The broker, which has a ‘speculative buy’ rating and 13p price target on the AIM-listed company’s shares, said, however, that the short-term picture will be dominated by the 300Mw- coal-to-power project in Tete Province.
This project is critical for Mozambique’s power infrastructure, added the broker and the best case for investors is for Ncondezi to develop and exit the project to focus on solar.
A first solar project is scheduled to start generation in the third quarter of this year while there are now a further seven projects in the pipeline.
“The cost of solar is already highly attractive compared to off-grid diesel power, and with this cost expected to keep falling sharply we see customers moving increasingly to onsite off-grid generation,” the broker said in an initiation note.
There is sufficient coal in Ncondezi’s licence for a series of similar power stations, adds Canaccord, with export potential as well as Mozambique’s neighbours also chronically short of power but the plan is to build a 300 MW plant, supplied by 1.5mln tons of coal annually.
Achieving financial close on Ncondezi requires multiple steps, including tariff & PPA agreements, regulatory & permitting, and successful financing, but this is currently planned for the first half of 2021.
Loan finance is likely to come from Chinese lenders, supported by bilateral agreements with Mozambique.
“The successful financing of the major offshore gas fields in June 2019, followed by many smaller projects, has reopened project finance for Mozambique after a hiatus of several years and we believe the window is now open for projects to be funded. “
Ncondezi Energy will also need to raise further equity capital to develop its share of the core coal-to-power facility, said Canaccord.
Chinese contractor and engineer CMEC is the lead partner for the US$1.1bn project alongside technical partner GE.
“Those partners face a choice between shares at the Ncondezi parent level and shares at the project level; the additional value that the Ncondezi parent level brings is its relationships, its competence, and (most critically) its ability to raise further equity.”
The broker estimates the current value in Ncondezi is worth around 13p/share, which is based on a US$130mln fair value estimate for the power project once financial close is achieved.
Currently, Ncondezi shares stand at 4,15p, valuing the group at £13.5mln.
Published at Thu, 07 May 2020 13:24:00 +0000-Ncondezi Energy worth three times current valuation, suggests Canaccord