TIDMZIOC
RNS Number : 4472K
Zanaga Iron Ore Company Ltd
25 June 2014
25 June 2014
Zanaga Iron Ore Company Audited Results for the Year to 31
December 2013
Highlights 2013 and Post balance sheet events to May 2014
-- In May 2013, Glencore became the new JV partner, following the merger of Xstrata with Glencore
-- Zanaga Project scope revised to a staged development approach
-- Supplemental Agreement to the JVA signed in September 2013
-- Feasibility Study progressed on a staged development scope
-- Work programme and budget agreed until the end of 2014
-- Investigation of early Direct Shipping Ore opportunities
-- Feasibility Study completed in April 2014, confirming attractive project economics
-- Stage One 12Mtpa initial operation
-- US$32/t FOB bottom quartile operating costs including
royalty
-- US$2.2bn capital expenditure
-- Premium quality 66% Fe content iron ore pellet feed
product
-- Stage Two expansion to 30Mtpa operation
-- US$2.5bn capital expenditure for additional 18Mtpa
production
-- US$26/t FOB bottom quartile operating costs including
royalty
-- Premium quality 67.5% Fe content iron ore pellet feed
product
-- Benefits of staged development
-- Lowers capital and execution risk
-- Reduces financing requirements
-- Maximises return on capital
-- Mining Licence Application submitted to the Ministry of Mines in May 2014
-- Social Environmental Impact Assessment completed in April 2014
-- Environmental Permit application for Stage One lodged with
the Ministry of Environment in May 2014
-- Mining Convention negotiations underway
-- Cash balance of US$24m, as at 2013 year end
Clifford Elphick, Non-Executive Chairman of Zanaga Iron Ore
Company Limited, commented:
"The Zanaga Project achieved an important milestone in Q2 2014
with the completion of the Feasibility Study, which clearly
demonstrates the Zanaga Project is a highly attractive and globally
competitive iron ore project.
The Stage One development has been designed as a stand alone
business case and does not rely on, or require, the Stage Two
expansion. Stage One plans to produce 12Mtpa of premium quality 66%
Fe content iron ore pellet feed product at a forecast operating
cost of US$32/t FOB including royalty, which positions the Project
in the industry's bottom quartile of operating costs.
The Stage Two expansion of 18Mtpa has been nominally scheduled
to suit the project mine development and will increase the
Project's total production capacity to 30Mtpa. It will produce a
premium quality 67.5% Fe content iron ore pellet feed product at a
forecast operating cost of US$26/t FOB including royalty,
maintaining the Project's ranking in the industry's bottom quartile
of operating costs.
The Project is now progressing through the next phase of
development. Applications for both the Mining Licence and
Environmental Permit to the relevant ministries have been
submitted. Negotiations have started on the Mining Convention that
will establish the Project's fiscal regime. We expect to update the
market as to progress on these developments during the course of
2014. Separately, the Project team will shortly be engaging with
international contractors in preparation for commencing the FEED
phase."
The Company will post its Annual Report and Accounts for the
year ended 31 December 2013 ("2013 Annual Report and Accounts"),
together with the Notice of its Annual General Meeting ("AGM"),
which will be held at Adelaide House, London Bridge, London EC4R
9HA, England on 23 July 2014 at 10.00 a.m. BST, the form of proxy
and form of instruction for holders of Depositary Interests for use
at the AGM to shareholders on 27 June 2014.
A copy of the Notice of AGM and the 2013 Annual Report and
Accounts will be available on the Company's website
www.zanagairon.com.
For further information please contact:
Zanaga Iron Ore
Corporate Development and Andrew Trahar
Investor Relations Manager +44 20 7399 1105
Liberum Capital Limited
Nominated Adviser, Financial Simon Atkinson
Adviser and Corporate Broker and Christopher Britton
+44 20 3100 2000
Bell Pottinger
Financial PR Marianna Bowes
and Daniel Thole
+44 20 7861 3232
About us:
Zanaga Iron Ore Company Limited (AIM ticker: ZIOC) is the owner
of 50% less one share in the Zanaga Iron Ore Project based in the
Republic of Congo (Congo Brazzaville) through its joint venture
partnership with Glencore. The Zanaga Iron Ore Project is one of
the largest iron ore deposits in Africa and has the potential to
become a world-class iron ore producer.
Chairman's Statement
Dear Shareholder,
The Zanaga Project achieved an important milestone in Q2 2014
with the completion of the Feasibility Study ("FS"), whichclearly
demonstrates the Zanaga Project is a highly attractive and globally
competitive iron ore project, and the subsequent submission of a
Mining Licence Application to the Republic of Congo ("RoC")
Ministry of Mines.
This is the culmination of over six years of comprehensive study
work, as borne out by the depth and quality of the FS, which along
with the completed Social Environmental Impact Assessment("SEIA")
is a tremendous achievement by the Project team.
We now enter the next phase of development, in which the Project
team will be progressing permits, negotiating the Mining
Convention, which will establish the Project's fiscal regime,
advancing project financing initiatives and preparing to commence
Front End Engineering Design ("FEED"), ahead of a potential
investment and construction decision.
Staged Development Approach
The scope of the FS was modified in September 2013, following a
review of the Project, discussions between Glencore plc
("Glencore") and ZIOC and the negotiation of the Supplemental
Agreement (the "Supplemental Agreement") which modified the
exisiting Joint Venture Agreement (the "JVA"). As part of that
review, the JV partners also agreed to jointly explore funding
options with a view to attracting third party debt and equity
financing for project implementation.
Unlocking Value through Staged Development
Glencore's staged approach to development has yielded
substantial value add for the Zanaga Project. It has lowered the
capital and execution risks, thereby significantly reducing the
Project's financing requirements whilst maximising capital
returns.
Compared to the Pipeline Pre-Feasibility Study ("Pipeline PFS")
announced in November 2012, which considered a single stage 30Mtpa
development at a capital cost of US$7.5bn, the results of the FS on
a staged development basis have demonstrated significant
advantages. Development costs of the Project have been
substantially reduced to US$2.2bn for the Stage One operation, and
US$2.5bn for the Stage Two expansion, while ultimately achieving
the same production rate of 30Mtpa. But importantly, the Project's
forecast bottom quartile operating costs presented by the Pipeline
PFS have been maintained. In addition, phasing the capital cost
provides the potential to finance the Stage Two expansion through
existing Project cash flows from Stage One to achieve a total
30Mtpa scale operation, thereby limiting the level of additional
equity required.
Highly Attractive FS Results
The Stage One development has been designed as a stand alone
business case and does not rely on, or require, the Stage Two
expansion. Stage One plans to produce 12Mtpa of premium quality 66%
Fe content iron ore pellet feed product at a forecast operating
cost of US$32/t FOB including royalty, which positions the Project
in the industry's bottom quartile of operating costs. The capital
cost is estimated at US$2.2bn, including contingency. The initial
cash flows and project returns are maximised by commencing mining
of the higher grade near surface ore for the first eight years of
operation.
The Stage Two expansion of 18Mtpa has been nominally scheduled
to suit the project mine development, construction timing and
forecast cash flow generation and will increase the Project's total
production capacity to 30Mtpa. It will produce a premium quality
67.5% Fe content iron ore pellet feed product at a forecast
operating cost of US$26/t FOB including royalty, maintaining the
Project's ranking in the industry's bottom quartile of operating
costs. The US$2.5bn capital expenditure for the additional 18Mtpa
production, including contingency, can potentially be financed from
the cash flows from Stage One, which is a compelling expansion
case.
The high grade pellet feed products that the Project will
produce under Stage One and Stage Two will have an iron grade of
66% and 67.5% respectively, similar to existing high grade
Brazilian supply. Impurities are expected to be low. It is
anticipated that the products would command a price premium
relative to the 62% Fe IODEX, both as a function of the Fe content
and the low impurities, and will be attractive feed for pellet
plants or as part of a sinter feed blend.
Iron Ore Market
Before I discuss the potential funding option for the Project,
I'd like to comment on the iron ore market, which at the time of
writing is experiencing a period of relative weakness, with iron
ore prices currently trading between U$90/t and U$100/t and much
market commentary about forecast oversupply.
Looking back over 2013, many were surprised by the buoyancy of
iron ore prices which averaged around US$135/t (CIF China), in
spite of the threat of looming expansion of supply. Although
significant investments in new production from the major iron ore
producers did come onstream, it was mainly Chinese demand that
drove prices higher to unexpectedly high levels. Interestingly,
despite talk of a slowdown in China, Chinese crude steel production
grew by 9% in 2013, outpacing GDP as monetary stimulus measures and
expansion of the shadow banking system increased credit
availability and growth in the Chinese economy.
Whilst prices in 2013 surprised to the upside, I believe we are
looking ahead to a lower price environment in the second half of
the decade. This will put pressure on more marginal producers.
Fortunately, the Zanaga Project's competitive operating costs,
premium quality product, and resulting high profit margins, ensure
that it will still be able to deliver a strong return on capital,
even in a weak iron ore price environment of US$80/t. Indeed, we
expect that the Zanaga Project will be able to compete, on a
benchmark 62% iron ore price equivalent basis, with some of the
lowest cost mining operations in Australia and Brazil.
Joint Funding Initiative
Low operating costs, a high quality premium product and a long
mine life combine to make the Zanaga Iron Ore Project a very
attractive investment opportunity to potential investors who are
looking to gain a foothold in the iron ore sector.
A joint funding process has been initiated with our JV partner
Glencore and we have been encouraged by the level of interest the
Project has received. This funding process continues and we will
update the market in due course.
The JV partners are looking to finance Stage One through a
combination of equity and debt. A number of attractive
opportunities have been identified in the debt market, such as
debt-backed infrastructure agreements as well as export-credit
finance, which could be linked to proposals from EPC contractors
with whom the Project team is currently engaging.
Cash Reserves
We have cash reserves of US$24m as at 31 December 2013, and
continue to be prudent with our cash. Following the Supplemental
Agreement with our JV partner Glencore in September 2013, at the
year end, a further US$7m contribution was required (of which US$5m
paid June 2014) of the Company to complete its US$17m contribution
total to extend project development preparatory work from September
2013 to to the end of 2014. ZIOC believes it has sufficient funds
to meet its working capital requirements up to, and well beyond,
the end of 2014.
Outlook
As mentioned earlier, the Project is progressing through the
next phase of development. Applications for both the Mining Licence
and Environmental Permit to the relevant ministries have been
submitted. Negotiations have started on the Mining Convention that
will establish the Project's fiscal regime. We expect to update the
market as to progress on these developments during the course of
2014. Separately, the Project team will shortly be engaging with
international contractors in preparation for commencing the FEED
phase.
We continue to engage regularly across all relevant Congolese
government ministries and are pleased to say that the Project
enjoys strong support for its actvities.
Finally, I would like to take this opportunity to extend a very
heartfelt thank you to the Zanaga Project team and all the local
and international consultants who worked on the FS, the SEIA and
related documentation. A huge amount of creative thinking, long
hours, attention to detail and study work have gone into producing
the Project's FS and the SEIA. I would also like to thank my fellow
Board members and ZIOC staff for their support.
Whilst we have achieved a significant milestone, the Project's
development schedule maintains significant momentum and I look
forward to updating you on our progress during the course of the
year.
Clifford Elphick
Non-Executive Chairman
Business Review
The FS, managed by ZIOC's JV partner Glencore, has been
completed on the basis of a staged development of the Zanaga Iron
Ore Project. Stage One consists of a 12Mtpa operation, with Stage
Two expanding the operation by a further 18Mtpa to produce a total
30Mtpa of high quality iron ore product over a 30 year life of mine
("LOM"). Transportation to port will be via a slurry pipeline in
both stages, which facilitates the low cost delivery solution.
A mine design and schedule has been completed for the Stage One
development to allow this to be evaluated as a stand alone business
case. A second set of designs and schedules have then been
developed incorporating the Stage Two expansion. This allows for
evaluation of the combined development stages as well as the
incremental value of Stage Two.
Feasibility Study Overview
The Stage One development has been designed as a stand alone
business case and does not rely on, or require, the Stage Two
expansion. The Stage One operation will mine the higher grade upper
hematite ores which supports a 12Mtpa operation over a 30 year mine
life, producing a 66% Fe content, premium quality iron ore pellet
feed product with low impurities.
The initial open pit mining operation will use contractor mining
to exploit free dig material with a very low strip ratio, with
simpler processing requirements resulting in low initial power
demand. The ore will be upgraded into a high grade pellet feed
using conventional gravity and flotation concentration methods
before being pumped to the port via a slurry pipeline. The
Project's "on-shore" port facilities and infrastructure will
include a filter plant for dewatering of the concentrate and a
covered ore storage facility located at a proposed new third party
port to be constructed 9km north of the existing port of
Pointe-Noire ("Pointe Indienne"). Operating costs are estimated at
US$32 per tonne FOB, including royalty, which would position Zanaga
at the bottom quartile of the industry's cost curve. The capital
cost is estimated at US$2.2bn including contingency.
The Stage Two 18Mtpa expansion to 30Mtpa of total production
will involve open pit mining of the magnetite orebody. The strip
ratio will be lower than Stage One as the upper hematite cap will
have been mined. The processing plant will be expanded with a
second concentrator using magnetic separation to produce a blended
67.5% Fe content, premium quality iron ore pellet feed product. The
increased power requirements are expected to be supplied by planned
power generation expansion projects in RoC. A second slurry
pipeline will be constructed to transport the ore to port where the
port facilities will be expanded as part of the proposed deepwater
port development.
Mining
The mining process will be a conventional excavator and truck
operation using contractor mining. For the initial years the
operation will be free dig, after which both waste and ore will
require drilling and blasting prior to excavation. A very low strip
ratio contributes significantly to the low operating costs of the
Project.
The Stage One operation will mine the higher grade upper
hematite ores with a strip ratio of 0.47:1 over 30 years. During
the first eight years of operation the strip ratio is less than
0.2:1 with greater than 50% process plant recovery. The hematite
ore types in the defined mineral resource will support the Stage
One process plant for approximately 30 years.
The Stage Two expansion to 30Mtpa of total production will
involve mining of the magnetite orebody at a reduced average strip
ratio of 0.37:1. There is sufficient magnetite ore within the
defined mineral resource to extend the mine life beyond the planned
30 years, which only consumes approximately 2Bt of the Project's
2.5Bt Ore Reserves and 6.9Bt Mineral Resource.
Process Plant
The Zanaga deposit is composed of shallow and friable hematite
zones and deeper more competent magnetite zones. The staged
development of the process plants allows for the sequential
treatment of the upper hematite ores in Stage One, followed by the
treatment of the magnetite zones in the Stage Two expansion through
the construction of a separate plant. The sequencing of the
processing of the different ores provides advantages in the
allocation of capital as well as the reduction of technical
risk.
Stage One Process Plant
A single process plant has been designed to treat the shallow
hematite ore types to produce 12Mtpa of a 66% Fe content pellet
feed concentrate with low impurities (approximately 4% combined
silica and alumina). The plant will utilise a gravity separation
circuit with flotation to treat feed grades of 30% to 50% iron. The
base case flowsheet consists of semi-autogenous mills and two
spiral circuits, followed by further size reduction and final
separation through flotation. Due to the fact that the operation
will be processing higher grade ores in the initial years the Stage
One plant will be able to produce at a rate of 13.2Mtpa during the
first five years of operation, which will subsequently reduce to
12Mtpa for the remaining mine life (see pipeline section
below).
Stage Two Process Plant
Stage Two targets the treatment of the deeper magnetite ore
types/layers using an autogenous milling circuit followed by
regrinding and magnetic separation using low intensity magnetic
separation equipment. The second process plant will produce an
additional 18Mpta of 68.5% Fe content pellet feed concentrate with
similarly low impurities as Stage One. It is envisaged that this
will be blended with the Stage One product to produce a total
30Mtpa of 67.5% Fe pellet feed, however there is an option to sell
two distinct products.
Tailings
The design of the Project's tailings storage facility
accommodates international best practice including requirements for
the safe, efficient, and environmentally acceptable disposal of the
tailings waste products.
Two main tailings dams will be constructed during the Project's
30 year LOM, the timing and scale of which will be dependent on the
decision to proceed with the Stage Two expansion. In Stage One the
two dams will provide storage for a tailings mine life tonnage of
664Mt. In a scenario where Stage Two is developed the two dams will
contain a tailings mine life tonnage of 1,338Mt.
Pipeline
The transport option considered in the FS is a 366km slurry
pipeline from the Project site to a port facility at Pointe
Indienne, 9km north of the existing port of Pointe-Noire. Stages
One and Two of the Project will involve the construction of
separate pipelines, running along the same pipeline route.
The Stage One pipeline will have a diameter of 500mm which will
be sufficient to transport 12Mtpa over the 30 year mine life. The
Stage One pipeline has been designed to accommodate a higher
production level of 13.2Mtpa in the first five years of operation
through the inclusion of a corrosion allowance and thicker initial
pipeline wall to accommodate the increased pumping pressure
associated with this capacity. This is in line with the higher
initial production rate of the Stage One process plant.
To pump the slurry from the mine site to the port, one primary
pumping station at the mine site and a further intermediate pumping
station will be constructed, the capacities of which will be
increased for the Stage Two expansion.
In Stage Two the pipeline will require a diameter of 600mm to
transport an additional 18Mtpa, increasing total production
capacity to 30Mtpa.
Port Infrastructure and Development
Currently there is no suitable bulk material handling port
facility in the RoC. In March 2013 the RoC signed a Memorandum of
Understanding with China Communications Construction Company
("CCCC"), and its subsidiary China Road and Bridge Corporation
("CRBC"), for the development of a new multi-user port facility 9km
north of the existing port of Pointe-Noire at Pointe Indienne,
including a deepwater bulk export facility for the iron ore
industry. CRBC is in the process of completing a feasibility study
on this port development.
The FS provides for the construction of new "on-shore" portside
facilities and infrastructure at Pointe Indienne, including a
filter plant and stockyard, which will be owned and operated by the
Zanaga Project and will be located within the proposed new
multi-user port facility. The FS economics have been based on the
"marine" port area and infrastructure required by the Zanaga
Project being a third party facility with a capital charge based
upon the estimated capital for the construction of such required
port area.
To cover all eventualities, the Zanaga Project FS also
incorporates a design for a staged marine port development to suit
the Project's production profile. This includes a Stage One
transhipping solution and Stage Two direct loading port solution,
which are described below. In other words, the Project can proceed
with a multi-user, state sponsored mineral port development, which
is both the Project and the RoC's preference, however, the Project
also has the option of a stand alone interim development which
remains both practical and attractive.
In the event that the marine infrastructure is constructed by
the Zanaga Project, and not by a third party, the capital charge
and associated return would be transferred to the Zanaga Project,
with minimal change to overall economics.
In either scenario, finalisation of a port access agreement with
the RoC will be a key objective prior to taking a construction
decision.
Stage One Port and Facilities
The basis for the "marine" infrastructure required for Stage One
is a relatively shallow berth jetty for self-unloading shuttle
ships to serve a transhipping operation for loading of capesize
ocean going vessels in deeper water.
The shuttle distance to deepwater suitable for capesize vessels
up to 250k DWT is three nautical miles. The complete transhipping
cycle is approximately 10 hours which enables a loading rate of up
to 60,000 tonnes per day.
The Project's planned on-shore port facilities consist of three
main areas: process plant and ponds, stockyard and support
infrastructure. The filter plant and stockyard is designed to
dewater the pipeline concentrate to 8% moisture before stockpiling
ready for export. The stockpile is covered to ensure that the
pellet feed product is not exposed to rain and will not exceed the
transportable moisture limit.
Stage Two Port and Facilities
To handle the increased production from Stage Two, the Project
envisages that the marine facility will be expanded into a deep
water port with direct loading capability of capesize ocean going
vessels.
The relevant on-shore portside facilities would be expanded to
accommodate the 30Mtpa capacity, including the installation of a
second covered stockpile. Such facilities will be expanded to
de-water and handle an additional 18Mtpa of concentrate.
Additionally, space has been proposed within the port boundary
area design for the development of possible future pelletisation
plants, which may be considered an opportunity by potential
partners for the Project.
Power
The power sector in the RoC has seen significant investment over
the past five years, including construction of new power plants and
extension and rehabilitation of the transmission grid. ENI has
constructed and commissioned the first 300MW phase of a gas fired
power station at Djeno, near Pointe-Noire. Plans are in place to
expand capacity to 450MW, and ultimately 900MW.
In addition to this, there are multiple options for new
hydro-electric generation projects. The RoC has potential for up to
3,000MW of power generated from hydro-electric schemes and the
Government has confirmed its intention to develop these as the next
stage of generation.
Power Supply
The initial Stage One power demand totals 100MW, with 90MW at
the mine site, mostly consumed by the process plant facilities, and
10MW for the Project's port site facilities which can be supplied
by existing and planned power generation capacity in the country.
The intermediary slurry pump station is assumed to include a local
diesel power generation plant, however there remains the
opportunity that this could also be connected to the grid in the
future.
Connection points to the current 220kV transmission network are
available within 160km and 200km of a proposed new transmission
line to the east and south of the mine site respectively. The
proposed new port site area at Pointe Indienne lies within 15km of
a potential connection point to the existing 220kV network. For
Stage One the options exist for a power offtake agreement to be
concluded directly with the government power agency ("SNE") or with
an existing or new power provider.
The FS is based upon power being supplied at the mine site based
on the current national electrical tariff rates. This is considered
a conservative assumption given the significance of the Zanaga
Project as a base load consumer. The strategy to connect the
Project to the national network gives the potential for provision
of regional power in the vicinity of the mine area. The Zanaga
Project is committed to cooperate with the RoC government to ensure
the Project's development is coordinated with regional power
development.
The Stage Two development increases the power demand to
approximately 230MW at the mine site and 16MW for the Project's
facilities at the proposed new port. The increased mine site demand
cannot be supported by the existing network and will require
significant new generation and transmission infrastructure. The
timing of the Stage Two development will need to be co-ordinated
with the availability of power and aligned with the envisaged major
power infrastructure developments that are planned. If the required
power is not available for Stage Two, alternative solutions,
including the construction of a separate power plant will be
required.
Capital Costs
The FS has demonstrated significant advantages from the staged
development approach. The sequential development of the Project and
resultant staged capital profile provides major improvements on the
previous Pipeline PFS capital cost estimate of US$7.5bn for a
single stage 30Mtpa development, announced in November 2012.
The staged development FS has reduced initial development costs
to US$2.2bn and significantly lowered capital and execution risk,
while providing a pathway to achieving the same 30Mtpa production
scale presented by the Pipeline PFS.
Total Stage One capital expenditures are estimated to be
US$2.2bn, with US$1.2bn of direct costs and US$1bn of indirect
costs and contingency.
Total Stage Two capital expenditures are estimated to be
US$2.5bn, with US$1.5bn of direct costs and US$1bn of indirect
costs and contingency.
Capital cost estimate (US$m)
Stage Stage
One Two
Front End Engineering (FEED) 22 11
---------------------------------------- ------ ------
Pre-Production 23 -
Mine Area 614 814
---------------------------------------- ------ ------
Transport Corridor 399 467
Port Yard Facilities 173 243
---------------------------------------- ------ ------
Total Direct Costs 1,231 1,535
Construction Indirects & Owner's
costs 529 353
---------------------------------------- ------ ------
Engineering Procurement & Construction
Management (EPCM) 203 236
Contingency 256 365
---------------------------------------- ------ ------
Total Costs 2,219 2,489
---------------------------------------- ------ ------
Notes:
Stage One capital costs have been estimated to an FS level of
definition.
The Stage Two costs are supported by a lower level of
engineering (PFS level) but significantly leverages the work
completed for the Stage One development.
Cost escalation is excluded from the capital cost estimate. The
capital cost estimate assumes the use of a third party port
facility at Pointe-Indienne.
Operating Costs
The average LOM production costs of the Zanaga Project are
highly competitive for both Stage One on a stand alone basis and
Stage Two. The LOM annual cash cost is US$30 per dry metric tonne
("dmt") excluding royalties and freight. Cash costs are lower in
years 1 - 8 at US$28/dmt FOB (including royalty) driven by the very
low strip ratio, higher feed grade and higher plant recovery.
Stage One LOM CFR costs to China are estimated at US$57/t,
ensuring robust free cash flow generation even in a low price
environment. Stage One CFR costs for years 1 - 8 are estimated at
US$53/dmt. If the Stage Two expansion production commences in Year
9 unit operating costs decrease. The increased efficiency of the
expansion case is attributable to economies of scale in all the
supporting areas and infrastructure. Average Stage Two cash cost is
US$23 per dry metric tonne excluding royalties and freight, with
average CFR costs to China, including royalty, estimated at
US$50/t.
The Project's forecast low operating costs would place Zanaga in
a highly competitive position on the seaborne iron ore trade cost
curve, especially given the high iron grade of the products. The
ability to maintain the Project's bottom quartile operating cost
position, presented by the previous Pipeline PFS estimates, under
the revised staged development approach, has been a significant
outcome of the FS.
Operating cost estimate (US$/dmt)
Stage One Stage Two
30 Year Avg 9 - 30 Year
Avg
Mining and Processing 19.1 17.4
Pipeline 2.4 2.1
Port Area 6.5 2.7
G&A 2.0 0.9
Cash Cost 29.9 23.1
Royalty 2.3 2.5
Cost - FOB 32.1 25.7
Shipping 24.5 24.5
Cost - CFR China
(not adjusted for product
premium received) 56.6 50.1
---------------------------- ------------- -------------
Notes: The figures shown are rounded; they may not sum to the
subtotals shown due to the rounding used.
The capital cost estimate assumes the port is built by a third
party with a capital charge being included in the operating
cost.
The capital charge is based on the capital cost of the port
development and allows for a theoretical 12% unlevered real rate of
return to the port investor over the life of the Project.
Economic returns
The Zanaga Project economic outcomes have been reviewed across a
range of long term IODEX 62% Fe prices from US$80/dmt to
US$140/dmt. A summary of the unlevered internal rates of return
("IRR") is presented below.
The Stage One operation demonstrates the potential to
self-finance the Stage Two expansion through project cash flows,
thereby limiting the level of additional equity required from the
Project owners, while ultimately resulting in the same 30Mtpa
production scale outlined by the Pipeline PFS.
Stage One returns
Iron Ore Price
(62% IODEX) US$/dmt 80 90 100 110 120 130 140
================== ========= ====== ====== ====== ====== ====== ====== ======
Internal Rate of
Return % 12.7% 17.1% 21.0% 24.7% 27.9% 31.1% 34.1%
================== ========= ====== ====== ====== ====== ====== ====== ======
Stage One and Two returns
Iron Ore Price
(62% IODEX) US$/dmt 80 90 100 110 120 130 140
================== ========= ====== ====== ====== ====== ====== ====== ======
Internal Rate of
Return % 15.0% 19.0% 22.3% 25.6% 28.8% 31.7% 34.6%
================== ========= ====== ====== ====== ====== ====== ====== ======
Zanaga Project Product Specification
The indicative product specifications, which will vary over the
LOM, for the Zanaga Project are as follows:
Pellet Feed Specification
Stage Stage Two expansion Stage One
One & Two combined
12Mtpa 18Mtpa 30Mtpa
Hematite Magnetite Blend
Fe % 66.0 68.5 67.5
FeO% 1-5 26-29 17-19
SiO(2)
% 3.0 3.3-3.7 3.2-3.4
Al(2)
O(3)
% 0.8 0.3-0.4 0.5-0.6
CaO% < 0.01 0.2 0.12
MgO% 0.04 0.2 0.14
P 0.04 < 0.01 0.02
S 0.014 0.015 0.015
Na(2)
O 0.015 0.015 0.015
K(2)
O < 0.01 0.036 0.025
Mn 0.11 0.10 0.10
TiO(2) 0.07 0.02 0.04
V < 0.01 < 0.01 <0.01
1.6
LOI to 2.0 -2.9 to -3.2 -0.9 to -1.3
-------- --------- -------------------- ----------------
Product size : approximately 80% passing 45 microns (suitable
for direct feed to pellet plants)
The Stage One operation will produce a hematite concentrate,
while the Stage Two expansion will produce 18Mtpa of incremental
magnetite concentrate. While the intention is to market a blended
product, it will be possible to keep all or part of the products
separate.
Product Pricing and Adjustments
The Zanaga pellet feed product is expected to receive a
significant price premium relative to the 62% Fe IODEX reference
price. This will be supported by its superior iron grade, low level
of impurities, and its product sizing being suitable for direct
feed to pellet plants.
Shipping
The Stage One transhipping solution and the Stage Two direct
loading port solution as proposed by the FS will be able to load
capesize vessels up to 250kDWT. It has been assumed that the
average size vessel will be approximately 180kDWT.
The shipping distance between Pointe-Noire and Qingdao is
approximately 9,700 nautical miles. Based on the above vessel and
port assumptions a cost of US$22.50 per wet metric tonne has been
assumed which is equivalent to approximately US$24.50 on a dry
basis for the pellet feed product at 8% moisture. By way of
comparison the distance from Tubarao, Brazil to Qingdao is
approximately 11,100 nautical miles.
Project Schedule
The indicative Stage One Development Project Schedule is shown
below, subject to a positive investment decision at the appropriate
time.
Activity Key Date
-------------------------------------------- ------------
Mining Licence Application Submitted May 2014
-------------------------------------------- ------------
Preparation for Front End Engineering H2 2014
(FEED)
-------------------------------------------- ------------
FEED 2015
-------------------------------------------- ------------
Finalise all necessary licences, approvals, 2015
infrastructure access & user agreements,
and financing
-------------------------------------------- ------------
Construction Phase 2016 - 2018
-------------------------------------------- ------------
Mining Commences Q4 2018
-------------------------------------------- ------------
First Shipment Q1 2019
-------------------------------------------- ------------
The Stage Two development is subject to a separate investment
decision and, if proceeded with, has a similar three year
construction period to the Stage One development. The Stage Two
development has nominally been scheduled to commence five years
following first production from Stage One. Based on this nominal
schedule, production from Stage Two is targeted to commence in Q1
2027 and, depending on prevailing iron ore prices, this expansion
demonstrates the potential to be self-financed by existing project
cash flows.
Permitting
The Mining Licence Application has been submitted to the RoC
Ministry of Mines and the application for the Environmental Permit
for Stage One has also been lodged with the RoC Ministry of
Environment. Negotiations of the Mining Convention which will
establish the Project's fiscal regime are in progress.
Potential DSO
An opportunity has been identified to supplement the Project's
pipeline pellet feed production with up to 2Mtpa of direct shipping
ore ("DSO"). The defined mineral resource includes some high grade
material that can be classified as DSO and an area of the deposit
has been identified that includes a concentration of material at
surface which can be simply crushed and screened to produce a
saleable iron ore lump and / or fines product without any
requirement for beneficiation.
Further information on the DSO opportunity will be provided
during H2 2014. Any decision to proceed will be dependent upon
confirmation of a suitable transport solution, including obtaining
access to rail and port infrastructure on acceptable terms.
Next Steps
The Project team have commenced the permitting phase and is
progressing the establishment of the Project's fiscal regime. The
Project team will shortly be engaging with international
contractors in advance of commencing FEED engineering. The JV
partners, supported by the Project team are actively pursuing the
funding round initiative in connection with the financing of Stage
One and preparatory work for this stage.
Financial Review
Results from operations
The financial statements contain the results for the Group's
fourth full year of operations following its incorporation on 19
November 2009. The Group made a profit in the year of US$4.0m
(2012: profit US$0.5m). The profit for the year comprised:
2013 2012
US$000 US$000
------------------------------------------------------------------- ------- -------
General expenses (5,161) (6,020)
Net foreign exchange (loss)/gain (32) 1,673
Share-based payments (397) (723)
Share of loss of associate (1,202) (765)
Interest income 97 154
------------------------------------------------------------------- ------- -------
Loss before tax (6,695) (5,681)
Tax (58) (47)
Currency translation - (36)
Share of other comprehensive income of associate -foreign exchange 10,706 6,250
------------------------------------------------------------------- ------- -------
Total comprehensive income 3,953 486
------------------------------------------------------------------- ------- -------
General expenses of US$5.2m (2012: US$6.0m) consists of US$2.2m
professional fees (2012: US$3.5m), US$0.6m Directors' fees (2012:
US$0.5m) and US$2.4m (2012: US$2.0m) of other general operating
expenses.
The share-based payment charge reflects the expense associated
with the grant of options to ZIOC's Directors and senior managers
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 to the financial statements.
The 2013 reductions in LTIP costs in the Company are the result
of the previously unvested remaining options issued under the 2010
LTIP scheme having vested during 2013.
The share of loss of associate reflected above relates to ZIOC's
investment in the Project (through the Jumelles group) which
generated a loss of US$1.2m in the year to 31 December 2013 (2012:
loss US$0.7m). US$1.1m restructuring costs were incurred during the
year (2012: US$nil)
During the year Jumelles spent US$45.4m (2012 US$74.7m) on
exploration (includes currency gain US$10.7m (2012: gain US$6.3m)),
increasing its capitalised exploration assets to US$286.9m (2012:
US$241.5m). The 2013 $10.7m currency gain of associate Jumelles,
results from the strengthening against the US$, of Jumelles
subsidiary MPD Congo's local currency Fcfa (Symbol XAF - Euro tied
currency), where the Project asset is held.
Financial Position
ZIOC's Net Asset Value (NAV) of US$232.1m (2012: US$228.1m)
comprises of US$208.5m (2012: US$189.0m) investment in Jumelles,
US$24.0m (2012: US$40.4m) of cash balances and US$0.5m (2012:
US$1.4m) of other net current liabilities.
2013 2012
US$000 US$000
------------------------------ ------- -------
Investment in associate 208,513 189,009
Fixed Assets 62 80
Cash 24,009 40,383
Other net current liabilities (455) (1,365)
------------------------------ ------- -------
Net assets 232,129 228,107
------------------------------ ------- -------
Cost of investment
The investment in associate relates to the carrying value of the
investment in Jumelles which as at 31 December 2013 owned 100% of
the Project. The carrying value of this investment has increased by
US$19.5m (2012 increase US$6.0m) due to the US$10.0m funding
provided by the Company under the JVA Supplemental Agreement (2012:
US$0.5m under agreement to 50% fund the survey of an additional
land area), and the Jumelles Total Comprehensive Income of US$9.5m
(2012: Income US$5.5m).
As at 31 December 2013, Jumelles had aggregated assets of
US$299.2m (2012: US$266.5m) and aggregated liabilities of US$8.4m
(2012: US$8.9m). Assets consisted of US$286.9m (2012: US$241.5m) of
capitalised exploration assets, US$7.4m (2012: US$10.4m) of other
fixed assets, US$nil related party receivable from XPS (2012:
US$8.5m), US$4.0m cash (2012: US$4.9m) and US$0.9m other assets
(2012: US$1.2m). A total of US$45.4m (2012: US$74.7m) of
exploration costs were capitalised during the year.
Cash flow
Cash balances decreased by US$16.4m during 2013 (2012 decrease
US$4.7m), net of interest income US$0.1m (2012 US$0.2m) and a
foreign exchange loss of US$0.03m (2012 gain US$1.6m) on bank
balances held in UK Sterling. Additional investment in Jumelles
required under the Supplemental Agreement (outline details in Note
1 to the financial statements) utilised US$10.0m (2012: US$nil),
operating activities utilised US$6.1m (2012: US$5.5m), and share
repurchases utilised US$0.3m (2012: US$0.4m).
Fundraising activities
There were no fundraising activities during 2013 (2012:
nil).
Reserves & Resource Statement
As part of the FS, CSA Global (UK) Ltd, has produced an updated
Mineral Resource Estimate for the Zanaga Project as at 30 September
2013.
The Project has defined a 6.9bn tonne Mineral Resource and a
2.5bn tonne Ore Reserve, reported in accordance with the 2004 JORC
Code, and defined from only 25km of the 47km orebody
identified.
Ore Reserve Statement
The Ore Reserve Statement is a key milestone for the Project and
supports the economic viability of mining at least 2.5bn tonnes of
the 4.7bn tonnes Measured and Indicated Mineral Resource. The Ore
Reserve estimate was undertaken by independent consultants, CSA
Global Pty Ltd ("CSA") and is based on the 30Mtpa Pipeline PFS
which is based on the August 2012 resource estimate, not the 2013
updated resource estimate update presented below.
As stipulated by the 2004 JORC Code, a Probable Ore Reserve is
of sufficient quality to serve as the basis for a decision on the
development of the deposit. Based on the studies performed a mine
plan has been determined that is technically achievable and
economically viable. The level of definition and size of the
reserves will be the subject of further review as the Project
progresses.
Ore Reserve Statement (1 November 2012)
Classification Tonnes (Mt) Fe (%)
Probable Ore Reserves 2,500 34
Proved Ore Reserves - -
Total Ore Reserves 2,500 34
======================= ============ =======
Notes:
1. Metal Price Assumptions US$85/dmt FOB for 68% Fe product
(equivalent to US$77.5/dmt for 62% Fe product) at Pointe Noire,
Republic of Congo, in line with consensus pricing.
2. Discount Rate 10%
3. Mining Dilution 5%
4. Mining Recovery 95%
Revised Mineral Resource Statement (30 September 2013)
The Project has defined a 6.9bn tonne Mineral Resource,
inclusive of Ore Reserves, reported in accordance with the 2004
JORC Code, of which 69% is in the Measured & Indicated
category.
Classification Tonnes Fe SiO(2) Al(2) P (%) Mn (%) LOI
(Mt) (%) (%) O(3) (%)
(%)
Measured 2,330 33.7 43.1 3.4 0.05 0.11 1.46
Indicated 2,460 30.4 46.8 3.2 0.05 0.11 0.75
Inferred 2,100 31 46 3 0.1 0.1 0.9
Total 6,900 32 45 3 0.05 0.11 1.05
================ ======= ===== ======= ====== ====== ======= =====
Note: The figures shown are rounded; they may not sum to the
subtotals shown due to the rounding used.
Resource modelling for the Zanaga Project has been updated for
the entire resource area using additional drilling data and
geological interpretation to produce a resource within a
lithological boundary (and therefore at 0% Fe cut-off) as at 30
September 2013.
The Mineral Resource was estimated as a block model within
constraining wireframes based upon logged geological boundaries.
Tonnages and grades have been rounded to reflect appropriate
confidence levels and for this reason may not sum to totals
stated.
Geological Summary
The Zanaga Iron Ore deposit is located within a North-South
oriented (metamorphic) Precambrian greenstone belt in the eastern
part of the Chaillu Massif in South Western Congo. From airborne
geophysical survey work, and morphologically, the mineralised trend
constitutes a complex elongation in the North-South direction, of
about 48 km length and 0.5 to 3 km width.
The ferruginous beds are part of a metamorphosed,
volcano-sedimentary Itabirite/BIF and are inter-bedded with
amphibolites and mafic schists. It exhibits faulted and sheared
contacts with the crystalline basement. As a result of prolonged
tropical weathering the BIF has developed a distinctive supergene
iron enrichment profile.
At surface there is sometimes present a high grade (+60% Fe)
canga of apparently limited thickness (<5m) capping a
discontinuous, soft, high grade, iron supergene zone of
structure-less hematite/goethite of limited thickness (<7m). The
base of the high grade supergene iron zone grades quickly at depth
into a relatively thick, leached, well-weathered to moderately
weathered friable hematite Itabirite with an average thickness of
approximately 25 metres and grading 45-55% Fe.
The base of the friable Itabirite zone appears to correlate with
the moderately weathered/weakly weathered BIF boundary, and fresh
BIF comprises bands of chert and magnetite/grunerite layers.
Competent Persons
The information that relates to Ore Reserves is based on
information compiled by Kent Bannister, of CSA Global Pty Ltd. Kent
Bannister takes overall responsibility for the Report as Competent
Person. He is a Fellow of The Australasian Institute of Mining and
Metallurgy and has sufficient experience, which is relevant to the
style of mineralisation and type of deposit under consideration,
and to the activity he is undertaking, to qualify as a Competent
Person in terms of the JORC Code. The Competent Person, Mr Kent
Bannister, has reviewed the Ore Reserve Statement and given his
permission for the publication of this information in the form and
context within which it appears.
The Mineral Resource statement is reported in accordance with
the terms and definitions included in the Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore
Reserves (JORC Code 2004 edition) as at 29 August 2012. The
information in the Report that relates to Mineral Resources is
based on information compiled by Malcolm Titley, BSc MAusIMM MAIG,
of CSA Global (UK) Ltd. Malcolm Titley takes overall responsibility
for the Report as Competent Person. He is a Member of the
Australasian Institute of Mining and Metallurgy ("AUSIMM") and has
sufficient experience, which is relevant to the style of
mineralisation and type of deposit under consideration, and to the
activity he is undertaking, to qualify as a Competent Person in
terms of the JORC Code. The Competent Person, Mr Malcolm Titley,
has reviewed this Mineral Resource statement and given his
permission for the publication of this information in the form and
context within which it appears.
Definition of JORC Code
The 2004 Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves as published by the Joint Ore
Reserves Committee of the Australasian Institute of Mining and
Metallurgy, Australian Institute of Geoscientists and Minerals
Council of Australia.
Principal Risks & Uncertainties
Risks and uncertainties
The principal risks facing ZIOC are set out below. A summary of
risks associated with ZIOC was set out in Part V of ZIOC's AIM
Admission Document 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 principal business of ZIOC currently comprises managing
ZIOC's interest in the Zanaga Project, which is majority controlled
at both a shareholder and Director level by Glencore, and
monitoring the development of the Project.
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 Glencore
Under the amended JVA with Glencore, Glencore has an obligation
to solely fund the Work Programme over the period 1 January 2013 to
31 December 2014 (but taking into account the Company's
contribution of US$17m). Thereafter there is no obligation on the
Company or Glencore to provide further funding to Jumelles. There
is a risk that after 31 December 2014 Jumelles may be subjected to
funding constraints and this could have an adverse impact upon the
Project.
Risks relating to future development and funding
The future development of the mine and related infrastructure
and consequently the future funding requirements of Jumelles will
be determined by the Board of Jumelles. There can be no certainty
that the board of Jumelles will approve the construction of the
mine and related infrastructure, including the taking of
preparatory steps associated with the construction of the mine and
related infrastructure, such as front end engineering and design.
The Board of Jumelles is controlled by Glencore, and as such there
are risks associated with the future development of the Project and
the future funding requirements not being within the control of
ZIOC.
If construction of the mine and related infrastructure proceeds
(including any preparatory steps associated with the construction
of the mine and related infrastructure), and ZIOC elects to fund
its pro rata equity share of construction capital expenditure,
there is no certainty as to its ability to raise the required
finance or the terms on which such finance may be available. If
ZIOC raises additional funds through further issuances of
securities, the holders of ordinary shares could suffer significant
dilution, and any new securities that ZIOC issues could have
rights, preferences and privileges superior to those of the holders
of the 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 where there are economically recoverable deposits,
delays in the construction and commissioning of mining projects or
other difficulties, including relating to infrastructure and/or
permitting and/or financing, may make the deposits difficult to
exploit or may delay exploitation of deposits.
Risk relating to Ore Reserves estimation
Ore Reserves estimates include diluting materials and allowances
for losses, which may occur when the material is mined. Appropriate
assessments and studies have been carried out, and include
consideration of and modification by realistically assumed mining,
metallurgical, economic, marketing, legal, environmental, social
and governmental factors. These assessments demonstrate at the time
of reporting that extraction could reasonably be justified. Ore
Reserve estimates are by their nature imprecise and depend, to a
certain extent, upon statistical inferences and assumptions which
may ultimately prove unreliable.
Transportation and other infrastructure
The successful development of the Project depends on the
existence of adequate infrastructure and the terms on which the
Project can own, use or access such infrastruture. The region in
which the 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 access a port
at Pointe-Indienne, which is still to be constructed, and build a
pipeline and on-shore facilities at the proposed new port for which
permits, authorisations and land rights will be required and
substantial finance will be required.
In relation to the pipeline and facilities at the proposed new
port and (to the extent needed) other infrastructure, the necessary
permits, authorisations and access, usage or ownership rights have
not yet been obtained. Failure to construct the proposed pipeline
and/or facilities at the proposed port and/or other needed
infrastructure or a failure to obtain access to and use of other
needed infrastructure or a failure to do this in an economically
viable manner or in the required timescale could have a material
adverse effect on the Project.
The availability of reliable and continuous delivery of
sufficient quantity of power to the Project at an affordable price
will also be a significant factor on the costs at which iron ore
may be produced and so may impact on the attractiveness and
viability of the Project.
Iron ore prices, markets and products
The principal business of the Zanaga Project is the exploration
for, and the planned exploitation of, iron ore. The ability to
raise finance and the Project's future financial performance is
largely dependent on movements in the price of iron ore. Although
the Feasibility Study identifies the product from the Project and
the potential demand for such product there are no assurances that
the demand for the 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, environmental
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; changes in taxation; 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. These
risks could be relevant both as regards day-to-day operations and
the raising of debt and equity finance for the Project.
Risks relating to the Project's licences
The Project's exploration licences are now fully extended. An
application has been made for a mining licence. There can be no
guarantee that the mining licence will be granted or, if it is, the
terms on which it is granted.
A mine operator to whom an exploitation licence has been granted
is also required to enter into a mining agreement with the
government of the Republic of Congo. On the grant of any mining
licence to the Project, it will enter into a mining agreement with
the government, which must specifically address a number of issues,
including coordination of operations and taxation. The terms of the
Mining Convention are the subject of current negotiations; there
can be no guarantee as to the outcome of such negotiations and the
eventual terms of such agreement.
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 participatory interest in projects
which are at the production phase. This participation cannot be
less than 10%. There is, therefore, a risk that the Government will
seek to obtain a higher participation in the Project.
Risks relating to financing
Although the recently completed Feasibility Study confirms the
potential technical and economic viability of the Zanaga Project,
there can be no guarantee that funding for carrying out the Project
or any stage of it will be forthcoming.
Risks relating to outsourcing
The recently completed Feasibility Study envisages that certain
aspects of the Zanaga Project will be carried out by third parties
pursuant to contracts to be negotiated with such third parties.
There is a risk that agreement might not be reached with such third
parties or that the terms of any such agreement are more stringent
than currently anticipated; this could adversely impact upon the
Project and/or the proposed timescale for carrying out the
Project.
Financial Statements
Consolidated statement of comprehensive Income
for year ended 31 December 2013
2013 2012
Note US$000 US$000
-------------------------------------------------------------------------------- ---- ------- -------
Administrative expenses (5,590) (5,070)
Share of loss of associate (1,202) (765)
-------------------------------------------------------------------------------- ---- ------- -------
Operating loss 4 (6,792) (5,835)
Interest income 97 154
-------------------------------------------------------------------------------- ---- ------- -------
Loss before tax (6,695) (5,681)
Taxation 5 (58) (47)
-------------------------------------------------------------------------------- ---- ------- -------
Loss for the year (6,753) (5,728)
-------------------------------------------------------------------------------- ---- ------- -------
Foreign exchange translation - foreign operations - (36)
Share of other comprehensive income of associate - foreign exchange translation 10,706 6,250
-------------------------------------------------------------------------------- ---- ------- -------
Other comprehensive income 10,706 6,214
-------------------------------------------------------------------------------- ---- ------- -------
Total comprehensive income 3,953 486
-------------------------------------------------------------------------------- ---- ------- -------
Loss per share (basic and diluted) (Cents) 12 (2.4) (2.1)
The loss for the year is attributable to the equity holders of
the parent company.
Consolidated statement of changes in equity
for year ended 31 December 2013
Foreign
currency
Share Retained translation Total
capital earnings reserve equity
US$000 US$000 US$000 US$000
--------------------------------------- ------- -------- ----------- -------
Balance at 1 January 2012 264,993 (29,801) (7,943) 227,249
Consideration for share-based payments 755 - - 755
Share buy backs (383) - - (383)
Loss for the year - (5,728) - (5,728)
Other comprehensive income - - 6,214 6,214
--------------------------------------- ------- -------- ----------- -------
Total comprehensive loss - (5,728) 6,214 486
--------------------------------------- ------- -------- ----------- -------
Balance at 31 December 2012 265,365 (35,529) (1,729) 228,107
--------------------------------------- ------- -------- ----------- -------
Balance at 1 January 2013 265,365 (35,529) (1,729) 228,107
Consideration for share-based payments 397 - - 397
Share buy backs (328) - - (328)
Loss for the year - (6,753) - (6,753)
Other comprehensive income - - 10,706 10,706
--------------------------------------- ------- -------- ----------- -------
Total comprehensive loss - (6,753) 10,706 3,953
--------------------------------------- ------- -------- ----------- -------
Balance at 31 December 2013 265,434 (42,282) 8,977 232,129
--------------------------------------- ------- -------- ----------- -------
Consolidated balance sheet
for year ended 31 December 2013
2013 2012
Note US$000 US$000
---------------------------------------------------- ---- -------- --------
Non-current assets
Property, plant and equipment 6a 62 80
Investment in associate 6b 208,513 189,009
---------------------------------------------------- ---- -------- --------
208,575 189,089
---------------------------------------------------- ---- -------- --------
Current assets
Other receivables 7 165 282
Cash and cash equivalents 8 24,009 40,383
---------------------------------------------------- ---- -------- --------
24,174 40,665
---------------------------------------------------- ---- -------- --------
Total Assets 232,749 229,754
---------------------------------------------------- ---- -------- --------
Current liabilities
Trade and other payables 9 (620) (1,647)
---------------------------------------------------- ---- -------- --------
Net assets 232,129 228,107
---------------------------------------------------- ---- -------- --------
Equity attributable to equity holders of the parent
Share capital 10 265,434 265,365
Retained earnings (42,282) (35,529)
Foreign currency translation reserve 8,977 (1,729)
---------------------------------------------------- ---- -------- --------
Total equity 232,129 228,107
---------------------------------------------------- ---- -------- --------
Consolidated cash flow statement
for year ended 31 December 2013
2013 2012
Note US$000 US$000
------------------------------------------------- ---- -------- -------
Cash flows from operating activities
Total comprehensive income for the year 3,953 486
Adjustments for:
Depreciation 29 23
Interest receivable (97) (154)
Taxation expense 58 47
Decrease/(Increase) in other receivables 117 (178)
(Decrease)/Increase in trade and other payables (1,027) 761
Net exchange gain/(loss) 32 (1,673)
Share of Total Comprehensive Income of associate (9,504) (5,485)
Share-based payments 397 723
Tax paid (51) (27)
------------------------------------------------- ---- -------- -------
Net cash from operating activities (6,093) (5,477)
------------------------------------------------- ---- -------- -------
Cash flows from financing activities
Repurchase of own shares (328) (383)
------------------------------------------------- ---- -------- -------
Net cash from financing activities (328) (383)
------------------------------------------------- ---- -------- -------
Cash flows from investing activities
Interest received 97 154
Acquisition of property, plant and equipment (11) (90)
Investment in associate (10,000) (515)
------------------------------------------------- ---- -------- -------
Net cash from investing activities (9,914) (451)
------------------------------------------------- ---- -------- -------
Net decrease in cash and cash equivalents (16,335) (6,311)
Cash and cash equivalents at beginning of year 40,383 45,047
Effect of exchange rate difference (39) 1,647
------------------------------------------------- ---- -------- -------
Cash and cash equivalents at end of year 8 24,009 40,383
------------------------------------------------- ---- -------- -------
The 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.
At 31 December 2010 the Company held 100% of the share capital
of Jumelles Limited ("Jumelles") subject to the then Xstrata Call
Option (as defined below).
On 14 March 2011 the Company incorporated and acquired the
entire share capital of Zanaga UK Services Limited for US$2, a
company registered in England and Wales which provides investor
management and administration services.
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 (the "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 41.49% 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 31.83% of the share capital of
the Company.
Jumelles has three subsidiary companies, namely Jumelles M
Limited, Jumelles Technical Services (UK) Limited and MPD
Congo.
Xstrata Transaction
On 16 October 2009, Garbet and 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 ("Majority Stake") in return for providing
funding towards ongoing exploration of the Zanaga exploration
licence area and a pre-feasibility study (the "PFS") subject to a
minimum amount of US$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 Project (the "FS") (provided such amount shall be
greater than US$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 US$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 regulated the respective
rights of the Company, Jumelles and Xstrata Projects in relation to
Jumelles following exercise of the Xstrata Call Option.
Subsequently:
o Xstrata merged with Glencore on 2 May 2013 to form Glencore
Xstrata which then took the role of JV partner in place of Xstrata,
and has subsequently changed its name to Glencore plc.
o Under the terms of the Supplemental Agreement announced on 13
September 2013, the scope of the above mentioned FS was modified to
a staged development basis, and the revised basis FS was completed
in May 2014. The Supplemental Agreement also extended the work
programme beyond the conclusion of the FS, up to December 2014
(towards which the Company has agreed to contribute US$17m from
existing resources), and the Glencore call option over the
Company's remaining 50% less one share shareholding in Jumelles Ltd
has been deleted.
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 programme,
budget and funding amount (up to US$56.49 million) as set out in
that letter.
On 11 February 2011 Xstrata Projects exercised the Xstrata Call
Option. Having repaid the founding shareholder loans, the
outstanding elements of the call option price consideration at 31
December 2013 were the completion of the Feasibility Study and
costs thereof.
Relationship between Jumelles and its shareholders after
exercise of the Xstrata Call Option
The Company, Jumelles and Xstrata Projects agreed to regulate
their respective rights in relation to the 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 has 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
in February 2011, Xstrata's merger with Glencore to form Glencore
Xstrata (May 2013) and the renaming of Glencore Xstrata to Glencore
(May 2014), Glencore controls Jumelles at both a shareholder and
director level and therefore controls what was the Company's sole
mineral asset, the Zanaga Project. Going forward the Company has a
strategic partnership in respect of the Project with Glencore.
Following exercise of the Xstrata Call Option, the principal
business of the Company has comprised managing its 50% less one
share interest in the Project and monitoring both the finalisation
of the pre-feasibility study and the preparation of the feasibility
study.
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.
Pursuant to the JVA, as amended by the Supplemental Agreement,
the staged production FS prepared by Jumelles has been finalised
and the Mining Licence Application has been submitted to the
Ministry of Mines of the Republic of Congo.
Based on its management's own internal evaluation, Jumelles
believes the proposed staged development of the Zanaga project (as
set out in the FS) offers high grade ore at competitive cost,
thereby offering an attractive rate of return, at an acceptable
level of risk, although substantial capital expenditure will be
required both at the prospective mine site and in respect of
transportation and other associated infrastructure. Revenues from
mining are not forecast to be earned for several years.
The current exploration licences, which were due to expire in
August 2014, are extended pending the outcome of the Mining Licence
Application. Based on information received and the provisions of
the Congolese Mining Code, Jumelles believes that there is a
reasonable expectation that the Mining Licence application will be
successfully completed by Q4 2014.
Jumelles has a preferred development plan. In relation to such
development plan, discussions have already commenced with several
parties regarding investment through the raising of debt or the
introduction of additional investors. It is believed that, given
the attractiveness of the proposed staged development of the
Project, the raising of debt or additional investment can be
secured. However, given the absence of formal agreements with
prospective lenders and investors, it is recognised that there is
no certainty that additional funding will be secured in the
necessary timescale.
As provided in the Supplemental Agreement, there is committed
funding from the shareholders of Jumelles of the approved Work
Programme and Budget of Jumelles up until 31 December 2014. The
levels of Jumelles' committed capital and other expenditure
extending beyond this point are limited, with substantially all of
future expenditure being discretionary.
While there is no obligation of the shareholders of Jumelles to
provide funding to the Project after 31 December 2014, the
Directors of the Company are of the view that it is likely to be in
the interests of the shareholders of Jumelles to make the necessary
funds available to Jumelles in order to continue the Project after
31 December 2014 pending the outcome of approaches to potential
equity investors and debt providers.
At 31 December 2013 the Company had cash reserves of US$24.0m
after funding US$10m of the US$17m total required under the
Supplemental Agreement. Other than the remaining US$7m contribution
required under the above mentioned Supplemental Agreement, (of
which US$5m has now been paid) the cost of the Company's personnel
and activities to secure future funding for the Project are the
only significant expenditures currently envisaged during the period
up to end December 2014.
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, 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 financial statements consolidate those of the Company and
its subsidiary Zanaga UK Services Limited (together, the "Group")
and the Company's investment in an associate which is accounted for
using the equity method.
New standards, amendments and interpretations
The following Adopted IFRSs have been issued but have not been
applied in these financial statements.
-- IFRS 10 Consolidated Financial Statements and IAS 27 (2011) Separate Financial Statements
-- IFRS 11 Joint Arrangements and Amendments to IAS 28 (2008)
Investments in Associates and Joint Ventures
-- IFRS 12 Disclosure of Interests in Other Entities
-- Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities
-- Investment Entities. Amendments to IFRS 10, IFRS 12 and IAS 27
-- Transition Guidance. Amendments to IFRS 10, IFRS 11 and IFRS 12
-- IFRS 9 Financial Instruments
-- Amendments to IAS 39 'Novation of Derivatives and Continuation of Hedge Accounting'
-- IFRIC Interpretation 21 Levies
Their adoption is not expected to have a material effect on the
financial statements unless otherwise indicated.
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 Group'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.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Group. The financial
statements of subsidiaries are included in the financial statements
from the date that control commences until the date that control
ceases.
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 Group's share of the net assets of the associate. The Group
profit or loss and other comprehensive income includes the Group's
share of the associate's profit or loss and other comprehensive
income. The investment is considered for impairment annually. The
Board took particular account of the Glencore Xstrata merger and
the share price decline and decided not to impair the asset.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income
and expenses arising from the intra-group transactions, are
eliminated in preparing the financial statements.
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 Group 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 Group 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 Group's associate
and similar persons, the equity-settled share-based payment is
recognised by the Group as an increase in the cost of the
investment with a corresponding increase in equity over the vesting
period of the award. In equity accounting for the Group's share of
its associate, the Group has accounted for the cost of equity
settled share-based payments as if it were a subsidiary.
The shares to be issued under the LTIP have been 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. Such awards are
structured as standard share options.
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
cancelled.
Impairment
The carrying amounts of the Group'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 Group'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 Group has one operating segment, being its investment in the
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 Group'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 Group makes estimates and assumption 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 Group's investment in Jumelles depends very
largely on the value of Jumelles' interest in the 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 Group's interest in Jumelles. Though
the exercise of the Xstrata Call Option on 11 February 2011 gave
Xstrata Projects a shareholding of 50% plus one share, and then
effective director level control of Jumelles, those shares were not
considered to have vested until the Feasibility study had been
completed in May 2014. Up until that point in time the Group
continued to account for a 100% interest in Jumelles and further
details at December 2013 may be found under 'Investment in
associate' Note 6b.
During 2014 the Company will account for a reduction in its
interest in Jumelles to 50% less one share.
4 Note to the comprehensive income statement
Operating loss before tax is stated after
charging/(crediting):
2013 2012
US$000 US$000
----------------------------------- ------ -------
Share-based payments (see Note 11) 397 723
Net foreign exchange loss/(gain) 32 (1,673)
Directors' fees 578 509
Auditor's remuneration 83 108
Depreciation 29 23
----------------------------------- ------ -------
Other than the Company Directors, the Group directly employed
five staff in 2013 (2012: 5). The Directors (6 in number from 8
February 2013) received a total of US$578,000 remuneration for
their services as Directors of the Group (2012: 5 directors total
US$509,000). The amounts paid as Directors' fees are shown in the
Directors' Remuneration Report in the 2013 Annual Report. The
Directors' interests in the share capital of the Group are shown in
the Directors' Remuneration Report in the 2013 Annual Report.
5 Taxation
The Group is exempt from most forms of taxation in the BVI,
provided the Group 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 tax charge in the period relates to the Company's
subsidiary, Zanaga UK Services Limited.
2013 2012
US$000 US$000
--------------------------------------------------------------- ------- -------
Recognised in other comprehensive income:
Current year (58) (47)
Reconciliation of effective tax rate
Loss before tax (6,695) (5,681)
Income tax using the BVI corporation tax rate of 0% (2012: 0%) - -
Effect of tax rate in foreign jurisdictions (58) (47)
--------------------------------------------------------------- ------- -------
(58) (47)
--------------------------------------------------------------- ------- -------
The effective tax rate for the Group is 0.9% (2012: 0.8%).
6a Property, Plant and Equipment
Leasehold Total
property Fixtures
improvements and fittings
US$000 US$000 US$000
-------------------------- ------------ ------------ ------
Cost
Balance at 1 January 2013 65 41 106
Additions 4 7 11
-------------------------- ------------ ------------ ------
Balance at 31 December
2013 69 48 117
-------------------------- ------------ ------------ ------
Depreciation
Balance at 1 January 2013 12 14 26
Charge for period 14 15 29
-------------------------- ------------ ------------ ------
Balance at 31 December
2013 26 29 55
-------------------------- ------------ ------------ ------
Net book value
Balance at 31 December
2013 43 19 62
-------------------------- ------------ ------------ ------
Balance at 31 December
2012 53 27 80
-------------------------- ------------ ------------ ------
Leasehold property improvements relate to 1 Albemarle Street,
London. Property improvement costs are being amortised over five
years to December 2016.
There are no assets held under finance leases or hire purchase
contracts.
6b Investment in associate
US$000
---------------------------------------- -------
Balance at 1 January 2012 182,977
---------------------------------------- -------
Additions 547
Share of post-acquisition comprehensive
income 5,485
---------------------------------------- -------
Balance at 31 December 2012 189,009
---------------------------------------- -------
Balance at 1 January 2013 189,009
Additions 10,000
Share of post-acquisition comprehensive
income 9,504
---------------------------------------- -------
Balance at 31 December 2013 208,513
---------------------------------------- -------
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 additions to the investment during the year, were due to
US$10,000,000 of additional investment agreed in accordance with
the Joint Venture Supplemental Agreement (2012 US$515,000 - Aeromag
survey, plus US$32,000 for the completion of LTIP awards to
Jumelles employees).
Since its acquisition and up to 11 February 2011, the investment
in Jumelles did 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 Projects potential voting
rights which would have been sufficient for Xstrata Projects to
control Jumelles. Following exercise of the Xstrata Call Option,
the residual rights retained by the Group are sufficient in the
view of the Directors to provide the Group with the power to
participate significantly in the financial and operating decisions
affecting Jumelles. As a consequence the Group's interest is
accounted for as an associate using the equity method of
accounting.
As explained in Note 1, on 11 February 2011, Xstrata Projects
(now renamed Glencore Projects) exercised the Xstrata 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 Glencore
Projects. However, as the shares issued on exercise of the option
were not considered to vest until the provision of the services
relating to the FS was completed in May 2014, the Group will
continue to account for a 100% interest in Jumelles Limited until
then. Going forwards from that time, the Group will account for a
reduction in its interest in Jumelles.
The Group financial statements account for the Glencore Projects
transaction as an in-substance equity-settled share-based payment
for the provision of services by Glencore Projects 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 at 31 December 2013, Jumelles had aggregated assets of
US$299.2m (2012: US$266.5m) and aggregated liabilities of US$8.4m
(2012: US$8.9m). For the year ended 31 December 2013 Jumelles
incurred a loss before tax of US$1.2m (2012: US$0.7m) which
included costs of US$1.1m on restructuring costs (2012: US$0.9m on
the survey of the additional land area), other expenses of US$0.3m
(2012: US$0.2m) and related party interest income of US$0.2m (2012:
US$0.4m). There was no tax charge for 2013 (2012: US$nil). Currency
translation of the underlying Congolese asset generated a
translation gain of US$10.7m (2012: Gain US$6.3m). A summarised
consolidated balance sheet of Jumelles Limited for the year ended
31 December 2013, including adjustments made for equity accounting,
is included below:
2013 2012
US$000 US$000
------------------------------------------------------- -------- --------
Non-current Assets:
Property, plant and equipment 7,421 10,405
Exploration and other evaluation assets 286,876 241,498
Related party receivable from Xstrata Project Services - 8,531
Intangible assets 3 45
------------------------------------------------------- -------- --------
Total non-current assets 294,300 260,479
------------------------------------------------------- -------- --------
Current Assets 4,948 5,988
Current Liabilities (8,416) (8,915)
------------------------------------------------------- -------- --------
Net current liabilities (3,468) (2,927)
------------------------------------------------------- -------- --------
Net assets 290,832 257,552
------------------------------------------------------- -------- --------
Share capital 9,593 9,593
Share option reserve 292,584 278,808
Capital contribution 1 (ZIOC + Glencore) 1,030 1,030
Capital contribution 2 (ZIOC) 10,000 -
Translation reserve 8,387 (2,319)
Retained earnings (30,762) (29,560)
------------------------------------------------------- -------- --------
290,832 257,552
------------------------------------------------------- -------- --------
7 Other receivables
2013 2012
US$000 US$000
------------ ------ ------
Prepayments 165 282
------------ ------ ------
8 Cash
2013 2012
US$000 US$000
-------------------------- ------ ------
Cash and cash equivalents 24,009 40,383
-------------------------- ------ ------
9 Trade and other payables
2013 v2 2012
US$000 US$000
-------------------------------------- ------- ------
Accounts payable 552 1,522
Amounts payable to the Jumelles group - 78
UK Corporation Tax 68 47
-------------------------------------- ------- ------
620 1,647
-------------------------------------- ------- ------
No amounts payable are due in more than 12 months (2012:
US$nil).
10 Share capital
Ordinary Ordinary
In thousands of shares Shares Shares
2013 2012
On issue at 1 January - fully paid 279,777 280,416
------------------------------------- -------- --------
Shares issued - -
Shares repurchased and cancelled (1,000) (639)
------------------------------------- -------- --------
On issue at 31 December - fully paid 278,777 279,777
------------------------------------- -------- --------
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 (2012: US$nil).
Share capital changes in 2013
There were no new shares issued in 2013.
A share buy-back programme was initiated in October 2012 and at
31 December 2013 a total of 1,639,000 shares had been repurchased
and cancelled. There have been no share repurchases since 1,000,000
shares were repurchased and cancelled in January 2013.
11 Share-based payments
Employees
As stated under Note 2 above the Group has implemented a LTIP in
order to recruit and retain key officers and employees of the Group
and the Group'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
forfeit's 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 Group also
granted a number of awards of share options to middle management.
Under these awards the employee was not required to pay an exercise
price for the shares, which have all vested and the options
exercised.
Three sets of separate awards were made on 18 November 2010,
each having several different vesting conditions. These vesting
conditions have now been satisfied and, as a result, all of these
awards have fully vested.
A fourth set of awards was made on 2 March 2012, subject to the
vesting conditions under Award 4 below.
A fifth award was made to Mr Alistair Franklin upon his
appointment to the Board on 8 February 2013.
There are specific provisions that apply to all awards in
respect of takeover and corporate transaction provisions and
provisions relating to cessation of employment or ceasing to
provide services.
Award 1 (fully vested)
These awards vested on the publication of the results of the
VEE, which was achieved in October 2011.
Award 2 (fully vested)
These awards fully vested in 2012 on the expiry of two years
following Admission.
Award 3 (fully vested)
These awards fully vested in 2012 on the expiry of two years
following Admission.
Award 4
Structured as standard share options, these awards have fully
vested since the end of 2013. The vesting criteria was the
completion of the Feasibility Study showing the economic
feasibility of the Mining Licences. The Mining Licence application
was submitted in May 2014.
Award 5
An award of 199,076 options at a strike price of zero, to vest
in three equal instalments over three years, was made to Alistair
Franklin upon his appointment as a Director on 8 February 2013.
The application of the vesting criteria is subject to the
discretion of the Board of Directors.
It is currently expected that the awards will vest in full
(Awards 1-4 already fully vested, award 4 since the end of
2013).
Award 1 (2010) Award 2 (2010) Award 3 (2010) Award 4 (2012) Award 5 (2013) Total
-------------------- ------------------ ------------------ -------------------- --------- ------- --------------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Exercise Exercise Exercise Exercise Exercise Exercise
Price Price Price Price Price Price
(GBP) Number (GBP) Number (GBP) Number (GBP) Number (GBP) Number (GBP) Number
At 1
January
2012 * GBP0.02 4,260,235 GBP0.02 995,382 GBP1.58 199,076 N/A Nil N/A Nil GBP0.08 5,454,693
At 31
December
2012 * GBP0.02 3,404,204 GBP0.02 995,382 GBP1.58 199,076 GBP1.02 800,000 N/A Nil GBP0.23 5,398,662
(US$0.03) (US$0.04) (US$2.45) (US$1.61) N/A (US$0.36)
---------- --------- --------- --------- ------- --------- ------- --------- --------- --------- ------- --------- ---------
At 1
January
2013 * GBP0.02 3,404,204 GBP0.02 995,382 GBP1.58 199,076 GBP1.02 800,000 N/A Nil GBP0.23 5,398,662
(US$0.03) (US$0.04) (US$2.45) (US$1.61) N/A (US$0.36)
Granted N/A Nil N/A Nil N/A Nil N/A Nil GBP0.00 199,076 GBP0.00 199,076
Forfeited N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
Exercised 0.02 (676,859) N/A Nil N/A Nil N/A Nil N/A Nil 0.02 (676,859)
Lapsed N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
---------- --------- --------- --------- ------- --------- ------- --------- --------- --------- ------- --------- ---------
At 31
December
2013 * GBP0.02 2,727,345 GBP0.02 995,382 GBP1.58 199,076 GBP1.02 800,000 GBP0.00 199,076 GBP0.25 4,920,879
(US$0.04) (US$0.04) (US$2.45) (US$1.61) (US$0.00) (US$0.39)
---------- --------- --------- --------- ------- --------- ------- --------- --------- --------- ------- --------- ---------
Award Award 2 Award 3 Award Award 5
1 (2010) (2010) (2010) 4 (2012) (2013) Total
------------------- ----------- ----------- ----------- ----------- -------------------
GBP1.02 GBP0.00 GBP0.00
GBP0.00-GBP0.02 GBP0.02 GBP1.58 - GBP1.58
Range (US$1.61) (US$0.00)
of exercise
prices
* (US$0.00-US$0.04) (US$0.04) (US$2.45) (US$0.00-US$2.45)
GBP0.23 GBP0.23
Weighted N/A ($0.36) ($0.36)
average
fair value
of share
awards
granted
in the
period
* N/A N/A N/A
Weighted
average
share
price N/A N/A
at date
of exercise
(GBP) GBP0.11 N/A N/A GBP0.11
Total
share
awards
vested 2,727,345 995,382 199,076 Nil Nil 3,921,803
Weigted
average
remaining
contractual
life (Days) Nil Nil Nil 126 768 N/A
Expiry 18 May 18 May 18 May 02 Mar 07 Jul N/A
date 2021 2021 2021 2017 2023
------------- ------------------- ----------- ----------- ----------- ----------- -------------------
* Sterling amounts have been converted into US Dollars at the
grant dates exchange rates of: Awards 1,2,3 US$1.547:GBP1.00, Award
4 US$ 1.5835:GBP1.00, Award 5 US$ 1.5801:GBP1.00.
The following information is relevant in the determination of
the fair value of options granted during 2010, 2012 and 2013 which
has applied option valuation principles during the year under the
above equity-settled schemes:
Award 1 Award 4 Award 5
(2010) Award 2 (2010) Award 3 (2010) (2012) (2013)
------------- ----------------- ----------------- ------------- -------------
Option
pricing
model
used Black-Scholes Black-Scholes Black-Scholes Black-Scholes Black-Scholes
GBP1.56 GBP1.56 GBP1.56 GBP1.03 GBP0.23
Weighted
average
share
price
at date
of grant (US$2.41) (US$2.41) (US$2.41) (US$1.64) (US$0.36)
Weighted
average
expected
option
life 0.7 years 1.0 years 1.5 years 4.0 years 4.0 years
Expected
volatility 50% for less 50% for less
(%) 50% than than 47% 47%
1 year expected 1 year expected
life, life,
55% for more 55% for more
than than
1 year expected 1 year expected
life life
Dividend
growth
rate
(%) Zero Zero Zero Zero Zero
Risk-free
interest
rate
(%) 0.51% for 0.69% for 0.69% for 0.708% 0.708%
6 month
expected 12 month expected 12 month expected
life life life
0.69% for 1.12% for 1.12% for
12 month
expected 24 month expected 24 month expected
life life life
* Sterling amounts have been converted into US Dollars at the
grant dates exchange rates of: Awards 1,2,3 US$1.547:GBP1.00, Award
4 US$ 1.5835:GBP1.00, Award 5 US$ 1.5801:GBP1.00.
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 awards of share options in respect
of consultancy services provided by Strata Capital UK LLP:
Share option Weighted Weighted Weighted Expiry Other LTIP
award grant average average average date terms, valuation
date share price fair value expected model and
at date of share life of assumptions
of grant awards * option applicable
*
------------- ------------- ------------ ---------- ------- ------------------
17 November GBP1.56 GBP0.39 1.4 years 16 Nov Award 3 above
2010 (US$2.54) (US$0.63) 2020
02 March GBP1.03 GBP0.37 4.0 years 01 Mar Award 4 above
2012 (US$1.64) (US$0.58) 2017
------------- ------------- ------------ ---------- ------- ------------------
* Sterling amounts have been converted into US Dollars at the
grant dates exchange rates of: Awards 1,2,3 US$1.547:GBP1.00 and
Award 4 US$ 1.5835:GBP1.00.
The total equity-settled share-based payment expense recognised
as an operating expense during the year was US$397,000 (2012:
US$723,000), of which US$21,000 (2012: US$345,000) related to the
Directors, US$218,000 related to employees of the group (2012:
US$182,000), and US$158,000 (2012: US$196,000) related to
consultancy services provided by Strata Capital UK LLP. Further
details of share-based payments awarded to Directors of the Group
can be found in the Remuneration Report in the 2013 Annual
Report.
The total charge during the year for equity-settled share-based
payments awarded to employees of companies in which the Group has a
significant interest totals US$nil (2012: US$32,000).
12 Loss per share
2013 2012
--------------------------------------------------------- ------- -------
Loss (Basic and diluted) (US$,000) (6,753) (5,728)
Weighted average number of shares (thousands)
Basic
Issued shares at beginning of period 279,777 280,416
Effect of shares issued - -
Effect of share repurchase and cancellation (997) (87)
Effect of own shares (4,346) (4,988)
Effect of share split - -
--------------------------------------------------------- ------- -------
Weighted average number of shares at 31 December - basic 274,434 275,341
--------------------------------------------------------- ------- -------
Loss per share (Cents)
Basic and diluted 2.4 2.1
--------------------------------------------------------- ------- -------
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 Group'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 Group seeks to minimise
potential adverse effects of these risks on the Group's financial
performance. The Board has overall responsibility for managing the
risks and the framework for monitoring and coordinating these
risks. The Group's financial risk management policies are set out
below:
(a) Credit risk
Credit risk is the risk of financial loss to the Group if a
customer or counterparty to a financial instrument fails to meet
its contractual obligations, and arises principally from the Group
receivables related parties. The Group 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:
2013 2012
US$000 US$000
Cash and cash equivalents 24,009 40,383
-------------------------- ------ ------
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its obligations as they fall due. The Group 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 Group's financial position.
The Group 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 2013 the foreign currency denominated assets
include cash balances held in sterling of US$16,699,000 (2012:
US$34,671,000), other receivables denominated in sterling of
US$161,000 (2012: US$282,000), and payables of US$608,000 (2012:
US$585,000) denominated in sterling.
The following significant exchange rates applied during the
year:
Reporting date Reporting date
Average rate spot rate Average rate spot rate
2013 2013 2012 2012
------------------- ------------ -------------- ------------ --------------
Against US Dollars US$ US$ US$ US$
Pounds Sterling 1.5649 1.6557 1.5852 1.6255
------------------- ------------ -------------- ------------ --------------
Sensitivity analysis
A 10% weakening of the following currencies against the US
Dollar at 31 December 2013 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.
Equity Profit or loss Equity Profit or loss
2013 2013 2012 2012
US$000 US$000 US$000 US$000
---------------- ------- -------------- ------- --------------
Pounds sterling (1,596) (1,596) (3,437) (3,437)
---------------- ------- -------------- ------- --------------
A 10% strengthening of the above currencies against the US
Dollar at 31 December would have had the equal but opposite effect
on the above currencies to the amounts shown above, on the basis
that all other variables remain constant.
Capital management
The Board's policy is to maintain a strong capital base so as to
maintain investor and market confidence. Capital consists of share
capital and retained earnings.
The Directors do not intend to declare or pay a dividend in the
foreseeable future but, subject to the availability of sufficient
distributable profits, intend to commence the payment of dividends
when it becomes commercially prudent to do so.
The Company has a LTIP which is administered by the Remuneration
Committee. The LTIP is discretionary and the Remuneration Committee
will decide whether to make share awards under the LTIP at any
time. Either the Group Employee Benefit Trust buys the shares in
the Company to be issued under the LTIP or, share options awards
are made direct to individuals as appropriate.
14 Commitments
The Group had no capital commitments or off-balance sheet
arrangements at 31 December 2013 (31 December 2012: nil). The Joint
Venture Supplemental Agreement requires the Company to contribute
US$ 17m towards works to the end of 2014. $10m of this was funded
in 2013, leaving $7m (of which US$5m has now been paid) to be
funded during 2014.
15 Related parties
The Group's relationships with Jumelles and Glencore are
described in Note 1 above.
The following transactions occurred with related parties during
the period:
Closing balance
Transactions for the period (payable)/receivable
----------------------------- -----------------------
2013 2012 2013 2012
US$000 US$000 US$000 US$000
---------------------------------------------------- -------------- ------------- ----------- ----------
Intercompany Jumelles Limited 25 39 - (25)
Intercompany Jumelles Technical Services UK Limited 53 (32) - (53)
Harris GeoConsult Ltd (228) (308) (10) (48)
Strata Capital UK LLP (729) (780) (8) (5)
Xstrata Services (UK) Ltd (9) 14 5 14
Funding:
To Jumelles Ltd 10,000 515 - -
---------------------------------------------------- -------------- ------------- ----------- ----------
In addition to the transactions above, during 2012, the Group
also issued share options in respect of consultancy services
provided by Strata Capital UK LLP. Details of these options can be
found in Note 11.
Transactions with key management personnel
2013 2012
US$000 US$000
--------------------- ------ ------
Share-based payments 21 345
Directors' fees * 578 509
--------------------- ------ ------
Total 599 854
--------------------- ------ ------
* Harris GeoConsult Ltd, a company in which Colin Harris has a
controlling interest, was paid a total of GBP146,000 (US$228,000)
for consultancy services provided by Colin Harris during 2012
(2012: GBP193,000 US$308,000).
A total of GBP314,000 (US$493,000) for consultancy services
provided by Michael Haworth during 2013 (2012: GBP311,000
(US$497,000)) was paid to a limited liability partnership in which
Mr Haworth has a significant interest, previously known as Strata
Capital UK LLP.
The Directors' have no material interest in any contract of
significance subsisting during the financial year, to which the
Group is a party.
Glossary
AL(2) O(3) Alumina (Aluminium Oxide)
Fe Iron
FS Feasibility Study
JORC Code the 2004 Australasian Code for Reporting
of Exploration Results, Mineral Resources
and Ore Reserves as published by the Joint
Ore Reserves Committee of the Australasian
Institute of Mining and Metallurgy, Australian
Institute of Geoscientists and Minerals
Council of Australia
LOI Loss on ignition
LOM Life of mine
Mineral Resource a concentration or occurrence of material
of intrinsic economic interest in or on
the Earth's crust in such form, quality
and quantity that there are reasonable
prospects for eventual economic extraction.
The location, quantity, grade, geological
characteristics and continuity of a Mineral
Resource are known, estimated or interpreted
from specific geological evidence and knowledge.
Mineral Resources are sub-divided, in order
of increasing geological confidence, into
Inferred, Indicated and Measured categories
Mn Manganese
Ore Reserve the economically mineable part of a Measured
and/or Indicated Mineral Resource. It includes
diluting materials and allowances for losses,
which may occur when the material is mined.
Appropriate assessments and studies have
been carried out, and include consideration
of and modification by realistically assumed
mining, metallurgical, economic, marketing,
legal, environmental, social and governmental
factors. These assessments demonstrate
at the time of reporting that extraction
could reasonably be justified. Ore Reserves
are sub-divided in order of increasing
confidence into Probable Ore Reserves and
Proved Ore Reserves. A Probable Ore Reserve
has a lower level of confidence than a
Proved Ore Reserve but is of sufficient
quality to serve as the basis for a decision
on the development of the deposit.
P Phosphorus
PFS Pre-feasibility Study
SiO(2) Silica
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SEDFULFLSELM
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