TIDMNCCL
RNS Number : 8595Q
Ncondezi Energy Limited
11 June 2018
News Release
Financial Model Update
11 June 2018: Following the announcement on 3 May 2018, Ncondezi
Energy Limited ("Ncondezi" or the "Company") (AIM: NCCL) is pleased
to provide an update on its process to conclude a binding Joint
Development Agreement ("JDA") for the Company's integrated 300MW
power and coal mine project in Tete Mozambique (the "Project").
Key Highlights:
-- Integrated financial model ("FM") accepted by potential
partners and the Company for submission to Electricidade de
Moçambique, EP ("EDM") and Ministry of Mineral Resources and Energy
("MIREME").
-- Represents a key milestone in confirming the Project
economics, re-starting tariff negotiations and completing the JDA
process.
-- Positive results from FM indicating Project economics can be
maintained with a more than 10%* reduction in the previously agreed
tariff envelope.
-- Revised tariff proposal strengthens commercial negotiating
position of the Project in Mozambique.
-- Significant potential financial benefits to Mozambique of
between US$ 1.1 to 1.4 billion* in tax receipts and royalties over
the life of the Project
-- FM results follow receipt and review of proposals for
engineering, procurement, and construction ("EPC") and operations
and maintenance ("O&M") proposals.
-- Company now preparing for submission of FM to Electricity de
Mozambique ("EDM") and Ministry of Mineral Resources and Energy
("MIREME") targeted for min-June 2018 to seek in principle support
for a new power tariff envelope thereafter.
-- Project is one of the most advanced coal fired project in
Mozambique with potential to deliver power onto the grid as soon as
2022.
*Further details of the key assumptions of the FM are detailed
below.
Ncondezi's Non-Executive Chairman, Michael Haworth, commented:
"The acceptance of the FM represents another significant milestone
towards finalising the JDA process and progressing the Project to
Financial Close. The Company is now able to propose an updated
tariff proposal that is more competitive and attractive than the
previously agreed tariff envelope whilst maintaining key Project
economics. These improvements have been made through alignment in
thinking between Ncondezi and its potential partners on how best to
deliver the Project and optimise where possible. The Company will
now focus on receiving support from EDM and MIREME on the new
proposed tariff envelope through the submission of the FM and
follow up meetings planned for June 2018."
Background
Since announcing the Non-Binding Offer ("NBO") on 9 November
2017, a key deliverable in the JDA process has been the updating of
the Project's financial model to finalise an updated tariff
proposal for EDM. The Company originally agreed a tariff envelope
in September 2014, but this since lapsed and needs to be
renegotiated. Key to the renegotiation process has been updating of
the FM with the latest information from the EPC and O&M
proposals as well as to present a new strategic partner who can
lead the financing, construction and operation of the project.
In January 2018, the Company secured in principle support from
EDM and MIREME for its proposed strategic partners. At the end of
April 2018, the Company received updated and complete EPC and
O&M proposals and began a process to review and update the FM.
The Company completed its review of the FM on 3 May 2018 and
submitted it to its potential partners for review and acceptance.
The Company's potential partners have now completed their review of
the FM and approved its submission to EDM and MIREME.
Financial Model Results Overview
The updated FM has been completed targeting a revised tariff
that the Company and its potential partners believe will be
attractive to EDM. Meetings with EDM in January 2018 indicated that
the historical tariff agreed was no longer competitive given
downward pressure in regional tariff rates and would need to be
revised down. Based on benchmarking of new and competing projects
in Mozambique and the southern African region, the Company and its
potential partners targeted a new tariff lower than the previously
agreed tariff envelope with EDM.
The specific tariff rate and target returns in the updated FM
are commercially sensitive and still to be negotiated with EDM. The
FM is based on the Project generating a gross 300MW at a target
tariff rate in excess of 10% lower than the tariff envelope
previously agreed with EDM, paid on an annual basis for 25
years.
With the lower tariff target, it was essential that improvements
were identified to protect the Project equity IRR agreed in the
previous tariff envelope. This was achieved primarily through the
choice of technology (moving from Pulverized Coal to Circulating
Fluidized-Bed boiler technology), integration of the power and mine
projects and optimisation of common infrastructure capex. Of key
importance was the ability to link boiler design to the most cost
effective coal product produced from the mine. This allows the
Project to minimise coal costs to the power plant which is achieved
through integration of a dedicated coal supply. Ncondezi is the
only power project in Mozambique with a dedicated coal fuel source
for in country power generation.
In addition to the lower proposed tariff envelope, the Project
is also expected to significantly benefit Mozambique through tax
receipts and royalties over the life of the Project which are
estimated to be between US$ 1.1 to 1.4 billion. This in addition to
local skills development and thousands of jobs during construction
and hundreds of jobs during operation, as well as the economic
multiplier effect of providing stable cost effective power to the
north of Mozambique.
The FM results highlighted in this RNS are not final and subject
to change based on a number of factors including the finalisation
of tariff negotiations with EDM, debt terms with commercial banks,
technical and operating assumptions and EPC and O&M
contracts.
Next Steps
The Company and its potential partners are now preparing the FM
for submission to MIREME and EDM in June 2018. The submission will
be followed by meetings in Mozambique to discuss the results of the
FM and receive support for negotiations around the new proposed
tariff envelope to proceed. These meetings are targeted between
mid-June to early July 2018.
The Company believes that the Project is one of the most
advanced coal fired project in Mozambique, and can deliver power
onto the grid as soon as 2022 if all the key agreements with MIREME
and EDM can be achieved over the next 12 to 18 months. Key
milestones achieved so far include:
-- Power plant and mine feasibility studies complete
-- Power Framework Agreement signed with MIREME
-- Mine Framework Agreement signed with MIREME
-- Power Purchase Agreement Heads of Terms ("HoTs") signed with EDM
-- Ownership structure HoTs signed with MIREME - confirms local participation at power plant
-- Coal Supply Agreement HoTs signed between power plant and mine companies
-- Social Development Plan signed with MIREME
-- Mining Concession granted with 4.7 billion tonne JORC resource
-- Approval of Mine and Power Plant environmental and social impact assessments
-- Land rights (DUATs) for Power Plant and supporting infrastructure granted
-- Servitudes granted for transmission line to connect in Mozambican grid
-- EPC and O&M proposals received from strategic partners
-- Power Purchase Agreement ("PPA") and Power Concession Agreement ("PCA") in advanced form
In addition, signing the NBO identified potential strategic
partners with the prerequisite experience in financing,
constructing and operating a power project of this nature and size,
a key deliverable for the approval of the PPA and PCA from MIREME
and EDM. This, in combination with the new proposed tariff envelope
puts the Company in a strong commercial negotiating position to
progress the Project and receive the targeted support from MIREME
and EDM.
This support is an essential milestone in finalising the JDA
process which is currently targeted for completion by the end of
July 2018.
There is no certainty that the transactions contemplated by this
announcement will occur.
Enquiries
For further information please visit www.ncondezienergy.com or
contact:
Ncondezi Energy: Hanno Pengilly +27 (0) 71 362 3566
Liberum Capital Limited: +44 (0) 20 3100
NOMAD & Joint Broker Neil Elliot / Richard Crawley 2000
Novum Securities
Limited: +44 (0) 20 7399
Joint Broker Colin Rowbury 9427
Note:
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation ("MAR"). Upon the publication of this
announcement via Regulatory Information Service ("RIS"), this
inside information is now considered to be in the public domain. If
you have any queries on this, then please contact Hanno Pengilly,
Chief Development Officer of the Company (responsible for arranging
release of this announcement) on +27 (0) 71 362 3566.
Ncondezi owns 100% of the Ncondezi Project which is
strategically located in the power generating hub of the country,
the Tete Province in northern Mozambique. The Company is developing
an integrated thermal coal mine and power plant in phases of 300MW
up to 1,800MW. The first 300MW phase is targeting domestic
consumption in Mozambique using reinforced existing transmission
capacity to meet current demand.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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