Annual Financial Report
27/06/2022 07:00
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RNS Number : 1929Q Ncondezi Energy Limited 27 June 2022
www.ncondezienergy.com (http://www.ncondezienergy.com)
News Release
Audited Final Results for Year Ended 31 December 2021
27 June 2022: Ncondezi Energy Limited ("Ncondezi" or the "Company") (AIM:
NCCL) is pleased to announce its audited final results for the year ended 31
December 2021.
Operational Highlights:
Ncondezi Power Project
· US$21.0 million historical costs relating to the Ncondezi Project
agreed "in principle" with China Machinery Engineering Corporation ("CMEC")
· Master Services Agreement ("MSA") signed with Synergy Consulting
("Synergy") to provide financial and transaction advisory services to the
Group for the Project
· Engineering, Procurement and Construction ("EPC") power plant
contract for the Project signed with CMEC at a virtual signing ceremony
· Updated Transmission Integration Study submitted for review and
approval to Electricidade de Moçambique ("EDM")
C&I Solar PV and Battery Storage Projects
· Ncondezi Green Power ("NGP") and Captive Power Limited ("CPL")
signed a binding Relationship Agreement, which superseded the Relationship
Agreement with GridX announced on 6 May 2020 under which NGP has the right
(but not the obligation) to fund a pipeline of C&I solar and battery
storage projects in Mozambique; all rights and obligations under the GridX
Relationship Agreement were suspended and GridX agreed to novate to CPL all
commercial agreements in relation to the C&I Maiden Project and to release
to CPL any rights in relation to 5 of the existing 6 projects in the pipeline
· Successful commissioning of the Company's C&I Maiden Project
· Mozambique Green Power ("MGP"), a subsidiary which owns the
group's C&I Maiden Project, was sold for US$1.3 million to Green Energy
SPV PLC ("Green Energy") in December 2021
Financial Highlights
· US$500,000 bridge loan ("Bridge Loan") between the Company's
wholly owned renewables subsidiary, NGP and certain Company Directors to
finance the balance of construction costs to commission the C&I Maiden
Project. The full amount had been drawn down as of 28 September 2021 and was
repaid in full following completion of the sale of MGP in December 2021
· CEO, Hanno Pengilly subscribed for 1,243,646 at 3p per Ordinary
Shares in lieu of deferred salary between April 2020 and November 2020 and
1,996,755 at 4.5p per Ordinary Shares in lieu of contractual bonuses due on
the achievement of various milestones in 2019 and 2020
· 754,860 Ordinary Shares were issued at 3p to certain employees,
contractors and consultants in relation to outstanding deferred salaries and
fees accruing between April 2020 and November 2020
· Employees Benefit Trusts 1 & 2 were terminated as part of the
Company's measures to conserve funds. Accordingly, the 2,869,840 Ordinary
Shares that remained in the EBT were transferred to the Company and are held
in treasury by the Company as at year end
· Successful fundraising to finance general working capital
completed in August 2021 raising £600,000 at 1.5p per Ordinary Shares
· Cash at bank US$0.9 million as at 31 December 2021
Post balance sheet events
Ncondezi Power Project
· CMEC confirms ongoing commitment to the Project in January 2022
and continues to lead the process to unlock project financing
· Tariff negotiations awaiting further clarity on Project financing
from Chinese Government following announced policy not to fund new coal power
projects abroad
Grid Scale Solar Project
· Internal review and preliminary studies identify potential for a
grid scale solar plus battery storage power project at the Ncondezi Project
site (the "Solar Project") without compromising delivery of the main Ncondezi
Project
· Company is finalising development plans and permissions to
commission feasibility study work for a grid scale solar project
Working Capital
· Seritza Limited ("Seritza") confirmed it would extend the period
in which it would not call in the working capital facility term loan ("Working
Capital Facility") to 30 June 2022, whilst restructuring discussions are still
being finalised (the "Seritza Restructuring")
· Cash conservation strategy implemented potentially extending
working capital runway from August 2022 to Q1 2023, depending on the Seritza
Restructuring outcome. Based on management projections the Group is funded
into August 2022 with potential to extend into Q1 2023 depending on loan
restructuring negotiations with Seritza
Corporate
· Non-executive Director Scott Fletcher purchased an aggregate of
5,000,000 ordinary shares of no par value increasing his holding to 81,823,020
Ordinary Shares, representing 19.9 per cent. of the Company's issued share
capital.
The Company will post its Annual Report and Accounts for the year ended 31
December 2021 ("2021 Annual Report and Accounts") to shareholders on 27 June
2022. A copy of the 2021 Annual Report and Accounts will be available on the
Company's website www.ncondezienergy.com (http://www.ncondezienergy.com) .
Enquiries
For further information please visit www.ncondezienergy.com or contact:
Ncondezi Energy Hanno Pengilly +27 (0) 71 362 3566
Scott Mathieson, Edward Thomas, Kane Collings +44 (0) 20 3100 2000
Liberum Capital Limited
NOMAD & Joint Broker
Novum Securities Limited Colin Rowbury +44 (0) 20 7399 9427
Joint Broker
Elizabeth Johnson +44 (0) 777 56 55 927
Pimlico Advisory Ltd
Investor Relations
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.
Chairman's Statement
Dear Shareholder,
The 2021 financial year was focused on positioning the Ncondezi Project within
an increasingly challenging market for coal and coal power generation, as well
as commissioning our first solar PV and battery storage project in the C&I
sector, which we have subsequently sold.
We had a solid start to the year with "in principle" agreement with our
partners CMEC to repay US$21 million of historical costs. Meanwhile, an
optimised transmission integration solution was submitted to EDM for review
with a new preferred route being identified that has the potential to
significantly reduce Project capex. We were also pleased to conclude the EPC
contract for the power plant with CMEC at a virtual Signing Ceremony in
September 2021. The EPC contract is the main construction contract for the
Project and is a material de-risking event as well as providing a further
demonstration of CMEC support for the Project.
Despite the positive progress, global pressures to transition energy
generation away from coal have continued, ultimately leading to the sector's
largest financier, China, committing to end the building of new coal fired
power projects abroad at the United Nations General Assembly on 22 September
2021. Further clarity is required to confirm if the ban applies to more
advanced projects, such as the Ncondezi Project.
Financing confirmation from China is critical to the success of the Project
and it is important to highlight that a positive outcome from the Chinese
Government is out of the Company's control. However, the Company is aiming for
a swift resolution and is working closely with CMEC, which is leading the
financing process, to gain further clarity on the availability of Chinese
financing for the Project. CMEC has re-emphasised its support for the Project
and, in parallel to gaining clarity from China, is also exploring several
potential alternative financing solutions. All workstreams to progress and
finalise the tariff remain ready to proceed as soon as financing is confirmed.
While we await an update on financing for the Project the current situation in
Ukraine, growing pains in China and South Africa's widening energy supply
deficit all create potential opportunities to unlock the Project's potential.
Following Russia's invasion of Ukraine in February (post year end), global
thermal coal prices have more than doubled as the world prioritises energy
security over decarbonisation. The fundamentals of all key energy commodities
(coal, gas and oil) are going through a structural change, forcing many
countries to rethink their energy strategies. Developing nations, such as
Mozambique, have less optionality than their more developed neighbours and the
changing global energy environment further emphasises the need to implement a
diversified generation mix on the grid for greater energy security. Combined
with the ability to provide a low cost, reliable power supply to support
economic growth, this provides a window in which coal power generation remains
suitable as a transition solution whilst renewable energy technologies
continue to advance.
The impact of China's ongoing lockdown policy has led to negative GDP growth
forecasts, currency depreciation in China and global commodity price
inflation. The situation has the potential for China to turn to historically
proven tools to resolve growth, including increased credit and policy support
for sectors such as infrastructure build out, potentially delaying recent
commitments such as restrictions on coal power financing.
South Africa's state run utility, Eskom, has indicated that it currently has a
4,000MW to 6,000MW power deficit and will be forced to retire a further
10,000MW over the next 8 years due to ageing power stations. Mozambique, as
the largest exporter of power to South Africa, stands in a good position to
take advantage of this.
Any one of these factors could influence a material shift to the benefit of
the Project, emphasising the need for continued patience whilst the dust is
allowed to settle and clarity is sought on the potential for Chinese funding.
While awaiting clarity on the Project, the Board has carried out a review of
other potential opportunities to unlock shareholder value through its wholly
owned green energy subsidiary, NGP. Preliminary studies have been completed
and confirm the potential for a grid scale solar plus battery storage power
project providing an opportunity to unlock significant value for Shareholders
and broaden the Company's investment appeal. The Company has confirmed that it
can use existing Project studies to fast track a development programme, whilst
also leveraging its recent experience in delivering a fully off-grid C&I
solar plus battery storage system in Mozambique last year. The Company is
currently engaging with the relevant local authorities and expects the Solar
Project development programme to accelerate quickly once the requisite
authorisations have been granted.
The Solar Project opportunity follows the successful commissioning and sale of
the 400kWp solar PV plus 912kWh battery storage C&I Maiden Project in Q4
2021 to Green Energy. The project is believed to be the largest fully off-grid
renewable energy system installed in Mozambique to date and was delivered
despite the difficulties caused by the global pandemic. The sale was completed
at a premium valuation and not only allowed the Company to direct more focus
on progressing the Ncondezi Project, but also provided the opportunity to
apply newly gained skills in solar PV and battery storage towards additional
renewable energy potential at the Project site.
Following the sale of the C&I Maiden Project the Company will continue to
monitor the C&I sector for potential opportunities however this sector
will no longer be a priority. As part of the C&I Maiden Project sale
process the term sheets with Nesa Capital (Pty) Ltd and Nesa Engineering (Pty)
Ltd (Collectively "NESA") and Nesa Investment Holdings ("NIH") were terminated
in December 2021.
Financing
In August 2021, the Company successfully completed a £600,000 placing, before
expenses, via the issue of 40,000,000 Ordinary Shares of no par value in the
Company at a price of 1.5 pence per share.
In line with the commitment to Shareholders the Company utilised alternative
funding structures to finance the balance of construction costs to commission
its C&I Maiden Project. This was done through the delivery of a US$500,000
Bridge Loan between certain Directors, myself included, and NGP. The Bridge
Loan was fully repaid following the sale of the C&I Maiden Project to
Green Energy which provided a non dilutive solution to repay the loan and an
injection of additional working capital to focus on the main Project.
We continue to work to extend and restructure the Shareholder Loan which
matured on 30 November 2019. "In principle" support was received from all
Lenders to enter the Shareholder Loan restructuring proposal in November 2019
and again in May 2020. To provide investors with confidence that the
Shareholder Loan will not be called in imminently, certain Board and
Management who represent 39.6% of the Shareholder Loan signed an Undertaking
not to call it in before the later of 30 November 2022 or when the Shareholder
Loan restructuring is completed. This ensures that the majority of 66.67%
required to call in the Shareholder Loan will not be reached. We remain
confident of a positive outcome as there is significant alignment between the
loan holders and the major Shareholder and Senior Management of the Company
with 87% of the loan outstanding held between Africa Finance Corporation
("AFC") (the Company's second largest Shareholder), the Board and Senior
Management.
The Working Capital Facility of $250,000 plus interest became repayable on 24
February 2022, however positive restructuring discussions are ongoing and
Seritza has agreed not to call in the loan before 30 June 2022.
On 29 March 2022, the Company announced the completion of a cash conservation
strategy which had extended the Company's cash reserves to between August 2022
and Q1 2023, depending on restructuring negotiations on the Working Capital
Facility and before repayment of the Shareholder Loan. The strategy included
further overhead cost optimisations and reducing management salaries including
a 40% reduction for Company CEO, Hanno Pengilly.
As at the end of the reporting period, the Company had cash reserves of
approximately US$0.9 million.
Based upon projections that include corporate costs, salaries of staff and
consultant fees, project costs to progress the Project and Solar Project, the
Group is funded into August 2022 with the potential to extend this to Q1 2023,
depending on the Seritza Restructuring outcome and the Shareholder Loans.
Further funding will also be required to meet operating cash flows under
current forecasts in the event of accelerated project advancement. For more
details please see note 1 of the Financial Statements.
Acknowledgements
I would like to thank our team and Partners for their continued hard work and
commitment. I am aware of the hard work that goes on behind the scenes. We are
grateful for Shareholders' continued support and patience and look forward to
providing further updates going forward.
Michael Haworth
Non-Executive Chairman
24 June 2022
Operations Review
Ncondezi Project
About the Ncondezi Project
The Project is an integrated project including a coal fired power plant, open
pit coal mine and transmission integration solution connecting with the
Mozambique grid that is being developed in phases of 300MW. The Project is
located near Tete in northern Mozambique.
The Project has been designed to meet the objectives of the Mozambique
Government's Integrated Electricity Master Plan and will be equipped with
state-of-the-art emissions controls technologies that will reduce local air
pollutants, minimising the plant's impact on the environment and ensuring its
compliance with the most stringent emission standards.
The Project's objective is to provide reliable, affordable and accessible
baseload energy to Mozambique securing against the effects of drought and
intermittency of new renewables to assist with providing a balanced and stable
grid supply.
The Project remains one of the most advanced baseload projects in Mozambique
and continues to receive strong support from our joint venture partner CMEC,
which is focused on becoming the Project's strategic partner, with a
proposed 60% equity shareholding.
Historical Costs Agreed "In Principle"
In January 2021 the Company agreed "in principle" US$21.0 million in
historical costs to be reimbursed by CMEC at Financial Close ("FC"), on the
following basis:
· US$26.7 million agreed as the target Project historical
expenditure
· US$21.0 million third party audited and accepted by CMEC "in
principle"
· US$5.7 million relating to historical senior and project
management costs still under negotiation
· Finalisation of historical development cost expected once Project
power tariff approved
Agreement on the historical costs to be reimbursed is a key condition
precedent for the full form Shareholders agreement between Ncondezi and CMEC
and is in addition to the subscription price to be agreed for the 60% share in
the Project and the Project developer's fee.
Power Plant EPC Contract
In September 2021 the power plant EPC Contract was signed at a virtual signing
ceremony with CMEC. The EPC contract confirmed CMEC as the main contractor to
provide design, engineering, manufacturing, procurement, construction,
erection, installation and commissioning of the Ncondezi Project 2x 150MW
coal-fired power station on an EPC turnkey basis. The EPC contract is valid
for 3 years and subject to standard conditions being met before construction
can start, including the achievement of FC at the Project.
Through CMEC, the EPC agreement formed a key part of the information package
submitted to the relevant Chinese authorities to confirm the Project's
advanced level of development.
Transmission Integration Solution
In December 2021 the Transmission Integration Study for the Project was
submitted for review and approval by EDM. The study reviewed a number of
potential transmission integration solutions following discussions with EDM,
with each optimised for cost, capacity on existing infrastructure and, for new
infrastructure and timing of delivery. The study identified a technically more
robust integration point 40 km from the Project (representing a reduction of
+50km) with potential for a closer integration point in the future. This
provides a high degree of confidence in delivering significant cost savings to
the Project.
The next phase is to receive sign off from EDM for the Transmission
Integration Study, which is expected to be finalised once the Project
financing has been resolved.
Ncondezi Work Programme Status
The next major development milestone for the Project is finalisation of the
power tariff. At the end of 2020, the Company submitted an updated Project
feasibility study and tariff proposal to EDM for review and comment. Although
positive steps to progress the tariff were made during 2021, further progress
awaits clarity on China's position on the availability of financing for the
Project following President Xi's announcement regarding financing restrictions
for coal power projects abroad in September 2021. Although the outcome on
financing from China is outside of the Company's control, we continue to work
closely with CMEC to resolve the issue. In addition, the Company and CMEC have
initiated steps to identify potential alternative financing solutions, however
securing financing from China remains the priority.
All key development studies for the power plant, mine and transmission line
have been finalised and submitted to the relevant Mozambique authorities and
EDM and are awaiting sign off. The key commercial agreements, namely the Power
Purchase Agreement ("PPA") and Power Concession Agreement ("PCA") are in near
final form and are expected to be finalised once a tariff has been agreed.
The Company will provide further updates at the appropriate time.
Ncondezi Green Power
About Ncondezi Green Power
NGP is a wholly owned subsidiary of Ncondezi which is focussed on providing
solar PV and battery storage solutions in southern Africa focused on two
sectors:
1) The grid scale sector focused on supplying power to the national grid;
and
2) The C&I sector to replace existing off-grid (normally diesel) power
supplies, or to supplement on-grid connections.
NGP utilises a conventional Independent Power Producer business model when
developing grid scale projects, identifying potential projects with a
strategic advantage to supply competitively priced power within national power
generation growth requirements. These projects are typically funded through
the use of a PPA over a 15 to 20 year period with the local power utility.
For the C&I sector, NGP seeks to provide a full turnkey solution to
potential C&I clients, partnering with developers and EPC providers to
design, finance, construct and operate solar PV and battery storage
installations. For projects that meet its screening and credit approval
process, NGP provides a full financing solution for the installation, removing
the upfront cost to potential C&I clients. Projects are financed through
either an Asset Finance Agreement ("AFA") or PPA structure which splits
payments over a 15 to 20 year period, to which NGP seeks to generate its
return. NGP works with tier 1 equipment suppliers and allocates key
responsibilities to professionals best suited to managing risk during both the
construction and operation phase of a project's life. This process takes the
complications out of delivering a suitable energy solution for companies
interested in lowering their energy bills, improving energy security, and
utilising more sustainable forms of energy generation to reduce carbon
emissions. NGP entered the C&I sector in 2019 when the Company announced
its first investment in the C&I Maiden Project, believed to be the first
project of its type in Mozambique.
Grid Scale Solar Project
On 9 May 2022, the Company announced that the Board had concluded an internal
review on the Project and believes that there is potential for a grid scale
solar plus battery storage power project at the Project site. Preliminary
studies confirm the existing Project site enjoys favourable solar conditions
and access to the Mozambique grid. The Company has confirmed with its
technical and financial advisors that Solar Project development programme and
costs can be streamlined through utilisation of existing Project studies.
Importantly, the Solar Project is feasible without compromising delivery of
the main Project. The Board believes that the Solar Project brings an
opportunity to unlock significant value to shareholders and broaden the
Company's investment appeal. Further updates will be made as the development
strategy and engagement with key counterparties progresses.
C&I Maiden Project
Work restarted at our C&I Maiden Project in March 2021 following a delay
in construction due to COVID-19 travel restrictions. The project was fully
commissioned on 12 October 2021 following final installation handover to the
main power offtaker. The project is a fully off-grid solution which includes a
400kWp solar PV installation plus 912kWh battery storage and is targeting
generation of up to 600MWh and CO2 savings up to 517t per annum. The project
is believed to be the largest fully off-grid renewables project in Mozambique.
On 3 December 2021, the Company announced that NGP had entered into a sale and
purchase agreement ("SPA") with Green Energy and sold MGP, the group company
which owned the C&I Maiden Project. Key highlights:
· Acquisition price US$1.3 million paid in cash (the
"Consideration")
· Green Energy is a newly formed company controlled by Ncondezi
Energy Non-Executive Director, Scott Fletcher
· Proceeds used to repay the Bridge Loan and the remainder of the
proposed Consideration, $650,000 is being used for general working capital
purposes
Pursuant to the terms of the SPA :
· NGP terminated certain exclusivity agreements with NESA Capital
(Pty) Ltd, and Nesa Venture Capital Investments (Pty) Limited; and
· Ncondezi waived certain contractual rights in relation to Hanno
Pengilly and Scott Fletcher under their letter of appointment and service
agreement with Ncondezi, respectively such that they will both be permitted to
participate in any commercial and industrial solar photovoltaic and battery
storage projects carried out by Green Energy.
The Company also guaranteed performance by NGP of its obligations under the
agreement. NGP gave customary warranties in relation to its authority to enter
into the transaction, its ownership of the shares and the business of MGP. NGP
also gave an indemnity regarding the financial position of MGP and certain
other matters. The warranties relating to the business of MGP and the
indemnities are subject to a number of limitations.
Both the sale of MGP to Green Energy and the requirement to repay the Bridge
Loan from the proceeds of the sale constituted a related party transaction for
the purposes of AIM Rule 13.
The sale concluded during December 2021.
Relationship Agreement with CPL
In June 2021, the Company announced that NGP had signed a new binding
Relationship Agreement with CPL giving it the right of first refusal ("ROFR")
(but not the obligation) to fund a pipeline of C&I solar PV and battery
storage projects in Mozambique. This agreement supersedes the agreement signed
with GridX in May 2020.
Under the agreement, CPL has identified 6 Initial Projects for development
with a combined potential installed solar PV capacity of 2.8MWp and 6.2MWh
battery storage, representing a potential total investment value of US$5.5m.
Capital costs range from US$250,000 to US$2.1 million. Should these Initial
Projects meet the minimum KPIs and NGP exercises its right to fund, it would
represent a potential annuity income stream of over US$750,000 per annum.
Each project must meet a minimum set of KPIs before being presented to NGP for
funding. These minimum KPIs include:
· Project must be located in Mozambique;
· Project size between US$100,000 and US$10,000,000;
· Use of proven technology;
· Minimum post tax unlevered equity IRR of at least 10% to NGP;
· Minimum credit requirements met;
· Bankable offtake denominated in US$;
· Completion of credit checks on potential clients with additional
credit support in place where required;
· Finalised EPC and Operations and Maintenance ("O&M")
contracts in place; and
· All consents and permits required to start construction in place.
NGP will have the right to fund 100% of each project's equity requirement, and
projects will be assessed for funding on a project by project basis. The
Company will look to identify the optimal financing strategy for each project,
particularly with respect to securing funding at the NGP subsidiary level and
will look at both debt and equity options with gearing of up to 50%.
Discussions with potential investors and debt providers to date have been
positive as investment mandates and appetites to fund energy access and
renewable power projects continue to grow.
If a project meets the minimum KPIs, NGP has the right not to fund that
project without any financial penalty. However, should NGP elect not to fund
any further projects that meet the minimum KPIs, it will lose its ROFR over
the remaining projects. If a project does not achieve the KPIs within the
proposed time frame allocated, CPL has the ability to substitute that project
for alternative projects.
As part of its ordinary course of business as a developer, CPL is entitled to
a capped development fee for each project that NGP funds, included as part of
the project capital cost.
CPL is expected to provide O&M services for each of the projects that
achieves FC in accordance with market-related commercial terms for projects of
a similar nature, contracting directly with the power off-taker.
Certain incentives to encourage CPL to achieve the best returns for each
project, will be paid through a profit sharing mechanism where an equity IRR
hurdle of above 10% is achieved by NGP.
The Relationship Agreement will expire at the earlier of Ncondezi financing
US$5.5 million of projects or 24 months from the date of the Relationship
Agreement.
NESA Power Joint Venture Term Sheet and NIH Exclusivity Agreement
In June 2021 the Company announced the signing of a term sheet with binding
exclusivity between NGP and NESA detailing the proposed formation of a JVCo to
create a regional player in the southern African C&I renewable energy and
storage sector.
In addition, NESA, NIH and NGP entered into a binding agreement granting NESA
and NGP exclusive rights to negotiate terms on which they would acquire,
through the proposed JVCo, a minimum 51% interest in the NIH Portfolio by 30
November 2021 with a subsequent option to acquire up to 100% within a 5 year
period.
Both the NESA term sheet and NIH exclusivity agreements were terminated as
part of the C&I Maiden Project SPA with Green Energy.
Master Services Agreement
In March 2021 the Company signed an MSA with Synergy to provide financial and
transaction advisory services to the Group for the integrated Ncondezi 300MW
coal fired power project and coal mine in Tete, Mozambique. The MSA covers
potential advisory services to the Project up to FC including:
• Finalisation of the Project power tariff with EDM
• Negotiations with CMEC on Project subscription price
• Negotiations with Project lenders for debt financing
• Capital raising for Ncondezi's equity contribution
towards the Project at FC
Synergy is a leading international project finance advisory firm specialising
in the power sector. They have significant Project experience having assisted
the Company in achieving major milestones to date including, negotiation of
the JDA with CMEC and the tariff submission to EDM. The services also include
potential support for capital raising for the Company's renewable energy
strategy in the C&I sector.
A capped fee structure has been agreed and all services will require approval
by the Company on a workstream by workstream basis allowing the Company to
efficiently manage cashflows.
By virtue of the fact that Aman Sachdeva, a director of the Company, is also a
director, founder and majority shareholder of Synergy, the MSA constituted a
related party transaction for the purposes of AIM Rule 13.
Working Capital Facility
In October 2019, the Company entered a term loan with Seritza for an unsecured
working capital facility of up to US$750,000 for the continued development of
the Ncondezi Project. Seritza is a private company owned by a trust of which
CEO of Ncondezi, Hanno Pengilly, is a potential beneficiary and so is a
related party for the purposes of the AIM Rules.
This Working Capital Facility was available for drawdown from 1 January 2020
until 30 June 2020 at the Company's election and was repayable within 24
months from first drawdown, unless there was an event of default or the
Company elected to prepay the facility. The Working Capital Facility attracts
a 10% annual interest charge, payable at maturity or on repayment. During the
drawdown period, Ncondezi elected to drawdown US$250,000 in total during
February 2020.
As at 30 June 2022, the repayment amount due will be US$0.3 million.
The Working Capital Facility matured on 22 February 2022, however Ncondezi has
entered positive restructuring discussions with Seritza which include the
potential for a maturity extension and/or potential non-cash settlement
solutions. Whilst these discussions are ongoing, Seritza has agreed not to
call in the loan until 30 June 2022.
The proposed Seritza Restructuring would likely constitute a related party
transaction for the purposes of AIM Rule 13 for Companies. Accordingly, should
the Restructuring be accepted by Seritza and before signing, the Company's
Independent Directors would need to consider whether the terms of the
Restructuring are fair and reasonable insofar as its Shareholders are
concerned.
Whilst discussions are ongoing, there can be no certainty that the
transactions contemplated above will occur.
Shareholder Loan
The Shareholder Loan term expired on 30 November 2019 with no extensions or
restructuring legally agreed as at period end. The Shareholder Loan was US$5.2
million as at period end, with interest of 12% continuing to be accrued on the
outstanding balance.
As of 30 June 2022, the repayment amount due will be US$5.4 million which
includes principal, rolled up premiums under the previous loans and interest.
The Company received "in principle" support in November 2019 from all Lenders
to enter the Shareholder Loan restructuring proposal as set out below:
· 12 month extension on existing terms, including 12% annual
interest rate and ability for Lenders to swap debt for equity in part or in
full at a conversion price of 10.0p per share.
· A right for Ncondezi to pay off the original principal amount of
the Shareholder Loan along with conversion of all interest into Ncondezi
shares on AIM at a 25% to 30% premium to the 30 day volume weighted average
price ("VWAP").
The restructuring process is currently subject to the completion of Key Lender
internal approval from AFC, which has incurred delays from the impact of
COVID-19.
On 26 November 2019 and reconfirmed on 20 May 2020, all Lenders, including
AFC, indicated that they will not call in the Shareholder Loan whilst the
Restructuring is being finalised. On 3 November 2020 certain Board and
management, including Chairman Michael Haworth and CEO Hanno Pengilly, who
represent 39.6% of the Shareholder Loan signed an Undertaking not to call in
the Shareholder Loan before the later of 30 November 2022 or when the
Restructuring is completed. The Undertaking prevents the Shareholder Loan from
being called as a majority agreement representing 66.7% of Shareholder Loan
holders is required.
The Restructuring is subject to the Lenders agreeing to the documentation and
the necessary related party transaction process being completed by the
Company's Independent Directors.
Financial Review
Results from operations
The Group made a loss after tax for the year of US$1.7 million including
discontinued operations, US$1.8 million from continuing operations compared to
a loss of US$2.8 million for the previous financial year. This includes a gain
of US$0.1 million from discontinued operations. The basic loss per share for
the year for continuing operations was 0.5 cents (2020: 0.8 cents) whereas the
diluted loss per share for the year for continuing operations was 0.4 cents
(2020: 0.7 cents).
Administrative expenses (excluding share based payment charges) totalled
US$1.5 million (2020: US$1.6 million). Administrative expenses refer
principally to staff costs, professional fees and marketing costs and
underlying administrative expenses relating to advancing the integrated power
and mining project and C&I projects.
The income after tax includes US$0.2 million (2020: loss US$0.9 million)
finance income comprising mainly of US$0.6 million (2020: US$0.5 million) of
effective interest charges on the Shareholder Loan. The US$0.8 million
decrease in the fair value liability of warrants during the period (2020
US$0.4 million increase), further information can be found in note 21.
Financial Position
The Group's statement of financial position at 31 December 2021 and
comparatives at 31 December 2020 are summarised below:
2021 2020
US$'000 US$'000
Non-current assets 18,632 19,371
Current assets 974 965
Total assets 19,606 20,336
Current liabilities 5,871 6,324
Total liabilities 5,871 6,324
Net assets 13,735 14,012
Capitalised additions totalled US$0.17 million (2020: US$0.15 million) in
respect of the development of the Power Project, refer to note 7 for more
details. The carrying value of the non-current assets was assessed for
impairment and no impairment was noted as detailed in note 2.
The decrease in non-current assets of US$0.7 million (2020: US$0.4 million
increase) is in respect of the disposal of the C&I Maiden project, this
resulted in decreased costs and a reversal of loans receivable due to the sale
of MGP, as detailed in note 10 and 11.
The US$0.4 million decrease in current liabilities principally relates to a
US$0.7 million decrease in the revaluation of derivatives previously issued
and new derivatives issued during the year, a US$0.5 million increase in the
Shareholder Loan and working capital facility accrued interest charges and a
US$0.2 million decrease in creditors. The Company's mid-market closing share
price decreased and as at 31 December 2021 was 0.95p (31 December 2020: 5.50p)
this resulted in a significant decrease in the derivative financial
liability. For further information refer to note 21.
Cash Flows
The net cash outflow from operating activities for the year was US$1.4 million
(2020: US$1.3 million).
The cash outflow principally represented administrative costs for the year
with limited working capital movements.
Net cash outflow from investing activities was US$0.2 million (2020: US$0.6
million), all relating to development activities incurred on the Power Project
as detailed in note 7.
Net cash inflow from financing activities was US$1.6 million (2020: US$2.0
million) mainly relating to the net amount of US$1.0 million from the placing
of 40,000,000 Ordinary Shares in the Company at a price of 1.5p per Ordinary
Share, US$1.3 million relating to the sale of MGP and USD$0.65 million bridge
loan repayment.
The resulting year end cash and cash equivalents held totalled US$0.9 million
(2020: US$0.9 million).
Outlook
Based upon projections that include corporate costs, salaries of staff and
consultant fees, project costs to progress the Project and Solar Project, the
Group is funded into August 2022 with the potential to extend this to Q1 2023,
depending on the Seritza Restructuring outcome and the Shareholder Loan.
Further funding will also be required to meet operating cash flows in the
event of accelerated project advancement. The Directors are exploring a number
of funding and working capital solutions. At present there are no binding
agreements in place and there can be no certainty as to the Group's ability to
raise additional funding.
The Directors are also aware of the potential risk of delays as a result of
the COVID-19 pandemic. Operations are currently unaffected however there is no
certainty that further delays may not occur in the future which may lead to
further funding requirements.
At the end of 2020, the Company submitted an updated Project feasibility study
and tariff proposal to EDM for review and comment. Although positive steps to
progress the tariff were made during 2021, further progress awaits clarity on
China's position on the availability of financing for the Project following
President Xi's announcement regarding financing restrictions for coal power
projects abroad in September 2021. While the outcome on financing from China
is outside of the Company's control, we continue to work closely with CMEC to
resolve the issue. In addition, the Company and CMEC have initiated steps to
identify potential alternative financing solutions.
The Shareholder Loan which will amount to US$5.4 million as of 30 June 2022
(including principal, historic redemption premium and interest) matured on 30
November 2019, and the Company is currently evaluating options to execute the
restructuring process as proposed on 26 November 2019.
The Working Capital Facility which will amount to US$0.3 million as of 30 June
2022 (including principal and interest) matured on 24 February 2022 and the
Company is currently evaluating options to extend, restructure or repay the
loan. Whilst these discussions are ongoing, Seritza has agreed not to call in
the loan until 30 June 2022.
In addition, notwithstanding the Shareholder Loan and Working Capital
Facility, further funding will be required as detailed above to meet operating
cash flows under current forecasts beyond August 2022 or in the event of
accelerated project advancement. The financial statements have been prepared
on a going concern basis in anticipation of a positive outcome but it is
important to highlight that there are no binding agreements in place and there
can be no certainty that any of these initiatives will be successful.
These factors indicate the existence of a material uncertainty which may cast
significant doubt about the Group's ability to continue as a going concern.
The financial statements do not include the adjustments that would result if
the Group was unable to continue as a going concern. Further details
can be found in note 1 of the Financial Statements.
Environmental and Social Responsibility
Sustainability
Ncondezi is committed to operating in a sustainable and responsible manner.
The Company takes a long-term strategic approach to the conduct of its
business, with corporate responsibility as a key priority. We are focused on
achieving the highest standards of ethical behaviour, health and safety,
environmental stewardship and governance while sharing the benefits of our
operations with our host communities and host country.
Social Development
Ncondezi's Social Development Programme was put on hold pending further
Project developments. Following this the Company is working with its
partners to put in place a road map to ensure the Company meets the highest
levels of sustainability at all stages of development. Further updates will be
provided to Shareholders in due course.
Achievements from previous years include:
· The drilling of 14 boreholes in several villages within the Tete
province.
· Four students completed their Master's degree in Mining
Engineering at Coimbra University benefiting from a full bursary from
Ncondezi.
· A 4x4 ambulance was purchased to assist villagers in more remote
areas surrounding the Ncondezi Project.
· Ncondezi built a new primary school at Waenera village.
· Upgrading of the Mameme clinic and the construction of a new
maternity wing.
· An Agricultural Project based on conservation farming. This
included the villages of Catabua and Canjedza as an initial model. The
objective being a platform to educate the local communities in all aspects of
crop husbandry using their own resources.
Commitment to Low Emissions
The Company is committed to maintaining the strictest emission standards at
the Project where state of the art emission control systems will be in place
to ensure SOx and NOx emissions are below current IFC and World Bank standards
and will also comply with the latest OECD guidelines and Equator Principles.
Ensuring Energy Security and Access to Low Cost Reliable Power
Mozambique is a developing country with an energy generation mix that is
heavily dependent on hydro
power generation. Power generation from coal is seen as a key factor in
improving Mozambique's energy security by reducing Mozambique's dependence on
hydroelectric power (particularly in the north) where current generation is
vulnerable to the extreme weather effects of climate change.
Whilst there is increasing global pressure for energy generation to transition
away from coal, the needs for developing countries, such as Mozambique, to
implement a diversified generation mix on their grids for greater energy
security combined with the provision of low cost, reliable power supply to
support economic growth provide a window in which such generation remains
suitable. It will also allow for deeper energy generation from intermittent
renewable energy sources such as solar PV and wind.
Looking to the Future
As a Company we acknowledge the changing investor appetite in the West for
renewable versus fossil fuel projects. We recognise that future energy
generation will increasingly focus on renewable energy solutions. Our entry
into the C&I solar PV and battery storage sector allowed us to demonstrate
our expertise in delivering solar PV plus battery storage projects in
Mozambique, and we have recently announced the potential for a grid scale
solar PV project at our main Project site.
Director's Biographies
The following sets out the biographies of the directors as at 31 December
2021.
Michael Haworth / Non-Executive Chairman
Michael Haworth has over 20 years finance experience, predominantly in
emerging markets and natural resources. Mr Haworth co-founded Greenstone
Resources a private equity fund specialising in the mining and metals sector
in 2013 and is a Senior Partner of Greenstone Capital LLP and a Director of
Greenstone Management Limited. Mr Haworth was previously a Managing Director
at J.P. Morgan and Head of Mining and Metals Corporate Finance in London.
Aman Sachdeva / Non-Executive Director
Aman Sachdeva has more than 20 years' experience in the infrastructure
industry, specializing in the energy sector; ranging from project finance,
management consulting, regulatory affairs, mergers and acquisitions, power
system planning, energy conservation and marketing. Mr Sachdeva is currently
the founder and Chief Executive Officer of Synergy Consulting, an independent
consulting practice with a focus on project finance, which has to date closed
projects worth US$12 billion. Mr Sachdeva is also an advisor to the World
Bank, Energy Sector for Central Asia, South Asia and Africa on a variety of
projects. Mr Sachdeva was nominated to serve as a Non-Executive Director by
AFC.
Scott Fletcher / Non-Executive Director
Scott Fletcher is one of the UK's leading entrepreneurs and boasts an MBE for
services to business and community in the north of England as well as an
honorary Doctorate in Business Administration. Mr Fletcher founded his first
company in 1996 ANS Group, growing it to become a leading cloud services
provider in the UK today. Mr Fletcher is also an active investor in smaller
companies both private and public.
Hanno Pengilly / Chief Executive Officer
Hanno has considerable knowledge in the power and mine sectors on the back of
his experience in the business over the last 12 years. Hanno joined the
Company in 2010 and has been the Company's Chief Executive Officer since
October 2019. Hanno has been responsible for managing key project milestones
including the delivery of the power plant and mine feasibility studies in 2013
and 2014. Since May 2017, Hanno has led the Company's strategic partner
process, which successfully resulted in the signing of a binding JDA in July
2019 and led the Company in key negotiations with the Mozambique government
and state power utility EDM. Prior to joining the Company, he was an
investment banker at JP Morgan, based in the United Kingdom and South Africa,
and predominantly focused on natural resources. He holds a BSc in Economics.
Director's Report
The Directors present their annual report and the audited group financial
statements headed by Ncondezi for the year ended 31 December 2021.
Principal activities
The principal activity of the Group is the development of an integrated 300MW
power plant and mine to produce and supply electricity to the Mozambican
domestic market. The Group also continues to advance its solar PV and battery
storage strategy in the grid scale and C&I sectors in Mozambique.
Business review and future developments
Details of the Group's business and expected future developments are set out
in the Chairman's Statement, the Operations Review and in the Financial
Review.
Principal risks and uncertainties
The Group operates in an uncertain environment that may result in increased
risk, cost pressures and schedule delays. The key risk factors that face the
Group and their mitigation are set out 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 22.
Key performance indicators
The key performance indicators of the Group are as follows:
2021 2020
Mine and Power development expenditure (US$'000) 169 152
C&I projects funding (US$'000) - 418
Share price at 31 December (pence) 0.95 5.50
Cash at bank at 31 December (US$'000) 900 853
Results and dividends
The results of the Group for the year ended 31 December 2021 are set out
below.
The Directors do not recommend payment of a dividend for the year (2020:
US$nil). The loss will be transferred to reserves.
Events after the reporting date
See note 25 for further information.
Financial instruments
Details of the use of financial instruments by the Company, its subsidiary
undertakings and financial risk management are contained in note 22 of the
financial statements.
Going concern
Based upon projections that include corporate costs, salaries of staff and
consultant fees, project costs to progress the Project and Solar Project, the
Group is funded into August 2022 with the potential to extend this to Q1 2023,
depending on the Seritza Restructuring outcome. Further funding will also be
required to meet operating cash flows in the event of accelerated project
advancement. The Directors are exploring a number of funding and working
capital solutions. At present there are no binding agreements in place and
there can be no certainty as to the Group's ability to raise additional
funding.
The Directors are also aware of the potential risk of delays as a result of
the COVID-19 pandemic. Operations are currently unaffected however there is no
certainty that further delays may not occur in the future which may lead to
further funding requirements.
At the end of 2020, the Company submitted an updated Project feasibility study
and tariff proposal to EDM for review and comment. Although positive steps to
progress the tariff were made during 2021, further progress awaits clarity on
China's position on the availability of financing for the Project following
President Xi's announcement regarding financing restrictions for coal power
projects abroad in
September 2021. While the outcome on financing from China is outside of the
Company's control, we continue to work closely with CMEC to resolve the issue.
In addition, the Company and CMEC have initiated steps to identify potential
alternative financing solutions.
The Shareholder Loan which will amount to US$5.4 million as of 30 June 2022
(including principal, historic redemption premium and interest) matured on 30
November 2019, and the Company is currently evaluating options to execute the
restructuring process as proposed on 26 November 2019.
The Working Capital Facility which will amount to US$0.3 million as of 30 June
2022 (including principal and interest) matured on 24 February 2022 and the
Company is currently evaluating options to extend, restructure or repay the
loan. Whilst these discussions are ongoing, Seritza has agreed not to call in
the loan until 30 June 2022.
In addition, notwithstanding the Shareholder Loan and Working Capital
Facility, further funding will be required as detailed above to meet operating
cash flows under current forecasts beyond August 2022 or in the event of
accelerated project advancement. The financial statements have been prepared
on a going concern basis in anticipation of a positive outcome but it is
important to highlight that there are no binding agreements in place and there
can be no certainty that any of these initiatives will be successful.
These factors indicate the existence of a material uncertainty which may cast
significant doubt about the Group's ability to continue as a going concern.
The financial statements do not include the adjustments that would result if
the Group was unable to continue as a going concern. Further details can
be found in note 1 of the Financial Statements.
Directors and Directors' interests
Director Note Appointment date
Ordinary Shares held 31 December 2021 Ordinary Shares held 31 December 2020
Michael Haworth 1 01.06.12 16,759,462 16,759,462
Aman Sachdeva 2 21.05.15 - -
Scott Fletcher 29.10.20 76,823,020 63,489,687
Hanno Pengilly 09.10.19 3,531,776 291,375
1. Includes shares held by a trust of which Michael Haworth is a
potential beneficiary.
2. Aman Sachdeva is AFC's nominated director. AFC holds 54,988,520
Ordinary Shares representing 13.39% of the issued Ordinary Shares as at
31.12.21 and 13.39% as at 24.06.22.
Annual General Meeting
Resolutions will be proposed at the forthcoming Annual General Meeting, as set
out in the Formal Notice which will be sent to Shareholders in due course. In
accordance with the Company's Articles of Association one third of the
Directors are required to retire by rotation. Accordingly, Hanno Pengilly will
offer himself for re-election at the forthcoming Annual General Meeting of the
Company.
In addition, Michael Haworth has been a Director of the Company for more than
9 years and although the Board do not consider his independence to be
compromised, in line with best practice, he will offer himself for re-election
at the forthcoming Annual General Meeting of the Company and annually
thereafter.
Corporate Governance
The Company's compliance with the principles of corporate governance is
explained in the corporate governance statement are set out below.
Ordinary Share Capital
The Company's Ordinary Shares of no-par value represent 99.3% of its total
share capital. The remaining 0.7% are held in treasury by the Company and do
not hold voting rights. At a meeting of the Company every member present in
person or by proxy shall have one vote for every Ordinary Share of which
he/she is the holder. Holders of Ordinary Shares are entitled to receive
dividends.
On a winding-up or other return of capital, holders are entitled to share in
any surplus assets pro rata to the amount paid up on their Ordinary Shares.
The shares are not redeemable at the option of either the Company or the
holder. There are no restrictions on the transfer of shares.
Disclosure of information to auditors
So far as each Director at the date of approval of this report is aware, there
is no relevant audit information of which the Company's auditors are unaware
and each Director has taken all steps that he ought to have taken to make
himself aware of any relevant audit information and to establish that the
auditors are aware of that information.
Auditors
BDO LLP have expressed their willingness to continue in office as auditors,
and a resolution to reappoint them will be proposed at the Annual General
Meeting.
By order of the Board
Elysium Fund Management Limited
Company Secretary
24 June 2022
Risk Factors
Risk(s) Potential Impact(s)
Mitigation Measure(s)
Financing risk The Group needs to complete the restructuring of its existing loans and secure The Company is in discussions with the existing Shareholder Loan holders and
investment from strategic investors and/or investment from co-developers to has received 'in principle' support regarding restructuring of the loans, if
provide sufficient working capital for the next 12 months. Failure to do so necessary, together with exploring funding solutions to refinance the
may lead to the Group not being a going concern (see note 1). Additionally, Shareholder Loan. Further to this certain Board Members and management who
project financing will be required to complete the Project and failure to represent 39.6% of the Shareholder Loan have signed an Undertaking not to call
secure such financing would result in failure of the Project and/or delay in in the Shareholder Loan before the later of 30 November 2022 or when the
its execution. Restructuring is completed. The Undertaking prevents the Shareholder Loan
from being called as a majority agreement of 66.67% is required.
Ncondezi has signed a Joint Development Agreement ("JDA") with CMEC and GE
Energy Switzerland GmbH ("GE") which provides financial support to the Project
both at the developmental stages to FC as well as during construction. The
Company also signed a Supplementary Agreement ("SA") to the JDA with CMEC,
pursuant to which CMEC would fund specified accelerated development works at
To achieve FC of the Project, the Group will also need to conclude some of its the Project with a provisional budget of US$1.8 million being approved by the
on-going negotiations on key Project agreements, including the Project Power parties. Development work agreed within the provisional budget has commenced
Tariff, PCA and the PPA. Failure or delay in doing so may lead to failure of and is expected to accelerate as soon as a tariff is agreed with EDM. It is
the Project and/or delay in its execution. important to highlight that there is no certainty that additional funding will
be raised.
The Company intends to engage with a range of potential financing partners
with the objective of securing additional development capital for the costs
that will not be covered by the JDA partners, including selected corporate
overheads. Since October 2018, Ncondezi has had a successful track record in
raising additional capital with £2.0million before expenses raised during the
2020 and 2021 financial years despite challenging markets due to the COVID-19
outbreak.
The Company has had discussions with a number of potential debt and equity
investors and intends to further develop these potential sources of capital at
the appropriate time.
The Directors' will monitor the monthly cash burn rate to ensure the Group
operates within its cash resources for as long as possible.
To date the Company has successfully raised capital via the issue of new
shares and has been funded by way of loans from Shareholders and management.
Going forward future capital raises and debt funding will be subject to market
conditions at the time, there is no guarantee these will be successful.
Project financing risk The Project is targeting construction financing from China, however China China's policy on funding overseas coal power projects is not clear and
committed to end financing of new coal fired power projects abroad at the requires additional clarification, particularly for advanced projects or
United Nations General Assembly on 22 September 2021. Several China backed projects dubbed as priority projects by the Chinese government.
coal power development projects overseas have subsequently been terminated
following the announcement. Failure to secure construction financing for the
Project will prevent it from finalising a power tariff and there is no
guarantee it will be developed. The Project is at an advanced level of development and believed to be the most
developed coal power project in Mozambique. The Project was also selected as a
priority Project at the China-Mozambique Cooperation Forum in 2019.
The Company has limited control over China's decision to include or exclude
the Project from its financing restrictions. CMEC as a Chinese state owned
entity may also be impacted by Chinese policy on coal power financing. The Company continues to work closely with CMEC to gain further clarity on the
availability of Chinese financing for the Project. CMEC has re-emphasised its
support for the Project and is leading the financing process. In addition, the
Company and CMEC have initiated steps to identify potential alternative
financing solutions.
Finally, the Company has received no communication from Chinese authorities to
terminate the Project.
Off-taker risk In the event that the Group is unable to renew the commercial deal with EDM or In October 2018, the President of Mozambique launched the "National
finalise the PPA on acceptable terms, the Electricity Program for All", targeting expansion of energy access rates in
Mozambique from 31% in 2018 to 62% in 2024 and 100% by 2030. The program
Group will need to secure an alternative credible power off-taker(s) to raise specifies that up to 650MW of new coal power generation is to come online from
finance for the Project. There is no guarantee that, in such circumstances, 2023. As part of this programme, EDM has successfully achieved financial close
the Group will be able to secure a credit worthy off-taker for the full output on a number of power projects in 2020 and 2021.
with the plant operating at load factors in excess of 80%. Failure to complete
the negotiations successfully would have an adverse operational and financial
impact.
Should EDM not be able to offtake the full power supply from the Project,
there is a shortage of power in the region, with Mozambique currently
exporting power to South Africa, Zimbabwe, Zambia, Botswana and Namibia. Each
of these countries could provide a potential credible power off-taker for the
Power Project either as a substitute or as additional power off-taker for an
expanded power plant. The Company monitors this potential closely, although
there is no guarantee another offtaker will be secured.
Competition from other power stations in Mozambique Other power stations are being developed in the Tete region and are competing The Project is one of the most advanced projects in the region, making
for offtake from EDM as well as resources such as water and transmission line competition from nearby projects more difficult due to the time they require
servitudes. to catch up. The December 2020 Market study confirmed the Project as one of
the most competitive coal power plant projects in the southern African region.
Competing gas projects are mainly located in the southern part of Mozambique
and are not able to supply the portion of the Mozambican power grid that the
Power Project is to connect to in the north of the country.
Competition from solar and wind projects is limited in that they are not
baseload plants.
Additionally, being a thermal coal power station project, the Group can
implement commissioning of the power plant faster than competing hydroelectric
projects which typically take 2-3 years longer to commission.
The Company has also initiated studies to look at introducing a solar project
at the Ncondezi Project site to take advantage of the growing demand for
renewable energy.
Estimating mineral reserve and resource The estimation of mineral reserves and mineral resources is a subjective Resources
process and the accuracy of reserve and resource estimates is a function of
the quantity and quality of available data and the assumptions used and · Sign-off of resources by registered Competent Person ("CP").
judgements made in interpreting engineering and geological information.
· Reporting resources in accordance with the JORC code.
· Classification of resources into a high level of confidence
There is significant uncertainty in any reserve or resource estimate and the category.
actual deposits encountered and the economic viability of mining a deposit may
differ materially from the Group's estimates. · Detailed geological modelling conducted.
· The utilisation of accredited laboratories for the analyses of
coal samples.
· QA/QC procedures according to best practices.
The exploration of mineral rights is speculative in nature and is frequently
unsuccessful. The Group may therefore be unable to successfully discover
and/or exploit reserves.
Reserves
· Sign-off of reserves by registered CP.
· Classification of reserves into proven or probable reserves.
· Detailed mine design and scheduling.
Coal risk Coal specification developed at the pre-feasibility study and verified during Further coal quality analysis will be conducted and supplied to the boiler
the feasibility stage may not be representative of coal to be used in the supplier for finalisation of the boiler design.
plant.
Not properly characterised coal resources may lead to incorrect boiler design
and plant underperformance.
Transmission grid constraints Available transmission capacity is allocated to other power generators. A transmission agreement heads of terms has been signed with EDM and the
Mozambican Government to ensure that available transmission infrastructure
allocation is secured early and that proper evacuation infrastructure and
capacities are available to the Project in line with the Group's strategy.
In December 2021, an updated Transmission Integration Study was submitted for
review and approval by EDM. The study confirmed the availability of several
potential transmission integration solutions for the Project.
Environmental and other regulatory requirements Existing and possible future environmental legislation, regulations and The Group adopts standards of international best practice in environmental
actions could cause additional expense, capital expenditures, restrictions and management and community engagement in addition to focussing on satisfying
delays in the activities of the Group, the extent of which cannot be Mozambican environmental regulations and requirements in all stages of
predicted. Before production can commence on any properties, the Group must development.
obtain regulatory approval and there is no assurance that such approvals will
be obtained. No assurance can be given that new rules and regulations will not
be enacted or existing rules and regulations will not be applied in a manner
which could limit or curtail the Group's operations. Environmental Management and Social Development Plans have been advanced and
are being implemented to satisfy national and international best practice.
The Mine and Power Plant Environmental Social Impact Assessments (ESIA) have
been conducted by independent, internationally recognised consultants, and
have been approved by the Mozambican Government.
The Project will use state of the art emission control systems, targeting
particulates, SOx and NOx emissions below the current IFC and World Bank
standards. The Project will also be compliant with the latest OECD guidelines
and Equator Principles.
The Company's entry into the solar PV and battery storage sector positions it
to take advantage of growing demand from corporates to reduce their carbon
emissions and source more sustainable forms energy.
Climate Change Risk Increased awareness and action against climate change will put pressure on Mozambique is a developing country with an energy generation mix that is
governments and financing organisations to reduce exposure to fossil fuel heavily dependent on hydro power generation. Power generation from coal is
related power generation. This could affect future Mozambican Government seen as a key factor in improving Mozambique's energy security by reducing
policy towards coal fired generation and limit funding appetite for the Mozambique's dependence on hydroelectric power (particularly in the north),
Project. where current generation is vulnerable to the extreme weather effects of
climate change. It will also allow for deeper energy generation from
intermittent renewable energy sources such as solar PV and wind.
Foreign Country Risk The Group's exploration licences and Project are in Mozambique. The Group The Mozambican Government has been stable for many years and fosters a
faces political risk whereby changes in government policy or a change of beneficial climate towards companies exploring for resources.
governing political party could place its exploration licences and Project in
jeopardy.
The IMF and potential multilateral lenders' groups continue towards a
resolution for Mozambique's default. Settlement between the Mozambican
Mozambique defaulted on commercial loans in 2016 resulting in donors and the Government and creditors in October 2019 and the successful FC on Mozambique
International Monetary Fund (IMF) freezing aid to Mozambique, which may affect LNG are seen as positive steps towards future funding of projects in
financing of the Project at FC. Mozambique. All parties have committed to resolving the issue in a
reasonable and transparent manner to restore confidence in the country.
Terrorism attacks in the north of Mozambique are localised to the Cabo Delgado
region and are not expected to have an impact on the Company's business
operations.
Mozambique has been exposed to acts of terrorism in the Cabo Delgado region,
affecting businesses and resulting in people
relocating. This is expected to impact business activities in the north of the
country.
Project Development Risk The Company's assets are all at a development stage. Failure to successfully The Company has signed a JDA with CMEC and GE who have a track record of
execute and complete the development projects, or to execute and complete the delivering integrated coal-fired power and mine projects on time and budget.
projects on time and on budget, would have an adverse operational and Regular Project update meetings are held with the Executive Team to ensure all
financial impact. workstreams are progressing as planned and ongoing monitoring, reporting and
control processes are in place.
The Company has signed a relationship agreement with CPL providing a pipeline
of potential off-grid solar PV battery storage projects for investment.
Projects are only put forward for investment when they meet strict KPIs. The
Company has a ROFR over the pipeline and can reject one project that meets the
KPIs without losing their ROFR.
Tariff Pricing Risk Global commodity price increases and supply chain restrictions have had an The Company is constantly looking at ways to further optimise the Project
inflationary impact on construction costs which may impact the Project capex. costs to maintain a competitive tariff offer and believes there is sufficient
This would result in a higher tariff requirement to achieve the same level of scope to counter any negative inflationary capex effects. The recently
returns. completed transmission integration study identified a shorter transmission
connection route which has the potential to further reduce Project capex.
The Mozambique government tariff negotiation process is underway and will look
to optimise the tariff structure via a number of factors including capex and
opex optimisation and financing terms from lenders. While there are no
guarantees, the Company remains confident an agreement will be reached with
EDM to ensure the Project economics are maintained for all Stakeholders.
COVID-19 The COVID-19 outbreak in H1 2020 resulted in travel restrictions in and to While the risk from COVID-19 has decreased the Company continues to closely
Mozambique. This impacted the Company in a number of ways preventing access monitor the situation and to develop appropriate response plans to new
to site for the main Ncondezi Project. outbreaks. Since the initial outbreak, the Company restricted travel and
promoted online meetings to limit any impact on operations.
The travel restrictions and more recently China's no-COVID policy also
prevented the Project Partners from holding in person negotiations with EDM Senior management have been vaccinated however the Company remains cognisant
and existing and potential investors. of the threat posed by new variants.
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
(http://www.ncondezienergy.com/corporate-governance.aspx)
The Company is focused on the phased development of the Project which it
believes offers the most achievable and financeable route to production,
thereby delivering value for Shareholders. The key risk factors that face the
Group and their mitigation are set out above.
In addition to the main Project, the Company continues to advance its solar PV
and battery storage strategy in the grid scale and C&I sectors in
Mozambique.
A statement of the Directors' responsibilities in respect of the financial
statements is set out on 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 2021, the Board comprised a Non-Executive Chairman (Michael
Haworth), two further Non-Executive Directors (Aman Sachdeva and Scott
Fletcher) and one Executive Director (Hanno Pengilly).
Under the UK Corporate Governance Code, the independence or otherwise of the
Directors is a judgement for the Board. As part of this consideration the
Board has reflected on the fact that under the UK Corporate Governance Code
Scott Fletcher and Aman Sachdeva would not be viewed as independent by virtue
of the shares, options and loan that Scott Fletcher holds in the Company and,
in respect of Aman Sachdeva, his options and his role as CEO of Synergy
Consulting (which provides consultancy services to the Company). Despite this,
the Directors believe that independence is not a state of mind that can be
measured objectively and, given the character, judgement and decision making
process of the individuals concerned, the Directors believe that Scott
Fletcher and Aman Sachdeva can be considered independent.
In addition, Michael Haworth has served on the Board for a concurrent period
longer than nine years and, in that respect only, does not meet the usual
criteria for independence set out in the UK Corporate Governance Code. On the
basis that he had no association with, and was independent from, the Group at
the time of his appointment and his constructive contributions to Board
discussions, the Directors consider that he remains independent.
The Board is satisfied that, between the Directors, it has an effective and
appropriate balance of skills and experience, including in the areas of
natural resources, infrastructure and finance. For details of the Directors
past experience, please refer to 'Director's Biographies' session 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. The Audit Committee
comprises all of the Directors of the Company. The Remuneration Committee is
made up of Michael Haworth, Aman Sachdeva and Scott Fletcher.
Since the appointment of Michael Haworth as Non-Executive Chairman, and given
that due to the size of operations the Company does not currently have a
nominations committee, he has been assessing the individual contributions of
each of the members of the team to ensure that:
· their contribution is relevant and effective;
· that they are committed; and
· where relevant, they have maintained their independence.
Over the next 12 months, the Company intends to continue to review the
performance of the team as a unit to ensure that the members of the Board
collectively function in an efficient and productive manner.
Conflicts of interest
The Board confirms that it has instituted a process for reporting and managing
any conflicts of interest held by Directors. Under the Company's Articles of
Association, the Board has the authority to authorise, to the fullest extent
permitted by law:
(a) any matter which would otherwise result in a Director infringing his
duty to avoid a situation in which he has, or can have, a direct or indirect
interest that conflicts, or possibly may conflict, with the interests of the
Company and which may reasonably be regarded as likely to give rise to a
conflict of interest (including a conflict of interest and duty or conflict of
duties);
(b) a Director to accept or continue in any office, employment or position
in addition to his office as a Director of the Company and may authorise the
manner in which a conflict of interest arising out of such office, employment
or position may be dealt with, either before or at the time that such a
conflict of interest arises provided that for this purpose the Director in
question and any other interested Director are not counted in the quorum at
any Board meeting at which such matter, or such office, employment or
position, is approved and it is agreed to without their voting or would have
been agreed to if their votes had not been counted.
Company materiality threshold
The Board acknowledges that assessment on materiality and subsequent
appropriate thresholds are subjective and open to change. As well as the
applicable laws and recommendations, the Board has considered quantitative,
qualitative and cumulative factors when determining the materiality of a
specific relationship of Directors.
Culture
It is the Company's policy to conduct all of its business in an honest and
ethical manner. The Directors believe that the main determinant of whether a
business behaves ethically and with integrity is the quality of its people. As
the Board currently fulfils the responsibilities that might otherwise be
assumed by a nominations committee, the Directors have responsibility for
ensuring that individuals employed by the Group demonstrate the highest levels
of integrity.
It is our policy to conduct all of our business in an honest and ethical
manner. We take a zero-tolerance approach to bribery and corruption and are
committed to acting professionally, fairly and with integrity in all our
business dealings and relationships wherever we operate, implementing and
enforcing effective systems to counter bribery.
We will uphold all laws relevant to countering bribery and corruption in all
the jurisdictions in which we operate and remain bound by the laws of the UK,
including the Bribery Act 2010, in respect of our conduct both at home and
abroad.
Board meetings
Board meetings are held on average every quarter and more frequently when
required. Decisions concerning the direction and control of the business are
made by the Board. The Board is satisfied that
each of the Directors are able to allocate sufficient time to the Group to
discharge their responsibilities effectively. The number of meetings held
during the year was 9 and attendance is outlined below:
Attendance by directors Board meetings
Michael Haworth
9
Aman Sachdeva
8
Scott
Fletcher
5
Hanno Pengilly
9
Generally, the powers and obligations of the Board are governed by the
Company's Memorandum and Articles and the BVI Business Companies Act 2020 as
amended and the other laws of the jurisdictions in which it operates. The
Board is responsible, inter alia, for setting and monitoring Group strategy,
reviewing trading performance, ensuring adequate funding, examining major
acquisition opportunities, formulating policy on key issues and reporting to
the Shareholders.
The Audit Committee
During 2021, the Audit Committee members were Scott Fletcher (Committee
Chairman), Michael Haworth, Aman Sachdeva and Hanno Pengilly.
The Committee provides a forum for reporting by the Group's external auditors.
Meetings are held on average twice a year and are also attended, by
invitation, by the Non-Executive Directors.
The Audit Committee is responsible for reviewing a wide range of financial
matters including the annual and half year results, financial statements and
accompanying reports before their submission to the Board and monitoring the
controls which ensure the integrity of the financial information reported to
the Shareholders. The Audit Committee meets with the Group's auditors to
review reports in respect of the annual audit and considers the significant
accounting policies, judgements and estimates involved in the Group's
financial reporting, together with the scope of the audit and the auditor fees
and independence.
The Board notes that additional information supplied by the Audit Committee
has been disseminated across the whole of this Annual Report, rather than
included as separate Committee Reports. The Audit Committee met once in the
year.
The Remuneration Committee
The Remuneration Committee in 2021 was comprised of Scott Fletcher (Committee
Chairman), Michael Haworth and Aman Sachdeva.
The Committee is responsible for making recommendations to the Board, within
agreed terms of reference, on the Company's framework of executive
remuneration and its cost. The Remuneration Committee determines the contract
terms, remuneration and other benefits for the Executive Directors,
including performance related bonus schemes, compensation payments and option
schemes. The Board itself determines the remuneration of the Non-Executive
Directors. The Remuneration Committee met once in the year.
A Remuneration Committee Report 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 2021, the Remuneration Committee comprised
Scott Fletcher, Aman Sachdeva and Michael Haworth.
Remuneration packages are determined with reference to market remuneration
levels, individual performance and the financial position of the Company and
the Group.
The Board determines the remuneration of Non-Executive Directors within the
limits set by the Company's Articles of Association. The Non-Executive
Directors have letters of engagement with the Company and their appointments
are terminable on one months' or three months' written notice on either side.
Long Term Incentive Plan ("LTIP") and unapproved share option scheme
The Company adopted an LTIP and unapproved share option scheme which are
administered by the Committee. These are discretionary and the Committee
will decide whether to make share awards under the LTIP or unapproved share
option scheme at any time. As at 31 December 2021 the following awards to
Director remained in place:
Non-Executives Date of grant Number granted Exercise price(GBP) Expiry
Aman Sachdeva 25 May 2018 1,000,000 6.25p 10 years
Aman Sachdeva 26 Nov 2019 750,000 6.5p 10 years
Hanno Pengilly 25 May 2018 550,000 8.625p 10 years
Hanno Pengilly 25 May 2018 150,000 8.625p 10 years
Hanno Pengilly 25 May 2018 300,000 8.625p 10 years
Hanno Pengilly 25 May 2018 2,375,132 7.5p 10 years
Hanno Pengilly 25 May 2018 1,187,566 5.0p 10 years
Hanno Pengilly 25 May 2018 1,187,566 10.0p 10 years
Hanno Pengilly 25 May 2018 1,187,566 15.0p 10 years
Hanno Pengilly 26 Nov 2019 6,333,332 6.5p 10 years
Scott Fletcher 12 Nov 2020 5,000,000 3.0p 3 years
Scott Fletcher 12 Nov 2020 2,500,000 5.0p 3 years
Scott Fletcher 12 Nov 2020 2,500,000 7.5p 3 years
.
Refer to note 19 for details of the vesting conditions attached to certain of
the awards.
Grant of Share Awards
During 2021 no share options were issued to the Company's Directors (2020:
10,000,000 all to the Company's Directors).
Directors' Options
During 2021 no share options were issued to the Company's Directors (2020:
10,000,000).
Directors' service agreements
None of the Directors have a service contract which is terminable on greater
than one year's notice.
Non-Executive Directors' fees
The Company has adopted a standard level of fees for Non-Executive and
Executive directors of £40,000 per annum, and £70,000 for the Chairman. The
current Chairman has waived all fees since his original appointment. In
addition, Aman Sachdeva has waived his Directors fees since 1 April 2015 and
Scott Fletcher since 29 October 2020.
Directors' remuneration
The following table sets out an analysis of the pre-tax remuneration for the
year ended 31 December 2021 for individual directors who held office in the
Company during the period.
Base Salary/fee Bonus Share based paymentsUS$'000
US$'000 US$'000 Total Total 2020
2021 US$'000
US$'000
Director
Michael Haworth - - - - -
Aman Sachdeva - - - - -
Scott Fletcher - - - - 49
Hanno Pengilly 240 - - 240 540
Total 240 - - 240 589
On behalf of the Board
Michael Haworth
Non-Executive Chairman
24 June 2022
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors' report and the
financial statements for the Group. The Directors have prepared the financial
statements for each financial year which present fairly the state of affairs
of the Group and of the profit or loss of the Group for that year.
The Directors have chosen to use the International Financial Reporting
Standards as adopted by the European Union in preparing the Group's financial
statements.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Group, for safeguarding the assets, for taking reasonable steps for the
prevention and detection of fraud and other irregularities and for the
preparation of financial statements.
International Accounting Standards require that financial statements present
fairly for each financial year the company's financial position, financial
performance and cash flows. This requires the faithful representation of the
effects of transactions, other events and conditions in accordance with the
definitions and recognition criteria for assets, liabilities, income and
expenses set out in the International Accounting Standards Board's 'Framework
for the preparation and presentation of financial statements'.
In virtually all circumstances a fair presentation will be achieved by
compliance with all applicable IFRS as adopted by the European Union. The
Directors are also required to prepare financial statements in accordance with
the rules of the London Stock Exchange for companies trading securities on
AIM.
A fair presentation also requires the Directors to:
· consistently select and apply appropriate accounting policies;
· present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and understandable information;
· make judgements and accounting estimates that are reasonable and
prudent;
· provide additional disclosures when compliance with the specific
requirements in IFRS as adopted by the European Union is insufficient to
enable users to understand the impact of particular transactions, other events
and conditions on the entity's financial position and financial performance;
· state that the Group has complied with IFRS as adopted by the
European Union subject to any material departures disclosed and explained in
the financial statements; and
· prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the company will continue in
business.
The Directors are responsible for ensuring the annual report and the financial
statements are made available on a website. In addition to being mailed to
Shareholders, financial statements are published on the Company's website in
accordance with legislation in the UK governing the preparation and
dissemination of financial statements, which may vary from legislation in
other jurisdictions. The maintenance and integrity of the Company's website is
the responsibility of the Directors. The Directors' responsibility also
extends to the on-going integrity of the financial statements contained
therein.
Independent audit report to the members of Ncondezi Energy Limited
Opinion on the financial statements
In our opinion, the financial statements:
· give a true and fair view of the state of the Group's affairs as
at 31 December 2021 and of its loss for the year then ended
· have been properly prepared in accordance with IFRSs as adopted
by the European Union.
We have audited the financial statements of Ncondezi Energy Limited ("the
Parent Company") and its subsidiaries (the "Group") for the year ended 31
December 2021 which comprises the consolidated statement of profit or loss
and other comprehensive income, the consolidated statement of financial
position, the consolidated statement of changes in equity, the consolidated
statement of cash flows and notes to the consolidated financial statements,
including a summary of significant accounting policies.
The financial reporting framework that has been applied in the preparation of
the Group financial statements is applicable law and International Financial
Reporting Standards (IFRSs) as adopted by the European Union.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor's responsibilities for the
audit of the financial statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a
basis for our opinion.
Independence
We remain independent of the Group in accordance with the ethical requirements
that are relevant to our audit of the financial statements in the UK,
including the FRC's Ethical Standard as applied to listed entities and we have
fulfilled our other ethical responsibilities in accordance with these
requirements.
Material uncertainty related to going concern
We draw attention to Note 1 to the financial statements in respect of the
Group's ability to continue as a going concern. As stated in Note 1, the Group
will need to restructure its existing shareholder loans and working capital
loan, as well as extend the working capital loan. The Group will need to
obtain clarity on the Chinese funding of the project and the project tariff
approval is still pending which restricts the Group from trading.
As stated in Note 1, these events or conditions, along with other matters as
set forth in Note 1, indicate that a material uncertainty exists that may cast
significant doubt on the Group's ability to continue as a going concern. Our
opinion is not modified in respect of this matter.
In auditing the financial statements, we have concluded that the Directors'
use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
We considered the ability of the Group to continue as a going concern to be a
key audit matter based on our assessment of the significance of the risk and
the effect on our audit strategy.
Our evaluation of the Directors' assessment of the Group's ability to continue
to adopt the going concern basis of accounting and in response to the key
audit matter included:
· We discussed the potential risks and uncertainties regarding
going concern assessment and associated with areas such as the Group's
operations, ability to secure funding and restructure the loan and the
potential impact on finalisation of the power project tariff that are relevant
to the Group's business model and operations. We formed our own assessment of
risks and uncertainties based on our understanding of the business.
· We assessed the Directors' base case cash flow forecasts and the
underlying key assumptions which have been approved by the Board. In doing so,
we compared the operating cost forecast
to historical expenditure rates, reviewed the shareholder loan and working
capital agreements to assess committed project expenditure, the correspondence
pertaining to raising additional financing through a share placing and
evaluated the repayment terms of the loan facilities in respect to the base
cash flow forecasts. We have inspected the confirmation from the
shareholders that they will not call in the loan, despite being in default.
· We performed a stress testing analysis on the Directors' base
cashflow forecast considering the potential of the inability to secure
anticipated funding, accelerated repayment on the Seritza loan on default and
the inability to refinance loans.
· We further reviewed board minutes and market announcements for
indications of additional cash requirements.
· We considered the Directors' judgement that they had a reasonable
expectation of restructuring the shareholder loans, refinancing loans and
securing additional financing to meet working capital requirements. In doing
so, we inspected correspondence with the loan note holders, agreement signed
with 39.6% of shareholders, made specific inquiries of the Board, considered
the Group's history of fundraising and obtained written representations from
the Board.
· We reviewed and considered the adequacy of the disclosure within
the financial statements relating to the Directors' assessment of the going
concern basis of preparation against the accounting standards.
Our responsibilities and the responsibilities of the Directors with respect to
going concern are described in the relevant sections of this report.
Overview
Coverage 93% (2020: 97%) of Group loss before tax
92% (2020: 99%) of Group total assets
2021 2020
Key audit matters Going concern · ·
Carrying value of the Group's mining and power assets · ·
Group financial statements as a whole
Materiality
US$0.29m (2020:US$0.31m) based on 1.5% (2020:1.5%) of total assets
Materiality
Group financial statements as a whole
US$0.29m (2020:US$0.31m) based on 1.5% (2020:1.5%) of total assets
An overview of the scope of our audit
Our Group audit was scoped by obtaining an understanding of the Group and its
environment, including the Group's system of internal control, and assessing
the risks of material misstatement in the financial statements. We also
addressed the risk of management override of internal controls, including
assessing whether there was evidence of bias by the Directors that may have
represented a risk of material misstatement.
In approaching the audit, we considered how the Group is organised and
managed. We completed a full scope audit on the Group's financial information
and the components we deemed significant. The Group comprises seven components
of which we identified three to be significant, being the Parent Company, one
subsidiary based in Mozambique with the green energy subsidiary based in
Mauritius being disposed of in the current financial period. A full scope
audit was performed on significant components identified by BDO LLP as
accounting records are maintained in the UK and management are based in the
UK. Non-significant components were subject to analytical review procedures.
All procedures on the non-significant components were performed by BDO LLP.
Key audit matters
Key audit matters are those matters that, in our professional judgement, were
of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material
misstatement (whether or not due to fraud) that we identified, including those
which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit, and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters. In addition to the matter
described in the Material uncertainty related to going concern section, we
have determined the matter described below to be the key audit matter to be
communicated in our report.
Key audit matter How the scope of our audit addressed the key audit matter
Carrying value of the Group's mining and power assets
Refer to note 1 and 7
The Group's mining and power assets represent its most significant assets as
at 31 December 2021. The mining assets are held at their recoverable value
which is below cost following impairments made in prior years. The We assessed the appropriateness of management's conclusion that the mining and
recoverability of the carrying value of the Group's mining and power assets is power assets represented one cash generating unit, against the requirements of
dependent on a number of uncertain events, including raising funding to applicable accounting standards.
construct the power plant and agreement of a satisfactory tariff with the
Government of Mozambique.
We reviewed management's impairment review and performed our own assessment of
impairment indicators in order to determine whether their assessment was
Management are required to assess whether they consider there to be any complete and in accordance with the requirements of such standards.
indicators that the Group's mining and power assets may be impaired as at 31
December 2021 and whether any reversals of historic impairments are
appropriate. Management determined that the mine and power assets represent
one cash generating unit. We challenged management on the Chinese Government announcement to divest from
abroad-based coal projects. Further consultation revealed that the
announcement is yet to be legislated and we further corroborated, through
inspection of letters from CMEC and the virtual signing of the Power Plant EPC
Management performed an impairment assessment for the mining and power assets that CMECs continued support on the project with no noted withdrawal evidenced
, with sensitivities applied considering inflationary adjustments and to date
concluded that no impairment on the power and mine assets was necessary and
that no reversal of impairment on the mining assets was required, which sets
out the key judgements and estimates involved in the impairment assessment.
We obtained the integrated power and mine asset financial model, prepared by
management's external consultant, and confirmed that in the event that the
power project receives funding and is constructed the model demonstrated
Management have considered the impact of the announcement made by the Chinese headroom over the carrying value. In respect of key inputs in the model we
Government that they will no longer support coal mining projects going confirmed that the project costs are consistent with quotes and supporting
forward. information, compared the discount rate to relevant third party rates and
performed sensitivity analysis. We assessed the independence and competence of
the external consultant.
The appropriateness of the carrying value of mining and power assets
represented a key audit matter given the significant judgements required in
the impairment assessment. In respect of the electricity tariff, upon which the project development is
dependent, which remains subject to agreement with the Mozambique Government,
we obtained confirmation from management that the tariff rate represented
their best estimate of the rate required by the Government based on recent
discussions they had held with management and representatives from the
Government, and we obtained specific written representation to that effect.
We reviewed market reports and internal correspondence to confirm that they
were consistent with the tariff used in the model and agreed the rate to
documents submitted to the Government.
We reviewed the only signed shareholders agreement term sheet with the project
partners and obtained supporting documents demonstrating progress and the
continued feasibility of the project at this time.
We assessed the appropriateness of management's conclusion that no reversal of
impairment was required in respect of the mining assets, notwithstanding the
headroom derived from the integrated model when compared to the power and
mining assets as a whole under certain assumptions. We discussed this judgment
with the Audit Committee, which included consideration of factors which may
indicate a change in circumstances in respect of the underlying mining asset
that gave rise to the original impairment on the mining assets and
uncertainties that remain in the absence of a binding Joint Development
Agreement or electricity tariff.
Key observations:
Based on the procedures performed, we found management's assessment of
Carrying value of the Group's mining and power assets and disclosures in the
financial statement to be appropriate.
Our application of materiality
We apply the concept of materiality both in planning and performing our audit,
and in evaluating the effect of misstatements. We consider materiality to be
the magnitude by which misstatements, including omissions, could influence the
economic decisions of reasonable users that are taken on the basis of the
financial statements.
In order to reduce to an appropriately low level the probability that any
misstatements exceed materiality, we use a lower materiality level,
performance materiality, to determine the extent of testing needed.
Importantly, misstatements below these levels will not necessarily be
evaluated as immaterial as we also take account of the nature of identified
misstatements, and the particular circumstances of their occurrence, when
evaluating their effect on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the
financial statements as a whole and performance materiality as follows:
Group financial statements
2021 2020
Materiality US$0.29 million US$0.31 million
Basis for determining materiality 1.5% of total assets 1.5% of total assets
Rationale for the benchmark applied We consider total assets to be the appropriate benchmark due to the focus of We consider total assets to be the appropriate benchmark due to the focus of
stakeholders being on the assets of the Group. stakeholders being on the assets of the Group.
Performance materiality US$0.21 million US$0.21 million
Basis for determining performance materiality 70% of Group materiality, set after considering a number of factors including 70% of Group materiality, set after considering a number of factors including
the expected value of known and likely misstatements the expected value of known and likely misstatements
Component materiality
We set materiality for each component of the Group based on a percentage of
between 35% and 90% of Group materiality dependent on the size and our
assessment of the risk of material misstatement of that component. Component
materiality ranged from US$0.10million (2020:US$0.11million) to US$0.26
million (2020:US$0.27 million). In the audit of each component, we further
applied performance materiality levels of 70% of the component materiality to
our testing to ensure that the risk of errors exceeding component materiality
was appropriately mitigated.
Reporting threshold
We agreed with the Audit Committee that we would report to them all individual
audit differences in excess of US$14, 550 (2020: US$15,000). We also agreed to
report differences below this threshold that, in our view, warranted reporting
on qualitative grounds.
Other information
The Directors are responsible for the other information. The other information
comprises the information included in the annual report and financial
statements, other than the financial statements and our auditor's report
thereon. Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon. Our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the course of the audit, or otherwise
appears to be materially misstated. If we identify such material
inconsistencies or apparent material misstatements, we are required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on
the work we have performed, we conclude that there is a material misstatement
of this other information, we are required to report that fact.
We have nothing to report in this regard.
Responsibilities of Directors
As explained more fully in the statement of Directors' responsibilities, the
Directors are responsible for the preparation of the financial statements and
for being satisfied that they give a true and fair view , and for such
internal control as the Directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement,
whether due to fraud or error.
In preparing the financial statements, the Directors are responsible for
assessing the Company's ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern basis
of accounting unless the Directors either intend to liquidate the Company or
to cease operations, or have no realistic alternative but to do so.
Auditor's responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor's report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will always detect a material
misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on
the basis of these financial statements.
Extent to which the audit was capable of detecting irregularities, including
fraud
Irregularities, including fraud, are instances of non-compliance with laws and
regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities,
including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below:
• We obtained an understanding of the legal and regulatory
frameworks that are applicable for the Group and the industry in which it
operates, and considered the risk of acts by the Group that were contrary to
applicable laws and regulations, including fraud. We consider the significant
laws and regulations to be AIM listing rules, QCA corporate governance, tax
and mining laws specific to Mozambique.
• Based on our understanding we designed our audit procedures to
identify non-compliance with such laws and regulations impacting the Group.
Our procedures involved making enquiries of Management and those charged with
governance to understand their awareness of any non-compliance of laws or
regulations, inquiring about the policies that have been established to
prevent non-compliance of laws or regulations by officers and employees of the
Group, inquiring about the Group's methods of enforcing and monitoring
compliance with such policies and reviewing board minutes to identify any
instances of non-compliance. We have noted no such instances.
• We assessed the susceptibility of the Group's financial statements
to material misstatement, including how fraud might occur by obtaining an
understanding of the controls that the Group has established to address risks
identified by the entity, or that otherwise seek to prevent, deter or detect
fraud. We considered the significant fraud risk areas to be in relation to
revenue recognition and Management override of controls
• We addressed the risk of management override of internal controls,
including testing a risk based selections of journals and evaluating whether
there was evidence of bias in Management's estimates (Refer to the key audit
matters' section) that represented a material misstatement due to fraud.
• We communicated relevant identified laws and regulations and
potential fraud risks to all engagement team members and remained alert to any
indications of fraud or non-compliance with laws and regulations throughout
the audit.
Our audit procedures were designed to respond to risks of material
misstatement in the financial statements, recognising that the risk of not
detecting a material misstatement due to fraud is higher than the risk of not
detecting one resulting from error, as fraud may involve deliberate
concealment by, for example, forgery, misrepresentations or through collusion.
There are inherent limitations in the audit procedures performed and the
further removed non-compliance with laws and regulations is from the events
and transactions reflected in the financial statements, the less likely we are
to become aware of it.
A further description of our responsibilities is available on the Financial
Reporting Council's website at:
https://www.frc.org.uk/auditorsresponsibilities
(https://www.frc.org.uk/auditorsresponsibilities) . This description forms
part of our auditor's report.
Use of our report
This report is made solely to the Parent Company's members, as a body, in
accordance with the terms of our engagement letter dated 17 June 2022. Our
audit work has been undertaken so that we might state to the Parent Company's
members those matters we are required to state to them in an auditor's report
and for no other purpose. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Parent Company and
the Parent Company's members as a body, for our audit work, for this report,
or for the opinions we have formed.
BDO LLP
Chartered Accountants
London
United Kingdom
24 June 2022
BDO LLP is a limited liability partnership registered in England and Wales
(with registered number OC305127).
Consolidated statement of profit or loss and other comprehensive income
for the year ended 31 December 2021
Note 2021
2020*
restated
US$'000 US$'000
Continuing operations:
Other administrative expenses 3 (1,530) (1,556)
Share-based payment charge 3 (529) (292)
Total administrative expenses and loss from operations (2,059) (1,848)
Net finance income/(expense) 4 212 (910)
Loss for the year before taxation from continuing operations (1,847) (2,758)
Taxation 5 - -
Discontinued operations:
Profit earned on the disposal of the discontinued operations 10 111 -
Gain/(Loss) for the year for discontinued operations 27 (55)
Gain/(Loss) for the year before taxation from discontinued operations 138 (55)
Taxation 5 - -
Loss and total comprehensive loss for the
year attributable to equity holders of the
parent company (1,709) (2,813)
Loss per share expressed in cents
Basic 6 (0.5) (0.8)
Diluted 6 (0.4) (0.7)
Consolidated statement of financial position
as at 31 December 2021
Note 2021 2020
US$'000 US$'000
Assets
Non-current assets
Property, plant and equipment 7 18,450 18,348
Intangible assets 8 182 358
Loan receivable 11 - 665
Total non-current assets 18,632 19,371
Current assets
Trade and other receivables 12 74 112
Cash and cash equivalent 13 900 853
Total current assets 974 965
Total assets 19,606 20,336
Liabilities
Current liabilities
Trade and other payables 14 363 550
Loans and borrowings 15 5,493 5,015
Derivative financial liability 16 15 759
Total current liabilities 5,871 6,324
Total liabilities 5,871 6,324
Capital and reserves attributable to shareholders
Share capital 17 95,009 94,137
Accumulated losses (81,274) (80,125)
Total capital and reserves 13,735 14,012
Total equity and liabilities 19,606 20,336
The financial statements were approved and authorised for issue by the Board
of Directors on 24 June 2022 and were signed on its behalf by:
Michael Haworth
Non-Executive Chairman
The notes form part of these financial statements.
Consolidated statement of changes in equity
for the year ended at 31 December 2021
Share Accumulated Losses Total
capital US$'000 US$'000
US$'000
At 1 January 2021 94,137 (80,125) 14,012
Loss for the year - (1,709) (1,709)
Other comprehensive loss for the year - - -
Total comprehensive loss for the year - (1,709) (1,709)
Issue of shares 1,040 - 1,040
Costs associated with issue of shares (168) - (168)
Broker's warrants issued - 20 20
Trusts dissolution - 11 11
Equity settled share-based payments - 529 529
At 31 December 2021 95,009 (81,274) 13,735
Share Accumulated Losses Total
capital US$'000 US$'000
US$'000
At 1 January 2020 92,660 (77,548) 15,112
Loss for the year - (2,813) (2,813)
Other comprehensive loss for the year - - -
Total comprehensive loss for the year - (2,813) (2,813)
Issue of shares 1,910 - 1,910
Costs associated with issue of shares (138) - (138)
Broker warrants issued (351) - (351)
Exercise of share options 56 (56) -
Equity settled share-based payments - 292 292
At 31 December 2020 94,137 (80,125) 14,012
The notes form part of these financial statements.
Consolidated statement of cash flows
for the year ended at 31 December 2021
2021 2020
US$'000 US$'000
Loss before taxation (1,709) (2,813)
Adjustments for:
Finance (income)/expense (212) 910
Share-based payment charge 529 292
Amortisation 176 164
Depreciation 67 67
Gain from disposal of discontinued operations (note 10) (111) -
Unrealised foreign exchange movements (10) -
Net cash flow from operating activities before changes in working capital (1,270) (1,380)
(Decrease)/increase in payables (187) 146
Decrease/(increase) in receivables 38 (86)
Net cash flow from operating activities before tax (1,419) (1,320)
Income taxes refunded - -
Net cash flow from operating activities after tax (1,419) (1,320)
Investing activities
Power and Mine development costs capitalised (169) (152)
JV investment prior to acquisition - (384)
Purchase of intangibles - (35)
Net cash flow from investing activities (169) (571)
Financing activities
Issue of ordinary shares 1,040 1,910
Cost of shares issued (55) (138)
Proceeds from sale of discontinued operation 1,300 -
Working capital facility draw down - 250
Repayment of bridge loan including interest (650) -
Net cash flow from financing activities 1,635 2,022
Net increase in cash and cash equivalents in the year 47 131
Cash and cash equivalents at the beginning of the year 853 722
Cash and cash equivalents at the end of the year 900 853
The notes 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 31 December 2022 the Group had cash reserves of approximately
US$900,000. Based upon projections that include corporate costs, salaries of
staff and consultant fees, project costs to progress both the Project and
Solar Project, the Group is funded into August 2022 with the potential to
extend this to Q1 2023, depending on the outcome of Restructuring discussions
with Seritza for the Working Capital Facility and the Shareholder Loan.
The Shareholder Loan of US$5,197,000 as at period end (including principal,
historic redemption premium and interest) matured on 30 November 2019. The 3
November 2020 Undertaking not to call in the Shareholder Loan before the later
of 30 November 2022 or when the Restructuring is completed is still valid. The
Undertaking prevents the Shareholder Loan from being called as a majority
agreement representing 66.7% of Shareholder Loan holders is required. The
Restructuring is subject to the Lenders agreeing to the documentation and the
necessary related party transaction process being completed by the Company's
Independent Directors.
The Working Capital Facility of US$296,000 as at 31 December 2021 (including
principal and interest) and was repayable in March 2022. On 1 June 2022 the
repayment date was extend to 30 June 2022, whilst restructuring discussions
are still being finalised. The Company is currently evaluating options to
extend, restructure or repay the loan.
The Bridge Loan of US$650,000 was repaid in December 2021.
The Directors continue to explore options in respect of raising further funds
to continue with the power plant and mine development programmes, as well as
funding potential C&I Projects. At present there are no binding agreements
in place and there can be no certainty as to the Group's ability to raise
additional funding.
In addition, notwithstanding the Shareholder loan and Working Capital Facility
further funding will be required as detailed above to meet operating cash
flows under current forecasts beyond August 2022 at the earliest, or Q1 2023
at the latest or in the event of accelerated project advancement. The
Directors are exploring a number of funding and working capital solutions. The
financial statements have been prepared on a going concern basis in
anticipation of a positive outcome but it is important to highlight that there
are no binding agreements in place and there can be no certainty that any of
these initiatives will be successful.
At the end of 2020, the Company submitted an updated Project feasibility study
and tariff proposal to EDM for review and comment. Although positive steps to
progress the tariff were made during 2021, further progress awaits clarity on
China's position on the availability of financing for the Project following
President Xi's announcement regarding financing restrictions for coal power
projects abroad in September 2021. While the outcome on financing from China
is outside of the Company's control, we continue to work closely with CMEC to
resolve the issue. In addition, the Company and CMEC have initiated steps to
identify potential alternative financing solutions.
While the risk presented by COVID-19 has decreased it potentially still
represents a risk to a number of aspects of the Group's business, including
lack of access to the Project and in person meetings with the Project
Partners, Government, EDM and potential finance partners which may cause a
delay to the Project. The Group is cognisant new variants may result in
further lockdowns and continues to closely monitor the situation and to
develop appropriate response plans.
The financial statements have been prepared on a going concern basis in
anticipation of a positive outcome but it is important to highlight that there
are no binding agreements in place.
The lack of clarity on Chinese funding for the Project, finalisation of the
tariff, restructuring of the loans and funding beyond August 2022 indicate the
existence of a material uncertainty which may cast significant doubt about the
Group's ability to continue as a going concern. The financial statements do
not include the adjustments that would result if the Group was unable to
continue as a going concern. Such adjustments would principally be the write
down of the Group's non-current assets.
Basis of preparation
The principal accounting policies adopted in the preparation of these
consolidated financial statements are set out below. The policies have been
consistently applied to all the years presented, unless otherwise stated.
These financial statements have been prepared in accordance with International
Financial Reporting Standards, International Accounting Standards and
Interpretations (collectively "IFRS") issued by the International Accounting
Standards Board ("IASB") as adopted by the European Union ("adopted IFRS").
The preparation of financial statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and reported amounts of assets and liabilities, income
and expenses. The estimates and associated assumptions are based on historical
experience and factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making judgements about
carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates. The areas
involving a higher degree of judgment or complexity, or where assumptions and
estimates are significant to the consolidated financial statements, are
disclosed in note 2.
The Group financial information is presented in United States dollars (US$)
and values are rounded to the nearest thousand dollars (US$'000).
Loss from operations is stated after charging and crediting all operating
items excluding finance income and expenses.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision only affects that period or in the period
of revision and future periods if the revision affects both current and future
periods.
New and amended standards which are effective for these Financial Statements
The following new and revised standards and interpretations, all of which are
effective for accounting periods beginning on or after 1 January 2021, have
been adopted in the current financial year.
(a) New standards, interpretations and amendments adopted from 1 January
2021
One new standard impacting the Group that has been adopted in the annual
financial statements for the year ended 31 December 2021:
· COVID-19-Related Rent Concessions beyond 30 June 2021 (Amendments
to IFRS 16).
Upon review of the amendment, it was concluded that there was no impact from
the perspective of the Group's results.
Standards in issue but not yet effective
The following standards, amendments and interpretations which have been
recently issued or revised and are mandatory for the Group's accounting
periods beginning on or after 1 January 2022:
· Onerous Contracts - Cost of Fulfilling a Contract (Amendments to
IAS 37);
· Property, Plant and Equipment: Proceeds before Intended Use
(Amendments to IAS 16);
· Annual Improvements to IFRS Standards 2018-2020 (Amendments to
IFRS 1, IFRS 9, IFRS 16 and IAS 41);
· References to Conceptual Framework (Amendments to IFRS 3).
The following amendments are effective for the period beginning 1 January
2023:
· Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS
Practice Statement 2);
· Definition of Accounting Estimates (Amendments to IAS 8); and
· Deferred Tax Related to Assets and Liabilities arising from a
Single Transaction (Amendments to IAS 12).
The financial impact of new standards, interpretations and amendments not yet
effective has not yet been determined by the Group.
Basis of consolidation
Subsidiaries
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They
are deconsolidated from the date that control ceases. Where necessary,
adjustments are made to the financial statements of subsidiaries to bring
their accounting policies into line with those used by other members of the
Group. All intra-Group transactions, balances, income and expenses are
eliminated on consolidation.
Joint Arrangements
Certain Group activities are conducted through joint arrangements in which two
or more parties have joint control. A joint arrangement is classified as
either a joint operation or a joint venture, depending on the rights and
obligations of the parties to the arrangement.
Joint operations arise when the Group has a direct ownership interest in
jointly controlled assets and obligations for liabilities. The Group does not
currently hold this type of arrangement.
Joint ventures arise when the Group has rights to the net assets of the
arrangement. For these arrangements, the Group uses equity accounting and
recognises initial and subsequent investments at cost, adjusting for the
Group's share of the joint venture's income or loss, less dividends received
thereafter. When the Group's share of losses in a joint venture equals or
exceeds its interest in a joint venture it does not recognise further losses.
Joint ventures are tested for impairment whenever objective evidence indicates
that the carrying amount of the investment may not be recoverable. The
impairment amount is measured as the difference between the carrying amount of
the investment and the higher of its fair value less costs of disposal and its
value in use. Impairment losses are reversed in subsequent periods if the
amount of the loss decreases and the decrease can be related objectively to an
event occurring after the impairment was recognised.
Business combinations
The acquisition method of accounting is used to account for business
combinations by the Group. The consideration transferred for the acquisition
of a business is the fair value of the assets transferred, liabilities
incurred and the equity interests issued by the Group. The consideration
transferred includes the fair value of any asset or liability resulting from a
contingent consideration arrangement. Acquisition related costs are expensed
as incurred. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date.
Segmental reporting
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief operating decision-maker. The chief operating
decision-maker has been identified as the Board of Directors.
Share-based payments
Equity-settled share-based payments to employees and Directors are measured at
the fair value of the equity instrument. The fair value of the
equity-settled transactions with employees and Directors is recognised as an
expense over the vesting period. The fair value of the equity instrument is
determined at the date of grant, taking into account market based vesting
conditions.
The fair value of the equity instrument is measured using the Black-Scholes
model. The expected life used in the model is adjusted, based on
management's best estimate, for the effects of non-transferability, exercise
restrictions and behavioural considerations.
When grant of equity instruments is cancelled or settled during the vesting
period the cancellation is accounted for as an acceleration of vesting and the
amount that otherwise would have been recognised for services received over
the remainder of the vesting period is immediately expensed.
When equity instruments are modified, if the modification increases the fair
value of the award, the additional cost must be recognised over the period
from the modification date until the vesting date of the modified award.
If, after the vesting date, fully vested options lapse or are not exercised
the previously recognised share-based payment charge is not reversed.
Property, plant and equipment
Property, plant and equipment are stated at cost on acquisition less
depreciation. Depreciation is provided on a straight-line basis at rates
calculated to write off the cost less the estimated residual value of each
asset over its expected useful economic life. The residual value is the
estimated amount that would currently be obtained from disposal of the asset
if the asset were already of the age and in the condition expected at the end
of its useful life.
The annual rate of depreciation for each class of depreciable asset is:
Plant and equipment
25%
Other
20%-33%
Buildings
10%
Power
Life of Mine ("LOM")
Mining
assets
LOM
The carrying value of property plant and equipment is assessed annually and
any impairment is charged to the profit or loss.
Intangible assets
Intangible assets acquired as part of an acquisition of a business are
capitalised separately from goodwill, if these assets are separable and their
fair value can be measured reliably. Intangible assets acquired separately
from the acquisition of a business are capitalised at cost. The cost of the
other intangible assets with finite useful economic lives is amortised over
that period. The carrying values of intangible assets are reviewed for
impairment when events or changes in circumstances indicate that the carrying
values may not be recoverable. If impaired, they are written down to the
higher of fair value less costs to sell and value in use.
Amortisation and estimated useful lives
Intangible assets, excluding goodwill, are amortised on a straight-line basis
over their estimated useful lives and charged to administrative expenses in
the consolidated statement of profit or loss. The 36 months estimated useful
lives of the intangible asset and started from the date of the ROFR relating
to the C&I projects pipeline.
Power project costs
Power project expenditure is expensed until it is probable that future
economic benefits associated with the project will flow to the Group and the
cost of the project can be measured reliably. When it is probable that
future economic benefits will flow to the Group, all costs associated with
developing the 300MW power project are capitalised as power project
expenditure within the property, plant and equipment category of tangible
non-current assets. The capitalised expenditure includes appropriate
technical and administrative expenses but not general overheads. Power
project assets are not depreciated until the asset is ready and available for
use.
Exploration and evaluation assets
Exploration and evaluation assets include all costs associated with exploring
and evaluating prospects within licence areas, including the initial
acquisition of the licence and are capitalised on a project-by-project basis.
Costs incurred include appropriate technical and administrative expenses but
not general overheads. Where a licence is relinquished, a project is
abandoned, or is considered to be of no further commercial value to the Group,
the related costs will be written off.
The recoverability of exploration and evaluation assets is dependent upon the
discovery of economically recoverable reserves, the ability of the Group to
obtain necessary financing to complete the development of reserves and future
profitable production or proceeds from the disposition of recoverable
reserves.
Mining assets
When the technical feasibility of the exploration project is determined, a
mining licence concession is obtained and a decision is made to proceed to
development stage the related exploration and evaluation assets are assessed
for potential impairment and then transferred to non-current mining assets and
included within property, plant and equipment.
Mining properties are depleted over the estimated life of the reserves on a
'unit of production' basis.
Commercial reserves are proven and probable reserves. Changes in commercial
reserves affecting unit of production calculations are dealt with
prospectively over the revised remaining reserves.
Impairment
The carrying amounts of non-current assets are reviewed for impairment if
events or changes in circumstances indicate the carrying value may not be
recoverable. If there are indicators of impairment,
an exercise is undertaken to determine whether the carrying values are in
excess of their recoverable amount. Such review is undertaken on an asset by
asset basis, except where such assets do not generate cash flows independent
of other assets, in which case the review is undertaken at the cash generating
unit level.
A previously recognised impairment loss is reversed if the recoverable amount
increases as a result of a reversal of the conditions that originally resulted
in the impairment. This reversal is recognised in the
statement of profit or loss and is limited to the carrying amount that would
have been determined, net of depreciation, had no impairment loss been
recognised in the prior years.
The recoverable amount of assets is the greater of their value in use and fair
value less costs to sell. In assessing value in use, the estimated future cash
flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. For an asset that does not generate cash inflows
largely independent of those from other assets, the recoverable amount is
determined for the cash-generating unit to which the asset belongs. The
Group's cash-generating units are the smallest identifiable groups of assets
that generate cash inflows that are largely independent of the cash inflows
from other assets or groups of assets.
Impairments are recognised in the statement of profit or loss to the extent
that the carrying amount exceeds the assets recoverable amount. The revised
carrying amounts are amortised in line with the Group's accounting policies.
The Group has three cash generating units being (1) the Power Project and Mine
Project - this segment is involved in the exploration for coal and development
of the coal mine and the development of a 300MW integrated power plant, (2) a
C&I solar PV and battery storage project - this segment is focused on
building and operating captive solar PV and battery storage solutions for the
African C&I sector and (3) the corporate sector - this segment relates to
the day to day of the business.
Foreign currency
The individual financial statements of each Group entity are presented in the
currency of the primary economic environment in which the entity operates (its
functional currency). For the purpose of the consolidated financial
statements, the results of overseas Group entities are translated into US$,
which is the functional currency of the Company and its primary operating
subsidiaries and presentation currency for the consolidated financial
statements, at rates approximating to those ruling when the transactions took
place, all assets and liabilities of overseas Group entities are translated at
the rate ruling at the reporting date. Exchange differences arising on
translating the opening net assets at opening rate and the results of overseas
operations with a non US$ functional currency at actual rate are recognised in
other comprehensive income and accumulated in the foreign exchange translation
reserve.
In preparing the financial statements of the individual entities, transactions
in currencies other than the entity's functional currency (foreign currencies)
are recorded at the rates of exchange prevailing on the
dates of the transactions. At each reporting date, monetary items denominated
in foreign currencies are retranslated at the rates prevailing on the
reporting date.
Exchange differences arising on the settlement of monetary items and on the
retranslation of monetary items are included in the statement of profit or
loss.
Provisions
Provisions are recognised when the Group has a legal or constructive
obligation, as a result of past events, for which it is probable that an
outflow of economic resources will result and that outflow can be reliably
measured.
Taxation
Income tax expense represents the sum of the tax currently payable and
deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable
profit differs from profit as reported in the profit or loss because it
excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The
Group's liability for current tax is calculated using tax rates that have been
enacted or substantively enacted by the reporting date.
Deferred tax is recognised on differences between the carrying amounts of
assets and liabilities in the financial statements and the corresponding tax
bases used in the computation of taxable profit. Deferred tax liabilities are
recognised for all taxable temporary differences and deferred tax assets are
recognised to the extent that it is probable that taxable profits will be
available against which deductible temporary differences can be utilised. The
carrying amount of deferred tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient taxable
profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the
period when the liability is settled or the asset realised. Deferred tax is
charged or credited to the statement of profit or loss, except when it relates
to items charged or credited directly to equity, in which case the deferred
tax is also dealt with in equity. Deferred tax assets and liabilities are
offset when there is a legally enforceable right to set off current tax assets
against current tax liabilities and when they relate to income taxes levied by
the same taxation authority and the Group intends to settle its current tax
assets and liabilities on a net basis.
Financial instruments
Financial assets and liabilities are recognised when the Group becomes party
to the contractual provisions of the instrument.
Financial assets
The Group classifies its financial assets into one of the categories discussed
below, depending on the purpose for which the asset was acquired. The Group
did not have any financial assets designated at fair value through profit or
loss. Unless otherwise indicated, the carrying amounts of the Group's
financial assets are a reasonable approximation of their fair values.
The Group's accounting policy for each category is as follows:
Financial assets at amortised cost
Assets at amortised cost comprise Trade and Other Receivables and Loan
Receivables which are measured on initial recognition at fair value and
subsequently measured at amortised cost using the effective interest rate
method.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand, deposits and other
short-term highly liquid investments that are readily convertible to a known
amount of cash and are subject to an insignificant risk of changes in value.
Impairment of financial assets
The Group recognizes a loss allowance for expected credit losses ("ECL") on
financial assets that are
measured at amortised cost which comprise mainly of receivables and loan
receivables. The amount of ECL is updated at each reporting date to reflect
changes in credit risk since initial recognition of the respective financial
instruments. Impairment provisions for other receivables and loan receivables
are recognised based on a forward looking ECL model. The methodology used to
determine the amount of the provision is based on whether there has been a
significant increase in credit risk since initial recognition of the financial
asset. For those where the credit risk has not increased significantly since
initial recognition of the financial asset, twelve month ECL along with gross
interest income are recognised. For those for which credit risk has increased
significantly, lifetime ECL along with the gross interest income are
recognised. For those that are determined to be credit impaired, lifetime ECL
along with interest income on a net basis are recognised.
Financial liabilities
Financial liabilities held at amortised cost
Financial liabilities refer to trade and other payables and loans and
borrowings (including the host debt in a convertible instrument) and are
initially recognised at fair value net of any transaction costs directly
attributable to the issue of the instrument. Such liabilities are subsequently
measured at amortised cost using the effective interest rate method, which
ensures that any interest expense over the period to repayment is at a
constant rate on the balance of the liability carried in the statement of
financial position. Where loans and borrowings include a redemption premium,
the estimated premium is included in the calculation of the effective interest
rate.
Where there is a modification to a financial liability, the original financial
liability is de-recognised and a new financial liability is recognised at fair
value in accordance with the Group's policy.
Convertible loan
Convertible loan notes are assessed in accordance with IAS 32 Financial
Instruments: Presentation to determine whether the conversion element meets
the fixed-for-fixed criterion. Where this is met, the instrument is accounted
for as a compound financial instrument with appropriate presentation of the
liability and equity components.
Where the fixed-for-fixed criterion is not met, the conversion element is
accounted for separately as an embedded derivative which is measured at fair
value through profit or loss. On issue of convertible borrowing, the fair
value of the embedded derivative is determined and the residual value is
recorded as a host liability initially at fair value and subsequently at
amortised cost.
Issue costs are apportioned between the components based on their respective
carrying amounts when the instrument was issued.
The finance costs recognised in respect of the convertible borrowings includes
the accretion of the liability.
Financial liabilities at fair value through profit or loss
This category comprises warrants instruments classified as derivative
financial liabilities due to the warrant resulting in the issue of a variable
number of shares and the embedded derivative within the Shareholder Loan. They
are carried in the consolidated statement of financial position at fair value
with changes in fair value recognised in the consolidated statement of profit
or loss. Other than these derivative financial instruments, the Group does not
have any liabilities held for trading nor has it designated any other
financial liabilities as being at fair value through profit or loss.
Fair value measurement hierarchy
The Group classifies its financial liabilities measured at fair value using a
fair value hierarchy that reflects the significance of the inputs used in
making the fair value measurement (note 22). The fair value hierarchy has the
following levels:
a) Quoted prices (unadjusted) in active markets for identical assets or
liabilities (Level 1);
b) Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e., as prices) or indirectly
(i.e., derived from prices) (Level 2);
c) Inputs for the asset or liability that are not based on observable market
data (unobservable inputs) (Level 3).
The level in the fair value hierarchy within the financial liability is
determined on the basis of the lowest level input that is significant to the
fair value measurement.
Share capital
Financial instruments issued by the Group are treated as equity only to the
extent that they do not meet the definition of a financial liability. The
Company's ordinary shares are classified as equity instruments. The Company
considers its capital to be total equity. The Company is not subject to any
externally imposed capital requirements.
Non-current assets held for sale and disposal groups
Non-current assets and disposal groups are classified as held for sale when:
they are available for immediate sale subject only to customer conditions;
management is committed to a plan to sell; it is unlikely that significant
changes to the plan will be made or that the plan will be withdrawn; an active
programme to locate a buyer has been initiated; the asset or disposal group is
being marketed at a reasonable price in relation to its fair value; and a sale
is expected to complete within 12 months from the date of classification.
Non-current assets and disposal groups classified as held for sale are
measured at the lower of their carrying amount immediately prior to being
classified as held for sale in accordance with the Group's
accounting policy; and fair value less costs to sell. Following their
classification as held for sale, non-current assets (including those in a
disposal group) are not depreciated.
2. Critical accounting estimates and judgements
The Group makes estimates and assumptions concerning the future, which by
definition will seldom result in actual results that match the accounting
estimate. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amount of
assets and liabilities within the next financial year are discussed below.
Accounting judgements and estimates
(i) Impairment of power and mining assets
The carrying value of the power plant and mining assets in note 7 are
dependent on the success of the power plant project. Management's judgement is
that no indicators of impairment have occurred during the year. This has
included consideration of the potential sources of impairment indicators
prescribed under IAS 36. Management have considered key milestones including
the "in principle" agreement of the historical costs with CMEC, signing of the
power plant EPC contract with CMEC and the continued commitment of CMEC to the
Project and submission of the Upgraded Transmission Integration Study, and
risks including Project capex inflation impacting the tariff and China's new
policy on overseas coal power financing. The wording of the new policy and the
exact scope of the ban remains unclear in particular for "Priority Projects"
of which the Ncondezi Project is one, nor has the Company received any formal
communication from either CMEC or the Chinese Government that the Project is
to be shelved or cancelled. Meanwhile China is undergoing negative GDP growth
forecasts as a result of their ongoing lockdown policy, currency depreciation
and commodity price inflation. This situation has the potential for China to
turn to historically proven tools to restore growth including increased credit
and policy support for sectors such as infrastructure build out, potentially
delaying recent commitments such as the restrictions on coal financing. It
must be noted that Ncondezi has no control over the Chinese Government's
application of the coal power funding policy towards the Project.
Tariff negotiations with EDM to date have been positive however the tariff can
not be finalised until clarity is gained on financing from China. The
financial model which has been used as a basis for the tariff negotiations has
been stress tested for cost inflation and management are confident that they
will still be able to agree a tariff within the range indicated by EDM and the
Mozambique Government.
Management have also considered the impact of the Russian invasion of Ukraine
in the post reporting period which has seen a dramatic rise in global thermal
coal prices and structural change in the fundamentals for all key energy
commodities (oil, gas and coal) which has forced many countries to rethink
their energy strategies. Developing countries such as Mozambique have little
optionality over their energy sources. The changing global energy environment
emphasises the need for a diversified generation mix on the grid for greater
energy security. In South Africa the energy supply deficit continues to grow
with Eskom, the state run power utility, forecasting a current power deficit
of 4,000MW to 6,000MW which is set to increase over the coming years as they
are forced to retire ageing power stations. Mozambique, as the largest
exporter of power to South Africa, is in a good position to take advantage of
this. Management, having considered the risks and de-risking events, have
determined that at this point in time it is more likely than not that the
power plant will be developed given the progress to date. The carrying value
of the assets and feasibility of the Project is supported by the current
integrated financial model. The integrated financial model is based on an
approximate 10% reduction in the previous tariff which management anticipate
being acceptable to the Government following benchmarking and formal
discussions with EDM to date. However, negotiations are continuing and
should an acceptable tariff not be agreed or other cost efficiencies realised
or if clarity is not gained on the availability of Project construction
financing, the Project may not proceed and the power assets may not be
recoverable.
Following the JDA with CMEC and GE and the new integrated strategy in 2018 the
power and mining projects are considered as one cash generating unit. This
required judgement and factors considered included the integrated nature of
the development project versus the previous development plans, the
interdependent nature of the assets and project economics and the extent to
which the assets could feasibly be developed independently.
(ii) Asset classified as held for sale
Management have considered whether the JDA with CMEC and GE was such that the
power and mining assets met the criteria of IFRS 5. Having considered the
non-binding status of the proposals at 31 December 2021 and associated risks
and uncertainties, the extent of progress made towards finalising
the JDA and subsequent FC and the period of time to final completion of a
transaction, management concluded that the criteria were not met.
(iii) Valuation of share options and warrants
Share options issued by the Company are fair valued when granted and warrants,
which are classified as financial liabilities, are revalued at each reporting
date. This requires the Group to determine an appropriate valuation
methodology, which they have determined to be the Black-Scholes option pricing
model. The use of this model requires the determination of a number of key
assumptions which can have a significant effect on the valuation (notes 16 and
19).
3. Administrative expenses
2021 2020*
restated
US$'000 US$'000
Staff costs 77 53
Professional and consultancy 1,042 1,115
Office expenses 74 78
Marketing and promotion 83 96
Travel and accommodation 9 12
Other expenses 7 21
Depreciation 67 67
Amortisation 176 164
Foreign exchange (5) (50)
Total administrative expenses 1,530 1,556
*The restatement relates to the discontinued operations
Auditors' remuneration
2021 2020
US$'000 US$'000
Group auditors' remuneration
- audit of the Group's accounts 75 73
Other services
- interim review 2 2
77 75
Auditors' remuneration is included within professional and consultancy costs.
Staff costs and Directors remuneration
2021 2020
US$'000 US$'000
Wages and salaries 74 51
Directors remuneration 240 360
Share-based payment 529 292
Social security costs 3 2
846 705
During 2021 US$nil (2020: US$nil) included within wages and salaries has been
capitalised to the power project asset.
The average monthly number of employees (including executive Directors) of the
Group were:
2021 2020
Number Number
Operational 1 1
Administration 2 3
3 4
Key management compensation:
2021 2020
US$'000 US$'000
Fees 240 442
Share-based payment 529 253
769 695
Key management includes Directors and Consultants.
4. Net finance income
2021 2020
US$'000 US$'000
Interest on loans (note 15) 627 531
Fair value adjustment on the warrants (note 16) (839) 379
Fair value adjustment on the loan derivative - -
(212) 910
5. Taxation
The Group entities subject to corporate income tax are Ncondezi Coal Company
Mozambique Limitada and Ncondezi Power Company S.A. which are subject to tax
at the rate of 32% (2020: 32%) on their profits in Mozambique. No tax
charge/(credit) arose in the current or prior year for Ncondezi Coal Company
Mozambique Limitada and Ncondezi Power Company S.A.
2020
2021 US$'000
US$'000
Current tax - -
Group loss on ordinary activities before tax* (1,847) (2,813)
Effects of:
Reconcile to Mozambique corporation tax rate of 32% (2020: 32%) (591) (900)
Differences arising from different tax rates 512 837
Foreign exchange effect originating in overseas companies (36) 21
Unrecognised taxable losses in subsidiaries 115 42
Total tax for the year - -
* Pertains to continuing operations
During the exploration and development stages, the Group will accumulate tax
losses which may be carried forward. As at 31 December 2021, no deferred tax
asset has been recognised for tax losses of US$1,071,000 (2020: US$1,877,000)
carried forward within the Group's overseas subsidiaries, as the recovery of
this benefit is dependent on the future profitability, the timing and
certainty of which cannot be reasonably foreseen.
Tax losses in Mozambique are available for use over a five year period. Of
the total available Mozambican subsidiary tax credits, US$292,000 will be
available until 31 December 2026, US$64,000 will be available until 31
December 2025, US$179,000 will be available until 31 December 2024, US$77,000
will be available until 31 December 2023, US$52,000 and will be available
until 31 December 2022.
6. Loss per share
Basic loss per share is calculated by dividing the loss attributable to
Ordinary Shareholders by the weighted average number of Ordinary Shares
outstanding during the year. Diluted loss per share is calculated by dividing
the loss attributable to Ordinary Shareholders by the sum of the weighted
average number of shares outstanding and dilutive shares (unvested share
options and warrants).
Due to the losses incurred during the year a diluted loss per share has not
been calculated as this would serve to reduce the basic loss per share. Out of
37,637,227 (2020: 37,637,227) share incentives outstanding at the end of the
year 12,294,058 (2020: 12,294,058) had already vested.
2021 2020
Loss Weighted average number of shares Per share amount (cents) Loss Weighted average number of shares Per share amount (cents)
US$'000 (thousands) US$'000 (thousands)
Basic EPS (1,847)* 382,029 (0.5) (2,813) 341,193 (0.8)
Diluted EPS (1,847)* 447,142 (0.4) (2,813)** 372,887 (0.7)
* Pertains to continuing operations
** Stating from PY before discontinued operations was adjusted for
7. Property, plant and equipment
Power assets Mining assets Plant and equi. US$'000
US$'000 US$'000 Buildings Other US$'000 Total
US$'000 US$'000
Cost (less impairment)
At 1 January 2020 9,520 7,661 1,277 35 718 19,211
Additions 76 76 - - - 152
At 31 December 2021 9,596 7,737 1,277 35 718 19,363
Additions 135 34 - - - 169
At 31 December 2021 9,731 7,771 1,277 35 718 19,532
Depreciation
At 1 January 2020 - - 205 25 718 948
Depreciation charge - - 66 1 - 67
At 31 December 2021 - - 271 26 718 1,015
Depreciation charge - - 66 1 - 67
At 31 December 2021 - - 337 27 718 1,082
Net Book value 2021 9,731 7,771 940 8 - 18,450
Net Book value 2020 9,596 7,737 1,006 9 - 18,348
Power assets relate to the development of a 300MW power plant. In 2021, the
Power assets remain classified as property, plant and equipment as detailed in
note 1.
Mine assets relate to the initial acquisition of the licences and subsequent
expenditure incurred in evaluating the Ncondezi mine project. These were
transferred from intangible assets on receipt of the mining concession in
2013.
Management has prepared an impairment assessment under IAS 36 as impairment
indicators have been identified. The 2020 financial model was sensitized for
inflationary adjustments indicating that the net present value is in excess of
the carrying value thus no impairment was necessary. Management did not deem a
reversal of impairment appropriate.
8. Intangible assets
ROFR to C&I projects pipeline US$'000
Total
US$'000
Cost
At 1 January 2020 - -
Additions 522 522
At 1 January 2021 522 522
Additions - -
At 31 December 2021 522 522
Amortisation
At 1 January 2020 - -
Amortisation charge 164 164
At 1 January 2021 164 164
Amortisation charge 176 176
At 31 December 2021 340 340
Net Book value 2021 182 182
9. Subsidiaries
The Group has the following subsidiary undertakings:
% interest 2021 % interest 2020 Country of incorporation Activity
Zambezi Energy Corporation Holdings 1 Limited 'ZECH1' 100 100 Mauritius Holding company
Zambezi Energy Corporation Holdings 2 Limited 'ZECH2' 100 100 Mauritius Holding company
Ncondezi Coal Company Mozambique Limitada 'NCCML' 100 100 Mozambique Mining exploration and development
Ncondezi Power Holdings 2 Limited 'NPH2L' 100 100 UAE Holding company
Ncondezi Power Company SA 'NPCSA' 100 100 Mozambique Energy company
Ncondezi Green Power Holding Ltd 'NGP' 100 100 BVI Green Energy Holding company
Mozambique Green Power Ltd 'MGP' - 100 Mauritius Green Energy company
NCCML is owned by ZECH1 and ZECH2. NPH2L is owned by Ncondezi Energy Limited.
NPCSA is owned by Ncondezi Energy Limited, ZECH1 and NPH2L. NGP is owned by
Ncondezi Energy Limited. MGP was owned by NGP and was sold in the year.
10. Discontinued operations
Following the strategic review launched in June 2021 the Board decided that
due to an increasingly challenging post COP26 environment, selling the C&I
subsidiary would allow the Company to fully focus on progressing the Company's
main project.
On 3 December 2021, under a sale and purchase agreement NGP sold MGP to Green
Energy a company controlled by Ncondezi Non-Executive Director Scott Fletcher
for a total consideration of US$1,300,000 in cash. This was a related party
transaction, refer to note 23.
This discontinued operation was part of the Solar PV & Battery Storage
segment.
2021
US$'000
Consideration paid to the
Company:
Proceeds from sale of discontinued operations 1,300
Subsidiary net equity at disposal
Non-current assets
Loan receivable 1,020
Total non-current assets 1,020
Current assets
Trade and other receivables 32
Cash and cash equivalents 163
Total current assets 195
Total net assets 1,215
Current liabilities
Trade and other payables (26)
Total net liabilities (26)
Net equity of discontinued operations 1,189
Gain on disposal of discontinued operations 111
11. Loan Receivable
2021 2020
US$'000 US$'000
Balance at start of year 665 -
Provided during the year 355
Disposed due to discontinued operations (1,020) 665
Total non-current assets - 665
C&I SPV entered into an AFA to provide funding of US$1,189,000 for the
construction of the C&I Maiden Project in Mozambique. As at the date of
the MGP disposal US$1,020,000 was provided out of the total funding.
12. Trade and other receivables
2021 2020
US$'000 US$'000
Current assets:
Other receivables 74 112
Total trade and other receivables 74 112
During the year no expected credit losses were recognised (2020: US$nil). The
Directors consider that the carrying amount of other receivables approximates
their fair value.
13. Cash and cash equivalents
2021 2020
US$'000 US$'000
Cash at bank and in hand 900 853
900 853
The Group's cash and cash equivalents balances may be analysed by currency as
follows:
2021 2020
US$'000 US$'000
US Dollars 650 354
Great British Pounds 247 493
Mozambique Meticais 3 6
900 853
Where possible cash is deposited in floating rate deposit accounts at
reputable financial institutions with high credit ratings.
14. Trade and other payables
2021 2020
US$'000 US$'000
Other payables 55 57
Accruals 308 493
363 550
Accruals includes US$nil (2020: US$nil) of interest in respect of the loans
detailed in note 15. The fair value of payables is not significantly different
from their carrying value.
15. Loans and borrowings
2021 2020
US$'000 US$'000
Shareholder Loans (unsecured) 5,197 4,742
Working capital facility (unsecured) 296 273
Total loans and borrowings 5,493 5,015
Shareholder Loan
The Shareholder Loan term expired on 30 November 2019 with no extensions or
restructuring legally agreed as at period end. The Shareholder Loan was
US$5,197,000 as at period end (2020: US$4,742,000), with interest of 12%
continuing to be accrued on the outstanding balance.
On 26 November 2019, the Company received "in principle" support from all
Lenders to enter a Shareholder Loan restructuring proposal. The Loan term
expired on 30 November 2019 with no extensions or restructuring legally agreed
as at the end of the period. The restructuring proposal is set out as below:
· Extension on existing terms, including 12% annual interest rate
and ability for Lenders to swap debt for equity in part or in full at a
conversion price of 10.0p per share
· 12 month extension from the future Restructuring approval date
· A right for Ncondezi to pay off the original principal amount of
the Loan along with conversion of all interest into Ncondezi shares on AIM at
a 25% to 30% premium to the 30 day VWAP
The restructuring process is currently waiting for completion of key Lender
internal approval from AFC, which has incurred delays from the impact of
COVID-19.
On 26 November 2019 and reconfirmed on 20 May 2020, all Lenders, including
AFC, indicated that they will not call in the Shareholder Loan whilst the
Restructuring is being finalised. On 3 November 2020 certain Board and
management, including Chairman Michael Haworth and CEO Hanno Pengilly, who
represent 39.6% of the Shareholder Loan signed an Undertaking not to call in
the Shareholder Loan before the later of 30 November 2022 or when the
Restructuring is completed. The Undertaking prevents the Shareholder Loan from
being called as a majority agreement representing 66.7% of Shareholder Loan
holders is required.
The Restructuring is subject to the Lenders agreeing to the documentation and
the necessary related party transaction process being completed by the
Company's Independent Directors.
Finance cost recognised for the year in relation to the loan was US$454,000
(2020: US$508,000).
Working Capital Facility
The US$750,000 working capital facility was made available for drawdown from 1
January 2020 until 30 June 2020 at the Company's election and was repayable
within 24 months from first drawdown, unless there was an event of default or
the Company elected to prepay the facility. The default of the Shareholder
Loan constituted an event of default under the Working Capital Facility
therefore the facility has been classified as current.
There was a drawdown on 24 January 2020 of US$250,000 and funds were received
on 24 February 2020 the repayment date being two years from this date. Further
drawdowns were not solicited and the working capital facility expired at the
end of June 2020.
The Working Capital Facility attracts a 10% annual interest charge, payable at
maturity or on repayment.
Finance cost recognised for the period in relation to the Working Capital
Facility was US$23,000 (2020: US$23,000).
Bridge Loan: 2021
US$'000
At 1 January 2021 -
Bridge Loan amount 500
30% coupon 150
Repayment (650)
Total loans and borrowings as at 31 December 2021 -
Below are the loans and borrowings that have been settled during the current
financial year.
The key terms of the Bridge Loan of US$500,000 were as follows:
· Entered into on 3 May 2021
· Fixed 30% coupon payable by NGP at the earlier of:
o 6 months from first drawdown;
o 20 business days from commissioning of the C&I Maiden Project; or
o 20 business days from termination of any of the C&I Maiden Project key
commercial agreements (together, the "Repayment Date"). Should the
commissioning date be further delayed as a direct result of the COVID-19
pandemic, the Parties can agree an extension to the Repayment Date for up to 8
months from first drawdown.
· Increased coupon rate of 50% if NGP fails to repay the Bridge
Loan by the Repayment Date.
· NGP agreed to enter a subordination deed with the Lenders
pursuant to which the claims of the Lenders against NGP under the Bridge Loan
shall rank ahead of and in priority to the claims of the Company against NGP
under various intra Group loans made by the Company to NGP.
· Lenders' conversion rights:
o Right to convert the Bridge Loan into equity of NGP at a price of US$6,650
per ordinary share should NGP fail to repay by the Repayment Date or under
events of default typical for a project of this nature ("Ordinary
Conversion").
o Ordinary Conversion would equate to the Lenders holding 53% of the then
issued share capital of NGP in aggregate.
o NGP has the right to repay the Bridge Loan at any time before the Ordinary
Conversion is completed.
· Lenders' material default conversion rights:
o Right to convert the Bridge Loan into equity of NGP at a price of US$396
per ordinary share should NGP become insolvent, enter a creditors process,
issue shares without Lender approval or following 20 business days of a
C&I Maiden Project event of default, fail to implement a written request
by a Lender to sell the assets of the C&I Maiden Project ("Material
Default Conversion").
o Material Default Conversion would equate to the Lenders holding 95% of the
then issued share capital of NGP in aggregate.
o NGP has the right to repay the Bridge Loan at any time before a Material
Default Conversion is completed.
In December 2021 US$650,000 drawdown plus 30% coupon was repaid to lenders.
Finance cost recognised for the period in relation to the Directors' Bridge
Loan was US$150,000 (2020: US$nil).
16. Derivative financial liability
2021 2020
US$'000 US$'000
Warrants 15 759
15 759
Warrants
The fair value of the warrants on the grant date and reporting date were
determined using the Black-Scholes Model and based on the following
assumption:
Year ended 31 December 2021
Share Price (£) 0.03 0.03 0.06 0.045 0.075
Number issued 20,000,000 2,166,666 21,666,666 833,333 8,333,334
Expected volatility 76% 75% 75% 75% 75%
Options life (years) 1.5 2 2 1 1
Expiring date 10.03.23 29.05.2022 29.05.2022 08.12.2021 08.12.2021
Expected dividends 0 0 0 0 0
Risk free rate 0.47% 0.74% 0.74% 0.25% 0.25%
2021
US$'000
FV at 1 January 2021 - 89,486 528,337 22,763 118,834 759,420
FV at recognition 94,152 - - - - 94,152
Revaluation (79,483) (89,414) (528,331) - - (697,228)
Expired in the period - - - (22,763) (118,834) (141,597)
FV at period end 14,669 72 6 - - 14,747
Year ended 31 December 2020
Share Price (£) 0.0625 0.03 0.06 0.045 0.075
Number issued 1,520,000 2,166,666 21,666,666 833,333 8,333,334
Expected volatility 90% 75% 75% 75% 75%
Options life (years) 2 2 2 1 1
Expiring date 10.06.2020 29.05.2022 29.05.2022 08.12.2021 08.12.2021
Expected dividends 0 0 0 0 0
Risk free rate 0.74% 0.74% 0.74% 0.25% 0.25%
2020
US$'000
FV at 1 January 2020 30,135 - - - - 30,135
FV at recognition - 39,953 220,081 15,983 77,602 353,619
Revaluation - 49,533 308,256 6,780 41,232 405,801
Expired in the period (30,135) - - - - (30,135)
FV at period end - 89,486 528,337 22,763 118,834 759,420
The warrants are classified at fair value through profit and loss as the
functional currency of the Company is US$ and the exercise price is set in
GBP. The remaining total fair value of expired warrants are derecognised
through the profit and loss.
On initial recognition the value of the warrants is deducted from the share
capital balance. Subsequent changes in the fair value of the warrants are
recognised through profit or loss.
During the period 833,333 warrants at a subscription price of 4.5p and
8,333,334 warrants at a subscription price of 7.5p issued in December 2020
expired. The remaining total fair value of US$141,597 was derecognised through
the profit and loss.
On 26 August 2021 2,000,000 warrants at a subscription price of 1.5p per share
were issued to the Company's brokers this has been transferred to share based
payment during the year. The 20,000,000 warrants at a subscription price of
3.0p per share were issued to investors. The warrants have an exercise period
of eighteen months from 10 September 2021, the date the new shares were
admitted to trading on AIM.
The warrants have been deemed to be Level 2 liabilities under the fair value
hierarchy.
17. Share capital
Number of shares 2021 2020
Allotted, called up and fully paid
Ordinary shares of no-par value 410,714,119 366,361,716
Shares Share
Issued capital
Number US$'000
At 1 January 2020 366,361,716 94,137
Issue of shares 40,000,000 830
Issue of shares (creditors & bonuses) 4,352,403 210
Issue costs - (168)
At 31 December 2021 410,714,119 95,009
Shares Share
Issued Capital
Number US$'000
At 1 January 2020 324,993,717 92,660
Issue of shares 40,799,999 1,910
Issue of shares (exercised share awards) 568,000 56
Issue costs - (138)
Warrants issued - (351)
At 31 December 2020 366,361,716 94,137
18. Reserves
The following describes the nature and purpose of each reserve within owners'
equity.
Share capital Amount subscribed for share capital, net of costs of issue
Retained earnings Cumulative net gains and losses less distributions made, together with
share-based payment equity increases
19. Share-based payments
Share awards are granted to employees and Directors on a discretionary basis
and the Remuneration Committee will decide whether to make share awards under
the LTIP or unapproved share option scheme at any time.
Long term incentive plan and unapproved share option scheme
Outstanding at start of year Exercised during the year Lapsed/ Outstanding
Exercise price per share Grant cancelled during at year end
date Granted during the year the year Final exercise
date
2021
17.25p (26.3c) 26.04.13 150,000 - - - 150,000 25.04.23
Nil** 25.05.18 75,000 - - - 75,000 31.01.24
5p (6.7c)** 25.05.18 2,790,779 - - - 2,790,779 25.05.28
8.625p (11.5c)* 25.05.18 1,625,000 - - - 1,625,000 05.02.25
6.25p (8.4c)* 25.05.18 4,000,000 - - - 4,000,000 25.05.28
7.5p (10c)** 25.05.18 5,581,558 - - - 5,581,558 25.05.28
10p (13.4c)** 25.05.18 2,790,779 - - - 2,790,779 25.05.28
15p (20.1c)** 25.05.18 2,790,779 - - - 2,790,779 25.05.28
6.5p (8.4c)** 26.11.19 7,833,332 - - - 7,833,332 26.11.29
3p (3.96c)** 12.11.20 5,000,000 - - - 5,000,000 11.11.23
5p (6.61c)** 12.11.20 2,500,000 - - - 2,500,000 11.11.23
7.5p (9.91c)** 12.11.20 2,500,000 - - - 2,500,000 11.11.23
Total 37,637,227 - - - 37,637,227
WAEP (cents) 9.32 - - - 9.32
Outstanding at start of year Exercised during the year Lapsed/ Outstanding
Exercise price per share Grant cancelled during at year end
date Granted during the year the year Final exercise
date
2020
Nil 27.05.10 2,400,000 - - (2,400,000) - 26.05.20
25c 27.05.10 800,000 - - (800,000) - 26.05.20
17.25p (26.3c) 26.04.13 150,000 - - - 150,000 25.04.23
Nil 31.01.14 225,000 - - (225,000) - 30.06.20
Nil* 25.05.18 868,627 - (868,000) (627) - 24.05.28
Nil** 25.05.18 75,000 - - - 75,000 31.01.24
5p (6.7c)** 25.05.18 2,790,779 - - - 2,790,779 25.05.28
8.625p (11.5c)* 25.05.18 1,625,000 - - - 1,625,000 05.02.25
6.25p (8.4c)* 25.05.18 4,000,000 - - - 4,000,000 25.05.28
7.5p (10c)** 25.05.18 5,581,558 - - - 5,581,558 25.05.28
10p (13.4c)** 25.05.18 2,790,779 - - - 2,790,779 25.05.28
15p (20.1c)** 25.05.18 2,790,779 - - - 2,790,779 25.05.28
6.5p (8.4c)** 26.11.19 7,833,332 - - - 7,833,332 26.11.29
3p (3.96c)** 12.11.20 - 5,000,000 - - 5,000,000 11.11.23
5p (6.61c)** 12.11.20 - 2,500,000 - - 2,500,000 11.11.23
7.5p (9.91c)** 12.11.20 - 2,500,000 - - 2,500,000 11.11.23
Total 31,930,854 10,000,000 (868,000) (3,425,627) 37,637,227
WAEP (cents) 9.71 6.11 - - 9.32
* Vest on grant date
** Vest upon delivery of specific milestones
The Company's mid-market closing share price at 31 December 2021 was 0.95p (31
December 2020: 5.50p). The highest and lowest mid-market closing share prices
during the year were 6.10p (2020: 6.05p) and 0.775p (2020: 2.85p)
respectively.
Of the total number of options outstanding at year end no options had vested
during the period (2020: 12,294,058). The weighted average exercise price
for the exercisable options at year end was 10.31p (2020: 8.79p).
The weighted average contractual life of the options outstanding at the
year-end was five years and four months (2020: six years and four months).
The fair value of the share awards granted under the Group's unapproved share
option scheme has been calculated using the Black-Scholes model and spread
over the vesting period. The following principal assumptions were used in
the valuation in the current and prior year:
Grant date Share price at date of grant Exercise price per share Period likely to exercise over
Risk-free investment rate Fair value
Volatility
25.05.18 5.50c (nil) 113.33% 5 years 0.7% 5.50c
25.05.18 5.50c 11.54c(8.625p) 113.33% 5 years 0.7% 4.30c
25.05.18 5.50c 6.69c(5p) 113.33% 5 years 0.7% 4.46c
25.05.18 5.50c 10.04c(7.5p) 113.33% 5 years 0.7% 4.40c
25.05.18 5.50c 13.38c(10p) 113.33% 5 years 0.7% 4.20c
25.05.18 5.50c 20.07c(15p) 113.33% 5 years 0.7% 4.00c
25.05.18 5.50c 8.36c(6.25p) 113.33% 5 years 0.7% 4.50c
26.11.19 6.70c 8.37c(6.50p) 113.51% 5 years 0.6% 5.20c
12.11.20 4.95c 3.96c(3p) 77.00% 3 years 0.18% 2.72c
12.11.20 4.95c 6.61c(5p) 77.00% 3 years 0.18% 2.09c
12.11.20 4.95c 9.91c(7.50p) 77.00% 3 years 0.18% 1.60c
The volatility rates have been calculated using analysis of historic Company
share price volatility.
Based on the above fair values, the expense arising from equity-settled share
options made to Directors and consultants was US$0.5 million for the year
(2020: US$0.3 million including Directors and consultants).
20. Segmental analysis
In 2020 and 2021 the Group had the following reportable segments, following
the C&I project acquisition:
· C&I solar PV and battery storage project - this segment is
involved in providing solar PV and battery storage solutions for the African
C&I sector to replace existing off-grid (normally diesel) power supplies,
or to supplement on-grid connections
· Power Project and Mine Project - this segment is involved in the
exploration for coal and development of coal mine and the development of a
300MW integrated power plant next to the Group's coal mine concession areas in
Mozambique
· Corporate - this comprises head office
operations and the provision of services to Group companies
Operating segments are reported in a manner consistent with the internal
reporting provided to the chief
operating decision-maker. The chief operating decision-maker has been
identified as the Board of Directors.
The operating results of each of these segments are regularly reviewed by the
Group's chief operating decision-maker in order to make decisions about the
allocation of resources and assess their performance. The Group's mine and
power activities are interrelated and each activity is dependent on
the other. Accordingly, all significant operating decisions are based upon
analysis of the mine and power activities as one segment and corporate as one
segment.
The segment results for the year ended 31 December 2021 are as follows:
Income statement for continuing operations
Solar PV & Battery Storage Power & Mine
project project Group
US$'000 US$'000 Corporate US$'000
US$'000
For the year ended 31 December 2021
Segment result after allocation of central costs (512) (352) (1,195) (2,059)
Finance income (150) - 362 212
Loss before taxation (662) (352) (833) (1,847)
Taxation - - - -
Loss for the year (662) (352) (833) (1,847)
Income statement for discontinued operations
Solar PV & Battery Storage Power & Mine
project project Group
US$'000 US$'000 Corporate US$'000
US$'000
For the year ended 31 December 2021
Segment result after allocation of central costs 138 - - 138
Finance expenses - - - -
Loss before taxation - - - -
Taxation - - - -
Gain for the year 138 - - 138
Other segment items included in the Income statement are as follows:
Income statement for continuing and discontinued operations
Solar PV & Battery Storage Power & Mine project Group
project US$'000 US$'000
US$'000 Corporate
US$'000
For the year ended 31 December 2021
Depreciation charged to the income statement - (67) - (67)
Share-based payment - - (529) (529)
The segment assets and liabilities at 31 December 2021 and capital expenditure
for the year then ended are as follows:
Statement of financial position for continuing operations Group
Solar PV & Battery Storage Power & Mine project US$'000
project US$'000
US$'000 Corporate
US$'000
At 31 December 2021
Segment assets 754 18,221 631 19,606
Segment liabilities (1) (217) (5,653) (5,871)
Segment net assets 753 18,004 (5,022) 13,735
Property plant and equip. capital expenditure 169 - 169
-
Statement of financial position for discontinued operations Solar PV & Battery Storage Group
project Power & Mine project US$'000
US$'000 US$'000
Corporate
US$'000
At 31 December 2021
Segment assets - - - -
Segment liabilities - - - -
Segment net assets - - - -
Property plant and equip. capital expenditure - - -
-
The segment results for the year ended 31 December 2020 are as follows:
Income statement Solar PV & Battery Storage Power & Mine
project project
US$'000 US$'000 Group
Corporate US$'000
US$'000
For the year ended 31 December 2020
Segment result after allocation of central costs (460) (496) (947) (1,903)
Finance expense - - (910) (910)
Loss before taxation (460) (496) (1,857) (2,813)
Taxation - - - -
Loss for the year (460) (496) (1,857) (2,813)
Other segment items included in the Income statement are as follows:
Income statement Solar PV & Battery Storage
project Power & Mine project Group
US$'000 US$'000 US$'000
Corporate
US$'000
For the year ended 31 December 2020
Depreciation charged to the income statement - (67) - (67)
Amortisation charged to the income statement (164) - - (164)
Share-based payment - - (292) (292)
The segment assets and liabilities at 31 December 2020 and capital expenditure
for the year then ended are as follows:
Statement of financial position Solar PV & Battery Storage Group
project Power & Mine project US$'000
US$'000 US$'000
Corporate
US$'000
At 31 December 2020
Segment assets 1,720 17,486 1,130 20,336
Segment liabilities (1) (216) (6,107) (6,324)
Segment net assets 1,719 17,270 (4,977) 14,012
Property plant and equip. capital expenditure 152 - 152
-
Intangible asset - - 35
expenditure
35
21. Reconciliation of liabilities arising from financing activities
Loans and borrowings Derivative financial liability Total
US$'000 US$'000 US$'000
At 1 January 2021 5,015 759 5,774
Interest charges 478 - 478
Derecognition of warrants - (141) (141)
Fair value of warrants issued - 94 94
Fair value movement on warrants - (697) (697)
At 31 December 2021 5,493 15 5,508
Loans and borrowings Derivative financial liability Total
US$'000 US$'000 US$'000
At 1 January 2020 4,234 30 4,264
Cash flows 250 - 250
Interest charges 531 - 531
Derecognition of warrants - (29) (29)
Fair value of warrants issued - 353 353
Fair value movement on warrants - 405 405
At 31 December 2020 5,015 759 5,774
22. Financial instruments
The Group is exposed to risks that arise from its use of financial
instruments. This note describes the Group's objectives, policies and
processes for managing those risks and the methods used to measure them.
Further quantitative information in respect of these risks is presented
throughout these financial statements.
The significant accounting policies regarding financial instruments are
disclosed in note 1.
There have been no substantive changes in the Group's objectives, policies and
processes for managing those risks or the methods used to measure them from
previous periods unless otherwise stated in this note.
Principal financial instruments
The principal financial instruments used by the Group from which financial
instrument risk arises, are as follows:
2021 2020
US$'000 US$'000
Loans and receivables at amortised cost
Trade and other receivables 46 46
Loan receivable - 665
Cash and cash equivalents 900 853
Financial liabilities held at amortised cost
Trade and other payables 363 550
Loans and borrowings 5,493 5,015
Financial liabilities at fair value through profit or loss
Derivative financial liability 15 759
For details of the fair value hierarchy and valuation techniques relating to
the determination of the fair value of the derivative financial liability,
refer to notes 2 and 16, respectively.
General objectives, policies and processes
The Board has overall responsibility for the determination of the Group's risk
management objectives and policies and retains ultimately responsibility for
them.
The overall objective of the Board is to set polices that seek to reduce risk
as far as possible without unduly affecting the Group's competitiveness and
flexibility. Further details regarding these policies are set out below:
Liquidity risk
Liquidity risk arises from the Group's management of working capital. It is
the risk that the Group will encounter difficulty in meeting its financial
obligations as they fall due.
The Board receives cash flow projections on a monthly basis as well as
information on cash balances.
Total Between 1 and 6 months Between 6 and 12 months Between 1 and 3 years
2021
on demand in 1 month
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other payables 363 - 144 - 219 -
Loans and borrowings 5,493 5,493 - - - -
Total Between 1 and 6 months Between 6 and 12 Between 1 and 3 years
2020 months
on demand in 1
month
US$'000 US$'000 US$'000 US$'000 US$'000 US$'000
Trade and other payables 550 - 331 - 219 -
Loans and borrowings 5,015 5,015 - - - -
The Group endeavours to match the maturity of its current assets with its
current liabilities to mitigate liquidity risk. Refer to note 1 for the
material uncertainty regarding going concern.
Borrowing facilities
The Group had US$nil undrawn and unconditional committed borrowing facilities
available at 31 December 2021 (2020: US$nil).
Market risk
The Group does not currently sell any coal or electricity. As such there is no
specific market risk at the date of this report. However, there is a risk that
the Group is unable to secure a credit worthy off-taker for the full output of
the power plant, with the plant operating at load factors in excess of 80%.
Currency risk
The Group is exposed to currency risk through its activities due to certain
costs arising in Mozambique Meticais and cash held in GBP, whilst the
functional currency is US$. The Group has no formal policy in respect of
foreign exchange risk; however, it reviews its currency exposures on a monthly
basis. Currency exposures relating to monetary assets held by foreign
operations are included within the Group's consolidated statement of profit or
loss. The Group also manages its currency exposure by retaining the majority
of its cash balances in US$, being a relatively stable currency.
A 5% appreciation in the value of the US$ against the Meticais and GBP would
increase net assets by US$4,943 (2020: US$26,950).
Currency exposures
As at 31 December the Group's net exposure to foreign exchange risk was as
follows:
2021 2020
US$'000 US$'000
Assets/(liabilities) held Assets/(liabilities) held
GBP ZAR MZN Total GBP ZAR MZN Total
US Dollars 143 - 46 189 435 - 37 472
143 - 46 189 435 - 37 472
The Group is exposed to foreign exchange risk arising from various currency
exposures primarily with respect to the Mozambican Meticais and GBP, but these
are not significant as most of the transactions are in US$.
23. Related party transactions
Parties are considered to be related if one party has the ability to control
the other party, is under common control, or can exercise significant
influence over the other party in making financial and operational decisions.
In considering each possible related party relationship, attention is directed
to the substance of the relationship, not merely the legal form.
In relation to the Shareholder Loan, the outstanding principal plus interest
amount up to 31 December 2021 of US$1.6 million (2020: US$1.5 million) related
to a Trust of which Non-Executive Chairman, Michael Haworth is a potential
beneficiary and US$0.16 million (2020: US$0.14 million), to Executive
Director, Hanno Pengilly.
In relation to the Bridge Loan, of the US$650,000 (principal plus interest)
repayment amount on 7 December 2021 US$65,000 relates to Non-Executive
Chairman, Michael Haworth, US$455,000 to Non-Executive Director, Scott
Fletcher and US$130,000 to Executive Director, Hanno Pengilly.
Refer to note 15 for details of the terms and conditions.
Hanno Pengilly - Executive Director of Ncondezi Energy Limited - Director of
Herne Capital (Pty) Ltd ("HCL")
During the year US$240,000 (2020: US$360,000) was paid by the Company to HCL
in respect of services provided by Hanno Pengilly.
HCL provides leadership on key corporate activities such as capital raising,
reporting and press releases and investor relations strategy.
Working Capital Facility
The US$750,000 working capital facility expired at the end of June 2020. In
total US$250,000 had been drawn down. The facility was provided by a company
owned by a trust of which CEO, Hanno Pengilly, is a potential beneficiary. At
the end of the period the loan had accumulated US$46,000 in interest. On 1
June 2022 the repayment date was extend to 30 June 2022, whilst restructuring
discussions are still being finalised.
Aman Sachdeva - Non-Executive Director of Ncondezi Energy Limited - CEO of
Synergy
During the year US$86,000 (2020: US$110,000) was paid by the Company to
Synergy in respect of services provided by Synergy. At 31 December 2021 the
outstanding balance was US$7,000 (2020: US$nil).
Scott Fletcher - Non-Executive Director of Ncondezi Energy Limited
During the year Scott Fletcher subscribed 3,333,333 Ordinary Shares in the
November 2021 Placing for a total of £50,000. Under the Share Placing a total
of 1,666,667 warrants were issued to Scott Fletcher. Details of the warrants
are contained in note 16.
The subsidiary MGP was sold for US$1,300,000 to Green Energy, a company
controlled by Scott Fletcher.
Details of Key Management Remuneration are contained in note 3.
24. Commitments
Social development programme
In December 2012 a Memorandum of Understanding was signed with the Mozambican
Ministry of Mineral Resources and Energy in respect of a Social Development
Programme, with a committed spend of US$2.0 million following an agreed
programme. By December 2016 half of this budget has been successfully spent in
various initiatives. During the year there was no expenditure related to
social development programmes (2020: US$nil). Further to an Addendum, the
program was postponed to be completed during the mining phase. In addition,
upon receiving the mining concession in 2013 a further US$5.0 million was
committed. The expenditure programme is still to be negotiated with the
Ministry of Mineral Resources and Energy.
Environmental licence fee
An environmental licence fee of 0.2% of the capital cost of construction is
payable before commencement
of construction.
EMEM 5% investment in NCCML
Along with the issuance of the Mining Concession, Ncondezi's local subsidiary
NCCML also concluded an Addendum to the Mine Framework Agreement ("MFA") with
Mozambican Ministry of Mineral Resources and Energy. Under the terms of the
Addendum to the MFA, it has been agreed that the Government owned Mozambican
Mining Exploration Company ("EMEM") will be granted a 5% free carry in the
share capital of NCCML up to the start of the Ncondezi mine's construction.
However, from the commencement of construction EMEM will be required to pay,
through an agreed funding mechanism, for its share of any future equity
funding obligations that may be required from the shareholders of NCCML
including its share of the construction and commissioning costs of bringing
the Ncondezi mine into commercial operation.
25. Events after the reporting date
Ncondezi Power Project
· CMEC confirms ongoing commitment to the Project January 2022 and
continues to lead the process to unlock Project financing
Grid Scale Solar Project
· Internal review and preliminary studies identify potential for a
grid scale solar plus battery storage power project at the Project site (the
"Solar Project") without compromising delivery of the main project
Working Capital
· Seritza has confirmed that it will extend the period in which it
will not call in the Working Capital Facility to 30 June 2022, whilst
restructuring discussions are still being finalised
· Cash conservation strategy implemented potentially extending
working capital runway from August 2022 to Q1 2023, depending on the
Restructuring outcome and Shareholder Loan
Corporate
· On 9 May 2022 Scott Fletcher purchased an aggregate of 5,000,000
Ordinary Shares of no par value. Following this transaction, Scott Fletcher's
beneficial interest in Ordinary Shares in the Company is 81,823,020 Ordinary
Shares, representing 19.9 per cent. of the Company's issued share capital.
Company Information
Directors
Michael Haworth (Non-Executive Chairman)
Scott Fletcher (Non-Executive Director)
Aman Sachdeva (Non-Executive Director)
Hanno Pengilly (Executive Director)
Company Secretary
Elysium Fund Management Limited
PO Box 650, 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
Joint
Broker
Novum Securities Ltd
Lansdowne House
57 Berkeley Square
London
W1J 6ER
Auditors
BDO LLP
55 Baker Street
London
W1U 7EU
Registrar
Computershare Investor Services (BVI) Limited
Woodbourne Hall
PO Box 3162
Road Town
Tortola
British Virgin Islands
Legal advisor to the Company
Ogier LLP
as to BVI
law
41 Lothbury
London
EC2R 7HF
Legal advisor to the Company
Bryan Cave Leighton Paisner LLP
as to English law
Governors House
5 Laurence Pountney Hill
London
EC4R 0BR
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