strategic partners and advancing the integrated
power and mining project.
Share based payment charges totalled US$1.3 million (2017: Nil)
in respect of awards granted in the year as set out on note14 and
warrants issued to a consultant.
The loss after tax includes a US$0.7 million (2017: US$0.64
million) finance cost. In 2018, the finance cost was associated
with the amortisation of the redemption premiums comprising US$1.1
million in respect of amortised redemption premiums prior to
restructuring and US$0.1m of effective interest charges on the
convertible loan host liability with US$0.3 million of fair value
changes on the derivative.
Financial Position
The Group's statement of financial position at 31 December 2018
and comparatives at 31 December 2017 are summarised below:
2018 2017
US$'000 US$'000
--------------------- --------- ---------
Non-current assets 18,272 18,313
Current assets 478 697
---------------------- --------- ---------
Total assets 18,750 19,010
---------------------- --------- ---------
Current liabilities 5,508 4,620
Total liabilities 5,508 4,620
---------------------- --------- ---------
Net assets 13,242 14,390
---------------------- --------- ---------
Capitalised additions totalled US$0.01 million (2017: US$0.05
million) principally in respect of the Power Project. The carrying
value of the non-current assets was assessed for impairment and no
impairment was noted as detailed in note 2.
The increase in current liabilities principally relates to the
Shareholder Loan, together with accrued interest.
Cash Flows
The net cash outflow from operating activities for the year was
US$1.4 million (2017: US$0.9 million).
The cash outflow principally represented administrative costs
for the year with limited working capital movements.
Net cash from investing activities was US$0.02 million (2017:
US$0.08 million), mainly related to disposal of plant and equipment
in Mozambican subsidiary offset by development activities incurred
on the Power Project.
Net cash from financing activities was US$1.2 million (2017:
US$1.3 million) related to the share issues in 2018.
The resulting year end cash and cash equivalents held totalled
US$0.4 million (2017: US$0.6 million). As at 21 June 2019 the
Company held cash and cash equivalents totalling US$1.9
million.
Outlook
As at 21 June 2019 the Group had cash reserves of approximately
US$1.9 million. Based upon projections, which are subject to the
Shareholder Loans being converted, extended or restructured and
include corporate costs, project costs to progress the Project and
planned expenditure related to first potential C&I project
presented as part of the planned GridX JV, the Group will be funded
until the
beginning of December 2019 although the expenditure on the first
GridX JV project is not yet binding and in the absence of such
planned expenditure the Group is funded until Q4 2020. However, the
forecasts
remain subject to the Shareholder Loan being extended or
restructured. The Loan of US$4.7 million (principal, historic
redemption premium and interest) matures on 30 November 2019, and
the Company is currently evaluating options to execute a debt for
equity swap or, prior to 1 November 2019, prepay the whole or any
part of the loan with the remainder subject to a debt for equity
swap.
The Directors continue to explore options in respect of raising
further funds to continue with the power plant and mine development
programmes. At present there are no binding agreements in place and
there can be no certainty as to the Group's ability to raise
additional funding.
In addition, notwithstanding the Loan, further funding will be
required as detailed above to meet operating cash flows under
current forecasts or in the event of accelerated project
advancement. The Directors are exploring a number of funding and
working capital solutions beyond the 30 November 2019 maturity of
the Loan. The financial statements have been prepared on a going
concern basis in anticipation of a positive outcome but it is
important to highlight that there are no binding agreements in
place and although the Company has also been exploring options to
raise additional funding and refinance or convert the Loan; there
can be no certainty that any of these initiatives will be
successful.
These factors indicate the existence of a material uncertainty
which may cast significant doubt about the Group's ability to
continue as a going concern. The financial statements do not
include the adjustments that would result if the Group was unable
to continue as a going concern. Such adjustments would principally
be the write
Environmental and Social Responsibility
Ncondezi's Social Development Programme has been put on hold
pending positive development being made on the JDA.
Achievements from previous years include:
-- The drilling of 14 boreholes in several villages within the Tete province.
-- Four students completed their Master's degree in Mining
Engineering at Coimbra University benefiting from a full bursary
from Ncondezi.
-- A 4x4 ambulance was purchased to assist villagers in more remote areas.
-- Ncondezi built a new primary school at Waenera village.
-- Upgrading of the Mameme clinic and the construction of a new maternity wing.
-- An Agricultural Project based on conservation farming. This
included the villages of Catabua and Canjedza as an initial model.
The objective being a platform to educate the local communities in
all aspects of crop husbandry using their own resources.
Director's Biographies
Michael Haworth / Non-Executive Chairman
Michael Haworth has over 20 years finance experience,
predominantly in emerging markets and natural resources. Mr Haworth
co-founded Greenstone Resources a private equity fund specialising
in the mining and metals sector in 2013 and is a Senior Partner of
Greenstone Capital LLP and a Director of Greenstone Management
Limited. Mr Haworth was previously a Managing Director at J.P.
Morgan and Head of Mining and Metals Corporate Finance in
London.
Estevão Pale / Non-Executive Director
Estevão Pale has more than 30 years' experience in the mining
industry. He is the Chief Executive Officer of Companhia
Moçambicana de Hidrocarbonetos S.A., a Mozambican natural gas
company. Between 1996 and 2005, Mr Pale was the National Director
of Mines in the Ministry of Mineral Resources and Energy, where he
was responsible for the supervision and control of mineral
activities in Mozambique and the formulation and implementation of
the mining and geological policy approved by the government of
Mozambique.
Mr Pale has been a director of numerous companies in the mining
sector including Promaco SARL and the Mining Development Company,
as well as the General Director and Chief Executive of Minas Gerais
de Moçambique. Mr Pale has a postgraduate diploma in Mining
Engineering from the Camborne School of Mines in Cornwall and a
masters degree in Financial Economics from the University of London
(SOAS). He completed a course in Gas Business Management in Boston
at the Institute of Human Resources Development Corporation in
2006.
Jacek Glowacki / Non-Executive Director
Jacek Glowacki has over 30 years of international experience in
the power sector and is currently Executive Director of one of the
Polenergia Group subsidiaries, a Polish Independent Power Producer
one of Poland's largest private investment companies and a
subsidiary of Kulczyk Holding SARL. Mr Jacek is a nominated
Non-Executive Director by Polenergia.
During his career, he has held senior executive positions at
Polenergia Group Kulczyk Investments, AEI Corporation (USA), Trakya
Elektrik (Turkey) and Prisma Energy Europe. Mr Glowacki's operating
experience includes General Manager of Nowa Sarzyna, which was
owned by ENRON and Chief Production Engineer at Cracow Combined
Heat and Power Plant, owned by EDF. He holds a degree in
engineering from the University of Mining and Metallurgy in Kracow
and an MBA from the University of Chicago.
Aman Sachdeva / Non-Executive Director
Aman Sachdeva has more than 20 years experience in the
infrastructure industry, specializing in the energy sector; ranging
from project finance, management consulting, regulatory affairs,
mergers and acquisitions, power system planning, energy
conservation and marketing. Mr Sachdeva is currently the founder
and Chief Executive Officer of Synergy Consulting, an independent
consulting practice with a focus on project finance, which has to
date closed projects worth US$12 billion. Mr Sachdeva is also an
advisor to the World Bank, Energy Sector for Central Asia, South
Asia and Africa on a variety of projects. Mr Sachdeva is a
nominated Non-Executive Director by AFC.
Director's Report
The Directors present their annual report and the audited group
financial statements headed by Ncondezi for the year ended 31
December 2018.
Principal activities
The principal activity of the Group is the development of an
integrated 300MW power plant and mine to produce and supply
electricity to the Mozambican domestic market.
Business review and future developments
Details of the Group's business and expected future developments
are set out in the Chairman's Statement, the Operations Review and
in the Financial Review.
Principal risks and uncertainties
The Group operates in an uncertain environment that may result
in increased risk, cost pressures and schedule delays. The key risk
factors that face the Group and their mitigation are set out
below.
Additionally, the Group's multi-national operations expose it to
a variety of financial risks such as market risk, foreign currency
exchange rates and interest rates, liquidity risk, and credit risk.
These are considered further in notes 1 and 19.
Key performance indicators
The key performance indicators of the Group are as follows:
2018 2017 2016
------------------------------- ------- ------- -------
Mine exploration expenditure
(US$'000) 7 3 13
Power development expenditure
(US$'000) 25 48 249
Share price at 31 December
(pence) 5.65 3.63 5.3
Cash at bank at 31 December
(US$'000) 424 614 152
-------------------------------- ------- ------- -------
Results and dividends
The results of the Group for the year ended 31 December 2018 are
set out below.
The Directors do not recommend payment of a dividend for the
year (2017: nil). The loss will be transferred to reserves.
Events after the reporting date
See note 22 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 19 of the financial statements.
Going concern
As at 21 June 2019 the Group had cash reserves of approximately
US$1.9 million. At the current average working capital burn rates
the Company current cash position is sufficient to cover operating
costs and Power Project related costs until Q4 2020 subject to the
Shareholder Loan being converted, extended or restructured. Under
the forecasts, which also include planned but currently non-binding
expenditure in respect of the first potential C&I project
presented as part of the planned GridX JV, the Group will be funded
until the beginning of December 2019, subject to the Shareholder
Loan being fully converted, extended or restructured. However, this
could be reduced in the event of accelerated Project advancement
post signing of the JDA or the Company electing to invest in
further potential C&I projects presented as part of the planned
GridX JV. Details on going concern are contained in note 1 of the
financial statements.
Directors and Directors' interests
Ordinary Shares Ordinary Shares
Appointment held 31 December held 31 December
Director Note date 2018 2017
------------------- ------------- ------------------- -------------------
Michael Haworth 1 01.06.12 16,468,087 16,468,087
Jacek Glowacki 2 28.10.13 - -
Estevão Pale 03.06.10 - -
Aman Sachdeva 3 21.05.15 - -
------------------- ------------- ------------------- -------------------
1. Includes shares held by a trust of which Michael Haworth is a potential beneficiary.
2. Jacek Glowacki is Polenergia's nominated director. The
Polenergia Group holds 29,111,719 ordinary shares representing
10.31% of the issued Ordinary Shares as at 31.12. 2018 and 9.09% as
at 26.06.19.
3. Aman Sachdeva is AFC's nominated director. AFC holds
54,988,520 ordinary shares representing 19.48% of the issued
Ordinary Shares as at 31.12.18 and 17.17% as at 26.06.19.
Annual General Meeting
Resolutions will be proposed at the forthcoming Annual General
Meeting, as set out in the Formal Notice. In accordance with the
Company's Articles of Association one third of the Directors are
required to retire by rotation. Accordingly, Estevão Pale will
offer himself for re-election at the forthcoming Annual General
Meeting of the Company.
Corporate Governance
The Company's compliance with the principles of corporate
governance is explained in the corporate governance statement are
set out below.
Ordinary Share Capital
The Company's Ordinary Shares of no par value represent 100% of
its total share capital. At a meeting of the Company every member
present in person or by proxy shall have one vote for every
Ordinary Share of which he is the holder. Holders of Ordinary
Shares are entitled to receive dividends.
On a winding-up or other return of capital, holders are entitled
to share in any surplus assets pro rata to the amount paid up on
their Ordinary Shares. The shares are not redeemable at the option
of either the Company or the holder. There are no restrictions on
the transfer of shares.
Disclosure of information to auditors
So far as each Director at the date of approval of this report
is aware, there is no relevant audit information of which the
Company's auditors are unaware and each Director has taken all
steps that he ought to have taken to make himself aware of any
relevant audit information and to establish that the auditors are
aware of that information.
Auditors
BDO LLP have expressed their willingness to continue in office
as auditors, and a resolution to reappoint them will be proposed at
the Annual General Meeting.
By order of the Board
Elysium Fund Management Limited
Company Secretary
27 June 2019
Risk Factors
Risk(s) Potential Impact(s)
Mitigation Measure(s)
Financing The Group will need to The Project is at an advanced
risk restructure its existing level of development with
loans by 30 November 2019 the majority of technical
and secure investment from work completed and advanced
strategic investors and/or form PPA and PCA documents
investment from co-developers being agreed.
to provide sufficient working
capital for the next 12 Ncondezi has signed a NBO
months. Failure to do so with new potential strategic
may lead to the Group not partners and is negotiating
being a going concern (see a JDA which will provide
note 1). Additionally, financial support to the
project financing will project both at the developmental
be required to complete stages to Financial Close
the Project and failure as well as during construction.
to secure such financing It is important to highlight
would result in failure that there is no certainty
of the Project and/or delay that the JDA will occur
in its execution. or additional funding will
be raised.
To achieve Financial Close
of the Project, the Group The Company is in discussions
will also need to conclude with the existing loan
some of its on-going negotiations holders regarding restructuring
on key project agreements, of the loans, if necessary,
including the Power Concession together with exploring
Agreement ("PCA") and the funding solutions to refinance
Power Purchase Agreement the loans.
("PPA"). Failure or delay
in doing so may lead to The Company intends to
failure of the Project engage with a range of
and/or delay in its execution. potential financing partners
with the objective of securing
To achieve investment in additional development
any GridX C&I projects capital for the costs that
that meet the minimum KPIs, will not be covered by
the Group will need to a new partner, including
secure investment from select corporate overheads.
strategic investors and/or Since October 2017, Ncondezi
investment from co-developers. has had a successful track
Failure to do so may lead record in raising additional
to loss of the Group's capital with GBP2.8 million
ROFR on future GridX projects. before expenses raised
to cover development costs
during the year and since
year end.
The Company has allocated
US$1.1 million towards
the first GridX C&I project
that meets all the KPI's
and is approved by the
Group. The Company intends
to engage with a range
of potential financing
partners with the objective
of securing additional
capital for future projects
as the GridX pipeline of
projects becomes more developed.
The Directors' will monitor
the monthly cash burn rate
to ensure the Group operates
within its cash resources
for as long as possible.
----------------------------------- ------------------------------------------------------------
Off-taker In the event that the Group The Company has substantially
risk is unable to renew the advanced the PPA and PCA
commercial deal with EDM through previous negotiations
or finalise the PPA on with EDM and MIREME. EDM
acceptable terms, the Group has indicated its willingness
will need to secure an to continue negotiations
alternative credible power once the Company introduces
off-taker(s) to raise finance an acceptable strategic
for the Project. There partner and a new tariff
is no guarantee that, in proposal. Subsequent to
such circumstances, the signing the NBO, the Company
Group will be able to secure received in principle support
a credit worthy off-taker for its new partners and
for the full output with submitted an updated tariff
the plant operating at proposal in July 2018 which
load factors in excess is more attractive than
of 80 per cent. the previously agreed tariff
envelope from EDM's perspective.
There is a shortage of
power in the region, with
Mozambique currently exporting
power to South Africa,
Zimbabwe, Zambia, Botswana
and Namibia. Each of these
countries could provide
a potential credible power
off-taker for the Power
Project either as a substitute
or as additional power
off-taker for an expanded
power plant. The Company
monitors this potential
closely and has responded
to a Request for Information
('RFI') from the South
African government regarding
potential cross border
power supply.
----------------------------------- ------------------------------------------------------------
Competition Other power stations are The Project is one of
from other being developed in the the most advanced projects
power stations Tete region and are competing in the region, making competition
in Mozambique for offtake to EDM as well from nearby projects more
as resources such as water difficult due to the time
and transmission line servitudes. they require to catch up.
Competing gas projects
are mainly located in the
southern part of Mozambique
and are not able to supply
the portion of the Mozambican
power grid that the Power
Project is to connect to
in the north of the country.
Additionally, being a thermal
coal power station project,
the Group can implement
commissioning of the power
plant faster than competing
hydroelectric projects
which typically take 2-3
years longer to commission.
----------------------------------- ------------------------------------------------------------
Estimating The estimation of mineral Resources
mineral reserve reserves and mineral resources * Sign-off of resources by registered Competent Person
and resource is a subjective process ("CP").
and the accuracy of reserve
and resource estimates
is a function of the quantity * Reporting resources in accordance with the JORC code
and quality of available
data and the assumptions
used and judgements made * Classification of resources into a high level of
in interpreting engineering confidence category
and geological information.
There is significant uncertainty * Conduct detailed geological modelling
in any reserve or resource
estimate and the actual
deposits encountered and * The utilisation of accredited laboratories for the
the economic viability analyses of coal samples
of mining a deposit may
differ materially from
the Group's estimates. * QA/QC procedures according to best practices
The exploration of mineral
rights is speculative in Reserves
nature and is frequently * Sign-off of reserves by registered CP
unsuccessful. The Group
may therefore be unable
to successfully discover * Classification of reserves into proven or probable
and/or exploit reserves. reserves
Detailed mine design and
scheduling.
----------------------------------- ------------------------------------------------------------
Coal risk Coal specification developed Further coal quality analysis
at the pre-feasibility will be conducted and supplied
study and verified during to the boiler supplier
the feasibility stage may for finalisation of boiler
not be representative of design.
coal to be used in the
plant.
Not properly characterised
coal resources may lead
to incorrect boiler design
and plant underperformance.
----------------------------------- ------------------------------------------------------------
Transmission Available transmission A transmission agreement
grid constraints capacity is allocated to heads of terms have been
other power generators. 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.
The Group will explore
and develop all potential
future transmission options
including new transmission
capacity in Mozambique
as well as other countries
including Malawi and Zambia.
----------------------------------- ------------------------------------------------------------
Environmental Existing and possible future The Group adopts standards
and other environmental legislation, of international best practice
regulatory regulations and actions in environmental management
requirements could cause additional and community engagement
expense, capital expenditures, in addition to focussing
restrictions and delays on satisfying Mozambican
in the activities of the environmental regulations
Group, the extent of which and requirements in all
cannot be predicted. Before stages of development.
production can commence
on any properties, the Environmental Management
Group must obtain regulatory and Social Development
approval and there is no Plans have been advanced
assurance that such approvals and are being implemented
will be obtained. No assurance to satisfy national and
can be given that new rules international best practice.
and regulations will not
be enacted or existing The Mine and Power Plant
rules and regulations will Environmental Social Impact
not be applied in a manner Assessment (ESIA) have
which could limit or curtail been conducted by independent,
the Group's operations. internationally recognised
consultants, and have approved
by the Mozambican Government.
----------------------------------- ------------------------------------------------------------
Climate Change Increased awareness and Mozambique is a developing
Risk action against climate country with an energy
change will put pressure generation mix that is
on governments and financing heavily dependent on hydro
organisations to reduce power generation. Power
exposure to fossil fuel generation from coal is
related power generation. seen as a key factor in
This could affect future reducing Mozambique's dependence
Mozambican Government policy on hydroelectric power
towards coal fired generation (particularly in the north),
and limit funding appetite where current generation
for the Project. is vulnerable to the extreme
weather effects of climate
change.
----------------------------------- ------------------------------------------------------------
Foreign Country The Group's exploration The Mozambican Government
risk licences and project are has been stable for many
in Mozambique. The Group years and fosters a beneficial
faces political risk whereby climate towards companies
changes in government policy exploring for resources.
or a change of governing
political party could place The Mozambican Government
its is working with donors
exploration licences and and the IMF to restore
project in jeopardy. aid to the country, and
an audit report into the
Mozambique has recently defaulting loans has been
defaulted on commercial commissioned as a first
loans resulting in donors step to reaching a resolution.
and the International Monetary All parties have committed
Fund (IMF) freezing aid to resolving the issue
to Mozambique, which may in a reasonable and transparent
affect financing of the manner to restore confidence
Project at Financial Close. in the country.
----------------------------------- ------------------------------------------------------------
Corporate Governance Statement
The Directors of the Company have elected to follow the main
principles of the QCA Corporate Governance Code. The QCA Corporate
Governance Code identifies ten principles that focus on the pursuit
of medium to long-term value for shareholders without stifling the
entrepreneurial spirit in which the company was created. In
addition to the details provided below, governance disclosures can
be found on the Company's website at
http://www.ncondezienergy.com/corporate-governance.aspx
The Company is focused on the phased development of its large
scale, long life, integrated thermal coal mine and 300MW power
plant project (the "Project") which it believes offers the most
achievable and financeable route to production, thereby delivering
value for shareholders. The key risk factors that face the Group
and their mitigation are set out above.
A statement of the Directors' responsibilities in respect of the
financial statements is set out on Statement of the Directors'
Responsibilities. Below is a brief description of the role of the
Board and its committees, including a statement regarding the
Group's system of internal financial control.
The workings of the Board and its committees
The Board of Directors
At 31 December 2018, the Board comprised a Non-Executive
Chairman (Michael Haworth), and three further Non-Executive
Directors (Aman Sachdeva, Estevão Pale, and Jacek Glowacki).
Under the UK Corporate Governance Code, (excluding the Chairman)
none of the Non-Executive Directors would be viewed as independent.
However, although Estevão Pale and Aman Sachdeva would not be
viewed as independent under the UK Corporate Governance Code by
virtue of the options that they each hold in the Company and, in
respect of Aman Sachdeva, his role as CEO of Synergy Consulting
(which provides consultancy services to the Company), the Directors
believe that independence is not a state of mind that can be
measured objectively and, given the character, judgement and
decision making process of the individuals concerned, the Directors
believe that Estevão Pale and Aman Sachdeva can be considered
independent.
The Board is satisfied that, between the Directors, it has an
effective and appropriate balance of skills and experience,
including in the areas of natural resources, infrastructure and
finance. For details of the Directors past experience, please refer
to 'Director's Biographies' session set out below.
All Directors receive regular and timely information on the
Group's operational and financial performance. Relevant information
is circulated to the Directors in advance of meetings. As explained
above, due to the relatively small size of the Group's operations,
Directors and senior management are very closely involved in the
day-to-day running of the business and as such have less need for a
detailed formal system of financial reporting.
An agreed procedure exists for Directors in the furtherance of
their duties to take independent professional advice. With the
prior approval of the Chairman, all Directors have the right to
seek independent legal and other professional advice at the
Company's expense concerning any aspect of the Company's operations
or undertakings in order to fulfil their duties and
responsibilities as Directors. If the Chairman is unable or
unwilling to give approval, Board approval will be sufficient.
Newly appointed Directors are made aware of their responsibilities
through the Company Secretary. The Company does not make any
provision for formal training of new Directors.
The Company has established audit and remuneration committees of
the Board with formally delegated duties and responsibilities. In
2018 Estevão Pale remains as second member of the remuneration
committee together with Michael Haworth.
Since the appointment of Michael Haworth as Non-Executive
Chairman, and given that due to the size of operations the Company
does not currently have a nominations committee he has been
assessing the individual contributions of each of the members of
the team to ensure that:
-- their contribution is relevant and effective;
-- that they are committed; and
-- where relevant, they have maintained their independence.
Over the next 12 months, the Company intends to continue to
review the performance of the team as a unit to ensure that the
members of the board collectively function in an efficient and
productive manner.
Conflicts of interest
The Board confirms that it has instituted a process for
reporting and managing any conflicts of interest held by Directors.
Under the Company's Articles of Association, the Board has the
authority to authorise, to the fullest extent permitted by law:
(a) any matter which would otherwise result in a Director
infringing his duty to avoid a situation in which he has, or can
have, a direct or indirect interest that conflicts, or possibly may
conflict, with the interests of the Company and which may
reasonably be regarded as likely to give rise to a conflict of
interest (including a conflict of interest and duty or conflict of
duties);
(b) a Director to accept or continue in any office, employment
or position in addition to his office as a Director of the Company
and may authorise the manner in which a conflict of interest
arising out of such office, employment or position may be dealt
with, either before or at the time that such a conflict of interest
arises provided that for this purpose the Director in question and
any other interested Director are not counted in the quorum at any
board meeting at which such matter, or such office, employment or
position, is approved and it is agreed to without their voting or
would have been agreed to if their votes had not been counted.
Company materiality threshold
The Board acknowledges that assessment on materiality and
subsequent appropriate thresholds are subjective and open to
change. As well as the applicable laws and recommendations, the
Board has considered quantitative, qualitative and cumulative
factors when determining the materiality of a specific relationship
of Directors.
Culture
It is the Company's policy to conduct all of its business in an
honest and ethical manner. The Directors believe that the main
determinant of whether a business behaves ethically and with
integrity is the quality of its people. As the Board currently
fulfils the responsibilities that might otherwise be assumed by a
nominations committee, the Directors have responsibility for
ensuring that individuals employed by the Group demonstrate the
highest levels of integrity.
The Board has also instituted a process for reporting and
managing any conflicts of interest held by Directors. Under the
Company's Articles of Association, the Board has the authority to
authorise, to the fullest extent permitted by law:
a) any matter which would otherwise result in a Director
infringing his duty to avoid a situation in which he has, or can
have, a direct or indirect interest that conflicts, or possibly may
conflict, with the interests of the Company and which may
reasonably be regarded as likely to give rise to a conflict of
interest (including a conflict of interest and duty or conflict of
duties); and
b) a Director to accept or continue in any office, employment or
position in addition to his office as a Director of the Company and
may authorise the manner in which a conflict of interest arising
out of such office, employment or position may be dealt with,
either before or at the time that such a conflict of interest
arises provided that for this purpose the Director in question and
any other interested Director are not counted in the quorum at any
board meeting at which such matter, or such office, employment or
position, is approved and it is agreed to without their voting or
would have been agreed to if their votes had not been counted.
It is our policy to conduct all of our business in an honest and
ethical manner. We take a zero-tolerance approach to bribery and
corruption and are committed to acting professionally, fairly and
with integrity in all our business dealings and relationships
wherever we operate, implementing and enforcing effective systems
to counter bribery.
We will uphold all laws relevant to countering bribery and
corruption in all the jurisdictions in which we operate and remain
bound by the laws of the UK, including the Bribery Act 2010, in
respect of our conduct both at home and abroad.
Board meetings
Board meetings are held on average every quarter. Decisions
concerning the direction and control of the business are made by
the Board. 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 10 and attendance is outlined below:
Attendance by directors Board meetings
---------------------------------------
Michael Haworth 6
Jacek Glowacki 10
Estevão Pale 5
Aman Sachdeva 7
---------------------------------------
Generally, the powers and obligations of the Board are governed
by the Company's Memorandum and Articles and the BVI Business
Companies Act 2004, as amended and the other laws of the
jurisdictions in which it operates. The Board is responsible, inter
alia, for setting and monitoring Group strategy, reviewing trading
performance, ensuring adequate funding, examining major acquisition
opportunities, formulating policy on key issues and reporting to
the shareholders.
The Audit Committee
During 2018, the Audit Committee members were Jacek Glowacki
(Committee Chairman) and Michael Howarth.
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, judgments 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 one time in the year.
The Remuneration Committee
The Remuneration Committee comprised Michael Haworth (Committee
Chairman) and Estevão Pale.
The Committee is responsible for making recommendations to the
Board, within agreed terms of reference, on the Company's framework
of executive remuneration and its cost. The Remuneration Committee
determines the contract terms, remuneration and other benefits for
the Executive Directors, including performance related bonus
schemes, compensation payments and option schemes. The Board itself
determines the remuneration of the Non-Executive Directors. The
Remuneration Committee met one time in the year.
A Remuneration Committee Report is set out below.
Internal financial control
The Board is responsible for establishing and maintaining the
Group's system of internal financial controls. Internal financial
control systems are designed to meet the particular needs of the
Group and the risk to which it is exposed, and by its very nature
can provide reasonable, but not absolute,
assurance against material misstatement or loss.
The Directors are conscious of the need to keep effective
internal financial control, particularly in view of the cash
resources of the Group. Due to the relatively small size of the
Group's operations, the Directors and senior management are very
closely involved in the day-to-day running of the business and as
such have less need for a detailed formal system of internal
financial control. The Directors have reviewed the effectiveness of
the procedures presently in place and consider that they are still
appropriate to the nature and scale of the operations of the
Group.
Continuous disclosure and shareholder communication
The Board is committed to the promotion of investor confidence
by ensuring that trading in the Company's securities takes place in
an efficient, competitive and informed market. The Company has
procedures in place to ensure that all price sensitive
information is identified, reviewed by management and disclosed to
the market through a Regulatory Information Service in a timely
manner.
All information disclosed through a Regulatory Information
Service is posted on the Company's website
http://www.ncondezienergy.com. Shareholders are forwarded documents
relating to each Annual General Meeting, being the Annual Report,
Notice of Meeting and Explanatory Memorandum and Proxy Form, and
are invited to attend these meetings.
Managing business risk
The Board constantly monitors the operational and financial
aspects of the Company's activities and is responsible for the
implementation and on-going review of business risks that could
affect the Company. Duties in relation to risk management that are
conducted by the Directors include but are not limited to:
-- Initiate action to prevent or reduce the adverse effects of risk;
-- 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
At the year ended 31 December 2018, the Remuneration Committee
comprised Michael Haworth and Estevão Pale.
Remuneration packages are determined with reference to market
remuneration levels, individual performance and the financial
position of the Company and the Group.
The Board determines the remuneration of Non-Executive Directors
within the limits set by the Company's Articles of Association. The
Non-Executive Directors have letters of engagement with the Company
and their appointments are terminable on one months' or three
months' written notice on either side.
Long Term Incentive Plan ("LTIP") and unapproved share option
scheme
The Company adopted an LTIP and unapproved share option scheme
which are administered by the Committee. These are discretionary
and the Committee will decide whether to make share awards under
the LTIP or unapproved share option scheme at any time. As at 31
December 2018 the following awards to Director/previous Director
remained in place:
Non-Executives Exercise
Date of grant Number granted price Expiry
-------------------- --------------- --------------- --------- ----------
Estevão Pale 25 May 2018 75,000 8.625p 7 years
Estevão Pale 25 May 2018 1,000,000 6.25p 10 years
Estevão Pale 25 May 2018 300,000 nil 10 years
Christiaan Schutte 25 May 2018 75,000 8.625p 7 years*
Christiaan Schutte 25 May 2018 1,000,000 6.25p 10 years*
Christiaan Schutte 25 May 2018 1,568,627 Nil 10 years*
Christiaan Schutte 25 May 2018 593,783 5.0p 10 years*
Christiaan Schutte 25 May 2018 1,187,566 7.5p 10 years*
Christiaan Schutte 25 May 2018 593,783 10.0p 10 years*
Christiaan Schutte 25 May 2018 593,783 15.0p 10 years*
Aman Sachdeva 25 May 2018 1,000,000 6.25p 10 years
Jacek Glowacki 25 May 2018 1,000,000 6.25p 10 years
Refer to note 16 for details of the vesting conditions attached
to certain of the awards.
* as considered a good leaver Christiaan Schutte has 30 months
from 30.09.18 to exercise these options.
Grant of Share Awards
During 2018 22,897,522 share options were issued to the
Company's directors, executive senior management and contracted
personnel (2017: nil).
Directors' Options
During 2018 8,987,542 share options were issued to the Company's
Directors (2017: nil), included within the 22,897,522 options
above.
Directors' service agreements
None of the Directors have a service contract which is
terminable on greater than one year's notice.
Non-Executive Directors' fees
The Company has adopted a standard level of fees for
Non-Executive directors of GBP40,000 per annum, and GBP70,000 for
the Chairman. The current Chairman has waived all fees since his
original appointment. In addition, Jacek Glowacki and Aman Sachdeva
have waived their Directors fees since 1 April 2015 and Christiaan
Schutte and Estevao Pale since 1 April 2017.
Directors' remuneration
The following table sets out an analysis of the pre-tax
remuneration for the year ended 31 December 2018 for individual
directors who held office in the Company during the period.
Share
Base based Total Total
Salary/fee Benefits payments* 2018 2017
Director US$'000 US$'000 US$'000 US$'000 US$'000
----------------- ------------ --------- ----------- ---------- ----------
Michael Haworth - - - - -
Christiaan
Schutte 27 - 369 396 60
Estevão
Pale - - 110 110 12
Jacek Glowacki - - 81 81 -
Aman Sachdeva - - 81 81 -
Total 27 - 641 668 72
------------------- ------------ --------- ----------- ---------- ----------
*These relate to the share options charge recognised in the
year.
On behalf of the Board
Michael Haworth
Non-Executive Chairman
27 June 2019
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors'
report and the financial statements for the Group. The Directors
have prepared the financial statements for each financial year
which present fairly the state of affairs of the Group and of the
profit or loss of the Group for that year.
The Directors have chosen to use the International Financial
Reporting Standards ("IFRS") as adopted by the European Union in
preparing the Group's financial statements.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable
accuracy at any time the financial position of the Group, for
safeguarding the assets, for taking reasonable steps for the
prevention and detection of fraud and other irregularities and for
the preparation of financial statements.
International Accounting Standards require that financial
statements present fairly for each financial year the company's
financial position, financial performance and cash flows. This
requires the faithful
representation of the effects of transactions, other events and
conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in
the International Accounting Standards Board's 'Framework for the
preparation and presentation of financial statements'.
In virtually all circumstances a fair presentation will be
achieved by compliance with all applicable IFRS as adopted by the
European Union. The Directors are also required to prepare
financial statements in accordance with the rules of the London
Stock Exchange for companies trading securities on AIM.
A fair presentation also requires the Directors to:
-- consistently select and apply appropriate accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- make judgements and accounting estimates that are reasonable and prudent;
-- provide additional disclosures when compliance with the
specific requirements in IFRS as adopted by the European Union is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial
position and financial performance;
-- state that the Group has complied with IFRS as adopted by the
European Union, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The Directors are responsible for ensuring the annual report and
the financial statements are made available on a website. In
addition to being mailed to shareholders, financial statements are
published on the company's website in accordance with legislation
in the United Kingdom governing the preparation and dissemination
of financial statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company's
website is the responsibility of the Directors. The Directors'
responsibility also extends to the on-going integrity of the
financial statements contained therein.
Independent audit report to the members of Ncondezi Energy
Limited
Opinion
We have audited the financial statements of Ncondezi Energy
Limited (the 'parent company') and its subsidiaries (the 'group')
for the year ended 31 December 2018 which comprise the consolidated
statement of profit or loss and consolidated statement of other
comprehensive income, consolidated statement of financial position,
consolidated statement of changes in equity, consolidated statement
of cash flows and notes to the financial statements, including a
summary of significant accounting policies. The financial reporting
framework that has been applied in the preparation of the financial
statements is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union.
In our opinion the financial statements:
-- give a true and fair view of the state of the group's affairs
as at 31 December 2018 and its loss for the year ended; and
-- have been prepared in accordance with IFRSs as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the group
and the parent company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 1 to the financial statements
concerning the group's ability to continue as a going concern which
states that the group will need to extend, refinance or settle
existing loans by their maturity date of 30 November 2019 and raise
further funds to enable the group to meet its liabilities as they
fall due for a period of at least 12 months form the date of
signing these financial statements.
The matters explained in note 1 indicate that a material
uncertainty exists that may cast significant doubt on the group's
ability to continue as a going concern. Our opinion is not modified
in respect of this matter.
Given the conditions and uncertainties noted above we considered
going concern to be a Key Audit Matter.
We performed the following procedures in respect of this key
audit matter:
-- We obtained management's cash flow forecasts to 30 June 2020
and critically assessed the key assumptions. In doing so, we
compared the cash flows to historical operating expenditure and
reviewed the group's licences, board minutes and market
announcements for indications of additional cash requirements. We
confirmed that the cash flows included in respect of the proposed
first GridX JV project are consistent with the draft agreements
with GridX and market announcements.
-- We considered management's judgment that they had a
reasonable expectation of refinancing or settling the loans in
equity and securing additional financing to meet working capital
requirements. In doing so, we made specific inquiries of the Board,
considered the group's history of ability to raise funds through
equity placings and obtained written representations from the
Board.
Our assessment also included making enquiries of management of
the future financing plans and options, and evaluating the adequacy
of the disclosure made in the financial statements in respect of
going concern to confirm that they are consistent with the relevant
accounting framework and set out the material risks and
uncertainties.
Key audit matters
In addition to the matter described in the material uncertainty
related to going concern section, key audit matters are those
matters that, in our professional judgment, were of most
significance in our audit of the financial statements of the
current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) we identified,
including those which had the greatest effect on: the overall audit
strategy, the allocation of resources in the audit; and directing
the efforts of the engagement team. These matters were addressed in
the context of our audit of the financial statements as a whole,
and in forming our opinion thereon, and we do not provide a
separate opinion on these matters.
Matter identified How we addressed the matter
Carrying value of the group's mining and power assets
The group's mining and power We assessed the appropriateness
assets represent its most significant management's conclusion that
assets as at 31 December 2018 the mining and power assets represented
as detailed in note 7. The one cash generating unit, against
mining assets are held at their the relevant accounting framework.
recoverable value which is We obtained the integrated power
below cost following previous and mine asset financial model,
impairment. prepared by an external consultant,
Management are required to and confirmed that the model
assess whether they consider demonstrated significant headroom
there are any indications that over the carrying value. In respect
the group's mining and power of key inputs we confirmed that
assets may be impaired as at the project costs were consistent
31 December 2018 and whether with quotes and supporting information,
any reversals of historic impairments compared the discount rate to
are appropriate. Management relevant third party rates and
determined that the mine and performed sensitivity analysis.
power assets represent one We noted that the project development
cash generating unit as detailed is dependent on the electricity
in note 2. tariff which remains subject
Management performed an impairment to agreement with the Government.
assessment for the mining and Management confirmed that the
power assets and concluded tariff rate represented their
that no impairment of the power best estimate of the rate required
or further impairment mine by the Government based on verbal
assets was necessary and that discussions they had held and
no reversal of impairment on we obtained specific written
the mining assets was required representation to that effect.
as detailed in note 2, which We reviewed market reports and
sets out the key judgments internal correspondence to confirm
and estimates involved in the that they were consistent with
impairment assessment. the tariff used in the model
The appropriateness of the and agreed the rate to documents
carrying value of mining and submitted to the Government.
power assets represented a We reviewed the agreements with
key audit matter given the the project partners and obtained
significant judgements required supporting documents demonstrating
in the impairment assessment. progress against the conditions
precedent and the continued feasibility
of the project at this time.
We obtained correspondence demonstrating
the review and approval of the
financial models and key assumptions
by the project partners.
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. We
discussed this judgment with
the Audit Committee, which included
consideration of factors which
may indicate a change in circumstances
in respect of the underlying
mining asset that gave rise to
the original impairment on the
mining assets and uncertainties
that remain in the absence of
a binding Joint Development Agreement
or electricity tariff.
We reviewed the disclosures in
note 2 against the requirements
of the relevant accounting framework
and considered whether they appropriately
reflected the key judgments and
estimates.
We found management's assessment
and disclosures in the financial
statement to be appropriate.
-------------------------------------------
Accounting for debt instruments
As detailed in notes 2 and We reviewed the loan agreements
12, the group holds a number and amendments to those agreements
of loan instruments which were to assess the key changes to
restructured in the year with the terms and underlying impact.
the term extended, addition
of a 12% interest coupon and We assessed the accounting treatment
the addition of equity conversion adopted by management for the
rights. loan modifications against the
Management have treated the relevant accounting requirements.
restructuring as a modification
to the loans and de-recognised We assessed the accounting treatment
the previous loan instruments adopted by management for the
and recorded at new instrument. equity conversion rights included
Management bifurcated the convertible within the loan against the relevant
loan into an embedded derivative accounting requirements.
reflecting the conversion option
and a host debt liability. We obtained management's assessment
The initial recognition of of the fair value of the embedded
the embedded derivative and derivative and host debt liability
host debt at fair value and at initial recognition and the
subsequent revaluation of the fair value of the embedded derivative
embedded derivative at year at year end and evaluated the
end required management to methodology adopted and considered
exercise judgment and estimate whether the inputs were reasonable.
in selecting an appropriate In doing so, we used our valuations
valuation methodology and the team to recalculate the fair
inputs to the valuation model. values and compared the results
The accounting for these instruments to management's calculations.
is complex and required estimation
and judgment in determining We recalculated the effective
the fair value of the host interest charges and change in
debt and embedded derivative fair value of the derivative.
at initial recognition and
the embedded derivative at We found the accounting treatment
year end. Accordingly, we considered adopted by management to be appropriate
this area to be a key audit and the fair value of the instrument
matter. at initial recognition and, in
respect of the derivative, at
year end to be within an acceptable
range.
-------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
The materiality for the financial statements as a whole was set
at US$0.28 million (2017: US$0.28 million). This was based on 1.5%
(2017: 1.5%) of total assets which we consider to be an appropriate
benchmark due to the focus of stakeholders being on the assets of
the group.
Whilst materiality for the financial statements as a whole was
US$0.28 million (2017: US$0.28million), the significant components
of the group were audited to a lower materiality of US$0.15millon
to US$0.17million (2017: US$0.1 million to
US$0.17million).Performance materiality is the application of
materiality at the individual account or balance level set at an
amount to reduce to an appropriately low level the probability that
the aggregate of uncorrected and undetected misstatements exceeds
materiality for the financial statements as a whole. Performance
materiality was set at US$0.20million (2017: US$0.20million) which
represents 70% of the above materiality levels.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of US$14,000 (2017:
US$6,000), which was set at 5% of materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We evaluated any uncorrected
misstatements against both quantitative measures of materiality
discussed above and in light of other relevant qualitative
considerations when forming our opinion.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the group
and its environment, as well as assessing the risks of material
misstatement in the financial statements at group level.
In approaching the audit, we considered how the group is
organised and managed. We completed a full scope audit on the
group's financial information and the components we deemed
significant. The group comprises five components of which we
identified two to be significant, being the parent company and one
subsidiary based in Mozambique. BDO UK performed a full scope audit
on these significant components as accounting records are
maintained in the UK and management are based in the UK. The
non-significant components were subject to analytical review
procedures undertaken by BDO LLP.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the annual
report and financial statements, other than the financial
statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and,
except to the extent otherwise explicitly stated in our report, we
do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
Responsibilities of directors
As explained more fully in the directors' responsibilities
statement set out on Statement of Directors Responsibility below,
the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or
error.
In preparing the financial statements, the directors are
responsible for assessing the group's and the parent company's
ability to continue as a going concern, disclosing, as applicable,
matters related to going concern and using the going concern basis
of accounting unless the directors either intend to liquidate the
group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website at: www.frc.org.uk/auditorsresponsibilities. This
description forms part of our auditor's report.
Use of our report
This report is made solely to the Parent company's members, as a
body, in accordance with our engagement letter dated 17 April 2019.
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
55 Baker Street
London
W1U 7EU
United Kingdom
27 June 2019
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated statement of profit or loss
for the year ended 31 December 2018
Note 2018 2017
US$'000 US$'000
Other administrative expenses 3 (1,461) (1,051)
Share-based payment charge 3 (1,297) -
----------------------------------- ----- -------- --------
Total administrative expenses
and loss from operations (2,758) (1,051)
Finance expense 4 (722) (644)
----------------------------------- ----- -------- --------
Loss for the year before taxation (3,480) (1,695)
Taxation 5 - -
----------------------------------- ----- -------- --------
Loss for the year attributable
to
equity holders of the parent
company (3,480) (1,695)
----------------------------------- ----- -------- --------
Loss per share expressed in
cents
Basic and diluted 6 (1.3) (0.7)
----------------------------------- ----- -------- --------
Consolidated statement of other comprehensive income
for the year ended 31 December 2018
2018 2017
US$'000 US$'000
------------------------------------- -------- --------
Loss after taxation (3,480) (1,695)
Other comprehensive income:
Exchange differences on translating
foreign operations* - 6
--------------------------------------- -------- --------
Total comprehensive loss for
the year attributable to equity
holders of the parent company (3,480) (1,689)
--------------------------------------- -------- --------
*Items that may be reclassified to profit or loss subject to
certain future events.
The notes form part of these financial statements.
Consolidated statement of financial position
as at 31 December 2018
Note 2018 2017
US$'000 US$'000
----------------------------------- ----- --------- ---------
Assets
Non-current assets
Property, plant and equipment 7 18,272 18,313
Total non-current assets 18,272 18,313
----------------------------------- ----- --------- ---------
Current assets
Trade and other receivables 9 54 83
Cash and cash equivalents 10 424 614
Total current assets 478 697
----------------------------------- ----- --------- ---------
Total assets 18,750 19,010
----------------------------------- ----- --------- ---------
Liabilities
Current liabilities
Trade and other payables 11 481 1,018
Loans and borrowings 12 4,182 3,495
Derivative financial liability 13 845 107
----------------------------------- ----- --------- ---------
Total current liabilities 5,508 4,620
Total liabilities 5,508 4,620
----------------------------------- ----- --------- ---------
Capital and reserves attributable
to shareholders
Share capital 14 88,796 87,384
Accumulated losses (75,554) (72,994)
----------------------------------- ----- --------- ---------
Total capital and reserves 13,242 14,390
----------------------------------- ----- --------- ---------
Total equity and liabilities 18,750 19,010
----------------------------------- ----- --------- ---------
The financial statements were approved and authorised for issue
by the Board of Directors on 27 June 2019 and were signed on its
behalf by:
Michael Haworth
Non-Executive Chairman
The notes form part of these financial statements.
Consolidated statement of changes in equity
for the year ended at 31 December 2018
Foreign
Currency
Share Translation Accumulated
capital reserve Losses Total
US$'000 US$'000 US$'000 US$'000
------------------------------------- -------------- ----------------- ------------ -----------------
At 1 January 2018 87,384 - (72,994) 14,390
Loss for the year - (3,480) (3,480)
Other comprehensive loss for - - - -
the year
------------------------------------- -------------- ----------------- ------------ -----------------
Total comprehensive loss for
the year - - (3,480) (3,480)
Issue of shares 1,310 - - 1,310
Costs associated with issue
of shares (204) - - (204)
Exercise of share options 306 (306) -
Equity settled share-based payments - - 1,226 1,226
-------------------------------------- -------------- ----------------- ------------ -----------------
At 31 December 2018 88,796 - (75,554) 13,242
-------------------------------------- -------------- ----------------- ------------ -----------------
Foreign
Currency
Share Translation Accumulated
capital reserve Losses Total
US$'000 US$'000 US$'000 US$'000
------------------------------------- -------------- ----------------- ------------ ------------------
At 1 January 2017 86,557 (6) (71,299) 15,252
Loss for the year - (1,695) (1,695)
Other comprehensive income for
the year - 6 - 6
-------------------------------------- -------------- ----------------- ------------ ------------------
Total comprehensive loss for
the year - 6 (1,695) (1,689)
Issue of shares 987 - - 987
Costs associated with issue of
shares (160) - - (160)
Equity settled share-based payments - - - -
------------------------------------- -------------- ----------------- ------------ ------------------
At 31 December 2017 87,384 - (72,994) 14,390
-------------------------------------- -------------- ----------------- ------------ ------------------
The notes form part of these financial statements.
Consolidated statement of cash flows
for the year ended at 31 December
2018 2018 2017
US$'000 US$'000
----------------------------------------- -------- --------
Cash flow from operating activities
Loss before taxation (3,480) (1,695)
Adjustments for:
Finance expense 722 644
Share based payment charge 1,297 -
Unrealised foreign exchange movements 2 3
Gain on disposal of property plant
and equipment (44) (89)
Deferred payroll costs capitalised
to Shareholder Loan - 132
Depreciation and amortisation 68 78
Net cash flow from operating activities
before changes in working capital (1,435) (927)
Decrease in inventory - 2
Increase/(decrease) in payables (25) 13
Decrease in receivables 29 5
------------------------------------------- -------- --------
Net cash flow from operating activities
before tax (1,431) (907)
------------------------------------------- -------- --------
Income taxes refunded - -
----------------------------------------- -------- --------
Net cash flow from operating activities
after tax (1,431) (907)
------------------------------------------- -------- --------
Investing activities
Sales of property plant and equipment 47 133
Power development costs capitalised (25) (48)
Mine development costs capitalised (7) (3)
Net cash flow from investing activities 15 82
------------------------------------------- -------- --------
Financing activities
Issue of ordinary shares 1,310 987
Cost of share issue (84) (50)
Bank charges - -
Short term loan - 350
Net cash flow from financing activities 1,226 1,287
------------------------------------------- -------- --------
Net (decrease)/increase in cash and
cash equivalents in the year (190) 462
------------------------------------------- -------- --------
Cash and cash equivalents at the
beginning of the year 614 152
------------------------------------------- -------- --------
Cash and cash equivalents at the
end of the year 424 614
------------------------------------------- -------- --------
The notes form part of these financial statements.
Notes to the consolidated financial statements
1. Principal accounting policies.
General
The Company is a limited liability company incorporated on 30
March 2006 in the British Virgin Islands. The address of its
registered office is Ground Floor, Coastal Building, Wickham's Cay
II, PO Box 2136, Road Town, Carrot Bay, VG1130 Tortola, British
Virgin Islands.
Going concern
As at 21 June 2019 the Group had cash reserves of approximately
US$1.9 million. Based upon projections, which include corporate
costs, project costs to progress the project and planned
expenditure related to first potential C&I project presented as
part of the planned GridX JV, the Group will be funded until the
beginning of December 2019 although the expenditure on the first
GridX JV project is not yet binding and in the absence of such
planned expenditure the Group is funded until Q4 2020. However, the
forecasts remain subject to the Shareholder Loan being extended or
restructured. The Shareholder Loan of US$4.7 million (principal,
historic redemption premium and interest) matures on 30 November
2019, and the Company is currently evaluating options to execute a
debt for equity swap or, prior to 1 November 2019, prepay the whole
or any part of the loan with the remainder subject to a debt for
equity swap.
The Directors continue to explore options in respect of raising
further funds to continue with the power plant and mine development
programmes. At present there are no binding agreements in place and
there can be no certainty as to the Group's ability to raise
additional funding.
In addition, notwithstanding the Shareholder Loan, further
funding will be required as detailed above to meet operating cash
flows under current forecasts or in the event of accelerated
project advancement. The Directors are exploring a number of
funding and working capital solutions beyond the 30 November 2019
maturity of the Shareholder Loan. The financial statements have
been prepared on a going concern basis in anticipation of a
positive outcome but it is important to highlight that there are no
binding agreements in place. The Company has also been exploring
options to raise additional funding and refinance or convert the
Shareholder Loan however there can be no certainty that any of
these initiatives will be successful.
These factors indicate the existence of a material uncertainty
which may cast significant doubt about the Group's ability to
continue as a going concern. The financial statements do not
include the adjustments that would result if the Group was unable
to continue as a going concern. Such adjustments would principally
be the write down of the Group's non-current assets.
Basis of preparation
The principal accounting policies adopted in the preparation of
these consolidated financial statements are set out below. The
policies have been consistently applied to all the years presented,
unless otherwise stated.
These financial statements have been prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively "IFRS")
issued by the International Accounting Standards Board ("IASB") as
adopted by the European Union ("adopted IFRS").
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgments about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates. The areas involving a higher degree of judgment or
complexity, or where assumptions and estimates are significant to
the consolidated financial statements, are disclosed in note 2.
The Group financial information is presented in United States
dollars (US$) and values are rounded to the nearest thousand
dollars (US$'000).
Loss from operations is stated after charging and crediting all
operating items excluding finance income and expenses.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision only
affects that period or in the period of revision and future periods
if the revision affects both current and future periods.
New and amended standards which are effective for these
Financial Statements
IFRS 9 has replaced IAS 39 Financial Instruments: Recognition
and Measurement. The Group's principal financial assets comprise
cash and other receivables. All of these financial assets continue
to be classified and measured at amortised cost. The Group's
principal financial liabilities comprise trade and other payables,
loans and derivatives. There has been no change to the accounting
classification and treatment of financial liabilities, noting that
previous modifications to loans were treated as significant
modifications with the previous loan extinguished and replaced with
a new loan and any gain or loss recorded in the income statement.
The Group's financial assets held at amortised cost are subject to
provisioning assessments under the expected credit loss model. The
only material financial assets held are cash. The level of credit
risk that the Group is exposed to has not given rise to any
allowances within the expected credit loss model.
IFRS 15 became effective for all periods beginning on or after 1
January 2018. IFRS 15 does not impact
the Group as it is not currently revenue generating.
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 2019 or
later periods have not been adopted early:
Standard Description Effective
date
-------------------- ------------------------------ ------------
IFRS 16 Leases 1 Jan 2019
Annual Improvements 2015 - 2017 Cycle 1 Jan 2019
IFRIC 23 Uncertainty over Income 1 Jan 2019
Tax treatments
IFRS 3 Amendments to IFRS 3 Business 1 Jan 2020*
Combinations - Definition
of a business
IAS 1 and IAS 8 Definition of Material 1 Jan 2020*
-------------------- ------------------------------ ------------
*Not yet endorsed by the EU.
The Group does not have any leases as at 31 December 2018. It is
not considered that the impact of IFRS16 will be material.
Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has control.
The group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are deconsolidated
from the date that control ceases. Where necessary, adjustments are
made to the financial statements of subsidiaries to bring their
accounting policies into line with those used by other members of
the Group. All intra-Group transactions, balances, income and
expenses are eliminated on consolidation.
Business combinations
The acquisition method of accounting is used to account for
business combinations by the Group. The consideration transferred
for the acquisition of a business is the fair value of the assets
transferred, liabilities incurred and the equity interests issued
by the Group. The consideration transferred includes the fair value
of any asset or liability resulting from a contingent consideration
arrangement. Acquisition related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker has been identified as the Board
of Directors.
Share-based payments
Equity-settled share-based payments to employees and Directors
are measured at the fair value of the equity instrument. The fair
value of the equity-settled transactions with employees and
Directors is recognised as an expense over the vesting period. The
fair value of the equity instrument is determined at the date of
grant, taking into account market based vesting conditions.
The fair value of the equity instrument is measured using the
Black-Scholes model. The expected life used in the model is
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
When grant of equity instruments is cancelled or settled during
the vesting period the cancellation is accounted for as an
acceleration of vesting and the amount that otherwise would have
been recognised for services received over the remainder of the
vesting period is immediately expensed.
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%
The carrying value of property plant and equipment is assessed
annually and any impairment is charged to the profit or loss.
Power project costs
Power project expenditure is expensed until it is probable that
future economic benefits associated with the project will flow to
the Group and the cost of the project can be measured reliably.
When it is probable that future economic benefits will flow to the
Group, all costs associated with developing the 300MW power project
are capitalised as power project expenditure within property, plant
and equipment
category of tangible non-current assets. The capitalised
expenditure includes appropriate technical an administrative
expenses but not general overheads. Power project assets are not
depreciated until the asset is ready and available for use.
Exploration and evaluation assets
Exploration and evaluation assets include all costs associated
with exploring and evaluating prospects within licence areas,
including the initial acquisition of the licence are capitalised on
a project-by-project basis. Costs incurred include appropriate
technical and administrative expenses but not general overheads.
Where a licence is relinquished, a project is abandoned, or is
considered to be of no further commercial value to the Group, the
related costs will be written off.
The recoverability of exploration and evaluation assets is
dependent upon the discovery of economically recoverable reserves,
the ability of the Group to obtain necessary financing to complete
the development of reserves and future profitable production or
proceeds from the disposition of recoverable reserves.
Mining assets
When the technical feasibility of the exploration project is
determined, mining licence concession is obtained and a decision is
made to proceed to development stage the related exploration and
evaluation assets are assessed for potential impairment and then
transferred to non-current mining assets and included within
property, plant and equipment.
Mining properties are depleted over the estimated life of the
reserves on a 'unit of production' basis.
Commercial reserves are proven and probable reserves. Changes in
commercial reserves affecting unit of production calculations are
dealt with prospectively over the revised remaining reserves.
Impairment
The carrying amounts of non-current assets are reviewed for
impairment if events or changes in circumstances indicate the
carrying value may not be recoverable. If there are indicators of
impairment, an exercise is undertaken to determine whether the
carrying values are in excess of their recoverable amount. Such
review is undertaken on an asset by asset basis, except where such
assets do not generate cash flows independent of other assets, in
which case the review is undertaken at the cash generating unit
level.
A previously recognised impairment loss is reversed if the
recoverable amount increases as a result of a reversal of the
conditions that originally resulted in the impairment. This
reversal is recognised in the statement of profit or loss and is
limited to the carrying amount that would have been determined, net
of depreciation, had no impairment loss been recognised in the
prior years.
The recoverable amount of assets is the greater of their value
in use and fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate cash
inflows largely independent of those from other assets, the
recoverable amount is determined for the cash-generating unit to
which the asset belongs. The Group's cash-generating units are the
smallest identifiable groups of assets that generate cash inflows
that are largely independent of the cash inflows from other assets
or groups of assets.
Impairments are recognised in the statement of profit or loss to
the extent that the carrying amount exceeds the assets recoverable
amount. The revised carrying amounts are amortised in line with the
Group's accounting policies.
The Group has one cash generating unit being the integrated coal
mining asset and the power plant project. This changes from prior
year where there were two cash generating units. Following the
non-binding agreement and progress towards a binding JDA with CMEC
and GE, the new strategic partners, the development strategy has
changed to an integrated project and as such power and mine
projects are now considered together as a single cash generating
unit reflecting the economics of the project.
Foreign currency
The individual financial statements of each group entity are
presented in the currency of the primary economic environment in
which the entity operates (its functional currency). For the
purpose of the consolidated financial statements, the results of
overseas group entities are translated into US$, which is the
functional currency of the Company and its primary operating
subsidiaries and presentation currency for the consolidated
financial statements, at rates approximating to those ruling when
the transactions took place, all assets and liabilities of overseas
group entities are translated at the rate ruling at the reporting
date. Exchange differences arising on translating the opening net
assets at opening rate and the results of overseas operations with
a non US$ functional currency at actual rate are recognised in
other comprehensive income and accumulated in the foreign exchange
translation reserve.
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rates
of exchange prevailing on the dates of the transactions. At each
reporting date, monetary items denominated in foreign currencies
are retranslated at the rates prevailing on the reporting date.
Exchange differences arising on the settlement of monetary items
and on the retranslation of monetary items are included in the
statement of profit or loss.
Provisions
Provisions are recognised when the Group has a legal or
constructive obligation, as a result of past events, for which it
is probable that an outflow of economic resources will result and
that outflow can be reliably measured.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the profit
or loss because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit. Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised. The
carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised.
Deferred tax is charged or credited to the statement of profit or
loss, except when it relates to items charged or credited directly
to equity, in which case the deferred tax is also dealt with in
equity. Deferred tax assets and liabilities are offset when there
is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income
taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net
basis.
Financial instruments
Financial assets and liabilities are recognised when the Group
becomes party to the contractual provisions of the instrument.
Financial assets
The Group classifies its financial assets into one of the
categories discussed below, depending on the purpose for which the
asset was acquired. The Group did not have any financial assets
designated at fair value through profit or loss. Unless otherwise
indicated, the carrying amounts of the Group's financial assets are
a reasonable approximation of their fair values.
The Group's accounting policy for each category is as
follows:
Loans and receivables
Loans and receivables (including trade receivables) are measured
on initial recognition at fair value and subsequently measured at
amortised cost using the effective interest rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand,
deposits and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Impairment of Financial Assets
The Group recognizes a loss allowance for expected credit losses
("ECL") on financial assets that are
measured at amortised cost which comprise mainly of receivables.
The amount of expected credit losses is updated at each reporting
date to reflect changes in credit risk since initial recognition of
the respective financial instrument. Impairment provisions for
other receivables are recognised based on a forward looking
expected credit loss model. The methodology used to determine the
amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of
the financial asset. For those where the credit risk has not
increased significantly since initial recognition of the financial
asset, twelve month expected credit losses along with gross
interest income are recognised. For those for which credit risk has
increased significantly, lifetime expected credit losses along with
the gross interest income are recognised. For those that are
determined to be credit impaired, lifetime expected credit losses
along with interest income on a net basis are recognised.
Financial liabilities
Financial liabilities held at amortised cost
Financial liabilities refer to trade and other payables and
loans and borrowings (including the host debt in a convertible
instrument) and are initially recognised at fair value net of any
transaction costs directly attributable to the issue of the
instrument. Such liabilities are subsequently measured at amortised
cost using the effective interest rate method, which ensures that
any interest expense over the period to repayment is at a constant
rate on the balance of the liability carried in the statement of
financial position. Where loans and borrowings include a redemption
premium, the estimated premium is included in the calculation of
the effective interest rate.
Where there is a modification to a financial liability, the
financial original liability is de-recognised and a new financial
liability is recognised at fair value in accordance with the
Group's policy.
Convertible loan
Convertible loan notes are assessed in accordance with IAS 32
Financial Instruments: Presentation to determine whether the
conversion element meets the fixed-for-fixed criterion. Where this
is met, the instrument is accounted for as a compound financial
instrument with appropriate presentation of the liability and
equity components.
Where the fixed-for-fixed criterion is not met, the conversion
element is accounted for separately as an embedded derivative which
is measured at fair value through profit or loss. On issue of a
convertible borrowing, the fair value of embedded derivative is
determined and the residual is recorded as a host liability
initially at fair value and subsequently at amortised cost.
Issue costs are apportioned between the components based on
their respective carrying amounts when the instrument was
issued.
The finance costs recognised in respect of the convertible
borrowings includes the accretion of the liability.
Financial liabilities at fair value through profit or loss
This category comprises warrants instruments classified as
derivative financial liability due to the warrant resulting in the
issue of a variable number of shares and the embedded derivative
within the Shareholders Loan. They are carried in the consolidated
statement of financial position at fair value with changes in fair
value recognised in the consolidated statement of profit or loss.
Other than these derivative financial instruments, the Group does
not have any liabilities held for trading nor has it designated any
other financial liabilities as being at fair value through profit
or loss.
Fair value measurement hierarchy
The Group classifies its financial liabilities measured at fair
value using a fair value hierarchy that reflects the significance
of the inputs used in making the fair value measurement (note 19).
The fair value hierarchy has the following levels:
a) Quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1);
b) Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices) (Level 2);
c) Inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within the financial
liability is determined on the basis of the lowest level input that
is significant to the fair value measurement.
Share capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Company's ordinary shares are classified
as equity instruments. The Company considers its capital to be
total equity. The Company is not subject to any externally imposed
capital requirements.
Non-current assets held for sale and disposal groups
Non-current assets and disposal groups are classified as held
for sale when: they are available for immediate sale subject only
to customer conditions; management is committed to a plan to sell;
it is unlikely that significant changes to the plan will be made or
that the plan will be withdrawn; an active programme to locate a
buyer has been initiated; the asset or disposal group is being
marketed at a reasonable price in relation to its fair value; and a
sale is expected to complete within 12 months from the date of
classification.
Non-current assets and disposal groups classified as held for
sale are measured at the lower of: their carrying amount
immediately prior to being classified as held for sale in
accordance with the Group's accounting policy; and fair value less
costs to sell. Following their classification as held for sale,
non-current assets (including those in a disposal group) are not
depreciated.
2. Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future,
which by definition will seldom result in actual results that match
the accounting estimate. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year are
discussed below.
Accounting judgements and estimates
(i) Impairment of power and mining assets
The carrying value of the power plant and mining assets in note
7 are dependent on the success of the power plant project.
Management's judgement is that no indicators of impairment have
occurred during the year. This has included consideration of the
potential sources of impairment indicators prescribed under IAS 36.
Management have considered key milestones, signing of the NBO,
risks and de-risking events and determined that it is more likely
than not that the power plant will be developed given the progress
to date. The carrying value of the assets and feasibility of the
project is supported by the current integrated financial model.
However, the Government have indicated that a more competitive
tariff is required compared to the previous tariff envelope agreed
in principle. The integrated financial model is based on an
approximate 10% reduction in the previous tariff which management
anticipate being acceptable to the Government following
benchmarking and discussions with EDM to date. However,
negotiations are continuing and should an acceptable tariff not be
agreed or other cost efficiencies realised the project may not
proceed and the power assets may not be recoverable.
Following the NBO with CMEC and GE and the new integrated
strategy the power and mining projects are now considered as one
cash generating unit. This required judgment 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 NBO 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 2018 and associated risks and uncertainties, the extent of
progress made towards finalising the JDA and subsequent financial
closure and the period of time to final completion of a transaction
and concluded that the criteria were not met.
(iii) Amendments to shareholder loans and fair value
assessments
Judgement and estimate was required in accounting for the
Group's shareholder loans which were restructured during the
current and prior year.
In 2017 the extensions were treated as the extinguishment of the
originals loans and recognition of new loans with the maturity
having been extended without additional redemption premiums.
Judgement was required in assessing whether the holders were acting
principally in their capacity as debt holders or shareholders with
gains on modification recorded in the income statement under the
former or equity under the latter. Management concluded that the
holders were acting principally in their capacity as debt holders
based on assessment of the size of their shareholdings, the
financial position of the Group at the time which was considered to
be such that the holders accepted the terms to maximise their
potential for eventual recovery of the loans (including premium)
and other facts and circumstances.
Judgement and estimation was required in determining the market
rate of return to apply in calculating the fair value of the loan
instruments on extension in May 2017 and September 2017. Management
estimated the market rate of return and this was applied to arrive
at the fair value of the loan instruments.
In 2018 the restructuring of the loans was treated as the
extinguishment of the originals loans and recognition of new loans.
Judgement and estimation was required in determining the fair value
of liability and derivative components of the loan notes.
Management estimated the fair value of the derivative with the
residual portion considered the debt component. The estimation of
fair value required estimates including factors such as future
share price volatility and the market rates of return for a loan
instrument without conversion rights. The loan note derivative is
considered level 2 for IFRS 13 disclosure purposes. Refer to note
13 and 19.
3. Administrative expenses
2018 2017
US$'000 US$'000
------------------------------- --------- ---------
Staff costs 41 167
Professional and consultancy 1,149 763
Office expenses 78 75
Travel and accommodation 32 12
Other expenses 34 57
Gain on disposal of PPE (44) (89)
Depreciation 68 78
Foreign exchange 103 (12)
--------------------------------- --------- ---------
Total administrative expenses 1,461 1,051
--------------------------------- --------- ---------
Auditors' remuneration
2018 2017
US$'000 US$'000
Group auditors' remuneration
- audit of the Group's accounts 60 48
- audit of the Group's subsidiaries - -
Other services
- interim review 3 3
63 51
----------------------------------------- --------- ---------
Auditors' remuneration is included within professional and
consultancy costs.
Staff costs (including Directors)
2018 2017
US$'000 US$'000
Wages and salaries 40 188
Share based payment 1,226 -
Social security costs - 1
1,266 189
----------------------- --------- ---------
The share based payment charge of US$1,226,000 (2017:US$nil)
excludes share based payments in respect of warrants issued to
consultant of US$71,000 (2017:US$nil).
2018 US$nil (2017: US$21,561) included within wages and salaries
have been capitalised to the power project asset.
The average monthly number of employees (including executive
Directors) of the Group were:
2018 2017
Number Number
Operational 1 1
Administration 3 3
4 4
---------------- -------- --------
Key management compensation:
2018 2017
US$'000 US$'000
Salary - 72
Fees 268 23
Social security costs - -
Share based payment 921 -
1,189 95
----------------------- --------- ---------
Key management personnel are considered to be Directors and
senior management of the Group.
The average monthly number of employees (including executive
Directors) of the Group were:
2018 2017
Number Number
Operational 1 8
Administration 3 5
4 13
---------------- -------- --------
4. Finance expense
2018 2017
US$'000 US$'000
---------------------------------------------- --------- ---------
Interest on loan (note 12) 1,170 648
Fair value adjustment on the warrants
(note 13) (157) (4)
Fair value adjustment on the loan derivative (291) -
(note 13)
722 644
---------------------------------------------- --------- ---------
5. Taxation
The Group entities subject to corporate income tax are Ncondezi
Coal Company Mozambique Limitada and Ncondezi Power Company S.A.
which are subject to tax at the rate of 32% (2017: 32%) on their
profits in Mozambique. No tax charge/ (credit) arose in the current
or prior year for Ncondezi Coal Company Mozambique Limitada and
Ncondezi Power Company S.A.
2018 2017
US$'000 US$'000
------------------------------------------------ -------------- -----------
Current tax - -
------------------------------------------------ -------------- -----------
Group loss on ordinary activities before
tax (3,480) (1,695)
------------------------------------------------ -------------- -----------
Effects of:
Reconcile to Mozambique corporation
tax rate of 32% (2017: 32%) (1,113) (542)
Differences arising from different
tax rates 1,044 499
Taxable losses utilised not previously
recognised 26 (77)
Under/over provision from previous period - -
Foreign exchange effect originating
in overseas companies 14 95
Unrecognised taxable losses in subsidiaries 29 25
Total tax for the year - -
----------------------------------------------- -------------- -----------
During the exploration and development stages, the Group will
accumulate tax losses which may be carried forward. As at 31
December 2018, no deferred tax asset has been recognised for tax
losses of US$4,253,000 (2017: USD$7,978,000) carried forward within
the Group's overseas subsidiaries, as the recovery of this benefit
is dependent on the future profitability, the timing and certainty
of which cannot be reasonably foreseen.
Tax losses in Mozambique are available for use over a five year
period. Of the total available Mozambican subsidiary tax credits,
US$77,000 will be available until 31 December 2023, US$52,000 will
be available until 31 December 2022, US$1,129,000 will be available
until 31 December 2021, US$760,000 will be available until 31
December 2020, and US$1,269,000 will be available until 31 December
2019.
6. Loss per share
Basic loss per share is calculated by dividing the loss
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year.
Due to the losses incurred during the year a diluted loss per
share has not been calculated as this would serve to reduce the
basic loss per share. Out of 25,097,522 (2017: 7,525,000) share
incentives outstanding at the end of the year 13,071,906 (2017:
6,775,000) had already vested, which if exercised could potentially
dilute basic earnings per share in the future.
2018 2017
---------------------------------------- --------- ------------------------------------
Weighted Weighted
average Per average Per
number share number share
Loss of shares amount Loss of shares amount
US$'000 (thousands) (cents) US$'000 (thousands) (cents)
-------------- --------- ------------- --------- ---------- ------------- ---------
Basic and
diluted EPS (3,480) 276,187 (1.3) (1,695) 253,349 (0.7)
--------------- --------- ------------- --------- ---------- ------------- ---------
7. Property, plant and equipment
Power Mining Plant
assets assets Buildings and equipment Other Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------------- --------- --------- ---------- --------------- --------- ---------
Cost (less impairment)
At 1 January 2017 - 7,651 1,736 446 718 10,551
Additions 48 3 - - - 51
Disposals - - (337) (404) - (741)
Reclassified from non-current
assets held for sale 9,389 - - - - 9,389
At 1 January 2018 9,437 7,654 1,399 42 718 19,250
Additions 25 7 - - - 32
Disposals - - (122) (7) - (129)
At 31 December 2018 9,462 7,661 1,277 35 718 19,153
------------------------------- --------- --------- ---------- --------------- --------- ---------
Depreciation
At 1 January 2017 - - 432 406 718 1,556
Depreciation charge - - 70 8 - 78
Disposals - - (312) (385) - (697)
At 1 January 2018 - - 190 29 718 937
Depreciation charge - - 67 1 - 68
Disposals - - (118) (6) - (124)
At 31 December 2018 - - 139 24 718 881
------------------------------- --------- --------- ---------- --------------- --------- ---------
Net Book value 2018 9,462 7,661 1,138 11 - 18,272
------------------------------- --------- --------- ---------- --------------- --------- ---------
Net Book value 2017 9,437 7,654 1,209 13 - 18,313
------------------------------- --------- --------- ---------- --------------- --------- ---------
Power assets relate to the development of a 300MW power plant.
In 2018, the Power assets remains classified as Property, plant and
equipment as detailed in note 2.
Mine assets relate to the initial acquisition of the licences
and subsequent expenditure incurred in evaluating the Ncondezi mine
project. These were transferred from intangible assets on receipt
of the mining concession in 2013.
8. Subsidiaries
The Group has the following subsidiary undertakings:
% interest % interest Country of
2018 2017 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 Mining exploration
Mozambique Limitada 'NCCML' 100 100 Mozambique and development
Ncondezi Power Holdings
2 Limited 'NPH2L' 100 100 UAE Holding company
Ncondezi Power Company
SA 'NPCSA' 100 100 Mozambique Energy company
Ncondezi Coal Company Mozambique Limitada is owned by Zambezi
Energy Corporation Holdings 1 Limited and Zambezi Energy
Corporation Holdings 2 Limited. Ncondezi Power Holdings 2 Limited
is owned by Ncondezi Energy Limited. Ncondezi Power Company SA is
owned by Ncondezi Energy Limited, Zambezi Energy Corporation
Holdings 1 Limited and Ncondezi Power Holdings 2 Limited.
9. Trade and other receivables
2018 2017
US$'000 US$'000
----------------------------------- --------- ---------
Current assets:
Other receivables 54 83
Total trade and other receivables 54 83
----------------------------------- --------- ---------
During the year no impairments were recognised (2017: US$Nil).
The Directors consider that the carrying amount of other
receivables approximates their fair value.
10. Cash and cash equivalents
2018 2017
US$'000 US$'000
-------------------------- --------- ---------
Cash at bank and in hand 424 614
-------------------------- --------- ---------
424 614
-------------------------- --------- ---------
The Group's cash and cash equivalents balances may be analysed
by currency as follows:
2018 2017
US$'000 US$'000
---------------------- --------- ---------
US Dollars 67 77
Great British Pounds 354 535
Mozambique Meticais 3 2
---------------------- --------- ---------
424 614
---------------------- --------- ---------
Where possible cash is deposited in floating rate deposit
accounts at reputable financial institutions with high credit
ratings.
11. Trade and other payables
2018 2017
US$'000 US$'000
------------------------------------ --------- ---------
Other payables 189 212
Other taxation and social security - 1
Accruals 292 805
------------------------------------ --------- ---------
481 1,018
------------------------------------ --------- ---------
Accruals includes US$nil million (2017: US$0.5 million) of
interest in respect of the loans in note 12. The fair value of
payables is not significantly different from their carrying
value.
12. Short term loan
2018 2017
US$'000 US$'000
----------------------------- --------- ---------
Short term loan (unsecured) 4,182 3,495
Unamortised related costs - -
----------------------------- --------- ---------
Total Short term loan 4,182 3,495
----------------------------- --------- ---------
On 11 May 2016, the Group entered into a US$1.32 million loan
facility ("Shareholder Loan") with certain of Ncondezi's Directors,
Management and long term shareholders. On 31 August 2016, AFC
acceded to the existing loan facility agreement, providing a
facility of US$3.0 million, with an initial tranche of US$1.0
million ("Tranche A") and a further tranche of US$2.0 million
("Tranche B") which was conditional amongst other things upon the
fulfilment of certain conditions precedent, the completion of the
JDA and Ncondezi providing an appropriate security package. Tranche
B was never drawn and lapsed.
The repayment terms of the Shareholder Loan were as follows:
-- if the SEP JDA became effective before December 2016 the full
drawn down amount was repayable on 10 May 2017 and a 0.5 times
return on the drawn down amount was repayable 6 months from 10 May
2017
-- if the SEP JDA became effective after December 2016 the full
drawn down amount and the 0.5 times return was repayable on 10 May
2017
-- if the repayment occurred after 10 May 2017, then an
additional return of 0.5 times the total drawings is repayable in
addition to the 1.5 times of the full drawn down amount
The Shareholder Loan was initially recorded at fair value, being
the proceeds received, and subsequently at amortised cost. The
estimated repayment premium of 0.5x capital was recognised over the
period of the loan through the effective interest rate.
Repayment of the Shareholder Loan (comprising the existing
Shareholder Loan and initial US$1.0 million Tranche A from AFC) was
initially payable by no later than 10 May 2017. On 11 May 2017,
the
Company agreed an amendment to the repayment terms, with
repayment of the principal and redemption premium on 2 September
2017. Subsequently on 2 September 2017 the Company was able to
agree an amendment to the repayment terms of the Shareholder Loan,
with repayment now due on 2 September 2018.
On 23 of June 2017 the Company entered into an amendment ("New
Loan") to the original Shareholder Loan with an additional funding
of US$350,000. The financing was committed by the Chairman Michael
Haworth (US$200,000) and other existing long term shareholders
(US$150,000). The New Loan would receive a 1.25x return and was due
to mature on 2 September 2017. The loan was subsequently extended
to 2 September 2018 with no additional return.
As part of this same amendment the senior management team of the
Company agreed to convert their deferred 50% salary between
November 2016 and January 2017, and a percentage of their salary
since February 2017 into the existing Shareholder Loan. The total
amount of US$232,000 was initially due to
mature 2 September 2017 without interest. The maturity date was
subsequently extended to 2 September 2018 with no additional
return.
At the date of the extensions the loans, held at principal plus
redemption premiums, were extinguished and replaced with the
amended loans discounted at market rates of return (see note 2).
The difference between the carrying value of the previous loan and
the fair value of the amended loan was taken to finance costs as a
gain. The discount was then accreted to the date of maturity with
charges recorded in finance costs.
Finance costs in 2017 of US$0.6 million comprise US$2.7 million
of finance charges and US$2.1 million of gains on significant
modification of the loans. The finance charges included the
redemption premiums amortised to original maturity together with
the additional redemption premium on the 2016 loan for non-payment,
amortisation of the amended Shareholder Loan discount between 11
May 2017 and 2 September 2017 and amortisation of the discount of
each loan from 3 September 2017 to 31 December 2017.
On 16 November 2018 the Shareholder Loan was modified with the
maturity date extended to 30 November 2019 and an interest coupon
of 12%. Under the terms the lenders have the right to convert the
loan into equity as follows:
a) First Conversion: lenders shall be entitled to convert all or
part of their portion of the Loan (in multiples of $US1,000) into
fully paid ordinary shares of the Company at a 10.0p conversion
price from the date of this announcement until 1 November 2019;
and
b) Second Conversion: if Lenders who are owed (in aggregate) not
less than 50.1% of the outstanding principal amount of the Loan
from 1 November 2019 until maturity provide a conversion notice to
the Company, all amounts outstanding under the Loan shall convert
into fully paid Ordinary Shares of the Company at a conversion
price the higher of the 30% discount to the 60 day VWAP at 30
November 2019 or 5.2p.
At the date of the restructuring the carrying value of the
previous loans was US$5.1 million and the loan was extinguished and
replaced with the convertible loan notes. The fair value of the new
instrument was determined to be equivalent to the fair value of the
old instrument, with no gain or loss being recognised on
extinguishment. The potential issuance of a variable number of
shares meant the instrument was treated as a host debt liability
with a separate embedded derivative (note 13) representing the
conversion right. The embedded derivative was valued at US$1.0m and
the residual attributed to the host debt liability. Subsequently
the host debt liability has been recorded at amortised cost and
interest recorded at the effective interest rate and the embedded
derivative recorded at fair value through profit and loss.
Net financial cost for the year totalled in relation to short
term loan was US$1.2m (2017: US$0.6m) comprising US$1.1m in respect
of amortised redemption premiums prior to restructuring and US$0.1m
of effective interest charges on the convertible loan host
liability with US$0.3m of fair value changes on the derivative.
In the prior year, interest accrued on the short term loan was
recognised as a separate payable in accruals as detailed in note
11. However since the date of the restructuring, the interest
accrued is being recognised within the short term loan balance
itself.
13. Derivative financial liability
2018 2017
US$'000 US$'000
--------------------------- --------- ---------
Warrants 138 107
Loan derivative (note 12) 707 -
845 107
--------------------------- --------- ---------
Warrants
During the year ended 31 December 2018, 1,520,000 warrants at
subscription price of 6.25 pence per share, were granted to Novum
Securities Limited as part of the placing agreement entered in May
2018 and 1,000,000 warrants at subscription price of 5 pence per
share to a contractor. The warrants have an exercise period of 2
years from 11 June and 25 May 2018 respectively. The warrants are
classified at fair value through profit and loss as the functional
currency of the Company is US Dollars and the exercise price is set
in GBP.
The fair value on the grant date and reporting date were
determined using the Black Scholes Model.
The fair value was based on the following assumptions:
Share Price (GBP) 0.0625 and
0.05
Expected volatility 119%
-----------
Options life (years) 2
-----------
Expected dividends 0
-----------
Risk free rate 0.74%
-----------
The fair value of the 1,520,000 warrants on the grant date was
US$119,345. On initial recognition the warrants' cost was deducted
from share capital balance as it represents the cost of issuing
shares. Subsequent changes in the fair value of the warrants are
recognised through profit or loss. The warrants were valued at
US$60,597 at the year end with the change of fair value of
US$58,748 recognised through profit or loss.
The fair value of the 1,000,000 warrants on the grant date was
US$71,083 which has been recognised on the consolidated statement
of profit or loss. Subsequent changes in the fair value of the
warrants are recognised through profit or loss. The warrants were
valued at US$42,748 at the year end with the change of fair value
of US$28,335 recognised through profit or loss.
The warrants have been deemed to be Level 2 liabilities under
the fair value hierarchy.
Loan derivative
The loan derivative, measured at fair value through profit or
loss, has been deemed to be Level 2 liabilities under the fair
value hierarchy, based on the valuation method used. The Monte
Carlo model was used in arriving at the fair value of the
derivative at inception and year end respectively. Refer to note 12
and 19 for further details.
14. Share capital
Number of shares 2018 2017
Allotted, called up and fully
paid
Ordinary shares of no par value 282,299,844 265,299,844
----------------------------------- ------------ ------------
Shares Share
Issued capital
Number US$'000
---------------------------------- ---------------- --------------
At 1 January 2018 265,299,844 87,384
Issue of shares 15,200,000 1,310
Issue of shares (exercised share
awards) 1,800,000 306
Issue costs - (204)
At 31 December 2018 282,299,844 88,796
----------------------------------- ---------------- --------------
Shares Share
Issued capital
Number US$'000
---------------------------------- --- ------------ ------------
At 1 January 2017 250,299,844 86,557
Issue of shares 15,000,000 987
Issue costs - (160)
At 31 December 2017 265,299,844 87,384
----------------------------------- ------------ ------------
15. 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
------------------ ---------------------------------------------------
16. 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
Lapsed/
Exercise Outstanding Granted Exercised cancelled Outstanding Final
price per Grant at start during during during at year exercise
share date of year the year the year the year end date
---------------- --------- -------------- ----------- ------------ ------------ ---------------- -----------
2018
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 1,775,000 - - (1,625,000) 150,000 25.04.23
Nil 31.01.14 1,800,000 - (1,575,000) - 225,000 30.06.20
6.5p (10.8c) 31.01.14 750,000 - - (750,000) - 30.06.20
Nil* 25.05.18 - 2,568,627 (700,000) - 1,868,627 24.05.28
Nil** 25.05.18 - 750,000 (675,000) - 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
---------------- --------- -------------- ----------- ------------ ------------ ---------------- -----------
Total 7,525,000 22,897,522 (2,950,000) (2,375,000) 25,097,522
---------------- --------- -------------- ----------- ------------ ------------ ---------------- -----------
WAEP (cents) 9.94 8.77 - 2.03 9.73
--------------------------- -------------- ----------- ------------ ------------ ---------------- -----------
Exercise Outstanding Granted Exercised Exercised Outstanding Final
price per Grant at start during during during at year exercise
share date of year the year the year the year end date
---------------- --------- -------------- ----------- ------------ ------------ -------------- -------------
2017
Nil 27.05.10 2,400,000 - - 2,400,000 26.05.20
25c 27.05.10 800,000 - - 800,000 26.05.20
30.5p (47.8c) 19.06.12 500,000 - (500,000) - 18.06.22
17.25p (26.3c) 26.04.13 4,600,000 - (2,825,000) 1,775,000 25.04.23
Nil 31.01.14 1,800,000 - - 1,800,000 30.06.20
6.5p(10.8c) 31.01.14 3,450,000 - (2,700,000) 750,000 30.06.20
---------------- --------- -------------- ----------- ------------ ------------ -------------- -------------
Total 13,550,000 - (6,025,000) 7,525,000
---------------- --------- -------------- ----------- ------------ ------------ -------------- -------------
WAEP (cents) 14.92 - 21.2 9.94
--------------------------- -------------- ----------- ------------ ------------ -------------- -------------
* Vest on grant date
** Vest upon delivery of specific milestones
The Company's mid-market closing share price at 31 December 2018
was 5.65p (31 December 2017: 3.63p). The highest and lowest
mid-market closing share prices during the year were 9.45p (2017:
9.87p) and 3.87p (2017: 1.75p) respectively.
Of the total number of options outstanding at year end
13,071,906 (2017: 6,775,000) had vested and were exercisable. The
weighted average exercise price for the exercisable options at year
end was 7.40p (2017: 8.86p).
The weighted average contractual life of the options outstanding
at the year-end was six years (2017: six years).
In respect of 22,897,522 shares in the Company granted to its
directors, executive senior management team and contracted
personnel 61% are performance related and linked to delivery of
specific milestones, 17% are in lieu of director remuneration and
the balance of 22% is in lieu of senior management, ex-employees
and consultants remuneration. Out of the total options granted in
the year, 8,193,627 vested at grant date.
The fair value of the share awards granted under the Group's
unapproved share option scheme has been calculated using the
Black-Scholes model and spread over the vesting period. The
following principal assumptions were used in the valuation in the
current and prior year:
Share Exercise Volatility Period Risk-free Fair
Grant price price per likely investment value
dated at date share to exercise rate
date of grant over
---------- ----------- --------------- ------------ -------------- ------------- --------
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) 133.33% 5 years 0.7% 4.50c
------------ ----------- --------------- ------------ -------------- ------------- --------
The volatility rates have been calculated using the share price
of a similar company with coal assets in Mozambique for share
options granted in 2012 and analysis of historic Company share
price volatility thereafter.
Based on the above fair values, the expense arising from
equity-settled share options made to employees and Directors was
US$1.2m for the year (2017: nil).
17. Segmental analysis
In 2017 the Group had three reportable segments, following the
NBO with CMEC and GE the new integrated strategy the power and
mining projects are now considered as one segment:
-- Power Project and Mine Project - this segment is involved in
the exploration for coal and development of coal mine and the
development of a 300MW integrated power plant next to the Group's
coal mine concession areas in Mozambique
-- Corporate - this comprises head office operations and the
provision of services to Group companies
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker has been identified as the Board
of Directors.
The operating results of each of these segments are regularly
reviewed by the Group's chief operating decision-maker in order to
make decisions about the allocation of resources and assess their
performance. The Group's mine and power activities are interrelated
and each activity is dependent on the other. Accordingly, all
significant operating decisions are based upon analysis of the mine
and power activities as one segment and corporate as one
segment.
The segment results for the year ended 31 December 2018 are as
follows:
Power Corporate
& Mine US$'000
project Group
Income statement US$'000 US$'000
--------------------------------- ---------- ----------- ----------
For the year ended 31 December
2018
--------------------------------- ---------- ----------- ----------
Segment result after allocation
of central costs (559) (2,199) (2,758)
---------------------------------- ---------- ----------- ----------
Finance expense - (722) (722)
Finance income - - -
--------------------------------- ---------- ----------- ----------
Loss before taxation (559) (2,921) (3,480)
Taxation - - -
--------------------------------- ---------- ----------- ----------
Loss for the year (559) (2,921) (3,480)
---------------------------------- ---------- ----------- ----------
The segment results for the year ended 31 December 2017 are as
follows:
Power Mine Corporate
project project US$'000 Group
Income statement US$'000 US$'000 US$'000
--------------------------------- ---------- ---------- ----------- ----------
For the year ended 31 December
2017
--------------------------------- ---------- ---------- ----------- ----------
Segment result after allocation
of central costs (615) 44 (480) (1,051)
--------------------------------- ---------- ---------- ----------- ----------
Finance expense - - (644) (644)
Finance income - - - -
--------------------------------- ---------- ---------- ----------- ----------
Loss before taxation (615) 44 (1,124) (1,695)
Taxation - - - -
--------------------------------- ---------- ---------- ----------- ----------
Loss for the year (615) 44 (1,124) (1,695)
--------------------------------- ---------- ---------- ----------- ----------
Other segment items included in the Income statement are as
follows:
Power Corporate
& Mine US$'000
project Group
Income statement US$'000 US$'000
-------------------------------- ------------ -------------- ----------- ----------
For the year ended 31 December
2018
Depreciation charged to the
income statement (68) - (68)
Share based payment - (1,297) (1,297)
---------------------------------------------- -------------- ----------- ----------
Power Mine project Corporate
project US$'000 US$'000 Group
Income statement US$'000 US$'000
--------------------------------- ----------- -------------- ----------- ------------
For the year ended 31 December
2017
Depreciation charged to the
income statement - (78) - (78)
--------------------------------- ----------- -------------- ----------- ------------
The segment assets and liabilities at 31 December 2018 and
capital expenditure for the year then ended are as follows:
Power Corporate
& Mine US$'000
project Group
Statement of financial position US$'000 US$'000
--------------------------------- ---------- ----------- ---------
At 31 December 2018
--------------------------------- ---------- ----------- ---------
Segment assets 18,032 718 18,750
Segment liabilities (224) (5,284) (5,508)
---------------------------------- ---------- ----------- ---------
Segment net assets 17,808 (4,566) 13,242
---------------------------------- ---------- ----------- ---------
Property plant and equipment
capital expenditure 32 - 32
---------------------------------- ---------- ----------- ---------
The segment assets and liabilities at 31 December 2017 and
capital expenditure for the year then ended are as follows:
Power Mine Corporate
project project US$'000 Group
Statement of financial position US$'000 US$'000 US$'000
--------------------------------- ---------- ---------- ----------- ----------
At 31 December 2017
--------------------------------- ---------- ---------- ----------- ----------
Segment assets 9,439 8,643 928 19,010
Segment liabilities (210) (11) (4,399) (4,620)
--------------------------------- ---------- ---------- ----------- ----------
Segment net assets 9,229 8,632 (3,471) 14,390
--------------------------------- ---------- ---------- ----------- ----------
Property plant and equipment
capital expenditure 48 3 - 51
--------------------------------- ---------- ---------- ----------- ----------
18. Reconciliation of liabilities arising from financing
activities
Accrued Short Derivative Total
interest term loan financial
liability
-------------------------- --------------------- ---------------------- ---------------------- -------------------
US$'000 US$'000 US$'000 US$'000
At 1 January
2018 510 3,495 107 4,112
Cash flows - - - -
- - - -
Non cash
finance
charges 1,050 124 - 1,174
Restructuring
of loan (1,560) 1,560 - -
Non cash - - - -
change in
accruals
FV of warrants
issued - - 189 189
FV of loan
derivative - (997) 997 -
Change in fair
value - - (448) (448)
-------------------------- --------------------- ---------------------- ---------------------- -------------------
At 31 December
2018 - 4,182 845 5,027
-------------------------- --------------------- ---------------------- ---------------------- -------------------
Accrued Short Derivative Total
interest term loan financial
liability
-------------------------- --------------------- ---------------------- ---------------------- -------------------
US$'000 US$'000 US$'000 US$'000
At 1 January
2017 610 2,169 - 2,779
Cash flows - 350 - 350
Deferred
payroll costs
capitalised
to
shareholder
loan - 232 - 232
Non cash
finance
charges net
of
modification
gains - 744 - 744
Non cash
change in
accruals (100) - - (100)
FV of warrants
issued - - 110 110
Change in fair
value - - (3) (3)
-------------------------- --------------------- ---------------------- ---------------------- -------------------
At 31 December
2017 510 3,495 107 4,112
-------------------------- --------------------- ---------------------- ---------------------- -------------------
19. 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:
2018 2017
US$'000 US$'000
---------------------------------------------- --------- ---------
Loans and receivables at amortised cost
Trade and other receivables 16 44
Cash and cash equivalents 424 614
Financial liabilities held at amortised cost
Trade and other payables 481 1,018
Loans and borrowings 4,182 3,495
Financial liabilities at fair value through
profit or loss
Derivative financial liability 845 107
---------------------------------------------- --------- ---------
For details of the fair value hierarchy and valuation techniques
relating to the determination of the fair value of the derivative
financial liability, refer to note 13.
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and retains
ultimate responsibility for them.
The overall objective of the Board is to set polices that seek
to reduce risk as far as possible without unduly affecting the
Group's competitiveness and flexibility. Further details regarding
these policies are set out below:
Liquidity risk
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due.
The Board receives cash flow projections on a monthly basis as
well as information on cash balances.
2018
Between Between Between
on demand in 1 1 and 6 and 1 and
Total month 6 months 12 months 3 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- -------- ------------ -------- ---------- ----------- ---------
Trade and other payables 481 - 112 - 369 -
Loans and borrowings 5,661 - - - 5,661 -
2017
Between Between Between
on demand in 1 1 and 6 and 12 1 and
Total month 6 months months 3 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
-------------------------- -------- ------------ -------- ---------- ---------- ---------
Trade and other payables 1,018 - 228 265 525 -
Loans and borrowings 5,100 - - - 5,100 -
-------------------------- -------- ------------ -------- ---------- ---------- ---------
The Group endeavours to match the maturity of its current assets
with its current liabilities to mitigate liquidity risk. Refer to
note 1 for the material uncertainty regards going concern.
Borrowing facilities
The Group had no undrawn and unconditional committed borrowing
facilities available at 31 December 2018 (2017: Nil).
Market risk
The Group does not currently sell any coal or electricity. As
such there is no specific market risk at the date of this report.
However, there is a risk that the Group is unable to secure a
credit worthy off-taker for the full output of the power plant,
with the plant operating at load factors in excess of 80%.
Currency risk
The Group is exposed to currency risk through its activities due
to certain costs arising in Mozambique Meticais and cash held in
GBP, whilst the functional currency is US dollars. The Group has no
formal policy in respect of foreign exchange risk, however, it
reviews its currency exposures on a monthly basis. Currency
exposures relating to monetary assets held by foreign operations
are included within the Group statement of profit or loss. The
Group also manages its currency exposure by retaining the majority
of its cash balances in US dollars, being a relatively stable
currency.
A 5% appreciation in the value of the US dollar against the
Meticais and GB pounds will increase net assets by US$16,069 (2017:
decreased net assets by US$20,803).
Currency exposures
As at 31 December the Group's net exposure to foreign exchange
risk was as follows:
2018 2017
US$'000 US$'000
Assets/(liabilities) Assets/(liabilities)
held held
GBP MZN Total GBP MZN Total
US dollars 323 1 324 485 39 524
323 1 324 485 39 524
The Group is exposed to foreign exchange risk arising from
various currency exposures primarily with respect to the Mozambican
Meticais and Sterling, but these are not significant as most of the
transactions are in USD.
20. Related party transactions
Parties are considered to be related if one party has the
ability to control the other party, is under common control, or can
exercise significant influence over the other party in making
financial and operational decisions. In considering each possible
related party relationship, attention is directed to the substance
of the relationship, not merely the legal form.
In relation to the Shareholder Loan as at 31 December 2018 there
was no drawn (2017: US$671,591) by a Trust of which Non-Executive
Chairman, Michael Haworth is a potential beneficiary. $nil drawn by
Director, Christiaan Schutte (2017: US$185,864), and $nil drawn
from Director, Estevão Pale (2017: US$55,011). Refer to note 11 for
details of the terms and conditions. Refer to note 12 for details
of the terms and conditions.
Christiaan Schutte - Former Non-Executive Director of Ncondezi
Limited, resigned on 30 September 2018 - Director of CPS
Consulting
During the year US$27,100 (2017: US$23,400) was paid by the
Company to CPS Consulting in respect of services provided by
Christiaan Schutte. There was no outstanding balance at 31 December
2018 (2017: Nil).
CPS provides technical oversight and due diligence for
independent power producers and related projects. Working directly
with O&M and EPC contracts on behalf of the Company on the
Power Project.
Aman Sachdeva -Non-Executive Director of Ncondezi Energy Limited
- CEO of Synergy Consulting Inc.
During the year US$160,278 (2017: US$200,876) was paid by the
Company to Synergy Consulting Inc. in respect of services provided
by Synergy. At 31 December 2018 the outstanding balance was
US$41,105 (2017: US$45,000).
As announced on 15 February 2019 the Company identified that
this related party relationship had not been previously disclosed,
although amounts due or paid under the Contracts have been
appropriately recorded in the preparation of the Company's audited
financial statements for relevant periods. Accordingly the
disclosure of the comparative information was omitted from the
prior year disclosure.
During 2016 US$133,457 was paid by the Company. At 31 December
2016 the outstanding balance was US$20,363. There were no
transactions prior to 2016.
Synergy has been providing advice to the Company in connection
with the Ncondezi 300MW coal fired power plant, and other potential
opportunities in the African power sector.
In May 2016, the Company engaged Synergy to provide financial
and transaction advisory services relating to the Project and a
potential transaction with a strategic partner. Towards the middle
of 2017 the service scope expanded to provide transaction advisory
services to identify a new strategic partner which ended up with
the signing of the NBO with CMEC and GE, and subsequent process on
the JDA.
In November 2018, the Company and Synergy entered into an
agreement for due diligence and transaction advisory services
relating to the evaluation of the GridX investment opportunity and
Term Sheet.
Synergy is a global independent consultancy specialising in
infrastructure advisory and project finance, and has experience in
achieving financial closure for deals worth approx. US$25bn and
M&A advisory for deals worth US$5bn.
Details of Key Management Remuneration are contained in Note
3.
21. Commitments
Social development programme
In December 2012 a Memorandum of Understanding was signed with
the Mozambican Ministry of Mineral Resources and Energy in respect
of a Social Development Programme, with a committed spend of US$2m
following an agreed programme. By December 2016 half of this budget
has been successfully spent in various initiatives. During the year
there were no expenditure related to social development programmes
(2017: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$5m was committed. The
expenditure programme is still to be negotiated with the Ministry
of Mineral Resources and Energy.
Environmental licence fee
An environmental licence fee of 0.2% of the capital cost of
construction is payable before commencement
of construction.
EMEM 5% investment in NCCML
Along with the issuance of the Mining Concession, Ncondezi's
local subsidiary NCCML also concluded
an Addendum to Mine Framework Agreement ("MFA") with Mozambican
Ministry of Mineral Resources and Energy. Under the terms of the
Addendum to the MFA, it has been agreed that the Government owned
Mozambican Mining Exploration Company ("EMEM") will be granted a 5%
free carry in the share capital of NCCML up to the start of the
Ncondezi mine's construction. However, from the commencement of
construction EMEM will be required to pay, through an agreed
funding mechanism, for its share of any future equity funding
obligations that may be required from the shareholders of NCCML
including its share of the construction and commissioning costs of
bringing the Ncondezi mine into commercial operation.
22. Events after the reporting date
Power project update
On 28 February 2019, following positive meetings with the
Liaison Committee, the updated Project work program and timetable
targeting power on the grid by 2023 was approved and the Company's
Strategic Partners confirmed that the process to conclude the JDA
could now move forward.
Shareholders Loan conversions
In the first half of 2019 a total of US$935,000 of loan
principal plus interest was converted into equity equivalent to
7,193,328 ordinary shares being issued.
Share Options executed
On 14 March 2019 a total of 1,000,000 share options nil value
subscription price vested at grant on 25 May 2018 were requested to
be exercised. The equivalent to 1,000,000 new ordinary shares of no
par value were issued.
Warrants conversions
On 19 March and 1 April of 2019 a total of 1,000,000 warrants at
subscription price of 5 pence per share issued on 25 May 2018 were
requested to be converted into equity. The equivalent of 1,000,000
new ordinary shares of no par value were issued.
GridX JV
In March 2019, the Company entered into a term sheet with GridX,
an African power developer, enabling it to enter into a JV focused
on building and operating captive solar and battery storage
solutions for the African Commercial and Industrial ("C&I")
sector (the "Term Sheet"). Justin Pengilly one of the Directors of
GridX is the brother of Hanno Pengilly, the Company's Chief
Development Officer and is included as a member of key management
under IFRS definitions by the Company.
The above transaction is not considered to represent a
disclosable related party transaction under the AIM Rules following
assessment by the Board and its advisors.
Placing
On 5 April 2019, the Company raised a total of GBP1.88m
(US$2.48m) before expenses, through a conditional placing and
direct subscriptions of 28,856,060 ordinary shares in the Company
at a price of 6.50 pence per ordinary share.
Project Development
On 29 April 2019, the Company joined the Mozambique government
delegation in Beijing, China, for the Second Belt and Road Forum
for International Cooperation. During the visit, Ncondezi, CMEC and
GE held successful meetings with His Excellency Mr Filipe Nyusi,
President of the Republic of Mozambique, the Governor of Tete and
the Deputy Minister of MIREME.
Company Information
Directors Michael Haworth (Non-Executive Chairman)
Estevão Pale (Non-Executive Director)
Jacek Glowacki (Non-Executive Director)
Aman Sachdeva (Non-Executive Director)
Company Secretary Elysium Fund Management Limited
PO Box 650, 1(st) Floor, Royal Chambers
St Julian's Avenue
St Peter Port
Guernsey
GY1 3JX
Registered Office Ground Floor, Coastal Building
Wickham's Cay II
PO Box 2136, Carrot Bay
VG1130
Road Town
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
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 Adelaide House
London Bridge
London
EC4R 9HA
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR CKFDQOBKKNAB
(END) Dow Jones Newswires
June 28, 2019 04:02 ET (08:02 GMT)
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