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Ncondezi awaiting outcome of solar-storage feasibility report

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Ncondezi Energy, [AIM:NCCL] the AIM-listed Mozambican power developer, released its annual report today (30th September)

Losses increased to USD743,000, up from losses of USD540,000 for 1H21. Cash in hand was USD0.4m as at 30th June 2022 compared to USD0.2m as at 26th September 2022. There is concern on project financing for its coal-powered power station as Chinese government announces it will not be funding any more new coal power projects abroad. The company is looking to branch out into solar power and has been renegotiating loans.

It’s been quite a journey for Ncondezi, which was founded in 2006 as a coal mining company in Tete Province, in the north of Mozambique. Operating in a volatile part of the world, Ncondezi developed its coal mining genesis into an energy play, proposing to use the coal it dug up as the feedstock for a 300MW power station. Ultimately, the plan was to ratchet up the power station to 1,800MW and help Mozambique become an energy supplier to its electricity-greedy neighbour, South Africa.

However, management must have missed the memo about the global push to decarbonisation, and the much-celebrated REIPPP (Renewable Energy Independent Power Producer Programme) that South Africa kicked off in 2011. Luckily for Ncondezi, government delays, corruption and red tape across the border have meant that in the last 12 years, only three projects under REIPP have hit financial close and Eskom, the South African state electricity company, is still load-shedding, as the parastatal hits a record low for electricity supply. Blackouts are still a fact of life for many in South Africa.

The popular load shedding tracking app, EskomSePush, revealed that South Africa had experienced 1,637 hours of national load-shedding over 68 days so far in 2022 – significantly higher than 1,153 hours over 48 days in 2021 and the 844 hours over 35 days in 2020.


Domestic demand

Notwithstanding the issues in Mozambique, where only 29% of the population has access to electricity despite Mozambique having the potential to become the Texas of Southern Africa with significant coal reserves, vast reserves of oil and gas, 12,500MW of hydro potential from 13 major river basins, abundant and unexploited solar resource and potential wind capacity of 4.5GW, Ncondezi Energy is still to establish its power station.

In fact the coal mine and power station have been tied up in red tape and bureaucracy for so long, and don’t seem to be progressing fast, that in July Ncondezi – probably as a result of melting in the sweltering heat of the waiting room for the CEO of state energy company Electricidade de Mocambique hoping to discuss tariffs and commissions, whilst the charge on their mobile phones leaked out – engaged WSP Group in July to prepare a feasibility study to develop a 300MW solar photovoltaic and battery energy storage system on top of the non-operational mine. The company expects the consultant to report back in October.

This news gave the share price a little boost, but since then it has flat-lined again. Presumably they tried to revive the company share price with a defibrillator but couldn’t find enough electricity to charge it up.

The company listed on 10th June 2010 and closed its first day of trading at 113.26p. The share price got to its absolute peak of 173.5p in January 2011. Since then, it has taken one direction and opened trading today at 1.24p dropping back to 1p by mid-morning trading. The shares have offered a year-to-date return of 21% and a one-year return of -27.4%, with the share price ranging from 0.4p to 1.95p over a 52-week period.

Ncondezi on paper

On paper, Ncondezi should be a valuable company. It’s coal mine alone has 120 million tonnes (mT) of minable thermal coal reserves, with a life-of-mine of 25 years and 1.5mT production a year. Open, surface mining means the capex will not be onerous. In total the mine is a 4.7 billion tonne resource. When combined with the 300MW power plant – in an energy-starved region – it should be fully-funded by the bankability of its coal supply agreement with the power plant. In fact, the mine has capacity to exceed the 300MW supply and could theoretically go to 600MW supply a year, maybe more, for the next 25 years.

The Power Plant again – on paper – is an amazing project (notwithstanding the global move away from coal as a power generation resource). With a guaranteed customer in the Government of Mozambique through a 25-year concession to Electricidade de Mocambique and the ability to scale up in 300MW units to supply the Southern Africa Power Pool it seems a slam-dunk.

Add to that the solar and storage project, and Ncondezi should be one of the most valuable companies in the Southern African Development Community.

However, on paper has not translated to on-the-ground. The company has spent the year restructuring expensive debt just to keep operating. In a statement last month, Ncondezi said: “The Company remains funded to October 2022”. The company has said it will begin mining next year. This isn’t the first time that it has said this, as the company continues to over-promise and under-deliver.

A lot hangs on the positivity, or otherwise, of the report into the solar and storage plan, and whether Ncondezi can re-earn investors’ and bankers’ trust in order to actually start doing something to in some way realise its great potential.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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