ZIOC Zanaga Iron Ore Company Limited

TIDMZIOC

RNS Number : 1087R

Zanaga Iron Ore Company Ltd

31 October 2011

31 October 2011

ZANAGA IRON ORE COMPANY LIMITED

("ZIOC" or the "Company")

Zanaga Project Update

Zanaga Iron Ore Company Limited (AIM:ZIOC) is pleased to announce the following update on the Zanaga Iron Ore Project (the "Zanaga Project") in the Republic of Congo (Congo Brazzaville)

Highlights

   --      Value Engineering Exercise ("VEE") completed 

o results confirm the economic viability of the Zanaga Project

o post VEE the projected cost of the 45 Mtpa railway option remains in line with IPO estimates

o an alternative 30Mtpa slurry pipeline transportation option identified with potential to further enhance project economics

-- Xstrata intends to commit to a Pipeline Study shortly to refine the pipeline option and its economics

-- Feasibility Study ("FS") drilling and Environmental and Social Impact Assessment (ESIA) work continues on schedule

o FS expected to conclude in Q1 2014

   --      Joint search initiated with Xstrata for a strategic partner for the Zanaga Project 

Clifford Elphick, Non-Executive Chairman of ZIOC, commented:

"Following the completion of the Value Engineering Exercise, ZIOC is pleased to provide an update on the Zanaga Project. It is extremely pleasing that the PFS and VEE work streams have confirmed the economic viability of the 45 Mtpa railway option. In addition, significant potential incremental value has been identified based on modifying the mode of transport to a slurry pipeline, producing a high grade pellet feed product. Xstrata intends to commit to a Pipeline Study shortly to refine this option and its costing, which will assist in determining which option to take through to final Feasibility Study. ZIOC and Xstrata have in addition begun to investigate strategic partner options"

Value Engineering Exercise

The VEE represents an important initial stage of the FS. Following ZIOC's announcement on 8 February 2011 a team of internal and external experts was assembled to conduct the VEE, based on the capital and operating cost reduction opportunities recognised in the draft PFS report. With Xstrata managing the Zanaga Project, the VEE focused on investigating a broad range of development opportunities for the Project to identify the most attractive final development option. During the VEE phase, the project team continued its resource, geotechnical and hydro-geological drilling, metallurgical test work and all other associated port and mine site engineering and ESIA FS work programs.

As part of the VEE the pipeline option was revisited to investigate several capex and opex optimisation possibilities as well as the fit with changing global iron ore market dynamics. The outcome of this review confirmed two viable transport options for the development of the Zanaga Project:

1) Railway Option:

The original railway option assumes that on average 118 Mtpa of ore will be treated through two processing plants to produce 30 Mtpa of magnetite concentrate and 15 Mtpa of Hematite sinter feed which will be transported to the port at Pointe Noire via a 350 km railway and exported from a new port facility 9 km north of Pointe Noire. Life of Mine (LOM) will be in the region of 30 years, although the resource base and its upside potential will support either increased production or a longer LOM. The design, development plan and costs for the railway option have not changed materially since IPO.

45 Mtpa Railway Option - Capital Cost Estimate (US$m)

 
 Area                              IPO         Pre VEE     VEE savings        Post VEE 
                            (Nov 2010)      (Feb 2011)        (Mar-Sep      (Oct 2011) 
                                                                 2011) 
----------------------  --------------  --------------  --------------  -------------- 
   Minesite                      2,644           3,170            -406           2,764 
   Transport Corridor            2,074           2,472            -462           2,010 
   Port                            896             681            -108             573 
   Power                           214             500              50             550 
 Total Direct                    5,828           6,822            -926           5,896 
   Indirect costs(1)               634             915               0             915 
   Contingency(2)                  986             734               0             734 
 TOTAL                           7,448           8,471            -926           7,545 
----------------------  --------------  --------------  --------------  -------------- 
 

Notes: The Post VEE figures above include potential savings identified by the Xstrata managed VEE and have not been the subject of a formal capital re-estimate. . Figures exclude FS costs (funded by Xstrata) of an estimated US$249m and are in 2011 US$.

(1) Indirect costs include Head Office costs, EPCM & other indirect costs

(2) Contingency provision of US$734m (10% of total direct plus indirect costs) for the 45 Mtpa railway option was the result of a thorough quantitative risk analysis (QRA) performed by the project team on the pre VEE case

FOB operating cost for the 45 Mtpa rail option as estimated by the PFS workstreams is US$25 per dry metric tonne including a US$2/tonne contingency. In addition, approximately US$3/tonne of potential savings were then identified by the VEE. This represents a significant saving compared with the blended FOB operating cost presented at IPO of US$27/tonne.

2) Pipeline Option:

The pipeline option assumes that initially 30 Mtpa of pellet feed will be produced from an average 75 Mtpa of combined hematite/magnetite ore. Treatment of ore will be through a single integrated processing plant. The pellet feed product will be transported via a slurry pipeline to the port site to the north of Pointe Noire. LOM will be in excess of 30 years and significant potential exists to expand production.

The Pipeline Option has the potential to enhance the Zanaga Project's value by significantly reducing both capital expenditure and operating costs.

30 Mtpa Pipeline Option - Capital Cost Estimate (US$m)

 
 Area                              30 Mtpa Pipeline 
                                        Option 
--------------------------------  ----------------- 
   Mine                                       1,203 
   Beneficiation plant                        1,071 
   Transport Corridor                         1,096 
   Port                                         484 
   Power                                        564 
 Total Direct                                 4,418 
   Head Office                                  273 
   Indirects                                    441 
   On-costs (EPCM)                              502 
   Contingency                                1,627 
 Total per Xstrata managed 
  VEE                                         7,260 
   FS costs (funded by Xstrata)               (249) 
 ZIOC identified savings: 
   Indirects(1)                               (322) 
   Contingency(2)                             (629) 
 TOTAL- ZIOC guidance                         6,060 
--------------------------------  ----------------- 
 

Notes: ZIOC's technical team has identified potential savings to certain indirect costs and contingency provisions outlined below. Figures shown in 2011 US$.

(1) Comprises additional indirect costs included by Xstrata in the pipeline option but not included in the railway option

(2) Comprises additional contingency included by Xstrata consisting primarily of engineering rework and full costs associated with an assumed one year project delay

FOB operating cost for the 30 Mtpa slurry pipeline as estimated by the VEE is US$21 per dry metric tonne including a US$5/tonne contingency.

Pipeline Study

Xstrata intends to commit to a Pipeline Study shortly to refine this option and its costing, which will assist in determining which option to take through to final Feasibility Study.

Strategic Partner Process

Xstrata and ZIOC wish to explore whether there is a suitable strategic partner who can further enhance the long-term value of the Zanaga Project, including off-take on commercial terms, access to construction financing and construction expertise. Accordingly Xstrata and ZIOC have embarked on a joint process, which is at an early stage, to identify a party to become a strategic partner in the development of this world class project. Xstrata intends to fully retain its interest in the Zanaga Project. There can be no certainty that this process will result in any transaction being completed.

For further information please contact:

Zanaga UK Services Limited

Corporate Development and Andrew Trahar Investor Relations Manager +44 20 7399 1105

Liberum Capital Limited

Nominated Adviser, Financial Chris Bowman, Christopher Britton Adviser and Joint Corporate Broker and Christopher Kololian

+44 20 3100 2000

Citigroup Global Markets Limited

Joint Corporate Broker Alex Carter

+44 20 7986 4000

Pelham Bell Pottinger

Financial PR James MacFarlane

and Philippe Polman

+44 20 7861 3232

About us:

Zanaga Iron Ore Company Limited (AIM:ZIOC) is a BVI registered Company and the owner of 50% less one share interest in the Zanaga Iron Ore Project based in the Republic of Congo (Congo Brazzaville) through its joint venture partnership with Xstrata. The Zanaga Project is focused on the management, development and construction of a world-class iron ore mine and related, processing, transportationand port infrastructure

This information is provided by RNS

The company news service from the London Stock Exchange

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