29 June 2017
· Mining Convention ratified by the Parliament of the Republic of Congo ("RoC"), promulgated by the President of the Republic as a law, and published in the Official Gazette of the RoC
· Work programme and budget for 2017 and 2017 Funding Agreement agreed with Glencore Projects Pty Ltd ("Glencore"), a subsidiary of Glencore plc
· Additional cost reductions implemented at the Zanaga Project (the "Zanaga Project"), as well as across Zanga Iron Ore Company Limited ( "ZIOC" or the "Company")'s corporate cost base
· Cash balance of US$4.9m as at 2016 year end, and a cash balance of US$4.7m at 31 May 2017
Clifford Elphick, Non-Executive Chairman of ZIOC, commented:
"Despite the continued challenge of securing funding for large scale developments, the Zanaga Iron Ore Project has enjoyed another year of positive momentum on the ground. A major milestone was achieved in the receipt of the Project's Mining Convention. The Mining Convention was ratified by the Parliament of the Republic of Congo, promulgated as a law, and published in the Official Gazette of the RoC on 28 June 2016; this establishes the fiscal and legal framework for the Project.
Our prudent approach to operations has resulted in further steps being taken to reduce costs on the ground and at a corporate level. We have been impressed with the management team's ability to deliver substantial savings while maintaining the ability to pursue the key workstreams that are required to advance the Project through the next phase of development.
We feel encouraged by signs of improved health in the global mining industry and the iron ore sector specifically. The iron ore price rise at the start of 2017 was stronger and faster than anticipated, although there has been a subsequent fall-back. Product quality evolution from both supply and demand perspectives for high quality products are continuously evolving; in particular, we are enthusiastic about the significant premiums being paid for higher quality products similar to the type of product anticipated from ZIOC. We view this as a structural, rather than a cyclical, shift in industry pricing dynamics.
We remain convinced that the Zanaga Iron Ore Project is one of the most technically defined and geologically understood iron ore assets in the world, and we are active in engaging with new technology solutions and development strategies with the aim of seeking realistic opportunities to enhance the investment case in the near term."
The Company will post its Annual Report and Accounts for the year ended 31 December 2016 ("2016 Annual Report and Accounts"), together with the Notice of its Annual General Meeting ("AGM"), which will be held at Adelaide House, London Bridge, London EC4R 9HA, England on 14 August 2017 at 9.00 a.m. British Summer Time ("BST"), the form of proxy and form of instruction for holders of Depositary Interests for use at the AGM to shareholders on 30 June 2017.
A copy of the Notice of AGM and the 2016 Annual Report and Accounts will be available on the Company's website www.zanagairon.com from 30 June 2017.
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 Richard Crawley
Adviser and Corporate Broker and Neil Elliot
+44 20 3100 2000
About us:
Zanaga Iron Ore Company Limited (AIM ticker: ZIOC) is the owner of 50% less one share in the Zanaga Iron Ore Project based in the Republic of Congo (Congo Brazzaville) through its investment in associate. 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.
Dear Shareholder,
The global iron ore industry's performance improved significantly in 2016 both from a cost and pricing perspective, providing a much more positive platform going into 2017.
Industry operating costs have been drastically reduced across the iron ore sector over recent years, driven by lower freight rates, lower oil prices, weaker domestic currencies versus the US dollar, and more competitive pricing from contractors. This has helped maintain healthy operating margins among tier one operators in recent months.
We are pleased to see signs of improved equilibrium in global iron ore markets and are encouraged by improvements in the Chinese economy with greater levels of profitability in the Chinese steel industry in particular. This has led to high levels of iron ore consumption being maintained from the industry's cornerstone customer. On the supply side, we anticipate further supply increases from the majors, but expect to see concurrent closure of certain operations entering the final stages of their mine lives.
Despite the continued challenge of securing funding for large scale developments, the Zanaga Iron Ore Project (the "Zanaga Project" or "Project") has enjoyed another year of positive momentum on the ground. A major milestone was achieved in the receipt of the Project's Mining Convention. The Mining Convention was ratified by the Parliament of the RoC, promulgated as a law, and published in the Official Gazette of the RoC on 28 June 2016; this establishes the fiscal and legal framework for the Project.
Our prudent approach to operations has resulted in further steps being taken to reduce costs on the ground and at a corporate level. We have been impressed with the management team's ability to deliver substantial savings while maintaining the ability to pursue the key workstreams that are required to advance the Project through the next phase of development.
We feel encouraged by signs of improved health in the global mining industry, with commodity price increases in 2016 leading to stronger cash flow generation by the leading mining houses. This has led to stronger balance sheets and increased capex availability for good quality projects.
The iron ore price rise at the start of 2017 was stronger and faster than anticipated, although there has been a subsequent fall-back. Product quality evolution from both supply and demand perspectives for high quality products are continuously evolving; in particular, we are enthusiastic about the significant premiums being paid for higher quality products similar to the type of product anticipated from ZIOC. We view this as a structural, rather than a cyclical, shift in industry pricing dynamics.
We are pleased to report that the Project team are at a preliminary stage of actively studying the potential for an early stage development of a small-scale, low capex, low opex project utilising road and potentially rail transportation solutions. To be viable, such a project would need to be able to demonstrate attractive economics. As part of such initiative, it is noted that the price premiums currently being achieved for high quality products combined with the possible option to ship to a closer customer-base (e.g. Europe/US) has the potential to provide high margins to such an early stage project. At this point, it is too early to assess what the likely outcome of this initiative will be. We look forward to providing further information on this initiative to shareholders towards the end of the year.
We remain convinced that the Zanaga Project is one of the most technically defined and geologically understood iron ore assets in the world, and we are active in engaging with new technology solutions and development strategies with the aim of seeking realistic opportunities to enhance the investment case in the near term.
Mining Convention for the Zanaga Project
With effect from 20 May 2016, the Zanaga Mining Convention has been promulgated as a law of the RoC (Law No 15-2016 of 29 April 2016), following ratification by the Parliament of the RoC and publication in the Official Gazette on 28 June 2016. The confirmation of the Mining Convention as a law further secures the stability the Project's fiscal and legal regime for the life of the mine. (For further details, and key terms of the Mining Convention please refer to ZIOC's announcement on 29 June 2016 and also to page 14 of the 2015 Annual Report which refers to the ratification of the Mining Convention)
The ratification of the Mining Convention demonstrates the Government of the RoC's firm commitment to developing the country's mining sector, is testament to the Project's strong stakeholder relations, and is a major step forward for the Project.
Permitting
The application for the Environmental Permit for the Project's first phase of development has been lodged with the RoC Ministry of Environment and the Project team believes that this is likely to be received during the second half of the 2017 fiscal year.
Reserves and Resources
On 30 June 2016, during the publication of ZIOC's 2015 annual report, the Zanaga Project's significant iron ore Reserve and Resource estimates were each reviewed, signed off, and entirely maintained.
Iron Ore Market
The iron ore market continues to transition through a period of significant change in supply and demand dynamics. We are particularly encouraged by current record price premiums being paid for higher quality products. We view this change as a structural shift for the industry and expect high quality premiums to persist going forward.
On the supply side the substantial production expansions of the major iron ore miners has led to new supply entering the market in recent years. Further expansion will continue to arrive in 2017-2019 from projects where capital commitments were made under historically higher iron ore price environments. The supply expansion will to some extent have been counteracted by the suspension of production by a number of high cost Chinese domestic producers and seaborne suppliers entering the final phases of their mine lives. However, it remains the case that the final equilibrium price is difficult to forecast. The respite provided to producers in the form of lower freight rates, lower oil prices, and weaker foreign exchange rates versus the US dollar, has allowed a number of producers to weather current weak iron ore pricing conditions and has particularly benefitted the major iron ore producers with substantial input price negotiation power.
In order to appropriately estimate demand for iron ore it is important to understand Steel industry dynamics, especially in China and other rapidly growing economies. Chinese steel demand in 2017 is expected to be supported by an ongoing recovery in the property sector, increased government spending on large infrastructure projects and restocking in the machinery and appliance segments. We believe this demand will remain robust and will be supported by expansions in steel demand from other emerging market economies (excluding China). On the supply side of the steel industry, the Chinese government's crackdown on high polluting and idle steel capacity took on a greater level of urgency and enforcement in 2016. In order to maintain steel production rates, and offset closed capacity, Chinese steel makers have responded by maximising output per tonne of input through the prioritisation of purchases of higher quality iron ore products.
As a result, the spread between low and high grade iron ore pricing has widened to record levels, reinforcing our view that this price shift is structural rather than cyclical. The widening spread in product pricings has a simultaneous negative impact on low quality ores, with a resulting expansion in low quality ore discounts (contrary to the positive price premium benefit Zanaga would expect from its high quality product). The greater discounts applied to these low-grade materials combined with the increasing cost structure and shortening mine life of non-traditional supply has led to a steepening of the iron-ore industry cost curve in the last year. This 'stickiness' at the tail end of the iron ore cost curve should provide support for the maintenance of benchmark product pricing going forward.
The movements in supply and demand, and the level at which price equilibrium is ultimately reached, are difficult to predict; however there are some signs which indicate that a point of increased stability in the industry might be reached in the medium term.
In addition, the product demand spectrum is increasingly showing an appreciation in pricing of higher quality lump and pellet feed iron ore products, driven by steel-industry supply-side reform and environmental considerations. This is encouraging as the Zanaga Project's premium quality products would be well placed to benefit from this pricing dynamic.
Project Schedule
The Zanaga Project team has been tasked with securing final permitting and operational agreements as soon as practicable. Once these have been obtained, the aim is to position the project to be ready to move into financing discussions to secure the required development finance for Stage One of the Project. The obtaining of such finance is dependent upon a number of factors, including evidence that long term price expectations have stabilised to a level which provides acceptable investment returns for investors in the Project. Once financing is achieved, the envisaged timeline of the 12Mtpa Stage One project from financial close is then expected to entail one year of Front End Engineering and Design (FEED), followed by three years of construction.
If it is concluded that an early small-scale, low capex, start-up project (as is currently being investigated) is technically and economically viable, such a project would also need to attract new investment and to obtain a degree of revised permitting. As regards timing, a viable small-scale project would likely be developed in a significantly shorter timeframe than the Stage One project.
Cost Reduction Programme, Cash Reserves and Project Funding
As part of the Zanaga Project management team's prudent approach to its operations, further steps were taken during the year to reduce costs at the Project. We have been impressed with the management team's ability to deliver substantial savings while maintaining the ability to pursue the key workstreams that are required to advance the project through the next phase of work.
In addition to the cost reductions on the ground, ZIOC implemented further reductions to corporate overheads, managing to deliver these reductions in the second half of the year. We are pleased with our reduced budget expectations for 2017 and expect the project team to continue to deliver on work programmes as planned.
Similar to the Funding Agreement for 2016 project expenditure, Glencore and ZIOC have agreed a 2017 Project Work Programme and Budget for the Project of US$1.4m plus US$0.3m of discretionary spend dependent on certain workstreams requiring capital. ZIOC has agreed to contribute towards such work programme and budget an amount comprising US$0.7m plus 49.99% of all discretionary items approved jointly with Glencore. Ignoring any entitlement to savings, ZIOC's potential contribution to the Project in 2017 is US$0.9m in total.
Following the reduction of the cost base at the Zanaga Project, as well as the additional cost reductions in the 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 working capital requirements up to, and beyond, twelve months from the approval of these accounts. We had cash reserves of US$4.7m as at 31 May 2017 and continue to be prudent with our cash.
Outlook
Significant improvement in the global iron ore market, particularly in relation to pricing for higher quality products, has encouraged the Project team to accelerate its investigations into potential small scale early production start-up solutions. With market conditions showing evidence of stabilisation and an increasing focus on premium product, we look forward to investigating this solution, depending on the outcome, seeking to take advantage of these potential opportunities.
At the Zanaga Project we continue to maintain progress and advance the Project, while operating at a prudent level of project expenditure. Despite the significantly reduced ongoing costs at the Project as well as ZIOC's corporate costs, the Project team is motivated to secure a number of key objectives. The fresh initiatives to investigate early stage operations are a priority to the team, while also considering the reduced costs associated with the development of the larger project. Establishment of port and power arrangements is under constant review and progress is being made on securing the environmental permit.
The Project is underpinned by a globally significant, well-defined resource and extensive study work. The Project has also been substantially de-risked through the ratification of the Project's Mining Convention by the Parliament of the RoC.
We believe that we have one of the most technically defined and geologically understood iron ore assets in the world, and we are active in engaging with new technology solutions that could have the potential to enhance the investment case. The Project team is engaged in assessing such new technology solutions in the context of the possibility for an early stage production. At this point, it is too early to assess what the likely outcome of this initiative will be. We look forward to providing further information on this initiative to shareholders towards the end of the year.
Clifford Elphick
Non-Executive Chairman
During 2016 a number of important milestones were achieved at the Zanaga Project, and new workstreams have commenced that have opened up the opportunity for an exciting smaller scale start up operation.
In early 2016 the Zanaga Mining Convention was promulgated as a law of the RoC, following ratification by the Parliament of the RoC and publication in the Official Gazette. The confirmation of the Mining Convention as a law further secures the stability the Project's fiscal and legal regime for the life of the mine.
In addition, the Zanaga Project successfully transitioned to a significantly lower cost base which is expected to result in substantial savings going forward.
Early stage Pellet Project opportunity
We are pleased to report that the Project team is actively studying the potential for the early development of a small-scale, low capex, low opex project utilising road and potentially rail transportation solutions. To be viable, such a project would need to be able to demonstrate attractive economics and to be based upon a pelletisation technology that was credible and acceptable to potential customers. As part of such initiative, it is noted that the price premiums currently being achieved for high quality products combined with the option to ship to a closer customer-base (e.g. Europe/US) has the potential to provide high margins and this could be a factor in assessing the viability of an early stage investment case.
This initiative would seek to take advantage of (a) high price premiums being paid for higher quality products in the market (pellet products in particular), (b) new technologies that allow for low cost modular pellet plant solutions, and (c) the potential to ship a suitable product to a closer customer-base (e.g. Europe/US).
The options we are assesing include the development of an operation producing 0.5 to 2.0Mtpa of product. Transportation would involve trucking material via existing, and partially upgraded, road infrastructure. At the lower end of the production range it may be possible to truck all material from mine to port, but lower operating costs could be available through the usage of rail transporation for part of the journey. At the higher end of the production scale we believe that a pure road transportation solution would be too challenging and rail alternatives would need to be factored.
If it is concluded that such a project is viable, such a project would also need to attract new investment and to obtain a degree of revised permitting. In comparison to the larger 12Mtpa Stage One Project presented by the Feasibility Study in 2014, this smaller scale 'early stage' development operation is expected to be constructed in a much shorter timeframe than the Stage One project.
The team have been working extensively on the small scale start-up project with the intention of investigating this solution to a high level of definition at minimal cost At this point, it is too early to assess what the likely outcome of this initiative will be. We look forward to providing further information on this initiative to shareholders towards the end of the year.
Port Infrastructure and Development
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. The Zanaga Project team continues to engage with CRBC with a view to ensuring technical compatibility with our operations as well as sustainable terms of usage. Advancing a port access agreement with the RoC is a key objective for the Project team and we will remain proactive in our engagement with CRBC.
Power
The Zanaga Project's strategy is to connect the Project to the national network. The FS on the Project, for the Project's 12Mtpa Stage One is based upon a power offtake agreement being concluded directly with the government power agency ("SNE") or with an existing or new power provider in order to meet the Project's 100MW power requirement. Power would be supplied by existing and planned power generation capacity in the country, which is made possible today through the existence of more than 100MW of excess capacity.
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 Zanaga 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 an increased amount of work during 2017 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.
Permitting
The application for the Environmental Permit for the Project's first phase of development has been lodged with the RoC Ministry of Environment and the Project team believes that this is likely to be received during the second half of the 2017 fiscal year.
Next Steps
During 2017, the Project team will be progressing a number of important value-adding activities. These activities will be important next steps in allowing the Project to reach a position to seek financing and progress to development once market conditions stabilise. These activities include advancement of port and power agreements, and issuance of the environmental permit. As a separate work-stream, these activities also include the investigation of a small scale start up project as described above.
Results from operations
The financial statements contain the results for the Group's seventh full year of operations following its incorporation on 19 November 2009. The Group made a total comprehensive loss in the year of US$3.06m (2015: total comprehensive loss US$16.9m). The total comprehensive income for the year comprised:
|
|
2016 |
2015 |
|
General expenses |
(1,257) |
(2,143) |
|
Net foreign exchange (loss)/gain |
(1,083) |
(534) |
|
Share-based payments |
(2) |
(325) |
|
Share of loss of associate (including impairment by associate) |
(619) |
(14,608) |
|
Interest income |
16 |
27 |
|
Loss before tax |
(2,945) |
(17,583) |
|
Tax |
(15) |
(25) |
|
Currency translation |
(103) |
15 |
|
Share of other comprehensive income of associate -foreign exchange |
7 |
685 |
|
Total comprehensive income |
(3,056) |
(16,908) |
General expenses of US$1.3m (2015: US$2.1m) consists of US$0.2m professional fees (2015: US$0.1m), US$0.3m Directors' fees (2015: US$0.5m) and US$0.8m (2015: US$1.5m) of other general operating expenses.
The share-based payment charge reflects the expense associated with the grant of share options to ZIOC's Directors and senior managers under ZIOC's long-term incentive plan ("LTIP") and to the expense associated with the grant of share options to three of ZIOC's consultants. Further details of the LTIP and share 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 the Project, through the Jumelles group, which, generated a loss of US$1.2m in the year to 31 December 2016 (2015: loss US$29.2m). During the year Jumelles spent a net US$1.2m (2015 US$9.2m) on exploration, net of a currency translation gain US$0.07m (2015: gain US$1.4m), there was no impairment in the year (2015: US$20.0m).
Financial Position
ZIOC's Net Asset Value (NAV) of US$42.6m (2015: US$45.7m) comprises of US$37.8m (2015: US$37.8m) investment in Jumelles, US$4.9m (2015: US$7.6m) of cash balances and US$0.05m (2015: US$0.3m net current assets) of other net current liabilities.
|
|
2016 |
2015 |
|
|
US$000 |
US$000 |
|
Investment in associate |
37,873 |
37,809 |
|
Fixed Assets |
- |
3 |
|
Cash |
4,852 |
7,602 |
|
Net current assets/(liabilities) |
(53) |
312 |
|
Net assets |
42,672 |
45,726 |
Cost of investment
The investment in associate relates to the carrying value of the investment in Jumelles which as at 31 December 2016 continued to own 100% of the Project. During 2016, under the existing 2016 Funding Agreement between the Company and Glencore, the Company contributed a further US$0.7m (2015: US$1.7m). 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 (2015 US$80m). The Company accounts for 50% less one share of Jumelles.
As at 31 December 2016, Jumelles had aggregated assets of US$82.6m (2015: US$83.0m) and aggregated liabilities of US$0.8m (2015: US$3.0m). Assets consisted of US$80.0m (2015: US$80m) of capitalised exploration assets, US$1.8m (2015: US$3.0m) of other fixed assets, US$0.7m cash (2015: US$0.9m) and US$0.1m other assets (2015: US$0.2m). Net of a currency translation gain of US$0.1m (2015: gain US$1.3m) a net total of US$1.2m (2015: US$9.2m) of exploration costs were capitalised during the year.
Cash flow
Cash balances decreased by US$2.8m during 2016 (2015 decrease US$4.9m), net of interest income US$0.02m (2015 US$0.02m) and a foreign exchange loss of US$1.08m (2015 loss US$0.5m) on bank balances held in UK Sterling. Additional investment in Jumelles required under the 2016 Funding Agreement (outline details in Note 1 to the financial statements) utilised US$0.7m (2015: US$1.7m) and operating activities utilised US$1.1m (2015: US$2.7m).
Fundraising activities
There were no fundraising activities during 2016 (2015: nil).
The Project has defined a 6.9bn tonne Mineral Resource and a 2.1bn tonne Ore Reserve, reported in accordance with the JORC Code (2012), and defined from only 25km of the 47km orebody identified.
Ore Reserve Statement
The Ore Reserve estimate (announced by the Company on 30 September 2014) was undertaken by independent consultants, SRK Consulting (UK) Ltd ("SRK") and is based on the 30Mtpa Feasibility Study and the 6,900Mt Mineral Resource (announced by the Company on 8 May 2014).
As stipulated by the JORC Code, Proven and Probable Ore Reserve are of sufficient quality to serve as the basis for a decision on the development of the deposit. Based on the studies performed, a mine plan has been determined that is technically achievable and economically viable.
|
Ore Reserve Category |
Tonnes (MtDry) |
Fe (%) |
SiO2 (%) |
Al2O3 (%) |
P (%) |
|
Proved |
770 |
37.3 |
35.1 |
4.7 |
0.04 |
|
Probable |
1,300 |
31.8 |
44.7 |
2.3 |
0.05 |
|
Total |
2,070 |
33.9 |
41.1 |
3.2 |
0.05 |
Notes:
Long term price assumptions are based on a CFR IODEX 62% Fe forecast of 60 US$/dmt (97 US¢/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 (Mt) |
Fe (%) |
SiO2 (%) |
Al2O3 (%) |
P (%) |
Mn (%) |
LOI (%) |
|
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/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, has reviewed the Ore Reserve Estimate and has 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.
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.
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 and the future funding requirements of Jumelles, is therefore limited.
The future development of the mine and related infrastructure 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, including the taking of preparatory steps associated with the construction of the mine and related infrastructure, such as front end engineering and design.
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 2017. As such agreement relates to 2017, there is a risk that after 31 December 2017 Jumelles may be subjected to funding constraints and this could have an adverse impact upon the Project.
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 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.
There is currently an initiative to investigate the possibility of a low-cost small scale start-up, based on new and relatively untested pelletisation technology. There is a risk that such start-up is found not to be viable.
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-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 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 first 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), 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) 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 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. 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 port and/or other needed infrastructure or a failure to obtain access to and use of the proposed 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.
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 the proposed 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. 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 the port or power transmission lines or other infrastructure, or (iv) negotiating the terms of access to the 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 may 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 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. 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 balance sheet 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 2016 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. 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 also impact upon the ability of the Jumelles group to raise new finance for the project. The Company's cash resources will come under increasing pressure unless a more benign investment and trading climate materialises in the foreseeable future. As to when such a climate might materialise, there is still a lack of consensus.
Consolidated statement of comprehensive Income
for year ended 31 December 2016
|
|
|
2016 |
2015 |
|
|
Note |
US$000 |
US$000 |
|
Administrative expenses |
|
(2,342) |
(3,002) |
|
Share of loss of associate |
6b |
(619) |
(14,608) |
|
Operating loss |
4 |
(2,961) |
(17,610) |
|
Interest income |
|
16 |
27 |
|
Loss before tax |
|
(2,945) |
(17,583) |
|
Taxation |
5 |
(15) |
(25) |
|
Loss for the year |
|
(2,960) |
(17,608) |
|
Foreign exchange translation - foreign operations |
|
(103) |
15 |
|
Share of other comprehensive income of associate - foreign exchange translation |
|
7 |
685 |
|
Other comprehensive income/(loss) |
|
(96) |
700 |
|
Total comprehensive loss |
|
(3,056) |
(16,908) |
|
(Loss) per share |
|
|
|
|
Basic (Cents) |
12 |
(1.1) |
(6.4) |
|
Diluted Cents) |
12 |
(1.1) |
(6.4) |
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 changes in equity
for year ended 31 December 2016
|
|
|
|
Foreign |
|
|
|
|
|
currency |
|
|
|
Share |
Retained |
translation |
Total |
|
|
capital |
earnings |
reserve |
equity |
|
|
US$000 |
US$000 |
US$000 |
US$000 |
|
Balance at 1 January 2015 |
266,685 |
(207,094) |
2,718 |
62,309 |
|
Consideration for share-based payments |
325 |
- |
- |
325 |
|
Loss for the year |
- |
(17,608) |
- |
(17,608) |
|
Other comprehensive income |
- |
- |
700 |
700 |
|
Total comprehensive loss |
- |
(17,608) |
700 |
(16,908) |
|
Balance at 31 December 2015 |
267,010 |
(224,702) |
3,418 |
45,726 |
|
Balance at 1 January 2016 |
267,010 |
(224,702) |
3,418 |
45,726 |
|
Consideration for share-based payments |
2 |
- |
- |
2 |
|
Loss for the year |
- |
(2,960) |
- |
(2,960) |
|
Other comprehensive income |
- |
- |
(96) |
(96) |
|
Total comprehensive loss |
- |
((2,960)) |
(96) |
(3,056) |
|
Balance at 31 December 2016 |
267,012 |
(227,662) |
3,322 |
(42,672) |
Consolidated balance sheet
for year ended 31 December 2016
|
|
|
2016 |
2015 |
|
|
Note |
US$000 |
US$000 |
|
Non-current assets |
|
|
|
|
Property, plant and equipment |
6a |
- |
3 |
|
Investment in associate |
6b |
37,873 |
37,809 |
|
|
|
37,873 |
37,812 |
|
Current assets |
|
|
|
|
Other receivables |
7 |
60 |
458 |
|
Cash and cash equivalents |
8 |
4,852 |
7,602 |
|
|
|
4,912 |
8,060 |
|
Total Assets |
|
42,785 |
45, 872 |
|
Current liabilities |
|
|
|
|
Trade and other payables |
9 |
(113)) |
(146) |
|
Net assets |
|
42,672 |
45,726 |
|
Equity attributable to equity holders of the parent |
|
|
|
|
Share capital |
10 |
267,012 |
267,010 |
|
Retained earnings |
|
(227,662) |
(224,702) |
|
Foreign currency translation reserve |
|
3,322 |
3,418 |
|
Total equity |
|
42,672 |
45,726 |
The notes form an integral part of the financial statements.
These financial statements were approved by the Board of Directors on 28 June 2017 and were signed on its behalf by:
Mr Clifford Elphick
Director
Consolidated cash flow statement
for year ended 31 December 2016
|
|
|
2016 |
2015 |
|
|
Note |
US$000 |
US$000 |
|
Cash flows from operating activities |
|
|
|
|
Loss for the year |
|
(2,960) |
(17,608) |
|
Adjustments for: |
|
|
|
|
Depreciation |
|
3 |
6 |
|
Interest receivable |
|
(16) |
(27) |
|
Taxation expense |
|
15 |
25 |
|
Decrease/(Increase) in other receivables |
|
398 |
(288) |
|
(Decrease)/Increase in trade and other payables |
|
(21) |
(217) |
|
Net exchange gain/(loss) |
|
895 |
550 |
|
Gain on part sale of project interest |
|
- |
- |
|
Share of Total Comprehensive Income of associate |
|
619 |
14,608 |
|
Impairment to share of impairment in associate |
|
- |
- |
|
Share-based payments |
|
2 |
325 |
|
Tax paid |
|
(27) |
(36) |
|
Net cash from operating activities |
|
(1,092) |
(2,662) |
|
Cash flows from financing activities |
|
|
|
|
Cash flows from investing activities |
|
|
|
|
Interest received |
|
16 |
27 |
|
Acquisition of property, plant and equipment |
|
- |
(1) |
|
Investment in associate |
|
(676) |
(1,732) |
|
Net cash from investing activities |
|
(660) |
(1,706) |
|
Net decrease in cash and cash equivalents |
|
(1,752) |
(4,368) |
|
Cash and cash equivalents at beginning of year |
|
7,602 |
12,480 |
|
Effect of exchange rate difference |
|
(998) |
(510) |
|
Cash and cash equivalents at end of year |
8 |
4,852 |
7,602 |
The notes form an integral part of the financial statements.
Notes to the financial statements
1 Business information and going concern basis of preparation
Background
Zanaga Iron Ore Company Limited (the "Company"), was incorporated on 19 November 2009 under the name of Jumelles Holdings Limited. The Company changed its name on 1 October 2010. The Company is incorporated in the British Virgin Islands ("BVI") and the address of its registered office, is situated at Coastal Building, 2nd Floor, Wickham's Cay II, Road Town, Tortola, BVI. The Company's principal place of business as an investment holding vehicle is situated in Guernsey, Channel Islands.
At 31 December 2010 the Company held 100% of the share capital of Jumelles subject to the then Xstrata Call Option (as defined below).
On 14 March 2011 the Company incorporated and acquired the entire share capital of Zanaga UK Services Limited for US$2, a company registered in England and Wales which provides investor management and administration services.
In 2007, Jumelles became the special purpose holding company for the interests of its then ultimate 50/50 founding shareholders, Garbet Limited ("Garbet") and Guava Minerals Limited ("Guava"), in Mining Project Development Congo SAU ("MPD Congo") which, owns and operates 100% of the Zanaga Project 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.
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. 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"):
· 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 would comprise (i) a commitment to fund all costs to be incurred by Jumelles in completing an 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 Xstrata Call Option. Subsequently:
o Xstrata merged with the Glencore group on 2 May 2013 to form Glencore Xstrata and the holding of the merged group subsequently changed its name to Glencore plc.
o Under the terms of the Supplemental Agreement announced on 13 September 2013, the scope of the above mentioned FS was modified to a staged development basis, and the revised basis FS was completed in May 2014. The Supplemental Agreement also extended the work programme beyond the conclusion of the FS, up to December 2014 (towards which the Company 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 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.
Xstrata Projects exercised the Xstrata 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 Xstrata 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 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 Board of Jumelles while ZIOC has a right to appoint two directors. At any 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 Xstrata 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 has 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. Going forward 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.
Future funding requirements and going concern basis of preparation
The directors have prepared the accounts on a going concern basis. At 31 December 2016 the Company had cash reserves of US$4.9m. Throughout 2016, in the light of iron ore market conditions, the Company has been taking steps to further reduce its own cost base.
Similar to the Funding Agreement for 2016 project expenditure, Glencore and ZIOC have agreed a Funding Agreement to fund the 2017 Project Work Programme and Budget for the Project of US$1.4m plus US$0.29m 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$0.59m plus 49.99% of all discretionary items approved jointly with Glencore. Ignoring any entitlement to savings, ZIOC's potential contribution to the Project in 2017 is US$1.45m in total.
The Company's current cash reserves are sufficient to support both the Company's own operating costs and the agreed contribution to the Project set out above for the foreseeable future.
In common with many exploration and development companies in the mining sector, the Company raises funding in phases as its project develops.
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 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 Board of Jumelles 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. The current state of the global iron ore market means that 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 when the Zanaga Project is likely to be developed. The difficult prevailing economic conditions also impact upon the ability of Jumelles and the Company to raise new finance for the project.
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, 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.
2 Accounting policies
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.
Basis of preparation
These financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the European Union ("Adopted IFRS"). Adopted IFRS comprises standards and interpretations approved by the International Accounting Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") as adopted by the European Union.
The financial statements consolidate those of the Company and its subsidiary Zanaga UK Services Limited (together, the "Group") and the Company's investment in an associate which is accounted for using the equity method.
New standards, amendments and interpretations
The following Adopted IFRSs have been issued but have not been applied 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 9 Financial Instruments (effective date 1 January 2018).
· IFRS 15 Revenue from contracts with customers (effective date 1st January 2018).
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 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.
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 2015.
Non-derivative financial instruments
Non-derivative financial instruments in the balance sheet comprise other receivables, cash and cash equivalents, and trade and other payables.
Other receivables
Other receivables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method, less any impairment losses.
Trade and other payables
Trade and other payables are recognised initially at fair value. Subsequent to initial recognition they are measured at amortised cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity.
Ordinary shares issued to the Employee Benefit Trust under the LTIP or to non-employees for services provided to the Company, are included within Share Capital.
When share capital recognised as equity is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a change in equity. Repurchased shares are cancelled.
Impairment
The carrying amounts of the Group's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment; a financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. If any such indication exists, the asset's recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement.
Calculation of recoverable amount
The recoverable amount of the Group's investments and receivables carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e., the effective interest rate computed at initial recognition of these financial assets). Receivables with a short duration are not discounted.
The recoverable amount of other assets is the greater of their fair values less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
Reversals of impairment
An impairment loss in respect of a receivable carried at amortised cost is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognised.
In respect of other assets, an impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount.
An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
Expenses
Financing income and expenses
Interest income and interest payable is recognised in profit or loss as it accrues, using the effective interest method.
Taxation
Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination; and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.
A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised.
Segmental Reporting
The Group has one operating segment, being its investment in the Project, held through Jumelles. 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 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 assumptions concerning the future that are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year are discussed below.
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 judgement 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):
|
|
2016 |
2015 |
|
|
US$000 |
US$000 |
|
Share-based payments (see Note 11) |
2 |
325 |
|
Net foreign exchange loss/(gain) |
1,083 |
535 |
|
Directors' fees |
270 |
503 |
|
Auditor's remuneration |
58 |
56 |
|
Depreciation |
3 |
6 |
Other than the Company Directors, the Group directly employed four staff in 2016 (2015: four). The three Directors received a total of US$270,000 remuneration for their services as Directors of the Group (2015: US$503,). The amounts paid as Directors' fees are shown in the Directors' Remuneration Report in the 2016 Annual Report. The Directors' interests in the share capital of the Group are shown in the Directors' Remuneration Report in the 2016 Annual Report.
5 Taxation
The Group is exempt from most forms of taxation in the BVI, provided the Group does not trade in the BVI and does not have any employees working in the BVI. All dividends, interest, rents, royalties and other expense amounts paid by the Company, and capital gains are realised with respect to any shares, debt obligations or other securities of the Company, are exempt from taxation in the BVI.
The tax charge in the period relates to the Company's subsidiary, Zanaga UK Services Limited.
|
|
2016 |
2015 |
|
|
US$000 |
US$000 |
|
Recognised in profit and loss: |
|
|
|
Current year |
(15) |
(25) |
|
Reconciliation of effective tax rate |
|
|
|
Profit/(Loss) before tax |
(2,945) |
(17,583) |
|
Income tax using the BVI corporation tax rate of 0% (2012: 0%) |
- |
- |
|
Effect of tax rate in foreign jurisdictions |
(15) |
(25) |
|
|
(15) |
(25) |
The effective tax rate for the Group is 0.48 % (2015: 0.17%).
6a Property, Plant and Equipment
|
|
Leasehold property |
Fixtures |
Total |
|
|
improvements |
and fittings |
|
|
|
US$000 |
US$000 |
US$000 |
|
Cost |
|
|
|
|
Balance at 1 January 2016 |
- |
43 |
43 |
|
Additions |
|
|
|
|
Disposals |
- |
|
- |
|
Balance at 31 December 2016 |
- |
43 |
43 |
|
Depreciation |
|
|
|
|
Balance at 1 January 2016 |
- |
40 |
40 |
|
Charge for period |
|
3 |
3 |
|
Balance at 31 December 2016 |
- |
43 |
43 |
|
Net book value |
|
|
|
|
Balance at 31 December 2016 |
- |
0 |
0 |
|
Balance at 31 December 2015 |
- |
3 |
3 |
There are no assets held under finance leases or hire purchase contracts.
6b Investment in associate
|
|
US$000 |
|
Balance at 1 January 2015 |
50,000 |
|
Additions |
1,732 |
|
Share of post-acquisition comprehensive loss |
(14,608) |
|
Share of post-acquisition currency translation reserve |
685 |
|
Balance at 31 December 2015 |
37,809 |
|
Balance at 1 January 2016 |
37,809 |
|
Additions |
676 |
|
Share of post-acquisition comprehensive loss |
(619) |
|
Share of post-acquisition currency translation reserve |
7 |
|
Balance at 31 December 2016 |
37,873 |
At 31 December 2016, 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. The shares were acquired in exchange for shares in the Company. 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$0.67m of investment agreed in accordance with the 2016 Funding Agreement (2014 US$1.7m).
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.
The Group financial statements accounted for the Glencore transaction as an in-substance equity-settled share-based payment for the provision of services by Glencore to Jumelles in relation to the PFS and the FS. These services largely were provided through third party contractors, measured at the cost of the services provided.
As at 31 December 2016, Jumelles had aggregated assets of US$82.5m (2015: US$84.1m) and aggregated liabilities of US$0.8m (2015: US$3.0m). For the year ended 31 December 2016 there was no impairment charge (2015: US$20m) and incurred a loss before tax of US$1.2m (20154: US$29.2m). There was no tax charge for 2016 (2015: US$nil). Currency translation of the underlying Congolese asset generated a translation gain of US$0.1m (2015: US$1.4m). A summarised consolidated balance sheet of Jumelles for the year ended 31 December 2016, including adjustments made for equity accounting, is included below:
|
|
2016 |
2015 |
|
|
US$000 |
US$000 |
|
Non-current Assets: |
|
|
|
Property, plant and equipment |
1,842 |
2,968 |
|
Exploration and other evaluation assets |
80,000 |
80,000 |
|
Total non-current assets |
81,842 |
82,968 |
|
Current Assets |
756 |
1,126 |
|
Current Liabilities |
(846) |
(2,954) |
|
Net current liabilities |
(90) |
(1,828) |
|
Net assets |
81,752 |
81,140 |
|
Share capital |
337,096 |
335,261 |
|
Translation reserve |
(4,728) |
(4,741) |
|
Retained earnings |
(250,616) |
(249,380) |
|
|
81,752 |
81,140 |
7 Other receivables
|
|
2016 |
2015 |
|
|
US$000 |
US$000 |
|
Prepayments and receivables |
25 |
118 |
|
Amounts receivable from the Jumelles group |
35 |
343 |
|
Other receivables |
60 |
458 |
8 Cash
|
|
2016 |
2015 |
|
|
US$000 |
US$000 |
|
Cash and cash equivalents |
4,852 |
7,602 |
9 Trade and other payables
|
|
2016 |
2015 |
|
|
US$000 |
US$000 |
|
Accounts payable |
99 |
121 |
|
UK corporation tax |
14 |
25 |
|
|
113 |
146 |
No amounts payable are due in more than 12 months (2015: US$nil).
10 Share capital
|
In thousands of shares |
Ordinary Shares
|
Ordinary Shares
|
|
|
2016 |
2015 |
|
On issue at 1 January - fully paid |
278,777 |
278,777 |
|
Shares issued |
- |
- |
|
Shares repurchased and cancelled |
- |
|
|
On issue at 31 December - fully paid |
278,777 |
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 the current year (2015: US$nil).
Share capital changes in 2016
There were no new shares issued in 2016, nor were there any share repurchases.
11 Share-based payments
Employees
No awards were issued in 2015 or 2016.
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.
The application of the vesting criteria is subject to the discretion of the Board of Directors.
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 Price |
|
Exercise Price |
|
Exercise Price |
|
Exercise Price |
|
Exercise Price |
|
Exercise Price |
|
|
|
(£) |
Number |
(£) |
Number |
(£) |
Number |
(£) |
Number |
(£) |
Number |
(£) |
Number |
|
At 1 January 2015 * |
£0.02 |
2,727,345 |
£0.02 |
995,382 |
N/A |
Nil |
N/A |
Nil |
N/A |
Nil |
£0.02 |
3,722,727 |
|
|
(US$0.04) |
|
(US$0.04) |
|
|
|
|
|
|
|
(US$0.04) |
|
|
Granted |
N/A |
Nil |
N/A |
Nil |
0.01 |
1,204,619 |
0.01 |
1,013,418 |
0.01 |
4,000,000 |
0.01 |
6,218,037 |
|
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 |
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 |
N/A |
Nil |
N/A |
Nil |
|
At 31 December 2015 * |
£0.02 |
2,727,345 |
£0.02 |
995,382 |
0.01 |
1,204,619 |
0.01 |
1,013,418 |
0.01 |
4,000,000 |
£0.01 |
9,940,764 |
|
|
(US$0.04) |
|
(US$0.04) |
|
(US$0.01) |
|
(US$0.02) |
|
(US$0.02) |
|
(US$0.02) |
|
|
At 1 January 2016 * |
£0.02 |
2,727,345 |
£0.02 |
995,382 |
0.01 |
1,204,619 |
0.01 |
1,013,418 |
0.01 |
4,000,000 |
£0.01 |
9,940,764 |
|
|
(US$0.04) |
|
(US$0.04) |
|
|
|
(US$0.02) |
|
(US$0.02) |
|
(US$0.02) |
|
|
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 |
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 |
N/A |
Nil |
N/A |
Nil |
|
At 31 December 2016 * |
£0.02 |
2,727,345 |
£0.02 |
995,382 |
0.01 |
1,204,619 |
0.01 |
1,013,418 |
0.01 |
4,000,000 |
£0.01 |
9,940,764 |
|
|
(US$0.04) |
|
(US$0.04) |
|
(US$0.01) |
|
(US$0.02) |
|
(US$0.02) |
|
(US$0.02) |
|
|
|
Award 1 (2010) |
Award 2 (2010) |
Award 6 (2014) |
Award 8 (2014) |
Award 9 (2014) |
Total |
|
Range of exercise prices *
|
£0.00-£0.02 |
£0.02 |
£0.00-£0.01 |
£0.01 (US$0.02) |
£0.01 (US$0.02) |
£0.00 - £0.02 |
|
Weighted average fair value of share awards granted in the period * |
N/A |
N/A |
N/A) |
N/A) |
N/A |
N/A |
|
Weighted average share price at date of exercise (£) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
|
Total share awards vested |
2,727,345 |
995,382 |
1,137,338 |
1,013,418 |
4,000,000 |
8,337,685 |
|
Weighted average remaining contractual life (Days) |
Nil |
Nil |
39 |
Nil |
Nil |
N/A |
|
Expiry date |
18 May 2021 |
18 May 2021 |
29 July 2024** |
29 July 2024 |
29 July 2024 |
N/A |
* Sterling amounts have been converted into US Dollars at the grant dates exchange rates of: Awards 1,2, US$1.547:£1.00, Subsequent awards US$ 1.6944:£1.00.
** 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 1 (2010) |
Award 2 (2010) |
Award 6 (2014) |
Award 8 (2014) |
Award 9 (2014) |
|
Option pricing model used |
Black-Scholes |
Black-Scholes |
Black-Scholes |
Black-Scholes |
Black-Scholes |
|
|
|
|
|
|
|
|
Weighted average share price at date of grant |
£1.56 |
£1.56 |
£0.19 (US$$0.31) |
£0.19 (US$$0.31) |
£0.19 (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% |
50% for less 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 |
|
|
6 month expected life |
12 month expected life |
12 month expected life |
12 month expected life |
12 month expected life |
|
|
0.69% for |
1.12% for |
2.25% in excess |
2.25% in excess |
2.25% in excess |
|
|
12 month expected life |
24 month expected life |
24 month expected life |
24 month expected life |
24 month expected life |
* Sterling amounts have been converted into US Dollars at the grant dates exchange rates of: Awards 1,2, US$1.547:£1.00, Subsequent awards US$ 1.6944:£1.00.
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 ZIOC'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 average share price at date of grant * |
Weighted average fair value of share awards * |
Weighted average expected life of option |
Expiry date |
Other LTIP terms, valuation model and assumptions applicable |
|
Strata Capital |
£0.19 (US$0.31) |
£0.12 (US$0.20) |
4 years |
29 July 2024 |
Award 8 above |
|
Harris GeoConsult |
£0.19 (US$0.31) |
£0.18 (US$0.31) |
4 years |
29 July 2024 |
Award 8 above |
|
Renroc International |
£0.19 (US$0.31) |
£0.18 (US$0.31) |
4 years |
29 July 2024 |
Award 7 above |
* Sterling amounts have been converted into US Dollars at the grant date exchange rate US$ 1.6944:£1.00.
The total equity-settled share-based payment expense recognised as an operating expense during the year was US$2,000, (2015: US$325,000), of which US$2,000 (2015: US$150,000) related to the Directors, US$nil related to employees of the group (2015: US$176,000). Further details of share-based payments awarded to Directors of the Group can be found in the Remuneration Report in the 2016 Annual Report.
The total charge during the year for equity-settled share-based payments awarded to employees of companies in which the Group has a significant interest totals US$nil (2015: US$nil).
12 Profit/(Loss) per share
|
|
2016 |
2015 |
|
Profit/(Loss) (Basic and diluted) (US$,000) |
(2,960) |
(17,608) |
|
Weighted average number of shares (thousands) |
|
|
|
Basic |
|
|
|
Issued shares at beginning of period |
278,777 |
278,777 |
|
Effect of shares issued |
- |
- |
|
Effect of share repurchase and cancellation |
- |
- |
|
Effect of own shares |
(3,842) |
(3,842) |
|
Effect of share split |
- |
- |
|
Weighted average number of shares at 31 December - basic |
274,935 |
274,935 |
|
Profit/(Loss) per share |
|
|
|
Basic (Cents) |
(1.1) |
(6.4) |
|
Diluted (Cents) |
(1.1) |
(6.4) |
There are potential ordinary shares outstanding, refer to Notes 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:
|
|
2016 |
2015 |
|
|
US$000 |
US$000 |
|
Cash and cash equivalents |
4,852 |
7,602 |
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to meet its obligations as they fall due. The Group evaluates and follows continuously the amount of liquid funds needed for business operations, in order to secure the funding needed for business activities and loan repayments. The availability and flexibility of the financing is needed to assure the Group's financial position. The Group funding requirements are detailed in Note 1.
Details of the maturity of financial liabilities are provided in Note 9.
(c) Market risk
(i) Foreign currency risk
The foreign currency denominated financial assets and liabilities are not hedged, thus the changes in fair value are charged or credited to profit and loss.
As at 31 December 2016 the foreign currency denominated assets include cash balances held in Sterling of US$4,852,000 (2015: US$7,569,000), other receivables denominated in Sterling of US$60,000 (2015: US$115,000), and payables of US$98,566 (2015: US$116,000) denominated in Sterling.
The following significant exchange rates applied during the year:
|
|
|
Reporting date |
|
Reporting date |
|
|
Average rate |
spot rate |
Average rate |
spot rate |
|
|
2016 |
2016 |
2015 |
2015 |
|
Against US Dollars |
US$ |
US$ |
US$ |
US$ |
|
Pounds Sterling |
1.2346 |
1.3550 |
1.5285 |
1.4736 |
Sensitivity analysis
A 10% weakening of the following currencies against the US Dollar at 31 December 2016 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 |
|
|
2016 |
2016 |
2015 |
2015 |
|
|
US$000 |
US$000 |
US$000 |
US$000 |
|
Pounds Sterling |
(485) |
(485) |
(757) |
(757) |
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 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. Either the Group Employee Benefit Trust buys the shares in the Company to be issued under the LTIP split interest scheme or, share options awards are made direct to individuals as appropriate.
14 Commitments
The Group had no capital commitments or off-balance sheet arrangements at 31 December 2016 (31 December 2015: nil).
Related parties
The Group's relationships with Jumelles and Glencore are described in Note 1 above.
The following transactions occurred with related parties during the period:
|
|
Transactions for the period
|
Closing balance (payable)/receivable |
||
|
|
2016 |
2015 |
2016 |
2015 |
|
|
US$000 |
US$000 |
US$000 |
US$000 |
|
Funding: |
|
|
|
|
|
To Jumelles |
357 |
1,737 |
35 |
353 |
Transactions with key management personnel
|
|
2016 |
2015 |
|
|
US$000 |
US$000 |
|
Share-based payments |
2 |
150 |
|
Directors' fees |
270 |
502 |
|
Total |
272 |
652 |
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 ***
|
AL2O3 |
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 |