20 September 2011

 

 

 

ZANAGA IRON ORE COMPANY LIMITED

("ZIOC" or the "Company")

INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2011

 

 

Zanaga Iron Ore Company Limited (AIM:ZIOC) is pleased to announce its unaudited interim results for the six months ended 30 June 2011.

 

Highlights

·      Xstrata exercised its first call option moving to a 50% plus one share interest in the Zanaga Project

o  Xstrata is obliged to fund completion of a feasibility study in accordance with international best practice standards and Xstrata internal guidelines

o  Zanaga Project now managed by Xstrata

·      The Pre-Feasibility Study ("PFS") work streams completed in Q1 2011, and the Value Engineering Exercise ("VEE") is completing on schedule. ZIOC expects to announce the outcomes of the VEE in October 2011

·      JORC Mineral Resource expansion to 4 Bt at 33.9% Fe (1.7 Bt Indicated - 2.3 Bt Inferred)

·      Drilling update - Total of 98,663m / 803 holes drilled to 8 May 2011

·      Over US$140m spent on the Zanaga Project to 30 June 2011

·      Appointment of Citigroup as Joint Corporate Broker with Liberum Capital with immediate effect

·      ZIOC cash balance of US$48.5m as at 30 June 2011

 

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

"A significant amount of work has been completed on the Zanaga Project in the first half of 2011. ZIOC is pleased with the transition to operating a Joint Venture Partnership with Xstrata on the Zanaga project. Since Xstrata's exercise in February 2011 of its first option to acquire a majority interest in the Zanaga Project, the project work streams continue to progress at a rapid rate. ZIOC's strategy of partnering with a major diversified mining company on the project has thus far proved to be significantly beneficial to our operations and ultimately is expected to add substantial value to the project. The project now progresses further along the path to completion of a Feasibility Study and the Board looks forward to announcing the outcomes of the Value Engineering Exercise in October"

 

 

Copies of the unaudited interim results for the six months ended 30 June 2011 will be available on the Company's website at www.zanagairon.comtoday.

 

 

 

For further information please contact:

 

Zanaga UK Services Limited                                                                              

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

 

 

Liberum Capital Limited

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

                                                                                                                                                       +44 20 3100 2000

 

Citigroup Global Markets Limited

Joint Corporate Broker                                                                                                                           Alex Carter

                                                                                                                                                       +44 20 7986 4000

 

Pelham Bell Pottinger

Financial PR                                                                                                                               James MacFarlane
                                                                                                                                                  and Philippe Polman

                                                                                                                                                       +44 20 7861 3232

 

 

 

Chairman's Statement

In the first half of 2011 ZIOC has achieved a number of significant milestones and the Company continues to focus on the Zanaga Project as it takes the first steps toward the development and construction of a world-class iron ore project capable of mining, processing, transporting and exporting iron ore concentrate from the Republic of Congo. The key developments in H1 2011 are set out below:

Xstrata's exercise of its First Call Option

We are very pleased to have Xstrata, a global diversified mining group with a stated strategy to enter the iron ore market, as ZIOC's joint venture partner on the Zanaga Project. Xstrata has been closely aligned to the Zanaga Project since October 2009 when it entered into a call option agreement for the acquisition of a 50% plus one share majority stake in the Zanaga Project ("First Call Option"). In February 2011 Xstrata exercised its First Call Option and now retains a 50% plus one share majority controlling shareholder interest in the Zanaga Project as well as taking management control of the Zanaga Project. In consideration for the majority stake Xstrata is obliged to fund the costs of the Feasibility Study ("FS") in respect of the Zanaga Project in accordance with international best practice and Xstrata's internal guidelines. Xstrata must use reasonable efforts to deliver the FS no later than three months prior to the expiration of the licences in May 2014, assuming a second extension of the Zanaga Project exploration licences in May 2012 and no material adverse change.

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

It is important to note that when the FS is complete, if Xstrata does not exercise the Second Call Option, ZIOC will have a number of future funding options including (i) dilution at NPV (as defined in the JVA) during construction; or (ii) a right to fund ZIOC's pro rata equity share of construction capital expenditure. Furthermore, should ZIOC fund its share of construction capital expenditure ZIOC would retain marketing nomination rights over its pro rata share of production.

Value Engineering Exercise

Significant progress has also been made on the Zanaga Project in H1 2011. After the exercise of Xstrata's First Call Option in February 2011 a Value Engineering Exercise ("VEE") was commissioned as an initial phase to the FS. The VEE's aim is to review and refine options and opportunities that could positively impact on the net present value ("NPV") of the Zanaga Project, either through added value or the reduction of risk. The VEE work streams are completing on schedule. ZIOC expects to announce the outcomes of the VEE in October 2011.

Increased JORC Resource

In addition, an updated mineral resource estimate was announced and reported by ZIOC in accordance with the JORC code on 5 April 2011. The Zanaga mineral resource estimate has now grown to 4 billion tonnes at 33.9% Fe further supporting the long life potential of the Project. To date only 25km of the known 47km strike length of mineralisationhas been drilled to define the current mineral resource, leaving potential upside to expand the resource size and annual production.

Jointly, ZIOC and Xstrata have expended over US$140m on the Zanaga Project to 30 June 2011. Further details of the forward work programme will be outlined shortly.

ZIOC's objective remains to maximise the value of ZIOC's 50% less one share minority stake in the Zanaga Project pending the possible exercise by Xstrata of its Second Call Option. ZIOC's strategy of partnering with a major diversified mining company on the project has thus far proved to be significantly beneficial to our operations and ultimately is expected to add substantial value to the project. The project now progresses further along the path to completion of a Feasibility Study and the Board looks forward to announcing the outcomes of the VEE in October.

Clifford Elphick

Non-Executive Chairman

 

Business Review - Operations

Due to the fact that the VEE results are in the process of being verified and collated, the Company will not be providing a detailed operational update at this stage. ZIOC expects to announce the outcomes of the VEE in October 2011.

Pre-Feasibility Study ("PFS")

The PFS commenced in September 2009 and was conducted in line with what the directors believe are internationally accepted best practice standards. The PFS work streams for Phase I were completed in June 2010 and Phase II in the course of Q1 2011, save for the processing of its results into a finalised PFS report. Total PFS related expenditure to 31 March 2011 totaled US$105.45m. During this period the PFS project work programs covered a number of work streams. These work streams included mineral resource definition which resulted in the announcement of an increase in the JORC Mineral Resources of 4 Bt at 33.9% Fe on 5 April 2011. In addition, the PFS work programs included an assessment of the economic and technical viability of the various options for the development of the iron ore body including mining methods, processing, product range, waste disposal and management, tailings storage and containment, mine site infrastructure location and design, rail or pipeline options, port sites, product marketing, environmental and social aspects, commercial aspects, legal framework and government relations.

Value Engineering Exercise

Following the exercise of Xstrata's First Call Option in February 2011 and its assumption of majority control of the Zanaga Project, Xstrata and ZIOC jointly announced the commencement of a Value Engineering Exercise ("VEE") including a scope and options review to take place during Q2 and Q3 2011 as an initial phase to the Feasibility Study work program.

The VEE further builds and expands on the opportunities to re-assess capex and opex options recognised as part of the PFS work undertaken by the JVCo. A team of internal and external experts was assembled by the JVCo to conduct the VEE and investigate a broader range of long-term development opportunities for the Zanaga Project before the final options and scope for the full FS are finalised.

The VEE commenced on 16 March 2011 with initial workshops generating and prioritising specific ideas and opportunities for the Zanaga Project that have the potential to impact positively on NPV, either through added value or reduced risk. A selection of specific opportunities were outlined, forming the basis of the VEE. The VEE work streams are completing on schedule and the outcomes of the VEE will be announced in October 2011.

Drilling Update

Significant further drilling continues on the Zanaga Project. To date only 25km of the known 47km strike length of magnetic mineralisationhas been drilled to define the current mineral resource, leaving potential upside to expand the resource size and annual production.

Project Team

Since exercising its option to acquire a majority interest in the Zanaga Project Xstrata has recruited a number of employees and consultants for the Zanaga Project team with specific expertise in working on exploration stage development projects and evaluation of iron ore projects. The Zanaga Project is already a significant employer in the Republic of Congo with 850 people employed by the Zanaga Project, of which 88% are Congolese nationals.

ZIOC Consultants

Following exercise of the Xstrata's First Call Option in February 2011, the Company has continued to require significant technical, managerial and legal services to maintain and regulate its relationship with Xstrata and oversee the development of the Zanaga Project.  Consequently the Company has agreed to enter into consultancy contracts with:

1.        Harris GeoConsult Limited for technical services to be provided by Colin Harris, a director of the Company and Harris GeoConsult Limited, at an annual budgeted cost of c. UK£155,000 (provided on a day rate basis);

2.        Wardrop Engineering Inc and Carl Wilson of Wilson Campbell & Associates. This dedicated technical team monitors the technical aspects of the Zanaga Project and provides independent expertise to ZIOC in the key areas of rail, port and mine site development appropriate for a large scale mining and infrastructure project such as the Zanaga Project; and

3.        Strata Capital UK LLP, an FSA regulated partnership in the UK, for (a) management and consultancy services to be provided by Mike Haworth, a director of the Company and of Strata Limited (General Partner of Strata Capital UK LLP), at an annual budgeted cost of c. UK£155,000; and (b) for company legal and administrative services to be provided by Francois du Plessis at an annual budgeted cost of c. UK£135,000 (provided on a day rate basis).

Both contracts (1) and (3) constitute related party transactions under Rule 13 of the AIM Rules and, as such, for the purposes of the AIM Rules, the Directors (excluding Colin Harris in relation to (1) and excluding Mike Haworth in relation to (3)), not being related parties in relation to the relevant contracts, having consulted Liberum Capital Limited, the Company's nominated adviser, consider that the terms of both contracts (1) and (3) are fair and reasonable insofar as Shareholders are concerned.