TIDMZIOC
RNS Number : 6150R
Zanaga Iron Ore Company Ltd
01 July 2020
1 July 2020
Zanaga Iron Ore Company Audited Results for the Year to 31
December 2019
2019 Highlights and post reporting period end events to June 2020
-- Zanaga Iron Ore Project (the "Project" or the "Zanaga
Project") 30Mtpa staged development project (12Mtpa Stage One
("Stage One"), plus 18Mtpa Stage Two expansion ("Stage Two"))
o Floating Offshore Port Study completed in May 2020
-- Concept Study completed on the viability of a Floating
Dewatering, Storage, and Offloading port facility ("FDSO" or
"Floating Port")
-- Potential indicated for $184m reduction to capital costs of
the 12Mtpa Stage One development phase of the 30Mtpa Project
-- No change expected to operating cost, significant NPV and IRR
improvement
-- Early Production Project ("EPP Project" or "EPP")
o 1-5 Mtpa production scenarios under investigation focusing on
processing facilities and suitable logistics solutions through the
Republic of Congo ("RoC") and/or Republic of Gabon ("Gabon")
-- Infrastructure solutions under investigation
o Framework Agreement ("FA") entered into between China Overseas
Infrastructure Development And Investment Corporation Limited
("COIDIC")
-- Investigating potential for development of mining related
infrastructure for the Zanaga Project
-- Opportunity being explored for potential development of a
steel production facility within COIDIC's Special Economic Zone
("SEZ")
-- Yantai Port introduced by COIDIC to consider logistics
synergies
o Opportunities identified for value engineering improvements on
the 30Mtpa staged development project through re-costing of the
planned process plant and pipeline
-- Work programme and budget for 2020 and 2020 Funding Agreement
agreed with Glencore Projects Pty Ltd ("Glencore"), a subsidiary of
Glencore plc
Corporate
-- Equity subscription agreement concluded with Shard Merchant Capital Ltd ("SMC")
o Subscription agreement ("Subscription Agreement") with SMC
dated 25 June 2020
o SMC to subscribe for up to 21 million ordinary shares of no
par value in ZIOC, equivalent to an increase of up to 6.8% of
ZIOC's ordinary shares on a fully diluted basis, based on the
286,034,367 ordinary shares in the Company in issue prior to
entering into the Subscription Agreement
o SMC 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.
o Proceeds to be applied by ZIOC to general working capital,
including the provision of further contributions to the Zanaga Iron
Ore Project's operations
-- Cash balance of US$0.8m as at 31 December 2019 and a cash balance of US$0.4m as at 31 May 2020
-- Outbreak of COVID-19 has not had a material impact upon the
Group. Further detail regarding the Group's response to the
outbreak can be found within the Strategic Report.
Clifford Elphick, Non-Executive Chairman of ZIOC, commented:
"The Zanaga Project has entered an exciting phase with clear
opportunities available to unlock value. The Zanaga Project's
infrastructure solutions for its flagship 30Mtpa Project have been
identified as having clear potential for value engineering
improvements.
The conclusion of a Concept Study into a Floating Port facility
for the Zanaga Project presents a solution to a logistics challenge
which now provides significant flexibility on coastal route
selection. In addition, the Concept Study indicates that there is
potential to achieve significantly improved economics through the
reduction of upfront capital costs relating to the transportation
of Zanaga iron ore product at the coast, leading to enhanced
Internal Rate of Return.
It is pleasing to see a rise in global investment into large
scale iron ore projects. The resilience of iron ore prices as well
as maintained premiums for high quality iron ore products, provides
a strong investment case for the Zanaga Project. It is encouraging
to see Chinese institutions and infrastructure providers actively
engaging with African countries, including the Republic of
Congo.
Early Production Project investigations have been adjusted to
evaluate slightly larger production options with the continued
objective to determine the viability of a front end iron ore
project with a faster construction time, lower capital cost,
utilising existing brownfield logistics solutions. Such a project
could pave the way for the development of the first stage of the
30mtpa Staged Development Project.
We look forward to providing further updates to shareholders as
results are received from additional activities underway during the
second half of 2020."
The Company's Annual Report and Accounts for the year ended 31
December 2019 ("2019 Annual Report and Accounts") have been posted
to shareholders and will be available on the Company's website.
The 2019 Annual Report and Accounts will be available on the
Company's website www.zanagairon.com today .
For further information, please contact:
Zanaga Iron Ore
Corporate Development and Andrew Trahar
Investor Relations Manager +44 20 7399 1105
Liberum Capital Limited
Nominated Adviser, Financial Scott Mathieson, Edward Thomas
Adviser and Corporate Broker +44 20 3100 2000
About us:
Zanaga Iron Ore Company Limited ("ZIOC" or the "Company") (AIM
ticker: ZIOC) is the owner of 50% less one share in the Zanaga Iron
Ore Project based in the Republic of Congo (Congo Brazzaville)
through its investment in its associate Jumelles Limited. The
Zanaga Iron Ore Project is one of the largest iron ore deposits in
Africa and has the potential to become a world-class iron ore
producer.
Chairman's Statement
Dear Shareholder,
In these exciting times for iron ore it is pleasing to see
substantial progress being made by the Zanaga Project Team
("Project Team"). The efforts of Jumelles, the joint venture
between the Company and Glencore, have provided new and exciting
opportunities for the Project which is particularly relevant at
such an interesting time for iron ore.
Iron Ore Market
The iron ore market supply deficit has become increasingly
problematic, driven by strong continued demand from China and the
removal of significant iron ore supply in Brazil following a
combination of mine closures due to tailings dam infrastructure
concerns, and the impact of the coronavirus pandemic at mining
operations which has led to the closure of one of Brazil's largest
iron ore production systems. Iron ore prices have risen
significantly over the last two years and are now trading at
sustained high levels.
Floating Port and other infrastructure solutions
Significant opportunities have been identified for potential
cooperation between infrastructure companies and EPC contractors to
enhance the economics and technical solutions available to the
Zanaga Project - particularly the 30Mtpa Staged Development
Project.
In this regard, in May 2020 a Concept Study was completed to
evaluate a Floating Port facility for the Zanaga Project. This
concept study demonstrated the clear potential of a Floating Port
facility to significantly enhance the economics of the Zanaga
Project through the reduction of upfront capital costs and increase
the Internal Rate of Return. In addition, there is potential to
achieve significant ancillary technical benefits such as reduced
environmental impact, elimination of dredging, and significant
flexibility on coastal route selection. The Project's port solution
has been a challenge for the Project since the FS was completed in
2014 and we are pleased with the results of this evaluation
exercise.
In addition, in December 2019, a Framework Agreement ("FA") was
entered into between China Overseas Infrastructure Development And
Investment Corporation Limited ("COIDIC") and Jumelles Limited
("Jumelles"), the joint venture company between ZIOC and Glencore,
for potential cooperation between them in respect of mining related
infrastructure for the Zanaga Iron Ore Project.
The FA reflects the parties' intention to explore co-operation
opportunities for progressing the infrastructure and financing
requirements for the Zanaga Project, both in the near term and the
longer term, and its potential for synergy with objectives of the
Pointe-Noire Special Economic Zone ("SEZ").
COIDIC is a company specialized in the early stage development
of energy and infrastructure projects in Africa, including
Congo-Brazzaville, and in regions of China's Belt and Road
Initiative. COIDIC's Founding shareholders include some of China's
leading institutions such as China-Africa Development Fund
(CADFund), a subsidiary of China Development Bank, as well as China
Gezhouba Group International Engineering Co. Ltd., China Civil
Engineering Construction Corporation (CCECC), China ENFI
Engineering Corporation (China ENFI) specialized in mineral and
mining, China Telecom International, Hebei Construction &
Investment Group Co Ltd. (HCIG), and Changjiang Institute of
Survey, Planning, Design and Research.
COIDIC has entered into arrangements with the RoC Government
regarding the development of the Pointe-Noire SEZ and its related
infrastructures facilities, including plans for the development of
a Multi-Purpose Terminal ("MPT") within the existing port of Pointe
Noire and a connecting highway between the SEZ and MPT.
COIDIC and Jumelles intend to explore solutions regarding the
Zanaga Project and its related infrastructure projects, including
logistic solutions (such as the use of the MPT being developed by
COIDIC in Pointe-Noire for the export of Zanaga's iron ore
product), as well as the potential introduction of a steel
manufacturing plant into the SEZ and/or export of direct reduced
iron.
The FA reflects the parties' intention to explore co-operation
opportunities for progressing the infrastructure and financing
requirements for the Zanaga Project and synergy potential with the
Pointe-Noire Special Economic Zone ("SEZ").
The Project Team have also identified the potential for
significant value engineering improvements on the 30Mtpa staged
development project through re-costing of the planned process plant
and pipeline.
EPP Project
The Project Team continue to undertake a process to evaluate the
potential development of an EPP Project that would be quicker to
construct than the larger 30Mtpa staged development project and
would utilise existing road, rail and port infrastructure. The
Project Team continue to advance study work in an effort to improve
their understanding of the viability of the EPP Project with an aim
to determining capital and operating cost estimates in H2 2020 in
order to allow a view to be taken on the economic viability of this
EPP Project. 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
flagship 30Mtpa Staged Development Project.
Cash Reserves and Project Funding
ZIOC is pleased with the current operating budget expectations
for the Project for 2020 and expects the Project Team to continue
to deliver on work programmes as planned.
Glencore and ZIOC have agreed a 2020 Project Work Programme and
Budget for the Project of up to US$1.3m 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.
The Company had cash reserves of US$0.4m as at 31 May 2020 and
continues to take a prudent approach to managing these funds. 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 on page 53 of the 2019 Annual
Report), 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 (see below), 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.
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 ("Subscription Shares") 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 prior to ZIOC
entering into the Subscription Agreement.
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.
The Subscription Agreement provides a number of attractive
advantages to ZIOC, which are highlighted below:
-- Relatively low level of dilution to ZIOC shareholders
-- ZIOC has the ability to repurchase any unsold Subscription
Shares from SMC, subject to legal requirements - an important
element of flexibility for ZIOC. Any Subscription Shares
re-purchased will be cancelled, limiting dilution further
-- Low cost of capital - SMC will retain only 5% of the gross
proceeds of any sale of Subscription Shares
The proceeds received by the Company from SMC pursuant to the
Subscription Agreement will be applied to general working capital,
including the provision of further contributions to the Zanaga Iron
Ore Project's operations.
Following entry into of the Subscription Agreement, ZIOC is
pleased that a financing structure has been put in place which will
give the Company access to funding through a relatively low cost
structure which minimises dilution to shareholders.
This transaction enables ZIOC to secure capital in the future as
the project progresses and further milestones are achieved.
Outlook
Significant progress has been made in taking steps to unlock
logistical challenges associated with both the 30Mtpa project and
the EPP Project. The efforts of the Project Team are now bearing
fruit and we are enthusiastic about the prospects for further value
enhancements to be concluded during H2 2020.
Due to the resilience of iron ore prices and supply issues in
Brazil the need for investment into tier one iron ore assets is
compelling and the Zanaga Project provides such an opportunity. We
look forward to providing an update to shareholders in H2 2020.
Clifford Elphick
Non-Executive Chairman
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:
Deep Water
Option Transhipping Port Floating Port
Date of Assessment (Costing
Base Date) 2014 2012 2020
----------------- ----------------- ------------------
Financial Capital cost
Impact (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 Fixed Fixed Flexible
port location
----------------------------------- ----------------- ----------------- ------------------
Requires suitable Requires suitable Mobile FDSO
land access land access with more options
and proximity and proximity for location
to 25 m deep to 25 m deep of shore crossing
water water vs port
----------------------------------- ----------------- ----------------- ------------------
Environmental Land impact Med/high High Low/med
Impact
-------------------- ----------------- ----------------- ------------------
Significant Significant Terminal station,
infrastructure infrastructure pump station
required to required to and buried
be built on be built on shore crossing
land land only
----------------------------------- ----------------- ----------------- ------------------
Ocean floor impact Medium Medium/high Low
----------------------------------- ----------------- ----------------- ------------------
Breakwater Large trestle Pipeline located
construction structure on or below
seabed
----------------------------------- ----------------- ----------------- ------------------
Dredging required Minor Significant None
----------------------------------- ----------------- ----------------- ------------------
Some dredging Dredging required
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 2018
US$000 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$0.9m).
Fundraising activities
There were no fundraising activities during 2019 (2018: nil).
Fundraising activities have been undertaken in June 2020, as
described in the subsequent events note 17 within the financial
statements.
Reserves & Resource Statement
The Zanaga Project has defined a 6.9bn tonne Mineral Resource
and a 2.1bn tonne Ore Reserve, reported in accordance with the JORC
Code (2012), and defined from only 25km of the 47km orebody
identified.
Ore Reserve Statement
The Ore Reserve estimate (announced by the Company on 30
September 2014) was prepared by independent consultants, SRK
Consulting (UK) Ltd ("SRK") and is based on the 30Mtpa Feasibility
Study and the 6,900Mt Mineral Resource (announced by the Company on
8 May 2014).
As stipulated by the JORC Code, Proven and Probable Ore Reserves
are of sufficient quality to serve as the basis for a decision on
the development of the deposit. Based on the studies performed, a
mine plan was determined in 2014 to be technically achievable and
economically viable.
Ore Reserve Category Tonnes (Mt(Dry) Fe (%) SiO(2) (%) Al(2) O(3) P (%)
) (%)
---------------------- --------------- ------ ---------- ---------- -----
Proved 770 37.3 35.1 4.7 0.04
---------------------- --------------- ------ ---------- ---------- -----
Probable 1,300 31.8 44.7 2.3 0.05
---------------------- --------------- ------ ---------- ---------- -----
Total 2,070 33.9 41.1 3.2 0.05
---------------------- --------------- ------ ---------- ---------- -----
Notes:
Long term price assumptions are based on a CFR IODEX 62% Fe
forecast of 60 US$/dmt (97 USc/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 Fe (%) SiO(2) Al(2) O(3) P (%) Mn (%) LOI
(Mt) (%) (%) (%)
---------------- ------- ------- ------- ----------- ------ ------- -----
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 201 9
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 GBP0.9m, or
approximately GBP1.3m 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
Ordinary Ordinary
In thousands of shares Shares 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 Exercise Exercise Exercise Exercise Exercise
Price Price Price Price Price Price
(GBP) Number (GBP) Number (GBP) Number (GBP) Number (GBP) Number (GBP) Number
At 1 January
2018 * GBP0.02 2,727,345 GBP0.02 995,382 0.01 1,204,619 0.01 1,013,418 0.01 4,000,000 GBP0.01 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 GBP0.01 3,002,771
At 1 January
2019 * GBP0.02 Nil GBP0.02 Nil 0.01 1,002,771 0.01 Nil 0.01 2,000,000 GBP0.01 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 GBP0.01 3,002,771
Award 1 Award 8 (2014) Award 9 (2014)
(2010) Award 2 (2010) Award 6 (2014) Total
------------ --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
GBP0.00-GBP0.02 GBP0.02 GBP0.00-GBP0.01 GBP0.01 GBP0.01 GBP0.00 -
GBP0.02
Range (US$0.00-US$0.04) (US$0.04) (US$0.00-US$0.02) (US$0.02) (US$0.02) (US$0.00-US$0.04)
of exercise
prices
*
Weighted N/A N/A N/A) N/A) N/A N/A
average
fair
value
of share
awards
granted
in the
period
*
Weighted N/A N/A N/A N/A N/A N/A
average
share
price
at date
of exercise
(GBP)
Total
share
awards
vested 2,727,345 995,382 1,137,338 1,013,418 4,000,000 8,337,685
Weighted Nil Nil 39 Nil Nil
average
remaining
contractual N/A
life
(Days)
Expiry 18 May 2021 18 May 2021 29 July 2024** 29 July 2024 29 July 2024 N/A
date
------------ --------------------- ------------------ --------------------- ------------------- ------------------- ---------------------
* Sterling amounts have been converted into US Dollars at the
grant dates exchange rates of: Awards 1,2, US$1.547:GBP1.00,
Subsequent awards US$ 1.6944:GBP1.00.
** 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 9
Award 1 (2010) Award 2 (2010) Award 6 (2014) Award 8 (2014) (2014)
------------- ----------------- ----------------- ----------------- ----------------- -------------
Option
pricing
model used Black-Scholes Black-Scholes Black-Scholes Black-Scholes Black-Scholes
GBP1.56 GBP1.56 GBP0.19 GBP0.19 GBP0.19
Weighted
average
share price
at date
of grant (US$2.41) (US$2.41) (US$$0.31) (US$$0.31) (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% for less
(%) 50% 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
12 month
6 month expected 12 month expected 12 month expected 12 month expected expected
life life life life life
2.25% in
0.69% for 1.12% for 2.25% in excess 2.25% in excess excess
24 month
12 month expected 24 month expected 24 month expected 24 month expected expected
life life life life life
------------- ----------------- ----------------- ----------------- ----------------- -------------
* Sterling amounts have been converted into US Dollars at the
grant dates exchange rates of: Awards 1,2, US$1.547:GBP1.00,
Subsequent awards US$ 1.6944:GBP1.00.
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:
Number of Number
options of options
In thousands of shares 2019 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 N/A
bonds)
------------------------------------------------------- ----------------
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 GBP172,479.
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 month to Greater than Total
1 months 6 months 6 months
---------- ---------- ----------- ------------- ------
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:
Closing balance
Transactions for the period (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
AL(2) O(3) 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 Legal
Elysium Fund Management Limited Bryan Cave Leighton Paisner LLP
PO Box 650, Governors House
1st Floor, Royal Chambers 5 Laurence Pountney Hill
St Julian's Avenue London, EC4R 0BR
Guernsey, GY1 3JX United Kingdom
Channel Islands
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
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END
FR WPUWAQUPUGMU
(END) Dow Jones Newswires
July 01, 2020 02:00 ET (06:00 GMT)
Grafico Azioni Zanaga Iron Ore (AQSE:ZIOC.GB)
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Da Gen 2025 a Feb 2025
Grafico Azioni Zanaga Iron Ore (AQSE:ZIOC.GB)
Storico
Da Feb 2024 a Feb 2025
