TIDMNCCL
RNS Number : 5730Q
Ncondezi Energy Limited
22 June 2020
www.ncondezienergy.com
News Release
Audited Final Results for Year Ended 31 December 2019
22 June 2020: Ncondezi Energy Limited ("Ncondezi" or the
"Company") (AIM: NCCL) is pleased to announce its audited final
results for the year ended 31 December 2019.
Project Highlights
-- On 28 February 2019, the Company announced that following
positive meetings with the Liaison Committee, chaired by the
Ministry of Mineral Resources and Energy ("MIREME"), the updated
Project work programme and timetable targeting power on the grid by
2023 had been approved and the Company's strategic partners had
confirmed that the process to conclude the Joint Develop Agreement
("JDA") could now move forward.
-- On 23 July 2019, the Company signed the JDA with China
Machinery Engineering Corporation ("CMEC") and General Electric
Switzerland GmbH ("GE") to co-develop and construct the integrated
Ncondezi 300MW coal fired power project and coal mine. CMEC is
expected to act as the lead development partner and GE the main
technology partner for the boilers, steam turbine, generator and
emission control systems.
-- On 21 October 2019 a technical due diligence site visit was
successfully completed by the Company's strategic partner CMEC as
part of the process to prepare the Engineering, Procurement and
Construction ("EPC") and Operations and Maintenance ("O&M")
contracts.
-- On 12 December 2019 Synergy Consulting ("Synergy") was
selected as preferred financial advisor to prepare the Project
financial model and finalise the tariff submission and negotiation
process with Electricidade de Moçambique ("EDM"). KPMG Auditores e
Consultores S.A. ("KPMG") was also appointed to provide tax
services related to the Project financial model.
-- On 31 December 2019, the Company received updated EPC and
O&M bids as well as indicative debt financing terms and the
preliminary tax and financial incentives report for the
Project.
C&I Solar and Battery Storage Highlights
On 5 April 2019, the Company announced it had entered into a
term sheet with GridX, an African power developer, enabling it to
enter into a Joint Venture ("JV) focused on building and operating
captive solar and battery storage solutions for the African C&I
sector.
-- On 23 October 2019, the Company entered into a Subscription
Agreement and a Shareholders' Agreement with GridX and GridX Africa
AssetCo ("GridX SPV") to finance the development of a 400 kWp fully
off grid, ground mounted solar photovoltaic ("PV") facility plus
228 kW/912 energy storage facility for a commercial customer in
Mozambique.
Corporate Highlights
-- On 9 October 2019 Hanno Pengilly was appointed as a Director
of the Company and the Company's new Chief Executive Officer
("CEO").
-- On 15 October 2019, Christiaan Schutte was appointed as the
Company's interim Chief Operating Officer ("COO") and Pimlico
Advisory Ltd was appointed to provide Investor Relations services
to the Company.
-- On 25 November 2019 Jacek Glowacki resigned from the Board of
the Company and his role as Non-Executive Director.
-- On 26 November 2019, as part of the Company's management
incentive scheme, The Company granted share options in respect of
7,833,332 shares in the Company to its Non-Executive Directors and
CEO representing 2.4 per cent. of the issued share capital of the
Company.
Financial Highlights
-- On 19 March and 1 April 2019 a total of 1,000,000 warrants at
subscription price of 5 pence per share issued on 25 May 2018 were
exercised and following this 1,000,000 new ordinary shares of no
par value were issued.
-- On 5 April 2019, the Company raised a total of GBP1.88
million before expenses, through a conditional placing and direct
subscriptions of 28,856,060 ordinary shares in the Company at a
price of 6.50 pence per ordinary share.
-- On 17 May 2019 a total of 1,000,000 nil value subscription
price share options vested at grant on 25 May 2018 were exercised.
Following this 1,000,000 new ordinary shares of no par value were
issued.
-- On 30 July 2019 a total of 1,500,000 warrants at subscription
price of 5 pence per share issued on 20 October 2017 were exercised
and following this 1,500,000 new ordinary shares of no par value
were issued.
-- On 23 October 2019, the Company entered into a US$750,000
working capital facility for the continued development of the
Ncondezi Project. The working capital facility is available for
drawdown until 30 June 2020 at the Company's election and is
repayable within 24 months from first drawdown, unless there is an
event of default or the Company elects to prepay the facility. The
working capital facility will attract a 10% annual interest charge,
payable at maturity or on repayment.
-- On 26 November 2019, the Company received "in principle"
support from all Shareholder Loan holders ("Lenders") to enter a
Shareholder Loan ("Loan") restructuring proposal. The loan term
expired on 30 November 2019 with no extensions or restructuring
legally agreed as at year end. The Company has received "in
principle" support from all Lenders to enter the Loan restructuring
proposal.
-- On 26 November 2019 as part of the Company's management
incentive scheme, the Company granted share options in respect of
7,833,332 shares in the Company to its Non-Executive Directors and
CEO representing 2.4 per cent of the issued share capital of the
Company.
-- During 2019, a total of US$1,344,000 of loan principal,
rolled up previous redemption premiums plus interest was converted
into equity at a price of 10.0 pence per ordinary share which
resulted in an aggregated of 10,337,813 ordinary shares being
issued over the year.
Post balance sheet events
-- In January 2020, US$250,000 has been drawndown from the
working capital facility put in place in October 2019 with the
remaining facility of US$500,000 available until end of June 2020
although it is not currently intended to utilise it further.
-- On 31 March 2020, the Company submitted a firm tariff
proposal to the Mozambican Government and EDM. The proposal was
supported by:
o Executed JDA;
o Detailed EPC and O&M proposals from CMEC and GE;
o Indicative debt financing terms from a leading financial
institution; and
o A Letter of Interest from a leading export credit agency.
-- On 9 April 2020, project construction for the C&I solar
and battery project in Mozambique was put on hold pending further
clarity of the impact of COVID-19 and lifting of travel
restrictions. A force majeure notice was issued by the project
offtaker in Mozambique due to the inability to provide site access
for construction.
-- On 5 May 2020, Estev ã o Pale resigned from the Board of the
Company and his role as Non-Executive Director.
-- On 6 May 2020, the Company finalised a binding Relationship
Agreement ("RA") with GridX for a US$5.5 million pipeline of solar
and battery storage projects in the C&I sector and agreed to
acquire the remainder of the 100% of the SPV set up for the first
solar and battery storage project investment which it did not hold
for US$100. Under the RA the obligation to pay the remaining
$130,000 GridX fees relating to ROFR under the original term sheet
was terminated.
-- On 15 May 2020, the Company raised a total of GBP650,000
before expenses, through a placing of 21,666,666 ordinary shares in
the Company at a price of 3 pence per Ordinary Share ("Placing
Price") together with 1 warrant to subscribe for an Ordinary Share
at 6 pence per new Ordinary Share. The Company also received
subscriptions for a total of 2,466,666 Ordinary Shares in the
Company at the Placing Price for a further GBP74,000 being equal to
the amounts owed to certain creditors. In addition the Senior
Management Team and certain consultants to the Company have agreed
to defer 30% of salaries and fees until 30 November 2020. In
principle agreement has been reached to subscribe for shares at the
Placing Price in relation to salaries and fees that have been
agreed to be deferred. Such subscription, if implemented, would be
made in December 2020 and represent a potential total of 1,603,800
new Ordinary Shares at the Placing Price for a further GBP48,114.
Separately CEO Hanno Pengilly agreed to defer 30% of his salary
until 30 November 2020.
-- Mozambique brought in nationwide restrictions to stem the
spread of the COVID-19 pandemic on 1 April 2020 which have been
extended at least until the end of June 2020. The Company suspended
all travel to Mozambique while continuing to work with its partners
remotely. The impact of the travel restrictions has resulted in the
halting of construction of and force majeure declared on the
C&I solar and battery project. During tariff negotiation
discussions it was highlighted that available technical and market
assumptions critical to the Project are out of date. The Company
has agreed to update its transmission integration study and conduct
an independent market study for energy supply and demand forecasts
in Mozambique and potential export markets ("Independent Studies").
The studies will also take into account the potential impact of
COVID-19. These studies are anticipated to add at least 2 months to
the Project development programme moving the tariff agreement to H2
2020. Other workstreams have also been impacted by the travel
restrictions, the Shareholder Agreement Term Sheet, historical
audit and finalisation of the EPC contracts are all now expected in
Q3 2020.
The Company will post its Annual Report and Accounts for the
year ended 31 December 2019 ("2019 Annual Report and Accounts") to
shareholders on 22 June 2020. A copy of the 2019 Annual Report and
Accounts will be available on the Company's website
www.ncondezienergy.com.
Enquiries
For further information please visit www.ncondezienergy.com or
contact:
Ncondezi Energy Hanno Pengilly +27 (0) 71 362 3566
Liberum Capital Limited Scott Mathieson, Edward Thomas, +44 (0) 20 3100
NOMAD & Joint Broker Kane Collings 2000
Novum Securities
Limited +44 (0) 20 7399
Joint Broker Colin Rowbury 9427
Pimlico Advisory
Ltd +44 (0) 777 56 55
Investor Relations Elizabeth Johnson 927
Note:
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation ("MAR"). Upon the publication of this
announcement via Regulatory Information Service ("RIS"), this
inside information is now considered to be in the public domain. If
you have any queries on this, then please contact Hanno Pengilly,
Chief Executive Officer of the Company (responsible for arranging
release of this announcement) on +27 (0) 71 362 3566.
About Ncondezi Energy
Ncondezi is an African power development company with an
advanced staged, integrated 300MW thermal coal power plant and mine
project located in the Tete Province, Northern Mozambique.
The Company is focused on providing reliable, affordable and
accessible baseload energy to Mozambique and secure against the
effects of water drought and intermittency of new renewables. This
project supports Mozambique's energy strategy of universal
electricity access by 2030. According to the World Bank, only 30%
of the Mozambican population had access to energy in 2017. The
Ncondezi Project would provide 300MW of reliable and available
power helping to close the infrastructure gap of the region and
serving as a catalyst for economic development.
The power plant will be designed to be equipped with
state-of-the-art emissions controls technologies that will reduce
local air pollutants, minimizing the plant's impact on the
environment and ensuring its compliance with the most stringent
emission standards
In 2019, the Company entered into the Commercial and Industrial
("C&I") renewable and battery storage sector and in October
2019 announced its first investment in an off grid solar battery
project. The Company has also secured the right to fund a US$5.5m
C&I project development pipeline in Mozambique through a
Relationship Agreement with GridX Africa Development announced in
May 2020. The move into the C&I solar and battery storage
sector offers a significant opportunity for the Company to
complement the existing large-scale baseload power project and
access near-term low-risk annuity income streams which have
significant growth potential.
Chairman's Statement
Dear Shareholder,
The developing impact of the COVID-19 crisis has highlighted the
global importance of the energy sector in maintaining essential
services, hospitals, and communications. Post the crisis, the
energy sector is expected to play a leading role in driving
economic recovery and development. In Africa the situation is more
acute with 70% of the world's population without access to
electricity located in Sub-Saharan Africa. The Mozambique
government has targeted universal energy access by 2030, to achieve
this significant expansion in generation capacity is required. The
Ncondezi Project is aligned with these objectives and is one of the
most advanced projects in Mozambique capable of providing reliable,
affordable and accessible baseload energy helping to close the
infrastructure gap of the region and serving as a catalyst for
economic development.
The proposed power plant will be equipped with state-of-the-art
emissions control technologies that will reduce local air
pollutants, minimising the plant impact on the environment and
ensuring its compliance with the most stringent emission
standards.
The 2019 financial year has seen the Company make significant
progress with the flagship Ncondezi Project. A JDA was concluded in
July with partners, CMEC and GE. The JDA formalises certain of the
key terms on which the Project will be co-developed and constructed
and represents a major milestone for the Company enhancing its
credibility and setting a clear pathway to closing out project
investment and financing.
From a commercial perspective, the JDA confirms that Ncondezi is
expected to maintain a 40% equity interest in the Project at
Financial Close ("FC") and is expected to receive a reimbursement
of historical development costs and payment of a subscription price
for the 60% equity share to the project company. It is expected
that the historical development costs and subscription price will
be agreed between the parties before the Power Purchase Agreement
("PPA") and Power Concession Agreement ("PCA") are finalised,
subject to Government and lender approvals, and will likely be
allocated towards the Company's 40% equity contribution at FC.
Further details of the JDA are set out below.
Following signature of the JDA, the focus moved to the next
value enhancing milestones, namely the confirmation of a tariff
offer with EDM. This process saw the achievement of a number of key
deliverables, including detailed EPC and O&M proposals from
CMEC and GE, indicative debt financing terms from a leading global
financial institution and a Letter of Interest from a leading
export credit agency. These achievements led to the formal tariff
submission to EDM on 31 March 2020.
The Board believes the tariff proposal to be commercially
attractive being competitive with existing gas power plants in
Mozambique and over 10% lower than the previously agreed EDM tariff
in 2015.
Negotiations with EDM are currently underway and progressing
well despite the travel restrictions due to the COVID-19 outbreak.
However, I am mindful that the implications of the global COVID-19
outbreak are developing rapidly and whilst we are taking all
pragmatic steps to respond to this unprecedented situation,
including suspending all travel and moving all workstreams that we
can online the impact on our business remains uncertain.
In parallel to the tariff negotiation process, the Company and
its partners have agreed to progress the finalisation of Ncondezi
historic development costs, Shareholder Agreement Term Sheet and
the EPC Contract. All of these steps are expected to be achieved in
the coming months and play a crucial role in further de-risking the
Project.
Following a request from EDM to update the transmission
integration study and to conduct an independent market study the
Company has submitted an updated timetable and work programme to
EDM targeting the finalisation of the power tariff and other
deliverables during the second half of 2020. A more detailed
timetable update will be provided to investors at the appropriate
time.
The Project achievements in 2019 would not have been possible
without continued government support highlighted by the Project's
inclusion by Chinese and Mozambique Governments on the list of key
infrastructure projects at the 2(nd) China-Mozambique International
Cooperation Summit held in the first half of 2019. The Company was
subsequently invited to present to the Inter-Ministerial Committee
for China and Mozambique (the "Committee") as a China-Mozambique
priority investment project in December 2019.
The 2019 financial year also saw the formal entry by the Company
into the exciting C&I solar and battery storage sector with the
signing of a term sheet with GridX. The Board believes the move
into this sector represents a significant opportunity for the
Company to complement its existing large scale baseload power
project and access near-term low-risk annuity income streams which
the Company believes has significant growth potential.
The continued decline in solar panel and battery costs are
setting the foundation for a tide of disruptive technology in
African energy markets, allowing African countries to leapfrog to
the next generation of sustainable energy supply. In a similar way
to wireless cellular phones allowing African countries to bypass
fixed line infrastructure and adopt mobile technology. At the same
time, significant investment appetite is growing in the sector as
investors increasingly recognise smaller renewable captive
generation projects as a source of steady returns.
In October 2019, the Company entered into a Subscription
Agreement to finance the development of its first off grid solar
and battery storage project for a commercial customer in
Mozambique. This project is currently under construction but
following the receipt of a force majeure notice from the Project
offtaker remains on hold pending further clarity on the impact of
COVID-19 and the lifting of travel restrictions, further updates
will be made to shareholders in due course.
In May 2020, the Company finalised a binding RA with GridX
replacing the previous term sheet to form a JV and securing a right
of first refusal (subject to certain conditions) to fund 100% of a
GridX pipeline of 7 Mozambique C&I solar and battery storage
projects up to a total investment value of approximately US$5.5
million. This structure provides the opportunity for a phased and
low risk entry point into the sector, with GridX responsible for
the development and delivery of construction ready projects for
investment consideration and, over time, a diversified portfolio
approach spreading investment risk across multiple projects.
All projects will be housed under the Company's newly formed
renewable energy subsidiary Ncondezi Green Power Holding Ltd
("NGPHL") and will be 100% owned by the Company.
To implement the Company's strategy, the Board appointed Hanno
Pengilly as CEO and Chris Schutte as COO in October 2019. Both have
significant experience with the Project and operating in Mozambique
and their appointments highlight their continued commitment to the
Company whilst providing confidence in the Company's future.
On 25 November 2019, the Company announced that Jacek Glowacki
resigned from the Board of the Company and his role as
Non-Executive Director due to personal issues. Additionally, on 5
May 2020, the Company announced that Estevão Pale resigned from the
Board of the Company and his role as a Non-Executive Director to
focus on his newly appointed role as Chairman of Mozambique
national oil company, Empresa Nacional de Hidrocarbonetos. Both
Jacek and Estavao provided invaluable support and guidance
throughout their Directorships and we wish them well in the
future.
Financing
In April 2019, the Company raised 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.
The Shareholder Loan matured on 30 November 2019 and the
repayment amount due up to 19 June 2020 was US$4.5 million which
includes principal, rolled up premiums under the previous loans and
interest. Since the successful restructuring in November 2018, over
US$1.3 million of debt has been converted into equity at a price of
10p per ordinary share, representing a significant premium to the
share price during this period. The Company intends to extend and
restructure the outstanding loan and received "in principle"
support from all Lenders to enter the Loan restructuring proposal
in November 2019 and again in May 2020. Draft documentation was
submitted to Lenders in December. The Company is confident of a
positive outcome as there is significant alignment between the loan
holders and the major shareholder and senior management of the
Company with 87% of the loan outstanding held between Africa
Finance Corporation ("AFC") (the Company's largest shareholder),
the Board and senior management. The restructuring process is
currently waiting for key Lender internal approval from AFC, which
has incurred recent delays due to the impact of COVID-19. Despite
the delays AFC has indicated that it is supportive of the
Restructuring however, there can be no certainty that the holders
of the Shareholder Loan will agree to an extension or restructure
or the terms on which they will agree to do so.
The Company put in place a US$750,000 working capital facility
in October 2019 to strengthen the balance sheet as the Company
continued to deliver on its strategy for the main Ncondezi Project.
The working capital facility was provided by a company owned by a
trust of which CEO, Hanno Pengilly, is a potential beneficiary. To
date US$250,000 has been drawndown, with the remaining facility of
US$500,000 available until the end of June 2020 although it is not
currently intended to utilise it further.
The Company successfully raised a total of GBP650,000 before
expenses, despite challenging markets on 15 May 2020 through a
conditional placing of 21,666,666 ordinary shares in the Company at
a price of 3 pence per Ordinary Share together with 1 warrant to
subscribe for an Ordinary Share at 6 pence per new Ordinary Share.
Separately CEO Hanno Pengilly, members of the Senior Management
Team and certain consultants agreed a deferral of 30% of fees owed
until the end of November 2020 demonstrating the support and
commitment of the Ncondezi team.
As at 1 June 2020, the Company had cash reserves of
approximately US$0.9 million. Based upon projections, which are
subject to the Shareholder Loans being converted, extended and
restructured, the Group will be funded until Q4 2020. Further
details can be found in the Going Concern note 1.
Michael Haworth
Non-Executive Chairman
19 June 2020
Operations Review
Ncondezi is focused on the phased development of an integrated
coal fired power plant and mine, commencing with 300MW first phase.
The project is located near Tete in northern Mozambique.
Ncondezi has also entered the captive solar and battery storage
sector to build and operate power solutions for the Mozambique
C&I sector.
Joint Development Agreement with CMEC and GE
On 23 July 2019, the Company signed a JDA with CMEC and GE to
co-develop and construct the integrated Ncondezi 300MW coal-fired
power project and coal mine in Tete, Mozambique.
The JDA formalised certain of the key terms on which the Project
will be co-developed and constructed by Ncondezi, CMEC and GE
(together the "Parties").
The key terms of the JDA include:
-- Ncondezi is expected to hold a 40% equity interest in the Project.
-- Project Steering Committee to be setup with representatives
from each Party to manage the development process to FC, the point
at which first funds are drawn for Project construction.
-- CMEC will be the main EPC and O&M contractor for the Project.
-- GE will be the exclusive subcontractor for the power project
core technology, including the boiler, steam turbine, generator and
air quality control solutions which will ensure the plant meets the
emission standards established by the World Bank. GE will also
support the maintenance of the GE supplied core equipment during
operation.
-- Parties to initially focus on finalising a set of development
co-funding investment conditions which include finalisation of the
electricity tariff and PPA with EDM. Ncondezi to be responsible for
any agreed additional third-party development costs during this
phase other than the EPC and O&M tendering related costs which
will be the responsibility of CMEC and GE.
-- Ncondezi responsible for 40% of development costs to FC based
on an agreed budget once the development co-funding investment
conditions have been satisfied or waived.
-- A subscription price and terms for the 60% share in the
Project to be agreed once the electricity tariff with EDM has been
confirmed, utilising an accredited asset valuation firm to be
appointed by the Parties, it is expected to be paid at an agreed
date when the Project transaction agreements, internal and
government approvals are obtained.
-- Ncondezi's historical development costs to date and the
Parties' future development costs for the Project will be
reimbursed in cash as part of the Project capital costs at FC
through debt and equity financing, subject to approval by the
Parties and Project debt financing institutions.
-- The JDA includes a one year non-compete for any party that
terminates the JDA where it no longer intends to proceed with the
Project. Ncondezi will refund any CMEC or GE development costs
approved by the Parties should the JDA be terminated and the
Project reach FC with a new partner, be sold or liquidated,
provided that in the case of a liquidation such payment shall not
exceed the amount raised for distribution following such
liquidation.
Background to Joint Development Agreement
On 20 October 2017, the Company announced that it had agreed in
principle terms of a Non-Binding Offer with CMEC and GE. On 9
November 2017, the Company announced that the NBO had been
signed.
CMEC is a large Chinese integrated company with international
reach and engineering contracting as its core business. CMEC's
project experience, technical ability, and financing capacity, has
allowed it to undertake projects in more than 150 countries in the
fields of international contracting and general international
trade. CMEC's contracting business involves a broad range of areas
such as electric power and energy, transportation, electronic
communication, water supply and treatment, housing and
architecture, manufacturing and processing plant, environmental
protection, mining and resource prospecting. As a world-renowned
engineering contractor, CMEC has been ranked among China's top 10
contractors by business turnover from overseas contracted projects
by the Chinese Ministry of Commerce for many consecutive years.
GE is a world energy leader that provides technology, solutions
and services across the entire energy value chain from the point of
generation to consumption. GE's power business is transforming the
electricity industry by uniting all the resources and scale of the
world's first digital industrial company. GE's customers operate in
more than 150 countries, and together power more than a third of
the world to illuminate cities, build economies and connect the
world.
CMEC and GE have jointly worked on numerous projects across the
world and successfully completed a number of power projects in the
sub Saharan African region. In addition and most relevant to
Ncondezi, the two parties worked together on the Thar Block II
Power Plant project in Pakistan, which is a 660MW integrated coal
fired power plant and mine which utilises two 330MW CFB boilers.
Commercial operations at the plant began in July 2019.
Experience of JDA parties in Mozambique
Both CMEC and GE have successful track records operating in
Mozambique.
CMEC has been involved in supplying and installing transmission
infrastructure to EDM, improving access to electricity for
Mozambicans and new industry development. In 2015, CMEC completed a
110kV transmission line project in Nacala City in northern
Mozambique and in 2017, CMEC signed an EPC contract for a 400kV
transmission line project in the same location. CMEC is also an EPC
contractor for the Moatize to Macuse railway and port project
designed to provide a new coal transport corridor from the Tete
region.
GE has been present in Mozambique for over four years with
offices in Maputo and over 44 employees. GE is active in multiple
sectors including the transport, healthcare, oil and gas and energy
sectors. To date, GE has supplied over 120 locomotives, installed
ten 4.4MW power units for the Kuvaninga gas IPP project and is to
provide technology solutions and services to ENI's US$7 billion
Coral South LNG project in the Rovuma Basin. In addition, GE is
working on initiatives to improve access and quality of basic and
diagnostic services of rural healthcare and reduce infant mortality
rates. This work is run in parallel to GE's local skills
development programmes which include scholarships, funding of
educational facilities and the provision of local courses.
Following the signing of the JDA, the Project development
program will focus on delivering the key milestones to achieve
first power on the grid in 2024. This process started with the
submission of a formal tariff offer to the Liaison Committee and
EDM for review and approval in March 2020. Following agreement of
the tariff, the Company expects to formally enter into PPA and PCA
negotiations with EDM and MIREME respectively. The two agreements
represent the final commercial negotiations before the Project
enters the project financing phase, which is followed by
commencement of Project construction at FC.
From a timing perspective, an updated development timetable has
been submitted to EDM for approval following the request for the
Company to carry out additional Independent Studies. Further
updates will be made to investors at the appropriate time.
Updated Financial Model and Tariff Submission
Following signing of the JDA in July 2019 the Company and its
Partners began work on the tariff submission proposal for EDM.
Tariff financial model meetings were held with its Partners,
advisors and lenders in Beijing in Q4 2019 and work programmes were
agreed for tariff finalisation and submission to EDM.
Finalisation of the Project power tariff for submission to EDM
required the financial model ("FM") which drives the Project power
tariff calculation, and its key inputs to be updated. A key
component of this process was the receipt of firm EPC and O&M
proposals from the Company's partners, which provide capex and opex
assumptions for the financial model. Following successful site
visits and Q&A Sessions held in October 2019, the Company's
Partners submitted initial EPC and O&M bids to the Company in
December 2019 with supporting information received in early
2020.
In parallel with the EPC and O&M process the Company also
worked with its partners to engage with lenders to receive
preliminary financing terms for the debt component of the Project
financing. The Company received a Letter of Interest ("LoI") from a
leading global financial institution to provide debt financing for
the Project, targeting a minimum of 70% debt finance of the Project
capital costs. Indicative funding terms were received in December
2019. The financial institution has a strong relationship with the
Project partners, having worked with them on providing debt
facilities to their recently completed Thar power plant in
Pakistan, a project which is approximately double the size of the
Ncondezi Project at 660MW, utilising similar generation technology
and with an integrated coal mine.
Following receipt of all the key updated information including
EPC and O&M proposals, indicative debt terms and tax and
accounting assumptions from KPMG. The FM was submitted to the
Company's Partners for internal review in January 2020. The FM
received final approval from the Company's Board of Directors and
its Partners and a formal tariff proposal was submitted to EDM in
March 2020. This represented the last major agreed milestone to
initiate formal tariff negotiations with EDM.
The Project targets the provision of 24hr reliable, affordable
and accessible power in northern Mozambique, a key growth region
currently reliant on expensive emergency generation and exposed to
the effects of prolonged droughts. It targets an attractive energy
solution that is competitive with existing gas power plants in
Mozambique and up to 60% cheaper than the emergency power plants
currently in use. Designed to use state-of-the-art emission control
technologies to seek to reduce local air pollutants, minimise the
plant's impact on the environment and ensuring its compliance with
the World Bank's most stringent emission standards.
The Project is also fully aligned with the Government's energy
generation strategy for additional coal power in the power
generation mix from 2023. In addition to the lower proposed tariff
envelope, the Project is also expected to significantly benefit
Mozambique through tax receipts and royalties over the life of the
Project which are estimated to be between US$1.1 to 1.4 billion.
This is in addition to local skills development and thousands of
jobs during construction and hundreds of jobs during operation, as
well as the economic multiplier effect of providing stable
cost-effective power to the north of Mozambique and the term sheet
terminated.
The FM results are not final and subject to change based on a
number of factors including the finalisation of tariff negotiations
with EDM, debt terms with commercial banks, technical and operating
assumptions and EPC and O&M contracts.
Relationship Agreement with GridX
On 5 April 2019, the Company announced that it entered into a
Term Sheet with GridX, an African power developer, enabling it to
enter into a JV focused on building and operating captive solar and
battery storage solutions for the African C&I sector. In
October 2019 the Company announced that it had entered into a
Subscription Agreement and a Shareholder's agreement with GridX to
finance the development of a 400kWp fully off grid, ground mounted
solar PV facility plus 228 KW/912 energy storage facility for a
commercial customer in Mozambique. In May 2020 the Company
announced it had finalised a binding RA with GridX for a pipeline
of solar and battery storage projects in the C&I sector in
Mozambique.
Background
Since Ncondezi transitioned from a coal exploration business
into an integrated power plant and mine project, the Company has
built up significant Sub-Saharan African power development
expertise and has been evaluating a number of alternative power
projects that would complement its existing 300MW Ncondezi Project
in Tete, Mozambique. This process led to the identification of the
GridX opportunity in the C&I sector, and is outlined in more
detail below.
C&I Solar and Battery Storage Sector Overview
Inadequate access to electricity in Africa both in terms of
connections and reliability has driven demand in the C&I sector
for self-generation (or "Captive"/"Embedded") power solutions.
Renewable energy solutions are estimated by the International
Renewable Energy Agency (IRENA) to make up nearly half of African
supply by 2030 and the Company estimates that this market could be
worth up to US$34 billion a year.([1])
Traditionally, captive power solutions have relied heavily on
diesel generation. The Company Directors believe this dynamic has
the potential to change with the advent of low cost solar and
battery storage. Solar and battery storage solutions are
increasingly making economic sense with potential cost savings of
30% or more versus traditional off grid diesel generation solutions
and providing a price shield against escalating fuel and grid
prices. In particular, cost effective battery storage has allowed
greater solar penetration into the market by removing its
intermittent power constraints and maximising energy generated.
Solar and battery storage equipment is modular and pre-fabricated,
making it easy and quick to install and in more places. Generation
regulations are also less onerous as installations typically do not
require additional licensing.
Solar and battery storage meets the growing pressure for
corporate sustainability and zero emissions from investors and
consumers. It also has low maintenance costs primarily due to the
lack of moving parts compared to a diesel generator.
According to Bloomberg New Energy Finance, solar and battery
storage costs have fallen 84% and 76% since 2012, and are expected
to become even more cost competitive with the cost of solar PV
panels expected to fall a
further 37% by 2025([2]) and battery storage costs by a further 67% by 2030([3]) .
In addition, there are significant ancillary benefits of solar
and battery storage projects, including:
-- Reduced fuel storage and theft risks
-- Reduced fuel logistics costs
-- Reduced emissions
-- Reduced noise pollution
-- Peak shaving - reduces peak period high cost energy demand from grid
-- Supply stability - backup, frequency & voltage control
Overview of GridX
GridX is a power developer focused on delivering competitive
sustainable energy solutions in the African C&I sector. GridX
identifies C&I energy users who have either no or poor quality
grid access and are dependent on diesel power generation. Capital
requirements per target project average between US$0.5 million and
US$2.0 million, and typically each project has a projected 9-12
month construction timeframe. Each project will seek to have a 10
to 15 year US$ denominated power offtake contract. Targeted project
returns are attractive with minimum targeted post tax unlevered
equity IRR between 10% and 15%, compared with 6% and 10% in
developed economies. Ncondezi believes that these returns can be
further increased through leverage.
GridX has in-house resources to produce construction ready
projects and is technology agnostic which allows for competitive
technology selection on every project.
In January 2019, GridX delivered its first project in Tanzania.
The project was designed for Singita Grumeti, a luxury game lodge,
and involved the installation of a 189 kWp solar plant and 522kWh
battery storage unit from Tesla. The battery storage unit is
believed to be the first Tesla installation in Tanzania. GridX
expects that the project will replace over 100,000 litres of diesel
consumption annually and result in an annual US$150,000 reduction
in diesel costs.
GridX's Directors own 70% of GridX, 15% is held by Eden
Renewables, an international solar and storage development company,
currently developing projects in the US and UK, 10% by Pan African
Group, a private equity and investment banking firm focused
exclusively on Sub-Saharan Africa, and the balance of 5% is held by
a private individual. GridX was founded by Executive Directors
Chalker Kansteiner and Justin Pengilly, who have both been working
in the African power development sector for a number of years.
Chalker was previously at Blackstone's large scale African energy
project developer, Black Rhino, whilst Justin previously worked at
Pele Green Energy, one of South Africa's leading independent power
producers in the renewable energy sector (and is the brother of
Hanno Pengilly, the Company's CEO).
GridX Pipeline
GridX's current development pipeline in Mozambique includes 7
projects at an early stage of development, the first funding
requirement is not expected until Q4 2020 / Q1 2021. The potential
pipeline projects cover a diverse range of sectors from hospitality
and tourism to food and drink manufacturing and retail centres
securing against a downturn in any one industry. The 7 identified
potential projects have a combined potential installed solar
capacity of 2.8MWp and 4.5MWh of battery storage. The current
estimated project cost for the portfolio is US$5.5 million (100%
equity basis), with the right of first refusal given to Ncondezi to
fund 100% of the Projects.
In October 2019 the Company announced that it had entered into a
Subscription Agreement and a Shareholder's agreement with GridX to
finance the development of a 400kWp fully off grid, ground mounted
solar PV facility plus 228 KW/912 energy storage facility for a
commercial customer in Mozambique. An initial commitment by
Ncondezi of US$1.1 million was made to the GridX SPV to fund the
project, to date US$665,680 has been invested. The Project has
forecast annual revenues of US$198,000 through a 15 year fixed
price offtake agreement (escalated 2.0% annually). The project will
replace existing generators and is expected to provide cost savings
to the offtaker of US$80,000 per year, equivalent to a 29% cost
reduction. Commisioning was targeted for Q2 2020 within 8 months of
entering into the agreements. Due to the COVID-19 outbreak in early
April 2020 a force majeure notice was issued by the offtaker due to
the inability to provide site access for construction. Project
construction was put on hold pending further clarity on the impact
of COVID-19 and the lifting of travel restrictions. All equipment
is in secure storage facilities ready for future deployment once
restrictions are lifted and no further construction costs are
envisaged. The Company will finalise its funding strategy for this
project once the full impact of COVID-19 becomes clearer. Further
updates will be provided to shareholders as the situation becomes
clearer.
Relationship Agreement Overview
In April 2019 Ncondezi signed a Term Sheet with GridX to acquire
a right of first refusal ("ROFR") to fund GridX C&I projects
through a newly setup JV. The Term Sheet envisaged payment of a fee
in two stages to GridX of US$390,000 (the "GridX Fee") allowing the
Company to enter into definitive agreements to formalise the JV.
The first stage was an upfront fee of US$260,000 which was paid
upfront to GridX at the time of signing the Term Sheet. The Term
Sheet was replaced in May 2020 with the signing of a binding RA
with GridX and remaining instalment of the GridX fee was
terminated.
Under the new RA Ncondezi has the ROFR to fund up to US$5.5
million of GridX developed projects in Mozambique. The ROFR will be
managed under a newly formed subsidiary NGPHL. Under the agreement
GridX has identified 7 potential Projects under development with a
combined potential installed PV capacity of 2.8 MWp and 4.5 MWh
battery storage. Capital costs range from US$250,000 to US$ 2.1
million. Should these Initial Projects meet the minimum KPI's and
Ncondezi exercise its right to fund, it would represent a potential
annuity revenue stream of over US$750,000 per annum.
Each Project must meet a minimum set of KPIs before being
presented to Ncondezi for funding. These minimum KPIs include:
-- Project must be located in Mozambique;
-- Project size between US$100,000 and US$10,000,000;
-- Use of proven technology;
-- Minimum post tax unlevered equity IRR of at least 10% to Ncondezi;
-- Minimum credit requirements met;
-- Bankable offtake denominated in US$;
-- Completion of credit checks on potential clients with
additional credit support in place where required;
-- Finalised Engineering Procurement and Construction and
Operations & Maintenance contracts in place; and
-- All consents and permits required to start construction in place.
Ncondezi will have the right to fund 100% of each Project's
equity requirement, and Projects will be assessed for funding on a
project by project basis. Ncondezi will look to identify the
optimal financing strategy for each Project, particularly with
respect to securing funding at the NGPHL subsidiary level, and will
look at both debt and equity options with gearing of up to 50%.
Discussions with potential investors and debt providers to date
have been positive as investment mandates and appetites to fund
energy access and renewable power projects continues to grow.
The first Projects are anticipated to be presented for funding
review during Q4 2020 / Q1 2021.
Even if a Project does meet the minimum KPIs, Ncondezi has the
right not to fund that Project without any penalty. However, should
Ncondezi elect not to fund any further Projects that meet the
minimum KPIs, it will lose its ROFR over the remaining Projects. If
a Project does not achieve the KPIs within the proposed time frame
allocated, GridX has the ability to substitute that Project for
alternative projects.
As part of the RA, GridX has agreed to forego payment of the
final amount of the GridX Fee US$130,000 which would have been
payable under the previous arrangement upon completion of a number
of conditions that were not met, and this is no longer a potential
payment requirement. Other than the capped development fee and
profit sharing fee which may be due to GridX if Ncondezi elects to
fund a Project, there are no further cash payments to be made to
GridX.
In addition, GridX SPV, a special purpose vehicle setup
specifically for the Company's first solar and battery storage
project investment, will become a wholly owned subsidiary of NGPHL
through the purchase of all GridX's A class shares at par value
totalling US$100. Following the acquisition, GridX will no longer
have any management or acquisition rights in the GridX SPV, but
will continue to provide management services. Furthermore, GridX
has agreed that as soon as it becomes the owner of any plant and
materials relating to the first solar and battery project currently
under construction, it shall immediately transfer ownership of such
plant and material to GridX SPV for no additional
consideration.
As part of its ordinary course of business as a developer, GridX
is entitled to a capped development fee for each Project that
Ncondezi funds, included as part of the Project capital cost.
GridX is expected to provide O&M services for each of the
Projects that achieves financial close in accordance with
market-related commercial terms for projects of a similar nature,
contracting directly with the power offtaker.
Certain incentives to encourage GridX to achieve the best
returns for each Project, will be paid through a profit sharing
mechanism where an equity IRR hurdle of above 10% is achieved by
Ncondezi.
The RA will expire at the earlier of Ncondezi financing US$5.5
million of Projects or 36 months.
Advantages to Ncondezi
The Company Directors believe the RA with GridX has the
potential to deliver a number of advantages for Ncondezi,
namely:
1. Complementary to existing Ncondezi Project
JV provides diversification from coal baseload power generation
into captive solar and battery storage small scale renewable and
energy storage projects. From a cash flow perspective the smaller,
easier to install solar and battery storage projects potentially
provide near term cash flows before the Ncondezi Project target
commissioning in 2024. The smaller capital cost requirements also
negate the need for a large strategic partner.
2. ROFR Structure
ROFR structure provides minimal distraction and additional
resources to the Company, as GridX will take full responsibility
for development work and costs to deliver construction ready
projects for funding review. The decision to fund only projects in
Mozambique allows Ncondezi to focus on a geography and jurisdiction
that it has expertise in again minimizing distractions from the
main project.
3. Strong Market Fundamentals
Solar and battery storage projects have become economically
competitive with traditional captive power solutions (diesel
generators), and further reductions in the cost of solar and
battery storage will ensure competitiveness continues into the
future. Added to this, the ancillary benefits (noise and emission
reductions etc.) and increased pressure for sustainable energy
sourcing further strengthen customer investment rational to invest
in these solutions.
4. Potential low risk annuity business with significant growth potential
Ncondezi has an option to fund 100% of potential US$5.5 million
GridX project portfolio, with 7 potential Projects already
identified. At the time of presentation to Ncondezi these are
expected to be construction ready projects with attractive US$
denominated 10-15 year bankable offtake contracts significantly
reducing risks. In addition, over time, the diversified portfolio
approach has a de-risking effect on portfolio level returns which
is potentially attractive to external investors in the future.
5. Attractive project fundamentals and target returns
C&I projects are generally low capex and will usually be
expected to generate cash flows within 12 months. The minimum 10%
unlevered post tax equity IRR KPI sets a projected return floor for
each project. These returns represent a premium return when
compared to those in more developed power markets and it is
expected that this can be improved further through higher delivered
project IRRs and gearing.
6. First mover advantage
The African market is at an early stage of development with
annuity income investors, utilities and oil companies seeking to
enter the sector but slow to move. As Ncondezi builds a diversified
portfolio of renewable C&I projects in one structure the
Company believes that this could ultimately represent an attractive
investment opportunity to development funding institutions, annuity
income renewable energy funds, utilities and energy companies and
private equity funds.
Shareholder Loan
The loan term expired on 30 November 2019 with no extensions or
restructuring legally agreed as at year end. As such the loan was
in default as at year end, with interest of 12% continuing to be
accrued on the outstanding balance.
As at 19 June 2020, the repayment amount due on 30 November 2019
is US$4.5 million which includes principal, rolled up premiums
under the previous loans and interest.
Conversion notices in relation to 10,337,813 shares have been
received throughout the 2019 financial year up to 30 days prior to
the Loan repayment date, have reduced the Shareholder Loan by
US$1,344,000 of principal, rolled up previous redemption premiums
and interest.
The Company has received "in principle" support from all Lenders
to enter the Loan restructuring proposal as set out below:
-- 12 month extension on existing terms, including 12% annual
interest rate and ability for Lenders to swap debt for equity in
part or in full at a conversion price of 10.0p per share.
-- A right for Ncondezi to pay off the original principal amount
of the Loan along with conversion of all interest into Ncondezi
shares on AIM at a 25% to 30% premium to the 30 day volume weighted
average price ("VWAP").
The restructuring process is currently subject to the completion
of key Lender internal approval from AFC, which has incurred recent
delays from the impact of COVID-19.
All Lenders, including AFC, have indicated that they will not
call in the Loan whilst the Restructuring is being finalised.
The Restructuring is subject to the lenders agreeing to the
documentation and the necessary related
party transaction process being completed by the Company's
Independent Directors.
Development Program to Financial Close
The Project is at an advanced level of development following the
execution of the JDA and submission of the tariff proposal to EDM.
The Company remains focused on achieving FC which is targeted for
H1 2021.
Financial Review
Results from operations
The Group made a loss after tax for the year of US$2.3 million
compared to a loss of US$3.5 million for the previous financial
year. The basic loss per share for the year was 0.7 cents (2018:
1.3 cents).
Administrative expenses (excluding sharebased payment charges)
totalled US$1.2 million (2018: US$1.5 million). Administrative
expenses refer principally to staff costs, professional fees and
travel costs and underlying administrative expenses relating to
advancing the integrated power and mining project and C&I
projects. The decrease mainly relates to cost cutting measures.
The expense arising from equity-settled share options made to
Directors was US$0.4 million for the year (2018: US$1.2 million
made to Directors, executive senior management and contracted
personnel ) as set out on note 17.
The loss after tax includes US$0.7 million (2018: US$0.7
million) finance cost comprising mainly of US$1.1 million of
effective interest charges on the convertible loan note liability
and US$0.4 million of fair value gains on the derivative due to the
derecognition.
Financial Position
The Group's statement of financial position at 31 December 2019
and comparatives at 31 December 2018 are summarised below:
2019 2018
US$'000 US$'000
--------------------- --------- ---------
Non-current assets 19,032 18,272
Current assets 748 478
---------------------- --------- ---------
Total assets 19,780 18,750
---------------------- --------- ---------
Current liabilities 4,668 5,508
Total liabilities 4,668 5,508
---------------------- --------- ---------
Net assets 15,112 13,242
---------------------- --------- ---------
Capitalised additions totalled US$0.06 million (2018: US$0.01
million) principally in respect of the Power Project. The remaining
increase in non-current assets is a result of US$0.8 million
investment in joint venture recognised in the year in respect of
development of C&I Solar and Battery Storage platform and
projects, refer to note 9 for more details. The carrying value of
the non-current assets was assessed for impairment and no
impairment was noted as detailed in note 2.
The decrease in current liabilities principally relates to the
Shareholder Loan convertions in 2019, together with accrued
interest.
Cash Flows
The net cash outflow from operating activities for the year was
US$1.2 million (2018: US$1.4 million).
The cash outflow principally represented administrative costs
for the year with limited working capital movements.
Net cash outflow from investing activities was US$0.8 million
(2018: US$0.02 million inflow), mainly related to investment on
C&I Solar and Battery Storage platform and projects as detailed
in note 9.
Net cash inflow from financing activities was US$2.3 million
(2018: US$1.2 million) mainly relating to the net amount of US$2.2
million from an oversubscribed placing of 28,856,060 ordinary
shares in the Company at a price of 6.5 pence per ordinary share
and US$0.1 million (2018: US$nil) relating to the exercise of
2,500,000 warrants at subscription price of 5 pence per share.
The resulting year end cash and cash equivalents held totalled
US$0.7 million (2018: US$0.4 million).
Outlook
As at 1 June 2020 the Group had cash reserves of approximately
US$0.9 million. Based upon projections, which are subject to the
Shareholder Loans being converted, extended and restructured and
include corporate costs, deferrals of salaries of staff and
consultant fees, project costs to progress the Project and planned
expenditure related to a pipeline of C&I projects, the Group is
funded until Q4 2020. Projections do not include further funding of
the initial C&I solar battery project, currently under
construction and on hold due to COVID-19 restrictions. The Company
will finalise its funding strategy for this project once the full
impact of COVID-19 becomes clearer. The working capital facility
expires on the 30 June 2020, to date US$250,000 has been drawn down
and no further drawdowns are anticipated. The forecasts remain
subject to the Shareholder Loan being extended and restructured.
The Loan of US$4.5 million as at 19 June 2020 (principal, historic
redemption premium and interest) matured on 30 November 2019, and
the Company is currently evaluating options to execute the
restructuring process as proposed on 26 November 2019.
The Board also recognises the uncertainty surrounding the
potential impacts from the COVID-19 virus. To date the Company has
experienced a delay to the completion of the first solar battery
storage project and associated revenue stream, due to travel
restrictions put in place to limit the spread of COVID-19. The
Company does not anticipate further construction costs related to
the project until the force majeure has been lifted however there
are costs associated with the storage of equipment. The Company is
reviewing a number of options to ensure costs associated with the
project are kept to a minimum. Power tariff negotiations are
currently taking place virtually with EDM, the Mozambique
Government and the Company's Partners due to the travel
restrictions. EDM has requested the Company carries out two
Independent Studies which has resulted in a delay to the tariff
negotiations. An updated work programme has been submitted to EDM
for review and the Company will provide a more detailed timetable
update to investors at the appropriate time.
The Directors continue to explore options in respect of raising
further funds to continue with the power plant and mine development
programmes and any potential C&I projects. At present there are
no binding agreements in place and there can be no certainty as to
the Group's ability to raise additional funding.
In addition, notwithstanding the Shareholder Loan, further
funding will be required as detailed above to meet operating cash
flows under current forecasts or in the event of accelerated
project advancement. The Directors are exploring a number of
funding and working capital solutions. The financial statements
have been prepared on a going concern basis in anticipation of a
positive outcome but it is important to highlight that there are no
binding agreements in place and although the Company has also been
exploring options to raise additional funding and refinance or
convert the Shareholder Loan; there can be no certainty that any of
these initiatives will be successful.
These factors indicate the existence of a material uncertainty
which may cast significant doubt about the Group's ability to
continue as a going concern. The financial statements do not
include the adjustments that would result if the Group was unable
to continue as a going concern. Such adjustments would principally
be the write down of the Group's non-current assets.
Environmental and Social Responsibility
Sustainability
Ncondezi is committed to operating in a sustainable and
responsible manner. The Company takes a long-term strategic
approach to the conduct of its business, with corporate
responsibility as a key priority. We are focused on achieving the
highest standards of ethical behaviour, health and safety,
environmental stewardship and governance, while sharing the
benefits of our operations with our host communities and host
country.
Ncondezi's Social Development Programme was put on hold pending
further Project developments. Following this the Company is working
with their partners to put in place a road map to ensure the
Company meets the highest levels of sustainability at all stages of
development. Further updates will be provided to shareholders in
due course.
Achievements from previous years include:
-- The drilling of 14 boreholes in several villages within the Tete province.
-- Four students completed their Master's degree in Mining
Engineering at Coimbra University benefiting from a full bursary
from Ncondezi.
-- A 4x4 ambulance was purchased to assist villagers in more
remote areas surrounding the Ncondezi Project.
-- Ncondezi built a new primary school at Waenera village.
-- Upgrading of the Mameme clinic and the construction of a new maternity wing.
An Agricultural Project based on conservation farming. This
included the villages of Catabua and Canjedza as an initial model.
The objective being a platform to educate the local communities in
all aspects of crop husbandry using their own resources.
Director's Biographies
The following sets out the biographies of the directors as at 31
December 2019.
Michael Haworth / Non-Executive Chairman
Michael Haworth has over 20 years finance experience,
predominantly in emerging markets and natural resources. Mr Haworth
co-founded Greenstone Resources a private equity fund specialising
in the mining and metals sector in 2013 and is a Senior Partner of
Greenstone Capital LLP and a Director of Greenstone Management
Limited. Mr Haworth was previously a Managing Director at J.P.
Morgan and Head of Mining and Metals Corporate Finance in
London.
Estevão Pale / Non-Executive Director (resigned on 5 May
2020)
Estevão Pale has more than 30 years' experience in the mining
industry. He is the Chief Executive Officer of Companhia
Moçambicana de Hidrocarbonetos S.A., a Mozambican natural gas
company. Between 1996 and 2005, Mr Pale was the National Director
of Mines in the Ministry of Mineral Resources and Energy, where he
was responsible for the supervision and control of mineral
activities in Mozambique and the formulation and implementation of
the mining and geological policy approved by the government of
Mozambique.
Mr Pale has been a director of numerous companies in the mining
sector including Promaco SARL and the Mining Development Company,
as well as the General Director and Chief Executive of Minas Gerais
de Moçambique. Mr Pale has a postgraduate diploma in Mining
Engineering from the Camborne School of Mines in Cornwall and a
masters degree in Financial Economics from the University of London
(SOAS). He completed a course in Gas Business Management in Boston
at the Institute of Human Resources Development Corporation in
2006.
On 5 May 2020, the Company announced that Estevão Pale resigned
from the Board of the Company and his role as a Non-Executive
Director to focus on his newly appointed role as Chairman of
Mozambique national oil company, Empresa Nacional de
Hidrocarbonetos.
Aman Sachdeva / Non-Executive Director
Aman Sachdeva has more than 20 years experience in the
infrastructure industry, specializing in the energy sector; ranging
from project finance, management consulting, regulatory affairs,
mergers and acquisitions, power system planning, energy
conservation and marketing. Mr Sachdeva is currently the founder
and Chief Executive Officer of Synergy Consulting, an independent
consulting practice with a focus on project finance, which has to
date closed projects worth US$12 billion. Mr Sachdeva is also an
advisor to the World Bank, Energy Sector for Central Asia, South
Asia and Africa on a variety of projects. Mr Sachdeva was nominated
to serve as a Non-Executive Director by AFC.
Hanno Pengilly / Chief Executive Officer
Hanno has considerable knowledge in the power and mine sectors
on the back of his experience in the business over the last 10
years. Hanno joined the Company in 2010 and has been the Company's
Chief Development Officer since May 2012. Hanno has been
responsible for managing key project milestones including the
delivery of the power plant and mine feasibility studies in 2013
and 2014. Since May 2017, Hanno has led the Company's strategic
partner process, which successfully resulted in the signing of a
binding JDA in July 2019, and led the Company in key negotiations
with the Mozambique government and state power utility EDM.
Prior to joining the Company, he was an investment banker at JP
Morgan, based in the United Kingdom and South Africa, and
predominantly focused on natural resources. He holds a BSc in
Economics.
Director's Report
The Directors present their annual report and the audited group
financial statements headed by Ncondezi for the year ended 31
December 2019.
Principal activities
The principal activity of the Group is the development of an
integrated 300MW power plant and mine to produce and supply
electricity to the Mozambican domestic market. The Group has also
entered the African C&I solar and battery storage sector.
Business review and future developments
Details of the Group's business and expected future developments
are set out in the Chairman's Statement, the Operations Review and
in the Financial Review.
Principal risks and uncertainties
The Group operates in an uncertain environment that may result
in increased risk, cost pressures and schedule delays. The key risk
factors that face the Group and their mitigation are set out
below.
Additionally, the Group's multi-national operations expose it to
a variety of financial risks such as market risk, foreign currency
exchange rates and interest rates, liquidity risk, and credit risk.
These are considered further in notes 1 and 20.
Key performance indicators
The key performance indicators of the Group are as follows:
2019 2018
---------------------------------------- ----- -----
Mine exploration expenditure (US$'000) - 7
Power development expenditure
(US$'000) 58 25
JV investment expenditure (US$'000) 769 -
Share price at 31 December (pence) 6.30 5.65
Cash at bank at 31 December (US$'000) 722 424
----------------------------------------- ----- -----
Results and dividends
The results of the Group for the year ended 31 December 2019 are
set out below.
The Directors do not recommend payment of a dividend for the
year (2018: US$nil). The loss will be transferred to reserves.
Events after the reporting date
See note 23 for further information.
Financial instruments
Details of the use of financial instruments by the Company, its
subsidiary undertakings and financial risk management are contained
in note 20 of the financial statements.
Going concern
As at 1 June 2020 the Group had cash reserves of approximately
US$0.9 million. Based upon projections, which are subject to the
Shareholder Loans being converted, extended and restructured and
include corporate costs, deferrals of salaries of staff and
consultant fees, the working capital facility of which US$250,000
has been drawn down to date and expires on 30 June 2020, project
costs to progress the Project and planned expenditure related to a
pipeline of C&I projects, the Group is funded until Q4 2020.
However, the forecasts remain subject to the Shareholder Loan being
extended and restructured. The Loan of US$4.5 million as at 19 June
2020 (principal, historic redemption premium and interest) matured
on 30 November 2019, and the Company is currently evaluating
options to execute the restructuring process as proposed on 26
November 2019. Details on going concern are contained in note 1 of
the financial statements.
The COVID-19 pandemic represents a risk to a number of aspects
of the Company's business and there is considerable uncertainty
relating to the pandemic duration and its impact. The Company
continues to closely monitor the impacts on its projects and to
develop appropriate response plans.
Directors and Directors' interests
Ordinary Shares Ordinary Shares
Appointment held 31 December held 31 December
Director Note date 2019 2018
------------------- ------------- ------------------- -------------------
Michael Haworth 1 01.06.12 16,759,462 16,468,087
Estevão Pale 03.06.10 - -
2
Aman Sachdeva 3 21.05.15 - -
Hanno Pengilly 09.10.19 291,375 -
------------------- ------------- ------------------- -------------------
1. Includes shares held by a trust of which Michael Haworth is a potential beneficiary.
2. Estevão Pale resigned on 05.05.20.
3. Aman Sachdeva is AFC's nominated director. AFC holds
54,988,520 ordinary shares representing 16.92% of the issued
Ordinary Shares as at 31.12.19 and 15.75% as at 01.06.20.
Annual General Meeting
Resolutions will be proposed at the forthcoming Annual General
Meeting, as set out in the Formal Notice. In accordance with the
Company's Articles of Association one third of the Directors are
required to retire by rotation. Accordingly, Michael Howarth will
offer himself for re-election at the forthcoming Annual General
Meeting of the Company.
Corporate Governance
The Company's compliance with the principles of corporate
governance is explained in the corporate governance statement are
set out below.
Ordinary Share Capital
The Company's Ordinary Shares of no-par value represent 100% of
its total share capital. At a meeting of the Company every member
present in person or by proxy shall have one vote for every
Ordinary Share of which he/she is the holder. Holders of Ordinary
Shares are entitled to receive dividends.
On a winding-up or other return of capital, holders are entitled
to share in any surplus assets pro rata to the amount paid up on
their Ordinary Shares. The shares are not redeemable at the option
of either the Company or the holder. There are no restrictions on
the transfer of shares.
Disclosure of information to auditors
So far as each Director at the date of approval of this report
is aware, there is no relevant audit information of which the
Company's auditors are unaware and each Director has taken all
steps that he ought to have taken to make himself aware of any
relevant audit information and to establish that the auditors are
aware of that information.
Auditors
BDO LLP have expressed their willingness to continue in office
as auditors, and a resolution to reappoint them will be proposed at
the Annual General Meeting.
By order of the Board
Elysium Fund Management Limited
Company Secretary
19 June 2020
Risk Factors
Risk(s) Potential Impact(s)
Mitigation Measure(s)
Financing The Group needs to complete The Company is in discussions
risk the restructuring of its with the existing loan
existing loans and secure holders and has received
investment from strategic 'in principle' support
investors and/or investment regarding restructuring
from co-developers to provide of the loans, if necessary,
sufficient working capital together with exploring
for the next 12 months. funding solutions to refinance
Failure to do so may lead the loans.
to the Group not being
a going concern (see note The Company intends to
1) Additionally, project engage with a range of
financing will be required potential financing partners
to complete the Project with the objective of securing
and failure to secure such additional development
financing would result capital for the costs that
in failure of the Project will not be covered by
and/or delay in its execution. the JDA partners, including
select corporate overheads.
To achieve FC of the Project, Since October 2018, Ncondezi
the Group will also need has had a successful track
to conclude some of its record in raising additional
on-going negotiations on capital with GBP2.53 million
key project agreements, before expenses raised
including the Project Power during the year and since
Tariff, PCA and the PPA. year end despite challenging
Failure or delay in doing markets due to the COVID-19
so may lead to failure outbreak. The Company has
of the Project and/or delay also successfully put in
in its execution. place a working capital
facility for US$750,000.
To achieve investment in
any GridX C&I projects The Project is at an advanced
that meet the minimum KPIs, level of development. Power
the Group will need to Tariff negotiations are
secure investment from underway with EDM and the
strategic investors and/or Mozambique Government.
investment from co-developers. Negotiations are taking
Failure to do so may lead place virtually to mitigate
to loss of the Group's the travel restrictions
ROFR on future GridX projects. currently in place due
to COVID-19. Other key
To date the Company has workstreams are progressing
successfully raised capital ahead of finalising the
via the issue of new shares. PPA and PCA.
Going forward future capital
raises will be subject Ncondezi has signed a JDA
to market conditions at with CMEC and GE which
the time which may be impacted provides financial support
by COVID-19, there is no to the project both at
guarantee these will be the developmental stages
successful. to FC as well as during
construction. It is important
to highlight that there
is no certainty that additional
funding will be raised.
The Company has agreed
to fund US$1.1 million,
towards the first GridX
C&I project that meets
all the KPI's and is approved
by the Group, of which
US$665,680 has been spent
to date. This project is
currently on hold due to
the ongoing impact of COVID-19.
The Company has held discussions
with a number of potential
debt and equity investors,
and intends to further
develop these potential
sources of capital at the
appropriate time.
The Directors' will monitor
the monthly 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 In October 2018, the President
risk is unable to renew the of Mozambique launched
commercial deal with EDM the "National Electricity
or finalise the PPA on Program for All", targeting
acceptable terms, the Group expansion of energy access
will need to secure an rates in Mozambique from
alternative credible power 31% in 2018 to 62% in 2024
off-taker(s) to raise finance and 100% by 2030. The program
for the Project. There specifies that up to 650MW
is no guarantee that, in of new coal power generation
such circumstances, the is to come online from
Group will be able to secure 2023.
a credit worthy off-taker
for the full output with The Company has substantially
the plant operating at advanced the PPA and PCA
load factors in excess through previous negotiations
of 80 per cent. with EDM and MIREME. EDM
has indicated its willingness
to continue negotiations
once the Company introduces
an acceptable strategic
partner and a new tariff
proposal. These were completed
on 31 March 2020, and the
Company has started the
tariff negotiation process
with EDM. The Company's
updated tariff proposal
is over 10% lower than
the previously agreed tariff
with EDM.
In June 2020 the Company
agreed to update the transmission
integration study and Mozambican
power market outlook study.
The results of the studies
should verify certain technical
assumptions and provide
greater certainty around
the business case for the
Project alongside the tariff
proposal, facilitating
negotiations on the Project
tariff.
There is a shortage of
power in the region, 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.
-------------------------------- ------------------------------------------------------------
Competition Other power stations are The Project is one of the
from other being developed in the most advanced projects
power stations Tete region and are competing in the region, making competition
in Mozambique for offtake from EDM as from nearby projects more
well as resources such difficult due to the time
as water and transmission they require to catch up.
line servitudes.
Competing gas projects
are mainly located in the
southern part of Mozambique
and are not able to supply
the portion of the Mozambican
power grid that the Power
Project is to connect to
in the north of the country.
Competition from solar
and wind projects is limited
in that they are not baseload
plants.
Additionally, being a thermal
coal power station project,
the Group can implement
commissioning of the power
plant faster than competing
hydroelectric projects
which typically take 2-3
years longer to commission.
-------------------------------- ------------------------------------------------------------
Estimating 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
in interpreting engineering * Classification of resources into a high level of
and geological information. confidence category.
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.
An updated transmission
integration study commenced
in June 2020 to explore,
develop and identify potential
optimisations of 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 been
approved by the Mozambican
Government.
The Project will use state
of the art emission control
systems, targeting particulates,
SOx and NOx emissions below
the current IFC and World
Bank standards. The project
will also be compliant
with the latest OECD guidelines
and equator principles.
-------------------------------- ------------------------------------------------------------
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 improving Mozambique's
Mozambican Government policy energy security by reducing
towards coal fired generation Mozambique's dependence
and limit funding appetite on hydroelectric power
for the Project. (particularly in the north),
where current generation
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 IMF and potential multilateral
its exploration licences lenders' groups continue
and project in jeopardy. towards a resolution for
Mozambique's default. Settlement
Mozambique defaulted on between the Mozambican
commercial loans in 2016 Government and creditors
resulting in donors and in October 2019 and the
the International Monetary successful financial close
Fund (IMF) freezing aid on Mozambique LNG are seen
to Mozambique, which may as positive steps towards
affect financing of the future funding of projects
Project at FC. in Mozambique. All parties
have committed to resolving
the issue in a reasonable
and transparent manner
to restore confidence in
the country.
-------------------------------- ------------------------------------------------------------
Project Development The Company's assets are The Company has signed
Risk all at a development stage. a JDA with CMEC and GE
Failure to successfully who have a track record
execute and complete the of delivering integrated
development projects, or coal-fired power and mine
to execute and complete projects on time and budget.
the projects on time and Regular project update
on budget, would have an meetings are held with
adverse operational and the Executive Team to ensure
financial impact. all workstreams are progressing
as planned and ongoing
monitoring, reporting and
control processes are in
place.
The Company has signed
a RA with GridX providing
a pipeline of potential
off-grid solar battery
storage projects for investment.
Projects are only put forward
for investment when they
meet strict KPIs. The Company
has a ROFR over the pipeline
and can reject one project
that meets the KPIs without
losing their ROFR.
The COVID-19 crisis has
resulted in force majeure
being declared on the first
off-grid solar battery
project due to the travel
restrictions in place and
delays to the tariff negotations
while further Independent
Studies are carried out.
The Company continues to
monitor the situation and
is reviewing all options
to ensure the initial investment
provides a return for shareholders.
-------------------------------- ------------------------------------------------------------
COVID-19 The COVID-19 outbreak in The Company has halted
H1 2020 has resulted in all travel and is operating
travel restrictions in on a remote basis.
and to Mozambique. This
has impacted the Company Construction work on the
in a number of ways preventing C&I solar and battery project
access to site for both in Mozambique has been
the main Power Project suspended. All equipment
and the initial C&I solar has been securely stored
and battery storage project. ready to be installed once
As a result force majeure the travel ban has been
was declared by the C&I lifted and safe access
battery solar project offtaker to site can be provided.
and construction has been
halted. Meetings with our Project
Partners, consultants and
The travel restrictions advisors have all been
have also prevented the transferred online. Negotiations
Project Partners from holding with Government and EDM
in person negotiations are also taking place online
with EDM and existing and to ensure they can advance
potential investors. while the travel restrictions
are in place. Following
discussions with EDM the
Company has agreed to carry
out two independent studies
which will take into account
the developments in Mozambique
and the region over the
last 2 years including
the potential impact of
COVID-19.
The Company continues to
closely monitor the impacts
on its projects and to
develop appropriate response
plans.
-------------------------------- ------------------------------------------------------------
Corporate Governance Statement
The Directors of the Company have elected to follow the
principles of the QCA Corporate Governance Code. The QCA Corporate
Governance Code identifies ten principles that focus on the pursuit
of medium to long-term value for shareholders without stifling the
entrepreneurial spirit in which the company was created. In
addition to the details provided below, governance disclosures can
be found on the Company's website at
http://www.ncondezienergy.com/corporate-governance.aspx
The Company is focused on the phased development of its large
scale, long life, integrated thermal coal mine and 300MW power
plant project (the "Project") which it believes offers the most
achievable and financeable route to production, thereby delivering
value for shareholders. The key risk factors that face the Group
and their mitigation are set out above.
The Company has also entered the high growth C&I solar and
battery storage market. The signing of a biding RA with GridX in
May 2020 offers a phased entry to the sector with low development
risk
A statement of the Directors' responsibilities in respect of the
financial statements is set out on the Statement of the Directors'
Responsibilities. Below is a brief description of the role of the
Board and its committees, including a statement regarding the
Group's system of internal financial control.
The workings of the Board and its committees
The Board of Directors
At 31 December 2019, the Board comprised a Non-Executive
Chairman (Michael Haworth), two further Non-Executive Directors
(Aman Sachdeva, Estevão Pale) and one Executive Director (Hanno
Pengilly).
Under the UK Corporate Governance Code the independence or
otherwise of the Directors is a judgement for the Board. As part of
this consideration the Board has reflected on the fact that under
the UK Corporate Governance Code Estevão Pale or Aman Sachdeva
would not be viewed as independent by virtue of the options that
they each hold in the Company and, in respect of Aman Sachdeva, his
role as CEO of Synergy Consulting (which provides consultancy
services to the Company). Despite this, the Directors believe that
independence is not a state of mind that can be measured
objectively and, given the character, judgement and decision making
process of the individuals concerned, the Directors believe that
Estevão Pale and Aman Sachdeva can be considered independent .
Estev ã o Pale resigned as a director on 5 May 2020.
The Board is satisfied that, between the Directors, it has an
effective and appropriate balance of skills and experience,
including in the areas of natural resources, infrastructure and
finance. For details of the Directors past experience, please refer
to 'Director's Biographies' session set out below.
All Directors receive regular and timely information on the
Group's operational and financial performance. Relevant information
is circulated to the Directors in advance of meetings. As explained
above, due to the relatively small size of the Group's operations,
Directors and senior management are very closely involved in the
day-to-day running of the business and as such have less need for a
detailed formal system of financial reporting.
An agreed procedure exists for Directors in the furtherance of
their duties to take independent professional advice. With the
prior approval of the Chairman, all Directors have the right to
seek independent legal and other professional advice at the
Company's expense concerning any aspect of the Company's operations
or undertakings in order to fulfil their duties and
responsibilities as Directors. If the Chairman is unable or
unwilling to give approval, Board approval will be sufficient.
Newly appointed Directors are made aware of their responsibilities
through the Company Secretary. The Company does not make any
provision for formal training of new Directors.
The Company has established audit and remuneration committees of
the Board with formally delegated duties and responsibilities. In
2019 Estevão Pale remained as second member of the remuneration
committee together with Michael Haworth. Following Estevão Pale's
resignation, the remuneration committee is made up of Michael
Haworth and Aman Sachdeva.
Since the appointment of Michael Haworth as Non-Executive
Chairman, and given that due to the size of operations the Company
does not currently have a nominations committee he has been
assessing the individual contributions of each of the members of
the team to ensure that:
-- their contribution is relevant and effective;
-- that they are committed; and
-- where relevant, they have maintained their independence.
Over the next 12 months, the Company intends to continue to
review the performance of the team as a unit to ensure that the
members of the Board collectively function in an efficient and
productive manner.
Conflicts of interest
The Board confirms that it has instituted a process for
reporting and managing any conflicts of interest held by Directors.
Under the Company's Articles of Association, the Board has the
authority to authorise, to the fullest extent permitted by law:
(a) any matter which would otherwise result in a Director
infringing his duty to avoid a situation in which he has, or can
have, a direct or indirect interest that conflicts, or possibly may
conflict, with the interests of the Company and which may
reasonably be regarded as likely to give rise to a conflict of
interest (including a conflict of interest and duty or conflict of
duties);
(b) a Director to accept or continue in any office, employment
or position in addition to his office as a Director of the Company
and may authorise the manner in which a conflict of interest
arising out of such office, employment or position may be dealt
with, either before or at the time that such a conflict of interest
arises provided that for this purpose the Director in question and
any other interested Director are not counted in the quorum at any
Board meeting at which such matter, or such office, employment or
position, is approved and it is agreed to without their voting or
would have been agreed to if their votes had not been counted.
Company materiality threshold
The Board acknowledges that assessment on materiality and
subsequent appropriate thresholds are subjective and open to
change. As well as the applicable laws and recommendations, the
Board has considered quantitative, qualitative and cumulative
factors when determining the materiality of a specific relationship
of Directors.
Culture
It is the Company's policy to conduct all of its business in an
honest and ethical manner. The Directors believe that the main
determinant of whether a business behaves ethically and with
integrity is the quality of its people. As the Board currently
fulfils the responsibilities that might otherwise be assumed by a
nominations committee, the Directors have responsibility for
ensuring that individuals employed by the Group demonstrate the
highest levels of integrity.
The Board has also instituted a process for reporting and
managing any conflicts of interest held by Directors. Under the
Company's Articles of Association, the Board has the authority to
authorise, to the fullest extent permitted by law:
a) any matter which would otherwise result in a Director
infringing his duty to avoid a situation in which he has, or can
have, a direct or indirect interest that conflicts, or possibly may
conflict, with the interests of the Company and which may
reasonably be regarded as likely to give rise to a conflict of
interest (including a conflict of interest and duty or conflict of
duties); and
b) a Director to accept or continue in any office, employment or
position in addition to his office as a Director of the Company and
may authorise the manner in which a conflict of interest arising
out of such office, employment or position may be dealt with,
either before or at the time that such a conflict of interest
arises provided that for this purpose the Director in question and
any other interested Director are not counted in the quorum at any
board meeting at which such matter, or such office, employment or
position, is approved and it is agreed to without their voting or
would have been agreed to if their votes had not been counted.
It is our policy to conduct all of our business in an honest and
ethical manner. We take a zero-tolerance approach to bribery and
corruption and are committed to acting professionally, fairly and
with integrity in all our business dealings and relationships
wherever we operate, implementing and enforcing effective systems
to counter bribery.
We will uphold all laws relevant to countering bribery and
corruption in all the jurisdictions in which we operate and remain
bound by the laws of the UK, including the Bribery Act 2010, in
respect of our conduct both at home and abroad.
Board meetings
Board meetings are held on average every quarter and more
frequently when required. Decisions concerning the direction and
control of the business are made by the Board. The Board is
satisfied that each of the Directors are able to allocate
sufficient time to the Group to discharge their responsibilities
effectively. The number of meetings held during the year was 15 and
attendance is outlined below:
Attendance by directors Board meetings
---------------------------------------
Michael Haworth 15
Jacek Glowacki 10
Estevão Pale 11
Aman Sachdeva 12
Hanno Pengilly 4
---------------------------------------
* Jacek Glowacki resigned on 25.11.2019 and Hanno Pengilly was
appointed on 09.10.2019 and attended all 4 meetings held since his
appointment.
Generally, the powers and obligations of the Board are governed
by the Company's Memorandum and Articles and the BVI Business
Companies Act 2004, as amended and the other laws of the
jurisdictions in which it operates. The Board is responsible, inter
alia, for setting and monitoring Group strategy, reviewing trading
performance, ensuring adequate funding, examining major acquisition
opportunities, formulating policy on key issues and reporting to
the shareholders.
The Audit Committee
During 2019, the Audit Committee members were Jacek Glowacki
(Committee Chairman) and Michael Haworth. Jacek Glowacki was
replaced by Michael Haworth as committee chairman and Aman Sachdeva
as the second member of the Audit Committee following Jarek
Glowacki's resignation on 25 November 2019. The Board intends to
appoint a new independent Director in the near future.
The Committee provides a forum for reporting by the Group's
external auditors. Meetings are held on average twice a year and
are also attended, by invitation, by the Non-Executive
Directors.
The Audit Committee is responsible for reviewing a wide range of
financial matters including the annual and half year results,
financial statements and accompanying reports before their
submission to the Board and monitoring the controls which ensure
the integrity of the financial information reported to the
shareholders. The Audit Committee meets with the Group's auditors
to review reports in respect of the annual audit and considers the
significant accounting policies, judgements and estimates involved
in the Group's financial reporting, together with the scope of the
audit and the auditor fees and independence.
The Board notes that additional information supplied by the
Audit Committee has been disseminated across the whole of this
Annual Report, rather than included as separate Committee Reports.
The Audit Committee met once in the year.
The Remuneration Committee
The Remuneration Committee in 2019 were comprised of Michael
Haworth (Committee Chairman) and Estevão Pale.
The Committee is responsible for making recommendations to the
Board, within agreed terms of reference, on the Company's framework
of executive remuneration and its cost. The Remuneration Committee
determines the contract terms, remuneration and other benefits for
the Executive Directors,
Including performance related bonus schemes, compensation
payments and option schemes. The Board itself determines the
remuneration of the Non-Executive Directors. The Remuneration
Committee met once in the year.
A Remuneration Committee Report appears is set out below.
Internal financial control
The Board is responsible for establishing and maintaining the
Group's system of internal financial controls. Internal financial
control systems are designed to meet the particular needs of the
Group and the risk to which it is exposed, and by its very nature
can provide reasonable, but not absolute, assurance against
material misstatement or loss.
The Directors are conscious of the need to keep effective
internal financial control, particularly in view of the cash
resources of the Group. Due to the relatively small size of the
Group's operations, the Directors and senior management are very
closely involved in the day-to-day running of the business and as
such have less need for a detailed formal system of internal
financial control. The Directors have reviewed the effectiveness of
the procedures presently in place and consider that they are still
appropriate to the nature and scale of the operations of the
Group.
Continuous disclosure and shareholder communication
The Board is committed to the promotion of investor confidence
by ensuring that trading in the Company's securities takes place in
an efficient, competitive and informed market. The Company has
procedures in place to ensure that all price sensitive information
is identified, reviewed by management and disclosed to the market
through a Regulatory Information Service in a timely manner.
All information disclosed through a Regulatory Information
Service is posted on the Company's website
http://www.ncondezienergy.com. Shareholders are forwarded documents
relating to each Annual General Meeting, being the Annual Report,
Notice of Meeting and Explanatory Memorandum and Proxy Form, and
are invited to attend these meetings.
Managing business risk
The Board constantly monitors the operational and financial
aspects of the Company's activities and is responsible for the
implementation and on-going review of business risks that could
affect the Company. Duties in relation to risk management that are
conducted by the Directors include but are not limited to:
-- Initiate action to prevent or reduce the adverse effects of risk;
-- 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 end, being 31 December 2019, the Remuneration
Committee comprised Michael Haworth and Estevão Pale.
Remuneration packages are determined with reference to market
remuneration levels, individual performance and the financial
position of the Company and the Group.
The Board determines the remuneration of Non-Executive Directors
within the limits set by the Company's Articles of Association. The
Non-Executive Directors have letters of engagement with the Company
and their appointments are terminable on one months' or three
months' written notice on either side.
Long Term Incentive Plan ("LTIP") and unapproved share option
scheme
The Company adopted an LTIP and unapproved share option scheme
which are administered by the Committee. These are discretionary
and the Committee will decide whether to make share awards under
the LTIP or unapproved share option scheme at any time. As at 31
December 2019 the following awards to Director remained in
place:
Non-Executives 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
Estevão Pale 26 Nov 2019 750,000 6.5p 10 years
Aman Sachdeva 25 May 2018 1,000,000 6.25p 10 years
Aman Sachdeva 26 Nov 2019 750,000 6.5p 10 years
Jacek Glowacki 25 May 2018 1,000,000 6.25p 10 years*
Hanno Pengilly 25 May 2018 550,000 8.625p 10 years
Hanno Pengilly 25 May 2018 150,000 8.625p 10 years
Hanno Pengilly 25 May 2018 300,000 5.0p 10 years
Hanno Pengilly 25 May 2018 2,375,132 7.5p 10 years
Hanno Pengilly 25 May 2018 1,187,566 10.0p 10 years
Hanno Pengilly 25 May 2018 1,187,566 15.0p 10 years
Hanno Pengilly 25 May 2018 1,187,566 8.625p 10 years
Hanno Pengilly 26 Nov 2019 6,333,332 6.5p 10 years
* as considered a good leaver Jacek Glowacki has 30 months from
25.11.19 to exercise these options.
Refer to note 17 for details of the vesting conditions attached
to certain of the awards.
Grant of Share Awards
During 2019 7,833,332 share options were issued to the Company's
directors (2018: 22,897,522 included Company's directors, executive
senior management and contracted personnel).
Directors' Options
During 2019 all 7,833,332 share options were issued to the
Company's Directors (2018: 8,987,542 out of the 22,897,522).
Directors' service agreements
None of the Directors have a service contract which is
terminable on greater than one year's notice.
Non-Executive Directors' fees
The Company has adopted a standard level of fees for
Non-Executive directors of 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 Estevão
Pale since 1 April 2017.
Directors' remuneration
The following table sets out an analysis of the pre-tax
remuneration for the year ended 31 December 2019 for individual
directors who held office in the Company during the period.
Share
Base based Total Total
Salary/fee Benefits payments* 2019 2018
Director US$'000 US$'000 US$'000 US$'000 US$'000
------------------- ------------ --------- ----------- ---------- ----------
Michael Haworth - - - - -
Christiaan
Schutte* - - - - 396
Estevão
Pale - - 39 39 110
Jacek Glowacki** - - - - 81
Aman Sachdeva - - 39 39 81
Hanno Pengilly*** 60 - 25 85 -
Total 60 - 103 163 668
--------------------- ------------ --------- ----------- ---------- ----------
* Christiaan Schutte resigned on 30.09.2018.
** Jacek Glowacki resigned on 25.11.2019.
*** Hanno Pengilly was appointed on 09.10.2019 - the base fees
reflects three months diretorship .
On behalf of the Board
Michael Haworth
Non-Executive Chairman
19 June 2020
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors'
report and the financial statements for the Group. The Directors
have prepared the financial statements for each financial year
which present fairly the state of affairs of the Group and of the
profit or loss of the Group for that year.
The Directors have chosen to use the International Financial
Reporting Standards ("IFRS") as adopted by the European Union in
preparing the Group's financial statements.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Group, for safeguarding the assets, for
taking reasonable steps for the prevention and detection of fraud
and other irregularities and for the preparation of financial
statements.
International Accounting Standards require that financial
statements present fairly for each financial year the company's
financial position, financial performance and cash flows. This
requires the faithful
representation of the effects of transactions, other events and
conditions in accordance with the definitions and recognition
criteria for assets, liabilities, income and expenses set out in
the International Accounting Standards Board's 'Framework for the
preparation and presentation of financial statements'.
In virtually all circumstances a fair presentation will be
achieved by compliance with all applicable IFRS as adopted by the
European Union. The Directors are also required to prepare
financial statements in accordance with the rules of the London
Stock Exchange for companies trading securities on AIM.
A fair presentation also requires the Directors to:
-- consistently select and apply appropriate accounting policies;
-- present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
-- make judgements and accounting estimates that are reasonable and prudent;
-- provide additional disclosures when compliance with the
specific requirements in IFRS as adopted by the European Union is
insufficient to enable users to understand the impact of particular
transactions, other events and conditions on the entity's financial
position and financial performance;
-- state that the Group has complied with IFRS as adopted by the
European Union, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
The Directors are responsible for ensuring the annual report and
the financial statements are made available on a website. In
addition to being mailed to shareholders, financial statements are
published on the company's website in accordance with legislation
in the United Kingdom governing the preparation and dissemination
of financial statements, which may vary from legislation in other
jurisdictions. The maintenance and integrity of the Company's
website is the responsibility of the Directors. The Directors'
responsibility also extends to the on-going integrity of the
financial statements contained therein.
Independent audit report to the members of Ncondezi Energy
Limited
Opinion
We have audited the financial statements of Ncondezi Energy
Limited (the 'Parent Company') and its subsidiaries (the 'Group')
for the year ended 31 December 2019 which comprise the consolidated
statement of profit or loss and other comprehensive income,
consolidated statement of financial position, consolidated
statement of changes in equity, consolidated statement of cash
flows and notes to the financial statements, including a summary of
significant accounting policies.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
In our opinion the financial statements:
-- give a true and fair view of the state of the Group's affairs
as at 31 December 2019 and its loss for the year ended; and
-- have been prepared in accordance with IFRSs as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International
Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the
Auditor's responsibilities for the audit of the financial
statements section of our report. We are independent of the Group
and the Parent Company in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the
UK, including the FRC's Ethical Standard as applied to listed
entities, and we have fulfilled our other ethical responsibilities
in accordance with these requirements. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
Material uncertainty related to going concern
We draw attention to Note 1 to the financial statements
concerning the Group's ability to continue as a going concern which
states that the Group will need to extend and restructure its
existing shareholder loans which are in default and raise further
funds to enable the Group to meet its liabilities as they fall due
for a period of at least 12 months form the date of signing these
financial statements.
As stated in note 1, these events or conditions indicate that a
material uncertainty exists that may cast significant doubt on the
Group's ability to continue as a going concern. Our opinion is not
modified in respect of this matter.
Given the conditions and uncertainties noted above we considered
going concern to be a Key Audit Matter.
Our audit procedures in response to this key audit matter
included:
-- We discussed the potential impact of COVID-19 with
management, including their assessment of potential risks and
uncertainties associated with areas such as the Group's operations,
ability to secure funding and restructure the loan and the
potential impact on finalisation of the power project tariff that
are relevant to the Group's business model and operations. We
formed our own assessment of risks and uncertainties based on our
understanding of the business.
-- We obtained management's reverse stress testing analysis
which was performed to determine the point at which liquidity
breaks and considered whether such scenarios, including the
inability to secure anticipated funding and restructure the
shareholder loan, failure to obtain tariff approval and delays in
finalising the construction of the first C&I solar and battery
storage were possible.
-- We critically assessed management's base case cash flow
forecasts and the underlying key assumptions which have been
approved by the Board. In doing so, we compared the operating cost
forecast to historical expenditure rates, reviewed agreements to
assess committed project expenditure, reviewed agreements for the
deferral of consulting fees and evaluated the repayment terms of
the loan facilities. We reviewed board minutes and market
announcements for indications of additional cash requirements.
-- We considered management's judgment that they had a
reasonable expectation of restructuring the shareholder loans and
securing additional financing to meet working capital requirements.
In doing so, we inspected correspondence with the loan note
holders, made specific inquiries of the Board, considered the
Group's history of fundraising and obtained written representations
from the Board.
-- We reviewed and considered the adequacy of the disclosure
within the financial statements relating to the Directors'
assessment of the going concern basis of preparation.
Key audit matters
Key audit matters are those matters that, in our professional
judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant
assessed risks of material misstatement (whether or not due to
fraud) we identified, including those which had the greatest effect
on: the overall audit strategy, the allocation of resources in the
audit; and directing the efforts of the engagement team. These
matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters. In addition to
the matter described in the Material uncertainty related to going
concern section, we have determined the matters described below to
be the key audit matters to be communicated in our report.
Key audit matter How we addressed the key matter
in our audit
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 of management's conclusion that
assets as at 31 December 2019 the mining and power assets represented
as detailed in note 7. The one cash generating unit, against
mining assets are held at their the requirements of applicable
recoverable value which is accounting standards.
below cost following impairments We critically reviewed management's
made in prior years. impairment review and performed
Management are required to our own assessment of impairment
assess whether they consider indicators in accordance with
there to be any indicators applicable accounting standards
that the group's mining and in order to determine whether
power assets may be impaired their assessment was complete
as at 31 December 2019 and and in accordance with the requirements
whether any reversals of historic of such standards.
impairments are appropriate. We obtained the integrated power
Management determined that and mine asset financial model,
the mine and power assets represent prepared by management's external
one cash generating unit as consultant, and confirmed that
detailed in note 2. the model demonstrated headroom
Management performed an impairment over the carrying value. In respect
assessment for the mining and of key inputs in the model we
power assets and concluded confirmed that the project costs
that no impairment of the power were consistent with quotes and
or further impairment of the supporting information, compared
mine assets from the prior the discount rate to relevant
years was necessary and that third party rates and performed
no reversal of impairment on sensitivity analysis. We assessed
the mining assets was required the independence and competence
as detailed in note 2, which of the external consultant.
sets out the key judgements In respect of the electricity
and estimates involved in the tariff , upon which the project
impairment assessment. development is dependent, which
The appropriateness of the remains subject to agreement
carrying value of mining and with the Government, we obtained
power assets represented a confirmation from management
key audit matter given the that the tariff rate represented
significant judgements required their best estimate of the rate
in the impairment assessment. required by the Government based
on verbal discussions they had
held and we obtained specific
written representation to that
effect. We reviewed market reports
and internal correspondence to
confirm that they were consistent
with the tariff used in the model
and agreed the rate to documents
submitted to the Government.
We reviewed the signed Joint
Development Agreement with the
project partners and obtained
supporting documents demonstrating
progress and the continued feasibility
of the project at this time.
We assessed the appropriateness
of management's conclusion that
no reversal of impairment was
required in respect of the mining
assets, notwithstanding the headroom
derived from the integrated model
when compared to the power and
mining assets as a whole under
certain assumptions. We discussed
this judgment with the Audit
Committee, which included consideration
of factors which may indicate
a change in circumstances in
respect of the underlying mining
asset that gave rise to the original
impairment on the mining assets
and uncertainties that remain
in the absence of a binding Joint
Development Agreement or electricity
tariff.
We reviewed the disclosures in
note 2 against the requirements
of the relevant accounting framework
and considered whether they appropriately
reflected the key judgements
and estimates made by management.
Key observations:
Based on the procedures performed,
we found management's assessment
and disclosures in the financial
statement to be appropriate.
-------------------------------------------
Our application of materiality
We apply the concept of materiality both in planning and
performing our audit, and in evaluating the effect of
misstatements. We consider materiality to be the magnitude by which
misstatements, including omissions, could influence the economic
decisions of reasonable users that are taken on the basis of the
financial statements. Importantly, misstatements below these levels
will not necessarily be evaluated as immaterial as we also take
account of the nature of identified misstatements, and the
particular circumstances of their occurrence, when evaluating their
effect on the financial statements as a whole.
The materiality for the financial statements as a whole was set
at US$0.3 million (2018: US$0.28 million). This was based on 1.5%
(2018: 1.5%) of total assets which we consider to be an appropriate
benchmark due to the focus of stakeholders being on the assets of
the Group.
The significant components of the Group were audited to a lower
materiality of US$0.11million to US$0.27million.
Performance materiality is the application of materiality at the
individual account or balance level set at an amount to reduce to
an appropriately low level the probability that the aggregate of
uncorrected and undetected misstatements exceeds materiality for
the financial statements as a whole. Performance materiality was
set at US$0.21million (2018: US$0.20million) which represents 70%
of the above materiality levels.
We agreed with the Audit Committee that we would report to them
all uncorrected audit differences in excess of US$15,000 (2018:
US$14,000), which was set at 5% of materiality, as well as
differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We evaluated any uncorrected
misstatements against both quantitative measures of materiality
discussed above and in light of other relevant qualitative
considerations when forming our opinion.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of the Group
and its environment, as well as assessing the risks of material
misstatement in the financial statements at Group level.
In approaching the audit, we considered how the Group is
organised and managed. We completed a full scope audit on the
Group's financial information and the components we deemed
significant. The Group comprises seven components of which we
identified three to be significant, being the parent company, one
subsidiary based in Mozambique and the subsidiary holding the joint
venture investment. A full scope audit was performed on these
significant components by BDO LLP as accounting records are
maintained in the UK and management are based in the UK.
Non-significant components were subject to analytical review
procedures. All procedures were performed by BDO LLP.
Other information
The Directors are responsible for the other information. The
other information comprises the information included in the annual
report and financial statements, other than the financial
statements and our auditor's report thereon. Our opinion on the
financial statements does not cover the other information and we do
not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent
with the financial statements or our knowledge obtained in the
audit or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a
material misstatement in the financial statements or a material
misstatement of the other information. If, based on the work we
have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact. We
have nothing to report in this regard.
Responsibilities of Directors
As explained more fully in the statement of Directors'
responsibilities set out Statement of Directors Responsibility
above, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view, and for such internal control as the Directors
determine is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, the Directors are
responsible for assessing the Group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
Directors either intend to liquidate the Group or to cease
operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor's report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
A further description of our responsibilities for the audit of
the financial statements is located on the Financial Reporting
Council's website : www.frc.org.uk/auditorsresponsibilities . This
description forms part of our auditor's report.
Use of our report
This report is made solely to the Parent Company's members, as a
body, in accordance with the terms of our engagement letter dated
May 2020. Our audit work has been undertaken so that we might state
to the Parent Company's members those matters we are required to
state to them in an auditor's report and for no other purpose. To
the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Parent Company and the
Parent Company's members as a body, for our audit work, for this
report, or for the opinions we have formed
BDO LLP
Chartered Accountants
London
United Kingdom
19 June 2020
BDO LLP is a limited liability partnership registered in England
and Wales (with registered number OC305127).
Consolidated statement of profit or loss and other comprehensive
income
for the year ended 31 December 2019
Note 2019 2018
US$'000 US$'000
Other administrative expenses 3 (1,216) (1,461)
Share-based payment charge 3 (402) (1,297)
----------------------------------- ----- -------- --------
Total administrative expenses
and loss from operations (1,618) (2,758)
Finance expense, net 4 (680) (722)
----------------------------------- ----- -------- --------
Loss for the year before taxation (2,298) (3,480)
Taxation 5 - -
----------------------------------- ----- -------- --------
Loss and total comprehensive loss
for the
year attributable to equity holders
of the
parent company (2,298) (3,480)
----------------------------------- ----- -------- --------
Loss per share expressed in
cents
Basic and diluted 6 (0.7) (1.3)
----------------------------------- ----- -------- --------
The notes form part of these financial statements.
Consolidated statement of financial position
as at 31 December 2019
Note 2019 2018
US$'000 US$'000
----------------------------------- ----- --------- ---------
Assets
Non-current assets
Property, plant and equipment 7 18,263 18,272
JV Investment 9 769 -
Total non-current assets 19,032 18,272
----------------------------------- ----- --------- ---------
Current assets
Trade and other receivables 10 26 54
Cash and cash equivalents 11 722 424
Total current assets 748 478
----------------------------------- ----- --------- ---------
Total assets 19,780 18,750
----------------------------------- ----- --------- ---------
Liabilities
Current liabilities
Trade and other payables 12 404 481
Loans and borrowings 13 4,234 4,182
Derivative financial liability 14 30 845
----------------------------------- ----- --------- ---------
Total current liabilities 4,668 5,508
Total liabilities 4,668 5,508
----------------------------------- ----- --------- ---------
Capital and reserves attributable
to shareholders
Share capital 15 92,660 88,796
Accumulated losses (77,548) (75,554)
----------------------------------- ----- --------- ---------
Total capital and reserves 15,112 13,242
----------------------------------- ----- --------- ---------
Total equity and liabilities 19,780 18,750
----------------------------------- ----- --------- ---------
The financial statements were approved and authorised for issue
by the Board of Directors on 19 June 2020 and were signed on its
behalf by:
Michael Haworth
Non-Executive Chairman
The notes form part of these financial statements.
Consolidated statement of changes in equity
for the year ended at 31 December 2019
Foreign
Currency
Share Translation Accumulated
capital reserve Losses Total
US$'000 US$'000 US$'000 US$'000
------------------------------------- -------------- ----------------- ------------ -----------------
At 1 January 2019 88,796 - (75,554) 13,242
Loss for the year - - (2,298) (2,298)
Other comprehensive loss for - - - -
the year
------------------------------------- -------------- ----------------- ------------ -----------------
Total comprehensive loss for
the year - - (2,298) (2,298)
Issue of shares 2,380 - - 2,380
Costs associated with issue
of shares (213) - - (213)
Exercise of share options 98 - (98) -
Shareholders Loan conversion
into equity 1,344 - - 1,344
Exercise of warrants 255 - - 255
Equity settled share-based payments - - 402 402
-------------------------------------- -------------- ----------------- ------------ -----------------
At 31 December 2019 92,660 - (77,548) 15,112
-------------------------------------- -------------- ----------------- ------------ -----------------
Foreign
Currency
Share Translation Accumulated
capital reserve Losses Total
US$'000 US$'000 US$'000 US$'000
------------------------------------- -------------- ----------------- ------------ ------------------
At 1 January 2018 87,384 - (72,994) 14,390
Loss for the year - (3,480) (3,480)
Other comprehensive income for - - - -
the year
------------------------------------- -------------- ----------------- ------------ ------------------
Total comprehensive loss for
the year - - (3,480) (3,480)
Issue of shares 1,310 - - 1,310
Costs associated with issue
of shares (204) - - (204)
Exercise of share options 306 (306) -
Equity settled share-based payments - - 1,226 1,226
-------------------------------------- -------------- ----------------- ------------ ------------------
At 31 December 2018 88,796 - (75,554) 13,242
-------------------------------------- -------------- ----------------- ------------ ------------------
The notes form part of these financial statements.
Consolidated statement of cash flows
for the year ended at 31 December 2019
2019 2018
US$'000 US$'000
----------------------------------------- -------- --------
Cash flow from operating activities
Loss before taxation (2,298) (3,480)
Adjustments for:
Finance expense 680 722
Share based payment charge 402 1,297
Unrealised foreign exchange movements - 2
Reversal of accrual (150) -
Gain on disposal of property plant
and equipment - (44)
Depreciation and amortisation 67 68
Net cash flow from operating activities
before changes in working capital (1,299) (1,435)
Increase/(decrease) in payables 73 (25)
Decrease in receivables 28 29
------------------------------------------- -------- --------
Net cash flow from operating activities
before tax (1,198) (1,431)
------------------------------------------- -------- --------
Income taxes refunded - -
----------------------------------------- -------- --------
Net cash flow from operating activities
after tax (1,198) (1,431)
------------------------------------------- -------- --------
Investing activities
Sales of property plant and equipment - 47
Power development costs capitalised (58) (25)
Mine development costs capitalised - (7)
JV investment (769) -
Net cash flow from investing activities (827) 15
------------------------------------------- -------- --------
Financing activities
Issue of ordinary shares 2,380 1,310
Cost of share issue (213) (84)
Warrants exercised 156 -
Net cash flow from financing activities 2,323 1,226
------------------------------------------- -------- --------
Net increase/(decrease) in cash and
cash equivalents in the year 298 (190)
------------------------------------------- -------- --------
Cash and cash equivalents at the
beginning of the year 424 614
------------------------------------------- -------- --------
Cash and cash equivalents at the
end of the year 722 424
------------------------------------------- -------- --------
The notes form part of these financial statements.
Notes to the consolidated financial statements
1. Principal accounting policies .
General
The Company is a public limited liability company incorporated
on 30 March 2006 in the British Virgin Islands. The address of its
registered office is Coastal Building, Wickham's Cay II, PO Box
2221, Road Town, Carrot Bay, Tortola, British Virgin Islands.
Going concern
As at 1 June 2020 the Group had cash reserves of approximately
US$0.9 million. Based upon projections, which are subject to the
Shareholder Loans being converted, extended and restructured and
include corporate costs, deferrals of salaries of staff and
consultant fees, project costs to progress the Project and planned
expenditure related to a pipeline of C&I projects, the Group is
funded until Q4 2020. Projections do not include further funding of
the initial C&I solar battery project, currently under
construction and on hold due to COVID-19 restrictions. The Company
will finalise its funding strategy for this project once the full
impact of COVID-19 becomes clearer. The working capital facility
expires on 30 June 2020, to date US$250,000 has been drawn down and
no further drawdowns are anticipated. The forecasts remain subject
to the Shareholder Loan being extended and restructured. The Loan
of US$4.5 million as at 19 June 2020 (principal, historic
redemption premium and interest) matured on 30 November 2019, and
the Company is currently evaluating options to execute the
restructuring process as proposed on 26 November 2019 and the
confirmation of the Loan Holders on 20 May 2020.
The restructuring process is currently waiting for key Lender
internal approval from AFC, which has incurred recent delays due to
the impact of COVID-19. Despite the delays AFC has indicated that
it is supportive of the Restructuring however, there can be no
certainty that the holders of the Shareholder Loan will agree to an
extension or restructure or the terms on which they will agree to
do so.
In addition, notwithstanding the Shareholder Loan, further
funding will be required as detailed above to meet operating cash
flows under current forecasts or in the event of accelerated
project advancement.
The Directors continue to explore options in respect of raising
further funds to continue with the power plant and mine development
programmes as well as C&I projects. At present there are no
binding agreements in place and there can be no certainty as to the
Group's ability to raise additional funding.
The COVID-19 pandemic represents a risk to a number of aspects
of the Group's business, including lack of access to the Projects
and in person meetings with the Project Partners, Government, EDM
and potential finance partners which may cause a delay to the
Projects. There remains considerable uncertainty relating to the
pandemic duration and its impact. The Group continues to closely
monitor the impacts on its projects and to develop appropriate
response plans. There is also a significant uncertainty as regards
to the ability of the Group to raise funds in the current market
conditions due to the COVID-19 pandemic which may result in the
Group having to raise funds at whatever terms are available at the
time.
The financial statements have been prepared on a going concern
basis in anticipation of a positive outcome but it is important to
highlight that there are no binding agreements in place.
These matters indicate the existence of a material uncertainty
which may cast significant doubt about the Group's ability to
continue as a going concern. The financial statements do not
include the adjustments that would result if the Group was unable
to continue as a going concern. Such adjustments would principally
be the write down of the Group's non-current assets.
Basis of preparation
The principal accounting policies adopted in the preparation of
these consolidated financial statements are set out below. The
policies have been consistently applied to all the years presented,
unless otherwise stated.
These financial statements have been prepared in accordance with
International Financial Reporting Standards, International
Accounting Standards and Interpretations (collectively "IFRS")
issued by the International Accounting Standards Board ("IASB") as
adopted by the European Union ("adopted IFRS").
The preparation of financial statements in conformity with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
factors that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgments about
carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these
estimates. The areas involving a higher degree of judgment or
complexity, or where assumptions and estimates are significant to
the consolidated financial statements, are disclosed in note 2.
The Group financial information is presented in United States
dollars (US$) and values are rounded to the nearest thousand
dollars (US$'000).
Loss from operations is stated after charging and crediting all
operating items excluding finance income and expenses.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision only
affects that period or in the period of revision and future periods
if the revision affects both current and future periods.
New and amended standards which are effective for these
Financial Statements
The following new and revised standards and interpretations, all
of which are effective for accounting periods beginning on or after
1 January 2019, have been adopted in the current financial
year.
-- Amendments to IAS 28 Sale of Long-Term Interest in Associates
and Joint Ventures.
-- IFRS 16 Leases.
-- IFRIC 23 Uncertainty over Income Tax Treatments.
-- Annual Improvements to IFRS Standards 2015-2017 Cycle.
-- Amendments to IAS 19: Plan Amendment, Curtailment or
Settlement.
-- Amendments to IFRS 9 Prepayment Features with Negative
Compensation.
The new standards effective from 1 January 2019, as listed
above, do not have a material effect on the Group's financial
statements. IFRS 16 Leases does not impact the Group as it does not
have any leases.
Standards in issue but not yet effective
The following standards, amendments and interpretations which
have been recently issued or revised and are mandatory for the
Group's accounting periods beginning 1 January 2020:
Standard Description
--------- --------------------------------------------
IAS 1 Presentation of Financial Statements and
IAS 8 Accounting Policies, Changes in
Accounting Estimates and Errors (Amendment
Definition of Material)
IFRS 3 Amendments to IFRS 3 Business Combinations
- Definition of a business
The Group is currently assessing the impact of these new
accounting standards and amendments. The Group is in the process of
completing their assessment of the accounting of the acquisition of
the GridX shares in their current joint venture interest (note 9)
and whether the transaction constitutes an asset purchase or
business combination under the requirements of IFRS 3.
Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has control.
The Group controls an entity when the Group is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power over
the entity. Subsidiaries are fully consolidated from the date on
which control is transferred to the Group. They are deconsolidated
from the date that control ceases. Where necessary, adjustments are
made to the financial statements of subsidiaries to bring their
accounting policies into line with those used by other members of
the Group. All intra-Group transactions, balances, income and
expenses are eliminated on consolidation.
Joint Arrangements
Certain Group activities are conducted through joint
arrangements in which two or more parties have joint control. A
joint arrangement is classified as either a joint operation or a
joint venture, depending on the rights and obligations of the
parties to the arrangement.
Joint operations arise when the Group has a direct ownership
interest in jointly controlled assets and obligations for
liabilities. The Group does not currently hold this type of
arrangement.
Joint ventures arise when the Group has rights to the net assets
of the arrangement. For these arrangements, the Group uses equity
accounting and recognises initial and subsequent investments at
cost, adjusting for the Group's share of the joint venture's income
or loss, less dividends received thereafter. When the Group's share
of losses in a joint venture equals or exceeds its interest in a
joint venture it does not recognise further losses.
Joint ventures are tested for impairment whenever objective
evidence indicates that the carrying amount of the investment may
not be recoverable. The impairment amount is measured as the
difference between the carrying amount of the investment and the
higher of its fair value less costs of disposal and its value in
use. Impairment losses are reversed in subsequent periods if the
amount of the loss decreases and the decrease can be related
objectively to an event occurring after the impairment was
recognised.
Business combinations
The acquisition method of accounting is used to account for
business combinations by the Group. The consideration transferred
for the acquisition of a business is the fair value of the assets
transferred, liabilities incurred and the equity interests issued
by the Group. The consideration transferred includes the fair value
of any asset or liability resulting from a contingent consideration
arrangement. Acquisition related costs are expensed as incurred.
Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker has been identified as the Board
of Directors.
Share-based payments
Equity-settled share-based payments to employees and Directors
are measured at the fair value of the equity instrument. The fair
value of the equity-settled transactions with employees and
Directors is recognised as an expense over the vesting period. The
fair value of the equity instrument is determined at the date of
grant, taking into account market based vesting conditions.
The fair value of the equity instrument is measured using the
Black-Scholes model. The expected life used in the model is
adjusted, based on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
When grant of equity instruments is cancelled or settled during
the vesting period the cancellation is accounted for as an
acceleration of vesting and the amount that otherwise would have
been recognised for services received over the remainder of the
vesting period is immediately expensed.
When equity instruments are modified, if the modification
increases the fair value of the award, the additional cost must be
recognised over the period from the modification date until the
vesting date of the modified award.
If, after the vesting date, fully vested options lapse or are
not exercised the previously recognised share based payment charge
is not reversed.
Property, plant and equipment
Property, plant and equipment are stated at cost on acquisition
less depreciation. Depreciation is provided on a straight-line
basis at rates calculated to write off the cost less the estimated
residual value of each asset over its expected useful economic
life. The residual value is the estimated amount that would
currently be obtained from disposal of the asset if the asset were
already of the age and in the condition expected at the end of its
useful life.
The annual rate of depreciation for each class of depreciable
asset is:
Plant and equipment 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 the property,
plant and equipment category of tangible non-current assets. The
capitalised expenditure includes appropriate technical an
administrative expenses but not general overheads. Power project
assets are not depreciated until the asset is ready and available
for use.
Exploration and evaluation assets
Exploration and evaluation assets include all costs associated
with exploring and evaluating prospects within licence areas,
including the initial acquisition of the licence and are
capitalised on a project-by-project basis. Costs incurred include
appropriate technical and administrative expenses but not general
overheads. Where a licence is relinquished, a project is abandoned,
or is considered to be of no further commercial value to the Group,
the related costs will be written off.
The recoverability of exploration and evaluation assets is
dependent upon the discovery of economically recoverable reserves,
the ability of the Group to obtain necessary financing to complete
the development of reserves and future profitable production or
proceeds from the disposition of recoverable reserves.
Mining assets
When the technical feasibility of the exploration project is
determined, mining licence concession is obtained and a decision is
made to proceed to development stage the related exploration and
evaluation assets are assessed for potential impairment and then
transferred to non-current mining assets and included within
property, plant and equipment.
Mining properties are depleted over the estimated life of the
reserves on a 'unit of production' basis.
Commercial reserves are proven and probable reserves. Changes in
commercial reserves affecting unit of production calculations are
dealt with prospectively over the revised remaining reserves.
Impairment
The carrying amounts of non-current assets are reviewed for
impairment if events or changes in circumstances indicate the
carrying value may not be recoverable. If there are indicators of
impairment, an exercise is undertaken to determine whether the
carrying values are in excess of their recoverable amount. Such
review is undertaken on an asset by asset basis, except where such
assets do not generate cash flows independent of other assets, in
which case the review is undertaken at the cash generating unit
level.
A previously recognised impairment loss is reversed if the
recoverable amount increases as a result of a reversal of the
conditions that originally resulted in the impairment. This
reversal is recognised in the statement of profit or loss and is
limited to the carrying amount that would have been determined, net
of depreciation, had no impairment loss been recognised in the
prior years.
The recoverable amount of assets is the greater of their value
in use and fair value less costs to sell. In assessing value in
use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate cash
inflows largely independent of those from other assets, the
recoverable amount is determined for the cash-generating unit to
which the asset belongs. The Group's cash-generating units are the
smallest identifiable groups of assets that generate cash inflows
that are largely independent of the cash inflows from other assets
or groups of assets.
Impairments are recognised in the statement of profit or loss to
the extent that the carrying amount exceeds the assets recoverable
amount. The revised carrying amounts are amortised in line with the
Group's accounting policies.
The Group has two cash generating units being the Power Project
and Mine Project - this segment is involved in the exploration for
coal and development of coal mine and the development of a 300MW
integrated power plant and a Solar project (JV GridX) - this
segment is focused on building and operating captive solar and
battery storage solutions for the African C&I sector.
Foreign currency
The individual financial statements of each Group entity are
presented in the currency of the primary economic environment in
which the entity operates (its functional currency). For the
purpose of the consolidated financial statements, the results of
overseas Group entities are translated into US$, which is the
functional currency of the Company and its primary operating
subsidiaries and presentation currency for the consolidated
financial statements, at rates approximating to those ruling when
the transactions took place, all assets and liabilities of overseas
Group entities are translated at the rate ruling at the reporting
date. Exchange differences arising on translating the opening net
assets at opening rate and the results of overseas operations with
a non US$ functional currency at actual rate are recognised in
other comprehensive income and accumulated in the foreign exchange
translation reserve.
In preparing the financial statements of the individual
entities, transactions in currencies other than the entity's
functional currency (foreign currencies) are recorded at the rates
of exchange prevailing on the dates of the transactions. At each
reporting date, monetary items denominated in foreign currencies
are retranslated at the rates prevailing on the reporting date.
Exchange differences arising on the settlement of monetary items
and on the retranslation of monetary items are included in the
statement of profit or loss.
Provisions
Provisions are recognised when the Group has a legal or
constructive obligation, as a result of past events, for which it
is probable that an outflow of economic resources will result and
that outflow can be reliably measured.
Taxation
Income tax expense represents the sum of the tax currently
payable and deferred tax.
The tax currently payable is based on taxable profit for the
year. Taxable profit differs from profit as reported in the profit
or loss because it excludes items of income or expense that are
taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The Group's liability for
current tax is calculated using tax rates that have been enacted or
substantively enacted by the reporting date.
Deferred tax is recognised on differences between the carrying
amounts of assets and liabilities in the financial statements and
the corresponding tax bases used in the computation of taxable
profit. Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to the
extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised. The
carrying amount of deferred tax assets is reviewed at each
reporting date and reduced to the extent that it is no longer
probable that sufficient taxable profits will be available to allow
all or part of the asset to be recovered. Deferred tax is
calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised.
Deferred tax is charged or credited to the statement of profit or
loss, except when it relates to items charged or credited directly
to equity, in which case the deferred tax is also dealt with in
equity. Deferred tax assets and liabilities are offset when there
is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income
taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net
basis.
Financial instruments
Financial assets and liabilities are recognised when the Group
becomes party to the contractual provisions of the instrument.
Financial assets
The Group classifies its financial assets into one of the
categories discussed below, depending on the purpose for which the
asset was acquired. The Group did not have any financial assets
designated at fair value through profit or loss. Unless otherwise
indicated, the carrying amounts of the Group's financial assets are
a reasonable approximation of their fair values.
The Group's accounting policy for each category is as
follows:
Assets at amortised cost
Assets at amortised cost are measured on initial recognition at
fair value and subsequently measured at amortised cost using the
effective interest rate method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand,
deposits and other short-term highly liquid investments that are
readily convertible to a known amount of cash and are subject to an
insignificant risk of changes in value.
Impairment of Financial Assets
The Group recognizes a loss allowance for expected credit losses
("ECL") on financial assets that are measured at amortised cost
which comprise mainly of receivables. The amount of expected credit
losses is updated at each reporting date to reflect changes in
credit risk since initial recognition of the respective financial
instrument. Impairment provisions for other receivables are
recognised based on a forward looking expected credit loss model.
The methodology used to determine the amount of the provision is
based on whether there has been a significant increase in credit
risk since initial recognition of the financial asset. For those
where the credit risk has not increased significantly since initial
recognition of the financial asset, twelve month expected credit
losses along with gross interest income are recognised. For those
for which credit risk has increased significantly, lifetime
expected credit losses along with the gross interest income are
recognised. For those that are determined to be credit impaired,
lifetime expected credit losses along with interest income on a net
basis are recognised.
Financial liabilities
Financial liabilities held at amortised cost
Financial liabilities refer to trade and other payables and
loans and borrowings (including the host debt in a convertible
instrument) and are initially recognised at fair value net of any
transaction costs directly attributable to the issue of the
instrument. Such liabilities are subsequently measured at amortised
cost using the effective interest rate method, which ensures that
any interest expense over the period to repayment is at a constant
rate on the balance of the liability carried in the statement of
financial position. Where loans and borrowings include a redemption
premium, the estimated premium is included in the calculation of
the effective interest rate.
Where there is a modification to a financial liability, the
original financial liability is de-recognised and a new financial
liability is recognised at fair value in accordance with the
Group's policy.
Convertible loan
Convertible loan notes are assessed in accordance with IAS 32
Financial Instruments: Presentation to determine whether the
conversion element meets the fixed-for-fixed criterion. Where this
is met, the instrument is accounted for as a compound financial
instrument with appropriate presentation of the liability and
equity components.
Where the fixed-for-fixed criterion is not met, the conversion
element is accounted for separately as an embedded derivative which
is measured at fair value through profit or loss. On issue of a
convertible borrowing, the fair value of embedded derivative is
determined and the residual is recorded as a host liability
initially at fair value and subsequently at amortised cost.
Issue costs are apportioned between the components based on
their respective carrying amounts when the instrument was
issued.
The finance costs recognised in respect of the convertible
borrowings includes the accretion of the liability.
Financial liabilities at fair value through profit or loss
This category comprises warrants instruments classified as
derivative financial liabilities due to the warrant resulting in
the issue of a variable number of shares and the embedded
derivative within the Shareholders Loan. They are carried in the
consolidated statement of financial position at fair value with
changes in fair value recognised in the consolidated statement of
profit or loss. Other than these derivative financial instruments,
the Group does not have any liabilities held for trading nor has it
designated any other financial liabilities as being at fair value
through profit or loss.
Fair value measurement hierarchy
The Group classifies its financial liabilities measured at fair
value using a fair value hierarchy that reflects the significance
of the inputs used in making the fair value measurement (note 20).
The fair value hierarchy has the following levels:
a) Quoted prices (unadjusted) in active markets for identical
assets or liabilities (Level 1);
b) Inputs other than quoted prices included within Level 1 that
are observable for the asset or liability, either directly (i.e. as
prices) or indirectly (i.e. derived from prices) (Level 2);
c) Inputs for the asset or liability that are not based on
observable market data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within the financial
liability is determined on the basis of the lowest level input that
is significant to the fair value measurement.
Share capital
Financial instruments issued by the Group are treated as equity
only to the extent that they do not meet the definition of a
financial liability. The Company's ordinary shares are classified
as equity instruments. The Company considers its capital to be
total equity. The Company is not subject to any externally imposed
capital requirements.
Non-current assets held for sale and disposal groups
Non-current assets and disposal groups are classified as held
for sale when: they are available for immediate sale subject only
to customer conditions; management is committed to a plan to sell;
it is unlikely that significant changes to the plan will be made or
that the plan will be withdrawn; an active programme to locate a
buyer has been initiated; the asset or disposal group is being
marketed at a reasonable price in relation to its fair value; and a
sale is expected to complete within 12 months from the date of
classification.
Non-current assets and disposal groups classified as held for
sale are measured at the lower of: their carrying amount
immediately prior to being classified as held for sale in
accordance with the Group's accounting policy; and fair value less
costs to sell. Following their classification as held for sale,
non-current assets (including those in a disposal group) are not
depreciated.
2. Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future,
which by definition will seldom result in actual results that match
the accounting estimate. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying
amount of assets and liabilities within the next financial year are
discussed below.
Accounting judgements and estimates
(i) Impairment of power and mining assets
The carrying value of the power plant and mining assets in note
7 are dependent on the success of the power plant project.
Management's judgement is that no indicators of impairment have
occurred during the year. This has included consideration of the
potential sources of impairment indicators prescribed under IAS 36.
Management have considered key milestones, signing of the JDA,
risks and de-risking events and determined that it is more likely
than not that the power plant will be developed given the progress
to date. The carrying value of the assets and feasibility of the
project is supported by the current integrated financial model.
However, the Government have indicated that a more competitive
tariff is required compared to the previous tariff envelope agreed
in principle. The integrated financial model is based on an
approximate 10% reduction in the previous tariff which management
anticipate being acceptable to the Government following
benchmarking and discussions with EDM to date. However,
negotiations are continuing and should an acceptable tariff not be
agreed or other cost efficiencies realised the project may not
proceed and the power assets may not be recoverable.
Following the JDA with CMEC and GE and the new integrated
strategy in 2018 the power and mining projects are considered as
one cash generating unit. This required judgement and factors
considered included the integrated nature of the development
project versus the previous development plans, the interdependent
nature of the assets and project economics and the extent to which
the assets could feasibly be developed independently.
(ii) Asset classified as held for sale
Management have considered whether the JDA with CMEC and GE was
such that the power and mining assets met the criteria of IFRS 5.
Having considered the non-binding status of the proposals at 31
December 2019 and associated risks and uncertainties, the extent of
progress made towards finalising the JDA and subsequent financial
closure and the period of time to final completion of a
transaction, management concluded that the criteria were not
met.
3. Administrative expenses
2019 2018
US$'000 US$'000
------------------------------- --------- ---------
Staff costs 45 41
Professional and consultancy 831 1,149
Office expenses 114 78
Travel and accommodation 89 32
Other expenses 51 34
Gain on disposal of PPE - (44)
Depreciation 67 68
Foreign exchange 19 103
--------------------------------- --------- ---------
Total administrative expenses 1,216 1,461
--------------------------------- --------- ---------
Auditors' remuneration
2019 2018
US$'000 US$'000
Group auditors' remuneration
- audit of the Group's accounts 69 60
Other services
- interim review 4 3
73 63
------------------------------------- --------- ---------
Auditors' remuneration is included within professional and
consultancy costs.
Staff costs (including Directors)
2019 2018
US$'000 US$'000
Wages and salaries 45 40
Share based payment 402 1,226
Social security costs - -
447 1,266
----------------------- --------- ---------
2019 US$nil (2018: US$nil) included within wages and salaries
have been capitalised to the power project asset.
The average monthly number of employees (including executive
Directors) of the Group were:
2019 2018
Number Number
Operational 1 1
Administration 3 3
4 4
---------------- -------- --------
Key management compensation:
2019 2018
US$'000 US$'000
Fees 268 268
Share based payment 214 921
482 1,189
--------------------- --------- ---------
4. Finance expenses, net
2019 2018
US$'000 US$'000
---------------------------------------------- --------- ---------
Interest on loan (note 13) 1,146 1,170
Fair value adjustment on the warrants
(note 14) (10) (157)
Fair value adjustment on the loan derivative
(note 14) (456) (291)
680 722
---------------------------------------------- --------- ---------
5. Taxation
The Group entities subject to corporate income tax are Ncondezi
Coal Company Mozambique Limitada and Ncondezi Power Company S.A.
which are subject to tax at the rate of 32% (2018: 32%) on their
profits in Mozambique. No tax charge/ (credit) arose in the current
or prior year for Ncondezi Coal Company Mozambique Limitada and
Ncondezi Power Company S.A.
2019 2018
US$'000 US$'000
------------------------------------------------ -------------- ---------
Current tax - -
------------------------------------------------ -------------- ---------
Group loss on ordinary activities before
tax (2,298) (3,480)
------------------------------------------------ -------------- ---------
Effects of:
Reconcile to Mozambique corporation
tax rate of 32% (2018: 32%) (732) (1,113)
Differences arising from different
tax rates 667 1,044
Taxable losses utilised not previously
recognised - 26
Foreign exchange effect originating
in overseas companies 2 14
Unrecognised taxable losses in subsidiaries 63 29
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 2019, no deferred tax asset has been recognised for tax
losses of US$3,202,000 (2018: US$4,253,000) carried forward within
the Group's overseas subsidiaries, as the recovery of this benefit
is dependent on the future profitability, the timing and certainty
of which cannot be reasonably foreseen.
Tax losses in Mozambique are available for use over a five year
period. Of the total available Mozambican subsidiary tax credits,
US$179,000 will be available until 31 December 2024, US$77,000 will
be available until 31 December 2023, US$52,000 will be available
until 31 December 2022, US$1,129,000 will be available until 31
December 2021, and US$760,000 will be available until 31 December
2020.
6. Loss per share
Basic loss per share is calculated by dividing the loss
attributable to ordinary shareholders by the weighted average
number of ordinary shares outstanding during the year.
Due to the losses incurred during the year a diluted loss per
share has not been calculated as this would serve to reduce the
basic loss per share. Out of 31,930,854 (2018: 25,097,522) share
incentives outstanding at the end of the year 16,362,685 (2018:
13,071,906) had already vested, which if exercised could
potentially dilute basic earnings per share in the future.
2019 2018
---------------------------------------- --------- ------------------------------------
Weighted Weighted
average Per average Per
number share number share
Loss of shares amount Loss of shares amount
US$'000 (thousands) (cents) US$'000 (thousands) (cents)
-------------- --------- ------------- --------- ---------- ------------- ---------
Basic and
diluted EPS (2,298) 312,117 (0.7) (3,480) 276,187 (1.3)
--------------- --------- ------------- --------- ---------- ------------- ---------
7. Property, plant and equipment
Power Mining Plant
assets assets Buildings and equipment Other Total
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
------------------------ --------- --------- ------------ --------------- ---------- ----------
Cost (less impairment)
At 1 January 2018 9,437 7,654 1,399 42 718 19,250
Additions 25 7 - - - 32
Disposals - - (122) (7) - (129)
At 1 January 2019 9,462 7,661 1,277 35 718 19,153
Additions 58 - - - - 58
At 31 December 2019 9,520 7,661 1,277 35 718 19,211
------------------------ --------- --------- ------------ --------------- ---------- ----------
Depreciation
At 1 January 2018 - - 190 29 718 937
Depreciation charge - - 67 1 - 68
Disposals - - (118) (6) - (124)
At 1 January 2019 - - 139 24 718 881
Depreciation charge - - 66 1 - 67
At 31 December 2019 - - 205 25 718 948
------------------------ --------- --------- ------------ --------------- ---------- ----------
Net Book value 2019 9,520 7,661 1,072 10 - 18,263
------------------------ --------- --------- ------------ --------------- ---------- ----------
Net Book value 2018 9,462 7,661 1,138 11 - 18,272
------------------------ --------- --------- ------------ --------------- ---------- ----------
Power assets relate to the development of a 300MW power plant.
In 2019, the Power assets remains classified as Property, plant and
equipment as detailed in note 2.
Mine assets relate to the initial acquisition of the licences
and subsequent expenditure incurred in evaluating the Ncondezi mine
project. These were transferred from intangible assets on receipt
of the mining concession in 2013.
8. Subsidiaries
The Group has the following subsidiary undertakings:
% interest % interest Country
2019 2018 of incorporation Activity
---------------------------- --------- ----------- ----------- ------------------ -------------------
Zambezi Energy Corporation
Holdings 1 Limited 'ZECH1' 100 100 Mauritius Holding company
Zambezi Energy Corporation
Holdings 2 Limited 'ZECH2' 100 100 Mauritius Holding company
Ncondezi Coal Company 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 Green Power Green Energy
Holding Limited 'NGPHL' 100 100 BVI company
---------------------------- --------- ----------- ----------- ------------------ -------------------
Ncondezi Coal Company Mozambique Limitada is owned by Zambezi
Energy Corporation Holdings 1 Limited and Zambezi Energy
Corporation Holdings 2 Limited. Ncondezi Power Holdings 2 Limited
is owned by Ncondezi Energy Limited. Ncondezi Power Company SA is
owned by Ncondezi Energy Limited, Zambezi Energy Corporation
Holdings 1 Limited and Ncondezi Power Holdings 2 Limited. Ncondezi
Green Power Holdings Limited is owned by Ncondezi Energy
Limited.
9. Joint Venture
The Group holds a joint venture interest in GridX SPV through
its 100% owned subsidiary NGPHL. GridX SPV has 2 classes of shares,
A shares and B shares. The Group, through its subsidiary, holds the
B shares and the joint venture partner holds the A shares. B shares
will be ordinary equity in GridX SPV and have full economic rights
subject to economic rights due to A shares. A shares have
management rights and economic rights. A shares economic rights are
linked to the cashflow performance of individual projects owned and
financed by GridX SPV A class shareholders are entitled to between
20% and 57.5% of additional free cashflows above a post tax equity
IRR greater than 10%, with the maximum entitlement achieved on
cashflows of a particular project above a post-tax equity IRR of
17%.
Under the terms of the shareholder agreement, strategic
decisions which affect the relevant activities of the venture are
subject to shareholding voting requirements which require that the
joint venture partners must agree such decisions. As a result,
joint control exists.
GridX SPV was incorporated in Mauritius, with its first C&I
project, having operations in Mozambique. The primary activity of
GridX SPV is the building and operating of captive solar and
battery storage solutions for the African C&I sector, which is
in line with the Company's C&I segment strategy. Under IFRS 11
this joint arrangement was classified as a joint venture and has
been included in the consolidated financial statements using the
equity method.
The investment is assessed at each reporting period date for
impairment in accordance with IAS 36. An impairment is recognised
if there is objective evidence that events after the recognition of
the investment have had an impact on the estimated future cash
flows which can be reliably estimated.
Summarised financial information in relation to the joint
venture is presented below:
2019 2018
US$'000 US$'000
---------------------------------- -------- --------
ASSETS
Non-current assets - Investments
EPC Disbursement 185 -
Total non-current assets 185 -
---------------------------------- -------- --------
Current assets
Cash and cash equivalents 97 -
Total current assets 97 -
---------------------------------- -------- --------
Total assets 282 -
---------------------------------- -------- --------
EQUITY AND LIABILITY
Capital and reserves attributable
to shareholders
Share capital 282 -
Accumulated losses (0.1) -
---------------------------------- -------- --------
Total capital and reserves 282 -
---------------------------------- -------- --------
Total equity and liabilities 282 -
---------------------------------- -------- --------
As at 31 December 2019 the group has invested US$0.8 million
(2018: US$nil) at the development of the GridX Asset Co.
2019 2018
US$'000 US$'000
C&I platform 227 -
Right of First Refusal (ROFR) 260 -
First C&I Project 282 -
769 -
------------------------------ --------- ---------
As a result of the RA with GridX announced on 6 May 2020 the
GridX Asset Co will be a wholly owned subsidiary of the group in
the next financial year.
10. Trade and other receivables
2019 2018
US$'000 US$'000
----------------------------------- --------- ---------
Current assets:
Other receivables 26 54
Total trade and other receivables 26 54
----------------------------------- --------- ---------
During the year no expected credit losses were recognised (2018:
US$nil). The Directors consider that the carrying amount of other
receivables approximates their fair value.
11. Cash and cash equivalents
2019 2018
US$'000 US$'000
-------------------------- --------- ---------
Cash at bank and in hand 722 424
-------------------------- --------- ---------
722 424
-------------------------- --------- ---------
The Group's cash and cash equivalents balances may be analysed
by currency as follows:
2019 2018
US$'000 US$'000
---------------------- --------- ---------
US Dollars 444 67
Great British Pounds 268 354
Mozambique Meticais 10 3
---------------------- --------- ---------
722 424
---------------------- --------- ---------
Where possible cash is deposited in floating rate deposit
accounts at reputable financial institutions with high credit
ratings.
12. Trade and other payables
2019 2018
US$'000 US$'000
---------------- --------- ---------
Other payables 214 189
Accruals 190 292
---------------- --------- ---------
404 481
---------------- --------- ---------
Accruals includes US $nil (2018: US$nil) of interest in respect
of the loans in note 13.
The fair value of payables is not significantly different from
their carrying value.
13. Short term loan
2019 2018
US$'000 US$'000
----------------------------- --------- ---------
Short term loan (unsecured) 4,234 4,182
Unamortised related costs - -
----------------------------- --------- ---------
Total Short-term loan 4,234 4,182
----------------------------- --------- ---------
On 16 November 2018 the Shareholder Loan was modified with the
maturity date extended to 30 November 2019 and an interest coupon
of 12%. Under the terms the lenders have the right to convert the
loan into equity as follows:
(a) First Conversion: lenders shall be entitled to convert all
or part of their portion of the Loan (in multiples of US$1,000)
into fully paid ordinary shares of the Company at a 10.0p
conversion price from the date of this announcement until 1
November 2019; and
(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 14) representing the
conversion right. The embedded derivative was valued at US$1.0
million and the residual attributed to the host debt liability.
Subsequently the host debt liability has been recorded at amortised
cost and interest recorded at the effective interest rate and the
embedded derivative recorded at fair value through profit and
loss.
During the period a total of US$1,344,000 of the Shareholder
Loan was converted into equity at a price of 10 pence per share,
and 10,337,813 shares were issued.
At year end the remaining shareholder loan, including interest,
of US$4,234,000 was in default. The equity conversion rights
expired as a result and the embedded derivative was valued at nil
at year end.
Net finance cost for the year in relation to the short term loan
was US$680,000 (2018: US$879,000) comprising mainly of US$1.1
million of effective interest charges on the convertible loan host
liability and US$0.4 million of fair value changes on the
derivative following the expiry of the conversion right.
14. Derivative financial liability
2019 2018
US$'000 US$'000
--------------------------- --------- ---------
Warrants 30 138
Loan derivative (note 13) - 707
30 845
--------------------------- --------- ---------
Warrants
During the period 1,000,000 warrants issued in May 2018 and
1,500,000 issued in October 2017 were exercised. The fair value of
the warrants at exercise date was US$99,000, resulting in a gain in
fair value of US$20,000 going through the statement of profit or
loss. US$99,000, together with the amount received upon exercise of
US$156,000 was recognised as share capital
The remaining 1,520,000 warrants were valued at US$30,135 at the
year end with the change of fair value of US$30,463 recognised
through profit or loss.
The fair value on the grant date and reporting date were
determined using the Black Scholes Model. The fair value as at 31
December 2019 was based on the following assumptions:
Share Price (GBP) 0.0625
Expected volatility 90%
-------
Options life (years) 2
-------
Expected dividends 0
-------
Risk free rate 0.74%
-------
The warrants have been deemed to be Level 2 liabilities under
the fair value hierarchy.
Loan derivative
The loan derivative, measured at fair value through profit or
loss, has been deemed to be Level 2 liabilities under the fair
value hierarchy, based on the valuation method used. The Monte
Carlo model was used in arriving at the fair value of the
derivative at prior year and year end respectively. At year end the
loan was in default and the conversion rights expired resulting in
the loan derivative having a value of nil at year end. Refer to
note 13 and 20 for further details.
15. Share capital
Number of shares 2019 2018
Allotted, called up and fully
paid
Ordinary shares of no-par value 324,993,717 282,299,844
--------------------------------------- ------------ ------------
Shares Share
Issued capital
Number US$'000
-------------------------------------- ---------------- --------------
At 1 January 2019 282,299,844 88,796
Issue of shares 28,856,060 2,380
Issue of shares (exercised share
awards) 1,000,000 98
Issue of shares (loan equity
conversion) 10,337,813 1,344
Issue of shares (exercised warrants) 2,500,000 255
Issue costs - (213)
At 31 December 2019 324,993,717 92,660
--------------------------------------- ---------------- --------------
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
--------------------------------------- ------------ ------------
16. 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
------------------ ---------------------------------------------------
17. Share-based payments
Share awards are granted to employees and Directors on a
discretionary basis and the Remuneration Committee will decide
whether to make share awards under the LTIP or unapproved share
option scheme at any time.
Long term incentive plan and unapproved share option scheme
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
---------------- --------- ------------ ----------- ------------ ----------- ------------ -----------
2019
Nil 27.05.10 2,400,000 - - - 2,400,000 26.05.20
25c 27.05.10 800,000 - - - 800,000 26.05.20
17.25p (26.3c) 26.04.13 150,000 - - - 150,000 25.04.23
Nil 31.01.14 225,000 - - - 225,000 30.06.20
Nil* 25.05.18 1,868,627 - (1,000,000) - 868,627 24.05.28
Nil** 25.05.18 75,000 - - - 75,000 31.01.24
5p (6.7c)** 25.05.18 2,790,779 - - - 2,790,779 25.05.28
8.625p (11.5c)* 25.05.18 1,625,000 - - - 1,625,000 05.02.25
6.25p (8.4c)* 25.05.18 4,000,000 - - - 4,000,000 25.05.28
7.5p (10c)** 25.05.18 5,581,558 - - - 5,581,558 25.05.28
10p (13.4c)** 25.05.18 2,790,779 - - - 2,790,779 25.05.28
15p (20.1c)** 25.05.18 2,790,779 - - - 2,790,779 25.05.28
6.5p (8.4c)** 26.11.19 - 7,833,332 - - 7,833,332 26.11.29
---------------- --------- ------------ ----------- ------------ ----------- ------------ -----------
Total 25,097,522 7,833,332 (1,000,000) - 31,930,854
---------------- --------- ------------ ----------- ------------ ----------- ------------ -----------
WAEP (cents) 9.73 8.4 - - 9.71
--------------------------- ------------ ----------- ------------ ----------- ------------ -----------
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
--------------------------- ------------ ----------- ------------ ------------ ------------ -----------
* Vest on grant date
** Vest upon delivery of specific milestones
The Company's mid-market closing share price at 31 December 2019
was 6.30p (31 December 2018: 5.65p). The highest and lowest
mid-market closing share prices during the year were 8.95p (2018:
9.45p) and 4.40p (2018: 3.87p) respectively.
Of the total number of options outstanding at year end
16,362,685 (2018: 13,071,906) had vested and were exercisable. The
weighted average exercise price for the exercisable options at year
end was 7.5p (2018: 7.40p). The weighted average share price at the
date of exercise of the 1,000,000 options was 6.95p.
The weighted average contractual life of the options outstanding
at the year-end was five and half years (2018: six years).
In respect of 7,833,332 shares in the Company granted to its
directors, executive senior management team and contracted
personnel 81% are performance related and linked to delivery of
specific milestones, 19% are in lieu of director remuneration. Out
of the total options granted in the year, 1,500,000 vested at grant
date.
The fair value of the share awards granted under the Group's
unapproved share option scheme has been calculated using the
Black-Scholes model and spread over the vesting period. The
following principal assumptions were used in the valuation in the
current and prior year:
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) 113.33% 5 years 0.7% 4.50c
26.11.19 6.70c 8.37c(6.50p) 113.51% 5 years 0.6% 5.20c
------------ ----------- --------------- ------------ -------------- ------------- --------
The volatility rates have been calculated using analysis of
historic Company share price volatility.
Based on the above fair values, the expense arising from
equity-settled share options made to Directors was US$0.4 million
for the year (2018: US$1.2 million including Directors and
employees).
18. Segmental analysis
In 2019 the Group had an extra reportable segment, following the
JV with GridX:
-- Solar project (JV GridX) - this segment is focused on
building and operating captive solar and battery storage solutions
for the African C&I sector
-- Power Project and Mine Project - this segment is involved in
the exploration for coal and development of coal mine and the
development of a 300MW integrated power plant next to the Group's
coal mine concession areas in Mozambique
-- Corporate - this comprises head office operations and the
provision of services to Group companies
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision-maker.
The chief operating decision-maker has been identified as the Board
of Directors.
The operating results of each of these segments are regularly
reviewed by the Group's chief operating decision-maker in order to
make decisions about the allocation of resources and assess their
performance. The Group's mine and power activities are interrelated
and each activity is dependent on the other. Accordingly, all
significant operating decisions are based upon analysis of the mine
and power activities as one segment and corporate as one
segment.
The segment results for the year ended 31 December 2019 are as
follows:
Solar Power Corporate
project & Mine US$'000
US$'000 project Group
Income statement US$'000 US$'000
--------------------------------- ----------- ---------- ----------- ----------
For the year ended 31 December
2019
--------------------------------- ----------- ---------- ----------- ----------
Segment result after allocation
of central costs - (464) (1,154) (1,618)
--------------------------------- ----------- ---------- ----------- ----------
Finance expense - - (680) (680)
Loss before taxation - (464) (1,834) (2,298)
Taxation - - - -
--------------------------------- ----------- ---------- ----------- ----------
Loss for the year - (464) (1,834) (2,298)
--------------------------------- ----------- ---------- ----------- ----------
The segment results for the year ended 31 December 2018 are as
follows:
Power Corporate
& Mine US$'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)
Loss before taxation (559) (2,921) (3,480)
Taxation - - -
--------------------------------- ---- --------- ----------- ---------
Loss for the year (559) (2,921) (3,480)
---------------------------------------- --------- ----------- ---------
Other segment items included in the Income statement are as
follows:
Solar Power Corporate
project & Mine US$'000
US$'000 project Group
Income statement US$'000 US$'000
------------------------------------ ------------- ---------- ----------- ----------
For the year ended 31 December
2019
Depreciation charged to the income
statement - (67) - (67)
Share based payment - - (402) (402)
------------------------------------ ------------- ---------- ----------- ----------
Power Corporate
& Mine US$'000
project Group
Income statement US$'000 US$'000
------------------------------------- ------------ ---------- ----------- ------------
For the year ended 31 December
2018
Depreciation charged to the income
statement (68) - (68)
Share based payment - (1,297) (1,297)
------------------------------------- ------------ ---------- ----------- ------------
The segment assets and liabilities at 31 December 2019 and
capital expenditure for the year then ended are as follows:
Solar Power Corporate
project & Mine US$'000
US$'000 project Group
Statement of financial position US$'000 US$'000
--------------------------------- ---------- ---------- ----------- ---------
At 31 December 2019
--------------------------------- ---------- ---------- ----------- ---------
Segment assets 769 18,490 521 19,780
Segment liabilities - (215) (4,453) (4,668)
--------------------------------- ---------- ---------- ----------- ---------
Segment net assets 769 18,275 (3,932) 15,112
--------------------------------- ---------- ---------- ----------- ---------
Property plant and equipment capital
expenditure 58 - 58
--------------------------------------------- ---------- ----------- ---------
The segment assets and liabilities at 31 December 2018 and
capital expenditure for the year then ended are as follows:
Power Corporate
& Mine US$'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
--------------------------------------- ---------- ----------- ----------
19. Reconciliation of liabilities arising from financing
activities
Short Derivative Total
term loan financial
liability
-------------------------------------------- ---------------------- ---------------------- -------------------
US$'000 US$'000 US$'000
At 1 January 2019 4,182 845 5,027
Cash flows - - -
Conversion of Loan to equity (1,094) (250) (1,344)
Non-cash finance charges 1,146 - 1,146
FV movement on Loan Embedded
Derivative - (456) (456)
Exercise of warrants - (99) (99)
Fair value movement on warrants - (10) (10)
At 31 December 2019 4,234 30 4,264
--------------------------------------------- ---------------------- ---------------------- -------------------
Accrued Short Derivative Total
interest term loan financial
liability
-------------------------- --------------------- ---------------------- ---------------------- -------------------
US$'000 US$'000 US$'000 US$'000
At 1 January
2018 510 3,495 107 4,112
Cash flows - - - -
Non-cash
finance
charges 1,050 124 - 1,174
Restructuring
of loan (1,560) 1,560 - -
FV of warrants
issued - - 189 189
FV of loan
derivative - (997) 997 -
Change in fair
value - - (448) (448)
-------------------------- --------------------- ---------------------- ---------------------- -------------------
At 31 December
2018 - 4,182 845 5,027
-------------------------- --------------------- ---------------------- ---------------------- -------------------
20. Financial instruments
The Group is exposed to risks that arise from its use of
financial instruments. This note describes the Group's objectives,
policies and processes for managing those risks and the methods
used to measure them. Further quantitative information in respect
of these risks is presented throughout these financial
statements.
The significant accounting policies regarding financial
instruments are disclosed in note 1.
There have been no substantive changes in the Group's
objectives, policies and processes for managing those risks or the
methods used to measure them from previous periods unless otherwise
stated in this note.
Principal financial instruments
The principal financial instruments used by the Group from which
financial instrument risk arises, are as follows:
2019 2018
US$'000 US$'000
---------------------------------------------- --------- ---------
Loans and receivables at amortised cost
Trade and other receivables 9 16
Cash and cash equivalents 722 424
Financial liabilities held at amortised cost
Trade and other payables 404 481
Loans and borrowings 4,234 4,182
Financial liabilities at fair value through
profit or loss
Derivative financial liability 30 845
---------------------------------------------- --------- ---------
For details of the fair value hierarchy and valuation techniques
relating to the determination of the fair value of the derivative
financial liability, refer to note 14.
General objectives, policies and processes
The Board has overall responsibility for the determination of
the Group's risk management objectives and policies and retains
ultimately responsibility for them.
The overall objective of the Board is to set polices that seek
to reduce risk as far as possible without unduly affecting the
Group's competitiveness and flexibility. Further details regarding
these policies are set out below:
Liquidity risk
Liquidity risk arises from the Group's management of working
capital. It is the risk that the Group will encounter difficulty in
meeting its financial obligations as they fall due.
The Board receives cash flow projections on a monthly basis as
well as information on cash balances.
2019
Between Between Between
on demand in 1 1 and 6 and 1 and
Total month 6 months 12 months 3 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other payables 404 - 185 - 219 -
Loans and borrowings 4,234 4,234 - - - -
2018
Between Between Between
on demand in 1 1 and 6 and 12 1 and
Total month 6 months months 3 years
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other payables 481 - 112 - 369 -
Loans and borrowings 5,661 - - - 5,661 -
The Group endeavours to match the maturity of its current assets
with its current liabilities to mitigate liquidity risk. Refer to
note 1 for the material uncertainty regards going concern.
Borrowing facilities
The Group had US$750,000 undrawn and unconditional committed
borrowing facilities available at 31 December 2019 (2018:
US$nil).
The Company put in place a US$750,000 working capital facility
in October 2019. No drawdowns were made in the year. In 2020,
US$250,000 has been drawndown, with the remaining facility of
US$500,000 available until end of June 2020 although it is not
currently intended to utilise it further.
Market risk
The Group does not currently sell any coal or electricity. As
such there is no specific market risk at the date of this report.
However, there is a risk that the Group is unable to secure a
credit worthy off-taker for the full output of the power plant,
with the plant operating at load factors in excess of 80%.
Currency risk
The Group is exposed to currency risk through its activities due
to certain costs arising in Mozambique Meticais and cash held in
GBP, whilst the functional currency is US dollars. The Group has no
formal policy in respect of foreign exchange risk, however, it
reviews its currency exposures on a monthly basis. Currency
exposures relating to monetary assets held by foreign operations
are included within the Group statement of profit or loss. The
Group also manages its currency exposure by retaining the majority
of its cash balances in US dollars, being a relatively stable
currency.
A 5% appreciation in the value of the US dollar against the
Meticais and GB pounds will increase net assets by US$8,718 (2018:
US$16,069).
Currency exposures
As at 31 December the Group's net exposure to foreign exchange
risk was as follows:
2019 2018
US$'000 US$'000
Assets/(liabilities) Assets/(liabilities)
held held
GBP ZAR MZN Total GBP MZN Total
US dollars 187 5 12 204 323 1 324
187 5 12 204 323 1 324
The Group is exposed to foreign exchange risk arising from
various currency exposures primarily with respect to the Mozambican
Meticais and Sterling, but these are not significant as most of the
transactions are in USD.
21. Related party transactions
Parties are considered to be related if one party has the
ability to control the other party, is under common control, or can
exercise significant influence over the other party in making
financial and operational decisions. In considering each possible
related party relationship, attention is directed to the substance
of the relationship, not merely the legal form.
In relation to the Shareholder Loan as at 31 December 2019 none
of the Directors have converted their loan into equity and there
were no Director's drawn down. The outstanding principal plus
interest amount up to 31 December 2019 of US$1.4 million (2018:
US$nil) related to a Trust of which Non-Executive Chairman, Michael
Haworth is a potential beneficiary, US$0.13 million (2018: US$0.1
million), to Executive Director, Hanno Pengilly, and US$0.1 million
(2018: US$0.1 million), to Director Estevão Pale.
Refer to note 13 for details of the terms and conditions.
Hanno Pengilly - Executive Director of Ncondezi Energy Limited,
appointed on 9 October 2019 - Director of Herne Capital (Pty) Ltd
("HCL")
During the year US$240,000 (2018: US$240,000) was paid by the
Company to HCL in respect of services provided by Hanno Pengilly.
There was no outstanding balance at 31 December 2019 (2018:
US$nil).
HCL provides leadership on key corporate activities such as
capital raising, reporting and press releases, investor relations
strategy.
Working Capital Facility
The Company put in place a US$750,000 working capital facility
in October 2019. The facility was provided by a company owned by a
trust of which CEO, Hanno Pengilly, is a potential beneficiary. As
at year end, no draw down had been made.To date US$250,000 has been
drawndown, with the remaining facility of US$500,000 available
until the end of June 2020.
Aman Sachdeva - Non-Executive Director of Ncondezi Energy
Limited - CEO of Synergy Consulting Inc.
During the year US$121,000 (2018: US$160,000) was paid by the
Company to Synergy Consulting Inc. in respect of services provided
by Synergy. At 31 December 2019 the outstanding balance was US$nil
(2018: US$41,000).
As announced on 12 December 2019 Synergy was selected as
preferred financial advisor to prepare the Project financial model
and finalise the tariff submission and negotiation process with
EDM. The contract has a fixed fee of US$75,000 and a maximum
additional fee of US$30,000.
Synergy is a global independent consultancy specialising in
infrastructure advisory and project finance, and has experience in
achieving financial closure for deals worth approx. US$25 billion
and M&A advisory for deals worth US$5.0 billion.
Details of Key Management Remuneration are contained in note
3.
22. Commitments
Social development programme
In December 2012 a Memorandum of Understanding was signed with
the Mozambican Ministry of Mineral Resources and Energy in respect
of a Social Development Programme, with a committed spend of US$2
million following an agreed programme. By December 2016 half of
this budget has been successfully spent in various initiatives.
During the year there was no expenditure related to social
development programmes (2018: US$nil). Further to an Addendum, the
program was postponed to be completed during the mining phase. In
addition, upon receiving the mining concession in 2013 a further
US$5 million was committed. The expenditure programme is still to
be negotiated with the Ministry of Mineral Resources and
Energy.
Environmental licence fee
An environmental licence fee of 0.2% of the capital cost of
construction is payable before commencement
of construction.
Working Capital Facility
The Company put in place a US$750,000 working capital facility
in October 2019. The facility was provided by a company owned by a
trust of which CEO, Hanno Pengilly, is a potential beneficiary. To
date US$250,000 has been drawndown, with the remaining facility of
US$500,000 available until end of June 2020 although it is not
currently intended to utilise it further.
EMEM 5% investment in NCCML
Along with the issuance of the Mining Concession, Ncondezi's
local subsidiary NCCML also concluded an Addendum to Mine Framework
Agreement ("MFA") with Mozambican Ministry of Mineral Resources and
Energy. Under the terms of the Addendum to the MFA, it has been
agreed that the Government owned Mozambican Mining Exploration
Company ("EMEM") will be granted a 5% free carry in the share
capital of NCCML up to the start of the Ncondezi mine's
construction. However, from the commencement of construction EMEM
will be required to pay, through an agreed funding mechanism, for
its share of any future equity funding obligations that may be
required from the shareholders of NCCML including its share of the
construction and commissioning costs of bringing the Ncondezi mine
into commercial operation.
GridX Fees and first C&I solar and battery storage project
Commitment
On 5 April 2019 the Company signed a Term Sheet with GridX to
acquire ROFR to fund GridX C&I projects through a newly setup
JV. The Term Sheet envisaged payment of a fee in two stages to
GridX of US$390,000 (the "GridX Fee") allowing the Company to enter
into definitive agreements to formalise the JV. The first stage was
an upfront fee of US$260,000 which was paid to GridX at the time of
signing the Term Sheet. The remaining US$130,000 is payable upon
meeting certain conditions. These conditions were not yet met at
year end.
As part of the RA, on 6 May 2020 GridX agreed to forego payment
of the final amount of the GridX Fee of US$130,000 which would have
been payable under the previous arrangement upon completion of a
number of conditions that were not met, and this is no longer a
potential payment requirement.
An initial commitment by Ncondezi of US$1.1 million was made to
the GridX SPV to fund the first C&I solar and battery storage
project under the shareholder agreement signed on 23 October 2019,
to date US$665,680 has been invested. Due to the COVID-19 outbreak
in early April 2020 a force majeure notice was issued by the
offtaker. Project construction was put on hold pending further
clarity on the impact of COVID-19 and the lifting of travel
restrictions.
23. Events after the reporting date
In January 2020 US$250,000 has been drawndown from the working
capital, facility put in place in October 2019 with the remaining
facility of US$500,000 available until end of June 2020 although it
is not currently intended to utilise it further.
On 31 March 2020, the Company submitted a firm tariff proposal
to the Mozambican Government and EDM. The proposal was supported
by:
o Executed JDA;
o Detailed EPC and O&M proposals from CMEC and GE;
o Indicative debt financing terms from a leading financial
institution; and
o A Letter of Interest from a leading export credit agency.
On 9 April Project construction for the C&I solar and
battery project in Mozambique was put on hold pending further
clarity of the impact of COVID-19 and lifting of travel
restrictions. A force majeure notice was issued by the Project
offtaker in Mozambique due to the inability to provide site access
for construction.
On 5 May 2020 Estevão Pale resigned from the Board of the
Company and his role as Non-Executive Director.
On 6 May 2020, the Company finalised a binding RA with GridX for
a US$5.5 million pipeline of solar and battery storage projects in
the C&I sector and agreed to acquire 100% of the SPV set up for
the first solar and battery storage project investment for US$100.
The remaining $130,000 GridX fees related to ROFR were terminated
under the new RA. In addition, GridX SPV, will become a wholly
owned subsidiary of NGPHL through the purchase of all GridX's A
class shares at par value totalling US$100. Following the
acquisition, GridX will no longer have any management or
acquisition rights in the GridX SPV, but will continue to provide
management services. Furthermore, GridX has agreed that as soon as
it becomes the owner of any plant and materials relating to the
first solar and battery project currently under construction, it
shall immediately transfer ownership of such plant and material to
GridX SPV for no additional consideration. As part of its ordinary
course of business as a developer, GridX is entitled to a capped
development fee for each Project that Ncondezi funds, included as
part of the Project capital cost. GridX is expected to provide
O&M services for each of the Projects that achieves financial
close in accordance with market-related commercial terms for
projects of a similar nature, contracting directly with the power
offtaker. Certain incentives to encourage GridX to achieve the best
returns for each Project, will be paid through a profit sharing
mechanism where an equity IRR hurdle of above 10% is achieved by
Ncondezi.The RA will expire at the earlier of Ncondezi financing
US$5.5 million of Projects or 36 months.
On 15 May 2020, the Company raised a total of GBP650,000 before
expenses, through a conditional placing of 21,666,666 ordinary
shares in the Company at a price of 3 pence per Ordinary Share
("Placing Price") together with 1 warrant to subscribe for an
Ordinary Share at 6 pence per new Ordinary Share. The Company also
received subscriptions for a total of 2,466,666 Ordinary Shares in
the Company at the Placing Price for a further GBP74,000 being
equal to the amounts owed to certain creditors. In addition the
Senior Management Team and certain consultants to the Company have
agreed to defer 30% of salaries and fees until 30 November 2020. In
principle agreement has been reached to subscribe for shares at the
Placing Price in relation to salaries and fees that have been
agreed to be deferred. Such subscription, if implemented, would be
made in December 2020 and represent a potential total of 1,603,800
new Ordinary Shares at the Placing Price for a further GBP48,114.
Separately CEO Hanno Pengilly has agreed to defer 30% of his salary
until 30 November 2020.
Mozambique brought in nationwide restrictions to stem the spread
of the COVID-19 pandemic on 1 April which have been extended to the
end of June. The Company suspended all travel to Mozambique while
continuing to work with their Partners remotely. The impact of the
travel restrictions has resulted in the halting of construction of
and force majeure declared on the C&I solar and battery
project. During tariff negotiation discussions it was highlighted
that available technical and market assumptions critical to the
Project are out of date. The Company has agreed to update its
transmission integration study and conduct an independent market
study for energy supply and demand forecasts in Mozambique and
potential export markets ("Independent Studies"). The studies will
also take into account the potential impact of COVID-19. These
studies are anticipated to add at least 2 months to the Project
development programme moving the tariff agreement to H2 2020. Other
workstreams have also been impacted by the travel restrictions, the
Shareholder Agreement Term Sheet, historical audit and finalisation
of the EPC contracts are all now expected in Q3 2020.
Company Information
Directors Michael Haworth (Non-Executive Chairman)
Aman Sachdeva (Non-Executive Director)
Hanno Pengilly (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 Coastal Building
Wickham's Cay II
PO Box 2221
Tortola
British Virgin Islands
Company number 1019077
Nominated Advisor and Corporate Broker Liberum Capital Limited
Ropemaker Place
Level 12
25 Ropemaker Street
London
EC2Y 9AR
Auditors BDO LLP
55 Baker Street
London
W1U 7EU
Registrar Computershare Investor Services (BVI) Limited
Woodbourne Hall
PO Box 3162
Road Town
Tortola
British Virgin Islands
Legal advisor to the Company Ogier LLP
as to BVI law 41 Lothbury
London
EC2R 7HF
Legal advisor to the Company Bryan Cave Leighton Paisner LLP
as to English law Governors House
5 Laurence Pountney Hill
London
EC4R 0BR
([1]) IRENA: " 2030: Roadmap for a Renewable Energy Future"
(2015)
([2]) Bloomberg NEF: "Solar for Businesses in Sub-Saharan Africa" (2019)
([3]) Bloomberg NEF: "New Energy Outlook 2018" (2018)
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
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