TIDMZIOC
RNS Number : 5648D
Zanaga Iron Ore Company Ltd
27 June 2019
27 June 2019
Zanaga Iron Ore Company Audited Results for the Year to 31
December 2018
2018 Highlights and post reporting period end events to June
2019
-- Early Production Project ("EPP Project" or "EPP")
o Targeting 1 million tons per annum ("Mtpa") production of high
grade >65% Fe iron ore pellet feed concentrate / pellets with
low impurities with construction period of 2 years
o Evaluation process progressing well on low capital cost
development
-- Targeting US$110m capital cost for full iron ore pellet
project, using conventional pelletisation process
-- Evaluation process expected to conclude during H2 2019
o Substantial plant technical work complete
-- Bulk sample utilised for product testing
-- Low capex, low opex milling solution proven viable
-- Beneficiation test work confirmed process flow sheet
-- Indicative detailed pellet feed plant cost estimate
received
-- Bolt-on pellet plant cost estimate being refined
o Preferred mining contractor selected - contract discussions
under way
o Brownfield logistics solution entering final stages of
definition
-- Minor road upgrades required for road route to Franceville,
Gabon
-- Multiple trucking contractors engaged - optimal solution
being refined
-- Rail and port costs entering detailed negotiation
o Potential production of Direct Shipping Ore ("DSO") now under
investigation
-- Product expected to be similar to industry benchmark 62% iron
ore
-- Expected to require only a few months to bring into
production following a construction decision and permitting being
secured
-- Evaluation process leverages extensive study work already
concluded on the EPP with results to be provided in H2 2019
o On completion of assessment and evaluation work, outcomes to
be presented to the board of Jumelles Ltd, the joint venture
company ("Jumelles") for consideration
-- 30Mtpa staged development project (12Mtpa Stage One ("Stage
One"), plus 18Mtpa Stage Two expansion ("Stage Two"))
o Positive indicative results from internal review of the
economics of the development project as outlined in the 2014
Feasibility Study ("2014 FS")
-- 2014 FS model reviewed internally to illustrate potential
impact of 65% iron concentrate index pricing formula
-- Value engineering opportunities have been identified with
potential to provide significant capital and operating
costreductions, including potential incorporation of low cost
milling solution tested in H2 2018
-- Project Team engaging with third party contractors and
consultants to evaluate options to investigate savings achievable
on the 30Mtpa staged development project to a higher degree of
confidence
-- Port
o Non-binding Letter of Intent ("LOI") submitted to China Road
and Bridge Corporation ("CRBC") by Mining Project Development Congo
SAU ("MPD Congo") and other mining companies to support CRBC's
current discussions with Chinese funding institutions for the
development of the new bulk mineral port at Pointe-Indienne,
Republic of Congo ("RoC")
-- Cold pelletisation technology tests successfully achieve
production of a pellet of sufficient quality to meet industry
standards as determined by third party laboratories. Process
underway to ascertain commercial acceptability with steel mills
-- Work programme and budget for 2019 and 2019 Funding Agreement
agreed with Glencore Projects Pty Ltd ("Glencore"), a subsidiary of
Glencore
-- Cash balance of US$2.0m as at 31 December 2018 and a cash balance of US$1.4m at 31 May 2019
-- Appointment of Mr Jonathan Andrew Velloza ("Johnny Velloza")
to the board of ZIOC as an Independent Non-Executive Director on 6
September 2018
Clifford Elphick, Non-Executive Chairman of ZIOC, commented:
"I am pleased to report to shareholders on the significant
progress made by the Project Team in progressing the Zanaga Project
in 2018. In addition, the environment for tier one iron ore
projects has significantly improved. The combination of a rise in
benchmark iron ore prices as well as a simultaneous expansion in
premiums for high quality iron ore products, driven by China's push
to reduce environmental pollution, has led to more favourable
conditions for the Zanaga Project.
The Project Team have been actively preparing the project for
this resurgence in iron ore prices and their focus on the need to
position Zanaga's iron ore product at the higher end of the global
iron ore market is bearing fruit. The focus of Zanaga's Early
Production Project remains to produce iron ore in a shorter period
of time, at low capital cost, utilising existing brownfield
logistics solutions.
We look forward to providing further updates to shareholders as
results are received from the current study work programmes and
conclusion of Jumelles' evaluation process on the EPP Project."
The Company will post its Annual Report and Accounts for the
year ended 31 December 2018 ("2018 Annual Report and Accounts") to
shareholders on 28 June 2019.
The 2018 Annual Report and Accounts will be available on the
Company's website www.zanagairon.com today.
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 Andrew Godber, Edward Thomas
Adviser and Corporate Broker +44 20 3100 2000
About us:
Zanaga Iron Ore Company Limited ("ZIOC" or the "Company") (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 investment in its associate Jumelles Limited. 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 Statemnt
Dear Shareholder,
The iron ore market has moved into deficit due to substantial
increases in steel production globally, driven by record production
in China, as well as the removal of significant iron ore supply
following the tragic accidents from failed tailings dam
infrastructure in Brazil and the cyclone in Australia. As a result
of this sudden supply shock and simultaneous robust demand, the
iron ore price has rebounded to levels not seen since before the
commodity crisis in 2014.
In addition, there remains a continuing trend towards demand for
high quality iron ore products similar to that which would be
produced by the Zanaga Iron Ore Project ("Zanaga Project"). This
evolution of consumption towards higher quality products has been
driven by a strong push from China to reduce pollution and improve
efficiency in its energy consumption and steel production
operations. The sustained level of significant premiums being paid
for higher quality products similar to the type of product
anticipated from the Zanaga Project encourages us to believe that
this is a structural, rather than a cyclical, shift in industry
pricing dynamics.
As previously reported to shareholders, Jumelles, the joint
venture between the Company and Glencore, has been undertaking a
process to evaluate the potential development of a 1Mtpa EPP
Project that would be quicker to construct than the larger 30Mtpa
staged development project and would utilise existing road, rail
and port infrastructure.
The Zanaga Project Team ("Project Team") continue to advance
study work in an effort to improve their understanding of the
viability of the EPP Project with an aim to determining capital and
operating cost estimates in H2 2019 in order to allow a view to be
taken on the economic viability of this EPP Project.
New Mineral Port in Pointe-Indienne
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 has
conducted a significant amount of work on this major project,
including a feasibility study on the port development.
ZIOC notes that there is still discussion between the the
government of RoC, China EXIM Bank and CRBC on the financing and
development plan for the new bulk materials port development north
of Pointe Noire.
ZIOC confirms that a non-binding LOI has been provided to CRBC
by Jumelles' subsidiary, MPD Congo, and four other mining companies
to support the development of this port; this LOI outlines the need
to hold discussions with CBRC to determine an economically and
technically viable development of the new port in alignment with
the needs of the mining companies.
Permitting
It is recognised by the Project Team that the current permitting
regime which applies to the development of the Zanaga Project would
need to be supplemented in the event of an early stage production
process proceeding. Initial consideration has already been given to
the supplemental regime which would need to be put in place.
Iron Ore Market
The iron ore market has experienced dramatic events in the last
year. The tragedy caused by the failure of the Brumadinho tailings
dam has led to extensive closures of production in Brazil which are
likely to last for a number of years. In addition, earlier this
year Australia experienced a cyclone that resulted in a reduction
of iron ore exports of approximately 14 million tons in the first
quarter of 2019 and caused a meaningful reduction in supply of
benchmark iron ore product.
As highlighted by ZIOC in the past, the crackdown by the Chinese
government on the level of pollution resulting from domestic steel
production plant has caused a change in the purchasing behaviour of
the iron ore market's biggest consumer.
This has led to a substantial increase in prices of high quality
iron ore products, with high iron content itself (improving yield
in a steel plant) and lower impurity levels, requiring less coking
coal and having a significantly reduced environmental impact.
The scale of the price premiums being paid for these high
quality iron ore products has significantly exceeded market
expectations. This underlines the importance of projects with ores
capable of producing premium products at costs that result in the
achievement of high margins. This is explained in more detail in
ZIOC's project update announcement on 28 March 2019.
Changes to the Board of Directors
Johnny Velloza joined the board of ZIOC as an Independent
Non-Executive Director following the Company's Annual General
Meeting on 6 September 2018. Mr Velloza has a wealth of experience
in the mining industry. Prior to this, he was with Gem Diamonds Ltd
as Deputy CEO and COO, and prior to that he was with BHP Western
Australia Iron Ore where he was General Manager at Mining Area C,
the largest iron ore mine in the BHP portfolio, from 2013 to 2015,
leading a number of successful operational efficiency programmes.
He has also acted as a Senior Exploration Manager in Zambia and
Chile for BHP from 2011-2013, Operations Manager at AngloGold
Ashanti from 2009-2010 and held numerous managerial positions at De
Beers from 2001-2009.
Mr Velloza, aged 48, holds a Bachelor's degree in Mining
Engineering from The University of Johannesburg and a Bachelor's
degree in Business from The University of South Africa.
In addition, Mr Michael Haworth stepped down as a Director to
focus on other business commitments and retired at the Company's
Annual General Meeting on 5 September 2018.
Cash Reserves and Project Funding
ZIOC is pleased with the current operating budget expectations
for the Project for 2019 and expects the Project Team to continue
to deliver on work programmes as planned.
Similar to the Funding Agreement for 2018 project expenditure,
Glencore and ZIOC have agreed a 2019 Project Work Programme and
Budget for the Project of US$1.3m plus US$0.1m of discretionary
spend dependent on certain workstreams requiring capital. ZIOC has
agreed to contribute towards this work programme and budget an
amount comprising US$0.6m plus 49.99% of all discretionary items
approved jointly with Glencore. Ignoring any entitlement to
savings, ZIOC's potential contribution to the Project in 2019 under
the 2019 Funding Agreement is US$0.7m in total. In the event that a
decision is taken to allocate capital to more extensive product
tests or study work, additional funding may be required.
Based on the current cost base at the Zanaga Project, as well as
the current low corporate overheads of ZIOC, we are well positioned
to support our operations going forward in the near future. The
board of directors of ZIOC (the "Board") is of the view that ZIOC
has sufficient funds to meet its own working capital requirements
up to, and beyond, twelve months from the approval of these
accounts. The Company had cash reserves of US$1.4m as at 31 May
2019 and continue to take a prudent approach to managing these
funds.
Outlook
As a result of the work completed on the EPP, significant
progress has been made in taking steps towards repositioning the
Zanaga Project to be developed on the basis of a smaller start-up
with a relatively low capital cost investment requirement. This is
a major improvement and substantially reduces the financing
challenge associated with bringing a new mining project into
production.
We are enthusiastic about the prospects for the Zanaga product's
desirability in the current iron ore market due to the continued
high premiums being paid for high quality iron ore products.
Due to the improvements in conditions for the iron ore market,
steps are also being taken to evaluate options available to
optimise the 30Mtpa staged development project, particularly with a
view to assessing solutions available for infrastructure
funding.
We look forward to providing an update to shareholders in H2
2019 as the Project progresses.
Clifford Elphick
Non-Executive Chairman
Business Review
The Zanaga Project is currently benefiting from multiple
improvements in conditions for the Project. The positive impact of
high iron ore prices, and significant price premiums for high
quality products in particular, provides a strong foundation for
the Project to progress through its technical milestones in
2019.
The Project Team's work in evaluating the potential for an early
production project that would produce 1Mtpa of high quality iron
ore product at a capital cost of less than US$110m is potentially
capable of constituting a major improvement. If the early
production project is judged viable and is successfully proceeded
with, it potentially provides a low cost platform for the Zanaga
Project to enter into production. It could also lead to the
evaluation of a number of alternative options for the development
of the larger 30Mtpa staged development project.
The Project Team have worked to assess options for the initial
development of the EPP Project, and critical to this work has been
determining the viability of the smaller scale plant that would
produce high quality iron ore product even at the reduced
scale.
In addition, the Project Team are currently evaluating the
potential for a small scale DSO project to commence production of a
product similar to industry benchmark 62% Fe. This evaluation
processes leverages the extensive study work done by the Project
Team in ascertaining current mining and logistics costs for the EPP
Project. Further updates will be provided in H2 2019.
Early Production Project
The EPP Project is envisaged as an initial development stage for
the Zanaga Project, targeting an operating scale of 1Mtpa of pellet
feed iron ore concentrate and/or iron ore pellets with
transportation of the product via existing logistics
infrastructure. The objective would then be to leverage the
operating skills gained through this initial phase to develop and
partly fund the larger 30Mtpa (12+18Mtpa) staged development
project which would require substantially greater capital
investment, newly built bulk logistics infrastructure, and a four
year construction period.
The Project Team has adopted a strategy towards the EPP Project
of engaging experienced third party contractors for mining and for
all logistical aspects of the EPP Project such as the trucking,
rail and port solutions. As a result, Zanaga's operating company
would only be required to undertake the EPP Project's processing
activities. Through this approach, it is believed capital
expenditure can be minimised and limited predominantly to the
processing plant solution required for the beneficiation of Zanaga
iron ore into a high grade iron ore product pellet feed/pellet
product.
A comprehensive update on the EPP Project's evaluation process
as well as recent developments on the 30Mtpa staged development
project was provided to shareholders on 28 March 2019. Key elements
of that update are provided below with some additions to
incorporate the potential DSO stage.
1) Mining Contract
The Project Team has made significant progress in refining the
cost estimate associated with the mining contract. The third party
mining contractor would be expected to source all capital equipment
for the operation, which would result in Jumelles not being
required to finance the capital costs associated with establishing
the mining operation. The estimated operating costs associated with
the mining contract have been provided and are in the process of
negotiation.
2) Pellet Feed Concentrate Plant
An Engineering Procurement and Construction company ("EPC") has
been selected as the preferred provider of the process plant
facilities. In order to refine and confirm the costs associated
with the EPC's initial proposal, three tons of Zanaga's iron ore,
representative of the orebody's upper layers, were sent for testing
with the equipment providers selected by the EPC.
As a primary step, it was deemed important to evaluate the
capabilities of the EPC's proposed milling solution which was
expected to provide significant benefits, specifically through
lower capital costs, operating costs, and power consumption rates
in comparison to the ball milling solution previously selected as
part of the milling solution in the 2014 FS. The Project Team is
pleased to report that this new milling solution for the pellet
feed concentrate plant performed well and Zanaga's test material
was successfully milled to desired levels in multiple tests.
A number of samples were selected from the milled material for
the subsequent beneficiation test work programme. The milled
material was delivered to beneficiation test facilities in Brazil
and South Africa and underwent a competitive evaluation process to
ascertain the optimal beneficiation solution based on capital and
operating costs, as well as product grade and material recoveries
achieved. The beneficiation test work process is now complete and
the costs associated with the optimal solution have been assembled
into a revised cost estimate.
The Project Team has received, from the EPC responsible for the
cost estimate of the pellet feed concentrate plant, an indicative
detailed cost estimate which is summarised below:
Capital cost US$38m
Operating cost US$3.75/t Run of Mine (excluding power)
Schedule 22 months (fully installed on site)
Target product grade Greater than 65% Fe with combined Silica plus Alumina less than 5%
3) Pellet Plant
The Project Team are investigating the possibility of
pelletising Zanaga's pellet feed concentrate product into a higher
value product, which would be expected to secure higher revenue per
ton.
The Project Team has received a high-level preliminary
indicative cost estimate from Outotec, a well-regarded
pelletisation plant manufacturer for the installation of a 1Mtpa
pelletisation plant at the mine site. This estimate includes a
high-level indicative capital cost estimate of US$50-$60 million
for a pellet plant, with a power consumption estimate of 4.0 to
4.5MW. The operating costs are in the process of being defined
through technical conversations between the pelletisation plant
manufacturer and the Project Team. The estimated timetable for full
installation of the pellet plant is 24 to 28 months.
Further to the Project update provided on 28 March 2019, Outotec
has now commenced the process of integrating the pellet plant into
the pellet feed concentrate plant design. This is being done with
the objective of seeking to secure synergies in construction timing
with the project's South African EPC contractor while
simultaneously maximising South African content within the two
plants in order to enhance the option of securing larger Export
Credit Agency financing from South African financing
institutions.
In addition, as previously announced, the Zanaga Project is
currently investigating a new technology pelletisation solution. A
memorandum of understanding has been signed between Jumelles and
Binding Solutions Ltd ("BSL") to investigate the potential of BSL's
polymer binder technology. The Project Team and BSL are working
together to ascertain the commercial viability of this technology
and it should be noted that there can be no guarantee that the
results will be successful, despite the positive results achieved
to date in testing the cold pelletisation of Zanaga iron ore
samples at a laboratory scale. At the moment, if a pelletisation
option were to be pursued by the Zanaga Project, the conventional
pelletisation solution should be regarded as the EPP Project's
preferred option versus the cold pelletisation opportunity.
4) Road Infrastructure and Trucking Contract
The Project Team is evaluating the optimal solution for the
export of the EPP Project's iron ore via either Gabon or RoC. In
order to export the material it needs to be trucked to a railway
siding in either RoC or Gabon. Two potential rail sidings are
currently under consideration, either (a) Franceville in Gabon,
which is approximately 173km from the Zanaga Project, or (b)
Mossendjo in RoC, which is approximately 160kms from the Zanaga
mine site.
The Project Team have received proposals for the cost of
upgrading both road options under consideration. The condition of
the road to Franceville in Gabon is significantly better than the
road to Mossendjo in RoC.
As regards a trucking contract, the Project Team have entered
into discussions with multiple third party trucking companies to
secure cost estimates for the trucking of material to the rail
siding alternatives. These discussions are progressing well and a
number of cost estimates have been received and are in the process
of being evaluated and refined.
5) Rail and Port contract
The Project Team are discussing a potential solution for the
rail and port logistics solutions with the relevant service
providers in Gabon and RoC. However, the Gabonese route is
currently the preferred route due to a lower expected capital cost
associated with upgrading the road to the rail siding in
Franceville as well as the Gabon rail and port infrastructure being
a more technically advanced solution operationally, due to the
current level of operations on the Transgabonais railway line today
as well as the significant port expansion under way in
Libreville.
6) Power
A significant cost driver associated with the viability of the
EPP Project is the power requirement. The power requirement on the
mine site is expected to be between 5.9MW and 10.4MW depending on
whether a pellet plant is included and whether it is located on the
mine site or located closer to the logistics infrastructure in
Gabon or RoC. The option of potentially connecting the more energy
intensive pellet plant to existing grid power infrastructure and
avoiding capital costs associated with a larger power solution on
the mine site is under consideration.
The Project Team is investigating multiple power solutions for
providing power to the mine site. The simplest solution is to
install diesel generator sets for the 5.9MW of mine site activities
and target connection of the potential pellet plant to grid power
infrastructure. The indicative high-level preliminary estimated
cost of this power solution is well understood now and is expected
to be approximately U$c20/kwh.
The Project Team is also investigating, amongst other solutions,
the potential for the inclusion of small scale hydro power into the
EPP Project which would increase capital costs but could provide
very low cost power as regards operating costs.
7) Potential DSO stage
Due to high prices for benchmark 62% Fe product the board of
Jumelles has approved a process to evaluate the potential for the
production of up to 1Mtpa of DSO iron ore product. While the
process has only just commenced, the evaluation of this option
leverages the extensive study work already completed on the EPP
Project.
The intention is to consider this interim production phase as a
viable solution during the construction of the EPP Project; however
the board of Jumelles is not ruling out the possibility of this
option being a standalone project albeit with a shorter expected
life of production.
Depending on how this initiative proceeds, it is the intention
to provide further information in due course alongside information
provided on the progress of the assessment of the EPP Project.
8) Conclusion and Next Steps
It is the Project Team's intention to secure fixed price cost
estimates for key aspects of the proposed EPP Project as part of
the process of determining its viability and economic feasibility.
Many of the key indicative cost estimates contained in proposals so
far submitted by the entities approached by the Project Team are
now better understood. Once cost estimates have been fully received
and refined and sufficient information has been received to enable
the proposed EPP to be fully assessed as to its viability, the
outcomes will be assembled into a report for the Board of Jumelles.
Depending on the achievement of a positive outcome and
authorisation from the Jumelles Board, the Zanaga Project would
then be seeking to move towards securing regulatory permits and
consents, the negotiation of contracts and seeking financing for
construction and operation.
The Project Team intend on concluding the evaluation process for
the EPP Project during H2 2019.
The intention of the work underway on the Project is to
establish whether the EPP Project is a viable proposition. If the
Jumelles Board and the shareholders of Jumelles (ZIOC and Glencore)
conclude that the EPP is a viable proposition, and support taking
the EPP initiative forward, that would enable the Project Team to
then engage with governmental bodies, regulators and contractors as
to the permitting process and contractual structures. Concurrently
with the above process, discussions have already commenced with
various parties on potential financing solutions for both debt and
equity required for the development of the EPP Project.
30Mtpa Staged Development Project
The Project Team's ultimate objective remains to develop the
larger 30Mtpa staged development mining project. As a reminder, the
Stage One project plans to produce 12Mtpa of premium quality 66% Fe
content iron ore pellet feed product at bottom quartile operating
costs for more than 30 years on a standalone basis. The capital
cost associated with this Stage One phase was estimated at
US$2.2bn, including contingency, on completion of the 2014 FS.
The Stage Two expansion of 18Mtpa is nominally scheduled to suit
the project mine development, construction timing and forecast cash
flow generation, and would increase the Project's total production
capacity to 30Mtpa. The product grade would increase to an even
higher premium quality 67.5% Fe content iron ore pellet feed at
even lower operating cost. The US$2.5bn capital expenditure for the
additional 18Mtpa production, including contingency, could
potentially be financed from the cash flows from the Stage One
phase.
1) Economic evaluation exercise
In view of changes in the pricing of iron ore products in the
market and the emergence of a high grade pricing index which has
been developed in recent years (referred to below), the Company has
carried out the exercise of inputting new figures into the economic
model produced as part of the 2014 FS in two specific areas
focussed entirely on freight and iron ore pricing. This exercise
has been carried out for illustrative purposes as a high level
evaluation exercise.
As part of the 2014 FS on the 30Mtpa (12+18Mtpa) staged
development Project, the potential economic outcomes of the Project
were reviewed across a range of prices based on a long term 62% Fe
benchmark index structure. However, in recent years the 65%
concentrate index has become established and this should be seen as
a more appropriate index on which to benchmark pellet feed
concentrate products such as that which would be produced by the
12+18Mtpa staged development project.
Earlier this year, as reported to shareholders on 28 March 2019,
the Company re-ran the 2014 FS model with a new range of prices
from US$70/dmt to US$110/dmt for the 65% concentrate index. A
summary of the outcomes of this exercise is presented below for
illustrative purposes.
Stage One
Iron Ore Price (65% IODEX) US$/dmt 70 80 90 100 110
Internal Rate of Return % 5.6% 11.0% 15.4% 19.2% 22.7%
=========== ===== ====== ====== ====== ======
Net Present Value US$m -531 137 797 1,447 2,085
=========== ===== ====== ====== ====== ======
Net Free Cash Flow (5 year average
post capex) US$m/year 261 388 503 617 730
=========== ===== ====== ====== ====== ======
EBITDA (5 year average, post
capex) US$m/year 296 425 553 681 810
=========== ===== ====== ====== ====== ======
Stage One and Two
Iron Ore Price (65% IODEX) US$/dmt 70 80 90 100 110
Internal Rate of Return % 8.9% 13.4% 17.4% 20.6% 23.7%
=========== ===== ====== ====== ====== ======
Net Present Value US$m -254 867 1,983 2,952 3,943
=========== ===== ====== ====== ====== ======
Net Free Cash Flow (5 year average
post capex) US$m/year 614 849 1,082 1,254 1,450
=========== ===== ====== ====== ====== ======
EBITDA (5 year average, post
expansion) US$m/year 799 1,082 1,366 1,649 1,932
=========== ===== ====== ====== ====== ======
Notes to tables above: Management estimates based on the 2014 FS
financial model. Capex and opex figures contained in the 2014 FS
have not been updated. Iron ore product pricing in the 2014 FS has
been altered to a pricing formula based on the 65% Fe concentrate
index, with a pro-rata adjustment for the Zanaga Project's higher
iron ore content product. The Net Present Value is based on a
discounted cash flow model at a 10% real discount rate and the
Internal Rate of Return (IRR) is calculated on a 'real' basis,
unlevered.
New Mineral Port in Pointe-Indienne
In March 2013, the RoC signed a Memorandum of Understanding with
CCCC, and its subsidiary 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 has conducted a
significant amount of work on this major project, including a
feasibility study on the port development.
ZIOC notes that there is still discussion between the RoC
Government, China EXIM Bank and CRBC on the financing and
development plan for the new bulk materials port development north
of Pointe Noire.
ZIOC confirms that a non-binding LOI has been provided to CRBC
by Jumelles' subsidiary, MPD Congo, and four other mining companies
to support the development of this port; this LOI outlines the need
to hold discussions with CBRC to determine an economically and
technical viable development of the new port in alignment with the
needs of the mining companies.
Power
The Project Team are engaging on a variety of solutions for
off-grid power suitable for the EPP Project. The EPP Project
requires up to 10.4 megawatts of power and a number of entities
have expressed an interest in providing this power solution. The
Project Team are evaluating the option of sourcing third party
power with Independent Power Producers ("IPPs"), as well as the
option of incorporating an owned power solution into the
project.
As regards the staged 30Mtpa staged development project the
strategy is to connect the Project to the national network. The
Project's 100MW power requirement would be supplied by existing and
planned power generation capacity in the country, particularly the
Sounda dam project and the different dam projects in the Louessé
valley (close to Mossendjo - Mourala Dam projects).
Power would be delivered to the mine site through two connection
points to the current 220kV transmission network within 160km and
200km of a proposed new transmission line to the east and south of
the mine site respectively. The Project team has been engaging with
potential IPPs and Government departments in order to develop a
power supply for the Project. The team will be conducting further
work during the remainder of 2019 on the potential for a power
solution to be defined.
The Project's Stage Two ramp up to 30Mtpa is expected to
increase 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 is sufficient to support independent
power generation from locally available energy sources and we will
plan this development in coordination with other planned regional
power infrastructure developments.
The Project Team have also been working with a number of third
parties to investigate the potential for optimisation of the power
solution designed for the staged 30Mtpoa Project outlined the 2014
FS. A number of projects in the RoC are under investigation and
could form part of the power solution for the Project. In addition,
a number of areas of optimisation of the initial design are under
investigation today.
In addition, the Project Team have been working with Sinohydro,
a subsidiary of Power China on the development of a hydro power
plant capable of providing up to 45MW of power for the EPP
Project.
Permitting
It is recognised by the Project Team that the current permitting
regime which applies to the development of the Zanaga Project would
need to be supplemented in the event of an early stage production
process proceeding. Initial consideration has already been given to
the supplemental regime which would need to be put in place.
Next Steps
The Project Team remains encouraged by improving iron ore market
conditions for premium products and the support this provides to
advancing the Zanaga Project.
During H2 2019, the Project Team will continue to advance the
EPP Project to final economic evaluation that will allow the
Project to be presented to the Jumelles Board (and to the Jumelles
shareholders) for consideration. As part of that process, contact
is being made with potential third party debt and equity funding
providers. Furthermore, the Project Team will be progressing
opportunities to optimise the costs of the 30Mtpa staged
development project as well as potential infrastructure funding
structures with the potential to reduce the upfront capital cost of
developing this larger production scenario.
Financial Review
Results from operations
The financial statements contain the results for the Group's
eighth full year of operations following its incorporation on 19
November 2009. The Group made a total comprehensive loss in the
year of US$1.8m (2017: total comprehensive loss US$1.4m). The total
comprehensive income for the year comprised:
2018 2017
US$000 US$000
------------------------------------------------------------------- ------- -------
General expenses (919) (943)
Net foreign exchange (loss)/gain (152) 366
Share of loss of associate (including impairment by associate) (795) (824)
Interest income 9 8
------------------------------------------------------------------- ------- -------
Loss before tax (1,857) (1,393)
Currency translation (8) 52
Share of other comprehensive income of associate -foreign exchange - (48)
------------------------------------------------------------------- ------- -------
Total comprehensive income / (loss) (1,865) (1,389)
------------------------------------------------------------------- ------- -------
General expenses of US$0.9m (2017: US$0.9m) consists of US$0.4m
professional fees (2017: US$0.4m), US$0.2m Directors' fees (2017:
US$0.3m) and US$0.2m (2017: US$0.2m) of other general operating
expenses.
The share of loss of associate reflected above relates to ZIOC's
investment in the Project, through Jumelles, which, generated a
loss of US$1.6m in the year to 31 December 2018 (2017: loss
US$1.6m). During the year Jumelles spent a net US$1.6m (2017
US$1.7m) on exploration, net of a currency translation loss of
US$nil (2017: loss US$0.1m).
Financial Position
ZIOC's Net Asset Value ("NAV") of US$39.4m (2017: US$41.3m)
comprises of US$37.4m (2017: US$37.6m) investment in Jumelles,
US$1.9m (2017: US$3.7m) of cash balances and US$0.1m (2017: US$0.3m
net current liabilities) of other net current liabilities.
2018 2017
US$000 US$000
--------------------------------- ------ ------
Investment in Associate 37,450 37,589
Fixed Assets - -
Cash 1,955 3,721
Net current assets/(liabilities) 14 (27)
--------------------------------- ------ ------
Net assets 39,419 41,283
--------------------------------- ------ ------
Cost of investment
The Investment in Associate relates to the carrying value of the
investment in Jumelles which as at 31 December 2018 continued to
own 100% of the Project. During 2018, under the existing 2018
Funding Agreement between the Company and Glencore, the Company
contributed a further US$0.7m (2017: US$0.6m). Though a long term
project, in the light of currently forecast market conditions, the
carrying value of the exploration asset continues to be held in
Jumelles at US$80m (2017: US$80m). The Company accounts for 50%
less one share of Jumelles.
As at 31 December 2018, Jumelles had aggregated assets of
US$81.6m (2017: US$81.9m) and aggregated liabilities of US$0.8m
(2017: US$0.8m). Assets consisted of US$80m (2017: US$80m) of
capitalised exploration assets, US$1.27m (2017: US$1.52m) of other
fixed assets, US$0.3m cash (2017: US$0.3m) and US$0.1m other assets
(2017: US$0.1m). Net of a currency translation loss of US$nil
(2017: loss US$0.1m) a net total of US$1.3m (2017: US$1.6m) of
exploration costs were capitalised during the year.
Cash flow
Cash balances decreased by US$1.7m during 2018 (2017: decrease
of US$1.1m), net of interest income US$0.01m (2017: US$0.01m) and a
foreign exchange loss of US$0.16m (2017: gain of US$0.36m) on bank
balances held in UK Sterling. Additional investment in Jumelles
required under the 2018 Funding Agreement (outline details in Note
1 to the financial statements) utilised US$0.7m (2017: US$0.6m) and
operating activities utilised US$0.9m (2017: US$0.5m).
Fundraising activities
There were no fundraising activities during 2018 (2017:
nil).
Reserves & Resource Statement
The Zanaga Project has defined a 6.9bn tonne Mineral Resource
and a 2.1bn tonne Ore Reserve, reported in accordance with the JORC
Code (2012), and defined from only 25km of the 47km orebody
identified.
Ore Reserve Statement
The Ore Reserve estimate (announced by the Company on 30
September 2014) was prepared by independent consultants, SRK
Consulting (UK) Ltd ("SRK") and is based on the 30Mtpa Feasibility
Study and the 6,900Mt Mineral Resource (announced by the Company on
8 May 2014).
As stipulated by the JORC Code, Proven and Probable Ore Reserves
are of sufficient quality to serve as the basis for a decision on
the development of the deposit. Based on the studies performed, a
mine plan was determined in 2014 to be technically achievable and
economically viable.
Ore Reserve Category Tonnes (Mt(Dry) Fe (%) SiO(2) (%) Al(2) O(3) P (%)
) (%)
---------------------- --------------- ------ ---------- ---------- -----
Proved 770 37.3 35.1 4.7 0.04
---------------------- --------------- ------ ---------- ---------- -----
Probable 1,300 31.8 44.7 2.3 0.05
---------------------- --------------- ------ ---------- ---------- -----
Total 2,070 33.9 41.1 3.2 0.05
---------------------- --------------- ------ ---------- ---------- -----
Notes:
Long term price assumptions are based on a CFR IODEX 62% Fe
forecast of 60 US$/dmt (97 USc/dmtu at 62% Fe) with adjustments for
quality, deleterious elements, moisture and freight.
Discount Rate 10% applied on an ungeared 100% equity basis
Mining dilution ranging between 5% and 6%
Mining losses ranging between 1% and 5%
Note: The full Ore Reserve Statement is available on the
Company's website (www.zanagairon.com)
Mineral Resource
Classification Tonnes Fe (%) SiO(2) Al(2) O(3) P (%) Mn (%) LOI
(Mt) (%) (%) (%)
---------------- ------- ------- ------- ----------- ------ ------- -----
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
---------------- ------- ------- ------- ----------- ------ ------- -----
Reported at a 0% Fe cut-off grade within an optimised Whittle
shell representing a metal price of 130 USc/dmtu. Mineral Resources
are inclusive of Reserves. A revised Mineral Resource, prepared in
accordance with the Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves (the JORC Code, 2012
Edition) was announced on 8 May 2014 and is available on the
Company's website (www.zanagairon.com).
Note: The figures shown are rounded; they may not sum to the
subtotals shown due to the rounding used.
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/banded iron formation ("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 statement in this announcement relating to Ore Reserves is
based on information compiled by Mr Gabor Bacsfalusi who is a
Chartered Professional Member of the Australasian Institute of
Mining and Metallurgy. He is a mining engineer and Principal
Consultant of SRK Consulting (Canada) Inc. He has sufficient
experience 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 as defined in the JORC Code
(2012). The Competent Person, Mr Gabor Bacsfalusi, confirms that
the historical (2014) Ore Reserve Estimate is accurately reproduced
in this Annual Report and given his consent to the inclusion in the
report of the matters based on his information in the form and
context within which it appears. For the avoidance of doubt, SRK
confirms that it has not undertaken any further additional
technical work subsequent to publication of the 2016 Annual
Report.
The information in the announcement 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 Australasian Code for Reporting of Exploration Results,
Mineral Resources and Ore Reserves (2012) 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
The principal business of ZIOC currently comprises managing
ZIOC's interest in the Zanaga Project, including the Jumelles
group, and monitoring the development of the Project and engaging
in discussions with potential investors. The principal risks facing
ZIOC are set out below. Risk assessment and evaluation is an
essential part of the Group's planning and an important aspect of
the Group's internal control system.
Risks relating to the agreement with Glencore and development of
the Zanaga Project
The Zanaga Project is majority controlled at both a shareholder
and director level by Glencore. The ability of the Company to
control the Zanaga Project and its operations and activities,
including the future development of the Project (including any
variant such as an EPP development) and the future funding
requirements of Jumelles, is therefore limited.
The future development of the mine and related infrastructure
(including any variant such as an EPP development) will be
determined by the Jumelles Board. There can be no certainty that
the Jumelles board will approve the construction of the mine and
related infrastructure or any variant thereof such as an EPP
development, including the taking of preparatory steps associated
with the construction of the mine and related infrastructure, such
as front end engineering and design, or the undertaking of work
needed to assess the viability of an EPP development or any
component part of an EPP development.
Risks relating to future funding of the Zanaga Project
Under the Joint Venture Agreement between the Company, Glencore
and Jumelles of 3 December 2009, as amended (the "JVA"), there is
no obligation on the Company or Glencore to provide further funding
to Jumelles. The Company and Glencore have reached agreement on a
work programme and funding of the Zanaga Project for 2019. As such
agreement relates to 2019, there is a risk that after 31 December
2019 Jumelles may be subjected to funding constraints and this
could have an adverse impact upon the Project. Moreover,
discretionary amounts are contained in the 2019 work programme and
budget; these require the joint approval of ZIOC and Glencore. It
is possible that as regards certain items, joint approval would not
be forthcoming.
Risks relating to iron ore prices, markets and products
The ability to raise finance for the Project is largely
dependent on movements in the price of iron ore. Iron ore prices
have historically been volatile and are primarily affected by the
demand for and price of steel and the level of supply of iron ore.
Such prices are also affected by numerous other factors beyond the
Company's and the Jumelles group's control, including the relative
exchange rate of the U.S. dollar with other major currencies,
global and regional demand, political and economic conditions,
production levels and costs and transportation costs in major iron
ore producing regions.
While it is anticipated that there will be a stabilisation of
iron ore prices in the global market for iron ore, the timing of
such stabilisation and the level of iron ore prices which
eventually emerges is uncertain. Although the 2014 FS identifies
the product from the Project and the potential demand for such
product within a range of iron ore prices, 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 or to enable finance for the development of the Project to
be raised. Furthermore, the range of iron ore prices in the 2014 FS
will need to be reviewed so as to reflect changed market conditions
and changed expectations relating to the supply and demand for iron
ore.
Risks relating to an EPP
For some considerable period, an initiative has been and is
being carried out to investigate the possibility of a low-cost
small scale start-up, using existing infrastructure, focussing on a
standard 62% Fe benchmark iron ore product or a high grade 65% Fe
pellet feed iron ore product that would involve simple 'processing'
applications. In conjunction with this, the possibility of a
low-cost small scale start-up involving the production of a pellet
feed concentrate and conventional pelletisation continues to be
investigated. This initiative also involves the assessment of
methods of providing the necessary power requirements as well as
logistical support to enable the product to be transported to an
available exit port. There will also be the need to put in place
the appropriate contractual and permitting arrangements. There is a
risk that such kind of start-up is found not to be viable or is not
proceeded with for other reasons or is delayed.
Cold Pelletising Test Results and confirmatory testing
Additionally, a 'cold pelletisation' process, based on new and
relatively untested cold pelletisation technology, has also been
the subject of investigation. The purpose of the pelletising test
work in relation to such process carried out was to test sizing and
processing techniques to produce a client defined target
concentrate, which, with the application of novel cold binding
technologies, would be capable of producing transportable pellets
or briquettes with the potential to conform to international
marketplace accepted chemical and physical parameters.
During 2018, various processing techniques were tested to
achieve the target grade stipulated by the client. As part of the
test work, pellets with varying binder compositions were tested for
their reduction degradation index ("RDI") characteristics partly at
a European steel mill and partly at a certified laboratory in
Germany. The results of such tests were encouraging.
The steel industry is notoriously cautious in adopting new
technologies so further work will be required for the full
acceptance of this product. The Project Team are working with a
leading British Institute to evaluate the technology with the
objective of ascertaining steel industry acceptance of the
product.
Risks relating to financing the Zanaga Project
Any decision of the Jumelles board to proceed with construction
of the mine and related infrastructure (or any variant such as a
low capital cost, small scale start-up EPP Project) is itself
dependent upon the ability of Jumelles to raise the necessary debt
and equity to finance such construction and the initial operation
of the mine (or any variant such as a low-cost small scale
start-up). Jumelles may be unable to obtain debt and/or equity
financing in the amounts required, in a timely manner, on
favourable terms or at all and should this occur, it is highly
likely to pose challenges to the proposed development of the Zanaga
Project and the proposed timeline for its development. Moreover,
the global credit environment may pose additional challenges to the
ability of Jumelles to secure debt finance or to secure debt
finance on acceptable terms, including as to rates of interest.
Risks relating to financing of the Company
The Company will not generate any material income until the an
operating stage of the Project has been constructed and mining and
export of the iron ore has successfully commenced at commercial
volumes. In the meantime the Company will continue to expend its
cash reserves. Should the Company seek to raise additional finance,
it may be unable to obtain debt and/or equity financing in the
amounts required, in a timely manner, on favourable terms or at
all.
If construction of the mine and related infrastructure proceeds
(including any preparatory steps associated with the construction
of the mine and related infrastructure) or any small scale start-up
proceeds, 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 (including for the purpose of
funding the construction of the Project or any part of the Project,
including any small-scale start-up) 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.
If the Company fails to generate or obtain sufficient financial
resources to develop and operate its business, this could
materially and adversely affect the Company's business, results of
operations, financial condition and prospects.
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. Estimated mineral reserves or
mineral resources may also have to be recalculated based on changes
in iron ore or other commodity prices, further exploration or
assessment or development activity and/or actual production
experience.
Host country related risks
The operations of the Zanaga Project are located mainly in the
RoC. 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 can include, but are not limited
to: political, military or civil unrest; fluctuations in global
economic and market conditions impacting on the 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 RoC is an emerging market and, as a
result, is generally subject to greater risks than in the case of
more developed markets.
HIV/AIDS, malaria and other diseases are prevalent in the RoC
and, accordingly, the workforce of the ZIOC group and of the
Jumelles group will be exposed to the health risks associated with
the country. The operating and financial results of such entities
could be materially adversely affected by the loss of productivity
and increased costs arising from any effect of HIV/AIDS, malaria
and other diseases on such workforce and the population at
large.
Weather conditions in the RoC can fluctuate severely. Rain
storms, flooding and other adverse weather conditions are common
and can severely disrupt transport in the region where the Jumelles
group operates and other logistics on which the Jumelles group is
dependent.
The host country related risks described above could be relevant
both as regards day-to-day operations and the raising of debt and
equity finance for the Project. The occurrence of such risks could
have a material adverse effect on the business, prospects,
financial condition and results of operations of the Company and/or
the Jumelles group.
Risks relating to the Project's licences and the regulatory
regime
The Project's Mining Licence was granted in August 2014 and a
Mining Convention has been entered into. With effect from 20 May
2016, the Zanaga Mining Convention has been promulgated as a law of
the RoC, following ratification by the Parliament of the RoC and
publication in the Official Gazette.
The holder of a mining 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%. Under the terms of the Mining Convention, there is a
contingent statutory 10% free participatory interest in favour of
the Government of the RoC as regards the mine operating company and
a contingent option for the Government of the RoC to buy an
additional 5% stake at market price.
The granting of required approvals, permits and consents may be
withheld for lengthy periods, not given at all, or granted subject
to conditions which the Jumelles group may not be able to meet or
which may be costly to meet. As a result, the Jumelles group may
incur additional costs, losses or lose revenue and its business,
result of operations, financial condition and/or growth prospects
may be materially adversely affected. Failure to obtain, renew,
enforce or comply with one or more required approvals, permits and
consents could have a material adverse effect on the business,
prospects, financial condition and results of operations of the
Company and/or the Jumelles group. Mitigation of such risks is in
part dependent upon the terms of the Mining Convention and
compliance with its terms.
Transportation and other infrastructure
The successful development of the Project (including any
low-cost small scale start-up) depends on the existence of adequate
infrastructure and the terms on which the Project can own, use or
access such infrastructure. 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, or some other
exit port in the case of a low-cost small scale start-up.
The nature and timing of construction of the proposed new port
are still under discussion with the government of the RoC and other
interested parties. In relation to the pipeline and Project
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 new port and/or other needed infrastructure or a
failure to obtain access to and use of the proposed new port and/or
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.
In the case of a low-cost small scale start-up, failure to put
in place the necessary logistical requirements (including trucking,
rail transportation and port facilities) and/or other needed
infrastructure or a failure to obtain access to and use of the
proposed logistical requirements 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
can be produced and transported to any proposed exit port and will
impact on the economic viability of the Project.
Reliable and adequate infrastructure (including an outlet port,
roads, bridges, power sources and water supplies) are important
determinants which affect capital and operating costs and the
ability of the Jumelles group to develop the Project, including any
low-cost small scale start-up. Failure or delay in putting in place
or accessing infrastructure needed for the development of the
Zanaga Project could have a material adverse effect on the
business, prospects, financial condition and results of operations
of the Company and/or the Jumelles group.
Risks associated with access to land
Pursuant to the laws of the RoC, mineral deposits are the
property of the government with the ability to purchase surface
rights. Generally speaking, the RoC has not had a history of native
land claims being made against the state's title to land. There is
no guarantee, however, that such claims will not occur in the
future and, if made, such claims could have a deleterious effect on
the progress of development of the Project and future
production.
The Mining Convention envisages that the RoC will carry out a
process to expropriate the land required by the Zanaga Project and
place such land at the disposal of the holder of the Mining Licence
in order to build the mine and the infrastructure, including the
pipeline, required for the realisation of the Zanaga Project. This
means that the rights of the Jumelles company which holds the
Mining Licence to the relevant land will be subject to negotiation
between the Congolese government and such company. Alternatively,
if the land is not declared DUP (i.e. is expropriated by the State
under its sovereign powers) then the Jumelles group will have to
reach agreement with the local land owners which may be a more time
consuming and costly process.
Risks relating to timing
Any delays in (i) obtaining rights over and access to land and
infrastructure; (ii) obtaining the necessary permits and
authorisations; (iii) the construction or commissioning of the
mine, the pipeline or facilities at an exit port or power
transmission lines or other infrastructure; or (iv) negotiating the
terms of access to the exit port and supply of power and other
infrastructure; or (v) raising finance to fund the development of
the mine and associated infrastructure, could prevent altogether or
impede the development of the Zanaga Project, including the ability
of the Zanaga Project to export its future iron ore products
whether on the anticipated timelines or at projected volumes and
costs or otherwise. Such delays or a failure to complete the
proposed infrastructure or the terms of access to infrastructure or
to do this in an economically viable manner, could have a material
adverse effect on the business, results of operations, financial
condition and prospects of the Company and/or the Jumelles
group.
Environmental risks
The operations and activities of the Zanaga Project are subject
to potential risks and liabilities associated with the pollution of
the environment and the disposal of waste products that may occur
as a result of its mineral exploration, development and production,
including damage to preservation areas, over-exploitation and
accidental spills and leakages. Such potential liabilities include
not only the obligation to remediate environmental damage and
indemnify affected third parties, but also the imposition of court
judgments, administrative penalties and criminal sanctions against
the relevant entity and its employees and executive officers.
Awareness of the need to comply with and enforcement of
environmental laws and regulations continues to increase.
Notwithstanding precautions taken by entities involved in the
development of the Project, breaches of applicable environmental
laws and regulations (whether inadvertent or not) or environmental
pollution could materially and adversely affect the financial
condition, business, prospects and results of operations of the
Company and/or the Jumelles group.
Health and safety risks
The Jumelles group is required to comply with a range of health
and safety laws and regulations in connection with its business
activities and will be required to comply with further laws and
regulations if and when construction of the Project commences and
the mine goes into operation. A violation of health and safety laws
relating to the Project's operations, or a failure to comply with
the instructions of the relevant health and safety authorities,
could lead to, amongst other things, a temporary shutdown of all or
a portion of the Project's operations or the imposition of costly
compliance measures. If health and safety authorities require the
Project to shut down all or a portion of its operations or to
implement costly compliance measures, whether pursuant to
applicable health and safety laws and regulations, or the more
stringent enforcement of such laws and regulations, such measures
could have a material adverse effect on the financial condition,
business, prospects, reputation and results of operations of the
Company and/or the Jumelles group.
Risks relating to third party claims
Due to the nature of the operations to be undertaken in respect
of the development of the Zanaga Project, there is a risk that
substantial damage to property or injury to persons could be
sustained during such development. Any such damage or injury could
have a material adverse effect on the financial condition,
business, prospects, reputation and results of operations of the
Company and/or the Jumelles group.
Risks relating to outsourcing
The 2014 FS 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. Any low-cost small scale
start-up is also likely to involve the undertaking of various key
elements of the Project by 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.
Fluctuation in exchange rates
The Jumelles group's functional and reporting currency is the
U.S. dollar, and most of its in country costs are and will be
denominated in CFA francs and Euros. Consequently, the Jumelles
group must translate the CFA franc and Euro denominated assets and
liabilities into U.S. dollars. To do so, non-U.S. dollar
denominated monetary assets and liabilities are translated into
U.S. dollars using the closing exchange rate at the reporting
period end date. Consequently, increases or decreases in the value
of the U.S. dollar versus the Euro (and consequently the CFA franc)
and other foreign currencies may affect the Jumelles group's
financial results, including its assets and liabilities in the
Jumelles group's balance sheets. These factors will affect the
financial results of the Company. In addition, ZIOC holds the
majority of its funds in Pounds Sterling, and incurs the majority
of its corporate costs in Pounds Sterling, but its contributions to
funding the Jumelles group in 2018 and 2019 are calculated in U.S.
dollars. Consequently, any fluctuation in exchange rates between
Pounds Sterling versus the U.S. dollar or the Euro, could also
adversely affect the financial results of the Company.
Cash resources
The Company has limited cash resources. Although the Company has
taken steps to conserve its cash resources, there is a risk that
depletion of such cash resources will adversely affect the Company.
Such depletion could result in further expenditure cuts being
introduced by the Company, both in its internal and its external
operations. Continuing volatile and uncertain economic conditions
in the global iron ore market means that there can be no certainty
as to when the Zanaga resource is likely to be developed. The
difficult prevailing economic conditions as well as difficulties of
monetising this resource given its location impact upon the ability
of the Jumelles group to raise new finance for the Project as well
as on the Company's ability to raise new finance for itself. The
Company's existing cash resources will continue to come under
increasing pressure unless a more benign investment and trading
climate materialises in the foreseeable future which benefits the
Project and the Company can take steps which result in an
improvement of its financial position.
Financial Statements
Consolidated statement of comprehensive Income
for year ended 31 December 2018
2018 2017
Note US$000 US$000
--------------------------------------------------------------------------------- ---- ------- -------
Administrative expenses (1,071) (577)
Share of loss of associate 6b (795) (824)
--------------------------------------------------------------------------------- ---- ------- -------
Operating loss (1,866) (1,401)
Interest income 9 8
Loss before tax (1,857) (1,393)
Taxation 5 - -
--------------------------------------------------------------------------------- ---- ------- -------
Loss for the year (1,857) (1,393)
--------------------------------------------------------------------------------- ---- ------- -------
Items that will not be reclassified subsequently to profit or loss:
Share of other comprehensive income of associate - foreign exchange translation - (48)
Items that may be reclassified subsequently to profit or loss:
Foreign exchange translation - foreign operations 6b (8) 52
--------------------------------------------------------------------------------- ---- ------- -------
Other comprehensive income/(loss) (8) 4
--------------------------------------------------------------------------------- ---- ------- -------
Total comprehensive loss (1,865) (1,389)
--------------------------------------------------------------------------------- ---- ------- -------
(Loss) per share
Basic (Cents) 12 (0.6) (0.5)
Diluted (Cents) 12 (0.6) (0.5)
Loss and total comprehensive loss for the year is attributable
to the equity holders of the Parent Company.
The notes form an integral part of the financial statements.
Consolidated statement of financial position
for year ended 31 December 2018
2018 2017
Note US$000 US$000
------------------------------------------------------------ ---- --------- ---------
Non-current assets
Property, plant and equipment 6a - -
Investment in Associate 6b 37,450 37,589
------------------------------------------------------------ ---- --------- ---------
37,450 37,589
------------------------------------------------------------ ---- --------- ---------
Current assets
Other receivables 7 89 49
Cash and cash equivalents 8 1,955 3,721
------------------------------------------------------------ ---- --------- ---------
2,044 3,770
------------------------------------------------------------ ---- --------- ---------
Total Assets 39,494 41,359
------------------------------------------------------------ ---- --------- ---------
Current liabilities
Trade and other payables 9 (75) (75)
------------------------------------------------------------ ---- --------- ---------
Net assets 39,419 41,284
------------------------------------------------------------ ---- --------- ---------
Equity attributable to equity holders of the Parent Company
Share capital 10 267,012 267,012
Accumulated deficit (230,912) (229,055)
Foreign currency translation reserve 3,319 3,327
------------------------------------------------------------ ---- --------- ---------
Total equity 39,419 41,284
------------------------------------------------------------ ---- --------- ---------
The notes form an integral part of the financial statements.
These financial statements were approved by the Board of
Directors on 26 June 2019 and were signed on its behalf by:
Mr Clifford Elphick
Director
Consolidated statement of changes in equity
for year ended 31 December 2018
Foreign
currency
Share Accumulated translation Total
capital deficit reserve equity
US$000 US$000 US$000 US$000
--------------------------------------- ------- ----------- ----------- -------
Balance at 1 January 2017 267,012 (227,662) 3,322 42,672
Consideration for share-based payments - - - -
Loss for the year - (1,393) - (1,393)
Other comprehensive income - - 4 4
--------------------------------------- ------- ----------- ----------- -------
Total comprehensive loss - (1,393) 4 (1,389)
--------------------------------------- ------- ----------- ----------- -------
Balance at 31 December 2017 267,012 (229,055) 3,327 41,284
--------------------------------------- ------- ----------- ----------- -------
Balance at 1 January 2018 267,012 (229,055) 3,327 41,284
Consideration for share-based payments - - - -
Loss for the year - (1,857) - (1,857)
Other comprehensive income / (loss) - - (8) (8)
--------------------------------------- ------- ----------- ----------- -------
Total comprehensive loss - (1,857) (8) (1,865)
--------------------------------------- ------- ----------- ----------- -------
Balance at 31 December 2018 267,012 (230,912) 3,319 39,419
--------------------------------------- ------- ----------- ----------- -------
Consolidated cash flow statement
for year ended 31 December 2018
2018 2017
Note US$000 US$000
------------------------------------------------ ---- ------- -------
Cash flows used in operating activities
Loss for the year (1,857) (1,393)
Adjustments for:
Interest receivable (9) (8)
Decrease/(Increase) in other receivables (40) 11
(Decrease)/Increase in trade and other payables - (38)
Net exchange gain/(loss) 144 (313)
Share of Loss in associate 795 824
Net cash used in operating activities (967) (917)
------------------------------------------------ ---- ------- -------
Cash flows used in financing activities
Cash flows used in investing activities
Interest received 9 8
Investment in Associate (656) (588)
------------------------------------------------ ---- ------- -------
Net cash used in investing activities (647) (580)
------------------------------------------------ ---- ------- -------
Net decrease in cash and cash equivalents (1,614) (1,497)
Cash and cash equivalents at beginning of year 3,721 4,852
Effect of exchange rate difference (152) 366
------------------------------------------------ ---- ------- -------
Cash and cash equivalents at end of year 8 1,955 3,721
------------------------------------------------ ---- ------- -------
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 Ground
Floor, Coastal Building Wickham's Cay II, Road Town P.O. Box 2136,
Carrot Bay VG1130 Tortola, British Virgin Islands. On 18 November
2010, the Company's share capital was admitted to trading on the
AIM Market ("AIM") of the London Stock Exchange ("Admission"). 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 subject to the then Call Option.
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 administrative 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
MPD Congo which, owns and operates 100% of the Zanaga Project in
the RoC (subject to a minimum 10% free carried interest in MPD
Congo in favour of the Government of the RoC).
In December 2009 Garbet and Guava contributed their then
respective 50/50 joint shareholding in Jumelles to 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.
At the time that Garbet was a shareholder in the Company, it was
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. Until 3 April 2017
Garbet owned approximately 41.49% of the share capital of the
Company. Pursuant to a transaction effected on 2 April 2017 Garbet
ceased to hold any shares in the Company. As part of such
transaction the shares in the Company which were held by Garbet
were transferred directly or indirectly to Garbet's shareholders
and the shareholders of Garbet's holding company, Strata.
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"):
-- The 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 call option. Under the terms of the
Call Option, the consideration payable by Xstrata Projects for the
option shares that would be issued by Jumelles would comprise (i) a
commitment to fund all costs to be incurred by Jumelles in
completing a feasibility study ("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 owes to
Garbet and Guava as loans which would be used to repay the latter;
and
-- an agreement which regulated the respective rights of the
Company, Jumelles and Xstrata Projects in relation to Jumelles
following exercise of the Call Option. Subsequently:
o Xstrata merged with the Glencore group on 2 May 2013 to form
Glencore Xstrata and the holding company of the merged group
subsequently changed its name to Glencore.
o Under the terms of the supplemental agreement announced on 13
September 2013 ("Supplemental Agreement"), 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 contributed
US$17m from existing resources), and the Glencore call option over
the Company's remaining 50% less one share shareholding in Jumelles
was 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 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.
Xstrata Projects exercised the Call Option on 11 February 2011
and the founding shareholder loans were repaid. The final elements
of the Call Option price consideration were the completion of the
Feasibility Study and costs thereof, and these were completed in
April 2014.
Relationship between Jumelles and its shareholders after
exercise of the Call Option (Post February 2011)
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 joint venture
agreement ("JVA"). Under the terms of the JVA (as amended), 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.
Glencore has the right to appoint three directors to the
Jumelles Board while ZIOC has a right to appoint two directors. At
any Jumelles Board meeting, the directors nominated by Glencore
have between them such number of votes as represents Glencore's
voting rights in the general meetings of Jumelles and the directors
nominated by ZIOC have between them such number of votes as
represents ZIOC's voting rights in the general meetings of
Jumelles.
As a consequence of the provisions of the JVA (in its original
version and as subsequently amended), following exercise of the
Call Option in February 2011 and Xstrata's merger with the Glencore
group to form Glencore Xstrata (May 2013), 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 accounted for this as an
Investment in Associate in respect of the Project with
Glencore.
Following exercise of the Call Option, the principal business of
the Company has been to manage its 50% less one share interest in
the Project. Initially this involved the monitoring of both the
finalisation of the pre-feasibility study and the preparation of
the feasibility study. Subsequently emphasis has been placed on
progressing the key objectives of the Project Team. These
objectives include the establishment of port and power agreements
with relevant developers, issue of the environmental permit, and
ratification of the Zanaga Mining Convention by the Parliament of
the RoC. These items form important milestones as the Project moves
toward attracting the finance required for the implementation of
Stage One. The objectives also include progressing the evaluation
of the EPP.
Future funding requirements and going concern basis of
preparation
The Directors have prepared the accounts on a going concern
basis. At 31 December 2018 the Company had cash reserves of
US$2.0m.
Similar to the Funding Agreement for 2018 project expenditure,
Glencore and ZIOC have agreed a Funding Agreement to fund the 2019
Project Work Programme and Budget for the Project of US$1.3m plus
US$0.13m of discretionary spend dependent on certain workstreams
requiring capital. After taking in savings arising from previous
years, ZIOC has agreed to contribute towards such work programme
and budget an amount comprising US$0.65m plus 49.99% of all
discretionary items approved jointly with Glencore. Ignoring any
entitlement to savings, ZIOC's potential contribution to the
Project in 2019 under the 2019 Funding Agreement is US$0.73m in
total. In the event that a decision is taken to allocate capital to
more extensive product tests or study work additional funding may
be required.
The Company's current cash reserves are sufficient to support
both the Company's own operating costs for the next 12 months and
the agreed contribution to the Project under the Funding Agreement
for 2019 referred to in the previous paragraph.
The Company continues to review the costs of its operational
activities with a view to conserving its cash resources. As part of
such ongoing review, the Directors and management have indicated to
the Company that they will assist the cash preservation activities
of the Company, by re-negotiating contractual arrangements so as to
provide for payments of fees in shares and/or options in lieu of
cash. If this course of action is determined to be necessary, It is
expected that this will take effect from the beginning of Q4
2019.
In common with many exploration and development companies in the
mining sector, the Company raises funding in phases as its project
develops. As the Zanaga Project is still in the development stage
and the cash resources of the Company are diminishing, the Company
recognises that steps will need to be taken to raise additional
investment either at the corporate level or at the Zanaga Project
level, or a combination of the two. The raising of additional funds
is linked to the progress that is made in relation to the
development of the Zanaga Project. The initiatives that are being
undertaken in relation to the development of the Zanaga Project
have been described earlier in this report. There are a range of
options for raising funds which the Company is pursuing. It is
recognised that there is a risk that the Company may be unable to
obtain debt and/or equity financing in the amounts required, in a
timely manner, on favourable terms or at all and should this occur,
it is highly likely to pose challenges for the Company and could
adversely have an impact upon the proposed development of the
Zanaga Project and the proposed timeline for its development.
If construction of the mine and related infrastructure proceeds
(including any preparatory steps associated with the construction
of the mine and related infrastructure), and the Company elects to
fund its pro rata equity share of construction capital expenditure,
it will need to raise further funds. There is no certainty as to
the Company's ability to raise the required finance or the terms on
which such finance may be available.
In addition, any decision of the Jumelles Board to proceed with
construction of the mine and related infrastructure (or any variant
such as a low-cost small scale start-up) is itself dependent upon
the ability of Jumelles to raise the necessary debt and equity to
finance such construction and the initial operation of the mine.
Jumelles itself may be unable to obtain debt and/or equity
financing in the amounts required, in a timely manner, on
favourable terms or at all and should this occur, it is highly
likely to pose challenges to the proposed development of the Zanaga
Project and the proposed timeline for its development.
The Company still believes that once the proposed staged
development of the Zanaga Project occurs, the Project offers high
grade ore at competitive cost, thereby offering an attractive rate
of return, at an acceptable level of risk. However, in order to
carry out such staged development, it is still the case that
substantial capital expenditure will be required both at the
prospective mine site and in respect of transportation and other
associated infrastructure and for working capital. Revenues from
mining are dependent upon such development being financed and
taking place. Despite the positive current state of the global iron
ore market there can be no certainty as to when Jumelles and the
Company are able to raise new finance for the staged development of
the Project or any small-scale start-up.
At a time when the staged development of the Project takes place
(or, if viable, a small-scale start-up takes place) the Company
will need to obtain additional funding should it decide to elect to
fund its share of any such development of the mine. If such staged
development continues to be deferred due to unfavourable market
conditions, the Company will need at the appropriate time to
explore options to raise additional funding, pending the staged
development (or, if viable, a small-scale start-up) taking
place.
At present, taking into account the judgments, estimates and
other matters discussed above, the Company has sufficient 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.
Brexit
The Brexit process has resulted in increased volatility in
currency rates applicable to Pounds Sterling. Such volatility is
likely to continue. As the Company's cash resources are held in
Pounds Sterling, such volatility could adversely affect the
Company's financial position and results where it is obliged to
make payments of sums denominated in other currencies. This
particularly applies to contributions made by the Company to
funding the Jumelles group as these amounts are calculated in
United States dollars.
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.
The company's presentation currency and functional currency is
US dollars.
New standards, amendments and interpretations
The following Adopted IFRSs have been issued but have not been
applied by the Group in these financial statements. Their adoption
is not expected to have a material effect on the financial
statements unless otherwise indicated:
-- IFRS 16 Leases (effective date 1 January 2019)
As at the reporting period end date, the Group has no material
operating lease commitments and therefore no significant changes in
accounting policies or to the financial statements are expected
upon adoption of the new standard.
Adoption of new standards effective 1 January 2018
(i) IFRS 9 Financial Instruments
IFRS 9 supersedes IAS 39 "Financial Instruments: Recognition and
Measurement" and covers classification and measurement of financial
assets and financial liabilities, impairment of financial assets
and hedge accounting. IFRS 9 modifies the classification and
measurement of certain classes of financial assets and liabilities
and required the Group to reassess classification of its financial
assets from four to three primary categories (amortised cost, fair
value through profit and loss, fair value through other
comprehensive income). Financial liabilities continue to be
measured at either fair value through profit and loss or amortised
cost. In addition, IFRS 9 introduced an expected credit loss
("ECL") impairment model, which requires a loss allowance to be
recognised on the basis of future anticipated credit losses rather
than incurred credit losses.
The table below summarises the change in classification and
measurement of financial assets and liabilities recognised
previously under IAS 39 and the revised measurement categories
following adoption of IFRS 9 as of 1 January 2018.
Original Original
measurement New measurement carrying New carrying
category category amounts Effect amount
under IAS under IFRS under IAS of IFRS under IFRS
$'000 Note 39 9 39 9 adoption 9
----------------------- ----- ------------- ---------------- ----------- ------------ -------------
Financial assets
Fair value
through
Cash and cash profit Amortised
equivalents 8 or loss cost 1,955 - 3,721
Loans and Amortised
Other receivables 7 receivables cost 49 - 49
Financial liabilities
Trade and other Amortised Amortised
payables 9 cost cost (75) - (75)
----------------------- ----- ------------- ---------------- ----------- ------------ -------------
Note that both cash and cash equivalents and other receivables
are held within a business model whose objective is to collect the
contractual cashflows and those contractual cashflows comprise
solely payments of principal and interest.
Changes in accounting policies resulting from IFRS 9 have been
applied as of 1 January 2018, with no restatement of comparative
information of the prior year. There were no changes to carrying
values of financial assets or liabilities upon the initial adoption
of IFRS 9.
(ii) IFRS 15 Revenue from contracts with customers
IFRS 15 was adopted on the mandatory application date of 1
January 2018. Whilst the Group has applied IFRS 15 from 1 January
2018, this application has no impact on the Group's financial
statements as it does not have any revenues given the development
stage of its investment in the Project.
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.
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
reporting 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 equity.
Share-based payments
The Group makes equity-settled share-based payments to certain
employees and similar persons as part of LTIP (a long-term
incentive plan). 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 were granted to employees of the Group's associate
and similar persons, the equity-settled share-based payments were
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 awards. 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 issued under the 2010 LTIP were acquired by an
Employee Benefit Trust which subscribed for the shares at zero
value. These shares are held by the Employee Benefit Trust until
the vesting conditions have been met and the share options are
exercised. During Q4 2017, all the outstanding share options were
exercised and a small number of surplus shares held by the Employee
Benefit Trust were distributed to beneficiaries of the Trusts. The
Employee Benefit Trust has now been discontinued.
Subsequent awards of share options have been structured as
standard share options and did not involve the use of an employee
benefit trust.
Information on the share awards is 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. No awards were issued in 2017
or 2018.
Non-derivative financial instruments
Financial assets and financial liabilities are recognised in the
Group's consolidated statement of financial position when the Group
becomes a party to the contractual provisions of the instrument in
accordance with IFRS 9.
Financial assets are initially recognised at their fair value,
including, in the case of instruments not recorded at fair value
through profit or loss, directly attributable transaction costs.
Financial assets are subsequently measured at amortised cost, at
fair value through other comprehensive income (FVTOCI) or at fair
value through profit or loss (FVTPL) depending upon the business
model for managing the financial assets and the nature of the
contractual cash flow characteristics of the instrument.
Financial liabilities, other than derivatives, are initially
recognised at fair value of consideration received net of
transaction costs as appropriate and subsequently carried at
amortised cost.
Non-derivative financial instruments in the balance sheet
comprise other receivables, cash and cash equivalents, and trade
and other payables.
(i) Impairment of financial assets
A loss allowance for expected credit losses is determined for
all financial assets, other than those at FVTPL, at the end of each
reporting period. The expected credit loss recognised represents a
probability-weighted estimate of credit losses over the expected
life of the financial instrument.
The expected credit loss allowance is determined on the basis of
twelve month expected credit losses and where there has been a
significant increase in credit risk, lifetime expected credit
losses. Financial assets are credit impaired when there is no
realistic likelihood of recovery.
(ii) Derecognition of financial assets and financial
liabilities
The Group derecognises a financial asset when the contractual
rights to the cash flows from the asset expire, or when it
transfers the financial asset and substantially all the risks and
rewards of ownership of the asset to another party.
The Group derecognises financial liabilities when the Group's
obligations are discharged, cancelled or have expired.
On derecognition of a financial asset/financial liability in its
entirety, the difference between the carrying amount of the
financial asset/financial liability and the sum of the
consideration received and receivable/paid and payable is
recognised in profit and loss.
Other receivables
Other receivables comprise prepayment and receivables from
related parties. Where financial assets are included within this
line item, these are managed within a business model to collect the
contract cashflows, which represent solely payments of principal
and interest. Other receivables are subsequently measured at
amortised cost.
Trade and other payables
Trade and other payables are initially recognised at the fair
value of consideration received net of transaction costs as
appropriate and subsequently measured at amortised cost.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits. These are managed within a business model to collect the
contract cashflows, which represent solely payments of principal
and interest These are subsequently measured at amortised cost and
are determined to have a low credit risk due to being held with
highly credit rated financial institutions. As such, these balances
are not assessed to determine whether there has been a significant
increase in credit risk.
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.
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 of investment in associate
The carrying amounts of the Group's investment in associate are
reviewed at each reporting period end to determine whether there is
any indication of impairment. The investment 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 investment. If any such indication exists, the investment's
recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of
the investment or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income
statement.
(i) Calculation of recoverable amount
The recoverable amount of the Group's investments 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).
(ii) Reversals of impairment
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.
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 end of each reporting period, 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 end of each reporting period.
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. Financial information regarding
this segment is provided in Note 6b.
Subsequent events
Post year-end events that provide additional information about
the Group's position at the end of each reporting period (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 judgements and key sources of estimation
uncertainty
In the application of the Group's accounting policies, which are
described in note 2, the directors are required to make judgements
(other than those involving estimations) that have a significant
impact on the amounts recognised and to make estimates and
assumptions about the carrying amounts of assets and liabilities
that are not readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other
factors that are considered to be relevant. Actual results may
differ from these estimates.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
Carrying value 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 estimation
uncertainty as to the likelihood that a project will continue to
show sufficient commercial promise to warrant the continuation of
exploration and evaluation activities. Key assumptions on valuing
the project include long term price assumptions on a CFR IODEX 62%
Fe forecast 57US/dmt with adjustments for quality, deleterious
elements, moisture and freight. It is reasonably possible, on the
basis of existing knowledge, that outcomes within the next
financial year that are different from assumptions above could
require a material adjustment to the carrying amount of the
Investment in Associate.
4 Note to the comprehensive income statement
Operating loss before tax is stated after
charging/(crediting):
2018 2017
US$000 US$000
----------------------------------- ------ ------
Share-based payments (see Note 11) - -
Net foreign exchange loss/(gain) (152) (313)
Directors' fees 234 258
Auditor's remuneration 62 64
----------------------------------- ------ ------
Other than the Company Directors, the Group did not directly
employ any staff in 2018 (2017: nil). The Directors received a
total of US$234,003 remuneration for their services as Directors of
the Group (2017: US$258,000). The amounts paid as Directors' fees
are shown in the Directors' Remuneration Report in the 2018 Annual
Report. The Directors' interests in the share capital of the Group
are shown in the Directors' Remuneration Report in the 2018 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 effective tax rate for the Group is Nil % (2017: Nil %).
6a Property, Plant and Equipment
Fixtures Total
and fittings
US$000 US$000
---------------------------- ------------ ------
Cost
Balance at 1 January 2018 43 43
Additions - -
Disposals - -
---------------------------- ------------ ------
Balance at 31 December 2018 43 43
----------------------------- ------------ ------
Depreciation
Balance at 1 January 2018 43 43
Charge for period - -
---------------------------- ------------ ------
Balance at 31 December 2018 43 43
----------------------------- ------------ ------
Net book value
Balance at 31 December 2018 0 0
----------------------------- ------------ ------
Balance at 31 December 2017 0 0
----------------------------- ------------ ------
There are no assets held under finance leases or hire purchase
contracts.
6b Investment in Associate
US$000
------------------------------------------------------- ------
Balance at 1 January 2017 37,873
Additions 588
Share of post-acquisition comprehensive loss (824)
Share of post-acquisition currency translation reserve (48)
Balance at 31 December 2017 37,589
------------------------------------------------------- ------
Balance at 1 January 2018 37,589
Additions 656
Share of post-acquisition comprehensive loss (795)
Share of post-acquisition currency translation reserve -
Balance at 31 December 2018 37,450
------------------------------------------------------- ------
At 31 December 2018, the investment represents a 50% less one
share shareholding in Jumelles being 2,000,000 shares of the total
share capital of 4,000,001 shares. Originally recorded at cost, the
investment has been adjusted for changes in the Company's share of
the net assets of the associate, less impairment. The investment
has been impaired down to the Company's share of the impaired value
of the project declared in the accounts of the associate.
The additions to the investment during the year were due to the
additional US$0.66m of investment agreed in accordance with the
2018 Funding Agreement (2017 US$0.59m).
The Company's investment in Jumelles continues to be, accounted
for as an associate using the equity method of accounting as
Glencore has control of the business as described in note 1.
As at 31 December 2018, Jumelles had aggregated assets of
US$81.6m (2017: US$81.8m) and aggregated liabilities of US$0.8m
(2017: US$0.8m). For the year ended 31 December 2018 there was no
impairment charge (2017: US$nil) and incurred a loss before tax of
US$1.6m (2017: US$1.4m). There was no tax charge for 2018 (2017:
US$nil). Currency translation of the underlying Congolese asset
generated a translation loss of US$nil (2017: US$0.1m). A
summarised consolidated balance sheet of Jumelles for the year
ended 31 December 2018, including adjustments made for equity
accounting, is included below. The adjustments include US$9.074m
decrease to share capital and a corresponding US$9.074m increase to
the accumulated deficit for the LTIP settled at Jumelles level by
shares in the parent entity in 2014.
Summarised financial information in respect of the Group's
associate, reflecting 100% of the underlying associate's relevant
figures is set out below.
2018 2017
US$000 US$000
---------------------------------------- --------- ---------
Non-current Assets:
Property, plant and equipment 1,270 1,519
Exploration and other evaluation assets 80,000 80,000
Total non-current assets 81,270 81,519
---------------------------------------- --------- ---------
Current Assets 323 356
Current Liabilities (768) (772)
---------------------------------------- --------- ---------
Net current liabilities (444) (417)
---------------------------------------- --------- ---------
Net assets 80,825 81,103
---------------------------------------- --------- ---------
Share capital 293,103 293,103
Translation reserve 37,326 36,014
Translation reserve (4,824) (4,823)
Accumulated deficit (244,780) (243,191)
---------------------------------------- --------- ---------
80,825 81,103
---------------------------------------- --------- ---------
7 Other receivables
2018 2017
US$000 US$000
------------------------------------------- ------ ------
Prepayments and receivables 14 15
Amounts receivable from the Jumelles group 75 34
------------------------------------------- ------ ------
Other receivables 89 49
------------------------------------------- ------ ------
8 Cash and cash equivalents
2018 2017
US$000 US$000
-------------------------- ------ ------
Cash and cash equivalents 1,955 3,721
-------------------------- ------ ------
9 Trade and other payables
2018 2017
US$000 US$000
----------------- ------ ------
Accounts payable 75 75
75 75
----------------- ------ ------
No amounts payable are due in more than 12 months (2017: US$nil
due in more than 12 months).
10 Share capital
Ordinary Ordinary
In thousands of shares Shares Shares
2018 2017
On issue at 1 January - fully paid 278,777 278,777
------------------------------------- ----------- -------------
Shares issued 4,424 -
Shares repurchased and cancelled - -
------------------------------------- ----------- -------------
On issue at 31 December - fully paid 283,201 278,777
------------------------------------- ----------- -------------
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 2018 or in the current year (2017: US$nil).
Share capital changes in 2018
4,424,503 shares were issued in 2018. There were no share
repurchases.
11 Share-based payments
Employees
No awards were issued in 2018.
Awards currently in operation are as follows:
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 6 (fully vested)
These awards have fully vested.
Award 7 (fully vested)
These awards have fully vested.
Award 8 (fully vested)
These awards vested on the date of grant in July 2014.
Award 9 (fully vested)
These awards have fully vested.
Details of current awards are as follows:
Award 1 (2010) Award 2 (2010) Award 6 (2014) Award 8 (2014) Award 9 (2014) 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
2017 * GBP0.02 2,727,345 GBP0.02 995,382 0.01 1,204,619 0.01 1,013,418 0.01 4,000,000 GBP0.01 9,940,764
(US$0.04) (US$0.04) (US$0.04)
Granted N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
Forfeited N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
Exercised N/A Nil N/A Nil 0.01 Nil 0.01 Nil 0.1 Nil N/A NilNil
Lapsed N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
------------ --------- ---------- --------- ------- --------- ---------- -------- --------- -------- --------- ---------- ---------
At 31
December
2017 * 0.02 2,727,345 0.02 995,382 0.01 1,204,619 N/A 1,013,418 0.01 2,000,000 GBP0.01 9,940,764
At 1 January
2018 * GBP0.02 2,727,345l GBP0.02 995,382 0.01 1,204,619 0.01 1,013,418 0.01 4,000,000 GBP0.01 9,940,764
(US$0.04) (US$0.04) (US$0.04)
Granted N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
Forfeited N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
Exercised 0.02 2,727,345 0.02 995,382 0.01 201,848 0.01 1,013,418 0.1 2,000,000 0.1 6,937,993
Lapsed N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
------------ --------- ---------- --------- ------- --------- ---------- -------- --------- -------- --------- ---------- ---------
At 31
December
2018 * N/A Nil N/A Nil 0.01 1,002,771 N/A Nil 0.01 2,000,000 GBP0.01 3,002,771
Award 1 Award 8 (2014) Award 9 (2014)
(2010) Award 2 (2010) Award 6 (2014) Total
------------ --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
GBP0.00-GBP0.02 GBP0.02 GBP0.00-GBP0.01 GBP0.01 GBP0.01 GBP0.00 -
GBP0.02
Range (US$0.00-US$0.04) (US$0.04) (US$0.00-US$0.02) (US$0.02) (US$0.02) (US$0.00-US$0.04)
of exercise
prices
*
Weighted N/A N/A N/A) N/A) N/A N/A
average
fair
value
of share
awards
granted
in the
period
*
Weighted N/A N/A N/A N/A N/A N/A
average
share
price
at date
of exercise
(GBP)
Total
share
awards
vested 2,727,345 995,382 1,137,338 1,013,418 4,000,000 8,337,685
Weighted Nil Nil 39 Nil Nil
average
remaining
contractual N/A
life
(Days)
Expiry 18 May 2021 18 May 2021 29 July 2024** 29 July 2024 29 July 2024 N/A
date
------------ --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
* Sterling amounts have been converted into US Dollars at the
grant dates exchange rates of: Awards 1,2, US$1.547:GBP1.00,
Subsequent awards US$ 1.6944:GBP1.00.
** Excepting 199,076 share options with expiry date 7 July
2023
The following information is relevant in the determination of
the fair value of options granted during 2010 and 2014 which has
applied option valuation principles during the year under the above
equity-settled schemes:
Award 9
Award 1 (2010) Award 2 (2010) Award 6 (2014) Award 8 (2014) (2014)
------------- ----------------- ----------------- ----------------- ----------------- -------------
Option
pricing
model used Black-Scholes Black-Scholes Black-Scholes Black-Scholes Black-Scholes
GBP1.56 GBP1.56 GBP0.19 GBP0.19 GBP0.19
Weighted
average
share price
at date
of grant (US$2.41) (US$2.41) (US$$0.31) (US$$0.31) (US$$0.31)
Weighted
average
expected
option
life 0.7 years 1.0 years 5.0 years 4.0 years 4.6 years
Expected
volatility 50% for less
(%) 50% than 91% 91% 91%
1 year expected
life,
55% for more
than
1 year expected
life
Dividend
growth
rate (%) Zero Zero Zero Zero Zero
Risk-free
interest
rate (%) 0.51% for 0.69% for 1.75% for 1.75% for 1.75% for
12 month
6 month expected 12 month expected 12 month expected 12 month expected expected
life life life life life
2.25% in
0.69% for 1.12% for 2.25% in excess 2.25% in excess excess
24 month
12 month expected 24 month expected 24 month expected 24 month expected expected
life life life life life
------------- ----------------- ----------------- ----------------- ----------------- -------------
* Sterling amounts have been converted into US Dollars at the
grant dates exchange rates of: Awards 1,2, US$1.547:GBP1.00,
Subsequent awards US$ 1.6944:GBP1.00.
The volatility assumption of awards 1 & 2 were measured by
reference to the historic volatility of comparable companies based
on the expected life of the option. Subsequent awards referenced
the volatility of the Company's own history since the 2010
flotation.
Non-employees
Replacing awards made previously, or as new awards, on 29 July
2014 the Company also granted awards of share options in respect of
consultancy services provided by Strata Capital UK LLP, Harris
GeoConsult Ltd and Renroc International Ltd.
Consultancy Weighted Weighted Weighted Expiry date Other LTIP
average average average terms, valuation
share price fair value expected model and
at date of share life of assumptions
of grant awards * option applicable
*
--------------------- ------------- ------------ ---------- ------------ ------------------
Strata Capital GBP0.19 GBP0.12 4 years 29 July Award 8
(US$0.31) (US$0.20) 2024 above
Harris GeoConsult GBP0.19 GBP0.18 4 years 29 July Award 8
(US$0.31) (US$0.31) 2024 above
Renroc International GBP0.19 GBP0.18 4 years 29 July Award 7
(US$0.31) (US$0.31) 2024 above
--------------------- ------------- ------------ ---------- ------------ ------------------
* Sterling amounts have been converted into US Dollars at the
grant date exchange rate US$ 1.6944:GBP1.00.
The total equity-settled share-based payment expense recognised
as an operating expense during the year was US$nil, (2017: US$nil).
Further details of share-based payments awarded to Directors of the
Group can be found in the Remuneration Report in the 2018 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$nil (2017: US$nil).
12 Loss per share
2018 2017
--------------------------------------------------------- ------- -------
Profit (Loss) (Basic and diluted) (US$,000) (1,857) (1,393)
Weighted average number of shares (thousands)
Basic
Issued shares at beginning of period 278,777 278,777
Effect of shares issued 4,424 -
Effect of share repurchase and cancellation - -
Effect of own shares - (3,842)
Effect of share split - -
--------------------------------------------------------- ------- -------
Weighted average number of shares at 31 December - basic 283,201 274,935
--------------------------------------------------------- ------- -------
Loss per share
Basic (Cents) (0.6) (0.5)
Diluted (Cents) (0.6) (0.5)
--------------------------------------------------------- ------- -------
There are potential ordinary shares outstanding, refer to Notes
10 and 11 for details of these potential ordinary shares.
13 Financial instruments
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 Group's maximum exposure to credit risk was as
follows:
2018 2017
US$000 US$000
Cash and cash equivalents 1,955 3,721
--------------------------------------- ------ ------
Amounts receivable from Jumelles Group 75 34
--------------------------------------- ------ ------
Significant concentrations of credit risk manifest with the
Group's banking counterparties with which the cash and cash
equivalents are held, and accounts receivable from Jumelles.
(b) Liquidity risk
Liquidity risk is the risk that the Group is unable to meet its
payment obligations when due, or that it is unable, on an ongoing
basis, to borrow funds in the market on an unsecured or secured
basis at an acceptable price to fund actual or proposed
commitments. Prudent liquidity risk management implies maintaining
sufficient cash and cash equivalents and availability of adequate
committed funding facilities.
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 ensure
the Group's financial position, as detailed in Note 1.
The maturity profile of the Group's financial liabilities based
on the contractual terms is as follows:
$'000 Less than 1 month to Greater than Total
1 months 6 months 6 months
---------- ---------- ----------- ------------- ------
2018
Accounts
payable 75 - - 75
---------- ---------- ----------- ------------- ------
2017
Accounts
payable 75 - - 75
---------- ---------- ----------- ------------- ------
(c) Market risk
(i) Foreign currency risk
The functional currency of the Group is the US dollar. Currency
risk is the risk of loss from movements in exchange rates related
to transactions and balances in currencies other than the U.S.
dollar. 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 2018 the foreign currency denominated assets
include cash balances held in Sterling of US$1,954,425 (2017:
US$3,720,990), other receivables denominated in Sterling of
US$89,380 (2017: US$48,548), and payables of US$74,723 (2017:
US$75,923) denominated in Sterling.
The following significant exchange rates applied during the
year:
Reporting date Reporting date
Average rate spot rate Average rate spot rate
2018 2018 2017 2017
------------------- ------------ -------------- ------------ --------------
Against US Dollars US$ US$ US$ US$
Pounds Sterling 1.3348 1.2769 1.3404 1.3513
------------------- ------------ -------------- ------------ --------------
(ii) Sensitivity analysis
A 10% weakening of the following currencies against the US
Dollar at 31 December 2018 would have increased/(decreased) equity
and profit or loss by the amounts shown below. This calculation
assumes that the change occurred at the end of each reporting
period 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
2018 2018 2017 2017
US$000 US$000 US$000 US$000
---------------- ------ -------------- ------ --------------
Pounds Sterling (195) (195) (372) (372)
---------------- ------ -------------- ------ --------------
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.
(iii) Capital management
The Board's policy is to maintain a stable 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 share incentive programme which is now
administered by the Board. The share incentive programme is
discretionary and the Board will decide whether to make share
awards under the share incentive programme at any time. In Q4 2017
all then outstanding share options over already issued shares in
the LTIP split interest scheme were exercised, a small number of
surplus shares were distributed to beneficiaries of the Employee
Benefit Trust involved in the scheme and the LTIP split interest
scheme was then discontinued.
14 Commitments for expenditure
The Group had no capital commitments or off-balance sheet
arrangements at 31 December 2018 (31 December 2017: nil).
Subsequently, in January 2019 Glencore and ZIOC signed a Funding
Agreement to fund the 2019 Project Work Programme and Budget for
the Project of US$1.3m plus US$0.13m of discretionary spend
dependent on certain workstreams requiring capital. Under its
terms, the Company agreed to contribute towards such work programme
and budget an amount comprising US$0.65m plus 49.99% of all
discretionary items approved jointly with Glencore. Ignoring any
entitlement to savings, ZIOC's potential contribution to the
Project in 2019 under the 2019 Funding Agreement is US$0.73m in
total.
15 Related parties
The Group's relationships with Jumelles and Glencore are
described in Note 1.
The following transactions occurred with related parties during
the period:
Closing balance
Transactions for the period (payable)/receivable
----------------------------- -----------------------
2018 2017 2018 2017
US$000 US$000 US$000 US$000
------------------ -------------- ------------- ----------- ----------
Funding:
Due from Jumelles 656 588 75 34
------------------ -------------- ------------- ----------- ----------
16 Transactions with key management personnel
2018 2017
US$000 US$000
---------------- ------ ------
Directors' fees 234 258
---------------- ------ ------
Total 234 258
---------------- ------ ------
The Directors have no material interest in any contract of
significance subsisting during the financial year, to which the
Group is a party.
*** End of Financial Statements ***
Glossary
AL(2) O(3) Alumina (Aluminium Oxide)
Fe Total Iron
JORC Code The 2004 or 2012 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
SiO2 Silica
Advisors
Nominated Advisor and Corporate
Broker
Liberum Capital Limited
Ropemaker Place, Level 12
25 Ropemaker Street
London, EC2Y 9LY
United Kingdom
Company Secretary Legal
Elysium Fund Management Limited Bryan Cave Leighton Paisner LLP
PO Box 650, Adelaide House
1st Floor, Royal Chambers London Bridge
St Julian's Avenue London, EC4R 9HA
Guernsey, GY1 3JX United Kingdom
Channel Islands
Auditors and Reporting Accountants
Deloitte LLP
1 New Street Square
London, EC4A 3HQ
United Kingdom
Registrars
Computershare Investor Services
(BVI) Ltd Woodbourne Hall PO Box
3162
Road Town
Tortola
British Virgin Islands
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR PGUPAQUPBGQQ
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