My position in NCCL is largely covered, in that the holding has been paid for by selling most of my initial position at levels higher than the share is today.
NCCL is not my normal type of holding and I admit was only initially bought as two friend’s of mine went on about it and I took a position to force myself to do the research to sensibly talk about it with them. One of them closed his position at circa 9p a while ago. The other is still committed.
NCCL is broadly a story stock. The story is this;
NCCL has a license to mine coal in Mozambique. (In reality this license is conditional on actually getting a mine going. Though it is to be expected that if NCCL was suitably progressed it would not lose its license. At some stage if NCCL isn’t making sufficient progress could lose the license). There is little doubt that there is sufficient coal deposits available to mine in the area covered in the license. It should be noted that NCCL will have to develop a mine to get the coal out, which whilst not impossible is certainly harder than just putting it on paper
Given where the mine would be, infrastructure and markets do not provide a great source of customers for this coal.
To get round this NCCL wants to turn the coal into power to sell to the Mozambique grid. To do this it needs to build a power plant (for which it now has a conditional license). However building a coal fired power plant is considerably harder than digging a mine.
It is also more costly so NCCL is looking for partners to fund the power plant and mine. Currently the two partners it is talking too are GE of the USA and CMEC of China. These are not the first partners it has talked too and previous “any day now” claims for a JDA (Joint Development Agreement) have not come to pass.
At the same time as it is negotiating a JDA to fund and split the profits of any project it is also negotiating with the Mozambique authorities to set the tariff rate for the supply of power to the national grid.
So we have a situation where NCCL is in reality probably the front runner to get this project up, running and started, but has only limited leverage. If Mozambique took the licenses for either the mine or power plant back and gave them to a local company there is little NCCL could do, but it is to be expected that it would cause other companies looking at Mozambique to be less willing to get involved. Equally if GE or CMEC dealt directly there is probably little NCCL could do but who would talk to GE or CMEC in the future. Before anyone says NCCL would be off to the lawyers bear in mind NCCL has very little cash, Mozambique is a sovereign state and CMEC will do what the Chinese government tells it to do..
Any business is worth its DCF. But what is the NCCL DCF? Given the tariff rate has not been agreed at best you can only model possible tariff solutions. As the JDA has yet to be agreed you can only model possible percentages that NCCL may end up getting of the possible tariff that might be applied. In the last few months the Mozambique government has made it clear it wants a lower tariff rate than NCCL initially planned it is unclear whether a JDA would be signed on all the partners getting less than first envisaged or whether GE and CMEC want a bigger part of the pie. In reality as this is a long term project in todays volatile market you would do well to have an accurate discount rate even if everything else was known. It does not take much to realise that anyone who says the share price should be x is throwing darts at the board.
Now I do believe that at a market cap of £18m should NCCL get this away they will be worth more than the current 6.3p.
I also note that management have said that substantive news on the JDA and presumably the tariff will be forthcoming in Q1 2019. (Both the tariff and JDA negotiations are interlinked. Mozambique only wants to set a tariff if it has confidence in the project going through. GE and CMEC only want to agree a JDA when they know what they can make money). But NCCL is the worst company I hold in delivering to the dates they themselves set.
To my mind NCCL isn’t an AIM rip off. GE, CMEC and the Mozambique government, as well as one or two of the longer term shareholders are genuine serious players. But for me this is an investment for froth money only, don’t cry if it disappears if the news in Q1 is wait until Q2. That said it is only fair to mention that whilst most of the holders who pop up on Twitter are imho only there to promote the stock and trade on movement there is a small group of serious investors who I respect and they have done their research and do believe in the company much more than I do. Though it is probably also fair to say that they have a higher risk profile than I do.