Business Review

The Zanaga Project is uniquely positioned today as an attractive tier one asset with multiple potential development options from a scale perspective. Higher iron ore prices and a lack of investment in the development of new iron ore mines in the last few years has led to an increase in global attention on the iron ore sector recently.

In the current circumstances the Project Team have dedicated significant effort to assessing the value engineering potential available to the flagship 30Mtpa project through a new floating port solution, as well as opportunities in the process plant, pipeline and power solutions.

In addition, the EPP Project remains an area of significant interest for the Project Team and work is continuing with a view to evaluating the potential for higher production rates following upgrades to the existing logistics infrastructure in RoC. If the EPP Project is judged viable and is successfully proceeded with, it potentially provides a low capital cost platform for the Zanaga Project to enter into production.

We look forward to providing updates to the shareholders in H2 2020.

30Mtpa Staged Development Project

The Project Team's ultimate objective remains to develop the flagship 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 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 due to the addition of 18Mtpa of 68.5% Fe content iron ore pellet feed production, at an even lower operating cost. The capital expenditure for the additional 18Mtpa production, including contingency, could potentially be financed from the cash flows from the Stage One phase.

1)    Floating Port Study Results

Following an approach in H2 2019 from a leading EPC company specialized in the development of floating mooring and operating facilities, the Project Team have actively investigated the potential to utilise an offshore floating port instead of the transhipping solution envisaged by the 2014 Feasibility Study (the "2014 FS").

Transhipping Solution Background

The 2014 FS transhipping solution involved the Zanaga Project's slurry pipeline terminating at the coast of RoC, whereby the slurry material would be dewatered in a coastal based location north of Pointe Noire. The rationale for selecting this location was based on its flat land terrain, conducive to construction of a necessary dewatering process plant and stockpiling facility, and proximity to 25 metre deep water required for loading large cape size vessels. The transhipping solution, while preferable to a large deep water port, required five materials handling phases and capital investment for the construction of a breakwater.

New Floating Port Solution

The Floating Port solution could provide a number of advantages both technically and economically. The solution involves extending Zanaga's slurry pipeline straight out into the ocean, with significantly reduced land based facilities. The pipeline would run along the ocean floor to a fixed mooring point where the pipeline would connect to the floating dewatering, storage, and offloading vessel (FDSO). The slurry would be processed onboard by a dewatering plant and the pellet feed concentrate would be stored within the vessel. Offloading facilities would be built into the vessel to allow the FDSO to load cape size vessels directly. By utilising the FDSO Zanaga's materials handling steps would be reduced to only three phases, providing significant efficiencies and a more seamless operation.

The FDSO evaluation process has been led by Paterson & Cooke (P&C), who are leading experts in slurry pipeline design and engineering. P&C have completed a concept level report involving a comparison of the three port solutions available for the Zanaga Project, namely transhipping, deep water port, or the new floating port (FDSO).

The results of the investigation have been very positive from a technical and economic perspective. Potential has been indicated for a $184m reduction to total capital costs of the 12Mtpa Stage One Project, resulting in a reduction of total capital cost from $2,219m to $2,035m. Operating costs are expected to be maintained at approximately $6.5 per tonne due to previously high transhipping costs being substituted by a lease cost to the EPC contractor providing the solution. The net impact on economics shows the potential for the Floating Port to produce a significant NPV and IRR improvement.

The table below provides a comparison of the capital costs (direct plus indirect), operating costs, NPV and IRR as well as qualitative assessment of the three options based on the pre-feasibility and feasibility studies concluded in 2012 and 2014:

Option		Transhipping	Deep Water Port	Floating Port
Date of Assessment (Costing Base Date)		2014	2012	2020
Financial Impact	Capital cost (USD million)	295	899	111
	Operating cost (USD/t)	6.50	1.48	6.47
	NPV10 (USD million)	1 268 m	-	1 402 m
	IRR	18.2%	-	19.7%
	Costing accuracy	±20%	±15%	Conceptual
Technical Impact	Logistics handling	5 steps	3 steps	3 steps
	Flexibility on port location	Fixed	Fixed	Flexible
		Requires suitable land access and proximity to 25 m deep water	Requires suitable land access and proximity to 25 m deep water	Mobile FDSO with more options for location of shore crossing vs port
Environmental Impact	Land impact	Med/high	High	Low/med
		Significant infrastructure required to be built on land	Significant infrastructure required to be built on land	Terminal station, pump station and buried shore crossing only
	Ocean floor impact	Medium	Medium/high	Low
		Breakwater construction	Large trestle structure	Pipeline located on or below seabed
	Dredging required	Minor	Significant	None
		Some dredging required	Dredging required

Data for comparison from the following sources:

·    Cost estimates for the transhipping and deep-water port options have been taken directly from the Zanaga Project's 2012 Pre-Feasibility Study ("2012 PFS") and 2014 FS.

·    Cost estimates for the floating dewatering storage and offloading platform (FDSO or "floating port") have been estimated at an order-of-magnitude level based on interactions between P&C, port and coastal engineering consultancies and leading suppliers of floating production and mooring systems.

·    Financial data for the NPV and IRR comparison have been taken from the Zanaga financial model, as utilized in the 2014 FS.

·    Iron ore 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.

·    A long term freight rate assumption of $22.50 per wet metric tonne has been assumed, which is in line with the 2014 FS (equivalent to $24.50 per dry metric tonne).

No re-validation or verification of the 2012 PFS or the 2014 FS or the 2014 FS costing model was conducted and data was used on an "as-is" basis from these sources with some adjustment so as to incorporate indirect costs into direct costs.

Other key items to note in the basis for comparison are as follows:

·    No escalation has been applied to figures from the 2012 PFS or the 2014 FS.

·    Costing accuracy differs for the various options based on the level of definition of study.

·    The data presented for the transhipping and FDSO options are for 12 Mtpa:

o  Tonnage increase to 30 Mtpa is not feasible for the transhipping option according to historical studies.

o  Tonnage increase to 30 Mtpa in the FDSO case would be catered for by the lease of an additional FDSO vessel and installation of an additional sub-sea pipeline.

·    The data presented for the deep-water port solution is for 30 Mtpa.

·    The aim is to compare "like-for-like" in terms of upfront CAPEX spend and OPEX, therefore capital cost for future production expansion has not been considered.

Additional FDSO benefits

In addition to the cost and cashflow advantages, an FDSO solution could offer several other potential benefits over the transhipping and deep-water port options, as outlined below:

·    The land-based footprint is significantly reduced and, in particular, there is no infrastructure such as a harbour or quayside required on the shoreline.

·    The FDSO solution can be developed more quickly than a port facility and it may be possible to optimise schedule or cash flow.

·    Depending on availability of material, it may be possible to commission the FDSO ahead of overland pipeline operations and thus allow for quicker production ramp up.

·    The FDSO could offer the opportunity to be less affected by adverse weather conditions by comparison with the transhipping option.

·    The FDSO could be located at sufficient depth to ensure no upfront or maintenance dredging is required.

·    Once the slurry is dewatered, the product would be stored in weatherproof holds to ensure concentrate remains below maximum water content levels until ready for loading onto the ocean-going bulk carriers.

·    FDSO treatment facilities would treat the excess water from the dewatering process to the required environmental requirements and discharge of the treated excess water would be at sea, in line with the original environmental regime followed in the 2014 FS. This would eliminate the need for a land-based treatment plant and marine outfall as per the transhipping and deep-water port options.

 

 

COIDIC update

Following the signature of the Framework Agreement between Jumelles and COIDIC in December 2019, the Project Team have been progressing discussions with COIDIC and its partners.

Potential steel mill:

Zanaga is encouraged by the fact that COIDIC continue to explore opportunities for the construction of a steel mill in the Pointe Noire SEZ. The development of such a steel mill could provide a natural point of sale for a portion of the production from the Zanaga Project.

COIDIC have actively been engaging with provincial departments in Hebei province, a large steel production province of China, in order to promote the opportunity to Chinese steel mills to develop a steel facility in the SEZ.

Yantai Port discussions:

Yantai Port ("Yantai") have been introduced to the Zanaga Project by COIDIC as a Partner in accordance with the Framework Agreement. Yantai is an experienced Chinese operator in Africa. Yantai currently operate mining and logistics operations for more than 40Mtpa of bauxite being exported from Guinea to China. Yantai are also involved in the intended development of the Simandou iron ore mine in Guinea, a significant iron ore mining asset.

The potential has been identified to use the Zanaga floating port solution to support COIDIC's aim of developing a bauxite processing hub in the region. This could be achieved by pumping imported bauxite into the SEZ via a return pipeline from the FDSO vessel. This development has been identified as one which, if progressed, could have benefits for COIDIC and the Zanaga Project.

Early Production Project (EPP)

As shareholders will recall, it was originally the Project Team's primary objective to evaluate the EPP based on an export logistics route through Gabon.

While the Gabon logistics route is more advanced in terms of technical development, the concern with a logistics route through Gabon is that the railway capacity available to the Zanaga Project is currently only 1Mtpa which limits the ability to benefit from economies of scale.

Logistics providers in Gabon are currently working on a study to evalute improvements to the infrastructure of the railway which may provide options for increased capacity.

In addition, the Project Team are now evaluating a range of capacities from 1-5Mtpa involving optimsing process plant design and reviewing in-country logistics solutions for an upgraded truck and rail solution using upgraded road and rail infrastructure within RoC.

In terms of power supply, heavy fuel oil is available in the RoC in sufficient quantities to support such a project and pricing has been obtained from the national oil company allowing the Project Team to evaluate the viability of such an option to support the EPP's power consumption requirements. In addition, potential hydropower sites have also been identified in the area of the future mine. One site located 70 kms to the north on the Ogooué river site seems promising, with a potential capacity of 20 to 40 MW.

The Project Team continue to evaluate the potential for the EPP Project to operate as a standalone project, or as an initial pathway to production during the construction period of the 30Mtpa Staged Development Project.

COVID-19 update

Following the outbreak of the coronavirus ("COVID-19"), the Project Team have been implementing and expanding a range of measures to protect the health and safety of employees and subcontractors and contribute to efforts to prevent the spread of COVID-19 in Republic of Congo and the local communities around the Zanaga Project.

The Project Team are meeting regularly to ensure that protective measures are rapidly being taken in accordance with the advice and guidance provided by the RoC Government. Regular communication has been maintained with our teams and the communities around the Project site on all matters relating to the coronavirus with a strong emphasis on the importance of hygiene and social distancing.

The RoC guidelines involve comprehensive measures to combat the virus including a full lock down restricting movement of the population that ended on May 17th. However, a curfew remains in place daily between 10pm to 5am and a number of measures have been enacted by the Government to protect the health of the population. The Project Team have enacted all required procedures in order to ensure compliance with these new regulations.

The Zanaga Project's operations involve an office in Brazzaville and the project site at Lefoutou where the Project Team have adopted the following steps to comply with the guidelines provided by the RoC and provide the best support to all the Zanaga Project's staff. No incidents of COVID-19 have been recorded among any of the Project's employees or subcontractors. A number of steps taken by the Project Team are provided below:

·    Health and safety rules have been reinforced and adapted in order to prevent the spread of COVID-19 including: social distancing, washing hand training, distribution of soap, communication and information provided to all employees, subcontractors and communities living in the villages surrounding the mining concession

·    The Zanaga Project's Brazzaville office and mine site remain closed with only essential services in place and the team continue to work remotely where possible.

·    The Lefoutou Health Centre (constructed and support by the Zanaga Project since July 2015): MPD Congo, local operating subsidiary for the Zanaga Project, continues to fund the operating costs of the Lefoutou Health Centre.

·    Gifts of protection equipment: >16,000 protective masks have been provided to all the employees and subcontractors, the population surrounding the mining concession and different health centres in the area of the Project : health centre in Lefoutou and in Bambama hospital in Sibiti and Dolisie, 2 reference hospitals in Pointe-Noire, and some clinics in Brazzaville

Next Steps

During H2 2020, the Project Team will be progressing opportunities to optimise the costs of the 30Mtpa staged development project as well as potential infrastructure cooperation solutions with its partners and EPC contractors with a view to ensuring full value engineering is achieved.

The Project Team look forward to progressing the EPP Project's evaluation exercise based on higher scales of production, while maintaining the objective of retaining a low capital cost development solution.

 

 

 

Financial Review

Results from operations

The financial statements contain the results for the Group's eleventh full year of operations following its incorporation on 19 November 2009. The Group made a total comprehensive loss in the year of US$1.9m (2018: total comprehensive loss US$1.9m). The total comprehensive income for the year comprised:

	2019 US$000	2018 US$000
General expenses	(1,264)	(919)
Net foreign exchange (loss)/gain	19	(152)
Share of loss of associate (including impairment by associate)	(644)	(795)
Interest income	7	9
Loss before tax	(1,882)	(1,857)
Currency translation	(6)	(8)
Share of other comprehensive income of associate -foreign exchange	3	-
Total comprehensive income / (loss)	(1,885)	(1,865)

General expenses of US$1.3m (2018: US$0.9m) consists of US$0.8m professional fees (2018: US$0.4m), US$0.01m Directors' fees (2018: US$0.2m), LTIP US$0.2m (2018 US$nil) and US$0.29m (2018: US$0.2m) of other general operating expenses.

The share of loss of associate reflected above relates to ZIOC's investment in the Project, through Jumelles, which, generated a loss of US$1.3m in the year to 31 December 2019 (2018: loss US$1.6m). During the year Jumelles spent a net US$1.3m (2018 US$1.6m) on exploration, net of a currency translation loss of US$0.05m (2018: loss US$nil).

Financial Position

ZIOC's Net Asset Value ("NAV") of US$38.1m (2018: US$39.4m) comprises of US$37.4m (2018: US$37.4m) investment in Jumelles, US$0.8m (2018: US$1.9m) of cash balances and US$0.1m (2018: US$0.1m) of other net current liabilities.

 

	2019	2018
	US$000	US$000
Investment in Associate	37,492	37,450
Fixed Assets	-	-
Cash	755	1,955
Net current assets/(liabilities)	(127)	14
Net assets	38,120	39,419

Cost of investment

The Investment in Associate relates to the carrying value of the investment in Jumelles which as at 31 December 2019 continued to own 100% of the Project. During 2019, under the existing 2019 Funding Agreement between the Company and Glencore, the Company contributed a further US$0.6m (2018: US$0.7m). 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 (2018: US$80m). The Company accounts for 50% less one share of Jumelles.

As at 31 December 2019, Jumelles had aggregated assets of US$81.4m (2018: US$81.6m) and aggregated liabilities of US$0.5m (2018: US$0.8m). Assets consisted of US$80m (2018: US$80m) of capitalised exploration assets, US$1.1m (2018: US$1.27m) of other fixed assets, US$0.3m cash (2018: US$0.3m) and US$nil other assets (2018: US$0.1m). Net of a currency translation loss of US$0.05 (2018: loss US$nil) a net total of US$nil (2018: US$1.3m) of exploration costs were capitalised during the year.

 

Subscription Agreement concluded with Shard Merchant Capital Ltd

As outlined in the Chairman's Statement above, on 25 June 2020 ZIOC entered into a Subscription Agreement with SMC, an institutional investor. Further details of this agreement are provided in the Company's announcement published on 26 June 2020.

Cash flow

Cash balances decreased by US$1.2m during 2019 (2018: decrease of US$1.7m), net of interest income US$0.01m (2018: US$0.01m) and a foreign exchange loss of US$0.19m (2018: loss of US$0.16m) on bank balances held in UK Sterling. Additional investment in Jumelles required under the 2019 Funding Agreement (outline details in Note 1 to the financial statements) utilised US$0.6m (2018: US$0.7m) and operating activities utilised US$0.7m (2018: US$0.9m).

Fundraising activities

There were no fundraising activities during 2019 (2018: nil). Fundraising activities have been undertaken in June 2020, as described in the subsequent events note 17 within the financial statements.

Reserves & Resource Statement

The Zanaga Project has defined a 6.9bn tonne Mineral Resource and a 2.1bn tonne Ore Reserve, reported in accordance with the JORC Code (2012), and defined from only 25km of the 47km orebody identified.

Ore Reserve Statement

The Ore Reserve estimate (announced by the Company on 30 September 2014) was prepared by independent consultants, SRK Consulting (UK) Ltd ("SRK") and is based on the 30Mtpa Feasibility Study and the 6,900Mt Mineral Resource (announced by the Company on 8 May 2014).

As stipulated by the JORC Code, Proven and Probable Ore Reserves are of sufficient quality to serve as the basis for a decision on the development of the deposit. Based on the studies performed, a mine plan was determined in 2014 to be technically achievable and economically viable.

 

Ore Reserve Category	Tonnes (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/banded iron formation ("BIF") and are inter-bedded with amphibolites and mafic schists. It exhibits faulted and sheared contacts with the crystalline basement. As a result of prolonged tropical weathering the BIF has developed a distinctive supergene iron enrichment profile.

At surface there is sometimes present a high grade (+60% Fe) canga of apparently limited thickness (<5m) capping a discontinuous, soft, high grade, iron supergene zone of structure-less hematite/goethite of limited thickness (<7m). The base of the high-grade supergene iron zone grades quickly at depth into a relatively thick, leached, well-weathered to moderately weathered friable hematite Itabirite with an average thickness of approximately 25 metres and grading 45-55% Fe.

The base of the friable Itabirite zone appears to correlate with the moderately weathered/weakly weathered BIF boundary, and fresh BIF comprises bands of chert and magnetite/grunerite layers.

Competent Persons

The statement in this announcement relating to Ore Reserves is based on information compiled by Mr Gabor Bacsfalusi P.Eng, who is a mining engineer and Principal Consultant of SRK Consulting (Canada) Inc. He has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity he is undertaking to qualify as a Competent Person as defined in the JORC Code (2012). The Competent Person, Mr Gabor Bacsfalusi, confirms that the historical (2014) Ore Reserve Estimate is accurately reproduced in this Annual Report and given his consent to the inclusion in the report of the matters based on his information in the form and context within which it appears. For the avoidance of doubt, SRK confirms that it has not undertaken any further additional technical work subsequent to publication of the 2016 Annual Report.

The information in the announcement that relates to Mineral Resources is based on information compiled by Malcolm Titley, BSc MAusIMM MAIG, of CSA Global (UK) Ltd. Malcolm Titley takes overall responsibility for the report as Competent Person. He is a Member of the Australasian Institute of Mining and Metallurgy ("AUSIMM") and has sufficient experience, which is relevant to the style of mineralisation and type of deposit under consideration, and to the activity he is undertaking, to qualify as a Competent Person in terms of the JORC Code. The Competent Person, Mr Malcolm Titley, has reviewed this Mineral Resource statement and given his permission for the publication of this information in the form and context within which it appears.

Definition of JORC Code

The Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (2012) as published by the Joint Ore Reserves Committee of the Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia.

Principal Risks & Uncertainties

The principal business of ZIOC currently comprises managing ZIOC's interest in the Zanaga Project, including the Jumelles group, and monitoring the development of the Project and engaging in discussions with potential investors. The principal risks facing ZIOC are set out below. Risk assessment and evaluation is an essential part of the Group's planning and an important aspect of the Group's internal control system. Overall these potential risks have remained broadly constant over the past year with the exception of the implications of COVID-19 on the long term outlook for the iron ore market.

Risks relating to the agreement with Glencore and development of the Zanaga Project

The Zanaga Project is majority controlled at both a shareholder and director level by Glencore. The ability of the Company to control the Zanaga Project and its operations and activities, including the future development of the Project (including any variant such as an EPP development) and the future funding requirements of Jumelles, is therefore limited.

The future development of the mine and related infrastructure (including any variant such as an EPP development) will be determined by the Jumelles board. There can be no certainty that the Jumelles board will approve the construction of the mine and related infrastructure or any variant thereof such as an EPP development, including the taking of preparatory steps associated with the construction of the mine and related infrastructure, such as front end engineering and design, or the undertaking of work needed to assess the viability of an EPP development or any component part of an EPP development.

Risks relating to future funding of the Zanaga Project

Under the Joint Venture Agreement between the Company, Glencore and Jumelles of 3 December 2009, as amended (the "JVA"), there is no obligation on the Company or Glencore to provide further funding to Jumelles. The Company and Glencore have reached agreement on a work programme and funding of the Zanaga Project for 2020. As such agreement relates to 2020, there is a risk that after 31 December 2020 Jumelles may be subjected to funding constraints and this could have an adverse impact upon the Project. Moreover, discretionary amounts are contained in the 2020 work programme and budget; these require the joint approval of ZIOC and Glencore. It is possible that as regards certain items, joint approval would not be forthcoming.

Risks relating to iron ore prices, markets and products

The ability to raise finance for the Project is largely dependent on movements in the price of iron ore. Iron ore prices have historically been volatile and are primarily affected by the demand for and price of steel and the level of supply of iron ore. Such prices are also affected by numerous other factors beyond the Company's and the Jumelles group's control, including the relative exchange rate of the U.S. dollar with other major currencies, global and regional demand, political and economic conditions, production levels and costs and transportation costs in major iron ore producing regions.

While it appears to be the case that there has been some degree of stabilisation of iron ore prices in the global market for iron ore, the duration of such stabilisation remains uncertain. The level of iron ore prices in the global market for iron ore continues to be subject to uncertainty, particularly in light of the impact of the COVID 19 pandemic. Although the 2014 FS identifies the product from the Project and the potential demand for such product within a range of iron ore prices, there are no assurances that the demand for the Project's product will be sufficient in quantity or in price to ensure the economic viability of the Project or to enable finance for the development of the Project to be raised. Furthermore, the range of iron ore prices in the 2014 FS will need to be reviewed so as to reflect changed market conditions and changed expectations relating to the supply and demand for iron ore.

Risks relating to an EPP

For some considerable period, an initiative has been and is being carried out to investigate the possibility of a low-cost small scale start-up, using existing infrastructure, focussing on a standard 62% Fe benchmark iron ore product or a high grade 65% Fe pellet feed iron ore product that would involve simple 'processing' applications. In conjunction with this, the possibility of a low-cost small scale start-up involving the production of a pellet feed concentrate and conventional pelletisation continues to be investigated. This initiative also involves the assessment of methods of providing the necessary power requirements as well as logistical support to enable the product to be transported to an available exit port. There will also be the need to put in place the appropriate contractual and permitting arrangements. There is a risk that such kind of start-up is found not to be viable or is not proceeded with for other reasons or is delayed.

Cold Pelletising Test Results and confirmatory testing

Additionally, a 'cold pelletisation' process, based on new and relatively untested cold pelletisation technology, has also been the subject of investigation. The purpose of the pelletising test work in relation to such process carried out was to test sizing and processing techniques to produce a client defined target concentrate, which, with the application of novel cold binding technologies, would be capable of producing transportable pellets or briquettes with the potential to conform to international marketplace accepted chemical and physical parameters.

During 2018, various processing techniques were tested to achieve the target grade stipulated by the client. As part of the test work, pellets with varying binder compositions were tested for their reduction degradation index ("RDI") characteristics partly at a European steel mill and partly at a certified laboratory in Germany. The results of such tests were encouraging.

The steel industry is notoriously cautious in adopting new technologies so further work will be required for the full acceptance of this product.

Risks relating to financing the Zanaga Project

Any decision of the Jumelles board to proceed with construction of the mine and related infrastructure (or any variant such as a low capital cost, small scale start-up EPP Project) is itself dependent upon the ability of Jumelles to raise the necessary debt and equity to finance such construction and the initial operation of the mine (or any variant such as a low-cost small scale start-up). Jumelles may be unable to obtain debt and/or equity financing in the amounts required, in a timely manner, on favourable terms or at all and should this occur, it is highly likely to pose challenges to the proposed development of the Zanaga Project and the proposed timeline for its development. Moreover, the global credit environment may pose additional challenges to the ability of Jumelles to secure debt finance or to secure debt finance on acceptable terms, including as to rates of interest.

Risks relating to financing of the Company

The Company will not generate any material income until an operating stage of the Project has been constructed and mining and export of the iron ore has successfully commenced at commercial volumes. In the meantime the Company will continue to expend its cash reserves. Should the Company seek to raise additional finance, it may be unable to obtain debt and/or equity financing in the amounts required, in a timely manner, on favourable terms or at all.

If construction of the mine and related infrastructure proceeds (including any preparatory steps associated with the construction of the mine and related infrastructure) or any small scale start-up proceeds, and ZIOC elects to fund its pro rata equity share of construction capital expenditure, there is no certainty as to its ability to raise the required finance or the terms on which such finance may be available.

If ZIOC raises additional funds (including for the purpose of funding the construction of the Project or any part of the Project, including any small-scale start-up) through further issuances of securities, the holders of ordinary shares could suffer significant dilution, and any new securities that ZIOC issues could have rights, preferences and privileges superior to those of the holders of the ordinary shares.

If the Company fails to generate or obtain sufficient financial resources to develop and operate its business, this could materially and adversely affect the Company's business, results of operations, financial condition and prospects.

 

Risk relating to Ore Reserves estimation

Ore Reserves estimates include diluting materials and allowances for losses, which may occur when the material is mined. Appropriate assessments and studies have been carried out and include consideration of and modification by realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. These assessments demonstrate at the time of reporting that extraction could reasonably be justified. Ore Reserve estimates are by their nature imprecise and depend, to a certain extent, upon statistical inferences and assumptions which may ultimately prove unreliable. Estimated mineral reserves or mineral resources may also have to be recalculated based on changes in iron ore or other commodity prices, further exploration or assessment or development activity and/or actual production experience.

Host country related risks

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

HIV/AIDS, malaria and other diseases are prevalent in the RoC and, accordingly, the workforce of the ZIOC group and of the Jumelles group will be exposed to the health risks associated with the country. The operating and financial results of such entities could be materially adversely affected by the loss of productivity and increased costs arising from any effect of HIV/AIDS, malaria and other diseases on such workforce and the population at large.

Weather conditions in the RoC can fluctuate severely. Rainstorms, flooding and other adverse weather conditions are common and can severely disrupt transport in the region where the Jumelles group operates and other logistics on which the Jumelles group is dependent.

The host country related risks described above could be relevant both as regards day-to-day operations and the raising of debt and equity finance for the Project. The occurrence of such risks could have a material adverse effect on the business, prospects, financial condition and results of operations of the Company and/or the Jumelles group.

Risks relating to the Project's licences and the regulatory regime

The Project's Mining Licence was granted in August 2014 and a Mining Convention has been entered into. With effect from 20 May 2016, the Zanaga Mining Convention has been promulgated as a law of the RoC, following ratification by the Parliament of the RoC and publication in the Official Gazette.

The holder of a mining licence is required to incorporate a Congolese company to be the operating entity and the Congolese Government is entitled to a free participatory interest in projects which are at the production phase. This participation cannot be less than 10%. Under the terms of the Mining Convention, there is a contingent statutory 10% free participatory interest in favour of the Government of the RoC as regards the mine operating company and a contingent option for the Government of the RoC to buy an additional 5% stake at market price.

The granting of required approvals, permits and consents may be withheld for lengthy periods, not given at all, or granted subject to conditions which the Jumelles group may not be able to meet or which may be costly to meet. As a result, the Jumelles group may incur additional costs, losses or lose revenue and its business, result of operations, financial condition and/or growth prospects may be materially adversely affected. Failure to obtain, renew, enforce or comply with one or more required approvals, permits and consents could have a material adverse effect on the business, prospects, financial condition and results of operations of the Company and/or the Jumelles group. Mitigation of such risks is in part dependent upon the terms of the Mining Convention and compliance with its terms.

Transportation and other infrastructure

The successful development of the Project (including any low-cost small scale start-up) depends on the existence of adequate infrastructure and the terms on which the Project can own, use or access such infrastructure. The region in which the Project is located is sparsely populated and difficult to access. Central to the Zanaga Project becoming a commercial mining operation is access to a transportation system through which it can transport future iron ore product to a port for onward export by sea. In order to achieve this it will be necessary to access a port at Pointe-Indienne, which is still to be constructed, or some other exit port in the case of a low-cost small scale start-up.

The nature and timing of construction of the proposed new port are still under discussion with the government of the RoC and other interested parties. In relation to the pipeline and Project facilities at the proposed new port and (to the extent needed) other infrastructure, the necessary permits, authorisations and access, usage or ownership rights have not yet been obtained.

Failure to construct the proposed pipeline and/or facilities at the proposed new port and/or other needed infrastructure or a failure to obtain access to and use of the proposed new port and/or other needed infrastructure or a failure to do this in an economically viable manner or in the required timescale could have a material adverse effect on the Project.

In the case of a low-cost small scale start-up, failure to put in place the necessary logistical requirements (including trucking, rail transportation and port facilities) and/or other needed infrastructure or a failure to obtain access to and use of the proposed logistical requirements or a failure to do this in an economically viable manner or in the required timescale could have a material adverse effect on the Project.

The availability of reliable and continuous delivery of sufficient quantity of power to the Project at an affordable price will also be a significant factor on the costs at which iron ore can be produced and transported to any proposed exit port and will impact on the economic viability of the Project.

Reliable and adequate infrastructure (including an outlet port, roads, bridges, power sources and water supplies) are important determinants which affect capital and operating costs and the ability of the Jumelles group to develop the Project, including any low-cost small scale start-up. Failure or delay in putting in place or accessing infrastructure needed for the development of the Zanaga Project could have a material adverse effect on the business, prospects, financial condition and results of operations of the Company and/or the Jumelles group.

Risks associated with access to land

Pursuant to the laws of the RoC, mineral deposits are the property of the government with the ability to purchase surface rights. Generally speaking, the RoC has not had a history of native land claims being made against the state's title to land. There is no guarantee, however, that such claims will not occur in the future and, if made, such claims could have a deleterious effect on the progress of development of the Project and future production.

The Mining Convention envisages that the RoC will carry out a process to expropriate the land required by the Zanaga Project and place such land at the disposal of the holder of the Mining Licence in order to build the mine and the infrastructure, including the pipeline, required for the realisation of the Zanaga Project. This means that the rights of the Jumelles company which holds the Mining Licence to the relevant land will be subject to negotiation between the Congolese government and such company. Alternatively, if the land is not declared DUP (i.e. is expropriated by the State under its sovereign powers) then the Jumelles group will have to reach agreement with the local land owners which may be a more time consuming and costly process.

 

Risks relating to timing

Any delays in (i) obtaining rights over and access to land and infrastructure; (ii) obtaining the necessary permits and authorisations; (iii) the construction or commissioning of the mine, the pipeline or facilities at or offshore an exit port or power transmission lines or other infrastructure; or (iv) negotiating the terms of access to the exit port and supply of power and other infrastructure (including an offshore loading facility); 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 (including laws and regulations relating to the COVID-19 pandemic) 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 Jumelles group and/or 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 business activity of the Jumelles group and/or the Project's operations or the imposition of costly compliance measures. Where health and safety authorities and/or the RoC government require the business activity of the Jumelles group and/or the Project to shut down or reduce all or a portion of its activities of 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.

COVID-19

The duration of COVID-19 pandemic and its potential or actual impact upon global markets, countries, populations and businesses is still uncertain. As a result of the measures taken by the government and other authorities in the RoC, the business and other activities of governmental agencies and authorities, of business enterprises and of individuals has been affected. The impact that this situation could have upon the business activities of the Jumelles group and its personnel as well as the risks, is being monitored. While the Jumelles group would seek to manage such situation and to minimise the risks, there is the possibility that the Project and the business activities of the Jumelles group could be adversely affected by the COVID-19 pandemic and its impact upon global markets and upon countries. Additionally, these factors could adversely affect ZIOC and its own business activities. As noted within note 17 of the financial statements, the outbreak thus far has had no material impact upon the business operation or financial situation of the Company.

 

Risks relating to third party claims

Due to the nature of the operations to be undertaken in respect of the development of the Zanaga Project, there is a risk that substantial damage to property or injury to persons could be sustained during such development. Any such damage or injury could have a material adverse effect on the financial condition, business, prospects, reputation and results of operations of the Company and/or the Jumelles group.

Risks relating to outsourcing

The 2014 FS envisages that certain aspects of the Zanaga Project will be carried out by third parties pursuant to contracts to be negotiated with such third parties. Any low-cost small scale start-up is also likely to involve the undertaking of various key elements of the Project by third parties. There is a risk that agreement might not be reached with such third parties or that the terms of any such agreement are more stringent than currently anticipated; this could adversely impact upon the Project and/or the proposed timescale for carrying out the Project.

 

Fluctuation in exchange rates

The Jumelles group's functional and reporting currency is the U.S. dollar, and most of its in country costs are and will be denominated in CFA francs and Euros. Consequently, the Jumelles group must translate the CFA franc and Euro denominated assets and liabilities into U.S. dollars. To do so, non-U.S. dollar denominated monetary assets and liabilities are translated into U.S. dollars using the closing exchange rate at the reporting period end date. Consequently, increases or decreases in the value of the U.S. dollar versus the Euro (and consequently the CFA franc) and other foreign currencies may affect the Jumelles group's financial results, including its assets and liabilities in the Jumelles group's balance sheets. These factors will affect the financial results of the Company. In addition, ZIOC holds the majority of its funds in Pounds Sterling, and incurs the majority of its corporate costs in Pounds Sterling, but its contributions to funding the Jumelles group in 2019 and 2020 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 and replenish its cash resources, there is a risk that a shortage of such cash resources will adversely affect the Company. Such shortage could result in further expenditure cuts being introduced by the Company, both in its internal and its external operations. Continuing volatile and uncertain economic conditions in the global iron ore market means that there can be no certainty as to when the Zanaga resource is likely to be developed. The difficult prevailing economic conditions as well as difficulties of monetising this resource given its location impact upon the ability of the Jumelles group to raise new finance for the Project as well as on the Company's ability to raise new finance for itself. The Company's existing cash resources will continue to come under increasing pressure unless a more benign investment and trading climate materialises in the foreseeable future which benefits the Project and the Company can take steps which result in an improvement of its financial position.

 

 

 

 

 

 

Financial Statements

Consolidated statement of comprehensive Income

for year ended 31 December 2019

 

		2019	2018
	Note	US$000	US$000
Administrative expenses		(1,245)	(1,071)
Share of loss of associate	6b	(644)	(795)
Operating loss		(1,889)	(1,866)
Interest income		7	9
Loss before tax		(1,882)	(1,857)
Taxation	5		-
Loss for the year		(1,882)	(1,857)
Items that will not be reclassified subsequently to profit or loss: Share of other comprehensive income of associate - foreign exchange translation		3	-
Items that may be reclassified subsequently to profit or loss: Foreign exchange translation - foreign operations	6b	(6)-	(8)
Other comprehensive income/(loss)		(3)	(8)
Total comprehensive loss		(1,885)	(1,865)
(Loss) per share
Basic (Cents)	12	(0.7)	(0.6)
Diluted (Cents)	12	(0.7)	(0.6)

 

Loss and total comprehensive loss for the year is attributable to the equity holders of the Parent Company.

 

The notes form an integral part of the financial statements.

Consolidated statement of financial position

for year ended 31 December 2019

 

		2019	2018
	Note	US$000	US$000
Non-current assets
Property, plant and equipment	6a	-	-
Investment in Associate	6b	37,492	37,450
		37,492	37,450
Current assets
Other receivables	7	48	89
Cash and cash equivalents	8	755	1,955
		803	2,044
Total Assets		38,295	39,494
Current liabilities
Trade and other payables	9	(175)	(75)
Net assets		38,120	39,419
Equity attributable to equity holders of the Parent Company
Share capital	10	267,592	267,012
Accumulated deficit		(232,794)	(230,912)
Foreign currency translation reserve		3,322	3,319
Total equity		38,120	39,419

 

The notes form an integral part of the financial statements.

These financial statements were approved by the Board of Directors on 30 June 2020 and were signed on its behalf by:

 

 

Mr Clifford Elphick

Director

 

Consolidated statement of changes in equity

for year ended 31 December 2019

			Foreign
			currency
	Share	Accumulated	translation	Total
	capital	deficit	reserve	Equity
	US$000	US$000	US$000	US$000
Balance at 1 January 2018	267,012	(229,055)	3,327	41,284
Consideration for share-based payments	-	-	-	-
Loss for the year	-	(1,857)	-	(1,857)
Other comprehensive income	-	-	(8)	(8)
Total comprehensive loss	-	(1,857)	(8)	(1,865)
Balance at 31 December 2018	267,012	(230,912)	3,319	39,419
Balance at 1 January 2019	267,012	(230,912)	3,319	39,419
Consideration for share-based payments	580	-	-	580
Loss for the year	-	(1,882))	-	(1,882)
Other comprehensive income / (loss)	-	-	3	3
Total comprehensive loss	-	(1,882)	3	(1,879)
Balance at 31 December 2019	267,592	(232,794)	3,322	38,120

Consolidated cash flow statement

for year ended 31 December 2019

 

			2019	2018
	Note		US$000	US$000
Cash flows used in operating activities
Loss for the year			(1,882)	(1,857)
Adjustments for:
Interest receivable			(7)	(9)
Decrease/(Increase) in other receivables			41	(40)
Increase in trade and other payables			100	-
Share based payments			580	-
Net exchange gain/(loss)			19	144
Share of Loss in associate			644	795
Net cash used in operating activities			(505)	(967)
Cash flows used in financing activities
Cash flows used in investing activities
Interest received			7	9
Investment in Associate			(689)	(656)
Net cash used in investing activities			(682)	(647)
Net decrease in cash and cash equivalents			(1,187)	(1,614)
Cash and cash equivalents at beginning of year			1,955	3,721
Effect of exchange rate difference			(13)	(152)
Cash and cash equivalents at end of year	8		755	1,955

 

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 2nd Floor, Coastal Building, Wickham's Cay II, Road Town, P.O. Box 2221, Tortola, British Virgin Islands. On 18 November 2010, the Company's share capital was admitted to trading on the AIM Market ("AIM") of the London Stock Exchange ("Admission"). The Company's principal place of business as an investment holding vehicle is situated in Guernsey, Channel Islands.

At 31 December 2010 the Company held 100% of the share capital of Jumelles Limited subject to the then Call Option.

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

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

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

Guava is majority owned by African Resource Holdings Limited ("ARH"), a BVI company that specialises in the investment and development of early stage natural resource projects in emerging markets. Guava owns approximately 27.39% of the share capital of the Company.

At the time that Garbet was a shareholder in the Company, it was majority owned by Strata Limited ("Strata"), a private investment holding company based in Guernsey, which specialises in the investment and development of early stage natural resource projects in emerging markets, predominately Africa. Until 3 April 2017 Garbet owned approximately 41.49% of the share capital of the Company. Pursuant to a transaction effected on 2 April 2017 Garbet ceased to hold any shares in the Company. As part of such transaction the shares in the Company which were held by Garbet were transferred directly or indirectly to Garbet's shareholders and the shareholders of Garbet's holding company, Strata.

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

Xstrata Transaction

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

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

·   an agreement which regulated the respective rights of the Company, Jumelles and Xstrata Projects in relation to Jumelles following exercise of the Call Option. Subsequently:

o Xstrata merged with the Glencore group on 2 May 2013 to form Glencore Xstrata and the holding company of the merged group subsequently changed its name to Glencore.

o Under the terms of the supplemental agreement announced on 13 September 2013 ("Supplemental Agreement"), the scope of the above mentioned FS was modified to a staged development basis, and the revised basis FS was completed in May 2014. The Supplemental Agreement also extended the work programme beyond the conclusion of the FS, up to December 2014 (towards which the Company contributed US$17m from existing resources), and the Glencore call option over the Company's remaining 50% less one share shareholding in Jumelles was deleted.

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

Xstrata Projects exercised the Call Option on 11 February 2011 and the founding shareholder loans were repaid. The final elements of the Call Option price consideration were the completion of the Feasibility Study and costs thereof, and these were completed in April 2014.

Relationship between Jumelles and its shareholders after exercise of the Call Option (Post February 2011)

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

Glencore has the right to appoint three directors to the Jumelles Board while ZIOC has a right to appoint two directors. At any Jumelles Board meeting, the directors nominated by Glencore have between them such number of votes as represents Glencore's voting rights in the general meetings of Jumelles and the directors nominated by ZIOC have between them such number of votes as represents ZIOC's voting rights in the general meetings of Jumelles.

As a consequence of the provisions of the JVA (in its original version and as subsequently amended), following exercise of the Call Option in February 2011 and Xstrata's merger with the Glencore group to form Glencore Xstrata (May 2013), Glencore controls Jumelles at both a shareholder and director level and therefore controls what was the Company's sole mineral asset, the Zanaga Project. Going forward the Company accounted for this as an Investment in Associate in respect of the Project with Glencore.

Following exercise of the Call Option, the principal business of the Company has been to manage its 50% less one share interest in the Project. Initially this involved the monitoring of both the finalisation of the pre-feasibility study and the preparation of the feasibility study. Subsequently emphasis has been placed on progressing the key objectives of the Project Team. These objectives include the establishment of port and power agreements with relevant developers, issue of the environmental permit, and ratification of the Zanaga Mining Convention by the Parliament of the RoC. These items form important milestones as the Project moves toward attracting the finance required for the implementation of Stage One. The objectives also include progressing the evaluation of the EPP.

 

Future funding requirements and going concern basis of preparation

The Directors have prepared the accounts on a going concern basis. At 31 December 2019 the Company had cash reserves of US$0.8m.

Glencore and ZIOC have agreed a 2020 Project Work Programme and Budget for the Project of up to US$1.2m plus US$0.1m of discretionary spend. ZIOC has agreed to contribute towards Q1 - Q3 of this work programme and budget an amount comprising US$0.4m of which $0.2m has already been funded (with a further potential commitment of up to US$0.2m on finalisation of the Q4 figures) plus 49.99% of all discretionary items approved jointly with Glencore. Ignoring any entitlement to savings, ZIOC's potential contribution to the Project in 2020 under the 2020 Funding Agreement is as described above.

Without taking into consideration the funds expected to be received from the funding facility established by the SMC Subscription Agreement (refer to note 17), the Company's current cash reserves are insufficient to support both the Company's own operating costs for the next 12 months and the agreed contribution to the Project under the Funding Agreement for 2020 referred to in the previous paragraph.

The Company had cash reserves of US$0.4m as at 31 May 2020. In order to raise additional funding the Company has entered a Subscription Agreement with SMC (as described above). (See the Company's release of 26 June 2020.) The financing structure with SMC enables the Company to access funding for the costs that the Company is expected to meet in the near future. For illustrative purposes only, if the average price at which SMC places the 14 million Subscription Shares comprised in the First Tranche and the Second Tranche was 6.27 pence (being ZIOC's mid-market closing share price on Wednesday 24 June 2020), the net proceeds received by ZIOC from such sales would be approximately £0.9m, or approximately £1.3m if all three tranches of shares are placed at this price.

Based on the current cost base at the Zanaga Project, the current low corporate overheads of ZIOC, the agreed cash preservation plan adopted by the Company (described below), the Company's existing cash reserves and (on the basis of cautious assumptions made by the Company in its funding model) the funds expected to be obtained from the funding facility established by the Subscription Agreement with SMC, the Company will be adequately positioned to support its operations going forward in the near future. As the final cash amounts to be received for each tranche of issued shares, and the timing of this receipt, are dependent on SMC successfully selling the shares prior to transferring funds to the Company, the board of directors of ZIOC (the "Board") is of the view that the going concern basis of accounting is appropriate. However, the Board acknowledges that there is a material uncertainty which could give rise to significant doubt over the Company's ability to continue as a going concern and, therefore, that the Company may be unable to realise its assets and discharge its liabilities in the normal course of business. Consequently, based on and taking into account the foregoing factors, the Board are satisfied the Company will have sufficient funds to meet its own working capital requirements up to, and beyond, twelve months from the approval of these accounts.

The Company continues to review the costs of its operational activities with a view to conserving its cash resources. As part of such ongoing review, and in order to preserve the cash position of the Company, it has been agreed with the Directors and Management that fees are deferred. Additionally, the Directors and management have indicated to the Company that they will assist the cash preservation plan of the Company, by re-negotiating contractual arrangements so as to provide for payments of fees in shares and/or options in lieu of cash. If this course of action is determined to be necessary, it is expected that this will take effect by the end of Q4 2020.

In common with many exploration and development companies in the mining sector, the Company raises funding in phases as its project develops. As the Zanaga Project is still in the development stage and the cash resources of the Company are diminishing, the Company recognises that steps will need to be taken to raise additional investment either at the corporate level or at the Zanaga Project level, or a combination of the two. The raising of additional funds is linked to the progress that is made in relation to the development of the Zanaga Project. The initiatives that are being undertaken in relation to the development of the Zanaga Project have been described earlier in this report. There are a range of options for raising funds which the Company is pursuing. It is recognised that there is a risk that the Company may be unable to obtain debt and/or equity financing in the amounts required, in a timely manner, on favourable terms or at all and should this occur, it is highly likely to pose challenges for the Company and could adversely have an impact upon the proposed development of the Zanaga Project and the proposed timeline for its development.

If construction of the mine and related infrastructure proceeds (including any preparatory steps associated with the construction of the mine and related infrastructure), and the Company elects to fund its pro rata equity share of construction capital expenditure, it will need to raise further funds. There is no certainty as to the Company's ability to raise the required finance or the terms on which such finance may be available.

In addition, any decision of the Jumelles Board to proceed with construction of the mine and related infrastructure (or any variant such as a low-cost small scale start-up) is itself dependent upon the ability of Jumelles to raise the necessary debt and equity to finance such construction and the initial operation of the mine. Jumelles itself may be unable to obtain debt and/or equity financing in the amounts required, in a timely manner, on favourable terms or at all and should this occur, it is highly likely to pose challenges to the proposed development of the Zanaga Project and the proposed timeline for its development.

The Company still believes that once the proposed staged development of the Zanaga Project occurs, the Project offers high grade ore at competitive cost, thereby offering an attractive rate of return, at an acceptable level of risk. However, in order to carry out such staged development, it is still the case that substantial capital expenditure will be required both at the prospective mine site and in respect of transportation and other associated infrastructure and for working capital. Revenues from mining are dependent upon such development being financed and taking place. Despite the positive current state of the global iron ore market there can be no certainty as to when Jumelles and the Company are able to raise new finance for the staged development of the Project or any small-scale start-up.

At a time when the staged development of the Project takes place (or, if viable, a small-scale start-up takes place) the Company will need to obtain additional funding should it decide to elect to fund its share of any such development of the mine. If such staged development continues to be deferred due to unfavourable market conditions, the Company will need at the appropriate time to explore options to raise additional funding, pending the staged development (or, if viable, a small-scale start-up) taking place.

Brexit

The Brexit process has resulted in increased volatility in currency rates applicable to Pounds Sterling. Such volatility is likely to continue. Volatility in currency rates can also arise from the impact that COVID-19 has on global markets and the way in which countries (including the UK) have responded to it. As the Company's cash resources are held in Pounds Sterling, such volatility could adversely affect the Company's financial position and results where it is obliged to make payments of sums denominated in other currencies. This particularly applies to contributions made by the Company to funding the Jumelles group as these amounts are calculated in United States dollars.

2 Accounting policies

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

Basis of preparation

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

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

The company's presentation currency and functional currency is US dollars.

New standards, amendments and interpretations

The following IFRSs standards and amendments are effective from 1 January 2019:

·    IFRS 16 Standard - Leases

·    Amendments to IAS 19 - Employee benefits

·    Amendments to IFRS 3 Business Combinations and IFRS 11 Joint Operations

·    Amendment to IFRS 9 Financial Instruments

·    Amendment to IAS 12 Income Taxes

·    Amendment to IAS 23 Borrowing Costs

The above listed standards and amendments have been adopted by the Company. The amendments and new standard do not have a material impact on the Company's business or on the Company's financial statements and as such there are no presentation or measurement changes within the financial statements. The Group had and continues to have no lease contracts upon adoption of IFRS 16.

New and revised IFRS Standards in issue but not yet effective

The following amendments are in issue, adopted by the European Union but are not effective for the current period.

·    Amendments to References to the Conceptual Framework in IFRS Standards

·    Amendments to IFRS 3 (Oct 2018)

·    Amendments to IAS 1 and IAS 8 (Oct 2018)

·    Amendments to IFRS 9, IAS 39 and IFRS 7 (September 2019)

None of these future amendments are expected to have any material impact upon the financial statements.

The IASB have issued a number of other amendments however these have not been adopted by the European Union as at the date of approval of the financial statements.

Measurement convention

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

The preparation of financial statements in conformity with Adopted IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3.

Basis of consolidation

Subsidiaries

Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the financial statements from the date that control commences until the date that control ceases.

Associates

Investments in associates are recorded using the equity method of accounting whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition changes in the Group's share of the net assets of the associate. The Group profit or loss and other comprehensive income includes the Group's share of the associate's profit or loss and other comprehensive income. The investment is considered for impairment annually.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from the intra-group transactions, are eliminated in preparing the financial statements.

Foreign currency

Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in equity.

Share-based payments

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

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

The shares issued under the 2010 LTIP were acquired by an Employee Benefit Trust which subscribed for the shares at zero value. These shares are held by the Employee Benefit Trust until the vesting conditions have been met and the share options are exercised. During Q4 2017, all the outstanding share options were exercised and a small number of surplus shares held by the Employee Benefit Trust were distributed to beneficiaries of the Trusts. The Employee Benefit Trust has now been discontinued.

Subsequent awards of share options have been structured as standard share options and did not involve the use of an employee benefit trust.

Information on the share awards is provided in Note 11 to these financial statements.

Share-based payments to non-employees

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

Non-derivative financial instruments

Financial assets and financial liabilities are recognised in the Group's consolidated statement of financial position when the Group becomes a party to the contractual provisions of the instrument in accordance with IFRS 9.

Financial assets are initially recognised at their fair value, including, in the case of instruments not recorded at fair value through profit or loss, directly attributable transaction costs. Financial assets are subsequently measured at amortised cost, at fair value through other comprehensive income (FVTOCI) or at fair value through profit or loss (FVTPL) depending upon the business model for managing the financial assets and the nature of the contractual cash flow characteristics of the instrument.

Financial liabilities, other than derivatives, are initially recognised at fair value of consideration received net of transaction costs as appropriate and subsequently carried at amortised cost.

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

 (i) Impairment of financial assets

A loss allowance for expected credit losses is determined for all financial assets, other than those at FVTPL, at the end of each reporting period. The expected credit loss recognised represents a probability-weighted estimate of credit losses over the expected life of the financial instrument.

The expected credit loss allowance is determined on the basis of twelve month expected credit losses and where there has been a significant increase in credit risk, lifetime expected credit losses. Financial assets are credit impaired when there is no realistic likelihood of recovery.

(ii) Derecognition of financial assets and financial liabilities

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party.

The Group derecognises financial liabilities when the Group's obligations are discharged, cancelled or have expired.

On derecognition of a financial asset/financial liability in its entirety, the difference between the carrying amount of the financial asset/financial liability and the sum of the consideration received and receivable/paid and payable is recognised in profit and loss.

Other receivables

Other receivables include receivables from related parties. Where financial assets are included within this line item, these are managed within a business model to collect the contract cashflows, which represent solely payments of principal and interest. Other receivables are subsequently measured at amortised cost.

Trade and other payables

Trade and other payables are initially recognised at the fair value of consideration received net of transaction costs as appropriate and subsequently measured at amortised cost.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. These are managed within a business model to collect the contract cashflows, which represent solely payments of principal and interest These are subsequently measured at amortised cost and are determined to have a low credit risk due to being held with highly credit rated financial institutions. As such, these balances are not assessed to determine whether there has been a significant increase in credit risk.

Share capital

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

When share capital recognised as equity is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a change in equity. Repurchased shares are cancelled.

Impairment of investment in associate

The carrying amounts of the Group's investment in associate are reviewed at each reporting period end to determine whether there is any indication of impairment. The investment is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that investment. If any such indication exists, the investment's recoverable amount is estimated.

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

(i) Calculation of recoverable amount

The recoverable amount of the Group's investments carried at amortised cost is calculated as the present value of estimated future cash flows, discounted at the original effective interest rate (i.e. the effective interest rate computed at initial recognition of these financial assets).

(ii) Reversals of impairment

An impairment loss is reversed when there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount.

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

Financing income and expenses

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

Taxation

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

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

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

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

Segmental Reporting

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

Subsequent events

Post year-end events that provide additional information about the Group's position at the end of each reporting period (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to financial statements where material. Please see note 17.

3 Critical accounting judgements and key sources of estimation uncertainty

In the application of the Group's accounting policies, which are described in note 2, the directors are required to make judgements (other than those involving estimations) that have a significant impact on the amounts recognised and to make estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Carrying value of Investment in Associate

The value of the Group's investment in Jumelles depends very largely on the value of Jumelles' interest in the Project. Jumelles assesses at least annually whether or not its exploration projects may be impaired. This assessment can involve significant estimation uncertainty as to the likelihood that a project will continue to show sufficient commercial promise to warrant the continuation of exploration and evaluation activities. Key assumptions on valuing the Project include long term price assumptions on a CFR IODEX 62% Fe forecast 57US/dmt with adjustments for quality, deleterious elements, moisture and freight. It is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial year that are different from assumptions above could require a material adjustment to the carrying amount of the Investment in Associate.

4 Note to the comprehensive income statement

Operating loss before tax is stated after charging/(crediting):

 

	2019	2018
	US$000	US$000
Share-based payments (see Note 11)	580	-
Net foreign exchange loss/(gain)	19	(152)
Directors' fees	15	234
Auditor's remuneration	60	62

Other than the Company Directors, the Group did not directly employ any staff in 2019 (2018: nil). The Directors received a total of US$14,865 remuneration for their services as Directors of the Group (2018: US$234,003). The amounts paid as Directors' fees are shown in the Directors' Remuneration Report on in the 2019 Annual Report. The Directors' interests in the share capital of the Group are shown in the Directors' Remuneration Report in the 2019 Annual Report.

5 Taxation

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

The effective tax rate for the Group is Nil % (2018: Nil %).

 

6a Property, Plant and Equipment

		Fixtures	Total
		and fittings
		US$000	US$000
Cost
Balance at 1 January 2019		43	43
Additions		-	-
Disposals		-	-
Balance at 31 December 2019		43	43
Depreciation
Balance at 1 January 2019		43	43
Charge for period		-	-
Balance at 31 December 2019		43	43
Net book value
Balance at 31 December 2019		0	0
Balance at 31 December 2018		0	0

There are no assets held under lease contracts.

6b Investment in Associate

	US$000
Balance at 1 January 2018	37,589
Additions	656
Share of post-acquisition comprehensive loss	(795)
Share of post-acquisition currency translation reserve	-
Balance at 31 December 2018	37,450
Balance at 1 January 2019	37,450
Additions	689
Share of post-acquisition comprehensive loss	(644)
Share of post-acquisition currency translation reserve	(3)
Balance at 31 December 2019	37,492

At 31 December 2019, the investment represents a 50% less one share shareholding in Jumelles being 2,000,000 shares of the total share capital of 4,000,001 shares. Originally recorded at cost, the investment has been adjusted for changes in the Company's share of the net assets of the associate, less impairment. The investment has been impaired down to the Company's share of the impaired value of the Project declared in the accounts of the associate.

The additions to the investment during the year were due to the additional US$0.69m of investment agreed in accordance with the 2019 Funding Agreement (2018 US$0.66m).

The Company's investment in Jumelles continues to be, accounted for as an associate using the equity method of accounting as Glencore has control of the business as described in note 1.

As at 31 December 2019, Jumelles had aggregated assets of US$81.4m (2018: US$81.6m) and aggregated liabilities of US$0.5m (2018: US$0.8m). For the year ended 31 December 2019 there was no impairment charge (2018: US$nil) and incurred a loss before tax of US$1.3m (2018: US$1.6m). There was no tax charge for 2019 (2018: US$nil). Currency translation of the underlying Congolese asset generated a translation loss of US$nil (2018: US$nil).

Summarised financial information in respect of the Group's associate, reflecting 100% of the underlying associate's relevant figures is set out below.

 

	2019	2018
	US$000	US$000
Non-current Assets:
Property, plant and equipment	1,064	1,270
Exploration and other evaluation assets	80,000	80,000
Total non-current assets	81,064	81,270
Current Assets	336	323
Current Liabilities	(489)	(768)
Net current liabilities	(153)	(444)
Net assets	80,911	80,825
Share capital	293,103	293,103
Translation reserve	38,706	37,326
Translation reserve	(4,828)	(4,824)
Accumulated deficit	(246,069)	(244,780)
	80,911	80,825

7 Other receivables

 

	2019	2018
	US$000	US$000
Prepayments and receivables	15	14
Amounts receivable from the Jumelles group	33	75
Other receivables	48	89

8 Cash and cash equivalents

 

	2019	2018
	US$000	US$000
Cash and cash equivalents	755	1,955

9 Trade and other payables

 

	2019	2018
	US$000	US$000
Accounts payable	175	75
	175	75

No amounts payable are due in more than 12 months (2018: US$nil due in more than 12 months).

 

10 Share capital

 

In thousands of shares	Ordinary Shares	Ordinary Shares
	2019	2018
In issue at 1 January - fully paid	283,201	278,777
Shares issued	2,833	4,424
Shares repurchased and cancelled	-	-
In issue at 31 December - fully paid	286,034	283,201

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 2019 or in the current year (2018: US$nil).

Share capital changes in 2019

2,833,334 shares were issued in 2019 as part of a management incentivisation plan. There were no share repurchases.

11 Share-based payments

Employees

No awards were issued in 2019.

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 8 (fully vested)

These awards vested on the date of grant in July 2014.

Award 9 (fully vested)

These awards have fully vested.

Details of current awards are as follows:

 

Award 1 (2010)

Award 2 (2010)

Award 6 (2014)

Award 8 (2014)

Award 9 (2014)

Total

Weighted

Weighted

Weighted

Weighted

Weighted

Weighted

Average

Average

Average

Average

Average

Average

Exercise Price

Exercise Price

Exercise Price

Exercise Price

Exercise Price

Exercise Price

(£)

Number

(£)

Number

(£)

Number

(£)

Number

(£)

Number

(£)

Number

At 1 January 2018 *

£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$0.04)

Granted

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

Forfeited

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

Exercised

N/A

2,727,345

N/A

995,382

0.01

201.848

0.01

1,013,418

0.1

2,000,000

N/A

6,937,993

Lapsed

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

At 31 December 2018 *

0.02

Nil

0.02

Nil

0.01

1,002,771

N/A

Nil

0.01

2,000,000

£0.01

3,002,771

At 1 January 2019 *

£0.02

Nil

£0.02

Nil

0.01

1,002,771

0.01

Nil

0.01

2,000,000

£0.01

3,002,771

(US$0.04)

(US$0.04)

(US$0.04)

Granted

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

Forfeited

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

Exercised

0.02

Nil

0.02

Nil

0.01

Nil

0.01

Nil

0.1

Nil

0.1

Nil

Lapsed

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

N/A

Nil

At 31 December 2019 *

N/A

Nil

N/A

Nil

0.01

1,002,771

N/A

Nil

0.01

2,000,000

£0.01

3,002,771

Award 1 (2010)

Award 2 (2010)

Award 6 (2014)

Award 8 (2014)

Award 9 (2014)

Total

Range of exercise prices *

£0.00-£0.02 (US$0.00-US$0.04)

£0.02 (US$0.04)

£0.00-£0.01 (US$0.00-US$0.02)

£0.01 (US$0.02)

£0.01 (US$0.02)

£0.00 - £0.02 (US$0.00-US$0.04)

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  (US$2.41)	£1.56 (US$2.41)	£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 the Company's own history since the 2010 flotation.

Non-employees

In August 2019 the Group entered into a new incentive plan which granted share options in the Group to two non employee individuals and Harris Geoconsult Limited who all provide consulting services to the Group. On 29 August 2019, 13,633,335 options were granted under this scheme. The scheme will be settled in equity instruments of the Group and is therefore treated as an equity-settled share-based payment arrangement. The options vest in multiple tranches based on the Group achieving key performance milestone including:

(a)  The approval by Jumelles of the Early Production Project (EPP), including its potential technical and financial feasibility, as the basis for advancing the development of the Zanaga Project;

(b)  Raising finance either for the Group or separately for the development phase of the Zanaga Project; or

(c)  The completion of a significant merger or acquisition involving the Group or any member of the Jumelles Group acquiring a material interest (as determined by the Group board) in a third party or a third party acquiring a material interest (as determined by the Group board) in the Group or a member of the Jumelles Group.

All unvested options will also vest on the occurrence of certain events, such as a change of control of the Company. Once vested all options will also vest on the occurrence of certain events, such as a change of control of the Company. Once vested all options are exercisable within seven years of the grant date of award. The options have a nominal exercise price of 0.01p (one hundredth of one penny). The number of share options are as follows:

In thousands of shares	Number of options 2019	Number of options 2018
Granted during the year	13,633,335	-
Exercised during the year	-	-
Outstanding at the end of the year	13,633,335	-
Exercisable at the end of the year	-	-

The services to be provided in exchange for the options are unidentifiable at the date of the grant and therefore the Group has measured the fair value of the services with reference to the fair value of the options granted. The fair value is measured using a Black Scholes model. Measurement inputs and assumptions as follows:

		2019
Fair value at grant date		0.09
Share price at valuation date		0.09
Exercise price		Nominal
Expected volatility (weighted average)		N/A
Option life (weighted average life in years)		2.4
Expected dividends		Nil
Risk-free interest rate (based on national government bonds)		N/A

 

As the options are effectively nil-cost options the expected volatility and risk free rate does not impact the fair value under the Black Scholes model and therefor been excluded from the model inputs. The share options are granted with a number of non-market performance conditions relating to achievement of specific performance milestones for the Group as set out above. In addition, the option holders must continue to provide consulting services to the Group as at the vesting date. Such conditions are not taken into account in the grant date value measurements of services received. The achievement of the non-market performance conditions are estimated by management to determine expected vesting period over which to spread the equity-settled share-based payment charge. As at year end the expected vesting date of each tranche of options is between 30 June 2020 and 31 December 2022 resulting in a weighted average option life of 2.4 years.

The total expenses recognised for the year relating to equity-settled share-based payments is £172,479.

In addition, there are 1,600,000 options outstanding which were issued to a consultant in 2014 at 18.5p that have vested but have not yet been exercised.

12 Loss per share

	2019		2018
Profit (Loss) (Basic and diluted) (US$,000)		(1,882)	(1,857)
Weighted average number of shares (thousands)
Basic
Issued shares at beginning of period		283,201	278,777
Effect of shares issued		2,833	4,424
Effect of share repurchase and cancellation		-	-
Effect of own shares		-	-
Effect of share split		-	-
Weighted average number of shares at 31 December - basic		286,034	283,201
Loss per share
Basic (Cents)		(0.7)	(0.6)
Diluted (Cents)	(0.7)		(0.6)

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

13 Financial instruments

Financial Risk Management

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

(a)  Credit risk

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

	2019	2018
	US$000	US$000
Cash and cash equivalents	755	1,955
Amounts receivable from Jumelles Group	33	75

Significant concentrations of credit risk manifest with the Group's banking counterparties with which the cash and cash equivalents are held, and accounts receivable from Jumelles.

 (b) Liquidity risk

Liquidity risk is the risk that the Group is unable to meet its payment obligations when due, or that it is unable, on an ongoing basis, to borrow funds in the market on an unsecured or secured basis at an acceptable price to fund actual or proposed commitments. Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents and availability of adequate committed funding facilities.

The Group evaluates and follows continuously the amount of liquid funds needed for business operations, in order to secure the funding needed for business activities and loan repayments. The availability and flexibility of the financing is needed to ensure the Group's financial position, as detailed in Note 1.

The maturity profile of the Group's financial liabilities based on the contractual terms is as follows:

$'000	Less than 1 months	1 month to 6 months	Greater than 6 months	Total
2019
Accounts payable	175	-	-	175
2018
Accounts payable	75	-	-	75

 

 

(c) Market risk

(i) Foreign currency risk

The functional currency of the Group is the US dollar. Currency risk is the risk of loss from movements in exchange rates related to transactions and balances in currencies other than the U.S. dollar. The foreign currency denominated financial assets and liabilities are not hedged, thus the changes in fair value are charged or credited to profit and loss.

As at 31 December 2019 the foreign currency denominated assets include cash balances held in Sterling of US$754,920 (2018: US$1,954,425), other receivables denominated in Sterling of US$48,340 (2018: US$89,380), and payables of US$175,820 (2018: US$74,723) denominated in Sterling.

The following significant exchange rates applied during the year:

 

		Reporting date		Reporting date
	Average rate	spot rate	Average rate	spot rate
	2019	2019	2018	2018
Against US Dollars	US$	US$	US$	US$
Pounds Sterling	1.2776	1.3260	1.3348	1.2769

(ii) Sensitivity analysis

A 10% weakening of the following currencies against the US Dollar at 31 December 2019 would have increased/(decreased) equity and profit or loss by the amounts shown below. This calculation assumes that the change occurred at the end of each reporting period and had been applied to risk exposures existing at that date. This analysis assumes that all other variables, in particular other exchange rates and interest rates, remain constant.

 

	Equity	Profit or loss	Equity	Profit or loss
	2019	2019	2018	2018
	US$000	US$000	US$000	US$000
Pounds Sterling	(75)	(75)	(195)	(195)

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

(iii) Capital management

The Board's policy is to maintain a stable capital base so as to maintain investor and market confidence. Capital consists of share capital and retained earnings. The Directors do not intend to declare or pay a dividend in the foreseeable future but, subject to the availability of sufficient distributable profits, intend to commence the payment of dividends when it becomes commercially prudent to do so.

The Company has a share incentive programme which is now administered by the Board. The share incentive programme is discretionary and the Board will decide whether to make share awards under the share incentive programme at any time. In Q4 2017 all then outstanding share options over already issued shares in the LTIP split interest scheme were exercised, a small number of surplus shares were distributed to beneficiaries of the Employee Benefit Trust involved in the scheme and the LTIP split interest scheme was then discontinued.

 

14 Commitments for expenditure

The Group had no capital commitments or off-balance sheet arrangements at 31 December 2019 (31 December 2018: nil). Subsequently, Glencore and ZIOC have agreed a 2020 Project Work Programme and Budget for the Project of up to US$1.2m plus US$0.1m of discretionary spend. ZIOC has agreed to contribute towards Q1 - Q3 of this work programme and budget an amount comprising US$0.4m of which $0.2m has already been funded (with a further potential commitment of up to US$0.2m on finalisation of the Q4 figures) plus 49.99% of all discretionary items approved jointly with Glencore. Ignoring any entitlement to savings, ZIOC's potential contribution to the Project in 2020 under the 2020 Funding Agreement is as described above.

 

15 Related parties

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

The following transactions occurred with related parties during the period:

 

	Transactions for the period		Closing balance (payable)/receivable
	2019	2018	2019	2018
	US$000	US$000	US$000	US$000
Funding:
Due from Jumelles	689	656	33	75

16 Transactions with key management personnel

 

	2019	2018
	US$000	US$000
Directors' fees	15	234
Total	15	234

 

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

 

17 Subsequent Events

COVID-19

On January 30, 2020, the World Health Organization (WHO) declared an international health emergency due to the outbreak of coronavirus. Since March 11, 2020 the WHO has characterized the spread of the coronavirus as a pandemic. The COVID-19 outbreak lead to substantial disruptions in global supply chains and commodity demand. The impact on the Zanaga project is being continually monitored by management however to date, there have been no significant or material impacts upon the operations or financial situation of the Company.

Following the outbreak of the coronavirus, Zanaga Iron Ore has been implementing and expanding a range of measures to protect the health and safety of employees and subcontractors and contribute to efforts to prevent the spread of COVID-19 in Republic of Congo and the local communities around the Zanaga Project.

The pandemic measures of the Republic of Congo has included a full lock down, which has restricted movement of the population. This lock-down ended on May 17, 2020. A curfew has remained in place daily between 8am to 5pm. The Zanaga Project's Brazzaville office and mine site has thus remained closed with only essential services in place and the team continues to work remotely. No incidents of COVID-19 have been recorded among any of the Project's employees or subcontractors.

Iron ore price

The ability to raise finance for the project development is partly dependent on movements in the price of iron ore. Spot iron ore prices have increased from a pandemic-impacted low of US$ 81/t in April 2020 to approximately US$ 105/t in June 2020.

Subscription Agreement concluded with Shard Merchant Capital Ltd

On 26 June 2020 ZIOC announced that the Company had entered into a Subscription Agreement with SMC, an institutional investor, on 25 June 2020.

Under the Subscription Agreement the Company will issue and SMC will subscribe for up to 21 million ordinary shares of no par value in the Company in up to three tranches of up to 7 million shares each.

In the event the maximum number of Subscription Shares are issued by ZIOC and subscribed for by SMC, the share capital of ZIOC will be increased by c.6.8% on a fully diluted basis, based on the 286,034,367 ordinary shares in the Company in issue as at today's date.

Pursuant to the Subscription Agreement, SMC has undertaken to use its reasonable endeavours to place the relevant Subscription Shares that it has subscribed for and to pay to ZIOC 95% of the gross proceeds of any such sales.

 

 

*** End of Financial Statements ***

 

Glossary

 

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
Beneficiation	The process of improving (benefiting) the economic value of the ore by removing the waste minerals, which results in a higher grade product (concentrate)
Pelletisation	The process of compressing or moulding a material into the shape of a pellet
Mtpa	Million Tonnes Per Annum

 

 

Advisors
Nominated Advisor and Corporate Broker Liberum Capital Limited Ropemaker Place, Level 12 25 Ropemaker Street London, EC2Y 9LY United Kingdom
Company Secretary Elysium Fund Management Limited PO Box 650,  1st Floor, Royal Chambers St Julian's Avenue Guernsey, GY1 3JX Channel Islands	Legal Bryan Cave Leighton Paisner LLP Governors House  5 Laurence Pountney Hill London, EC4R 0BR United Kingdom
Auditors Deloitte LLP 1 New Street Square London, EC4A 3HQ United Kingdom
Registrars Computershare Investor Services (BVI) Ltd Woodbourne Hall PO Box 3162 Road Town Tortola British Virgin Islands