TIDMZIOC
RNS Number : 2297H
Zanaga Iron Ore Company Ltd
25 May 2011
25 May 2011
ZANAGA IRON ORE COMPANY LIMITED
("ZIOC" or the "Company")
AUDITED RESULTS FOR THE YEAR TO 31 DECEMBER 2010
Zanaga Iron Ore Company Limited (AIM:ZIOC) is pleased to
announce its audited results for the year ended 31 December 2010. A
full version of the Annual Report and Accounts for the year ended
31 December 2010 will be available on the Company's website
www.zanagairon.com today.
2010 Highlights
-- The Company listed on the London Stock Exchange's AIM Market
("AIM") on 18 November 2010, raising US$50m for ZIOC
-- Phase I of the Pre-Feasibility Study completed in June 2010.
Phase II of the Pre-Feasibility Study to be published in Q3 2011
simultaneously with the results of the Value Engineering Exercise.
In September 2010 Xstrata extended its first call option over 50%
plus one share interest in Jumelles Limited, the joint venture
vehicle which owns the Zanaga Project, for an agreed amount of up
to US$56.49m which was used to fund Phase II of the Pre-Feasibility
Study
-- In February 2011 - Xstrata exercised its first call option
and now owns 50% plus one share interest in Jumelles Limited. The
Zanaga Project is now managed by Xstrata, and Xstrata has agreed to
fund the completion of a feasibility study in accordance with
international best practice standards and Xstrata internal
guidelines
-- Mineral resource upgrade based on work completed as at 2010
year end:
o Resource increase to 4.0 Bt from 3.3 Bt
o Grade improvement to 33.9% Fe from 32.8% Fe
-- Cash balance of US$49m as at 2010 year end
Cliford Elphick, Non-Executive Chairman of Zanaga Iron Ore
Company Limited, commented:
"In addition to the strategic partnership with Xstrata, the
combination of a number of key strengths supports the Board's view
that the Zanaga Project represents a significant opportunity. Large
scale resources have been identified from targeted areas of the
Zanaga ore body that have the potential to sustain a high
production mine over the long-term. Exploration work to date has
indicated that the quality of the ore is characterised by a
shallow, soft and rippable haematitic itabirite cap which overlies
a magnetite banded iron formation or BIF protore which jointly
demonstrate production potential of iron ore product with low
deleterious elements. To date only 25 km of the known 47km strike
length of magnetic mineralisation has been drilled to define the
current mineral resource, leaving potential upside to expand
production and enhance value."
The Company will today send to shareholders the Annual Report
and Accounts for the year ended 31 December 2010 ("2010 Annual
Report and Accounts"), together with the Notice of Annual General
Meeting ("AGM") to be held at the Westbury Hotel, Bond Street,
Mayfair, London, W1S 2YF, England on 17 June 2011 at 09:30am (BST),
the form of proxy, and form of instruction for holders of
Depositary Interests for use at the AGM.
Copies of the 2010 Annual Report and Accounts and the Notice of
AGM will be available on the Company's website at
www.zanagairon.com today.
For further information please contact:
ZIOC
Corporate Development and Andrew Trahar
Investor Relations Manager +44 20 7399 1105
Liberum Capital Limited
Nominated Adviser, Financial Chris Bowman, Christopher Britton
Adviser and Sole Broker and Christopher Kololian
+44 20 3100 2000
Pelham Bell Pottinger
Financial PR Charles Vivian, James MacFarlane
and Philippe Polman
+44 20 7861 3232
Chairman's statement
It has been an eventful year for ZIOC. Against a backdrop of a
strong recovery in global demand for commodities, we made a
successful debut in November 2010 on the AIM Market of the London
Stock Exchange raising US$50m of new money. We completed Phase 1 of
the Pre-Feasibility Study ("PFS") on the Zanaga Iron Ore Project
("Zanaga Project") which, in turn, contributed to the
crystallisation in early 2011 of our strategic joint venture
partnership with Xstrata ("JV"), securing the future funding
requirements of the completion of the Feasibility Study ("FS") for
the Zanaga Project.
Significant achievements in the year
Throughout 2010, ZIOC and Xstrata have focused in greater detail
on the first steps towards the development and construction of a
world-class iron ore project capable of mining, processing,
transporting and exporting iron ore concentrate from the Republic
of Congo. In doing so, the following key milestones were achieved
during 2010:
- The work streams for Phases I and II of the PFS have been
completed at a joint cost of approximately US$105m.
- The conclusion in September 2010 of an Addendum to the 2007
Mining Convention with the Republic of the Congo. The 2010 Addendum
sets out in greater detail the legal framework for the further
development of the Zanaga Project in key areas such as tax &
customs, allocation of project infrastructure, permitting &
licensing and the environmental & social matters.
- A significant amount of drilling was completed which has
resulted in an increase in the JORC compliant mineral resource to
4.0 Bt from 3.3 Bt and an increase in grade to 33.9% Fe from 32.8%
Fe. The drilling was conducted over only 25km of the known 47km
strike length of magnetic mineralisation, leaving potential for
future expansion of the resource size and potential flexibility to
increase estimated annual production levels.
- On 18 November 2010 ZIOC listed on the AIM Market of the
London Stock Exchange raising US$50m of new money with a further
US$50m placed on behalf of selling shareholders.
A focused strategy
Our objective is to maximise the value of ZIOC's 50% less one
share minority stake in the Zanaga Project pending the possible
exercise by Xstrata of its Second Call Option in respect thereof.
Following Xstrata's exercise of its first call option it now has
management control of the Zanaga Project and is obliged under the
terms of the joint venture agreement ("JVA") to fund and deliver a
FS in accordance with international best practice standards and
Xstrata's internal guidelines.
As a result the Zanaga Project has been significantly derisked.
When the FS is complete, if Xstrata does not exercise the Second
Call Option, ZIOC will have a number of future funding options
including (i) dilution at NPV during construction; or (ii) a right
to fund ZIOC's pro rata equity share of construction capital
expenditure.
With a cash balance of US$49.3m as at 31 December 2010 ZIOC
believes it has adequate funds at its disposal to meet its working
capital requirements for the duration of the FS phase and does not
currently foresee further funding requirements until completion of
the FS.
A potential world class opportunity
In addition to the strategic partnership with Xstrata, the
combination of a number of key strengths supports the Board's view
that the Zanaga Project represents a significant opportunity. Large
scale resources have been identified from targeted areas of the
Zanaga ore body that have the potential to sustain a high
production mine over the long-term. Exploration work to date has
indicated that the quality of the ore is characterised by a
shallow, soft and rippable haematitic itabirite cap which overlies
a magnetite banded iron formation or BIF protore which jointly
demonstrate production potential of iron ore product with low
deleterious elements. To date only 25 km of the known 47km strike
length of magnetic mineralisation has been drilled to define the
current mineral resource, leaving potential upside to expand
production and enhance value.
Access to low cost energy
The PFS work to date indicates that the Zanaga Project has the
potential to be a low cost producer of iron ore. Of particular
interest is the potential for low cost energy resulting from the
availability of large volumes of gas from defined on-shore gas
fields and producing off-shore oil platforms. Following the
suggestion from the Republic of the Congo for oil producers to halt
the flaring of natural gas, established oil and gas producer Eni
S.p.A., constructed a 150MW power plant in Pointe-Noire to harness
the local natural gas reserves. The 150MW plant has been
commissioned and ZIOC understands that there are phased 150MW
expansion plans up to a total capacity of up to 750MW at the same
facility.
Transport infrastructure
Transportation infrastructure is one of the critical factors in
developing any major iron ore project. In the course of 2010
Jumelles ("Jumelles" or "JVCo") and its consultants have refined
its transport options and determined a preliminary corridor for a
standalone railway network and continue optimising this process
based on, amongst others, the ongoing receipt of more accurate
geotechnical and LIDAR topographical data. PFS results to date
further indicate that the Zanaga Project could derive benefit from
the access to an excellent targeted bulk commodity port site which
is located only 9km to the north of the existing public port of
Pointe-Noire which also currently services the local oil industry.
Twenty (20) metre deep tidal water is located approximately 2km
off-shore with a natural channel offering the possibility, with
limited dredging, of a 1.2 to 1.5km long loading trestle with no
required breakwater which ZIOC is advised could present a
significant advantage compared to other global iron ore
projects.
Project team and consultants
In the course of 2010 a number of additional, talented key
employees with a proven track record in the evaluation of iron ore
projects in francophone Africa were recruited for the Zanaga
Project team, supported by leading consultants with specific
expertise in working on exploration stage development projects and
evaluation of iron ore projects.
Following the exercise by Xstrata of its First Call Option (as
set out below), ZIOC has engaged Wardrop Engineering Inc and Mr
Carl Wilson of Wilson Campbell & Associates as its dedicated
team of consulting engineers to advise ZIOC on all material
technical aspects of the Zanaga Project. These engagements provide
ZIOC with the much required technical skills and expertise in the
key areas of rail, port and mine site development appropriate for a
large scale mining and infrastructure project such as Zanaga.
A key strategic partnership with a mining major
We are very pleased to have built a strong relationship with
Xstrata, a global diversified mining group with a stated strategy
to enter the iron ore market. Xstrata has been closely aligned to
the Zanaga Project since October 2009 when it entered into a call
option agreement ("First Call Option") for the acquisition of its
50% plus one share majority stake in Jumelles the joint venture
holding vehicle, for the Zanaga Project, in consideration for
payment of an option premium of US$50m. This option premium was
used by the JVCo to fund Phase I of the PFS which was completed in
June 2010.
In the course of the second half of 2010 Xstrata extended its
First Call Option in consideration for funding Phase II of the PFS
for up to an additional US$56.49m, subject to the terms and
conditions of the First Call Option.
In February 2011 Xstrata exercised the First Call Option and now
owns a 50% plus one share majority stake in the JVCo. In
consideration for the majority stake Xstrata must fund and deliver
the FS in accordance with international best practice standards and
Xstrata's internal guidelines.
Xstrata is now ZIOC's joint venture partner and has effective
control of the Zanaga Project at both a shareholder and director
level. In this regard, it is important to mention that many of the
key historic management team members recruited by Jumelles still
continue to work with Xstrata management and build on the valuable
work results achieved to date.
Xstrata's Second Call Option
The exercise of the First Call Option by Xstrata has triggered
the implementation of the JVA between ZIOC and Xstrata governing
the working relationship between our two companies. It is important
to note that the JVA stipulates that within 90 days of completion
of the FS, Xstrata has the right to exercise a further call option
("Second Call Option") to acquire all (but not part of) ZIOC's
remaining 50% less one share minority stake in the JVCo in
consideration for an agreed price, failing which a net present
value based price determined by an independent expert in accordance
with the JVA's agreed valuation terms of reference. The exercise of
this Second Call Option is not subject to shareholder approval and
together with the JVA provides ZIOC and Xstrata with a clear legal
and commercial framework, goal and timetable within which to
further determine and improve on the Zanaga Project's value and
feasibility.
PFS and the current value engineering analysis
The results from Phase II of the PFS will be published in Q3
2011 simultaneously with the results of the Value Engineering
Exercise ("VEE") currently undertaken and commissioned as an
initial stage to the FS. The VEE aims to review and refine those
options and opportunities that could positively impact on the net
present value ("NPV") of the Zanaga Project, either through added
value or the reduction of risk. Further details on the VEE work
stream are set out in the Business Review below.
Recovering commodity markets
2010 saw a clear reversal of 2009's cautious outlook for global
growth and specifically commodities. The recovery of world growth
in 2010 caused a return in demand for commodities on a significant
scale. Iron ore prices were driven by renewed global demand for
steel as well as closed domestic Chinese capacity not being able to
re-open to meet returning demand, this being marginally tempered by
issues such as sovereign debt concerns, differing monetary policies
and most importantly, indications of Chinese credit tightening.
A recovery in market conditions is now well under way as
investor confidence grows and consumption demand for commodities
continues. 2011 has seen iron ore prices rising further, reaching
record highs as a result of continued demand from the emerging
markets especially China as well as a surprising recovery in demand
from established Western economies. Growing confidence combined
with tighter supply at the start of the year has driven iron ore
prices to new highs. This momentum abated following conflicts in
the Middle East and North Africa as well as the tsunami disaster in
Japan. However continued constraints on expanding iron ore supply
indicate that prices will remain robust to 2014, normalising at a
level that will result in the removal of high cost production.
Evidence of constraints have appeared in delays to the timing of
planned production expansions as well as increasing levels of
expected capital expenditure, thus providing substantial support to
the iron ore price in the near term.
Corporate responsibility
From the outset of our work on the Zanaga Project our strategy
has been to engage and form partnerships with government and local
communities and as such the Zanaga Project has engaged experts in
the fields of health, safety, community liaison and the environment
to ensure that the Zanaga Project is developed in a responsible
manner in accordance with internationally accepted industry
standards and practice. This supports our objective of maximising
the Zanaga Project's value for our shareholders whilst putting in
place and adhering to policies and systems that will ensure that
local communities and the Republic of Congo at large receive
benefits from the ongoing development of the project.
Although the Zanaga Project is in its early stages, it is
already a large direct and indirect local employer. Over the past
year we have increased our investment in the ongoing education and
training of our local workforce and communities thereby stimulating
the local economy (before any revenues flow from the mine) through
the PFS work programme and related expenditure. Studies of the mine
site and related areas have been conducted by internationally
recognised experts and their findings have been integrated into our
project planning. We are confident that under Xstrata's management
and in collaboration with ZIOC's technical consultants the Zanaga
Project will be run to the highest standards and will, subject to
its feasibility, provide a hugely beneficial source of employment
and revenue for the country as a whole.
An experienced Board
We have assembled a well-balanced Board with in-depth experience
in the financing, evaluation and development of mining projects and
the management of public companies. I am confident that the
extensive experience of the Board of Directors in these critical
areas will ensure ZIOC is able to actively monitor the completion
of the FS and to achieve our strategic objective - to maximise the
value of the Zanaga Project.
I would like to thank the Board for their contribution and
guidance during the flotation process and our staff for their
commitment and hard work over the last year.
Looking forward
Following the VEE as set out above and below, it is planned to
complete the FS work. It is anticipated that the VEE as a first
phase of the FS will complete in Q3 2011 when the next stage of
review will occur. Xstrata must use its reasonable endeavours to
deliver the FS no later than three months prior to the expiration
of the licenses in May 2014, assuming a second extension of the
Zanaga Project exploration licences in May 2012. As a result, we do
not currently foresee any substantial near-term spending
obligations for ZIOC until completion of the FS. The cost of the
ZIOC personnel, financial advisors and the technical experts
appointed to oversee the project for ZIOC are currently our only
budgeted expenditures during the VEE and FS work programmes.
Our focus going forward is now on monitoring the Zanaga
Project's further development and the delivery of the FS. Key
milestones for 2011 will therefore include the advancement of the
Zanaga Project's Environmental and Social Impact Assessment work
stream, ongoing collaboration with the Government of the Republic
of Congo on the Zanaga Project's development and paving the way for
the conclusion of a definitive Mining Convention in respect of the
Zanaga Project's eventual mining phase and, of course, the
processing and finalisation and publication of the PFS and VEE
results.
The Board believes that the continued demand for iron ore and
the quality of the Zanaga Project's assets will underpin the
business case for the substantial investment programme now being
undertaken by Xstrata, our joint venture partner, and that the next
phase in the development of the Zanaga Project will continue to
build shareholder value.
In the circumstances, ZIOC looks forward to the finalisation of
the definitive results of the PFS and VEE currently in progress, in
order to gain further insight with Xstrata into the exciting
potential of this project whilst embarking on its FS phase.
Clifford Elphick
Non-Executive Chairman Zanaga Iron Ore Company Limited
Business review - Operations
Pre-Feasibility Study ("PFS") and Value Engineering Exercise
Phases
The PFS commenced in September 2009 and was conducted in line
with what the Directors believe are internationally accepted best
practice standards. Total PFS related expenditure to 31 March 2011
totalled US$105.45m. During this period the PFS project work
programmes covered a number of work streams including, (i) mineral
resource definition; (ii) an assessment of the economic and
technical viability of the various options for the development of
the iron ore body including mining methods, processing, product
range, waste disposal and management, tailings storage and
containment, mine site infrastructure location and design, rail or
pipeline options, port sites, product marketing, environmental and
social aspects, commercial aspects, legal framework and government
relations.
The PFS was subdivided into two key phases. The works streams
for Phase I were completed in June 2010 and Phase II in the course
of Q1 2011, save for the processing of its results into a finalised
PFS report.
Following the exercise of Xstrata's First Call Option in
February 2011 and its assumption of majority control of the Zanaga
Project, Xstrata and ZIOC jointly announced the commencement of a
Value Engineering Exercise ("VEE") including a scope and options
review to take place during Q2 and Q3 2011 as an initial phase to
the Feasibility Study work programme.
The VEE further builds and expands on the opportunities to
re-assess capex and opex options recognised as part of the PFS work
undertaken to Q1 2011 by Jumelles. A team of internal and external
experts has been assembled by Jumelles to conduct the VEE and
investigate a broader range of long-term development opportunities
for the Zanaga Project before the final options and scope for the
full FS are finalised.
The VEE commenced on 16 March 2011 with initial workshops
generating and prioritising specific ideas and opportunities for
the Zanaga Project that have the potential to impact positively on
NPV, either through added value or reduced risk. A selection of
specific opportunities have been outlined, forming the basis of the
VEE, and will be studied in more detail over the coming months.
In view of these plans, ZIOC and Xstrata expect to be able to
publish the completed results of the PFS simultaneously with the
results of the VEE at the end of Q3 2011.
Mineral resource and drilling programme
Mineral resource
In ZIOC's AIM admission document of November 2010 an estimated
3.3 Bt JORC compliant mineral resource was set out in the competent
person's report ("CPR") based on drilling results up to end of June
2010. An updated mineral resource was announced in April 2011 and
includes the results of the additional drilling completed to 24
November 2010. The table below summaries the total drilling
completed to date on the Zanaga Project.
Drilling programme
Since commencement of exploration drilling operations in early
2008 until completion of Phase I of the PFS a total of 42,706m were
drilled, 11,224m of which came from 80 DD holes and 31,482m came
from 388 RC holes. The agreed objective of the drilling programme
until then was to define a JORC compliant mineral resource of 1 Bt
of iron ore.
Drilling completed Metres Holes
------------------------------------------------------------- ------- ------
At 30 Jun 2010 (IPO JORC resource of 3.3 Bt) 42,706 468
------------------------------------------------------------- ------- ------
30 Jun 2010 to 24 Nov 2010 (New JORC resource of 4.0 Bt) 24,726 191
------------------------------------------------------------- ------- ------
24 Nov 2010 to 28 April 2011 (Not yet included in JORC
resource) 31,463 155
------------------------------------------------------------- ------- ------
Total to date 98,895 814
------------------------------------------------------------- ------- ------
During Phase II of the PFS a further 24,726m was drilled, which,
based on drilling completed up to and including 24 November 2010,
resulted in a stated JORC compliant mineral resource of 4.0 Bt. At
the commencement of Phase II of the PFS the initial target was 1.5
Bt of haematite dominated mineralisation (50% Indicated and 50%
Inferred) but due to the drill programme being focused on the
central 25km mineralised zone the resource target was revised to
2.7 Bt of combined haematite/magnetite.
A comprehensive resource drilling programme was conducted during
2010 utilising on average a total of 5 drill rigs (3 Reverse
Circulation and 2 Diamond Drilling) operating 24 hours per day. A
further 2 Diamond Drilling rigs were en route to site in Q4 2010
and are now operational bringing the total number of operational
rigs to 7.
Geology
At the end of the November 2010 Phase II resource cut-off date
the total number of samples assayed amounted to 21,045. In order to
obtain an initial Fe analysis on the samples and reduce freight and
turnaround time, a sample preparation laboratory and a Niton XRF
analyser machine were established and utilised on site at the
Zanaga exploration camp. To date 38,855 Niton samples have been
analysed using the Niton analyser and results show a very good
correlation with the external laboratory assays received to
date.
Using drill information combined with resistivity/magnetic data
as well as structural observations a detailed geological and
structural understanding of the deposit(s) is being established
which allows for accurate drill collar location and accurate
assumptions as to the geometry of the ore bodies.
Feasibility Study ("FS") Work Programme
As stated above a multidisciplinary FS to bankable standards has
commenced. The major components of the FS phase include:
- Value Engineering Exercise including Scope and Options
Review;
- Engineering studies to investigate the potential mine site,
transport corridor and power related infrastructure costs of the
Zanaga Project;
- Finalisation of an Environmental and Social Impact Assessment
(ESIA) study, in accordance with international standards and best
practice;
- Completion of the drilling programme focused on refining and
increasing the levels of confidence in the 4.0 Bt resource
identified to date; and
- Conclusion with the Government of the Republic of Congo of a
comprehensive and definitive Mining Convention to cover the
exploitation phase of the Zanaga Project
Business review - Financials
Results from operations
The financial statements contain the results for ZIOC's first
full year of operations following its incorporation on 19 November
2009. ZIOC made a loss in the year of US$13.2m compared to a loss
of US$1.6m in the short period from ZIOC's date of incorporation to
31 December 2009. The loss for the year comprised:
1 January to 19 November to
31 December 31 December
2010 2009
US$000 US$000
---------------------------------------------- ------------- ---------------
General expenses (2,755) (96)
---------------------------------------------- ------------- ---------------
Net foreign exchange loss (1,343) (-)
---------------------------------------------- ------------- ---------------
Share-based payments (964) (-)
---------------------------------------------- ------------- ---------------
Share of loss of associate (8,805) (1,476)
---------------------------------------------- ------------- ---------------
Interest income 17 (-)
---------------------------------------------- ------------- ---------------
Loss before tax (13,850) (1,572)
---------------------------------------------- ------------- ---------------
Share of other comprehensive income of
associate - foreign exchange 621 (85)
---------------------------------------------- ------------- ---------------
Total comprehensive income (13,229) (1,657)
---------------------------------------------- ------------- ---------------
General expenses of US$2.7m consist of cash bonuses of US$1.0m
paid to certain key employees on admission to trading on AIM in
November 2010, US$0.9m of professional fees and US$0.8m of other
general operating expenses.
The foreign exchange loss of US$1.3m can be attributed to the
impact of the weakening of the US Dollar against UK Sterling during
the year on the cash balances that arose following the listing that
are held in UK Sterling.
The share-based payment charge reflects the expense associated
with the grant of options to ZIOC's directors under ZIOC's
long-term incentive plan ("LTIP") and to the expense associated
with the grant of share options to one of ZIOC's consultants.
Further details of the LTIP and options granted can be found in the
Notes below.
The share of loss of associate reflected above relates to ZIOC's
investment in Jumelles which generated a loss of US$6.2m in the
year to 31 December 2010, together with a charge of US$2.5m made
for equity accounting purposes for share options provided to
employees of Jumelles. The loss comprised of US$6.0m administrative
expenses and a tax charge of US$0.3m.
During the year, Jumelles spent US$56.1m on exploration,
increasing its capitalised exploration assets to US$79.0m.
Financial Position
ZIOC's net asset value ("NAV") of US$241.2m comprises of
US$192.8m investment in Jumelles, US$49.3m of cash balances and
US$0.9m of net current liabilities.
2010 2009
US$000 US$000
-------------------------------- -------- --------
Investment in associate 192.8 198.4
-------------------------------- -------- --------
Cash 49.3 8.1
-------------------------------- -------- --------
Other net current liabilities (0.9) (0.2)
-------------------------------- -------- --------
Net assets 241.2 206.3
-------------------------------- -------- --------
Cost of investment
The investment in associate relates to the value of the
investment in Jumelles which as at 31 December 2010 owned 100% of
the Zanaga Project. The value of this investment has decreased by
US$5.7m due to the US$8.2m loss made by Jumelles during the year
net of US$2.5m of additions. The additions relate to the
share-based payments made to the employees of Jumelles which have
augmented the value of the investment.
As at 31 December 2010, Jumelles had aggregated assets of
$101.8m (2009: US$62.4m) and aggregated liabilities of US$30.8m
(2009: US$24.8m). Assets consisted of US$79.0m of capitalised
exploration assets and US$13.6m of other fixed assets including
property, plant and equipment (2009: US$22.9m and US$6.7m
respectively). A total of US$56.1m of exploration costs were
capitalised during the year. Cash balances totalled US$5.0m (2009:
US$3.8m) and other current assets had decreased from US$29.0m to
US$4.2m as the call option premium was utilised during the
year.
Cash flow
Cash balances have increased by US$41.2m since 31 December 2009.
The placing of shares on AIM in November 2010 raised a net
US$44.6m: operating activities utilised US$2.3m and foreign
exchange differences generated a cash loss of US$1.1m as the value
of the US Dollar weakened against the UK Sterling thereby reducing
the value of the Sterling denominated cash balances.
Fundraising activities
ZIOC listed on AIM on 18 November 2010, placing 39.8 million
ordinary shares at 156 pence each. The placing comprised of 19.9
million new shares issued by ZIOC and the sale of 19.9 million sale
shares by certain then existing shareholders. These new shares were
issued for cash of US$49.5m, before expenses of US$5.4m. A total of
5.6 million ordinary shares were issued to the Employee Benefit
Trust on ZIOC's Admission to AIM in order to meet obligations under
ZIOC's LTIP.
Risk management
The Board considers risk assessment to be important in achieving
its strategic objectives. There is a process of evaluation of
performance targets through regular reviews by senior management to
forecasts. Project milestones and timelines are regularly
reviewed.
Risks and uncertainties
The principal risks facing ZIOC are set out below. A more
comprehensive summary of risks associated with ZIOC is set out in
Part V of ZIOC's AIM Admission Documents of 18 November 2010. Risk
assessment and evaluation is an essential part of the Group's
planning and an important aspect of the Group's internal control
system.
The successful development of the Zanaga Project depends on
adequate infrastructure: a transportation system through which it
can deliver future iron ore product to a port for onward export by
sea.
Risks relating to the agreement with Xstrata
Whilst Xstrata has agreed to fund a full FS to be delivered to
an international best practice standard and in accordance with
Xstrata's internal guidelines at a cost of at least US$100m or
complete the FS itself. In the event that there is a material
adverse change, Xstrata's funding obligations under the JVA will be
suspended until the material adverse change has ceased.
The change of control provisions contained in the JVA could act
as an impediment to a takeover of ZIOC as in such circumstances
Xstrata would have the right to acquire all of the shares which it
does not hold in Jumelles. Similarly, all of the rights attaching
to the preferred right contained in the JVA shall lapse if there is
a change of control in respect of ZIOC and this could also act as
an impediment to a takeover.
The principal business of ZIOC currently comprises managing
ZIOC's interest in the Zanaga Project, which is controlled by
Xstrata at both a shareholder and director level, and monitoring
the preparation of the FS.
When the FS is completed, Xstrata may exercise its right to make
an offer to ZIOC for all of the ordinary shares ZIOC holds in
Jumelles. The exercise of this right is not subject to shareholder
approval. If Xstrata exercises this right under the JVA, ZIOC will
no longer hold any ordinary shares in Jumelles Limited and will
receive the consideration proceeds from Xstrata for the ordinary
shares in Jumelles Limited. There is no guarantee that the
consideration paid by Xstrata will be in excess of the underlying
value of ZIOC's ordinary shares.
Exploration and mining risks
The business of exploration for and identification of iron ore
deposits is speculative and involves a high degree of risk. Future
results, including resource recoveries and work programme plans and
schedules, will be affected by changes in market conditions,
commodity price levels, political or regulatory developments,
timely completion of exploration programme commitments or projects,
the outcome of commercial negotiations and technical or operating
factors. Even if there are economically recoverable deposits,
delays in the construction and commissioning of mining projects or
other technical difficulties, including relating to infrastructure
and permitting may make the deposits difficult to exploit.
Transportation infrastructure
The successful development of the Zanaga Project depends on
adequate infrastructure. The region in which the Zanaga Project is
located is sparsely populated and difficult to access. Central to
the Zanaga Project becoming a commercial mining operation is access
to a transportation system through which it can transport future
iron ore product to a port for onward export by sea. In order to
achieve this it will be necessary to build a port facility at
Pointe-Noire and build a rail network or other transportation for
which permits, authorisations and land rights will be required and
substantial finance required.
In relation to the proposed port and rail network, the necessary
permits, authorisations or land access rights have not yet been
obtained. In relation to the proposed port facility, the permitting
and authorisation process is at a very early stage. Failure to
complete the proposed rail network and/or to establish the port or
to do either in an economically viable manner, could have a
material adverse effect on the Zanaga Project.
Iron ore prices and undefined market and product
The principal business of the Zanaga Project is the exploration
for iron ore. The ability to raise finance and the Zanaga Project's
future financial performance is largely dependent on movements in
the price of iron ore. A detailed market study to identify the
potential demand for product has not yet been undertaken and there
are no assurances that the demand for the Zanaga Project's product
will be sufficient in quantity or in price to ensure the economic
viability of the project.
Host country related risks
The operations of the Zanaga Project are located entirely in the
Republic of Congo. These operations will be exposed to various
levels of political, regulatory, economic, taxation and other risks
and uncertainties. As in many other countries, these (varying)
risks and uncertainties include, but are not limited to: political,
military or civil unrest; fluctuations in global economic and
market conditions impacting on the Congolese economy; terrorism;
hostage taking; extreme fluctuations in currency exchange rates;
high rates of inflation; labour unrest; nationalisation; illegal
mining; restrictions on foreign exchange and repatriation. In
addition, the Republic of Congo is an emerging market and, as a
result, is generally subject to greater risks than in the case of
more developed markets.
Risks relating to the Zanaga Project's exploration licences
Subject to fulfilment of all related obligations and
undertakings, the Zanaga Project's exploration licences are
renewable for a further term of two years but this is outside of
the project's control and there can be no guarantee that this will
indeed happen. If renewed, there will be a reduction of the surface
area covered by the Zanaga Project's exploration licences of up to
50% and there can be no guarantee that the Congolese Government
will accept any proposal as to which land is to be
relinquished.
Free carried interest
The holder of an exploitation licence is required to incorporate
a Congolese company to be the operating entity and the Congolese
government is entitled to a free carried interest in projects which
are at the production phase. This participation cannot be less than
ten per cent. There is, therefore, a risk that the government will
seek to obtain a higher participation in the Zanaga Project.
Statement of comprehensive income
for year ended 31 December 2010
1 January 19 November
to to
31 December 2010 31 December 2009
Note $000 $000
------------------------------- ----- ------------------ ------------------
Administrative expenses 4 (5,062) (96)
Share of loss of associate (8,805) (1,476)
------------------------------- ----- ------------------ ------------------
Operating loss (13,867) (1,572)
Interest income 17 -
------------------------------- ----- ------------------ ------------------
Loss before tax (13,850) (1,572)
Taxation 5 - -
------------------------------- ----- ------------------ ------------------
Loss for the period (13,850) (1,572)
Share of other comprehensive
income of associate -
foreign exchange
translation 621 (85)
------------------------------- ----- ------------------ ------------------
Total comprehensive income
loss (13,229) (1,657)
------------------------------- ----- ------------------ ------------------
Loss per share (basic and
diluted) (cent) 12 (0.05) (0.01)
The loss for the period is attributable to the equity holders of
the parent company.
Statement of changes in equity
for year ended 31 December 2010
Foreign
currency
Share Retained translation Total
capital earnings reserve equity
$000 $000 $000 $000
------------------------------- --------- --------- ------------ ---------
Balance at 19 November 2009
Issue of shares 223,967 - - 223,967
Repurchase of shares (16,000) - - (16,000)
Loss for the period - (1,572) - (1,572)
Other comprehensive income - - (85) (85)
------------------------------- --------- --------- ------------ ---------
Total comprehensive loss - (1,572) (85) (1,657)
------------------------------- --------- --------- ------------ ---------
Balance at 31 December 2009 207,967 (1,572) (85) 206,310
------------------------------- --------- --------- ------------ ---------
Balance at 1 January 2010 207,967 (1,572) (85) 206,310
Issue of shares - listing 44,114 - - 44,114
Consideration for share-based
payments - share issue
costs 481 - - 481
Consideration for share-based
payments - other services 3,508 - - 3,508
Loss for the period - (13,850) - (13,850)
Other comprehensive income - - 621 621
------------------------------- --------- --------- ------------ ---------
Total comprehensive loss - (13,850) 621 (13,229)
------------------------------- --------- --------- ------------ ---------
Balance at 31 December 2010 256,070 (15,422) 536 241,184
------------------------------- --------- --------- ------------ ---------
Balance sheet
For year ended 31 December 2010
2010 2009
Note $000 $000
-------------------------------------------------- ----- --------- --------
Non-current asset
Investment in associate 6 192,799 198,439
Current assets
Other receivables 7 80 11
Cash and cash equivalents 8 49,318 8,106
-------------------------------------------------- ----- --------- --------
49,398 8,117
-------------------------------------------------- ----- --------- --------
Total Assets 242,197 206,556
Current liabilities
Trade and other payables 9 (1,013) (246)
-------------------------------------------------- ----- --------- --------
Net assets 241,184 206,310
-------------------------------------------------- ----- --------- --------
Equity attributable to equity holders of the
parent
Share capital 10 256,070 207,967
Retained earnings (15,422) (1,572)
Foreign currency translation reserve 536 (85)
-------------------------------------------------- ----- --------- --------
Total equity 241,184 206,310
-------------------------------------------------- ----- --------- --------
These financial statements were approved by the Board of
Directors on 24 May 2011 and were signed on its behalf by:
Mr M Haworth Mr C Elphick
Director Director
Cash flow statement
for year ended 31 December 2010
1 January 19 November
to to
31 December 31 December
2010 2009
Note $000 $000
------------------------------------------- ----- ------------ ------------
Cash flows from operating activities
Total comprehensive loss for the period (13,229) (1,657)
Adjustments for:
Increase in other receivables (69) (11)
Increase in trade and other payables 532 246
Net exchange loss 1,343 -
Share of loss of associate 8,184 1,561
Share-based payments 964
------------------------------------------- ----- ------------ ------------
Net cash from operating activities (2,275) 139
------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Proceeds from the issue of share capital 49,507 25,000
Share issue costs (4,912) (1,033)
Repurchase of own shares - (16,000)
------------------------------------------- ----- ------------ ------------
Net cash from financing activities 44,595 7,967
------------------------------------------- ----- ------------ ------------
Net increase in cash and cash equivalents 42,320 8,106
Effect of exchange rate difference (1,108) -
Cash and cash equivalents at beginning of
period 8,106 -
------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of
period 8 49,318 8,106
------------------------------------------- ----- ------------ ------------
The accompanying notes form an integral part of the financial
statements.
Notes to the financial statements
1 Business information and going concern basis of
preparation
Background
Zanaga Iron Ore Company Limited (the "Company"), was
incorporated on 19 November 2009 under the name of Jumelles
Holdings Limited. The Company changed its name on 1 October 2010.
The Company is incorporated in the British Virgin Islands ("BVI")
and the address of its registered office, is situated at Coastal
Building, 2nd Floor, Wickham's Cay II, Road Town, Tortola, BVI. The
Company's principal place of business as an investment holding
vehicle is situated in Guernsey, Channel Islands.
As at 31 December 2010 the Company held 100% of the share
capital of Jumelles Limited ("Jumelles") subject to the Xstrata's
First Call Option (as defined below).
In 2007, Jumelles became the special purpose holding company for
the interests of its then ultimate 50/50 founding shareholders,
Garbet Limited ("Garbet") and Guava Minerals Limited ("Guava"), in
Mining Project Development Congo SAU ("MPD Congo") which owns and
operates 100% of the Zanaga Project in the Republic of Congo
(subject to a minimum 10% free carried interest in MPD Congo in
favour of the Government of the Republic of Congo).
In December 2009 Garbet and Guava contributed their then
respective 50/50 joint shareholding in Jumelles to the Company.
Garbet is majority owned by Strata Limited ("Strata"), a private
investment holding company based in Guernsey, which specialises in
the investment and development of early stage natural resource
projects in emerging markets, predominately Africa. Garbet owns
approximately 41.25% of the share capital of the Company.
Guava is majority owned by African Resource Holdings Limited
("ARH"), a BVI company that specialises in the investment and
development of early stage natural resource projects in emerging
markets. Guava owns approximately 31.64% of the share capital of
the Company.
The balance of shareholding in the Company is predominantly held
by a number of reputable institutional investors in the mining
sector.
Jumelles has three subsidiary companies, namely Jumelles M
Limited, Jumelles Technical Services (UK) Limited and MPD
Congo.
Xstrata Transaction
On 16 October 2009, Garbet, Guava and Jumelles entered into a
transaction with Xstrata (Schweiz) AG (on 3 December 2009, Xstrata
(Schweiz) AG was substituted by Xstrata Projects (pty) Limited
("Xstrata Projects"), comprising of two principal transaction
agreements (together the "Xstrata Transaction"):
-- a call option deed which gave Xstrata Projects an option to
subscribe for 50% plus 1 share of the fully diluted and outstanding
shares of Jumelles in return for providing funding towards on-going
exploration of the Zanaga exploration licence area and a
pre-feasibility study (the "PFS") subject to a minimum amount of
$50 million (the "Xstrata Call Option"). Under the terms of the
Xstrata Call Option, the consideration payable by Xstrata Projects
for the option shares that would be issued by Jumelles Limited
would comprise (i) a commitment to fund all costs to be incurred by
Jumelles Limited in completing a feasibility study on the Zanaga
Project (the "FS") (provided such amount shall be greater than $100
million) or to carry out such a feasibility study at its own cost
and (ii) payment of an amount (up to a maximum of $25 million)
equal to the amount that Jumelles Limited owes to Garbet and Guava
as loans which would be used to repay the latter; and
-- a joint venture agreement which regulates the respective
rights of the Company, Jumelles and Xstrata Projects in relation to
Jumelles following exercise of the Xstrata Call Option and gives
Xstrata Projects the right to purchase the Company's remaining 50%
minus 1 share interest in Jumelles ("Minority Stake") following
completion of the FS and deals with the terms on which Jumelles
will be funded following completion of the FS (the "JVA").
During 2010, the PFS progressed and following completion of
Phase I of that study Xstrata Projects countersigned a further
funding letter confirming in writing its agreement (subject to the
provisions of the Xstrata Call Option) to contribute further
funding and confirming its approval of the phase II work program,
budget and funding amount (up to $56.49 million) as set out in that
letter.
On 11 February 2011 Xstrata Projects exercised the Xstrata Call
Option and the exercise paid (the "Call Option Price") is the sum
of:
-- the aggregate costs of completing the FS, provided that such
amount is greater than US$100,000,000 (excluding the Call Option
Premium); plus
-- sums to repay all outstanding founding shareholder loans then
amounting to US$21,277,334.
The Call Option Price must not exceed an amount that would
result in it being a Class 2 Transaction for Xstrata.
Relationship between Jumelles and Xstrata pending exercise of
the First Xstrata Call Option
The terms of the Xstrata Call Option include a number of
decisions and actions, including setting the scope of the PFS and
appointing contractors, that may not be taken by Jumelles without
receiving Xstrata Projects' prior consent. There are also a number
of actions that Jumelles and its subsidiaries are required to take
including keeping Xstrata informed of all material matters. These
restrictions and obligations are customary in the context of a
joint venture and are intended to ensure that Xstrata Projects is
not prejudiced, legally or economically, by the actions of Garbet,
Guava, Jumelles or the Company.
Relationship between Jumelles and its shareholders after
exercise of the First Xstrata Call Option
The Company, Jumelles and Xstrata Projects agreed to regulate
their respective rights in relation to the Zanaga Project following
exercise of the Call Option under the terms of the JVA. Under the
terms of the JVA, all significant decisions regarding the conduct
of Jumelles' business (other than certain protective rights which
require the agreement of shareholders holding at least 95% of the
voting rights in Jumelles) are made by the Board of Directors.
Each shareholder holding 15% or more of the votes in Jumelles
has the right to appoint a director to the Board of that company.
At any Board meeting, each such director will have such number of
votes as represents the appointing shareholder's voting rights in
the general meetings of Jumelles.
As a consequence, following exercise of the Xstrata Call Option
(which completed on 11 February 2011), Xstrata Projects controls
Jumelles at both a shareholder and director level and therefore
controls what was the Company's sole mineral asset, the Zanaga
Project, and going forward the Company has a strategic partnership
in respect of the Zanaga Project with Xstrata.
Following exercise of the Xstrata Call Option, the principal
business of the Company has comprised managing its 50% less one
share interest in the Zanaga Project and monitoring both the
finalisation of the pre-feasibility study and the preparation of
the feasibility study.
In addition, under the terms of the JVA, following exercise of
the Xstrata Call Option Xstrata Projects has the right to require
all the other shareholders in the Company to sell their shares to
Xstrata for a period of 90 days following completion of the FS.
Therefore Xstrata projects could elect to acquire 100% of the
Zanaga Project following completion of the FS. The JVA has
provisions governing how any dispute as to the price to be paid
would be resolved. The exercise of this right is not subject to the
approval of Zanaga's shareholders.
Future funding requirements and going concern basis of
preparation
In common with many exploration and development companies in the
mining sector, the Company raises funding in phases as its projects
develop.
Following exercise of the Xstrata Call Option, Xstrata is
required to fund and implement the FS in accordance with the
Xstrata Transactions. Xstrata has undertaken to use its reasonable
endeavours to complete the FS at least three months prior to the
expiration of the Zanaga Exploration Licence in May 2014, assuming
renewal of the Zanaga Exploration Licences in May 2012 and subject
to there being no adverse change. The cost of the Company's
personnel and the technical experts appointed to oversee the
project are the only expenditures currently envisaged during the
period of the FS work programme and the Company has significant
cash resources available. In the circumstances, the Directors have
a reasonable expectation that the Company has adequate financial
resources to continue in operational existence for the foreseeable
future. For these reasons, the financial statements of the Company
have been prepared on a going concern basis.
In the event that a decision is taken to develop a mine at
Zanaga (and assuming that Xstrata Projects has not acquired the
Company's interest in Jumelles), the Company will need to raise
further funds.
2 Accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied to all the periods presented, unless
otherwise stated.
Basis of preparation
These financial statements have been prepared in accordance with
the International Financial Reporting Standards as adopted by the
European Union ("Adopted IFRS"). Adopted IFRS comprises standards
and interpretations approved by the International Accounting
Standards Board ("IASB") and the International Financial Reporting
Interpretations Committee ("IFRIC") as adopted by the European
Union.
The Company holds an investment in an associate which is
accounted for using the equity method. These financial statements
represent individual financial statements.
New standards, amendments and interpretations
The following Standards and Interpretations were issued during
the year, but were not effective at the balance sheet date:
-- IAS 32 - (Amended) - Financial instruments: Presentation -
classification on rights issues
-- IFRS 1 - (Amended) - First-time adoption - on exemption of
new fair value disclosures
-- IFRIC 19 - Extinguishing financial liabilities with equity
instruments.
These standards have not been applied in preparing the financial
statements for the year ended 31 December 2010.
It is not anticipated that the adoption of these standards will
have any significant impact on the financial statements.
Measurement convention
These financial statements have been prepared on the historical
cost basis of accounting.
The preparation of financial statements in conformity with
Adopted IFRS requires the use of certain critical accounting
estimates. It also requires management to exercise judgement in the
process of applying the Company's accounting policies. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the financial
statements are disclosed in note 3.
Associates
Investments in associates are recorded using the equity method
of accounting whereby the investment is initially recognised at
cost and adjusted thereafter for the post-acquisition changes in
the Company's share of the net assets of the associate. The
Company's profit or loss and other comprehensive income includes
the Company's share of the associate's profit or loss and other
comprehensive income. The investment is considered for impairment
annually.
Foreign currency
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are retranslated to the functional currency at
the foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in the income
statement.
Share-based payments
The Company makes equity-settled share-based payments to certain
employees and similar persons as part of a long-term incentive plan
("LTIP"). The fair value of the equity-settled share-based payments
is determined at the date of the grant and expensed, with a
corresponding increase in equity, on a straight line basis over the
vesting period, based on the Company's estimate of the awards that
will eventually vest, save for any changes resulting from any
market-performance conditions.
Where awards are granted to employees of the Company's associate
and similar persons, the equity-settled share-based payment is
recognised by the Company as an increase in the cost of the
investment with a corresponding increase in equity over the vesting
period of the award.
The shares to be issued under the LTIP are acquired by an
Employee Benefit Trust which has to date subscribed for the shares
at zero value. These shares are held by the Employee Benefit Trust
until the vesting conditions have been met. Information on the
share awards are provided in note 11 to these financial
statements.
Share-based payments to non-employees
Where the Group received goods or services from a third party in
exchange for its own equity instruments and the amount of equity
instruments is fixed, the equity instruments and related goods or
services are measured at the fair value of the goods or services
received and are recognised as the goods are obtained or the
services rendered. Equity instruments issued under such
arrangements for the receipt of services are only considered to be
vested once provision of services is complete.
Non-derivative financial instruments
Non-derivative financial instruments in the balance sheet
comprise other receivables, cash and cash equivalents, and trade
and other payables.
Other receivables
Other receivables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method, less any impairment
losses.
Trade and other payables
Trade and other payables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits.
Share capital
Ordinary shares are classified as equity. Incremental costs
directly attributable to the issue of ordinary shares are
recognised as a deduction from equity.
Ordinary shares issued to the Employee Benefit Trust under the
LTIP or to non-employees for services provided to the Company, are
included within Share Capital.
When share capital recognised as equity is repurchased, the
amount of consideration paid, including directly attributable
costs, is recognised as a change in equity. Repurchased shares are
classified as treasury shares and presented as a deduction from
total equity.
Impairment
The carrying amounts of the Company's assets are reviewed at
each balance sheet date to determine whether there is any
indication of impairment; a financial asset is considered to be
impaired if objective evidence indicates that one or more events
have had a negative effect on the estimated future cash flows of
that asset. If any such indication exists, the asset's recoverable
amount is estimated.
An impairment loss is recognised whenever the carrying amount of
an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income
statement.
Calculation of recoverable amount
The recoverable amount of the Company's investments and
receivables carried at amortised cost is calculated as the present
value of estimated future cash flows, discounted at the original
effective interest rate (i.e., the effective interest rate computed
at initial recognition of these financial assets). Receivables with
a short duration are not discounted.
The recoverable amount of other assets is the greater of their
fair values less costs to sell and value in use. 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.
Reversals of impairment
An impairment loss in respect of a receivable carried at
amortised cost is reversed if the subsequent increase in
recoverable amount can be related objectively to an event occurring
after the impairment loss was recognised.
In respect of other assets, an impairment loss is reversed when
there is an indication that the impairment loss may no longer exist
and there has been a change in the estimates used to determine the
recoverable amount.
An impairment loss is reversed only to the extent that the
asset's carrying amount does not exceed the carrying amount that
would have been determined, net of depreciation or amortisation, if
no impairment loss had been recognised.
Expenses
Financing income and expenses
Interest income and interest payable is recognised in profit or
loss as it accrues, using the effective interest method.
Taxation
Tax on the profit or loss for the year comprises current and
deferred tax. Tax is recognised in the income statement except to
the extent that it relates to items recognised directly in equity,
in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income
for the year, using tax rates enacted or substantively enacted at
the balance sheet date, and any adjustment to tax payable in
respect of previous years.
Deferred tax is provided on temporary differences between the
carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for taxation purposes. The following
temporary differences are not provided for: the initial recognition
of goodwill: the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit other than in a
business combination, and differences relating to investments in
subsidiaries to the extent that they will probably not reverse in
the foreseeable future. The amount of deferred tax provided is
based on the expected manner of realisation or settlement of the
carrying amount of assets and liabilities, using tax rates enacted
or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is
probable that future taxable profits will be available against
which the temporary difference can be utilised.
Segmental Reporting
The Company has one operating segment, being its investment in
the Zanaga Project, held through Jumelles Limited. Financial
information regarding this segment is provided in note 6.
Subsequent events
Post year-end events that provide additional information about
the Company's position at the balance sheet date (adjusting events)
are reflected in the financial statements. Post year-end events
that are not adjusting events are disclosed in the notes to
financial statements when material.
3 Critical accounting estimates, assumptions and judgements
The Company makes estimates and assumptions concerning the
future that are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. 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.
Impairment of investment in associate
The value of the Company's investment in Jumelles depends very
largely on the value of Jumelles' interest in the Zanaga Project.
Jumelles assesses at least annually whether or not its exploration
projects may be impaired. This assessment can involve significant
judgement as to the likelihood that a project will continue to show
sufficient commercial promise to warrant the continuation of
exploration and evaluation activities.
Accounting for the Company's interest in Jumelles Limited
Significant judgement has been applied in arriving at the
accounting treatment of the Company's interest in Jumelles as
explained in note 6.
4 Note to the comprehensive income statement
Operating loss before tax is stated after charging:
1 January 19 November
to to
31 December 31 December
2010 2009
$000 $000
------------------------------------- ------------ ------------
Share-based payments (see note 11) 964 -
Net foreign exchange loss 1,343 -
Directors' fees 309 -
Auditors' remuneration 39 5
General expenses 2,407 91
------------------------------------- ------------ ------------
5,062 96
------------------------------------- ------------ ------------
The Company did not directly employ any staff during 2010 or
2009 other than the Company Directors. The Directors received
$309,000 remuneration for their services as Directors of the
Company (2009: $nil). The amounts paid as Directors' fees are shown
in the Directors' remuneration report on pages 30 to 33 of the 2010
Annual Report and Accounts. The Directors' interests in the share
capital of the Company are shown in the Directors' remuneration
report on pages 30 to 33 of the 2010 Annual Report and
Accounts.
5 Taxation
The Company is exempt from most forms of taxation in the British
Virgin Islands ("BVI"), provided the Company does not trade in the
BVI and does not have any employees working in the BVI. All
dividends, interest, rents, royalties and other expense amounts
paid by the Company, and capital gains are realised with respect to
any shares, debt obligations or other securities of the Company,
are exempt from taxation in the BVI.
The effective tax rate for the Company is therefore $nil (2009:
$nil).
6 Investment in associate
$000
------------------------------------------------- --------
Balance at 19 November 2009
Acquisition 200,000
Share of post acquisition comprehensive income (1,561)
------------------------------------------------- --------
Balance at 31 December 2009 198,439
------------------------------------------------- --------
Balance at 1 January 2010 198,439
Additions 2,544
Share of post acquisition comprehensive income (8,184)
------------------------------------------------- --------
Balance at 31 December 2010 192,799
------------------------------------------------- --------
The investment represents a 100% holding in Jumelles for the
entire share capital of 2,000,000 shares. The shares were acquired
in exchange for shares in the Company and have been recorded at
fair value of the interest acquired.
The increase in the investment during the year ended 31 December
2010 is due to the Company granting awards under the LTIP to
employees of Jumelles (as set out in note 11).
Since its acquisition and up to 31 December 2010, the investment
in Jumelles does not represent an investment in a subsidiary due to
the call option held by Xstrata described in note 1 above which
throughout that period gave Xstrata potential voting rights which
would have been sufficient for Xstrata to control Jumelles.
Nevertheless following exercise of the option, the residual rights
that would be retained by the Company are sufficient in the view of
the Directors to provide the Company with the power to participate
significantly in the financial and operating decisions affecting
Jumelles. As a consequence the Company's interest is accounted for
as an associate using the equity method of accounting. As the
Company actually had 100% participation in the profits and assets
of Jumelles throughout this period, the Company has accounted for a
100% interest in Jumelles.
Jumelles has itself accounted for the Xstrata transaction as an
in-substance equity-settled share-based payment for the provision
of services by Xstrata to Jumelles in relation to the PFS and the
FS. These services largely are provided through third party
contractors and are measured at the cost of the services
provided.
As explained in note 1, subsequent to the year end on 11
February 2011, Xstrata exercised the call option and from that date
owns 50% plus one share of Jumelles and Jumelles is controlled at
both a shareholder and director level by Xstrata. However, as the
shares issued on exercise of the option are not considered to vest
until provision of the services relating to the PFS and the FS has
been completed, the Company will continue to account for a 100%
interest in Jumelles Limited until the FS has been completed. Only
at that time will the Company account for a reduction in its
interest in Jumelles.
As at 31 December 2010, Jumelles had aggregated assets of
$101,783,000 (2009: $62,422,000) and aggregated liabilities of
$30,846,000 (2009: $24,763,000). For the year ended 31 December
2010, it incurred administrative expenses of $5,992,000 (year ended
31 December 2009: $8,332,000) and incurred a tax charge of $269,000
(year ended 31 December 2009: $426,000). A summarised consolidated
balance sheet of Jumelles Limited for the year ended 31 December
2010, including adjustments made for equity accounting, is included
below:
2010 2009
$000 $000
------------------------------------------------ --------- ---------
Non-current assets
Property, plant and equipment 13,623 6,654
Exploration and other evaluation assets 78,954 22,904
------------------------------------------------ --------- ---------
92,577 29,558
Current assets 9,206 32,864
Current liabilities (30,846) (24,763)
------------------------------------------------ --------- ---------
Net current (liabilities)/assets (21,640) 8,101
------------------------------------------------ --------- ---------
Net assets 70,937 37,659
------------------------------------------------ --------- ---------
Share capital 3,063 519
Share option reserve 88,918 50,000
Translation reserve (52) (673)
Retained earnings (20,992) (12,187)
------------------------------------------------ --------- ---------
70,937 37,659
------------------------------------------------ --------- ---------
7 Other receivables
2010 2009
$000 $000
------------------------------------------------ --------- ---------
Prepayments 80 11
------------------------------------------------ --------- ---------
8 Cash
2010 2009
$000 $000
------------------------------------------------ --------- ---------
Cash and cash equivalents 49,318 8,106
------------------------------------------------ --------- ---------
9 Trade and other payables
2010 2009
$000 $000
------------------------------------------------ --------- ---------
Accounts payable 677 246
Amounts payable to the Jumelles Limited group 336 -
------------------------------------------------ --------- ---------
1,013 246
------------------------------------------------ --------- ---------
Amounts payable to the Jumelles Limited group comprise of
$298,000 payable to Jumelles (2009: $nil) and $38,000 payable to
Jumelles Technical Services (UK) Limited (2009: $nil). No amounts
payable are due in more than 12 months (2009: $nil).
10 Share capital
Ordinary
shares
----------------------------------------------------- ---------
In thousands of shares
At incorporation - 19 November 2009 -
Issued in exchange for shares in Jumelles Limited 100,000
Issue of additional shares 12,500
Repurchase of shares (10,526)
----------------------------------------------------- ---------
On issue at 31 December 2009 - fully paid 101,974
----------------------------------------------------- ---------
Sub-division of shares 152,960
New shares issued pursuant to placing 19,908
Shares issued to the Employee Trust under the LTIP 5,574
----------------------------------------------------- ---------
On issue at 31 December 2010 - fully paid 280,416
----------------------------------------------------- ---------
The Company is able to issue an unlimited number of no par value
shares. The holders of ordinary shares are entitled to receive
dividends as declared from time to time and are entitled to one
vote per share at meetings of the Company. No dividends have been
paid or declared in the current year (2009: $nil).
Share capital changes in 2009
On incorporation on 19 November 2009 the Company issued 1
ordinary share to Garbet Limited. Subsequently in 2009, the Company
issued 99,999,999 shares (50,000,000 to its founding shareholders
Guava and 49,999,999 to Garbet) in return for the entire share
capital of Jumelles. This exchange was part of a reorganisation
plan so that Guava and Garbet would be sole owners of the Company,
which would in turn be the 100% owner of Jumelles.
Subsequently Guava reduced its holdings by 10,526,315 to
39,473,685 through a share repurchase in December 2009. 12,250,000
shares were issued to institutional investors and a further 250,000
to Garbet. These shares were issued for cash of $25,000,000 and are
disclosed net of issue costs of $1,033,000.
Share capital changes in 2010
On 15 November 2010, pursuant to a written resolution of the
Directors dated the same day, each ordinary share of the Company
was divided into 2.5 ordinary shares creating 152,960,527 new
shares.
The Company was admitted to trading on AIM on 18 November 2010
at which point the total number of shares in issue was
254,934,212.
On Admission to AIM the Company issued 19,907,629 new ordinary
shares at 156 pence each. These shares were issued for cash of
$49,507,000 and are disclosed net of issue costs of $5,393,000.
Under a deed of warrant dated 17 November 2010 the Company
granted to Liberum, the Company's Nominated Advisor and Broker,
conditional on admission a warrant to subscribe for, at the placing
price of GBP1.56, new ordinary shares equal in value to 5% of the
aggregate number of new shares issued on admission (998,382
shares), exercisable within 12 months of Admission which have not
been exercised to date. $481,000 of the issue costs on Admission to
AIM relate to the fair value of services received under this deed
of warrant.
A total of 5,574,135 ordinary shares were issued for nil
consideration to a discretionary trust established for the benefit
of current and former employees and officeholders of the Company
and the Jumelles group in connection with the Company's LTIP.
Further details of this scheme can be found in note 11.
11 Share-based payments
Employees
As stated under Note 2 above the Company has implemented a LTIP
in order to recruit and retain key officers and employees of the
Company and the Company's associate. For all key management
personnel, the LTIP is structured as a split interest scheme. On
the date of the award, the employee and the Employee Trust enter
into an agreement to acquire shares as joint owners with the
employee's proportion of ownership of each share being; 0.001% of
the total value up to a given hurdle and 99.999% of the total value
above the hurdle. The hurdle is determined on advice of the
Remuneration Committee. The employee will pay the market value for
his joint ownership of the shares. If the vesting conditions are
not met, the employee forfeits joint ownership of the shares. If
the award meets the vesting conditions, the employee has the right
to exercise the option and become the sole owner of the shares. The
Company has also granted a number of awards of share options to
middle management. Under these awards the Trust grants the employee
the right to acquire shares if certain vesting conditions are
achieved. The employee is not required to pay an exercise price for
these shares.
A number of separate awards were made on 18 November 2010.
Different awards were made subject to several different vesting
conditions.
Award 1
These awards vest on the later of the following:
-- The exercise or non-exercise by Xstrata or expiry or
termination of the First Call Option to acquire its Majority Stake
in Jumelles; and
-- The completion of the PFS to the satisfaction of the
Board.
There are specific provisions that apply to the awards in
respect of takeover and corporate transaction provisions and
provisions relating to cessation of employment or ceasing to
provide services.
Award 2
These awards vest as follows:
-- In respect of 1/3 of the shares subject to the awards,
immediately on Admission;
-- In respect of 1/3 of the shares subject to the awards, on the
expiry of one year following Admission;
-- In respect of 1/3 of the shares subject to the awards, the
expiry of two years following Admission.
There are specific provisions that apply to the awards in
respect of takeover and corporate transaction provisions and
provisions relating to cessation of employment or ceasing to
provide services.
Award 3
These awards vest on the expiry of the following periods:
-- In respect of [1/2] of the shares subject to the awards, the
expiry of one year following Admission;
-- In respect of [1/2] of the shares subject to the awards, the
expiry of two years following Admission.
The application of the vesting criteria in the three awards
above is subject to the discretion of the Board of Directors who
can also vary the criteria if they see fit. There are specific
provisions that apply to the early vesting of awards in the event
of takeover and corporate transaction provisions and provisions
relating to cessation of employment or ceasing to provide
employment.
The following information is relevant to the awards made during
the year:
Award 1 Award 2 Award 3 Total
--------------------- ------------------- ------------------- ---------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Exercise Exercise Exercise Exercise
Price Price Price Price
(GBP) Number (GBP) Number (GBP) Number (GBP) Number
------------ --------- ---------- --------- -------- --------- -------- --------- ----------
At start
of year N/A Nil N/A Nil N/A Nil N/A Nil
Granted GBP0.02 4,260,235 GBP0.02 995,382 GBP1.58 199,076 GBP0.08 5,454,693
Forfeited N/A Nil N/A Nil N/A Nil N/A Nil
Exercised N/A Nil N/A Nil N/A Nil N/A Nil
Lapsed N/A Nil N/A Nil N/A Nil N/A Nil
------------ --------- ---------- --------- -------- --------- -------- --------- ----------
At end of
year GBP0.02 4,260,235 GBP0.02 995,382 GBP1.58 199,076 GBP0.08 5,454,693
($0.03) ($0.04) ($2.45) ($0.12)
------------ --------- ---------- --------- -------- --------- -------- --------- ----------
Award 1 Award 2 Award 3 Total
----------------- --------- --------- ----------------
Range of exercise
prices (GBP and GBP0.00-GBP0.02 GBP0.02 GBP1.58 GBP0.00-GBP1.58
$*) ($0.00-$0.03) ($0.04) ($2.45) ($0.00-$2.45)
Weighted average
share price at
date of exercise
(GBP) N/A N/A N/A N/A
Total share
awards vested
(No.) Nil 331,794 Nil 331,794
Weighted average GBP1.54 GBP1.54 GBP0.39 GBP1.40
fair value of ($2.38) ($2.38) ($0.60) ($2.17)
share awards
granted in the
period (GBP and
$*)
Weighted average 219 days 502 days 502 days 281 days
remaining
contractual life
(days)
------------------- ----------------- --------- --------- ----------------
* Sterling amounts have been converted into US Dollars at the
year end closing exchange rate of $1.547:GBP1.
It is currently expected that awards will vest in full.
The following information is relevant in the determination of
the fair value of options granted:
Award 1 Award 2 Award 3 Total
-------------- -------------- -------------- --------------
Option Black-Scholes Black-Scholes Black-Scholes Black-Scholes
pricing
model used
Weighted GBP1.56 GBP1.56 GBP1.56 GBP1.56
average ($2.43) ($2.43) ($2.43) ($2.43)
share price
at date of
grant (GBP
and $*)
Weighted 264 days 365 days 548 days 293 days
average
contractual
life (days)
Expected 50% 50% for less 50% for less 50% for less
volatility than 1 year than 1 year than 1 year
(%) expected expected expected
life, 55% for life, 55% for life, 55% for
more than 1 more than 1 more than 1
year expected year expected year expected
life life life
Dividend Zero Zero Zero Zero
growth rate
(%)
Risk-free 0.51% for 6 0.69% for 12 0.69% for 12 0.51% for 6
interest month month month month
rate (%) expected life expected life expected life expected life
0.69% for 12 1.12% for 24 1.12% for 24 0.69% for 12
month month month month
expected expected life expected expected life
life 1.55% for 36 life 1.12% for 24
month month
expected expected life
life 1.55% for 36
month
expected
life
-------------- -------------- -------------- -------------- --------------
* Sterling amounts have been converted into US Dollars at the
year end closing exchange rate of $1.547: GBP1.
The volatility assumption is measured by reference to the
historic volatility of comparable companies based on the expected
life of the option.
Non-employees
The Company has also granted an award of share options in
respect of consultancy services provided by Francois Du Plessis as
a member of Strata Capital UK LLP on 17 November 2010. The options
have a weighted average price of GBP1.56 ($2.43), a weighted
average fair value of GBP0.39 ($0.62) and a weighted average
contractual life of 502 days. The awards have the same terms as the
Award 3 issued under the LTIP and have therefore been fair valued
using the same model and valuation assumptions.
The total equity-settled share-based payment expense recognised
as an operating expense during the period was $964,000, of which
$941,000 related to the Directors and $23,000 related to
consultancy services provided by Strata. Further details of
share-based payments awarded to Directors of the Company can be
found in the remuneration report on pages 30 to 33 of the 2010
Annual Report and Accounts.
The total equity-settled share-based payments awarded to
employees of companies in which the Company has a significant
interest totals $2,544,000 and has been added to the cost of
investment in those companies.
12 Loss per share
2010 2009
--------------------------------------------------------- --------- --------
Loss (Basic and diluted) (13,850) (1,572)
Weighted average number of shares (thousands)
Basic and diluted
Issued shares at beginning of period 101,974 -
Effect of shares issued 33,788 55,952
Effect of share repurchase - (3,318)
Effect of own shares (657) -
Effect of share split 122,229 78,952
--------------------------------------------------------- --------- --------
Weighted average number of shares at 31 December -
basic 257,334 131,586
--------------------------------------------------------- --------- --------
Loss per share (cent)
Basic and diluted (0.05) (0.01)
--------------------------------------------------------- --------- --------
The calculation of loss per share for the period ended 31
December 2009 has been restated for the share split that took place
on 15 November 2010 in accordance with the retrospective adjustment
requirements of IAS 33 earnings per share.
There are potential ordinary shares outstanding, refer to note
10 and 11 for details of these potential ordinary shares.
13 Financial instruments
Fair values of financial instruments
Other receivables
The fair value of other receivables is estimated as the present
value of future cash flows, discounted at the market rate of
interest at the balance sheet date if the effect is material. The
fair values approximate book values.
Trade and other payables
The fair value of trade and other payables is estimated as the
present value of future cash flows, discounted at the market rate
of interest at the balance sheet date if the effect is material.
The fair values approximate book values.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its
carrying amount where the cash is repayable on demand. Where it is
not repayable on demand then the fair value is estimated at the
present value of future cash flows, discounted at the market rate
of interest at the balance sheet date.
Financial risk management
The Company's activities expose it to a variety of financial
risks: credit risk, liquidity risk and market risk (comprising
currency risk and interest rate risk). The Company seeks to
minimise potential adverse effects of these risks on the Company's
financial performance. The Board has overall responsibility for
managing the risks and the framework for monitoring and
coordinating these risks. The Company's financial risk management
policies are set out below:
(a) Credit risk
Credit risk is the risk of financial loss to the Company if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the
Company's receivables related parties. The Company has a credit
policy in place and exposure to credit risk is monitored on an
ongoing basis. At 31 December, the financial assets exposed to
credit risk were as follows:
2010 2009
---------------------------- ------- ------
Cash and cash equivalents 49,318 8,106
---------------------------- ------- ------
(b) Liquidity risk
Liquidity risk is the risk that the Company will not be able to
meet its obligations as they fall due. The Company evaluates and
follows continuously the amount of liquid funds needed for business
operations, in order to secure the funding needed for business
activities and loan repayments. The availability and flexibility of
the financing is needed to assure the Company's financial position.
The Company's funding requirements are detailed in note 1.
Details of the maturity of financial liabilities are provided in
note 9.
(c) Market risk
(i) Foreign currency risk
The foreign currency denominated financial assets and
liabilities are not hedged, thus the changes in fair value are
charged or credited to profit and loss.
As at 31 December 2010 the foreign currency denominated assets
include cash balances held in sterling of $42,861,000, other
receivables denominated in Sterling of $77,000, and accounts
payable of $599,000 denominated in sterling, $25,000 in South
African Rands and $38,000 in Euros.
The following significant exchange rates applied during the
year:
Reporting Reporting
date date
Average Average
rate spot rate rate spot rate
2010 2010 2009 2009
--------------------- -------- ---------- -------- ----------
Against US Dollars $ $ $ $
Pounds Sterling 1.546 1.547 1.634 1.592
--------------------- -------- ---------- -------- ----------
Sensitivity analysis
A 10% weakening of the following currencies against the US
Dollar at 31 December would have increased (decreased) equity and
profit or loss by the amounts shown below. This calculation assumes
that the change occurred at the balance sheet date and had been
applied to risk exposures existing at that date.
This analysis assumes that all other variables, in particular
other exchange rates and interest rates, remain constant.
Profit Profit
Equity or loss Equity or loss
2010 2010 2009 2009
$'000 $'000 $'000 $'000
------------------ -------- --------- ------- ---------
Pounds Sterling (4,346) (4,346) (22) (22)
------------------ -------- --------- ------- ---------
A 10% strengthening of the above currencies against the US
Dollar at 31 December would have had the equal but opposite effect
on the above currencies to the amounts shown above, on the basis
that all other variables remain constant.
(ii) Interest rate risk
The Company is exposed to interest rate fluctuations on its cash
deposits. The Company uses overnight cash deposits to maximise
interest received. A 0.5 percentage point increase in interest
rates will increase interest income by approximately $0.25 million
on an annual basis based on the amount of cash on hand at 31
December 2010.
Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor and market confidence. Capital consists of share
capital and retained earnings.
The Directors do not intend to declare or pay a dividend in the
foreseeable future but, subject to the availability of sufficient
distributable profits, intend to commence the payment of dividends
when it becomes commercially prudent to do so.
The Company has a LTIP which is administered by the Remuneration
Committee. The LTIP is discretionary and the Remuneration Committee
will decide whether to make share awards under the LTIP at any
time. The Company's Employee Benefit Trust buys the shares in the
Company to be issued under the LTIP.
14 Commitments
The Company had no capital commitments or off-balance sheet
arrangements at 31 December 2010 (31 December 2009: nil).
15 Related parties
The Company's relationships with Jumelles, Garbet, Guava and
Xstrata are described in note 1 above.
The following transactions occurred with related parties during
the period:
Transactions for the
period Closing balance
----------------------- ------------------
2010 2009 2010 2009
$'000 $'000 $'000 $'000
--------------------------------- ----------- ---------- -------- --------
Intercompany payable Jumelles
Limited 298 - 298 -
Intercompany payable Jumelles
Technical Services UK Limited 38 - 38 -
Strata Capital UK LLP 57 - 57 -
--------------------------------- ----------- ---------- -------- --------
In addition to the transactions above, the Company has also
issued share options to Strata Capital UK LLP. Details of these
options can be found in note 11.
Transactions with key management personnel
2010 2009
$'000 $'000
----------------------- ------ ------
Share-based payments 964 -
Directors' fees* 309 -
----------------------- ------ ------
Total 1,269 -
----------------------- ------ ------
* Colin Harris was also paid $671,000 by Jumelles Technical
Services (UK) Limited for his services provided to them as an
employee in the capacity of TSA Project Leader.
The Directors have no material interest in any contract of
significance subsisting during the financial year, to which the
Company is a party.
16 Events occurring after the balance sheet date
See note 1 above for the details regarding (i) the exercise by
Xstrata of its First Call option, (ii) Triggering of the JVA and
(iii) the VEE currently undertaken in respect of the Zanaga
Project.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SESEDLFFSELI
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