28 March 2019

ZANAGA PROJECT UPDATE

Zanaga Iron Ore Company ("ZIOC" or the "Company") (AIM:ZIOC) is pleased to provide an update to shareholders on the Zanaga Project, including specifically the status of the Early Production Project (the "EPP Project").

An updated investor presentation will be loaded to the Company's website today.

Highlights

EPP Project

·     Targeting 1Mtpa production of high grade >65% Fe iron ore pellet feed concentrate / pellets with low impurities

·     Low capital cost development

o  Evaluation process progressing well

o  Targeting less than $50m capital cost for pellet feed project scope, or $110m for full pellet project

·     Substantial plant technical work complete

o  Bulk sample utilised for product testing

o  Low capex, low opex milling solution proven viable

o  Beneficiation test work confirmed process flow sheet

o  Indicative detailed pellet feed plant cost estimate received

o  Bolt-on pellet plant cost estimate being refined

·     Preferred mining contractor selected - contract negotiation under way

·     Brownfield logistics solution entering final stages of definition

o  Minor road upgrade cost of U$1m confirmed for road route to Franceville, Gabon

o  Multiple trucking contractors engaged - optimal solution being refined

o  Rail and port costs entering detailed negotiation

·     Construction estimated at approximately two years

·     On completion of assessment work, outcomes to be presented to the board of Jumelles Ltd, the joint venture company ("Jumelles")

Review of 30Mtpa Staged Development Project

·     2014 Feasibility Study model reviewed internally to illustrate potential impact of 65% iron concentrate index pricing formula

·     Value engineering opportunities continue to be investigated with potential to provide significant capital and operating cost savings

EARLY PRODUCTION PROJECT

As announced on the 28^th of December 2018, the EPP Project is envisaged as an initial development stage for the Zanaga Project (the "Project"), targeting an operating scale of 1 million tons per annum (Mtpa) of pellet feed iron ore concentrate and/or iron ore pellets with transportation of the product via existing logistics infrastructure. The objective would then be to leverage the operating skills gained through this initial phase to develop and partly fund the larger 12+18Mtpa staged development project which would require substantially greater capital investment, newly built bulk logistics infrastructure, and a four year construction period.

The Jumelles Project Team (the "Project Team") has adopted a strategy towards the EPP Project of engaging experienced third party contractors for all logistical aspects of the EPP Project such as the mining, trucking, rail and port solutions. As a result, the Project Team will only be required to take responsibility for the EPP Project's processing activities. Through this approach, it is believed capital expenditure can be minimised and limited predominantly to the processing plant solution required for the beneficiation of Zanaga iron ore into a high grade iron ore product pellet feed/pellet product.

The following update is provided on the various aspects of the EPP Project's development, which is being conducted by Jumelles:

1)         Mining Contract

The Project Team has made significant progress in refining the cost estimate associated with the mining contract. The 3^rd party mining contractor would be expected to source all capital equipment for the operation, which would result in Jumelles not being required to finance the capital costs associated with establishing the mining operation. The estimated operating costs associated with the mining contract have been provided and are in the process of negotiation.

2)         Pellet Feed Concentrate Plant

An Engineering Procurement and Construction company ("EPC") has been selected as the preferred provider of the process plant facilities. In order to refine and confirm the costs associated with the EPC's initial proposal, three tons of Zanaga's iron ore, representative of the orebody's upper layers, were sent for testing with the equipment providers selected by the EPC.

As a primary step, it was deemed important to evaluate the capabilities of the EPC's proposed milling solution which was expected to provide significant benefits, specifically through lower capital costs, operating costs, and power consumption rates in comparison to the ball milling solution previously selected as part of the milling solution in the 2014 Feasibility Study ("2014 FS"). The Project Team is pleased to report that this new milling solution for the pellet feed concentrate plant performed well and Zanaga's test material was successfully milled to desired levels in multiple tests.

A number of samples were selected from the milled material for the subsequent beneficiation test work programme. The milled material was delivered to beneficiation test facilities in Brazil and South Africa and underwent a competitive evaluation process to ascertain the optimal beneficiation solution based on capital and operating costs, as well as product grade and material recoveries achieved. The beneficiation test work process is now complete and the costs associated with the optimal solution have been assembled into a revised cost estimate.

The Project Team has received, from the EPC responsible for the cost estimate of the pellet feed concentrate plant, an indicative detailed cost estimate which is summarised below:

Capital cost                        $38m

Operating cost                  $3.75/t Run of Mine (excluding power)

Schedule                             22 months (fully installed on site) 

Target product grade     Greater than 65% Fe with combined Silica plus Alumina less than 5%

3)         Pellet Plant

The Project Team are investigating the possibility of pelletising Zanaga's pellet feed concentrate product into a higher value product, which would be expected to secure higher revenue per ton.

The Project Team has received a high-level preliminary indicative cost estimate from Outotec, a well regarded pelletisation plant manufacturer for the installation of a 1Mtpa pelletisation plant at the mine site. This estimate includes a high-level indicative capital cost estimate of $50-$60 million for a pellet plant, with a power consumption estimate of 4.0 to 4.5MW. The operating costs are in the process of being defined through technical conversations between the pelletisation plant manufacturer and the Project Team. The estimated timetable for full installation of the pellet plant is 24 to 28 months.

In addition, as previously announced, the Zanaga Project is currently investigating a new technology pelletisation solution. A memorandum of understanding has been signed between Jumelles and Binding Solutions Ltd ("BSL") to investigate the potential of BSL's polymer binder technology. The Project Team and BSL are working together to ascertain the commercial viability of this technology and it should be noted that there can be no guarantee that the results will be successful, despite the positive results achieved to date in testing the cold pelletisation of Zanaga iron ore samples at a laboratory scale. At the moment, if a pelletisation option were to be pursued by the Zanaga Project, the conventional pelletisation solution should be regarded as the EPP Project's preferred option versus the cold pelletisation opportunity.

4)         Road Infrastructure and Trucking Contract

The Project Team is evaluating the optimal solution for the export of the EPP Project's iron ore via either Gabon or the Republic of Congo ("RoC"). In order to export the material it needs to be trucked to a railway siding in either RoC or Gabon. Two potential rail sidings are currently under consideration, either (a) Franceville in Gabon, which is approximately 173kms from the Zanaga project, or (b) Mossendjo in RoC, which is approximately 160kms from the Zanaga mine site.

The Project Team have received proposals for the cost of upgrading both road options under consideration. The condition of the road to Franceville in Gabon is in significantly better condition than the road to Mossendjo in RoC. The following capital cost estimates have been provided for the road upgrades associated with the two alternatives:

OPTION A: Mine site to Franceville, Gabon         U$1m

OPTION B: Mine site to Mossendjo, RoC             U$10m

As regards a trucking contract, the Project Team have entered into discussions with multiple third party trucking companies to secure cost estimates for the trucking of material to the rail siding alternatives. These discussions are progressing well and a number of cost estimates have been received and are in the process of being evaluated and refined.

5)         Rail and Port contract

The Project Team are discussing a potential solution for the rail and port logistics solutions with the relevant service providers in Gabon and RoC. However, the Gabonese route is currently the preferred route due to the limited capital cost associated with upgrading the road to the rail siding in Franceville (as outlined above) as well as the Gabon rail and port infrastructure being a more technically advanced solution operationally, due to the current level of operations on the Transgabonais railway line today as well as the significant port expansion under way in Libreville.

6)         Power

A significant cost driver associated with the viability of the EPP Project is the power requirement. The power requirement on the mine site is expected to be between 5.9MW and 10.4MW depending on whether a pellet plant is included and whether it is located on the mine site or located closer to the logistics infrastructure in Gabon or RoC. The option of potentially connecting the more energy intensive pellet plant to existing grid power infrastructure and avoiding capital costs associated with a larger power solution on the mine site is under consideration.

The Project Team is investigating multiple power solutions for providing power to the mine site. The simplest solution is to install diesel generator sets for the 5.9MW of mine site activities and target connection of the potential pellet plant to grid power infrastructure. The indicative high-level preliminary estimated cost of this power solution is well understood now and is expected to be approximately U$c20/kwh.

The Project Team is also investigating, amongst other solutions, the potential for the inclusion of small scale hydro power into the EPP Project which would increase capital costs but could provide very low cost power as regards operating costs.

7)         Conclusion and Next Steps

It is the Project Team's intention to secure fixed price cost estimates for key aspects of the proposed EPP Project as part of the process of determining its viability and economic feasibility. Many of the key indicative cost estimates contained in proposals so far submitted by the entities approached by the Project Team are now better understood. Once cost estimates have been fully received and refined and sufficient information has been received to enable the proposed EPP to be fully assessed as to its viability, the outcomes will be assembled into a report for the Board of Jumelles. Depending on the achievement of a positive outcome and authorisation from the Jumelles Board, the Zanaga Project would then be seeking to move towards securing regulatory permits and consents, the negotiation of contracts and seeking financing for construction and operation.

30MTPA STAGED DEVELOPMENT PROJECT

The Project Team's ultimate objective remains to develop the larger 30Mtpa Staged Development mining project. As a reminder, the Stage One project plans to produce 12Mtpa of premium quality 66% Fe content iron ore pellet feed product at bottom quartile operating costs for more than 30 years on a standalone basis. The capital cost associated with this Stage One phase was estimated at US$2.2bn, including contingency, on completion of the 2014 Feasibility Study.

The Stage Two expansion of 18Mtpa is nominally scheduled to suit the project mine development, construction timing and forecast cash flow generation, and would increase the Project's total production capacity to 30Mtpa. The product grade would increase to an even higher premium quality 67.5% Fe content iron ore pellet feed at even lower operating cost. The US$2.5bn capital expenditure for the additional 18Mtpa production, including contingency, could potentially be financed from the cash flows from the Stage One phase.

1)         Economic evaluation exercise

In view of changes in the pricing of iron ore products in the market and the emergence of a high grade pricing index which has been developed in recent years (referred to below), the Company has carried out the exercise of inputting new figures into the economic model produced as part of the 2014 FS in two specific areas focussed entirely on freight and iron ore pricing.  This exercise has been carried out for illustrative purposes as a high level evaluation exercise.

As part of the 2014 FS on the 30Mtpa (12+18Mtpa) Staged Development Project, the potential economic outcomes of the Project were reviewed across a range of prices based on a long term 62% Fe benchmark index structure. However, in recent years the 65% concentrate index has become established and this should be seen as a more appropriate index on which to benchmark pellet feed concentrate products such as that which would be produced by the 12+18Mtpa staged development project.

The Company has recently re-run the 2014 FS model with a new range of prices from US$70/dmt to US$110/dmt for the 65% concentrate index. A summary of the outcomes of this exercise is presented below for illustrative purposes.

Stage One

Stage One and Two

Notes to tables above: Management estimates based on the 2014 FS financial model. Capex and opex figures contained in the 2014 FS have not been updated. Iron ore product pricing in the 2014 FS has been altered to a pricing formula based on the 65% Fe concentrate index, with a pro-rata adjustment for the Zanaga Project's higher iron ore content product. The Net Present Value is based on a discounted cash flow model at a 10% real discount rate and the Internal Rate of Return (IRR) is calculated on a 'real' basis, unlevered.

2)         Product Specifications

The indicative product specifications outlined in the 2014 FS, which will vary over the LOM, are as follows:

Pellet Feed Specification

Product size : approximately 80% passing 45 microns (suitable for direct feed to pellet plants)

The Stage One operation will produce a hematite concentrate, while the Stage Two expansion will produce 18Mtpa of incremental magnetite concentrate. While the intention is to market a blended product, it will be possible to keep all or part of the products separate.

In conducting the economic evaluation exercise described above, no change was made to the Product Specifications in the 2014 FS.

3)         Shipping

The Stage One transhipping solution and the Stage Two direct loading port solution as proposed by the 2014 FS would be able to load capesize vessels up to 250kDWT.

The shipping distance between Pointe-Noire and Qingdao is approximately 9,700 nautical miles.  Based on the above vessel and port assumptions the Project Team have used a long term freight assumption of $20.00 per wet metric tonne which is equivalent to approximately $21.75 on a dry basis for the pellet feed product at 8% moisture. This is marginally lower than the cost of $22.50 per wet metric tonne assumed in the 2014 FS ($24.50 dry) but is representative of current long term freight rates.

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

"It is pleasing to see that gradually the Zanaga Project is passing critical milestones in assessing the viability of the Early Production Project, with significant successes in defining a milling solution and ensuring product beneficiation aimed at achieving targeted quality outcomes at the proposed process plant. This is an important element in the evaluation of the viability and economic feasibility of the EPP Project. We look forward to providing an update to our shareholders in due course."

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The Zanaga Iron Ore Company Limited LEI number is 21380085XNXEX6NL6L23.

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                   Christopher Britton

Adviser and Corporate Broker                   Richard Crawley

Edward Thomas

                                                                         +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.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain. If you have any queries on this, then please contact Andrew Trahar, Investment Relations Manager of the Company (responsible for arranging release of this announcement) on +44 20 7399 1105