28 June 2012

ZANAGA IRON ORE COMPANY LIMITED

('ZIOC', 'Zanaga', or the "Company" and together with its subsidiary undertakings (the "Group"))

Audited Results for the Year to 31 December 2011

Zanaga (AIM:ZIOC) is pleased to announce its audited results for the year ended 31 December 2011. An electronic version of the Annual Report and Accounts for the year ended 31 December 2011 will be available on the Company's website www.zanagairon.com today.

2011 highlights

· February 2011 - Xstrata exercised its first call option and now owns a 50% plus one share interest in the Zanaga Project

o The Zanaga Project is now managed by Xstrata

o Xstrata has agreed to fund the completion of a feasibility study in accordance with international best practice standards and Xstrata internal guidelines

o Xstrata must use its reasonable efforts to ensure that the feasibility study is completed at least three months prior to expiry of the Mining Titles

· October 2011 - Value Engineering Exercise ("VEE") completed

o Results confirm the economic viability of the Zanaga Project

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

o The slurry pipeline transportation option was revisited and an alternative 30Mtpa pipeline option ("Pipeline Option") was identified with potential to further enhance project economics

· Pipeline Pre-Feasibility Study ("Pipeline PFS") in progress to refine the Pipeline Option and its economics

o Pipeline PFS expected to conclude Q3 2012

· Feasibility Study ("FS") and Environmental and Social Impact Assessment ("ESIA")

o Scope of FS to be determined on conclusion of Pipeline PFS

o FS and ESIA expected to conclude in Q1 2014

· October 2011 - Mineral resource upgrade

o Iron ore mineral resource expansion to 4.3Bt at an average grade of 33.0% Fe based on drilling completed to 26 August 2011

o Improvement in mineral resource classification - 62% of mineral resource report in "Measured" and "Indicated" JORC categories

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

· Cash balance of US$45m as at 2011 year end

Clifford Elphick, Non-Executive Chairman of Zanaga Iron Ore Company Limited, commented:

"It has been a promising year for Zanaga Iron Ore Company with several key milestones successfully reached. Our core focus during the period has been to create clear value for the Company and its shareholders through a number of strategic initiatives, which have worked to increase confidence in the resource and provide increased visibility on the future viability of the Zanaga Project. I am pleased with the progress that has been made towards achieving this goal as the Zanaga Project becomes a significant, world-class iron ore development project in Africa."

The Company will send to shareholders the Annual Report and Accounts for the year ended 31 December 2011 ("2011 Annual Report and Accounts"), together with the Notice of Annual General Meeting ("AGM") to be held at St Magnus House, 3 Lower Thames Street, London EC3R 6HA, England, on 26 July 2012 at 9.30 a.m. BST, the form of proxy, and form of instruction for holders of Depositary Interests for use at the AGM. A copy of the Notice of Annual General Meeting is set out at the end of the 2011 Annual Report and Accounts and will be available on the Company's website www.zanagairon.com today.

For further information please visit www.zanagairon.comor contact:

Zanaga UK Services Limited

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

Liberum Capital Limited

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

+44 20 3100 2000

Citigroup Global Markets Limited

Joint Corporate Broker Alex Carter

+44 20 7986 4000

Pelham Bell Pottinger

Financial PR Charles Vivian and James MacFarlane

+44 20 7861 3232

Chairman's Statement

It has been a promising year for Zanaga with several key milestones successfully reached. Our core focus during the period has been to create clear value for the Company and its shareholders through a number of strategic initiatives, which have worked to increase confidence in the resource and provide increased visibility on the future viability of the Zanaga Project (the "Project"). I am pleased with the progress that has been made towards achieving this goal as the Zanaga Project becomes a significant, world-class iron ore development project in Africa.

The most notable achievement for ZIOC came in early 2011 when Xstrata chose to exercise its first call option to acquire a 50% plus one share interest in the Project (the "First Call Option"). The backing of a major mining company in the form of Xstrata significantly de-risks the Project, crystallises our strategic joint venture ("JV") with Xstrata and secures the future funding requirements of the Project until the completion of the FS in accordance with international best practice standards and Xstrata internal guidelines.

After the exercise of the First Call Option in February 2011 the VEE was undertaken as an initial phase to the FS. The VEE aimed to review and refine options and opportunities that could positively impact on the net present value ("NPV") of the Project, either through added value or the reduction of risk.

The outcome of this review confirmed that both a pipeline and a railway transportation solution are economically viable options for the development of the Project. In addition, significant value upside potential was identified in the pipeline transportation option. This resulted in the undertaking of the detailed Pipeline PFS to further refine this option and its costing. The outcomes of the Pipeline PFS, expected to conclude Q3 2012, will assist in determining the scope of the FS, including which transportation option will be taken through to final FS.

With regard to the mineral resource at the Project, the project team has successfully completed an extensive drilling programme on the Project's orebody, delivering the resource upgrades during the year. The scale and definition of the iron ore mineral resource has now expanded to 4.3Bt at 33% Fe with more than 62% of the resource in the "Measured" and "Indicated" Joint Ore Reserves Committee ("JORC") categories. This mineral resource has been defined from drilling conducted over only 25 kilometres of the known 47-kilometre strike length of magnetic mineralisation, leaving potential for future expansion of the resource size and potential flexibility to increase estimated annual production levels.

Under the management of Xstrata, the Project continues to advance as it moves towards the development and construction of a world-class iron ore project capable of mining, processing, transporting and exporting iron ore concentrate from the Republic of Congo for supply into the global iron ore market. We remain confident in the Project's ability to deliver further value as we turn our focus towards the completion of the FS, expected in Q1 2014.

Iron ore market

Demand for iron ore in 2011, as a result of growing steel output in China, saw record iron ore prices achieved during the year. While iron ore prices softened towards the end of Q3 2011, these regained somewhat towards the end of the year. China is a key driver for iron ore prices accounting for two thirds of global consumption, driven by its steel industry. Concerns over Chinese growth have resulted in some weakness in prices during 2012, however the anticipated growth in steel production in China and globally is expected to support iron ore prices in the long term and offset additional iron ore supply coming online. The World Steel Association expects China's steel use to increase by 4.0% in 2012 and 4.0% again in 2013, with total global steel demand expected to grow 3.6% and 4.5% in 2012 and 2013 respectively. As a result, the Board expects iron ore prices to remain supported at current levels in the short term and to respond favourably in 2013 to an expected supply deficit as global economies rebound. Rio Tinto, one of the world's largest iron ore producers, has stated that it expects Chinese steel production to increase to around 1Bt per annum in 2020, supporting our continued expectations of strong industrial demand in China and attractive ore prices in the long term.

Strategic partnership with Xstrata

We are very pleased to have Xstrata, a global diversified mining group with a stated strategy to enter the iron ore market, as ZIOC's JV partner on the Project. Xstrata has been closely aligned to the Project since October 2009 when it entered into the First Call Option . Following the exercise of the First Call Option in February 2011, the Project is now managed by Xstrata. As part of the consideration for the majority stake Xstrata is obliged to fund the costs of a FS in accordance with international best practice and Xstrata's internal guidelines. Xstrata must use reasonable efforts to deliver the FS no later than three months prior to the expiration of the licences in May 2014 (assuming a second extension of the Project exploration licences anticipated in Q3 2012) or any subsequent renewal, subject to there being no material adverse change. Under the Republic of Congo Mining Code, after its initial three-year period, an exploration licence is permitted two extensions of two years, each of which are renewable upon request. The application for the second extension of the Zanaga exploration licences was submitted in March 2012.

The exercise of the First Call Option by Xstrata triggered the implementation of the Joint Venture Agreement ("JVA") between ZIOC and Xstrata governing the working relationship between the two companies. The JVA stipulates that within 90 days of completion of the FS, Xstrata has the right to exercise a further call option ("Second Call Option") to acquire all (but not part) of ZIOC's remaining 50% less one share minority stake in the joint venture company, Jumelles Limited ("Jumelles") in consideration for an agreed cash price, failing which a net present value based price determined by an independent expert in accordance with the JVA's agreed valuation terms of reference. The exercise of the Second Call Option is not subject to shareholder approval.

A world-class opportunity

In addition to the joint venture with Xstrata, the combination of a number of key strengths supports the Board's view that the Project represents a significant opportunity.

The understanding of the Project's iron ore mineral resource has been greatly advanced during 2011 as a result of a thorough drilling and metallurgical test work programme. The large scale resource that has been defined has the potential to sustain a large scale production mine over the long term with the ability to supply iron ore to the global market of a quality expected to be comparable to Brazilian supply. With only 25 kilometres of the known 47-kilometre strike length of magnetic mineralisation having been drilled to date for the mineral resource, there remains significant potential upside to expand production and enhance value at the Project even beyond the extensive scale currently planned.

It is of major significance that the outcome of the VEE confirmed that in addition to the rail option, on which a PFS level study has already been completed (the "Railway PFS"), there is a viable opportunity to implement a slurry pipeline transportation option at potentially reduced capital expenditure and lower expected operating costs. In both the railway and pipeline cases operating costs are expected to be one of the lowest in the world while metallurgical test work indicates that the iron ore product would be of a very high quality with a high iron content and very low impurity levels.

The advances made on the Project during the year continue to support the Board's view that ZIOC is positioned to benefit from exposure to one of the most attractive iron ore projects globally.

Access to low cost energy

The PFS work to date indicates that the Project has the potential to be one of the lowest cost producers of iron ore globally. Of particular interest is the potential for low cost energy resulting from the availability of large volumes of gas from defined on-shore gas fields and producing off-shore oil platforms. Following the suggestion from the Republic of Congo for oil producers to halt the flaring of natural gas, established oil and gas producer Eni S.p.A. constructed a 300MW power plant in Pointe-Noire to harness the local natural gas reserves. The 300MW plant has been commissioned and ZIOC understands that there are phased 150MW expansion plans with the potential to increase capacity up to a total capacity of 900MW at the same facility.

The Project team believes there is scope for the sustainable supply of low cost power from Pointe-Noire to the Project's operations.

Transport infrastructure

Pipeline/railway

The provision of infrastructure and logistics solutions is a key challenge in the development of any large scale iron project. In the course of 2011 the Project team and its consultants conducted detailed technical studies to refine the optimal transportation options, determining that both railway or pipeline transportation are potentially economically viable infrastructure solutions for the Project. Furthermore, the pipeline option has the potential to enhance the Project's value by significantly reducing both capital expenditure and operating costs. A Pipeline PFS was commenced in November 2011 to further refine this option and its costing, which will assist in determining which option to take through to final FS.

Port site

Work to date continues on the Project's excellent targeted bulk commodity port site located only 9 kilometres to the north of the existing public port of Pointe-Noire, which also currently services the local oil industry. A relatively short distance of approximately 5 kilometres to 20-metre deep tidal water off-shore and a natural channel offers the possibility, with minimal dredging, of a 1.6 kilometre long loading trestle with no required breakwater. Furthermore, the government has reserved a 700-hectare area in the future expansion of the PAPN (Port Autonome de Pointe-Noire) for the development of the port and mineral handling infrastructures for the Project.

Strategic partner process

Xstrata and ZIOC are currently assessing the potential to bring in a suitable strategic partner which could further enhance the long-term value of the Project, including through off-take on commercial terms, access to construction financing and construction expertise. Accordingly Xstrata and ZIOC have embarked on a joint process to identify a potential strategic partner to participate in the development of this world-class project. Xstrata intends to fully retain its interest in the Project. While there can be no certainty that this process will result in any transaction being completed ZIOC feels the process has already enhanced the Project's global profile, particularly in Asia.

VEE

After the exercise of Xstrata's First Call Option in February 2011 a VEE was undertaken as an initial phase to the FS. A team of internal and external experts was assembled to conduct the VEE with an aim to review and refine options and opportunities that could positively impact on the NPV of the Project, either through added value or the reduction of risk.

As part of the VEE the pipeline option was revisited to investigate several capex and opex optimisation possibilities as well as the fit with changing global iron ore market dynamics. The outcome of this review confirmed that both a railway and a pipeline transport option are economically viable infrastructure solutions for the development of the Project. In addition, the Pipeline Option has the potential to enhance the Project's value by reducing both capital expenditure and operating costs.

During the VEE phase, the project team continued its resource, geotechnical and hydro-geological drilling, metallurgical test work and all other associated port and mine site engineering and ESIA feasibility study work programmes.

Pipeline PFS

Following the VEE results a Pipeline PFS was commenced in order to refine the pipeline transportation option and its costing. The results of the Pipeline PFS will assist in determining which option to take through to final FS as well as the scope of such study.

The Pipeline PFS is a major piece of work conducted in conjunction with a consortium of top-tier consultants based in France and Australia. The consortium, named ACTE ("ACTE"), comprises EGIS (France-based multi-national infrastructure engineering company with extensive experience in the Republic of Congo), Technip (France-based multi-national engineering and construction company in the oil and gas, energy and mining industries), and Amec-Minproc (Australia based large international engineering company providing specialist iron ore processing and pipeline design).

The Pipeline PFS,, expected to conclude in Q3 2012, will be a major catalyst for the Project, significantly improving our understanding of the project economics.

Corporate responsibility

From the outset of our work on the Project, our strategy has been to engage and form partnerships with government and local communities and, as such, the Project has engaged experts in the fields of health, safety, community liaison and the environment to ensure that the Project is developed in a responsible manner in accordance with internationally accepted industry standards and practice. This supports the shared objective of maximising the Project's value, whilst also putting in place and adhering to policies and systems that will ensure that local communities and the Republic of Congo at large receive benefits from the ongoing development of the Project.

Following the decision of Xstrata to exercise the First Call Option , the Project's approach to corporate responsibility is determined by Xstrata's Sustainable Development Framework. This comprises four elements (Business Principles, Sustainable Development Policy, Sustainable Development Standards and Assurance). A full version of the Sustainable Development Framework is available within the sustainability section of Xstrata's website (www.xstrata.com).

An experienced Board

We have assembled a well-balanced Board with in-depth experience in the financing, evaluation and development of mining projects and the management of public companies. I am confident that the extensive experience of the Board in these critical areas will ensure ZIOC is able to actively monitor its investment in the Project and to achieve our strategic objective - to maximise the value of this investment.

I would like to thank the Board for their contribution and guidance and our staff for their commitment and hard work over the last year.

Strategy

Our objective remains to maximise the value of ZIOC's 50% less one share minority stake in the Project pending the possible exercise by Xstrata of the Second Call Option. Following Xstrata's exercise of the First Call Option significant steps have been taken towards de-risking the Project. Under the terms of Xstrata's agreements with ZIOC, the Project is now managed by Xstrata and Xstrata is obliged to fund the FS in accordance with international best practice standards and Xstrata's internal guidelines.

It is important to note that following completion of the FS, if Xstrata does not exercise the Second Call Option and construction of the mine and related infrastructure commences, ZIOC will have a number of future funding options in relation to the construction phase, including: (i) dilution at NPV (as defined in the JVA) during construction; or (ii) a right to fund ZIOC's pro rata equity share of construction capital expenditure.

With a cash balance of US$45m as at 31 December 2011 ZIOC believes it has adequate funds at its disposal to meet its working capital requirements for the duration of the FS phase and does not currently foresee any substantial further funding requirements until completion of the FS.

Looking forward

The results of the Pipeline PFS, expected to conclude in Q3 2012, together with the results of the Railway PFS and the VEE, will enable the final scope of the FS to be determined. In parallel with the Pipeline PFS, the project team continues to advance FS work streams. Xstrata must use its reasonable endeavours to ensure that the FS is competed by no later than three months prior to the expiration of the licences in May 2014 (assuming a second extension of the Project exploration licences anticipated in Q3 2012) or any subsequent renewal, subject to there being no material adverse change. As a result of Xstrata's funding obligations in relation to the Project, ZIOC does not currently foresee any substantial near-term spending obligations until completion of the FS. The cost of the ZIOC personnel, financial advisors and technical experts engaged or appointed by ZIOC in relation to the Project are currently our only budgeted expenditures for the Project during the FS phase of work.

Our focus going forward continues to be the monitoring of the Project's development. Key project milestones for 2012 are expected to be the completion of the Pipeline PFS, determination of the final scope of work for the FS, advancement of the Project's ESIA work streams, and ongoing interaction with the Government of the Republic of Congo on the Project's development and the terms of a definitive Mining Convention (Convention d'Etablissement) securing legal, commercial and regulatory aspects required for the Project's development.

The Board believes that the investment case for the Project is fully supported by strong industry fundamentals and continued demand for iron ore; as well as the scale and high quality of the Project, which continues to suggest value and world-class potential. The Board expects that this will underpin the substantial investment programme now being undertaken by Xstrata, pursuant to its legal agreements with ZIOC, and that the next phase in the development of the Project will continue to build shareholder value for ZIOC.

In the near term, ZIOC looks forward to the finalisation of the definitive results of the Pipeline PFS as we advance towards determining the final scope of the FS and the eventual completion of the FS process.

Clifford Elphick

Non-Executive Chairman

Business Review

The outcome of the VEE review confirmed that both a pipeline and a railway transportation solution are economically viable options for the development of the Project. In addition, significant value upside potential was identified in the pipeline transportation option.

VEE

Following the exercise of the First Call Option in February 2011 and its assumption of majority control of the Project, Xstrata and ZIOC jointly announced the commencement of the VEE including a scope and options review to take place during Q2 and Q3 2011 as an initial phase to the FS work programme.

The VEE further built and expanded on the opportunities to re-assess capex and opex options recognised as part of the PFS work undertaken to Q1 2011 by Jumelles. A team of internal and external experts was assembled to conduct the VEE with an aim to review and refine options and opportunities that could positively impact on the NPV of the Project, either through added value or the reduction of risk.

The VEE commenced on 16 March 2011 with initial workshops generating and prioritising specific ideas and opportunities for the Project that have the potential to impact positively on NPV. A selection of specific opportunities were outlined to be studied in more detail over the following months, forming the basis of the VEE.

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

1) Railway Option

The original railway option assumes that on average 118Mtpa of ore will be treated through two processing plants to produce 30Mtpa of magnetite concentrate and 15Mtpa of Hematite sinter feed which will be transported to the port at Pointe-Noire via a 350-kilometre railway and exported from a new port facility 9 kilometres north of Pointe-Noire. Life of mine ("LOM") will be in the region of 30 years, although the resource base and its upside potential will support either increased production or a longer LOM. The design, development plan and costs for the railway option have not changed materially since the admission of the shares of the Company to trading on AIM on 18 November 2010 ("IPO").

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

2) Pipeline Option

The Pipeline Option assumes that 30Mtpa of pellet feed will be produced from an average 75Mtpa of combined hematite/magnetite ore. Treatment of ore will be through a single integrated processing plant. The pellet feed product will be transported via a slurry pipeline to the port site to the north of Pointe-Noire. LOM will be in excess of 30 years, although the resource base and its upside potential will support either increased production or a longer LOM.

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

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

Pipeline PFS

Following the VEE results, a Pipeline PFS was commenced to refine this option and its costing, which will assist in determining which option to take through to final FS and the scope of such study.

The Pipeline PFS is a major piece of work conducted in conjunction with a consortium of top-tier consultants based in France and Australia. The consortium, named ACTE, comprises EGIS (France based multi-national infrastructure engineering company with extensive experience in the Republic of Congo), Technip (France based multi-national engineering and construction company in the oil and gas, energy and mining industries), and Amec-Minproc (Australia based large international engineering company providing specialist iron ore processing and pipeline design).

Mineral resource and drilling programme

Mineral resource

The understanding of the Zanaga iron ore mineral resource has been greatly advanced during 2011 following a thorough drilling and metallurgical test work programme including the results of drilling completed to 26 August 2011. The large scale resource that has been defined has the potential to sustain a high production mine over the long-term with the ability to supply iron ore to the global market of a quality expected to be comparable to Brazilian supply. With only 25 kilometres of the known 47-kilometre strike length of magnetic mineralisation having been drilled to date, in calculating the mineral resource there remains significant potential upside to expand production and enhance value at the Project even beyond the extensive scale currently planned.

The scale and definition of the iron ore mineral resource has now expanded to 4.3Bt at 33% Fe with more than 62% of the resource in the "Measured" and "Indicated" JORC categories. The ratio of Measured, Indicated and Inferred Resources has improved to 3%:59%:38% respectively, representing a significant change from the previous estimate announced on 5 April 2011 of 0%:43%:57%.

All drilling conducted remains over only 25 kilometres of the known 47-kilometre strike length of magnetic mineralisation, leaving potential for future expansion of the resource size and potential flexibility to increase estimated annual production levels.

Mineral resource statement

	Tonnes	Fe	SiO2	Al2O3	P	Mn	LOI
Classification	(Mt)	(%)	(%)	(%)	(%)	(%)	(%)
Measured	149	38.7	39.1	2.4	0.047	0.093	1.2
Indicated	2,540	34.1	43.6	2.8	0.050	0.112	1.0
Inferred	1,650	31	46	4	0.05	0.12	2
Total	4,339	33.0	44.3	3.3	0.049	0.114	1.3

Source: Company announcement 26 October 2011

Reported at a 0% Fe cut-off grade within an optimised Whittle shell representing a metal price of 130 USc/dmtu (dry metric tonne unit).

Drilling programme

The updated JORC Mineral Resource is estimated on drilling completed on the Project up until 26 August 2011 and includes an additional 59,618 metres (88% increase) and 951 holes (45% increase) to drilling carried out for the previous resource statement announced on 5 April 2011. In addition, a total of 43,373 XRF analyses and 37,617 Niton analyses were used to model the Mineral Resource, more than twice the amount used in the previous Mineral Resource statement. Please see the table below for an update on drilling completed.

An ambitious and extensive resource drilling programme was conducted during 2011. ZIOC has been advised that an updated mineral resource statement is expected in Q3 2012.

The 2011 drill programme comprised 48,292 metres of Reverse Circulation ("RC") drilling and 46,822 metres of diamond drilling ("DD"). Three RC rigs were used from January to May 2011, reducing to two RC rigs until December 2011; and four DD rigs were used for the full year. In addition, hydrogeological drilling commenced in November 2011 and carried through to April 2012.

The table below summaries the total drilling completed to date on the Project.

Drilling completed	Metres	Holes
At 30 Jun 2010 (IPO JORC resource of 3.3Bt)	42,706	468
30 Jun 2010 to 24 Nov 2010
(April JORC resource of 4.0Bt)	24,660	190
24 Nov 2010 to 26 August 2011
(October 2011 JORC resource of 4.3Bt)	59,618	293
26 August 2011 to 29 February 2012
(Not yet included in JORC resource)	47,768	246
Total to date	174,752	1,197

Geology

At the end of the November 2010 Phase II resource cut-off date the total number of samples assayed amounted to 21,045. In order to obtain an initial Fe analysis on the samples and reduce freight and turnaround time, a sample preparation laboratory and a Niton XRF analyser machine were established and utilised on site at the Project's exploration camp. Samples analysed using the Niton analyser and results show a very good correlation with external laboratory assays.

Using drill information combined with resistivity/magnetic data as well as structural observations a detailed geological and structural understanding of the deposit(s) continues to be established and is being used as the basis for mine planning and production forecasts.

FS forward work programme

The scope of the FS is to be determined by reference to the Railway PFS and the work done since Xstrata acquired majority control of Jumelles and the Project in February 2011. Such work includes the VEE (including Scope and Options Review) and the Pipeline PFS. The major components of the FS phase still to be undertaken include:

· engineering studies on, and costs of, the potential mine site, process plant, transport corridor, port, power and related infrastructure costs of the Project;

· finalisation of the ESIA study, in accordance with international standards and best practice;

· detailed product market study; and

· conclusion with the Government of the Republic of Congo of a Mining Convention (Convention d'Etablissement) to cover the appraisal and further development and exploitation phases of the Project.

Financial Review

Results from operations

The financial statements contain the results for the Group's second full year of operations following its incorporation on 19 November 2009. The Group made a loss in the year of US$22.9m (2010: loss US$13.2m). The loss for the year comprised:

	2011 $000	2010 $000
General expenses	(4,570)	(2,755)
Net foreign exchange gain	274	(1,343)
Share-based payments	(2,425)	(964)
Share of loss of associate	(7,803)	(8,805)
Interest income	173	17
Loss before tax	(14,351)	(13,850)
Tax	(28)	-
Currency translation	38	-
Share of other comprehensive income of associate -foreign exchange	(8,517)	621
Total comprehensive income	(22,858)	(13,229)

General expenses of US$4.6m (2010: US$2.7m) consists of US$2.3m professional fees (2010: US$0.9m), US$0.5m Directors' fees (2010: US$0.3m) and US$1.8m (2010: US$0.8m) of other general operating expenses.

The foreign exchange gain of US$0.3m can be attributed to the impact of the strengthening of the US Dollar against UK Sterling during the year, mainly on the cash balances that arose following the listing that are held in UK Sterling.

The share-based payment charge reflects the expense associated with the grant of options to ZIOC's Directors under ZIOC's long-term incentive plan ("LTIP") and to the expense associated with the grant of share options to one of ZIOC's consultants. Further details of the LTIP and options granted can be found in the notes to the financial statements.

The share of loss of associate reflected above relates to ZIOC's investment in Jumelles which generated a loss of US$1.3m in the year to 31 December 2011 (2010: US$6.2m), together with a charge of US$6.5m (2010: US$2.5m) made for equity accounting purposes for share options provided to employees of Jumelles.

During the year Jumelles spent US$87.8m on exploration, increasing its capitalised exploration assets to US$166.8m (2010: US$79.0m).

Financial Position

ZIOC's Net Asset Value (NAV) of US$227.2m (2010: US$241.2m) comprises of US$183.0m (2010: US$192.8m) investment in Jumelles, US$45.0m (2010: US$49.3m) of cash balances and US$0.8m (2010: US$0.9m) of net current liabilities.

	2011	2010
	$000	$000
Investment in associate	183.0	192.8
Cash	45.0	49.3
Other net current liabilities	(0.8)	(0.9)
Net assets	227.2	241.2

Cost of investment

The investment in associate relates to the value of the investment in Jumelles which as at 31 December 2011 owned 100% of the Project. The carrying value of this investment has decreased by US$9.8m due to the US$16.3m loss made by Jumelles during the year net of US$6.5m of additions. The additions relate to the share-based payments made to the employees of Jumelles which have augmented the value of the investment.

As at 31 December 2011, Jumelles had aggregated assets of US$200.4m (2010: US$101.8m) and aggregated liabilities of US$37.5m (2010: US$30.8m). Assets consisted of US$166.8m (2010: US$79.0m) of capitalised exploration assets, US$12.7m (2010: US$13.6m) of other fixed assets and US$0.1m (2010: US$nil) of intangible assets. A total of US$87.8m (2010: US$56.1m) of exploration costs were capitalised during the year. Cash balances totalled US$10.5m (2010: US$5.0m).

Cash flow

Cash balances decreased by US$4.3m since 31 December 2010, net of interest income US$0.1m and foreign exchange gains of US$0.2m on bank balances held in UK Sterling. Operating activities utilised US$4.6m.

Fundraising activities

There were no fundraising activities during 2011 (2010: new shares were issued for cash of US$49.5m).

Risk management

The Board considers risk assessment to be important in achieving its strategic objectives. There is a process of evaluation of performance targets through regular reviews by senior management to forecasts. Project milestones and timelines are regularly reviewed.

Risks and uncertainties

The principal risks facing ZIOC are set out below. A more comprehensive summary of risks associated with ZIOC is set out in Part V of ZIOC's AIM Admission Document of 18 November 2010. Risk assessment and evaluation is an essential part of the Group's planning and an important aspect of the Group's internal control system.

The principal business of ZIOC currently comprises managing ZIOC's interest in the Project, which is majority controlled by Xstrata at both a shareholder and Director level, and monitoring the development of the Project.

The successful development of the Project depends on adequate infrastructure: a transportation system through which it can deliver future iron ore product to a port for onward export by sea.

Risks relating to the agreement with Xstrata

Xstrata has agreed to fund a full FS to be delivered to an international best practice standard and in accordance with Xstrata's internal guidelines at a cost of at least US$100m or, subject to certain requirements, to complete the FS itself. However, in the event that there is a material adverse change, Xstrata's funding obligations under the JVA will be suspended until the material adverse change has ceased.

When the FS is completed, Xstrata may exercise its right to make an offer to ZIOC for all of the ordinary shares ZIOC holds in Jumelles. The exercise of this right is not subject to shareholder approval. If Xstrata exercises this right under the JVA, ZIOC will no longer hold any ordinary shares in JVCo and will receive the consideration proceeds from Xstrata for the ordinary shares in JVCo. There is no guarantee that the consideration paid by Xstrata will be in excess of the underlying value of ZIOC's ordinary shares.

Risks relating to future funding

In the event that Xstrata does not exercise this right to acquire ZIOC's interest in Jumelles and construction of the mine and related infrastructure proceeds, then ZIOC will have a number of future funding options including: (i) dilution at NPV (as defined in the JVA) during construction; or (ii) a right to fund ZIOC's pro rata equity share of construction capital expenditure. Should it be required, the ZIOC may seek to raise the required finance through any or a combination of debt, equity, the introduction of a new strategic partner and/or an off take agreement. However there is no certainty as to the Group's ability to raise the required finance or the terms on which such finance may be available. If ZIOC raises additional funds through further issuances of securities, the holders of ordinary shares could suffer significant dilution, and any new securities that ZIOC issues could have rights, preferences and privileges superior to those of the holders of the ordinary shares. Whilst ZIOC may choose to be diluted at NPV during construction, ZIOC's interest in the Project may be significantly diluted as a result.

Risks relating to the strategic partner search

Xstrata and ZIOC are currently exploring whether there is a suitable strategic partner who can further enhance the long-term value of the Project. Accordingly Xstrata and ZIOC have embarked on a joint process, which is at an early stage, to identify a party to become a strategic partner in the development of the Project and there can be no certainty that this process will result in a transaction being completed.

The change of control provisions contained in the JVA could act as an impediment to a takeover of ZIOC as in such circumstances Xstrata would have the right to acquire all of the shares which it does not hold in Jumelles. Similarly, some of the rights in the JVA such as the preferred right shall lapse if there is a change of control in respect of ZIOC and this could also act as an impediment to a takeover.

Given that Xstrata intends to fully retain its interest in the Project, it is likely to have a significant influence on the terms of the strategic partner process, including whether or not it wishes to exercise any rights in relation to a change of control of ZIOC and in agreeing any modifications to the terms of the JVA required by the prospective strategic partner.

Exploration and mining risks

The business of exploration for, and identification of, iron ore deposits is speculative and involves a high degree of risk. Future results, including resource recoveries and work programme plans and schedules, will be affected by changes in market conditions, commodity price levels, political or regulatory developments, timely completion of exploration programme commitments or projects, the outcome of commercial negotiations and technical or operating factors. Even if there are economically recoverable deposits, delays in the construction and commissioning of mining projects or other technical difficulties, including relating to infrastructure and permitting may make the deposits difficult to exploit.

Transportation and other infrastructure

The successful development of the Project depends on adequate infrastructure. The region in which the Project is located is sparsely populated and difficult to access. Central to the Project becoming a commercial mining operation is access to a transportation system through which it can transport future iron ore product to a port for onward export by sea. In order to achieve this it will be necessary to build a port facility at Pointe-Noire and build a rail network or a pipeline or other transportation for which permits, authorisations and land rights will be required and substantial finance will be required.

In relation to the proposed port and rail network or pipeline, the necessary permits, authorisations or land access rights have not yet been obtained. In relation to the proposed port facility, the permitting and authorisation process is at an early stage. Failure to complete the proposed rail network or pipeline and/or to establish the port or to do so in an economically viable manner could have a material adverse effect on the Project.

The availability of reliable and continuous delivery of sufficient quantity of power to the Project at an affordable price will also be a significant factor on the costs at which iron ore may be produced and so may impact on the attractiveness and viability of the Project.

Iron ore prices and undefined market and product

The principal business of the Project is the exploration for, and the planned exploitation of, iron ore. The ability to raise finance and the Project's future financial performance is largely dependent on movements in the price of iron ore. A detailed market study to identify the potential demand for product has not yet been undertaken and there are no assurances that the demand for the Project's product will be sufficient in quantity or in price to ensure the economic viability of the project.

Host country related risks

The operations of the Project are located entirely in the Republic of Congo. These operations will be exposed to various levels of political, regulatory, economic, taxation, environmental and other risks and uncertainties. As in many other countries, these (varying) risks and uncertainties include, but are not limited to: political, military or civil unrest; fluctuations in global economic and market conditions impacting on the Congolese economy; terrorism; hostage taking; extreme fluctuations in currency exchange rates; high rates of inflation; labour unrest; nationalisation; changes in taxation; illegal mining; restrictions on foreign exchange and repatriation. In addition, the Republic of Congo is an emerging market and, as a result, is generally subject to greater risks than in the case of more developed markets.

Risks relating to the Project's exploration licences

Subject to fulfilment of all related obligations and undertakings, the Project's exploration licences are renewable upon request for a further term of two years but the granting of the licences is outside of the Project's control and there can be no guarantee that this will indeed happen. If renewed, there will be a reduction of the surface area covered by the Project's exploration licences of up to 50% and there can be no guarantee that the Congolese Government will accept any proposal as to which land is to be relinquished.

Free carried interest

The holder of an exploitation licence is required to incorporate a Congolese company to be the operating entity and the Congolese Government is entitled to a free carried interest in projects which are at the production phase. This participation cannot be less than 10%. There is, therefore, a risk that the Government will seek to obtain a higher participation in the Project.

Consolidated statement of comprehensive Income

for year ended 31 December 2011

		2011	2010
	Note	$000	$000
Administrative expenses		(6,721)	(5,062)
Share of loss of associate		(7,803)	(8,805)
Operating loss	4	(14,524)	(13,867)
Interest income		173	17
Loss before tax		(14,351)	(13,850)
Taxation	5	(28)	-
Loss for the year		(14,379)	(13,850)
Foreign exchange translation - foreign operations		38	-
Share of other comprehensive income of associate - foreign exchange translation		(8,517)	621
Other comprehensive income		(8,479)	621
Total comprehensive loss		(22,858)	(13,229)
Loss per share (basic and diluted) (Cents)	12	(5.2)	(5.4)

The loss for the period is attributable to the equity holders of the parent company.

Consolidated statement of changes in equity

for year ended 31 December 2011

			Foreign
			currency
	Share	Retained	translation	Total
	capital	earnings	reserve	equity
	$000	$000	$000	$000
Balance at 1 January 2010	207,967	(1,572)	(85)	206,310
Issue of shares - listing	44,114	-	-	44,114
Consideration for share-based payments - share issue costs	481	-	-	481
Consideration for share-based payments - other services	3,508	-	-	3,508
Loss for the period	-	(13,850)	-	(13,850)
Other comprehensive income	-	-	621	621
Total comprehensive loss	-	(13,850)	621	(13,229)
Balance at 31 December 2010	256,070	(15,422)	536	241,184
Balance at 1 January 2011	256,070	(15,422)	536	241,184
Consideration for share-based payments - other services	8,923	-	-	8,923
Loss for the period	-	(14,379)	-	(14,379)
Other comprehensive income	-	-	(8,479)	(8,479)
Total comprehensive loss	-	(14,379)	(8,479)	(22,858)
Balance at 31 December 2011	264,993	(29,801)	(7,943)	227,249

Consolidated balance sheet

for year ended 31 December 2011

		2011	2010
	Note	$000	$000
Non-current assets
Property, plant and equipment	6a	13	-
Investment in associate	6b	182,977	192,799
		182,990	192,799
Current assets
Other receivables	7	104	80
Cash and cash equivalents	8	45,047	49,318
		45,151	49,398
Total Assets		228,141	242,197
Current liabilities
Trade and other payables	9	(892)	(1,013)
Net assets		227,249	241,184
Equity attributable to equity holders of the parent
Share capital	10	264,993	256,070
Retained earnings		(29,801)	(15,422)
Foreign currency translation reserve		(7,943)	536
Total equity		227,249	241,184

Consolidated cash flow statement

for year ended 31 December 2011

		2011	2010
	Note	$000	$000
Cash flows from operating activities
Total comprehensive loss for the period		(22,858)	(13,229)
Adjustments for:
Depreciation		3	-
Interest received		(173)	(17)
Taxation expense		28	-
Increase in other receivables		(24)	(69)
(Decrease)/Increase in trade and other payables		(65)	532
Net exchange loss		(274)	1,343
Share of loss of associate		16,320	8,184
Share-based payments		2,425	964
Net cash from operating activities		(4,618)	(2,292)
Cash flows from investing activities
Proceeds from the issue of share capital		-	49,507
Share issue costs		-	(4,912)
Net cash from financing activities		-	44,595
Cash flows from investing activities
Interest received		173	17
Acquisition of property, plant and equipment		(16)	-
Net cash from investing activities		157	17
Net (decrease)/increase in cash and cash equivalents		(4,461)	42,320
Cash and cash equivalents at beginning of period		49,318	8,106
Effect of exchange rate difference		190	(1,108)
Cash and cash equivalents at end of period	8	45,047	49,318

Notes to the financial statements

1 Business information and going concern basis of preparation

Background

Zanaga Iron Ore Company Limited (the "Company"), was incorporated on 19 November 2009 under the name of Jumelles Holdings Limited. The Company changed its name on 1 October 2010. The Company is incorporated in the British Virgin Islands ("BVI") and the address of its registered office, is situated at Coastal Building, 2nd Floor, Wickham's Cay II, Road Town, Tortola, BVI. The Company's principal place of business as an investment holding vehicle is situated in Guernsey, Channel Islands.

As at 31 December 2010 the Company held 100% of the share capital of Jumelles Limited ("Jumelles") subject to the Xstrata Call Option (as defined below).

On 14 March 2011 the Company incorporated and acquired the entire share capital of Zanaga UK Services Limited for US$2, a company registered in England and Wales which provides investor management and administration services.

In 2007, Jumelles became the special purpose holding company for the interests of its then ultimate 50/50 founding shareholders, Garbet Limited ("Garbet") and Guava Minerals Limited ("Guava"), in Mining Project Development Congo SAU ("MPD Congo") which, owns and operates 100% of the Zanaga Project (the "Project") in the Republic of Congo (subject to a minimum 10% free carried interest in MPD Congo in favour of the Government of the Republic of Congo).

In December 2009 Garbet and Guava contributed their then respective 50/50 joint shareholding in Jumelles to the Company.

Garbet is majority owned by Strata Limited ("Strata"), a private investment holding company based in Guernsey, which specialises in the investment and development of early stage natural resource projects in emerging markets, predominately Africa. Garbet owns approximately 41.25% of the share capital of the Company.

Guava is majority owned by African Resource Holdings Limited ("ARH"), a BVI company that specialises in the investment and development of early stage natural resource projects in emerging markets. Guava owns approximately 31.64% of the share capital of the Company.

The balance of shareholding in the Company is predominantly held by a number of reputable institutional investors in the mining sector.

Jumelles has three subsidiary companies, namely Jumelles M Limited, Jumelles Technical Services (UK) Limited and MPD Congo.

Xstrata Transaction

On 16 October 2009, Garbet and Guava and Jumelles entered into a transaction with Xstrata (Schweiz) AG (on 3 December 2009, Xstrata (Schweiz) AG was substituted by Xstrata Projects (pty) Limited ("Xstrata Projects")), comprising of two principal transaction agreements (together the "Xstrata Transaction"):

· a call option deed which gave Xstrata Projects an option to subscribe for 50% plus 1 share of the fully diluted and outstanding shares of Jumelles ("Majority Stake") in return for providing funding towards ongoing exploration of the Zanaga exploration licence area and a pre-feasibility study (the "PFS") subject to a minimum amount of US$50 million (the "Xstrata Call Option"). Under the terms of the Xstrata Call Option, the consideration payable by Xstrata Projects for the option shares that would be issued by Jumelles Limited would comprise (i) a commitment to fund all costs to be incurred by Jumelles Limited in completing a feasibility study on the Project (the "FS") (provided such amount shall be greater than US$100 million) or to carry out such a feasibility study at its own cost and (ii) payment of an amount (up to a maximum of US$25 million) equal to the amount that Jumelles Limited owes to Garbet and Guava as loans which would be used to repay the latter; and

· a joint venture agreement which regulates the respective rights of the Company, Jumelles and Xstrata Projects in relation to Jumelles following exercise of the Xstrata Call Option and gives Xstrata Projects the right to purchase the Company's remaining 50% minus 1 share interest in Jumelles("Minority Stake") following completion of the FS and deals with the terms on which Jumelles will be funded following completion of the FS (the "JVA").

During 2010, the PFS progressed and following completion of Phase I of that study Xstrata Projects countersigned a further funding letter confirming in writing its agreement (subject to the provisions of the Xstrata Call Option) to contribute further funding and confirming its approval of the phase II work programme, budget and funding amount (up to US$56.49 million) as set out in that letter.

On 11 February 2011 Xstrata Projects exercised the Xstrata Call Option and the exercise paid (the "Call Option Price") is the sum of:

· the aggregate costs of completing the FS, provided that such amount is greater than US$100,000,000 (excluding the call option premium); plus

· sums to repay all outstanding founding shareholder loans then amounting to US$21,277,334

The Call Option Price must not exceed an amount that would result in it being a Class 2 Transaction for Xstrata Projects.

Relationship between Jumelles and its shareholders after exercise of the Xstrata Call Option

The Company, Jumelles and Xstrata Projects agreed to regulate their respective rights in relation to the Project following exercise of the Call Option under the terms of the JVA. Under the terms of the JVA, all significant decisions regarding the conduct of Jumelles' business (other than certain protective rights which require the agreement of shareholders holding at least 95% of the voting rights in Jumelles) are made by the Board of Directors.

Each shareholder holding 15% or more of the votes in Jumelles has the right to appoint a director to the Board of that company. At any Board meeting, each such director will have such number of votes as represents the appointing shareholder's voting rights in the general meetings of Jumelles.

As a consequence, following exercise of the Xstrata Call Option (which completed on 11 February 2011), Xstrata Projects controls Jumelles at both a shareholder and director level and therefore controls what was the Company's sole mineral asset, the Project, and going forward the Company has a strategic partnership in respect of the Project with Xstrata.

Following exercise of the Xstrata Call Option, the principal business of the Company has comprised managing its 50% less one share interest in the Project and monitoring both the finalisation of the pre-feasibility study and the preparation of the feasibility study.

In addition, under the terms of the JVA, following exercise of the Xstrata Call Option, Xstrata Projects has the right to require all the other shareholders in the Company to sell their shares to Xstrata Projects, at an agreed cash price or price based on net present value, for a period of 90 days following completion of the FS. Therefore Xstrata Projects could elect to acquire 100% of the Project following completion of the FS. The JVA has provisions governing how any dispute as to the price to be paid would be resolved. The exercise of this right is not subject to the approval of the Company's shareholders.

Future funding requirements and going concern basis of preparation

In common with many exploration and development companies in the mining sector, the Company raises funding in phases as its projects develop.

Following exercise of the Xstrata Call Option, and implementation of the joint venture agreement, Xstrata Projects is obliged to fund the costs of a FS in accordance with international best practice and Xstrata Projects' internal guidelines. Xstrata Projects must use reasonable efforts to deliver the FS no later than three months prior to the expiration of the licences in May 2014 (assuming a second extension of the Project exploration licences anticipated in Q3 2012) or any subsequent renewal, subject to there being no material adverse change. Under the Republic of Congo Mining Code, after its initial three-year period, an exploration licence is permitted two extensions of two years, each of which are renewable upon request. The application for the second extension of the Zanaga exploration licences was submitted in March 2012. The cost of the Company's personnel and the technical experts appointed to monitor the Company's investment in the Project are the only significant expenditures currently envisaged during the period of the FS work programme and the Company has significant cash resources available. In the circumstances, the Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future. For these reasons, the financial statements of the Company have been prepared on a going concern basis.

In the event that a decision is taken to develop a mine at Zanaga (and assuming that Xstrata Projects has not acquired the Company's interest in Jumelles), the Company will need to raise further funds.

2 Accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Basis of preparation

These financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union ("Adopted IFRS"). Adopted IFRS comprises standards and interpretations approved by the International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") as adopted by the European Union.

The financial statements consolidate those of the Company and its subsidiary Zanaga UK Services Limited (together, the "Group") and the Company's investment in an associate which is accounted for using the equity method.

New standards, amendments and interpretations

The following Standards and Interpretations were issued during the year, but were not effective at the balance sheet date:

· IAS 1 (Amended) - Presentation of items of Other Comprehensive Income

· IFRS 10 - Consolidated Financial Statements

· IFRS 12 - Disclosure of Interests in Other Entities

· IFRS 13 - Fair Value Measurement

These standards have not been applied in preparing the financial statements for the year ended 31 December 2011.

It is not anticipated that the adoption of these standards will have any significant impact on the financial statements.

Measurement convention

These financial statements have been prepared on the historical cost basis of accounting.

The preparation of financial statements in conformity with Adopted IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the 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 balance sheet date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement.

Share-based payments

The Group makes equity-settled share-based payments to certain employees and similar persons as part of a long-term incentive plan ("LTIP"). The fair value of the equity-settled share-based payments is determined at the date of the grant and expensed, with a corresponding increase in equity, on a straight line basis over the vesting period, based on the Group estimate of the awards that will eventually vest, save for any changes resulting from any market-performance conditions.

Where awards are granted to employees of the Group's associate and similar persons, the equity-settled share-based payment is recognised by the Group as an increase in the cost of the investment with a corresponding increase in equity over the vesting period of the award. In equity accounting for the Group's share of its associate, the Group has accounted for the cost of equity settled share-based payments as if it were a subsidiary.

The shares to be issued under the LTIP are acquired by an Employee Benefit Trust which has to date subscribed for the shares at zero value. These shares are held by the Employee Benefit Trust until the vesting conditions have been met. Information on the share awards are provided in Note 11 to these financial statements.

Share-based payments to non-employees

Where the Group received goods or services from a third party in exchange for its own equity instruments and the amount of equity instruments is fixed, the equity instruments and related goods or services are measured at the fair value of the goods or services received and are recognised as the goods are obtained or the services rendered. Equity instruments issued under such arrangements for the receipt of services are only considered to be vested once provision of services is complete.

Non-derivative financial instruments

Non-derivative financial instruments in the balance sheet comprise other receivables, cash and cash equivalents, and trade and other payables.

Other receivables

Other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses.

Trade and other payables

Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits.

Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.

Ordinary shares issued to the Employee Benefit Trust under the LTIP or to non-employees for services provided to the Company, are included within Share Capital.

When share capital recognised as equity is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a change in equity. Repurchased shares are classified as treasury shares and presented as a deduction from total equity.

Impairment

The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment; a financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. If any such indication exists, the asset's recoverable amount is estimated.

An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.

Calculation of recoverable amount

The recoverable amount of the Group's investments and receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e., the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted.

The recoverable amount of other assets is the greater of their fair values less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

Reversals of impairment

An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.

In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Expenses

Financing income and expenses

Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.

Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill: the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.

Segmental Reporting

The Group has one operating segment, being its investment in the Project, held through Jumelles Limited. Financial information regarding this segment is provided in Note 6.

Subsequent events

Post year-end events that provide additional information about the Group's position at the balance sheet date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to financial statements when material.

3 Critical accounting estimates, assumptions and judgements

The Group makes estimates and assumption concerning the future that are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.

Impairment of investment in associate

The value of the Group's investment in Jumelles depends very largely on the value of Jumelles' interest in the Project. Jumelles assesses at least annually whether or not its exploration projects may be impaired. This assessment can involve significant judgement as to the likelihood that a project will continue to show sufficient commercial promise to warrant the continuation of exploration and evaluation activities.

Accounting for the Company's interest in Jumelles Limited

Significant judgement has been applied in arriving at the accounting treatment of the Group's interest in Jumelles. Though the exercise of the Xstrata Call Option on 11 February 2011 gave Xstrata Projects a shareholding of 50% plus one share, and then effective director level control of Jumelles, those shares are not considered to vest until provision of the services relating to the PFS and FS has been completed. Accordingly, the Group will continue to account for a 100% interest in Jumelles until the FS has been completed. Further details may be found under 'Investment in associate' Note 6b.

4 Note to the comprehensive income statement

Operating loss before tax is stated after charging:

	2011	2010
	$000	$000
Share-based payments (see Note 11)	2,425	964
Net foreign exchange (gain)/loss	(274)	1,343
Directors' fees	514	309
Auditor's remuneration	93	39
Depreciation	3	-

Other than the Company Directors, the Group directly employed three staff in 2011 (2010: Nil). The Directors received US$514,000 remuneration for their services as Directors of the Group (2010: US$309,000). The amounts paid as Directors' fees are shown in the Directors' Remuneration Report on page 34. The Directors' interests in the share capital of the Group are shown in the Directors' Remuneration Report on page 34.

5 Taxation

The Group is exempt from most forms of taxation in the BVI, provided the Group does not trade in the BVI and does not have any employees working in the BVI. All dividends, interest, rents, royalties and other expense amounts paid by the Company, and capital gains are realised with respect to any shares, debt obligations or other securities of the Company, are exempt from taxation in the BVI.

The tax charge in the period relates to the Company's subsidiary, Zanaga UK Services Limited.

	2011	2010
	$000	$000
Recognised in other comprehensive income:
Current year	(28)	-
Reconciliation of effective tax rate
Loss before tax	(14,351)	(13,850)
Income tax using the BVI corporation tax rate of 0% (2010: 0%)	-	-
Effect of tax rate in foreign jurisdictions	(28)	-
	(28)	-

The effective tax rate for the Group is 0.2% (2010: nil%).

6a Property, Plant and Equipment

	Fixtures
	and fittings
	$000
Cost
Balance at 1 January 2011	-
Additions	16
Balance at 31 December 2011	16
Depreciation
Balance at 1 January 2011	-
Charge for period	3
Balance at 31st December 2011	3
Net book value
Balance at 31 December 2011	13
Balance at 31st December 2010	-

There are no assets held under finance leases or hire purchase contracts.

6b Investment in associate

	$000
Balance at 1 January 2010	198,439
Additions	2,544
Share of post-acquisition comprehensive income	(8,184)
Balance at 31 December 2010	192,799
Balance at 1 January 2011	192,799
Additions	6,498
Share of post-acquisition comprehensive income	(16,320)
Balance at 31 December 2011	182,977

The investment represents a 100% holding in Jumelles for the entire share capital of 2,000,000 shares. The shares were acquired in exchange for shares in the Company and have been recorded at fair value of the interest acquired.

The additions to the investment during 2010 and 2011 are due to the Group granting awards under the LTIP to employees of Jumelles (as set out in Note 11).

Since its acquisition and up to 11 February 2011, the investment in Jumelles did not represent an investment in a subsidiary due to the call option held by Xstrata described in Note 1 above which throughout that period gave Xstrata Projects potential voting rights which would have been sufficient for Xstrata Projects to control Jumelles. Following exercise of the Xstrata Call Option , the residual rights retained by the Group are sufficient in the view of the Directors to provide the Group with the power to participate significantly in the financial and operating decisions affecting Jumelles. As a consequence the Group's interest is accounted for as an associate using the equity method of accounting.

As explained in Note 1, on 11 February 2011, Xstrata Projects exercised the Xstrata Call Option and from that date owns 50% plus one share of Jumelles and Jumelles is controlled at both a shareholder and director level by Xstrata Projects. However, as the shares issued on exercise of the option are not considered to vest until provision of the services relating to the PFS and the FS has been completed, the Group will continue to account for a 100% interest in Jumelles Limited until the FS has been completed. Only at that time will the Group account for a reduction in its interest in Jumelles.

The Group financial statements account for the Xstrata Projects transaction as an in-substance equity-settled share-based payment for the provision of services by Xstrata Projects to Jumelles in relation to the PFS and the FS. These services largely are provided through third party contractors and are measured at the cost of the services provided.

As at 31 December 2011, Jumelles had aggregated assets of US$200,396,000 (2010: US$101,783,000) and aggregated liabilities of US$37,461,000 (2010: US$30,846,000). For the year ended 31 December 2011 Jumelles incurred net administrative expenses of US$1,305,000 (2010: US$5,992,000) and incurred a tax charge of US$Nil (2010: US$269,000). A summarised consolidated balance sheet of Jumelles Limited for the year ended 31 December 2011, including adjustments made for equity accounting, is included below:

	2011	2010
	$000	$000
Non-current Assets
Property, plant and equipment	12,704	13,623
Exploration and other evaluation assets	166,815	78,954
Intangible Assets	145	-
	179,664	92,577
Current Assets	20,732	9,206
Current Liabilities	(37,461)	(30,846)
Net current liabilities	(16,729)	(21,640)
Net assets	162,935	70,937
Share Capital	9,561	3,063
Share option reserve	190,738	88,918
Translation reserve	(8,569)	(52)
Retained earnings	(28,795)	(20,992)
	162,935	70,937

7 Other receivables

	2011	2010
	$000	$000
Prepayments	104	80

8 Cash

	2011	2010
	$000	$000
Cash and cash equivalents	45,047	49,318

9 Trade and other payables

	2011	2010
	$000	$000
Accounts payable	780	677
Amounts payable to the Jumelles Limited group	85	336
UK Corporation Tax	27	-
	892	1,013

Amounts payable to the Jumelles Limited group comprise of US$64,000 payable to Jumelles (2010: US$298,000) and US$21,000 payable to Jumelles Technical Services (UK) Limited (2010:US$38,000). No amounts payable are due in more than 12 months (2010: US$nil).

10 Share capital

	Ordinary
In thousands of shares	shares
On issue at 1 January 2010 - fully paid	101,974
Sub-division of shares	152,960
New shares issued pursuant to placing	19,908
Shares issued to the Employee Trust under the LTIP	5,574
On issue at 31 December 2010 - fully paid	280,416
On issue at 31 December 2011 - fully paid	280,416

The Company is able to issue an unlimited number of no par value shares. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. No dividends have been paid or declared in the current year (2010: US$nil).

Share capital changes in 2010

On 15 November 2010, pursuant to a written resolution of the Directors dated the same day, each ordinary share of the Company was divided into 2.5 ordinary shares creating 152,960,527 new shares.

The Company was admitted to trading on AIM on 18 November 2010 at which point the total number of shares in issue was 254,934,212.

On Admission to AIM the Company issued 19,907,629 new ordinary shares at 156 pence each. These shares were issued for cash of US$49,507,000 and are disclosed net of issue costs of US$5,393,000.

Under a deed of warrant dated 17 November 2010 the Company granted to Liberum Capital Limited, the Company's Nominated Advisor and Joint Corporate Broker, conditional on admission a warrant to subscribe for, at the placing price of £1.56, new ordinary shares equal in value to 5% of the aggregate number of new shares issued on admission (998,382 shares), exercisable within 12 months of Admission which was not exercised and subsequently lapsed on 18 November 2011. US$481,000 of the issue costs on Admission to AIM relate to the fair value of services received under this deed of warrant.

A total of 5,574,135 ordinary shares were issued for nil consideration to a discretionary trust established for the benefit of current and former employees and officeholders of the Company and the Jumelles group in connection with the Company's LTIP. Further details of this scheme can be found in Note 11.

Share capital changes in 2011

There have been no share capital changes in 2011.

11 Share-based payments

Employees

As stated under Note 2 above the Group has implemented a LTIP in order to recruit and retain key officers and employees of the Group and the Group's associate. For all key management personnel, the LTIP is structured as a split interest scheme. On the date of the award, the employee and the Employee Trust enter into an agreement to acquire shares as joint owners with the employee's proportion of ownership of each share being 0.001% of the total value up to a given hurdle and 99.999% of the total value above the hurdle. The hurdle is determined on advice of the Remuneration Committee. The employee will pay the market value for his joint ownership of the shares. If the vesting conditions are not met, the employee forfeit's joint ownership of the shares. If the award meets the vesting conditions, the employee has the right to exercise the option and become the sole owner of the shares. The Group has also granted a number of awards of share options to middle management. Under these awards the Trust grants the employee the right to acquire shares if certain vesting conditions are achieved. The employee is not required to pay an exercise price for these shares.

A number of separate awards were made on 18 November 2010. Different awards were made subject to several different vesting conditions.

Award 1

These awards vest on the later of the following:

· The exercise or non-exercise by Xstrata Projects or expiry or termination of the Xstrata Call Option to acquire its Majority Stake in Jumelles; or

· The completion of the PFS to the satisfaction of the Board.

There are specific provisions that apply to the awards in respect of takeover and corporate transaction provisions and provisions relating to cessation of employment or ceasing to provide services.

During the year, the Remuneration Committee modified the terms of Award 1. The condition relating to completion of the PFS was amended so that the vesting criteria be the publication of the results of the VEE.

Award 2

These awards vest as follows:

· In respect of 1/3 of the shares subject to the awards, immediately on Admission;

· In respect of 1/3 of the shares subject to the awards, on the expiry of one year following Admission;

· In respect of 1/3 of the shares subject to the awards, the expiry of two years following Admission.

There are specific provisions that apply to the awards in respect of takeover and corporate transaction provisions and provisions relating to cessation of employment or ceasing to provide services.

Award 3

These awards vest on the expiry of the following periods:

· In respect of 1/2 of the shares subject to the awards, the expiry of one year following Admission;

· In respect of 1/2 of the shares subject to the awards, the expiry of two years following Admission.

The application of the vesting criteria in the three awards above is subject to the discretion of the Board of Directors who can also vary the criteria if they see fit. There are specific provisions that apply to the early vesting of awards in the event of takeover and corporate transaction provisions and provisions relating to cessation of employment or ceasing to provide employment.

The following information is relevant to the awards made during 2010:

	Award 1		Award 2		Award 3		Total
	Weighted		Weighted		Weighted		Weighted
	Average		Average		Average		Average
	Exercise Price		Exercise Price		Exercise Price		Exercise Price
	(£)	Number	(£)	Number	(£)	Number	(£)	Number

At 1 January 2010	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil
Granted	£0.02	4,260,235	£0.02	995,382	£1.58	199,076	£0.08	5,454,693
Forfeited	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil
Exercised	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil
Lapsed	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil
At 31 December 2010	£0.02	4,260,235	£0.02	995,382	£1.58	199,076	£0.08	5,454,693
	(US$0.03)		(US$0.04)		(US$2.45)		(US$0.12)
At 1 January 2011	£0.02	4,260,235	£0.02	995,382	£1.58	199,076	£0.08	5,454,693
	(US$0.03)		(US$0.04)		(US$2.45)		(US$0.12)
Granted	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
Exercised	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil
Lapsed	N/A	Nil	N/A	Nil	N/A	Nil	N/A	Nil
At 31 December 2011	£0.02	4,260,235	£0.02	995,382	£1.58	199,076	£0.08	5,454,693
	(US$0.03)		(US$0.04)		(US$2.45)		(US$0.12)

	Award 1	Award 2	Award 3	Total
Range of exercise prices (£ and US$*)	£0.00-£0.02 (US$0.00-US$0.03)	£0.02 (US$0.04)	£1.58 (US$2.45)	£0.00 - £1.58 (US$0.00-US$2.45)
Weighted average share price at date of exercise (£)	N/A	N/A	N/A	N/A
Total share awards vested (No.)	4,260,235	663,588	199,076	5,122,899
Weighted average fair value of share awards granted in the period (£ and US$*)	Nil	Nil	Nil	Nil
Weighted average remaining contractual life (days)	Nil	323 days	323 days	Nil

* Sterling amounts have been converted into US Dollars at the grant date exchange rate of US$1.547:£1.

It is currently expected that awards will vest in full.

The following information is relevant in the determination of the fair value of options granted:

	Award 1	Award 2	Award 3	Total
Option pricing model used	Black-Scholes	Black-Scholes	Black-Scholes	Black-Scholes
Weighted average share price at date of grant (£ and US$*)	£1.56 (US$2.43)	£1.56 (US$2.43)	£1.56 (US$2.43)	£1.56 (US$2.43)
Weighted average contractual life (days)	264 days	365 days	548 days	293 days
Expected volatility (%)	50%	50% for less than	50% for less than	50% for less than
		1 year expected life,	1 year expected life,	1 year expected life,
		55% for more than	55% for more than	55% for more than
		1 year expected life	1 year expected life	1 year expected life
Dividend growth rate (%)	Zero	Zero	Zero	Zero
Risk-free interest rate (%)	0.51% for	0.69% for	0.69% for	0.51% for
	6 month expected life	12 month expected life	12 month expected life	6 month expected life
	0.69% for	1.12% for	1.12% for	0.69% for
	12 month expected life	24 month expected life	24 month expected life	12 month expected life
		1.55 for		1.12% for
		36 month expected life		24 month expected life
				1.55 for
				36 month expected life

* Sterling amounts have been converted into US Dollars at the year end closing exchange rate of US$1.547: £1.

The volatility assumption is measured by reference to the historic volatility of comparable companies based on the expected life of the option.

Non-employees

The Company has also granted an award of share options in respect of consultancy services provided by Strata Capital UK LLP on 17 November 2010. The options have a weighted average price of £1.56 (US$2.41), a weighted average fair value of £0.39 (US$0.62) and a weighted average contractual life of 502 days. The awards have the same terms as the Award 3 issued under the LTIP and have therefore been fair valued using the same model and valuation assumptions.

The total equity-settled share-based payment expense recognised as an operating expense during the year was US$2,425,000 (2010: US$964,000), of which US$2,268,000 (2010: US$941,000) related to the Directors and US$157,000 (2010: US$23,000) related to consultancy services provided by Strata Capital UK LLP. Further details of share-based payments awarded to Directors of the Group can be found in the Remuneration Report on page 34.

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$6,498,000 (2010: US$2,544,000) and has been added to the cost of investment in those companies

12 Loss per share

	2011	2010
Loss (Basic and diluted) (US$,000)	(14,379)	(13,850)
Weighted average number of shares (thousands)
Basic
Issued shares at beginning of period	280,416	101,974
Effect of shares issued	-	33,788
Effect of share repurchase	-	-
Effect of own shares	(5,574)	(657)
Effect of share split	-	122,229
Weighted average number of shares at 31 December - basic	274,842	257,334
Loss per share (Cents)
Basic and diluted	5.2	5.4

There are potential ordinary shares outstanding, refer to Note 10 and 11 for details of these potential ordinary shares.

13 Financial instruments

Fair values of financial instruments

Other receivables

The fair value of other receivables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. The fair values approximate book values.

Trade and other payables

The fair value of trade and other payables is estimated as the present value of future cash flows, discounted at the market rate of interest at the balance sheet date if the effect is material. The fair values approximate book values.

Cash and cash equivalents

The fair value of cash and cash equivalents is estimated as its carrying amount where the cash is repayable on demand. Where it is not repayable on demand then the fair value is estimated at the present value of future cash flows, discounted at the market rate of interest at the balance sheet date.

Financial Risk Management

The Group's activities expose it to a variety of financial risks: credit risk, liquidity risk and market risk (comprising currency risk and interest rate risk). The Group seeks to minimise potential adverse effects of these risks on the Group's financial performance. The Board has overall responsibility for managing the risks and the framework for monitoring and coordinating these risks. The Group's financial risk management policies are set out below:

(a) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group receivables related parties. The Group has a credit policy in place and exposure to credit risk is monitored on an ongoing basis. At 31 December, the financial assets exposed to credit risk were as follows:

	2011	2010
	$000	$000
Cash and cash equivalents	45,047	49,318

(b) Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet its obligations as they fall due. The Group evaluates and follows continuously the amount of liquid funds needed for business operations, in order to secure the funding needed for business activities and loan repayments. The availability and flexibility of the financing is needed to assure the Group's financial position. The Group funding requirements are detailed in Note 1.

Details of the maturity of financial liabilities are provided in Note 9.

(i) Foreign currency risk

The foreign currency denominated financial assets and liabilities are not hedged, thus the changes in fair value are charged or credited to profit and loss.

As at 31 December 2011 the foreign currency denominated assets include cash balances held in sterling of US$38,746,000 (2010: US$42,861,000), other receivables denominated in sterling of US$102,000 (2010: US$77,000), and accounts payable of US$768,000 (2010: US$599,000) denominated in sterling.

The following significant exchange rates applied during the year:

		Reporting date		Reporting date
	Average rate	spot rate	Average rate	spot rate
	2011	2011	2010	2010
Against US Dollars	US$	US$	US$	US$
Pounds Sterling	1.604	1.554	1.546	1.547

Sensitivity analysis

A 10% weakening of the following currencies against the US Dollar at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the balance sheet date and had been applied to risk exposures existing at that date.

This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant.

	Equity	Profit or loss	Equity	Profit or loss
	2011	2011	2010	2010
	$000	$000	$000	$000
Pounds sterling	(3,814)	(3,814)	(4,346)	(4,346)

A 10% strengthening of the above currencies against the US Dollar at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

Capital management

The Board's policy is to maintain a strong capital base so as to maintain investor and market confidence. Capital consists of share capital and retained earnings.

The Directors do not intend to declare or pay a dividend in the foreseeable future but, subject to the availability of sufficient distributable profits, intend to commence the payment of dividends when it becomes commercially prudent to do so.

The Company has a LTIP which is administered by the Remuneration Committee. The LTIP is discretionary and the Remuneration Committee will decide whether to make share awards under the LTIP at any time. The Group Employee Benefit Trust buys the shares in the Company to be issued under the LTIP.

14 Commitments

The Group had no capital commitments or off-balance sheet arrangements at 31 December 2011 (31 December 2010: nil).

15 Related parties

The Group's relationships with Jumelles and Xstrata are described in Note 1 above.

The following transactions occurred with related parties during the period:

	Transactions for the period		Closing balance
	2011	2010	2011	2010
	$000	$000	$000	$000
Intercompany payable Jumelles Limited	234	298	64	298
Intercompany payable Jumelles Technical Services UK Limited	(17)	38	21	38
Strata Capital UK LLP	52	57	5	57

In addition to the transactions above, the Group has also issued share options to Strata Capital UK LLP. Details of these options can be found in Note 11.

Transactions with key management personnel

	2011	2010
	$000	$000
Share-based payments	2,268	964
Directors' fees *	514	309
Total	2,782	1,273

* Colin Harris held office as a Director at Jumelles Technical Services Limited (a subsidiary within the Jumelles Group) and managed the Project until February 2011 and, during 2011, received £194,000 (US$311,000) in respect of those roles and the cessation thereof.

Harris GeoConsult Ltd, a company in which Colin Harris has a controlling interest, was paid a total of £131,000 (US$205,000) for consultancy services provided by Colin Harris during 2011.

Strata Capital UK LLP, a limited liability partnership in which Michael Haworth has a significant interest, was paid a total of £104,000 (US$162,000) for consultancy services provided by Michael Haworth during 2011.

The Directors' have no material interest in any contract of significance subsisting during the financial year, to which the Group is a party.