NCCL.L Regulatory News (NCCL)

News Release

Audited Final Results for Year Ended 31 December 2013

20 May 2014: Ncondezi Energy Limited ("Ncondezi" or the "Company") (AIM: NCCL) is pleased to announce its audited final results for the year ended 31 December 2013.

Project Highlights:

· Fully binding Power Framework Agreement with the Department of Energy

· Heads of Terms signed for:

- Power Purchase Agreement

- Coal Supply Agreement

- Transmission Agreement

- Power Plant Project Vehicle Ownership

· Mine Concession granted by Ministry of Mineral Resources

· Power Concession application submitted to Department of Energy

· Power Purchase Agreement submitted to EdM

· Co-developer update expected Q2 2014

Corporate Highlights

· £3 million raised via an Open Offer and Placing

· Board streamlined from nine to six Directors

· Funded to complete Power Purchase Agreement, Power Concession, Co-Developer and EPC work streams

· Cash balance US$5.1m, as at 30 April 2014

Paul Venter, Chief Executive Officer of Ncondezi commented:

"The Ncondezi Project gained significant momentum during 2013, as we achieved a number of key milestones with the signing of Heads of Terms on all key commercial agreements for power plant project and the receipt of our Mining Concession. This enabled the Power Framework Agreement, which sets out the timetable and requisite Government and Developer milestones to Project and Financial Close, to become binding.

This accelerated pace has continued in the first half of this year as we seek to conclude final negotiations on the Power Concession, the Power Purchase Agreement, the Coal Supply Agreement and the Co-Developer process. I look forward to updating shareholders in the coming months."

Enquiries:

For further information please visit www.ncondezienergy.com or contact:

Ncondezi Energy owns 100% of the Ncondezi Project which is strategically located in the power generating hub of the country, the Tete Province in northern Mozambique. The Company is developing an integrated thermal coal mine and power plant in phases of 300MW phases, up to 1,800MW. Commissioning is planned for 2017, followed by commercial operations in H1 2018. The first 300MW phase is targeting domestic consumption in Mozambique using reinforced existing transmission capacity to meet current demand.

Chairman's Statement

Dear Shareholder,

I am pleased to report that during 2013 Ncondezi made substantial progress in advancing its 300 megawatt ("MW") integrated thermal coal power plant and mine (the "Ncondezi Project" or "the Project"), near Tete in Northern Mozambique, towards commercialisation.

Following completion of the technical studies in 2012 and the decision to proceed with development of the Ncondezi Project, the team's priority for the year was on negotiating the framework for the key commercial, financial and legal parameters of the Ncondezi Project with the Mozambican Government and Electricidade de Mozambique ("EdM"), the state owned power utility company.

This was achieved in December 2013 when all conditions precedent to the Power Framework Agreement ("PFA") were fulfilled, just nine months after signing the PFA with the Mozambican Government. It is a tremendous achievement and, importantly, also a formal endorsement of the Ncondezi Project by the Mozambican Government.

The Ncondezi Project has now been included in the country's electrification and power generation strategy, with 100% of the Project's initial 300MW gross output expected to be supplied to EdM. This will provide a significant boost to the Northern Grid, one of Mozambique's fastest growing energy demand regions.

In order for the Power Framework Agreement to become binding, we signed a number of Heads of Terms agreements and have now agreed the key parameters for the Project. This includes confirmation that EdM will be the power plant's exclusive purchaser of electricity through a commercial tariff structure. In addition, binding Heads of Terms were signed for the power plant project vehicle which provides for an agreed Government and local participation mechanism, the final details of which are expected be negotiated during 2014. This stands us in good stead as we enter the final round of negotiations to turn the Heads of Agreements into binding commercial agreements during Q2 2014. We continue to target Project Close by the end of Q4 2014, in order to start construction of the power plant during 2015, with commissioning expected in H2 2017 and commercial operations in H1 2018.

Turning to the Ncondezi mine, following the publication of the Mine Definitive Feasibility Study ("DFS") in December 2012 which contemplated a large scale mine producing both export and domestic grade products, the emphasis over the past year has been on optimising the development of a smaller open pit mining operation, initially focused on supplying the first 300MW power plant.

A 300MW power plant requires approximately 1.5 million tonnes per annum ("Mtpa") of domestic grade thermal coal feedstock. During the year we completed an in-fill drilling programme in the South Pit area, where we intend to commence mining operations, and confirmed that we have more than sufficient coal resources to supply the power plant for in excess of 25 years, with a measured JORC resource of 120 million tonnes ("Mt"). The open pit mining operation will be operated and managed by a contractor for which we have received final binding quotes during Q1 2014. Mining operations are anticipated to commence in 2017.

The engineering, procurement and construction ("EPC") tender process for the power plant has progressed well. We commenced the search for an EPC firm in March 2013 and received strong expressions of interest from 15 firms, including large, well known multinationals, to provide a turnkey power plant solution. A short-list of firms were invited to a binding tender process in October 2013 and final bids were received in early 2014.

These bids are now being reviewed in consultation with STEAG, one of our project advisers, and the winning bid is expected to be announced during H2 2014. Whilst the terms of the bids are commercially sensitive and confidential, initial evaluation has confirmed that the power plant's capital costs and build times are in line with expectations we have previously announced to the market, and project financing between 70% - 85% of the EPC contract price should be achievable.

We believe the Project's economics are attractive, targeting a nominal equity 18%-20% IRR based on annual revenues of over US$200 million and average EBITDA margins of over 50%. This would give the power plant an estimated NPV of over US$200 million at Financial Close and estimated net equity cash flows of more than US$2 billion over the life of the power plant, based on a conservative debt to equity ratio of 70:30 and a nominal post tax WACC of 12%.

Between 15% - 30% of the 300MW Project's funding is expected to be financed with equity and Ncondezi is examining various options to minimise its equity contribution. As is market practice in emerging market power station development, the Company is seeking a co-developer to fund the Ncondezi Project to Financial Close and potentially through construction. Discussions are underway with potential co-developers and we hope to conclude these discussions in Q2 2014.

In November 2013, we raised approximately £3 million from current and new shareholders via an Open Offer and Placing and the current cash balance of the Group was US$5.1m, as at 30 April 2014. The Company is funded to complete the PPA, Power Concession, Co-developer and EPC work streams, which are targeted for Q2 2014.

With the business now focused solely on power generation, shareholders approved the Company's name to Ncondezi Energy. During the second half of the year, the Board was further strengthened with the appointment of Jacek Glowacki as a Non-Executive Director, bringing with him over 30 years of international experience in the power sector. The final restructuring of the Board to re-orientate it to power generation was completed in early 2014. I would like to take this opportunity to thank Messrs Richard Stuart, Graham Mascall, Mark Trevan and Nigel Sutherland for guiding Ncondezi through its early years as a coal exploration company.

Ncondezi enters 2014 well placed to deliver the final binding commercial and legal agreements, targeted during Q2 2014, which are required to move the Ncondezi Project into the final stage of development, project financing. The project economics are robust and offer a potential co-developer an attractive entry point into the Mozambican power generation sector. Whilst we remain focused on commercialising the first phase of the project, with a 300MW power plant, the scalability of the power plant to ultimately 1,800MW, underpins the attractiveness of our project to large, international independent power producers looking to build an energy platform in southern Africa. The team has established a strong working relationship with both the Mozambican government and EdM, and it is a testament to their hard work and dedication that we accomplished so much during 2013, and start 2014 with such solid momentum.

Michael Haworth

Chairman

Operations Review

The Ncondezi Project gained significant momentum during 2013. Heads of Terms were negotiated on all key commercial agreements for both the mine and the power plant and a number of permitting milestones were achieved. This resulted in the Company successfully completing the conditions precedent required for the Power Framework Agreement ("PFA"), signed with the Government of Mozambique, by the end of the year. The PFA sets out the agreed pathway, timetable and requisite milestones that Government and Ncondezi need to deliver in order to reach Project and Financial Close.

The 300MW Project

Ncondezi is focused on the phased development of an integrated thermal coal fired power plant and mine, commencing with 300MW as Phase 1. The Project is located near Tete in Northern Mozambique. Technical studies on both the power plant and the mine have been optimised and updated during 2013, further enhancing the viability and economic attractiveness of the Project.

Life of Mine Fuel Supply

During the year, Ncondezi completed an additional infill drilling programme over the planned open pit mining area within the South Block that has been identified as the most economical to supply coal to the power plant. The drilling of 33 core and 3 large diameter boreholes was focused on further increasing the drill density and upgrading the JORC Indicated Resources into a Measured category.

A Measured Resource of 120 million mineable tonnage in situ ("MTIS") has been classified by the Company's geological consultant, the Mineral Corporation Consultancy (Pty) Ltd, in the South Block in accordance with the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the "JORC Code").

This resource will be more than sufficient to provide the 300MW power plant with enough coal for 25 years plus a 40% contingency.

In October 2013, the Ncondezi mine and power plant signed an arm's length Heads of Terms for the Coal Supply Agreement that will govern the 25 year coal supply offtake agreement. The binding Coal Supply Agreement is expected to be finalised in Q2 2014.

The Ncondezi Open Pit Mine

The Ncondezi mine will be an open pit, truck and shovel, contractor mining operation with an estimated 24 month construction period. The timing of the mine's construction and commissioning will be determined by the ramp up and steady state requirements of the power plant. Ncondezi currently expects to commission the mine in H2 2017 to meet the power plant's coal feed requirements.

The optimised mine Feasibility Study (the "Mine FS") was completed in Q4 2013 and confirmed the technical and economic viability of the South Mine as a dedicated supplier of coal feedstock to the power plant over a 25 year Life of Mine ("LoM"), with contingency to supply up to 40 years LoM.

The optimal mining area identified within the South Block, covering an area of 200 hectares, has been named the South Mine. The mine is targeting an average annual production of 1.5Mt of domestic grade coal, with an average strip ratio of 0.61 BCM/tonne and an average yield of 92%, over the LoM, as most of the raw coal does not require washing.

The mine operating cost over the LoM is expected to be between US$15 to US$20 per saleable tonne of coal, based on contractor quotes and benchmarking. Operating costs include mining contractor cost (which includes fuel, labour, maintenance, consumable costs and stay-in-business capital related to mining), utilities (i.e. power and water), CHPP operating cost (which includes consumables, labour, maintenance etc) and any other overhead costs incurred during the life of the operation.

In early 2014, Ncondezi launched a formal tender process for the mining contractor; an update on this process is expected in Q2 2014.

Mine Permitting

During 2013, Ncondezi successfully achieved two important permitting milestones for the mine. In August 2013, the Company received its Mining Concession from the Mozambican Ministry of Mineral Resources. The Mining Concession grants Ncondezi, amongst others, the exclusive right over 25 years to mine and exploit the Ncondezi coal deposit until 2038. In October 2013, the Ministry for Coordination of Environmental Action ("MICOA") approved the Environmental Social Impact Assessment ("ESIA") for the Ncondezi mine. Ncondezi will now commence the application process for an environmental permit.

The issuance of the Mining Concession marks an important and significant step forward for the Ncondezi Project as it secures the coal fuel supply for the power project, as well as fulfilled one of the key conditions precedents to the Power Framework Agreement.

Along with the issuance of the Mining Concession, Ncondezi's local subsidiary NCCM Lda also concluded an Addendum to Mine Framework Agreement ("MFA") with Mozambican Ministry of Mineral Resources ("MIREM"). 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 NCCM Lda 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 NCCM Lda including its share of the construction and commissioning costs of bringing the Ncondezi Mine into commercial operation. In addition, Ncondezi will spend a minimum of US$5million on social development programmes to be developed for the Ncondezi Project over the life of the project.

Securing Power Offtake

In October 2013, EdM, the state owned utility company, confirmed it would be the exclusive purchaser of 100% of the power plant's net supply with the signing of the Power Purchase Agreement Heads of Terms ("PPA HoTs").

The PPA HoTs sets out the key principles for the sale and purchase of electricity and ancillary services between EdM and Ncondezi, as well as the construction and transfer of a transmission line to connect the power plant to the Northern Grid in Mozambique.

As well as agreeing that EdM will be the exclusive buyer of the electricity from the Ncondezi Project for a 25 year period from the date of commercial operation, which is being targeted in H1 2018, the PPA HoTs also confirmed that the commercial tariff composition will cover fixed, capacity, energy and ancillary service payments for the power plant, and will be include appropriate indexation.

Formal negotiations to turn the Heads of Terms into a binding Power Purchase Agreement commenced in Q1 2014, following Ncondezi's submission of a draft PPA to EdM. A Final Form PPA is expected to be concluded in H2 2014.

Power Plant EPC Process

During the year, the power plant engineering, procurement and construction ("EPC") process got underway. Following a strong initial expression of interest from 15 international firms, Ncondezi short-listed seven bidders to submit a fixed price lump sum turnkey contract for the engineering, procurement, construction and commissioning of two 150MW power plant boiler units using Circulating Fluidised Bed ("CFB") technology. Four bids were received in Q1 2014 and Ncondezi is currently assessing each bid and the associated project funding package. Final negotiations with the preferred bidders will take place during Q2 2014 and the winning EPC bidder is expected to be announced in H2 2014.

Robust Power Plant Project Economics

Indicative non-binding bids from EPC contractors, received in June 2013 before the final tender round, confirmed the Company's projected economics for the power plant. Estimated annual revenues will be over US$200 million per annum with average EBITDA margins over 50%. A nominal equity IRR of between 18%-20% is being targeted by Ncondezi, which the Directors believe will give an estimated power plant NPV at Financial Close of in excess of US$200 million and estimated net equity cash flows of in excess of US$2 billion over the life of the power plant. These estimates are based on a debt to equity ratio of 70:30 and a nominal post tax WACC of 12%.

Sourcing Development Capital

In September 2013, Ncondezi appointed KPMG LLP ("KPMG") as its Project Financial Adviser to assist Ncondezi with sourcing development funding and finalisation of the Project's structure and the commercial agreements leading up to and including a bankable Power Purchase Agreement.

One of the options being considered for development funding is a co-developer, who jointly invests in the Ncondezi Project to fund the Company to Financial Close. This process started in late 2013 and is currently underway. The Company expects to update shareholders further during Q2 2014.

Ncondezi also expects to have local participation in the power plant and has signed a Power Plant Project Vehicle Ownership Binding Heads of Terms ("PPPV HoTs") with the Government of Mozambique, represented by the Ministry of Energy. Under the terms of the PPPV HoTs, the State's nominated investor, which is expected to be Electricidade de Moçambique ("EdM"), will have a base participation of 5% in the share capital of the PPPV, to be funded via a financing mechanism to be agreed with Ncondezi. EdM will also have an option to acquire an additional 10% equity in the PPPV on commercial terms, exercisable up to Financial Close of the power plant. Ncondezi will endeavour to promote participation in the PPPV by a Mozambican strategic investor on commercial terms and foreign strategic investors will be allowed to participate in the PPPV on commercial terms.

Power Plant Permitting

In November 2013, Ncondezi received approval for the power plant ESIA from the Ministry for Coordination of Environmental Action ("MICOA"). Ncondezi will now commence the application process for an environmental permit.

In early 2014, the Company submitted its Power Concession application to the Department of Energy and negotiations are underway. The Company is targeting 2014 for formal receipt of the Power Concession, which will form part of the Power Purchase Agreement.

Transmission

Ncondezi requires a new c.90km high voltage line to connect the power plant to the Northern Grid. This transmission line will be built under a "Build, Operate, Transfer" formula included in the transmission line Heads of Terms, which were agreed in late Q4 2013. The transmission line EPC process will be commencing shortly. Post construction and commissioning of the transmission connection to the Northern Grid, Ncondezi will transfer ownership to EdM for consideration of either a lump sum payment, fixed monthly instalments or a combination of both.

The transmission ESIA is well advanced and Ncondezi is targeting submission to MICOA and public consultation in H2 2014, following a minor revision to the transmission route in order to minimise village relocations.

Expansion Potential

One of the strengths of the Ncondezi Project is its scalability up to 1,800MW. The power plant has been designed to be developed in modules of 300MW. Such is the strong demand for power in Mozambique, once the first phase of the power plant is operational, it is expected that work on the development of Phase 2 will commence shortly thereafter. It is this expansion potential which has attracted the large, international players in the power generation sector to the Project, both as potential strategic investors as well as possible EPC contractors.

Results from operations

The Group made a loss after tax for the year of US$6.8m compared to a loss of US$8.6m for the previous financial year. The basic loss per share for the year was 5.6 cents (2012: 7.1 cents).

Administrative expenses totalled US$6.7m (2012: US$8.6m). This included a share based payments charge of US$0.4m (2012: US$1.3m).

Financial Position

The Group's statement of financial position at 31 December 2013 and comparatives at 31 December 2012 are summarised below:

The movement in non-current assets of US$4.2m was largely due to US$4.2m additions arising on continued development of Ncondezi Mining and Power Projects reduced by a depreciation charge for the year of US$0.4m, and an increase ofUS$0.4m in restricted cash balance. The decrease in current assets of US$6.0m is attributable to a decrease in cash and cash equivalents.

Cash Flows

The net cash outflow from operating activities for the year was US$5.2m (2012: US$8.6m).

Net cash used in investing activities was US$4.6m (2012: US$9.7m), including US$4.2 on development activities (2012: US$14.2m) incurred on the Ncondezi Project, and the transfer of US$0.4m to restricted cash.

The resulting year end cash and cash equivalents held totalled US$6.7m (2012: US$12.0m).

Outlook

The Directors have reviewed future cash forecasts, with particular reference to minimum expenditure requirements on the licences and the intended work programme for the Ncondezi Project for 2014, which is focused on advancing negotiations on the key commercial agreements.

The Group has sufficient funds to complete the PPA, Power Concession, Co-developer and EPC work streams, which are targeted for Q2 2014. These are key work streams that will materially advance the development of the Ncondezi Project.

The Directors are in negotiations with a number of parties in respect of raising further funds to continue with the development programme for the Ncondezi Project. If a transaction with a potential Co-developer is concluded as currently targeted in 2014 the Group will have sufficient funds to continue with a full development programme for the Ncondezi Project. Whilst progress is being made on a number of potential transactions that would provide additional financing, at present there are no binding agreements in place. In the event that further funding is not secured the Group will implement its cost reduction strategy to ensure that it has sufficient funds to continue its activities on a reduced basis through to the end of H1 2015.

Based on the current progress of negotiations with potential providers of finance and discussions with potential investors, the Directors believe that the necessary funds to provide adequate financing to continue the power plant development programme will be raised as required. Accordingly they are confident that the Group will continue as a going concern and have prepared the financial statements on that basis.

Manish Kotecha

Chief Financial Officer 

Resource summary

Overall Project Resources (February 2013)

Notes:

Indicated resources were defined within areas where the spacing of boreholes with raw coal quality data is approximately 500 metres. Extrapolation of these areas was limited to approximately 250 metres

Inferred resources were defined within areas where the spacing of boreholes with raw coal quality data is approximately 2 000 metres. Extrapolation of these areas was limited to approximately 1 000 metres

GTIS (Gross Tonnage in situ) figures represent the entire classified resource for the block, below the observed limit of weathering, with application of a 0.5 metre minimum ply thickness cut-off, but no depth restriction

TTIS (Total Tonnes in situ) figures for high and low volatile coals were calculated from the GTIS tonnage by applying Geological Losses. The losses applied were generally 10% for Indicated resources and 15% for Inferred resources. In the Central Block, these were increased to 15% and 20% respectively

MTIS (Mineable Tonnes in situ) figures represent that part of the TTIS which exists above a depth of 250m

All qualities are quoted on an air-dried-basis. IM=Inherent Moisture, AS=Ash Yield, VM=Volatile Matter Content, FC=Fixed Carbon, CV=Calorific Value, TS=Total Sulphur.

Product yields are theoretical yields for +0.5mm material derived from slim core samples

RDs were weighted against MTIS coal volume to obtain average resource RDs

Raw qualities and product yields were weighted against MTIS tonnage to obtain average yields

Product qualities were weighted against wash yield and MTIS tonnage to obtain average resource qualities

"Low Volatile" coals have been devolatilised by igneous intrusions. Studies by Ncondezi indicate that these coals are suitable for power generation

Low volatile coals are not common in the Central, West and River Blocks and have been excluded from resources

The Central, North, South and East Block models comprise detailed ply models suitable for mine planning purposes. The West and River Block models utilise a cumulative coal thickness methodology that is appropriate only to the classification of Inferred Resources

As hydrological studies have not yet been finalised, no allowance has been made for potential sterilisation of resources below the limits of the Ncondezi or Revuboe Rivers' flood lines. This could affect resources in the Central, North, West and River Blocks

Certain amounts of averaged 'control' data were included in the quality database, particularly wash analyses of low volatile coal samples

South Block Measured Resource (November 2013) (The Measured Resources are a subset of the Indicated and Inferred Resources reported in February 3013)

Notes:

Measured Resources were defined within an area where the spacing of boreholes with raw coal quality data is approximately 250m. Extrapolation of

this area was limited to 125 metres beyond the outermost qualifying boreholes.

GTIS (gross tonnage in situ) figures represent the entire Measured Resource below the observed limit of weathering and with application of

a 0.5m minimum ply thickness cut-off.

TTIS (total tonnage in situ) figures were calculated from the GTIS tonnage by applying Geological Losses of 7.5%.

MTIS (mineable tonnage in situ) figures represent that part of the TTIS which exists above a depth of 250m. As all the Measured Resource

is shallower than 120m, the TTIS in this case equals the MTIS.

A raw ash yield limit of 70% was generally applied at the time of ply definition and correlation.

All qualities are quoted on an air-dried-basis. IM=Inherent Moisture, AS=Ash Yield, VM=Volatile Matter Content, FC=Fixed Carbon, CV=Calorific Value, TS=Total Sulphur.

Product yields are theoretical yields for +0.5mm material derived from slim core samples.

Ply thicknesses were weighted against TTIS/MTIS coal seam area to obtain average resource ply thicknesses.

Relative Densities (RD) were weighted against TTIS/MTIS coal volume to obtain average resource RDs.

Raw qualities and product yields were weighted against TTIS/MTIS tonnage to obtain average yields.

The 16.12MJ/kg CV target product specification was provided by Ncondezi.

Product qualities were weighted against wash yield and TTIS/MTIS tonnage to obtain average product qualities.

Low-mid volatile coals have been devolatilised by igneous intrusions. A Pre-feasibility study by Hugh Brown and Associates indicates that these are suitable for power generation.

The coal volatile category was determined using raw coal volatile contents on a dry, ash-free basis and adjustment factors related to the raw ash yield of the coal.

Certain amounts of averaged 'control' data were included in the quality database, where adequate analytical data did not exist in pre-2013 boreholes.

Based on the relative distribution of coal plies, partings and dolerite sills, and the coal ply qualities, the mining package will likely generally comprise plies A18 to A44,

with plies A46 and A48 taken at the top where possible. Sub-totals have therefore been supplied for ply groupings A02-A16 and A18-A48.

Competent Person's statement

The information in this Annual Report that relates to coal resources is based on information compiled by Mark C Stewardson and Gavin Andrews of Mineral Corporation Consultancy (Pty) Limited. Both Mr Stewardson and Mr Andrews are Competent Persons who are registered as Professional Natural Scientists in the field of Geological Science with the South African Council for Natural Scientific Professions, a Recognised Professional Organisation included in a list that is posted on the ASX website from time to time. Neither Mineral Corporation Consultancy (Pty) Limited nor any of its Directors, staff or sub-consultants who contributed to this resource estimation has any material interest in Ncondezi or in the assets under consideration.

Both Mr Stewardson and Mr Andrews have sufficient experience that is relevant to the type of coal deposit under consideration and to the activity being undertaken to qualify as Competent Persons as defined in the 2012 Edition of the Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (the JORC Code). Mr Stewardson and Mr Andrews consent to the inclusion in this Annual Report of the information based on their work in the form and context in which it appears.

The JORC Code sets out minimum standards, recommendations and guidelines for Public Reporting of Exploration Results, Mineral Resources and Ore Reserves. The information contained in this release has been presented in accordance with the JORC Code and references to "Measured" Resources are relevant to that term as defined in the JORC Code.

A Competent Person's Consent Form is held on record by Ncondezi. 

The Project Resource report was compiled in accordance with the 2004 version of the JORC Code and that the Measured Resource report was compiled in accordance with the 2012 version of the JORC Code.

The references for the supporting reports to the resource estimations are:

· The Mineral Corporation, February 2013: Coal Resource Estimates for Licences 804L and 805L, Tete Province, Mozambique; and

· The Mineral Corporation, November 2013: Measured Coal Resource Estimate for South Block, Ncondezi Project, Tete Province, Mozambique.

Environmental and Social Responsibility

Ncondezi Social Development Programme

Ncondezi's corporate social responsibility ("CSR") policy has been designed to promote social development projects that facilitate sustainable development and focus on community involvement. Ncondezi adheres to the Equator Principles, the IFC performance standards and to Mozambican legislative requirements.

In 2012, Ncondezi formalised its CSR policy with the signing of a three year Social Development Programme ("SDP") with the Government of Mozambique. The SDP is being implemented as a public-private partnership between the Company, the local communities in the Moatize District and the Government.

In 2013, the highlight of the SDP was the agricultural project. The objective of the project is to train and educate the local community in all aspects of plant management and animal husbandry. In September 2013, a group of 10 candidates were selected from various village communities in the area and sent to Zimbabwe for a week's course on the concept of conservation farming. Once back in Mozambique, each student will then share this knowledge in their respective villages.

In parallel to this, Ncondezi also planted various crops incorporating different varieties as a demonstration exercise. Ncondezi cleared a 10 hectare block of land in the Catabua 2 area adjacent to the Ncondezi River. This was fenced off to protect the crops from local animal damage. Within the fenced area 20 plots were demarcated and allocated to the local community together with seed and fertilizer. The trials carried out at the plot adjacent to the camp using compost and no compost was very successful in illustrating the advantages of good crop nutrition.

The first poultry house has been completed and the first batch of broilers will be purchased in 2014. These will be fed on maize reaped and ground from Ncondezi crops.

Alongside the agricultural project, Ncondezi also sponsored the following activities:

Potable Water Boreholes

Potable water boreholes were drilled and developed at 10 sites within the Ncondezi Project's area of influence, giving villages and settlements access to potable water.

Tertiary Education

Four students were granted bursaries during 2013 to study in Portugal. Two of them completed their Masters degrees in Geology with distinction at the University of Coimbra, the remaining two students completed the first year of their Masters degree in Mining Engineering and are currently in their second and final year.

Clinic at Mameme

During the year, refurbishment of the Medical Clinic at Mameme, close to the Ncondezi Project, was completed and a Maternity wing added. The project was undertaken by the Moatize Administration with financial support from Ncondezi.

Ambulance for Ncondezi Ceta

A 4x4 ambulance was purchased to assist villagers in remoter areas within the project area get to the local clinic.

Directors' Biographies

Michael Haworth / Non-Executive Chairman

Michael Haworth is a Non-Executive Director of Zanaga Iron Ore Company Limited and is a director of Strata Limited ("Strata"), a major shareholder of the Company.

Mr Haworth has over 16 years' investment banking experience, predominantly in emerging markets and natural resources. Prior to establishing Strata in 2006, Mr Haworth was a Managing Director at J.P. Morgan and Head of Mining and Metals Corporate Finance in London.

Paul Venter / Chief Executive Officer (appointed 26 April 2013)

Paul Venter joined the Company as Chief Operating Officer in June 2012 and has been responsible for delivering the Company's power strategy. Mr Venter has over 39 years' experience across Africa, Mongolia, China and Russia in the mining, power generation and transport industries.

During his recent tenure as Vice President - Energy Operations at Prophecy Coal Corp, a TSX listed company, he was instrumental in the successful commissioning of the Ulaan Ovoo coal mine in Mongolia into production within six months after the acquisition of the asset. He also played a pivotal role in the development phases of the first coal fired Independent Power Producer in Mongolia.

Prior to this, Mr Venter held a number of senior positions within the coal industry, including Managing Director of EN+ Group's coal mining activities in Russia and senior executive positions in the coal divisions of Eskom, Gencor and Anglo American in South Africa.

Peter O'Connor / Independent Non-Executive Director (appointed 4 February 2013)

Mr O'Connor has over 20 years' experience in the power sector, working for Eskom, the South African electricity public utility which is the largest producer of electricity in Africa, an importer of electricity from Mozambique and is among the top seven utilities in the world in terms of generation capacity and among the top nine in terms of sales.

Most recently he was Senior General Manager of the Capital Expansion Division, which was responsible for the EPCM of all the company's generation and transmission expansion projects, as well as the construction of a 1050MW gas power station, which was built in record time. Prior to this, he held senior management positions in the Generation Division, where he successfully increased plant availability from 78% to 93% and at the Transmission Division, where he was responsible for the network delivery, network expansion and system operations. He gained operational experience as the manager of Kriel, Arnot and Kendal power stations. He holds a degree in mechanical engineering and is a patent lawyer.

Estevão Pale / Independent Non-Executive Director

Estevão Pale has more than 30 years' experience in the mining industry. He is the Chief Executive Officer of Companhia Moçambicana de Hidrocarbonetos, S.A., a Mozambican natural gas company, where he negotiates sales agreements for natural gas and condensate as well as dealing with junior and senior lenders of the company. Between 1996 and 2005, he was the National Director of Mines in the Ministry of Mineral Resources and Energy, where he was responsible for the supervision and control of mineral activities in Mozambique and the formulation and implementation of the mining and geological policy approved by the Government of Mozambique.

Mr Pale has been a director of numerous companies in the mining sector including Promaco SARL and the Mining Development Company, as well as the General Director and Chief Executive of Minas Gerais de Moçambique. Mr Pale has a postgraduate diploma in Mining Engineering from the Camborne School of Mines in Cornwall and a Masters degree in Financial Economics from the University of London (SOAS). He completed a course in Gas Business Management in Boston at the Institute of Human Resources Development Corporation in 2006.

Christiaan Schutte / Independent Non-Executive Director (appointed 4 February 2013)

Christiaan Schutte's career in the power sector spans over 20 years during which time he worked for Eskom, the South African electricity public utility which is the largest producer of electricity in Africa, and held a number of senior management positions.

Most recently he was Senior General Manager of the Group Technology Division and responsible for all the engineering functions at Eskom, including design accountability for new power stations, transmission lines and distribution development. Prior to this he was Senior General Manger of the Generation Division, managing five power stations with over 18,000MW total installed capacity, an operational budget of 3.8 billion Rand and a capital budget just under 4 billion Rand. Operational experience was gained at Majuba power station, which he also integrated into a single cluster operation, and Kendal power station. He holds a degree in mechanical engineering as well as an MBL from Unisa.

Jacek Glowacki Non-Executive Director (appointed 28 October 2013)

Jacek Glowacki has over 30 years of international experience in the power sector and is currently Chief Executive Officer and Chairman of the Board of Polenergia Group, a Polish Independent Power Producer and a subsidiary of Kulczyk Investments S.A., a major shareholder in Ncondezi.

During his career, he has held senior executive positions at Kulczyk Investments, AEI Corporation (USA), Trakya Elektrik (Turkey) and Prisma Energy Europe. Mr Glowacki's operating experience includes General Manager of Nowa Sarzyna, which was owned by ENRON and Chief Production Engineer at Cracow Combined Heat and Power Plant, owned by EDF. He holds a degree in engineering from the University of Mining and Metallurgy in Cracow and an MBA from the University of Chicago.

Directors' Report

The Directors present their Annual Report and the audited group financial statements headed by Ncondezi Energy Limited for the year ended 31 December 2013.

On 29 July 2013 the parent company heading the Group changed its name from Ncondezi Coal Company Limited to Ncondezi Energy Limited.

Principal activities

The principal activity of the Group is the development of an integrated open pit mine and 300MW power plant to produce and supply electricity to the Mozambican domestic market.

Business review and future developments

Details of the Group's business and expected future developments are set out in the Chairman's Statement, the Review of Operations 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.

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 note 16.

Key performance indicators

The key performance indicators of the Group are as follows:

Results and dividends

The Directors do not recommend payment of a dividend for the year (2012: Nil). The loss will be transferred to reserves.

Events after the reporting date

See note 21 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 16 of the financial statements.

Directors and Directors' interests

Michael Haworth and Richard Stuart are directors of Strata Limited, which beneficially owns 54,289,641 Ordinary Shares, or 29.9 per cent of the Company's issued shares.

Jacek Glowacki is a director of Polenergia Group, a subsidiary of Kulczyk Investments S.A. which holds 20,754,161 ordinary shares, or 11.4 per cent of the Company's issued shares.

Annual General Meeting

Resolutions will be proposed at the forthcoming Annual General Meeting, as set out in the Formal Notice.

In accordance with the Company's Articles of Association one third of the Directors are required to retire by rotation. Accordingly, Estevão Pale and Michael Haworth will offer themselves for re-election at the forthcoming Annual General Meeting of the Company. The Company's Articles of Association also require any Director appointed to the Board during the financial year to retire and stand for re-election at the annual general meeting following appointment. Accordingly Mr Glowacki will also retire and stand for re-election.

Corporate Governance

The Company's compliance with the principles of corporate governance is explained in the corporate governance statement.

Ordinary Share Capital

The Company's Ordinary Shares of no par value represent 100% of its total share capital. At a meeting of the Company every member present in person or by proxy shall have one vote for every Ordinary Share of which he is the holder. Holders of Ordinary Shares are entitled to receive dividends.

On a winding-up or other return of capital, holders are entitled to share in any surplus assets pro rata to the amount paid up on their Ordinary Shares. The shares are not redeemable at the option of either the Company or the holder. There are no restrictions on the transfer of shares.

Disclosure of information to auditors

So far as each Director at the date of approval of this report is aware, there is no relevant audit information of which the Company's auditors are unaware and each Director has taken all steps that he ought to have taken to make himself aware of any relevant audit information and to establish that the auditors are aware of that information.

Auditors

BDO LLP have expressed their willingness to continue in office as auditors, and a resolution to reappoint them will be proposed at the Annual General Meeting.

By order of the Board

Elysium Fund Management Limited

Company Secretary

19 May 2014

Risk Factors

Corporate Governance Statement

The Company, which is listed on AIM, is not formally required to comply with the UK Corporate Governance Code (the "UK Corporate Governance Code"), which applies to companies which are fully listed on the London Stock Exchange. However, the Board has given consideration to the provisions set out in Section 1 of the UK Corporate Governance Code. The Directors support the objectives of this code and intend to comply with those aspects which they consider relevant to the Group's size and circumstances.

Details of the key areas relating to the UK Corporate Governance Code are set out below. A statement of the Directors' responsibilities in respect of the financial statements is set out below. 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

The Board currently comprises a Non-Executive Chairman, (Michael Haworth), one Executive Director (Paul Venter) and four further Non-Executive Directors (Jacek Glowacki, Peter O'Connor, Estevão Pale and Christiaan Schutte).

The Board considers that, Peter O'Connor, Estevão Pale and Christiaan Schutte are independent of management and free from any business or other relationships which could materially interfere with the exercise of their independent judgement.

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 properly constituted audit and remuneration committees of the Board with formally delegated duties and responsibilities.

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.

A Relationship Agreement was executed on 3 June 2010 between the Company and Strata Limited ("Strata") in order to manage inter alia potential conflicts of interest in respect of Directors nominated by Strata. Under the terms of this agreement Strata, has the right to nominate up to one Director to the Board of the Company, and has nominated Michael Haworth.

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.

Ethical standards

The Board has not adopted a formal code of conduct however as part of the Board's commitment to the highest standard of conduct, the Board will consider adopting a code of conduct to guide executives, management and employees in carrying out their duties and responsibilities. The code of conduct will cover such matters as:

· responsibilities to shareholders

· compliance with laws and regulations

· relations with customers and suppliers

· ethical responsibilities

· employment practices

· responsibility to the environment and the community.

Bribery Act

It is our policy to conduct all of our business in an honest and ethical manner. We take a zero-tolerance approach to bribery and corruption and are committed to acting professionally, fairly and with integrity in all our business dealings and relationships wherever we operate, implementing and enforcing effective systems to counter bribery.

We will uphold all laws relevant to countering bribery and corruption in all the jurisdictions in which we operate and remain bound by the laws of the UK, including the Bribery Act 2010, in respect of our conduct both at home and abroad.

Board meetings

Board meetings are held on average every quarter. Decisions concerning the direction and control of the business are made by the Board.

Generally, the powers and obligations of the Board are governed by the Company's Memorandum and Articles and the BVI Business Companies Act 2004, as amended and the other laws of the jurisdictions in which it operates. The Board is responsible, inter alia, for setting and monitoring Group strategy, reviewing trading performance, ensuring adequate funding, examining major acquisition opportunities, formulating policy on key issues and reporting to the shareholders.

The Audit Committee

The Audit Committee comprises Peter O'Connor (Committee Chairman) and Michael Haworth.

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 Remuneration Committee

The Remuneration Committee comprises Christiaan Schutte (Committee Chairman) and Michael Haworth during the year.

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.

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 Executive Director 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 AIM in a timely manner.

All information disclosed on AIM 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

· 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.

Report of the Remuneration Committee

The Remuneration Committee (the 'Committee') comprises Christiaan Schutte (Committee Chairman) 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 a 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. During the year it was agreed to cancel and/or lapse prior unexercised share awards in respect of 2,762,500 ordinary shares, with varying exercise prices between 59p and 143p, of this 325,000 related to Directors. As at 31 December 2013 the following awards remained in place:

Grant of Share Awards

On 26 April 2013, 4,300,000 share options, with an exercise price of 17.25p and exercisable within three years of vesting, were granted to senior management and contracted personnel, of which 500,000 options vest as at the date of grant, 1,875,000 options are subject to milestone based vesting conditions ("Milestone Based Awards") and 1,925,000 options are subject to time based vesting conditions ("Time Based Awards"). Simultaneously it was agreed to cancel and/or lapse prior unexercised share awards in respect of 2,762,500 ordinary shares, with varying exercise prices between 59p and 143p.

The Milestone Based Awards provide that 1/3 of the Milestone Based Awards vest upon the successful conclusion with an offtaker of Heads of Terms for a Power Purchase Agreement and the other 2/3 of the Milestone Based Awards are to vest upon the execution of a Power Purchase Agreement for all or part of the first 300MW phase of the Ncondezi Project.

The Time Based Awards provide that the share options vest in two equal tranches on the first and second anniversary from the date of grant.

Directors' Options

Paul Venter was granted 450,000 share options which are Milestone Based Awards and 550,000

share options which are Time Based Awards.

375,000 share options have been granted to certain Directors (see table above). Messrs Michael Haworth (Chairman), Richard Stuart (Non-Executive Director) who resigned on 28 October 2013 and Graham Mascall (Non-Executive Director) who resigned on 14 February 2014 have all waived any new share option awards.

These share options vest in two equal tranches on the first and second anniversary from the date of grant.

Grant of Share Awards

On 31 January 2014, 5,700,000 share options were issued to the Company's executive senior management team and contracted personnel. Of the total share options granted, 3,375,000 options have been awarded in lieu of an annual bonus payment for 2013 and vest on the date of grant; 2,250,000 with a zero strike price and 1,125,000 at an exercise price of 6.5p per share. The remaining 2,325,000 options will vest, subject to achieving Financial Close of the Company's 300MW Power Plant Project, at an exercise price of 6.5p per share.

Directors' Options

On 31 January 2014, Paul Venter was granted 1,125,000 share options that vest on the date of grant at a zero exercise price. In addition Mr Venter was granted share options in respect of a further 1,125,000 shares that vest subject to Financial Close at an exercise price of 6.5p per share.

Following the above restructuring of the Company's share incentive scheme, the newly issued and

unexercised share awards will jointly represent 8.71% of the Company's current issued share capital.

Directors' service agreements

None of the Directors have a service contract which is terminable on greater than one year's notice.

Non-Executive Directors' fees

The Company has adopted a standard level of fees for Non-Executive directors of £40,000 per annum, and £70,000 for the Chairman. The current Chairman has waived all fees.

Directors' remuneration

The following table sets out an analysis of the pre-tax remuneration for the year ended 31 December 2013 for individual directors who held office in the Company during the period.

1. This includes US$5,389 (2012: US$63,214) paid to Mines Value Management for services provided by Nigel Sutherland. Resigned 14 February 2014

2. Resigned 4 February 2013

3. Resigned 14 February 2014

4. Resigned 28 October 2013

5. Resigned 25 February 2013

*settled with 1,125,000 share options issued on 30 January 2014 (note 14)

On behalf of the Remuneration Committee

Christiaan Schutte

Remuneration Committee Chairman

19 May 2014

Statement of Directors' responsibilities

The Directors are responsible for preparing the Directors' report and the financial statements for the Group. The Directors have prepared the financial statements for each financial year which present fairly the state of affairs of the Group and of the profit or loss of the Group for that year.

The Directors have chosen to use the International Financial Reporting Standards (IFRS) as adopted by the European Union in preparing the Group's financial statements.

The Directors are responsible for keeping proper accounting records which disclose with reasonable

accuracy at any time the financial position of the Group, for safeguarding the assets, for taking reasonable steps for the prevention and detection of fraud and other irregularities and for the preparation of financial statements.

International Accounting Standards require that financial statements present fairly for each financial year the company's financial position, financial performance and cash flows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the definitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board's 'Framework for the preparation and presentation of financial statements'.

In virtually all circumstances a fair presentation will be achieved by compliance with all applicable International Financial Reporting Standards. The Directors are also required to prepare financial statements in accordance with the rules of the London Stock Exchange for companies trading securities on the Alternative Investment Market.

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 is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance;

· state that the Group has complied with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business.

The Directors are responsible for ensuring the annual report and the financial statements are made

available on a website. In addition to being mailed to shareholders, financial statements are published on the company's website in accordance with legislation in the United Kingdom governing the preparation and dissemination of financial statements, which may vary from legislation in other jurisdictions. The maintenance and integrity of the Company's website is the responsibility of the Directors. The Directors' responsibility also extends to the on-going integrity of the financial statements contained therein.

Independent audit report to the member of Ncondezi Energy Limited

Report on financial statements

We have audited the financial statements of Ncondezi Energy Limited (formerly Ncondezi Coal Company Limited) for the year ended 31 December 2013 which comprise the consolidated statement of profit or loss, 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 the related notes. The financial reporting framework that has been applied in their preparation is International Financial Reporting Standards (IFRS) as adopted by the European Union.

This report is made solely to the Company's Directors, as a body in accordance with our engagement letter dated 22 January 2014. Our audit work has been undertaken so that we might state to the Company's Directors 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 Company and the Company's Directors as a body, for our audit work, for this report, or for the opinions we have formed.

Directors' responsibility for the financial statements

As explained more fully in the statement of Directors' responsibilities, the Directors are responsible for the preparation and fair presentation of the financial statements in accordance with IFRS as adopted by the European Union 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.

Auditor's responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing (as issued by the International Federation of Accountants (IFAC)). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit includes performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgement, including the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the entity's preparation and fair presentation of financial statements in order to design appropriate audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion on financial statements

In our opinion:

· the financial statements present fairly, in all material respects the state of the Group's affairs and its financial position as at 31 December 2013 and of its financial performance and its cash flows for the year then ended; and

· have been prepared in accordance with IFRS as adopted by the European Union.

Emphasis of matter - going concern

In forming our opinion on the financial statements, which is not modified, we have considered the adequacy of the disclosure made in note 1 to the financial statements concerning the Group's ability to continue as a going concern which is dependent on the Group's ability to raise further funds through debt or new equity placing. The Directors believe that the Group will secure the necessary funds. While the Directors are continuing funding negotiations with certain third parties there are currently no binding agreements in place. These conditions together with the other matters referred to in note 1 indicate the existence of a material uncertainty which may cast significant doubt over the Group's ability to continue as a going concern. The financial statements do not include any adjustments that would result if the Group was unable to continue as a going concern.

Opinion on other matters

We read the other information contained in annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises the Directors' report. In our opinion the information given in the Directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements.

BDO LLP

Chartered Accountants

55 Baker Street

London W1U 7EU

United Kingdom

19 May 2014

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

Consolidated statement of profit or lossfor the year ended 31 December 2013

Consolidated statement of profit or loss and other comprehensive income

for the year ended 31 December 2013

*items that may be reclassified to profit or loss

Consolidated statement of financial positionas at 31 December 2013

The financial statements were approved and authorised for issue by the Board of Directors on 19 May 2014 and were signed on its behalf by:

Paul Venter

Chief Executive Officer

Consolidated statement of changes in equityfor the year ended 31 December 2013

Consolidated statement of cash flowsfor the year ended 31 December 2013

Notes to the consolidated financial statements

1. Principal accounting policies

General

The Company is a limited liability company incorporated on 30 March 2006 in the British Virgin Islands. The address of its registered office is 2nd floor, Wickham's Cay II, PO Box 2221, Road Town, Tortola, British Virgin Islands. 

Going concern

In the absence of production revenues, the Group is dependent upon its existing cash resources and its ability to raise additional financing through equity raisings in order to progress with the development of the Ncondezi Project.

The Group has sufficient funds to complete the PPA, Power Concession, Co-developer and EPC work streams, which are targeted for Q2 2014. These are key work streams that will materially advance the development of the Ncondezi Project.

The Directors are in negotiations with a number of parties in respect of raising further funds to continue with the development programme for the Ncondezi Project. If a transaction with a potential Co-developer is concluded as currently targeted in 2014 the Group will have sufficient funds to continue with a full development programme for the Ncondezi Project. Whilst progress is being made on a number of potential transactions that would provide additional financing, at present there are no binding agreements in place. In the event that further funding is not secured the Group will implement its cost reduction strategy to ensure that it has sufficient funds to continue its activities on a reduced basis through to the end of H1 2015.

Based on the current progress of negotiations with potential providers of finance and discussions with potential investors, the Directors believe that the necessary funds to provide adequate financing to continue the development programme for the Ncondezi Project will be raised as required. Accordingly they are confident that the Group will continue as a going concern and have prepared the financial statements on that basis.

Should the Group be unable to raise the necessary finance, it may be unable to realise its assets and discharge its liabilities in the normal course of business.

These conditions indicate the existence of a material uncertainty that may cast significant doubt over 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 not able to continue as a going concern.

As at 31 December 2013 the Group's cash and cash equivalent stood at US$6.8m. The Group intends to operate within its cash resources.

Basis of preparation

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below. The policies have been consistently applied to all the years presented, unless otherwise stated.

These financial statements have been prepared in accordance with International Financial Reporting Standards, International Accounting Standards and Interpretations (collectively "IFRS") issued by the International Accounting Standards Board ("IASB") as adopted by the European Union ("adopted IFRS").

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and factors that are believed to be reasonable under the circumstances, the results of which form the basis of making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The areas involving a higher degree of judgment or complexity, or where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 2.

The Group financial information is presented in United States dollars (US$) and values are rounded to the nearest thousand dollars (US$'000).

Loss from operations is stated after charging and crediting all operating items excluding finance income and expenses.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period or in the period of revision and future periods if the revision affects both current and future periods.

Adoption of new and revised accounting standards

In 2013, several amended standards and interpretations became effective. The adoption of these standards and interpretations has not had a material impact on the financial statements of the Group.

At the date of authorisation of these financial statements, the following standards and relevant interpretations, which have not been applied in these financial statements, were in issue but not yet effective (*and some of which were pending endorsement by the EU):

The Group is yet to assess the full impact of adoption of IFRS 9 and intends to adopt the standard when it has been endorsed by the EU.

Adoption of the other standards in future periods is not expected to have a material impact on the financial statements of the Group.

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss from the effective date of acquisition or up to the effective date of disposal, as appropriate. 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.

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.

If, after the vesting date, fully vested options are forfeited or not exercised the previously recognised share based payment charge is not reversed.

Property, plant and equipment

Property, plant and equipment are stated at cost on acquisition less depreciation. Depreciation is provided on a straight-line basis at rates calculated to write off the cost less the estimated residual value of each asset over its expected useful economic life. The residual value is the estimated amount that would currently be obtained from disposal of the asset if the asset were already of the age and in the condition expected at the end of its useful life.

The annual rate of depreciation for each class of depreciable asset is:

Plant and equipment 25%

Other 20%-33%

Buildings 10%

The carrying value of property plant and equipment is assessed annually and any impairment is charged to the profit or loss.

Power project costs

Power project expenditure is expensed until it is probable that future economic benefits associated with the project will flow to the Group and the cost of the project can be measured reliably. When it is probable that future economic benefits will flow to the Group, all costs associated with the developing the 300MW power project are capitalised as Power Project expenditure within property, plant and equipment category of tangible non-current assets. The capitalised expenditure includes appropriate technical and administrative expenses but not general overheads. Power project assets are not depreciated until after the start of commercial operation.

Exploration and evaluation assets

Exploration and evaluation assets include all costs associated with exploring and evaluating prospects within licence areas, including the initial acquisition of the licence are capitalised on a project-by-project basis. Costs incurred include appropriate technical and administrative expenses but not general overheads. Where a licence is relinquished, a project is abandoned, or is considered to be of no further commercial value to the Group, the related costs will be written off.

The recoverability of exploration and evaluation assets is dependent upon the discovery of economically recoverable reserves, the ability of the Group to obtain necessary financing to complete the development of reserves and future profitable production or proceeds from the disposition of recoverable reserves.

Mining assets

When the technical feasibility of the exploration project is determined, mining licence concession is obtained and a decision is made to proceed to development stage the related exploration and evaluation assets are 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 income statement 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 income statement 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.

Operating leases

Where substantially all of the risks and rewards incidental to ownership are not transferred to the Group (an 'operating lease') amounts payable under the lease are charged to the profit or loss on a straight-line basis over the lease term.

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, the Mozambican and Mauritian 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 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 income statement.

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 generally 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 income statement, 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.

Inventory

Inventories relate to fuel stocks and are valued at the lower of the average cost and net realisable value.

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 and as held to maturity or held for trading. Unless otherwise indicated, the carrying amounts of the Group's financial assets are a reasonable approximation of their fair values.

The Group's accounting policy for each category is as follows:

Loans and receivables

Loans and receivables (including trade receivables) are measured on initial recognition at fair value and subsequently measured at amortised cost using the effective interest rate method.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand, deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.

The Group assesses at each reporting date whether there is objective evidence that a financial asset or a group of financial assets is impaired.

Financial liabilities

The Group classifies its financial liabilities only as held at amortised cost.

Held at amortised cost

Financial liabilities including trade and other payables and borrowings 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.

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.

For the purposes of the disclosures given in note 12, the Company considers its capital to be total equity.

The Company is not subject to any externally imposed capital requirements.

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

(i) Impairment of exploration, evaluation and mining assets

In accordance with the accounting policy stated above, the Group tests exploration, evaluation and mining for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.

The recoverability of the amounts shown in the consolidated statement of financial position in relation to deferred exploration and evaluation expenditure are dependent upon the discovery of economically recoverable reserves, continuation of the Group's interest in the underlying mining claims, the political, economic and legislative stability of the regions in which the Group operates, compliance with the terms of the relevant mineral rights licences, the Group's ability to obtain the necessary financing to fulfil its obligations as they arise and upon future profitable production or proceeds from the disposal of properties.

(ii) Capitalisation of power project expenditure

The power plant costs are capitalised when it is probable that future economic benefits will flow to the Group. When determining the probability of the success of the power plant project Management have considered key milestones, risks and de-risking events and determined that it is more likely than not that the power plant will be developed.

The final outcome of the power plant development is dependent on a number of technical, financial and political factors; however Management assess these factors to have been suitably mitigated and de-risked.

(iii) Impairment of Power project assets

In accordance with the accounting policy stated above, the Group tests annually to see whether power project assets have suffered impairment.

The recoverability of the amounts shown in the consolidated statement of financial position in relation to power project assets are dependent upon the successful completion of a power purchase off take agreement, the political, economic and legislative stability of the region in which the plant is to operate, the Group's ability to obtain the necessary financing to fulfil its obligations as they arise and the future profitable electricity production or proceeds from the disposal of properties.

(iv) Fair value of share-based payments

The Group determines the fair value of equity-settled share-based payments, using valuation techniques and models which are significantly affected by the assumptions used. In that regard, the derived fair value estimates cannot always be substantiated by comparison with independent markets and, in many cases, may not be capable of being realised immediately. The methods and assumptions applied, and valuations models used are disclosed in notes 14.

Accounting estimates

(i) Provisions for liabilities

As a result of exploration activities the Group is required to make a provision for rehabilitation. The Group's exploration activities were largely completed during the year however, no further development work has taken place and as such no significant damage has been caused up to the reporting date.

(ii) Contingencies

By their nature, contingencies will only be resolved when one or more future events occur or fail to occur. The assessment of such contingencies inherently involves the exercise of significant judgement and estimates of the outcome of future events.

3. Administrative expenses

* The research expenses relate to an infrastructure study in respect of logistics options available for transportation and export of coal reserves as well as future projects. The positive charge in 2012 is a result of an over accrual in respect of the infrastructure study.

Auditors' remuneration

Staff costs (including Directors)

US$151,240 (2012: US$1,308,247) included within wages and salaries related to exploration and evaluation costs and have been capitalised to intangible assets (note 6).

The average monthly number of employees (including executive Directors) of the Group were:

Key management compensation:

Key management personnel are considered to be Directors and senior management of the Group.

4. Taxation

The Group entities subject to corporate income tax are Ncondezi Coal Company Mozambique Limitada which is subject to tax at the rate of 32% (2012: 32%) on its profits in Mozambique and Ncondezi Services (UK) Limited which is subject to tax at a rate of 23.25% (2012: 24.5%) on its profits in the UK. No tax charge/(credit) arose in the current or prior year for Ncondezi Coal Company Mozambique Limitada.

Tax payable for 2013 has been estimated at US$65,028 and has been reconciled to the expected tax charge based on the Group losses at the standard rate of taxation in the UK where the Group has generated taxable profits as follows:

During the exploration and development stages, the Group will accumulate tax losses which may be carried forward. As at 31 December 2013, no deferred tax asset has been recognised for tax losses of US$2,029,649 (2012: USD$1,442,000) 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$ 587,000 will be available until 31 December 2018, US$640,000 will be available until 31 December 2017, US$522,000 will be available until 31 December 2016, and US$280,000 will be available until 31 December 2015.

5. Loss per share

Basic loss per share is calculated by dividing the loss attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Due to the losses incurred during the year a diluted loss per share has not been calculated as this would serve to reduce the basic loss per share. There were 5,400,000 (2012: 2,387,500) share incentives outstanding at the end of the year that could potentially dilute basic earnings per share in the future. There were no potential ordinary shares outstanding in the year (2012: Nil).

6. Intangible assets

Mine exploration and evaluation costs relate to the initial acquisition of the licences and subsequent expenditure incurred in evaluating the Ncondezi mine project.

In December 2012 the Group completed a feasibility study of Ncondezi Mining project and following the grant of mine concession on 28 August 2013 the related exploration and evaluation costs have been transferred to property, plant and equipment. On transfer an impairment review was completed and no impairment has been made.

7. Property, plant and equipment