TIDMZIOC
RNS Number : 5417X
Zanaga Iron Ore Company Ltd
05 May 2021
5 May 2021
ZANAGA PROJECT DEVELOPMENT COST UPDATE AND ORE RESERVE
RE-STATEMENT
Zanaga Iron Ore Company Limited ("ZIOC" or the "Company") (AIM:
ZIOC) is pleased to provide an update to shareholders following
completion of the Zanaga Iron Ore Project ("Zanaga" or the
"Project") re-costing exercise and Ore Reserve update.
Highlights
-- 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 Initiative to update the cost estimates associated with the
12Mtpa Stage One Project, as outlined in the 2014 Feasibility
Study, has been completed (the "FS Review")
o External independent technical expert engineering firms
engaged by Jumelles Limited ("Jumelles"), the joint venture company
between ZIOC and Glencore to oversee and provide input into the FS
Review
o Objective is to ascertain the potential capital and operating
costs associated with the construction of the Zanaga Project's
12Mtpa Stage One Project in the current market environment
o FS review indicates capital and operating cost estimates for
the 12Mtpa Stage One development project remain approximately
within the guidance levels outlined in the 2014 Feasibility Study
("FS"), specifically:
-- Capital expenditure expected to range between -2.9% and +2.5%
of the 2014 Feasibility Study estimate, or to range between
US$2,154m and US$2,275m. The lower range being dependent on the
implementation of a number of potential savings opportunities
identified by the independent technical experts. (It needs to be
noted that the potential savings opportunities so identified
exclude and do not take account of any potential savings identified
by the Zanaga Project Team from the implementation of a floating
port solution, as announced in [XX June 2020])
-- 12Mtpa Stage One operating cost estimate estimated to be
approximately in line with the estimates provided in the 2014
FS
-- Ore Reserve estimate re-statement
o The Zanaga Project's 2.1 billion tonne Ore Reserve estimate
has been re-stated by SRK and updated based on market pricing as of
31 December 2020
Clifford Elphick, Non-Executive Chairman of ZIOC, commented:
" The Zanaga Project Team have worked with third party technical
experts to re-assess the potential capital and operating costs that
could be achieved in the current market for the 12Mpta Stage One
project, as outlined in the 2014 Feasibility Study. The review of
these figures indicates that the capital and operating costs
estimated in 2014 remain valid in today's market environment,
encouraging us to continue to pursue pathways available for
development of the 30Mtpa staged development project, especially
during the current high iron ore price environment. "
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.
12Mtpa Stage One project cost review
The Zanaga Project Team has continually taken steps to monitor
evolving improvements into its strategy for assessing the options
available for the development of the Zanaga Project. The Project
Team has maintained its view that high quality products will
continue to achieve significant price premiums in the future and
has sought to lock in this additional revenue benefit into the
Project's development plan.
In light of the current positive market environment for high
grade iron ore products, the Jumelles shareholders considered it
sensible to obtain a "high level" indicative review of certain
costs of the Project (including costs generated by exchange rate
movements) by leading external technical consultancy firms without
any re-engineering of the Project. Jumelles commissioned a report,
led by Coffey Geotechnics Ltd (a Tetra Tech Company ("Tetra Tech"))
, to assess the potential capital and operating costs associated
with Stage One of the 30mtpa staged development project outlined in
the 2014 Feasibility Study ("FS") . Since the 2014 FS was produced,
industry input costs dropped initially and have now returned to
approximately the same levels seen in 2014. The initial review of
the 2014 FS cost estimates indicates that capital and operating
costs associated with the Stage One 12Mtpa project are broadly in
line with the estimates provided in 2014.
The review indicates that as regards the costs of the 12 Mtpa
Stage One Project, the capital cost is estimated to be between 2.5%
above and 2.9% below the estimate provided in 2014. Operating costs
are expected to be approximately in line with the estimate provided
in 2014, with an estimated variance of + or - 2%.
It is encouraging to see that the costs estimated for the
construction of the Zanaga Project remain in broad alignment with
the costs outlined in the 2014 FS, especially as iron ore prices
have risen substantially beyond the levels seen in 2014, ultimately
providing the potential for significant improvement in the economic
returns of the Project. It is important to recognise that these
numbers have not yet been re-estimated to a high level of
definition and are only estimates as to the potential costs of
brining the project into production in the current market. In order
to better define these estimates the Project Team would require
further work to be conducted ahead of considering a full
re-estimate of the 2014 Feasibility Study.
The Project Team will continue to engage in activity to
ascertain opportunities for optimisation and improvement of the
30Mtpa staged development project and will update the market as
these improvements develop.
Overview of the process
Tetra Tech completed the high level, top-down review and update
of the Zanaga Iron Ore Stage One Feasibility Study capital and
operating cost estimates, dated March 2014.
The scope of the Feasibility Study and the associated estimates
is the development of the Zanaga iron ore deposit, complete with
infrastructure for transport to and seaborne loading. This update
review looked at the capital and operating costs of the front-end
engineering design (FEED) and Stage One 12Mtpa portions of the
total project.
Since the March 2014 study, an increase in global and regional
economic volatility, structural changes to the mining equipment
supply chain, changes in the contracting market and changes in
commodity consumption patterns has impacted the basis of the
capital and operating cost estimates with varying effects.
The update relied on wide reading and a variety of information
sources to define trends expressed as factored cost drivers. In
some cases, direct re-pricing of major line items were indicated.
The estimate is expressed in US dollars (USD), but was
significantly influenced by the exchange rate movements of the past
decade, including impacts of the Central African franc (XAF), euro
(EUR) and South African Rand (ZAR) rates of exchange to the
USD.
The updated estimate is thus qualified and strongly impacted by
global economic insights and relative cost movements rather than
being a re-priced estimate. In 2017 Tetra Tech completed a similar
cost estimate update. Instead of extrapolating that exercise to the
current date, it was considered more prudent to return to the base
estimate of 2014 as datum and avoid ambiguous composite
updates.
Capital Cost
Capital expenditure is expected to range between -2.9% and +2.5%
of the 2014 Feasibility Study estimate, or to range between
US$2,154m and US$2,275m.
The lower estimate includes adjustments to the cost estimates
for particular items which were viewed to be overstated in the 2014
FS, or possible to reduce based on optimised procurement and
contracting to find lower costs without compromising quality.
Furthermore, the piping estimate for the process plant had been
factorised and appears significantly overstated, for which a
further adjustment of 40% reduction was made. The other adjustments
were limited to 80% of the adjustment percentage that was made in a
review conducted in 2017, since the 2020 review already includes
some consideration of the current market conditions.
Once the opportunity adjustments are applied, the estimate is
that there would be a 2.9% reduction in the capital cost estimate
provided by the 2014 FS.
It should be noted that any potential savings identified by the
Project Team through the implementation of a floating port
solution, as announced in [XX June 2020], have not been factored
into the lower estimate provided above.
Operating Cost
The outcome of Tetra Tech's analysis showed that overall
operating cost is likely to fall within the range of -2% to +2%
when compared to the March 2014 estimate. As such, Jumelles regards
the operating costs of the 12Mtpa Stage One project to be
approximately in line with the estimate provided in the 2014
FS.
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 strike length
of the orebody so far identified.
Introduction
SRK Consulting (UK) Limited ("SRK") was appointed to provide
consent to the re-statement of Ore Reserves for the Zanaga Project.
The restatement confirms that the Ore Reserves as reported herein
are reported in accordance with the terms and definitions of the
JORC Code (as defined below) and are restated to be so with an
effective date of 31 December 2020.
In rendering its opinion as expressed herein, SRK concluded:
-- That the 2014 Ore Reserves are reported in accordance with
the terms and definitions of the "The Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore
Reserves published by the Joint Ore Reserves Committee of the
Australasian Institute of Mining and Metallurgy, Australian
Institute of Geoscientists and Minerals Council of Australia, as
amended (the "JORC Code (2012)"): www.jorc.org) ";
-- That the 2014 Ore Reserves remain valid as of 31 December 2020
Ore Reserve Statement
This Ore Reserve estimate was prepared by independent
consultants, SRK Consulting (UK) Ltd ("SRK") and is based on the
30Mtpa (product) Feasibility Study (announced by the Company on 8
May 2014, hereinafter the "2014 FS".
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, the
mine plan as reported in the 2014 FS was reassessed in respect of
the updated sales revenue, operating expenditure and capital
expenditures and confirmed as at 31 December 2020 to be technically
feasible and economically viable.
2020 Ore Reserves for the Zanaga Iron Ore Project
Ore Reserve Category Tonnes (Mt(Dry) Fe (%) SiO(2) (%) Al(2) O(3) P (%)
) (%)
---------------------- --------------- ------ ---------- ---------- -----
Proved 774 37.3 35.1 4.7 0.04
---------------------- --------------- ------ ---------- ---------- -----
Probable 1,296 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 65%Fe
forecast of US$90tdry (USc138/dmtu) with adjustments for quality,
deleterious elements, moisture and freight.
Discount Rate 10% applied on an ungeared 100% equity basis
Mining dilution ranging between 5% and 6%
Mining losses ranging between 1% and 5%
Note: The full Ore Reserve Statement is available on the
Company's website (www.zanagairon.com)
Mineral Resource
Classification Tonnes (Mt) Fe (%) SiO(2) Al(2) O(3) P (%) Mn (%) LOI (%)
(%) (%)
---------------- ------------ ------- ------- ----------- ------ ------- --------
Measured 2,330 33.7 43.1 3.4 0.05 0.11 1.46
Indicated 2,460 30.4 46.8 3.2 0.05 0.11 0.75
Inferred 2,100 31 46 3 0.1 0.1 0.9
---------------- ------------ ------- ------- ----------- ------ ------- --------
Total 6,900 32 45 3 0.05 0.11 1.05
---------------- ------------ ------- ------- ----------- ------ ------- --------
Reported at a 0% Fe cut-off grade within an optimised Whittle
shell representing a metal price of 130 USc/dmtu. Mineral Resources
are inclusive of Reserves. A revised Mineral Resource, prepared in
accordance with the Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves (the JORC Code, 2012
Edition) was announced on 8 May 2014 and is available on the
Company's website (www.zanagairon.com).
Note: The figures shown are rounded; they may not sum to the
subtotals shown due to the rounding used.
The Mineral Resource was estimated as a block model within
constraining wireframes based upon logged geological boundaries.
Tonnages and grades have been rounded to reflect appropriate
confidence levels and for this reason may not sum to totals
stated.
Geological Summary
The Zanaga iron ore deposit is located within a North-South
oriented (metamorphic) Precambrian greenstone belt in the eastern
part of the Chaillu Massif in South Western Congo. From airborne
geophysical survey work, and morphologically, the mineralised trend
constitutes a complex elongation in the North-South direction, of
about 47 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 ore (+60%
Fe), classified as 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 Dr Iestyn Humphreys, FIMM, AIME,
PhD who is a Corporate Consultant, and Practice Leader with SRK. 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, Dr Iestyn Humphreys, confirms
that the Ore Reserve Estimate is accurately reproduced in this
announcement and has given his consent to the inclusion in the
report of the matters based on his information in the form and
context within which it appears.
The information in the report 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.
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END
UPDEAESLEDDFEAA
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