TIDMZIOC
RNS Number : 7199C
Zanaga Iron Ore Company Ltd
30 June 2016
Zanaga Iron Ore Company Audited Results for the Year to 31
December 2015
30 June 2016
Highlights 2015 and post balance sheet events to June 2016
-- Mining Convention ratified by the Parliament of the Republic
of Congo ("RoC"), promulgated by the President of the Republic as a
law, and published in the Official Gazette of the RoC
-- Work programme and budget for 2016, and 2016 Funding Agreement agreed with Glencore
-- Additional cost reductions implemented at the Zanaga Project,
as well as across ZIOC's corporate costs, to align the cost base
with current market conditions
-- Share of loss of Associate of US$14m due to a US$20m
impairment of the carrying value of the Zanaga Project due to a
reduction in global iron ore prices and continuing uncertainty in
iron ore market supply and demand fundamentals
-- Cash balance of US$7.6m as at 2015 year end, and a cash balance of US$6.9m at 31 May 2016
Clifford Elphick, Non-Executive Chairman of Zanaga Iron Ore
Company Limited, commented:
"Despite the current challenges presented by continued
uncertainty in the global iron ore industry, particularly as
regards pricing and supply and demand dynamics, the Zanaga Project
has made important progress during 2015. Importantly, the Project's
Mining Convention has been ratified by the Parliament of the
Republic of Congo, promulgated as a law, and published in the
Official Gazette of the RoC on 28 June 2016; this establishes the
fiscal and legal framework for the Project.
The slowdown in the Chinese economy has led to uncertainty in
demand for iron ore, coupled with the negative impact on pricing
through significant supply increases from the major diversified
mining companies. These factors have led to the closure of a number
of high cost iron ore mining operations globally and we expect the
seaborne iron ore market will continue to be affected by this
uncertainty.
Much needed support has come via reductions in operating costs
across the sector, which have been achieved due to lower freight
rates, lower oil prices, weaker domestic currencies versus the US
dollar, and more competitive pricing from contractors.
It is necessary to understand that these developments are
continuing to evolve and we have yet to see an equilibrium in iron
ore markets, and input costs, being attained. Against this
background, further steps have been taken in relation to the
Project, including increased scrutiny and reduction of costs, as
well as cost reductions at a corporate level.
While financing remains difficult in today's iron ore market, we
are conscious of the need to prepare the Project for the market's
eventual stabilisation and a stable price equilibrium, at which
point we are confident that Zanaga will be at the forefront of
development opportunities. However, given the level of continued
market uncertainty, and lower forecast iron ore prices, a decision
has been taken at the Jumelles level to recognise an impairment of
the Project.
The Project remains underpinned by globally significant iron ore
Reserves and Resources and is positioned as a project capable of
delivering a high quality, premium-priced, iron ore product at very
low operating cost. The capability of the Project, even in a low
iron ore price environment, to compete with the major iron ore
producers on the basis of 'cash margin per tonne', remains a key
attribute of the Project's investment case."
The Company will post its Annual Report and Accounts for the
year ended 31 December 2015 ("2015 Annual Report and Accounts"),
together with the Notice of its Annual General Meeting ("AGM"),
which will be held at Adelaide House, London Bridge, London EC4R
9HA, England on 16 August 2016 at 09.00 a.m. BST, the form of proxy
and form of instruction for holders of Depositary Interests for use
at the AGM to shareholders today.
A copy of the Notice of AGM and the 2015 Annual Report and
Accounts will be available on the Company's website
www.zanagairon.com.
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 Richard Crawley
Adviser and Corporate Broker and Neil Elliot
+44 20 3100 2000
Bell Pottinger
Financial PR Marianna Bowes
and Daniel Thole
+44 20 7861 3232
About us:
Zanaga Iron Ore Company Limited (AIM ticker: ZIOC) is the owner
of 50% less one share in the Zanaga Iron Ore Project based in the
Republic of Congo (Congo Brazzaville) through its joint venture
partnership with Glencore. 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,
Despite the numerous challenges facing the iron ore industry
today, and the mining industry as a whole, the Zanaga Project has
made significant progress through these challenging times and is
ever closer to reaching its goal of securing all permitting and
licences which would allow the Project to seek financing. The
ratification of the Project's Mining Convention by the Parliament
of the Republic of Congo is a major milestone and is a significant
step forward for the Project.
Unfortunately, the iron ore industry continues to suffer from
significant uncertainty. The substantial production expansions of
the major iron ore miners have resulted in an unprecedented level
of new supply entering the market alongside decelerating industrial
growth in China. The fall of iron ore prices has inevitably
impacted the ability of the Zanaga Project to secure financing and
maintain the envisaged timeline to production. In order to progress
towards a construction decision we will need to see a new
equilibrium being achieved in the iron ore market. Once price
equilibrium is achieved, which takes account of objective and
longer term economic indicators, the Zanaga Project is likely to be
very well placed as an attractive project for finance and
development.
At the Zanaga Project we are determined to maintain progress and
advance the Project, while maintaining a prudent level of project
expenditure. We have significantly reduced the Project's ongoing
costs as well as ZIOC's corporate costs, while ensuring the Project
team is motivated to secure a number of key objectives. The
establishment of port and power agreements with relevant developers
remains a key objective, while significant progress is being made
on securing the environmental permit. It has been critical for the
Zanaga Project that the Mining Convention has now been ratified by
the Parliament of the RoC, promulgated as a law, and published in
the Official Gazette of the RoC. We are very pleased to now have
this Convention confirmed as an act of law.
Mining Licence and Mining Convention for the Zanaga Project
With effect from 20 May 2016, the Zanaga Mining Convention has
been promulgated as a law of the RoC (Law No 15-2016 of 29 April
2016), following ratification by the Parliament of the RoC and
publication in the Official Gazette on 28 June 2016. The
confirmation of the Mining Convention as a law further secures the
stability the Project's fiscal and legal regime for the life of the
mine. (For further details, and key terms of the Mining Convention
please refer to ZIOC's announcement on 29 June 2016 and also to
page 14 of the 2015 Annual Report which refers to the ratification
of the Mining Convention.)
The ratification of the Mining Convention demonstrates the
Government of the RoC's firm commitment to developing the country's
mining sector and is testament to the Project's strong stakeholder
relations.
Iron Ore Market
The iron ore market is currently transitioning through a period
of significant change in supply and demand dynamics.
The substantial production expansions of the major iron ore
miners have led to an unprecedented level of new supply entering
the market. In addition, other expansions, from projects where
capital was committed during a higher iron ore price environment
will result in further supply entering the seaborne system during
2016 and 2017. This new supply has been counteracted to some extent
by a number of producers reducing output or suspending production
altogether. A number of marginal producers have however been
rescued by lower freight rates, lower oil prices, and weaker
foreign exchange rates (lowering operating costs in US dollar
terms) which is allowing a number of producers to weather current
weak iron ore pricing conditions. However, with iron ore prices
trading around US$50-60/t, the expectation is that a number of
marginal producers will exit the market as seen during 2015.
Regarding the demand for iron ore, the deceleration of economic
growth in China, and impact of tighter pollution controls on steel
mills, is having a negative impact on demand from the world's
largest consumer of iron ore and driving a shift towards lump and
pelletised iron ore. This market trend is expected to act in
Zanaga's favour in the long term as the Zanaga product is well
suited to higher quality steel production with lower environmental
impact due to lower impurity levels.
Whilst the level at which price equilibrium is eventually
reached is difficult to predict, we certainly feel confident that
we are reaching a point of increased stability in the industry. Too
much of the industry continues to operate at a loss or at
unsatisfactory financial margins to sustain low long-term prices,
and we continue to expect an increasing rate of mine closures which
will serve to some degree to offset supply expansions.
As we consistently observe, the combination of Zanaga's
competitive operating costs and high quality iron ore product,
which is expected to attract a premium price, would allow the
Project to compete with some of the lowest cost mining operations
in the world. This is a key element to Zanaga's competitive
advantage as a long term prospect for the iron ore industry.
Project Schedule
The fall of iron ore prices has inevitably impacted the ability
to attract new finance and the envisaged timeline to production.
Going forward the Zanaga Project team has been tasked with securing
the final permitting and operational agreements during 2016. This
will position the project to move into financing discussions to
secure the required development finance once market conditions
improve. The envisaged timeline to production from financial close
is then expected to entail one year of Front End Engineering and
Design (FEED), followed by three years of construction.
Impairment
The continuing low, and uncertain, iron ore price environment
has impacted the Project's future financing which has resulted in
Jumelles assessing the recoverability of the carrying value of the
Zanaga Project (both as regards Stages One and Two). Based on an
assessment of long term iron prices at the end of 2015 and
persistent uncertainty in supply and demand dynamics in the iron
ore market, the Zanaga Project was impaired down to US$80m,
resulting in an impairment charge within Jumelles of US$20m, the
Company's share being US$10m. The impairment does not have any
impact upon the Group's cash flows.
Cost Reduction Programme, Cash Reserves and Project Funding
Cognisant of the current iron ore price environment, further
cost reductions have taken place at the Zanaga Project which will
allow the project to progress off a lower cost base. We are pleased
to report that the project team is confident in its ability to
progress the project through to the next phase of development
utilising the lower cost base.
Similar to the Supplemental Agreement for 2015 project
expenditure, Glencore and ZIOC have agreed a 2016 Project Work
Programme and Budget for the Project of US$2.3m plus US$0.6m of
discretionary spend dependent on certain workstreams requiring
capital. ZIOC has agreed to contribute towards such work programme
and budget an amount comprising US$2.3m plus 49.99% of all
discretionary items approved jointly with Glencore. Ignoring any
entitlement to savings, ZIOC's potential contribution to the
Project in 2016 is US$1.45m in total.
Separately, ZIOC has taken steps to reduce costs associated with
the management of its own business. A number of savings initiatives
have been actioned which are expected to achieve a significant cost
reduction going forward, and the Company is expected to be in a
better position to weather the current cycle as a result of these
initiatives. Following the reduction of the cost base at the Zanaga
Project, as well as the costs associated with the management of
ZIOC, the Board is of the view that ZIOC has sufficient funds to
meet its working capital requirements up to, and beyond, twelve
months from the approval of these accounts.
We had cash reserves of US$6.9m as at 31 May 2016 and continue
to be prudent with our cash.
Outlook
During the current period of price weakness and price volatility
in the iron ore market, ZIOC and Glencore have chosen to continue
to progress a number of key preliminary value-adding activities on
the Project. These important preparatory steps will place the
Project in a stronger position to seek financing once market
conditions stabilise and become more favourable.
The value adding activities to be progressed will include the
establishment of port and power agreements, and receipt of the
environmental permit. ZIOC and Glencore continue to work closely
with the RoC's government on the conclusion of these workstreams
and are pleased to say that the Project continues to enjoy strong
support.
The Project is underpinned by a globally significant,
well-defined, resource and a Feasibility Study that demonstrates
robust economics. The Project has also been substantially derisked
through the ratification of the Project's Mining Convention by the
Parliament of the RoC.
However, as mentioned above, developments in the global iron ore
market have affected and continue to affect the raising of finance
for the development of the Project. Once market conditions
stabilise and become more favourable, it is our belief that the
Zanaga Project is likely to be in a good position to attract the
finance which is needed to enable a positive construction decision
to be taken.
Clifford Elphick
Non-Executive Chairman
Strategic Report
Business Review
During 2015 a number of important milestones were achieved at
the Zanaga Project. Furthermore, 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 confirmation of the Mining Convention
as a law further secures the stability the Project's fiscal and
legal regime for the life of the mine.
In addition, the Zanaga Project successfully transitioned to a
significantly lower cost base which is expected to result in
substantial savings going forward.
Port Infrastructure and Development
In March 2013, the RoC signed a Memorandum of Understanding with
China Communications Construction Company ("CCCC"), and its
subsidiary China Road and Bridge Corporation ("CRBC"), for the
development of a new multi-user port facility 9km north of the
existing port of Pointe-Noire at Pointe Indienne, including a
deepwater bulk export facility for the iron ore industry. CRBC has
conducted a significant amount of work on this major project,
including a feasibility study on the port development. The Zanaga
Project team continues to engage with CRBC with a view to ensuring
technical compatibility with our operations as well as sustainable
terms of usage. Advancing a port access agreement with the RoC is a
key objective for the Project team and we will remain proactive in
our engagement with CRBC.
Power
The Zanaga Project's strategy is to connect the Project to the
national network. The Feasibility Study on the Project (the "FS"),
for the Project's 12Mtpa Stage One is based upon a power offtake
agreement being concluded directly with the government power agency
("SNE") or with an existing or new power provider in order to meet
the Project's 100MW power requirement. Power would be supplied by
existing and planned power generation capacity in the country,
which is made possible today through the existence of more than
100MW of excess capacity.
Power would be delivered to the mine site through two connection
points to the current 220kV transmission network within 160km and
200km of a proposed new transmission line to the east and south of
the mine site respectively. The Zanaga Project team has been
engaging with potential IPPs and Government departments in order to
develop a power supply for the Project. The team will be conducting
an increased amount of work during 2016 on the potential for a
power solution to be defined.
The Project's Stage Two ramp up to 30Mtpa is expected to
increase power demand to approximately 230MW at the mine site and
16MW for the Project's facilities at the proposed new port. The
increased mine site demand is sufficient to support independent
power generation from locally available energy sources and we will
plan this development in coordination with other planned regional
power infrastructure developments.
Permitting
The application for the Environmental Permit for the Project's
first phase of development has been lodged with the RoC Ministry of
Environment and the Project team believes that this is likely to be
received during the second half of the 2016 fiscal year.
Next Steps
During 2016, the Project team will be progressing a number of
important value-adding activities. These activities will be
important next steps in allowing the Project to reach a position to
seek financing and progress to development once market conditions
stabilise. These activities include advancement of port and power
agreements, and issuance of the environmental permit.
Financial Review
Results from operations
The financial statements contain the results for the Group's
fifth full year of operations following its incorporation on 19
November 2009. The Group made a loss in the year of US$16.9m (2014:
loss US$171.1m). The loss for the year comprised:
2015 2014
US$000 US$000
------------------------------------------------------------------- -------- ---------
General expenses (2,143) (3,531)
Net foreign exchange (loss)/gain (534) (747)
Share-based payments (325) (1,251)
Gain on part sale of associate - 45,521
Share of loss of associate (including impairment by associate) (14,608) (94,731)
Additional impairment of Investment in Associate - (110,082)
Interest income 27 51
------------------------------------------------------------------- -------- ---------
Loss before tax (17,583) (164,770)
Tax (25) (42)
Currency translation 15 (38)
Share of other comprehensive income of associate -foreign exchange 685 (6,221)
------------------------------------------------------------------- -------- ---------
Total comprehensive income (16,908) (171,071)
------------------------------------------------------------------- -------- ---------
General expenses of US$2.1m (2014: US$3.5m) consists of US$0.1m
professional fees (2014: US$1.0m), US$0.5m Directors' fees (2014:
US$0.6m) and US$1.5m (2014: US$1.9m) of other general operating
expenses.
The share-based payment charge reflects the expense associated
with the grant of share options to ZIOC's Directors and senior
managers under ZIOC's long-term incentive plan ("LTIP") and to the
expense associated with the grant of share options to three of
ZIOC's consultants. Further details of the LTIP and share options
granted can be found in the notes to the financial statements.
The share of loss of associate reflected above (100% to 30 April
2014, 50% less one share from 1 May 2014) relates to ZIOC's
investment in the Project, through the Jumelles group, which, due
to an impairment adjustment of US$20.0m (2014: US$189.3m) to the
carrying value of its exploration asset, generated a loss of
US$29.2m in the year to 31 December 2015 (2014: loss US$189.4m).
During the year Jumelles spent a net US$9.2m (2014 US$2.4m) on
exploration, net of a currency translation gain US$1.4m (2014: loss
US$14.5m), before the impairment of US$20m (2014: US$189.3). The
2015 US$1.4m currency gain of associate Jumelles, results from the
strengthening against the US$, of Jumelles subsidiary MPD Congo's
local currency the CFA Franc (Symbol XAF - Euro tied currency),
where the Project asset is held.
Financial Position
ZIOC's Net Asset Value (NAV) of US$45.7m (2014: US$62.3m)
comprises of US$37.8m (2014: US$50m) investment in Jumelles,
US$7.6m (2014: US$12.5m) of cash balances and US$0.3m (2014:
US$0.2m net current liabilities) of other net current assets.
2015 2014
US$000 US$000
--------------------------------- ------ ------
Investment in associate 37,809 50,000
Fixed Assets 3 8
Cash 7,602 12,480
Net current assets/(liabilities) 312 (179)
--------------------------------- ------ ------
Net assets 45,726 62,309
--------------------------------- ------ ------
Cost of investment
The investment in associate relates to the carrying value of the
investment in Jumelles which as at 31 December 2015 continued to
own 100% of the Project. During 2015, under the existing 2015
Funding Agreement between the Company and Glencore, the Company
contributed a further US$1.7m (2014: US$7.0m). Though a long term
project, in the light of currently forecast market conditions, the
carrying value of the exploration asset has been impaired in
Jumelles to US$80m (2014 US$100m). The Company accounts for 50%
less one share of the Project since May 2014.
As at 31 December 2015, Jumelles had aggregated assets of
US$84.0m (2014: US$108.4m) and aggregated liabilities of US$3.0m
(2014: US$4.6m). After an exploration asset impairment of US$20.0m
(2014: US$189.3), assets consisted of US$80.0m (2014: US$100m) of
capitalised exploration assets, US$3.0m (2014: US$4.3m) of other
fixed assets, US$0.9m cash (2014: US$3.4m) and US$0.2m other assets
(2014: US$0.8m). Before the impairment, and net of a currency
translation gain of US$1.9m (2014: loss US$14.5m) a net total of
US$9.2m (2014: US$2.4m) of exploration costs were capitalised
during the year.
Cash flow
Cash balances decreased by US$4.9m during 2015 (2014 decrease
US$11.5m), net of interest income US$0.02m (2014 US$0.05m) and a
foreign exchange loss of US0$.5m (2014 loss US$0.8m) on bank
balances held in UK Sterling. Additional investment in Jumelles
required under the 2015 Funding Agreement (outline details in Note
1 to the financial statements) utilised US$1.7m (2014: US$7.0m),
operating activities utilised US$2.7m (2014: US$3.8m), and there
were no share repurchases (2014: nil).
Fundraising activities
There were no fundraising activities during 2015 (2014:
nil).
Reserves & Resource Statement
The Project has defined a 6.9bn tonne Mineral Resource and a
2.1bn tonne Ore Reserve, reported in accordance with the JORC Code
(2012), and defined from only 25km of the 47km orebody
identified.
Ore Reserve Statement
The Ore Reserve estimate (announced by the Company on 30
September 2014) was undertaken by independent consultants, SRK
Consulting (UK) Ltd ("SRK") and is based on the 30Mtpa Feasibility
Study and the 6,900Mt Mineral Resource (announced by the Company on
8 May 2014).
As stipulated by the JORC Code, Proven and Probable Ore Reserve
are of sufficient quality to serve as the basis for a decision on
the development of the deposit. Based on the studies performed, a
mine plan has been determined that is technically achievable and
economically viable.
Classification Tonnes (Bt) Fe (%)
----------------------- ------------ -------
Proved Ore Reserves 0.77 37.3
Probable Ore Reserves 1.29 31.8
----------------------- ------------ -------
Total Ore Reserves 2.07 33.9
----------------------- ------------ -------
Notes:
Long term price assumptions are based on a CFR IODEX 62% Fe
forecast of 60 US$/dmt (97 USc/dmtu at 62% Fe) with adjustments for
quality, deleterious elements, moisture and freight.
Discount Rate 10%
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) P (%) Mn LOI
(Mt) (%) (%) O(3) (%) (%)
(%)
---------------- ------- ----- ------- ------ ------ ----- -----
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/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 who is a
Chartered Professional Member of the Australasian Institute of
Mining and Metallurgy. He is a mining engineer and Senior
Consultant of SRK Consulting (UK) Ltd. 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, has reviewed the Ore Reserve Estimate
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 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.
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 and the future
funding requirements of Jumelles, is therefore limited.
The future development of the mine and related infrastructure
will be determined by the Board of Jumelles. There can be no
certainty that the Board of Jumelles will approve the construction
of the mine and related infrastructure, including the taking of
preparatory steps associated with the construction of the mine and
related infrastructure, such as front end engineering and
design.
Risks relating to future funding of the Zanaga Project
Under the amended JVA with Glencore, 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 2016. As such agreement relates
to 2016, there is a risk that after 31 December 2016 Jumelles may
be subjected to funding constraints and this could have an adverse
impact upon the Project.
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 is anticipated that there will be a stabilisation of
iron ore prices in the global market for iron ore, the timing of
such stabilisation and the level of iron ore prices which
eventually emerges is uncertain. Although the Feasibility Study
completed in mid-2014 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 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 financing the Zanaga Project
Any decision of the Board of Jumelles to proceed with
construction of the mine and related infrastructure 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 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 the
first 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), 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) 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. Rain
storms, 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 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. 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 port and/or other needed infrastructure or a failure
to obtain access to and use of the proposed 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.
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 the proposed 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. 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 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 the port or power transmission lines
or other infrastructure, or (iv) negotiating the terms of access to
the port and supply of power and other infrastructure, 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 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 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 Project's operations or the imposition of costly
compliance measures. If health and safety authorities require the
Project to shut down all or a portion of its 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.
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 may 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 Feasibility Study 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. 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 balance sheet
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 2016 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 its cash resources, there is a risk that
depletion of such cash resources will adversely affect the Company.
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 also impact upon the ability of the Jumelles
group to raise new finance for the project. The Company's cash
resources will come under increasing pressure unless a more benign
investment and trading climate materialises in the foreseeable
future. As to when such a climate might materialise, there is still
a lack of consensus.
Financial Statements
Consolidated statement of comprehensive Income
for year ended 31 December 2015
2015 2014
Note US$000 US$000
-------------------------------------------------------------------------------- ---- -------- ---------
Administrative expenses (3,002) (5,529)
Share of loss of associate (2015 including impairment by associate) 6b (14,608) (94,731)
-------------------------------------------------------------------------------- ---- -------- ---------
Operating loss 4 (17,610) (100,260)
Interest income 27 51
Gain on part sale of associate - 45,521
Additional impairment of Investment in Associate 6b (110,082)
-------------------------------------------------------------------------------- ---- -------- ---------
Loss before tax (17,583) (164,770)
Taxation 5 (25) (42)
-------------------------------------------------------------------------------- ---- -------- ---------
Loss for the year (17,608) (164,812)
-------------------------------------------------------------------------------- ---- -------- ---------
Foreign exchange translation - foreign operations 15 (38)
Share of other comprehensive income of associate - foreign exchange translation 685 (6,221)
-------------------------------------------------------------------------------- ---- -------- ---------
Other comprehensive income/(loss) 700 (6,259)
-------------------------------------------------------------------------------- ---- -------- ---------
Total comprehensive loss (16,908) (171,071)
-------------------------------------------------------------------------------- ---- -------- ---------
Profit/(Loss) per share
Basic (Cents) 12 (6.4) (60.0)
Diluted Cents) 12 (6.4) (60.0)
The 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 changes in equity
for year ended 31 December 2015
Foreign
currency
Share Retained translation Total
capital earnings reserve equity
US$000 US$000 US$000 US$000
--------------------------------------- ------- --------- ----------- ---------
Balance at 1 January 2014 265,434 (42,282) 8,977 232,129
Consideration for share-based payments 1,251 - - 1,251
Loss for the year - (164,812) - (164,812)
Other comprehensive income - - (6,259) (6,259)
--------------------------------------- ------- --------- ----------- ---------
Total comprehensive loss - (164,812) (6,259) (171,071)
--------------------------------------- ------- --------- ----------- ---------
Balance at 31 December 2014 266,685 (207,094) 2,718 62,309
--------------------------------------- ------- --------- ----------- ---------
Balance at 1 January 2015 266,685 (207,094) 2,718 62,309
Consideration for share-based payments 325 - - 325
Loss for the year - (17,608) - (17,608)
Other comprehensive income - - 700 700
--------------------------------------- ------- --------- ----------- ---------
Total comprehensive loss - (17,608) 700 (16,908)
--------------------------------------- ------- --------- ----------- ---------
Balance at 31 December 2015 267,010 (224,702) 3,418 (45,726)
--------------------------------------- ------- --------- ----------- ---------
The notes form an integral part of the financial statements.
Consolidated balance sheet
for year ended 31 December 2015
2015 2014
Note US$000 US$000
---------------------------------------------------- ---- --------- ---------
Non-current assets
Property, plant and equipment 6a 3 8
Investment in associate 6b 37,809 50,000
---------------------------------------------------- ---- --------- ---------
37,812 50,008
---------------------------------------------------- ---- --------- ---------
Current assets
Other receivables 7 458 170
Cash and cash equivalents 8 7,602 12,480
---------------------------------------------------- ---- --------- ---------
8,060 12,650
---------------------------------------------------- ---- --------- ---------
Total Assets 45, 872 62,658
---------------------------------------------------- ---- --------- ---------
Current liabilities
Trade and other payables 9 (146) (349)
---------------------------------------------------- ---- --------- ---------
Net assets 45,726 62,309
---------------------------------------------------- ---- --------- ---------
Equity attributable to equity holders of the parent
Share capital 10 267,010 266,685
Retained earnings (224,702) (207,094)
Foreign currency translation reserve 3,418 2,718
---------------------------------------------------- ---- --------- ---------
Total equity 45,726 62,309
---------------------------------------------------- ---- --------- ---------
The notes form an integral part of the financial statements.
These financial statements were approved by the Board of
Directors on 29 June 2016 and were signed on its behalf by:
Mr Clifford Elphick
Director
Consolidated cash flow statement
for year ended 31 December 2015
2015 2014
Note US$000 US$000
------------------------------------------------- ---- -------- ---------
Cash flows from operating activities
Total comprehensive income for the year (16,908) (171,071)
Adjustments for:
Depreciation 6 57
Interest receivable (27) (51)
Taxation expense 25 42
Decrease/(Increase) in other receivables (288) (5)
(Decrease)/Increase in trade and other payables (217) (238)
Net exchange gain/(loss) 535 747
Gain on part sale of project interest - (45,521)
Share of Total Comprehensive Income of associate 13,923 100,952
Impairment to share of impairment in associate - 110,082
Share-based payments 325 1,251
Tax paid (36) (55)
------------------------------------------------- ---- -------- ---------
Net cash from operating activities (2,662) (3,810)
------------------------------------------------- ---- -------- ---------
Cash flows from financing activities
Cash flows from investing activities
Interest received 27 51
Acquisition of property, plant and equipment (1) (3)
Investment in associate (1,732) (7,000)
------------------------------------------------- ---- -------- ---------
Net cash from investing activities (1,706) (6,952)
------------------------------------------------- ---- -------- ---------
Net decrease in cash and cash equivalents (4,368) (10,762)
Cash and cash equivalents at beginning of year 12,480 24,009
Effect of exchange rate difference (510) (767)
------------------------------------------------- ---- -------- ---------
Cash and cash equivalents at end of year 8 7,602 12,480
------------------------------------------------- ---- -------- ---------
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 Coastal
Building, 2nd Floor, Wickham's Cay II, Road Town, Tortola, BVI. 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 ("Jumelles") subject to the then Xstrata Call
Option (as defined below).
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 administration 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
Mining Project Development Congo SAU ("MPD Congo") which, owns and
operates 100% of the Zanaga Project (the "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.
Garbet is 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. Garbet owns
approximately 41.49% of the share capital of 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 31.83% of the share capital of
the Company.
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"):
-- a 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 (the "Xstrata Call Option"). Under
the terms of the Xstrata Call Option, the consideration payable by
Xstrata Projects for the option shares that would be issued by
Jumelles Limited would comprise (i) a commitment to fund all costs
to be incurred by Jumelles Limited in completing an 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 Limited owes to Garbet and Guava as loans which would be
used to repay the latter; and
-- a Joint Venture Agreement which regulated the respective
rights of the Company, Jumelles and Xstrata Projects in relation to
Jumelles following exercise of the Xstrata Call Option.
Subsequently:
o Xstrata merged with Glencore on 2 May 2013 to form Glencore
Xstrata which then took the role of JV partner in place of Xstrata,
and has subsequently changed its name to Glencore plc.
o Under the terms of the Supplemental Agreement announced on 13
September 2013, 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 Ltd 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 Xstrata 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 Xstrata 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 Xstrata 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 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 Board
of Jumelles while ZIOC has a right to appoint two directors. At any
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
Xstrata Call Option in February 2011, Xstrata's merger with
Glencore to form Glencore Xstrata (May 2013) and the renaming of
Glencore Xstrata to Glencore (May 2014), 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 has a strategic partnership in respect of
the Project with Glencore.
Following exercise of the Xstrata 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. Going forward 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.
Future funding requirements and going concern basis of
preparation
In common with many exploration and development companies in the
mining sector, the Company raises funding in phases as its project
develops.
Pursuant to the JVA, as amended by the Supplemental Agreement,
during 2014, the staged production FS prepared by Jumelles was
completed, the Project's Mining Licence Application was issued and
a Mining Convention was signed with the Government of the RoC.
Based on its management's own internal evaluation, Jumelles
believes the proposed staged development of the Zanaga project
offers high grade ore at competitive cost, thereby offering an
attractive rate of return, at an acceptable level of risk, although
substantial capital expenditure will be required both at the
prospective mine site and in respect of transportation and other
associated infrastructure. Revenues from mining are not forecast to
be earned for several years.
Jumelles has a preferred development plan. In relation to such
development plan, discussions commenced with several parties
regarding investment through the raising of debt or the
introduction of additional investors. It is believed that, given
the attractiveness of the proposed staged development of the
Project, the raising of debt or additional investment can be
secured. During previous Project funding discussions, conducted
jointly by ZIOC and Glencore, a number of entities expressed an
interest in discussing an investment in the Project alongside the
joint venture partners. Engagement with interested entities is
expected to continue, however, it is believed that current iron ore
market conditions need to stabilise before formal discussions can
resume.
Current iron ore market conditions have also resulted in a
scaled down work programme and a reduction in the cost base of the
Project.
Similar to the Funding Agreement for 2015 project expenditure,
Glencore and ZIOC have agreed a Funding Agreement to fund the 2016
Project Work Programme and Budget for the Project of US$2.3m plus
US$0.6m of discretionary spend dependent on certain workstreams
requiring capital. ZIOC has agreed to contribute towards such work
programme and budget an amount comprising US$2.3m plus 49.99% of
all discretionary items approved jointly with Glencore. Ignoring
any entitlement to savings, ZIOC's potential contribution to the
Project in 2016 is US$1.45m in total.
At 31 December 2015 the Company had cash reserves of US$7.6m,
and in the light of iron ore market conditions, the Company has
taken steps to further reduce its own cost base during 2016.
The Company's current cash reserves are sufficient to support
both the Company's own operating costs and the agreed contribution
to the Project set out above.
In the current circumstances, the Directors have a reasonable
expectation that the Company has adequate financial resources to
continue in operational existence for the foreseeable future. For
these reasons, the financial statements of the Company have been
prepared on a going concern basis.
In the event that a decision is taken to develop a mine at
Zanaga, the Company and the Project will need to raise further
funds.
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.
New standards, amendments and interpretations
The following Adopted IFRSs have been issued but have not been
applied by the Group in these financial statements. Their adoption
is not expected to have a material effect on the financial
statements unless otherwise indicated:
-- IFRS 9 Financial Instruments (effective date 1 January 2018).
-- Accounting for Acquisitions of Interests in Joint Operations
- Amendments to IFRS 11 (effective date 1 January 2016).
-- Equity Method in Separate Financial Statements - Amendments
to IAS 27 (effective date 1 January 2016).
-- Annual Improvements to IFRSs - 2012-2014 Cycle (effective date 1 January 2016).
-- Investment entities: Applying the Consolidation Exception -
Amendments to IFRS 10, IFRS 12 and IAS 28 (effective date 1 January
2016).
-- Disclosure Initiative - Amendments to IAS 1 (effective date 1 January 2016).
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. The
Board agreed to impair the asset to the level of the Company's
shareholding in the Jumelles impaired asset valuation.
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
balance sheet 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 the income
statement.
Share-based payments
The Group makes equity-settled share-based payments to certain
employees and similar persons as part of a long-term incentive plan
("LTIP"). 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 to be issued under the 2010 LTIP were acquired by an
Employee Benefit Trust which has to date 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.
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. No awards were issued in
2015.
Non-derivative financial instruments
Non-derivative financial instruments in the balance sheet
comprise other receivables, cash and cash equivalents, and trade
and other payables.
Other receivables
Other receivables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method, less any impairment
losses.
Trade and other payables
Trade and other payables are recognised initially at fair value.
Subsequent to initial recognition they are measured at amortised
cost using the effective interest method.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call
deposits.
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.
Ordinary shares issued to the Employee Benefit Trust under the
LTIP or to non-employees for services provided to the Company, are
included within Share Capital.
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
The carrying amounts of the Group's assets are reviewed at each
balance sheet date to determine whether there is any indication of
impairment; a financial asset 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 asset.
If any such indication exists, the asset's recoverable amount is
estimated.
An impairment loss is recognised whenever the carrying amount of
an asset or its cash-generating unit exceeds its recoverable
amount. Impairment losses are recognised in the income
statement.
Calculation of recoverable amount
The recoverable amount of the Group's investments and
receivables 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). Receivables with
a short duration are not discounted.
The recoverable amount of other assets is the greater of their
fair values less costs to sell and value in use. In assessing value
in use, the estimated future cash flows are discounted to their
present value using a pre-tax discount rate that reflects current
market assessments of the time value of money and the risks
specific to the asset.
Reversals of impairment
An impairment loss in respect of a receivable carried at
amortised cost is reversed if the subsequent increase in
recoverable amount can be related objectively to an event occurring
after the impairment loss was recognised.
In respect of other assets, 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.
Expenses
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 balance sheet date, 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 balance sheet date.
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 Limited. 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 balance sheet date (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 when material.
3 Critical accounting estimates, assumptions and judgements
The Group makes estimates and assumptions concerning the future
that are continually evaluated and are based on historical
experience and other factors, including expectations of future
events that are believed to be reasonable under the circumstances.
The resulting accounting estimates will, by definition, seldom
equal the related actual results. The estimates and assumptions
that have a significant risk of causing a material adjustment to
the carrying amount of assets and liabilities within the next
financial year are discussed below.
Impairment 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 judgement
as to the likelihood that a project will continue to show
sufficient commercial promise to warrant the continuation of
exploration and evaluation activities.
Accounting for the Company's interest in Jumelles Limited
Significant judgement has been applied in arriving at the
accounting treatment of the Group's interest in Jumelles. Though
the exercise of the Xstrata Call Option on 11 February 2011 gave
Xstrata Projects a shareholding of 50% plus one share, and then
effective director level control of Jumelles, those shares were not
considered to have vested until the Feasibility study had been
completed at the end of April 2014. Up until that point in time the
Group continued to account for a 100% interest in Jumelles. Further
details at December 2014 may be found under 'Investment in
associate' Note 6b.
From 1 May 2014 the Company accounted for the reduction in its
interest in Jumelles to 50% less one share.
4 Note to the comprehensive income statement
Operating loss before tax is stated after
charging/(crediting):
2015 2014
US$000 US$000
----------------------------------- ------ ------
Share-based payments (see Note 11) 325 1,251
Net foreign exchange loss/(gain) 535 747
Directors' fees 503 611
Auditor's remuneration 56 65
Depreciation 6 56
----------------------------------- ------ ------
Other than the Company Directors, the Group directly employed
four staff in 2015 (2014: six). The six Directors received a total
of US$502,600 remuneration for their services as Directors of the
Group (2014: US$611,000). The amounts paid as Directors' fees are
shown in the Directors' Remuneration Report in the 2015 Annual
Report. The Directors' interests in the share capital of the Group
are shown in the Directors' Remuneration Report in the 2015 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 tax charge in the period relates to the Company's
subsidiary, Zanaga UK Services Limited.
2015 2014
US$000 US$000
--------------------------------------------------------------- -------- ---------
Recognised in other comprehensive income:
Current year (25) (42)
Reconciliation of effective tax rate
Profit/(Loss) before tax (17,583) (164,770)
Income tax using the BVI corporation tax rate of 0% (2012: 0%) - -
Effect of tax rate in foreign jurisdictions (25) (42)
--------------------------------------------------------------- -------- ---------
(25) (42)
--------------------------------------------------------------- -------- ---------
The effective tax rate for the Group is 0.17 % (2014:
0.03%).
6a Property, Plant and Equipment
Leasehold Total
property Fixtures
improvements and fittings
US$000 US$000 US$000
-------------------------- ------------ ------------ ------
Cost
Balance at 1 January 2015 - 42 42
Additions 1 1
Disposals - -
-------------------------- ------------ ------------ ------
Balance at 31 December
2015 - 43 43
-------------------------- ------------ ------------ ------
Depreciation
Balance at 1 January 2015 - 34 34
Charge for period 6 6
-------------------------- ------------ ------------ ------
Balance at 31 December
2015 - 40 40
-------------------------- ------------ ------------ ------
Net book value
Balance at 31 December
2015 - 3 3
-------------------------- ------------ ------------ ------
Balance at 31 December
2014 - 8 8
-------------------------- ------------ ------------ ------
There are no assets held under finance leases or hire purchase
contracts.
6b Investment in associate
US$000
----------------------------------------------- ---------
Balance at 1 January 2014 208,513
Additions 7,000
Share of post-acquisition comprehensive
loss (100,952)
Change in investment carrying value from
gain on dilution of shares 45,521
Impairment of investment in associate (110,082)
----------------------------------------------- ---------
Balance at 31 December 2014 50,000
----------------------------------------------- ---------
Balance at 1 January 2015 50,000
Additions 1,732
Share of post-acquisition comprehensive loss (14,608)
Share of post-acquisition currency translation
reserve 685
Balance at 31 December 2015 37,809
----------------------------------------------- ---------
At 31 December 2015, 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. The shares were acquired in
exchange for shares in the Company. Originally recorded at fair
value, the investment is now valued at the Company's share of the
impaired value declared in the accounts of the associate.
The additions to the investment during the year were due to the
additional US$1.7m of investment agreed in accordance with the 2015
Funding Agreement (2014 US$7m).
As the Company's investment in Jumelles did not represent an
investment in a subsidiary due to the call option held by Glencore
(previously Xstrata) described in Note 1 above, the Group's
interest was, and continues to be, accounted for as an associate
using the equity method of accounting. The Company accounted for
100% of post-acquisition comprehensive income up to the completion
of the FS during H1 2014, and 50% less one share proportion
thereafter.
The Group financial statements accounted for the Glencore
Projects transaction as an in-substance equity-settled share-based
payment for the provision of services by Glencore Projects to
Jumelles in relation to the PFS and the FS. These services largely
were provided through third party contractors, measured at the cost
of the services provided.
As at 31 December 2015, Jumelles had aggregated assets of
US$84.1m (201: US$108.4m) and aggregated liabilities of US$3.0m
(2014: US$4.6m). For the year ended 31 December 2015 Jumelles
implemented an impairment charge of US$20.0 (2014: US$189.3) and
incurred a loss before tax of US$29.2m (2014: US$189.4m). There was
no tax charge for 2015 (2014: US$nil). Currency translation of the
underlying Congolese asset generated a translation gain of US$1.4m
(201: loss US$14.5m). A summarised consolidated balance sheet of
Jumelles Limited for the year ended 31 December 2015, including
adjustments made for equity accounting, is included below:
2015 2014
US$000 US$000
---------------------------------------- --------- ---------
Non-current Assets:
Property, plant and equipment 2,968 4,264
Exploration and other evaluation assets 100,000 289,310
Impairment of exploration asset (20,000) (189,310)
Total non-current assets 82,968 104,264
---------------------------------------- --------- ---------
Current Assets 1,126 4,162
Current Liabilities (2,954) (4,608)
---------------------------------------- --------- ---------
Net current liabilities (1,828) (446)
---------------------------------------- --------- ---------
Net assets 81,140 103,818
---------------------------------------- --------- ---------
Share capital 335,261 330,095
Translation reserve (4,741) (6,112)
Retained earnings (249,380) (220,165)
---------------------------------------- --------- ---------
81,140 103,818
---------------------------------------- --------- ---------
7 Other receivables
2015 2014
US$000 US$000
------------------------------------------- ------ ------
Prepayments and receivables 118 132
Amounts receivable from the Jumelles group 343 38
------------------------------------------- ------ ------
Other receivables 458 170
------------------------------------------- ------ ------
8 Cash
20154 2014
US$000 US$000
-------------------------- ------ ------
Cash and cash equivalents 7,602 12,480
-------------------------- ------ ------
9 Trade and other payables
2015 2014
US$000 US$000
------------------- ------ ------
Accounts payable 121 307
UK corporation tax 25 42
------------------- ------ ------
146 349
------------------- ------ ------
No amounts payable are due in more than 12 months (2014:
US$nil).
10 Share capital
Ordinary Ordinary
In thousands of shares Shares Shares
2015 2014
On issue at 1 January - fully paid 278,777 278,777
------------------------------------- -------- --------
Shares issued - -
Shares repurchased and cancelled -
------------------------------------- -------- --------
On issue at 31 December - fully paid 278,777 278,777
------------------------------------- -------- --------
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 the current year (2014: US$nil).
Share capital changes in 2015
There were no new shares issued in 2015, nor were there any
share repurchases.
11 Share-based payments
Employees
As stated under Note 2 above the Group has implemented an LTIP
in order to recruit and retain key officers and employees of the
Group and the Group's associate. For all key management personnel,
the 2010 LTIP is structured as a split interest scheme. On the date
of the award, the employee and the Employee Trust enter into an
agreement to acquire shares as joint owners with the employee's
proportion of ownership of each share being 0.001% of the total
value up to a given hurdle and 99.999% of the total value above the
hurdle. The hurdle is determined on advice of the Remuneration
Committee. The employee will pay the market value for his joint
ownership of the shares. If the vesting conditions are not met, the
employee forfeits joint ownership of the shares. If the award meets
the vesting conditions, the employee has the right to exercise the
option and become the sole owner of the shares. The Group also
granted a number of awards of share options to middle management.
Under these awards the employee was not required to pay an exercise
price for the shares, which have all vested and the options
exercised.
Three sets of separate awards were made on 18 November 2010, a
fourth set of awards was made on 2 March 2012 and a fifth award was
disclosed in 2013, applicable upon the appointment to the Board of
Mr Alistair Franklin. All awards made after 2010 are issued as
standard share options.
Replacing awards 3, 4 and 5, on 29 July 2014, the Board approved
the grant of 9,027,274 share options to certain Directors, key
employees and Consultants to the Company in recognition of the
achievement of key corporate and project milestones since 2012, and
to incentivise key employees and consultants to achieve certain new
performance targets.
No awards were issued in 2015.
There are specific provisions that apply to all awards in
respect of takeover and corporate transaction provisions and
provisions relating to cessation of employment or ceasing to
provide services.
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 (partly vested)
These awards have partly vested.
Award 7 (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.
The application of the vesting criteria is subject to the
discretion of the Board of Directors.
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
2014 * GBP0.02 2,727,345 GBP0.02 995,382 N/A Nil N/A Nil N/A Nil GBP0.02 3,722,727
(US$0.04) (US$0.04) (US$0.04)
Granted N/A Nil N/A Nil 0.01 1,204,619 0.01 1,013,418 0.01 4,000,000 0.01 6,218,037
Forfeited N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
Exercised N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
Lapsed N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
---------- ---------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ---------
At 31
December
2014 * 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$0.01) (US$0.02) (US$0.02) (US$0.02)
---------- ---------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ---------
At 1
January
2015 * 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$0.02) (US$0.02) (US$0.02)
---------- ---------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ---------
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 Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
---------- ---------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ---------
Lapsed N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil N/A Nil
---------- ---------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ---------
At 31
December
2015 * 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$0.01) (US$0.02) (US$0.02) (US$0.02)
--------------------- --------- --------- ------- --------- --------- --------- --------- --------- --------- --------- ---------
Award Award Award Award Award
1 (2010) 2 (2010) 6 (2014) 8 (2014) 9 (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 GBP0.18 GBP0.18 GBP0.18 GBP0.18
average ($0.31) ($0.31) ($0.31) ($0.31)
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 18 May 29 July 29 July 29 July N/A
date 2021 2021 2024** 2024 2024
------------- ------------------- ----------- ------------------- ---------- ---------- -------------------
* 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 1 Award 6 Award 8 Award
(2010) Award 2 (2010) (2014) (2014) 9 (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) ($0.31) ($0.31) ($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 1.75%
(%) 0.51% for 0.69% for 1.75% for 1.75% for for
6 month 12 month 12 month 12 month
expected 12 month expected expected expected expected
life life life life life
2.25% in 2.25% in 2.25%
0.69% for 1.12% for excess excess in excess
12 month 24 month 24 month 24 month
expected 24 month expected expected 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 ZIOC's own history since the 2010 flotation.
Non-employees
Replacing awards made previously, or as new awards, on 29 July
2014 the Company also granted awards of share options in respect of
consultancy services provided by Strata Capital UK LLP, Harris
GeoConsult Ltd and Renroc International Ltd.
Consultancy Weighted Weighted Weighted Expiry Other
average average average date LTIP terms,
share fair value expected valuation
price of share life of model
at date awards option and assumptions
of grant * applicable
*
--------------- ----------- ------------ ---------- -------- -----------------
Strata GBP0.19 GBP0.12 4 years 29 July Award
Capital (US$0.31) (US$0.20) 2024 8 above
Harris GBP0.19 GBP0.18 4 years 29 July Award
GeoConsult (US$0.31) (US$0.31) 2024 8 above
Renroc GBP0.19 GBP0.18 4 years 29 July Award
International (US$0.31) (US$0.31) 2024 7 above
--------------- ----------- ------------ ---------- -------- -----------------
* Sterling amounts have been converted into US Dollars at the
grant date exchange rate US$ 1.6944:GBP1.00.
The total equity-settled share-based payment expense recognised
as an operating expense during the year was US$325,000 (2014:
US$1,251,000), of which US$150,000 (2014: US$238,000) related to
the Directors, US$176,000 related to employees of the group (2014:
US$875,000), and US$nil (201: US$138,000) related to consultancy
services provided by consultants. Further details of share-based
payments awarded to Directors of the Group can be found in the
Remuneration Report in the 2015 Annual Report.
The total charge during the year for equity-settled share-based
payments awarded to employees of companies in which the Group has a
significant interest totals US$nil (2014: US$nil).
12 Profit/(Loss) per share
2015 2014
--------------------------------------------------------- -------- ---------
Profit/(Loss) (Basic and diluted) (US$,000) (17,608) (164,812)
Weighted average number of shares (thousands)
Basic
Issued shares at beginning of period 278,777 278,777
Effect of shares issued - -
Effect of share repurchase and cancellation - -
Effect of own shares (3,842) (3,956)
Effect of share split - -
--------------------------------------------------------- -------- ---------
Weighted average number of shares at 31 December - basic 274,935 274,821
--------------------------------------------------------- -------- ---------
Profit/(Loss) per share
Basic (Cents) (6.4) (60.0)
Diluted (Cents) (6.4) (60.0)
--------------------------------------------------------- -------- ---------
There are potential ordinary shares outstanding, refer to Notes
10 and 11 for details of these potential ordinary shares.
13 Financial instruments
Fair values of financial instruments
Other receivables
The fair value of other receivables is estimated as the present
value of future cash flows, discounted at the market rate of
interest at the balance sheet date if the effect is material. The
fair values approximate book values.
Trade and other payables
The fair value of trade and other payables is estimated as the
present value of future cash flows, discounted at the market rate
of interest at the balance sheet date if the effect is material.
The fair values approximate book values.
Cash and cash equivalents
The fair value of cash and cash equivalents is estimated as its
carrying amount where the cash is repayable on demand. Where it is
not repayable on demand then the fair value is estimated at the
present value of future cash flows, discounted at the market rate
of interest at the balance sheet date.
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 financial assets exposed to credit risk were as
follows:
2015 2014
US$000 US$000
Cash and cash equivalents 7,602 12,480
-------------------------- ------ ------
(b) Liquidity risk
Liquidity risk is the risk that the Group will not be able to
meet its obligations as they fall due. 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 assure the Group's financial position.
The Group funding requirements are detailed in Note 1.
Details of the maturity of financial liabilities are provided in
Note 9.
(c) Market risk
(i) Foreign currency risk
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 2015 the foreign currency denominated assets
include cash balances held in Sterling of US$7,569,000 (2014:
US$12,313,000), other receivables denominated in Sterling of
US$115,000 (2014: US$169,000), and payables of US$116,000 (2014:
US$303,000) denominated in Sterling.
The following significant exchange rates applied during the
year:
Reporting date Reporting date
Average rate spot rate Average rate spot rate
2015 2015 2014 2014
------------------- ------------ -------------- ------------ --------------
Against US Dollars US$ US$ US$ US$
Pounds Sterling 1.5285 1.4736 1.6476 1.5557
------------------- ------------ -------------- ------------ --------------
Sensitivity analysis
A 10% weakening of the following currencies against the US
Dollar at 31 December 2015 would have increased/(decreased) equity
and profit or loss by the amounts shown below. This calculation
assumes that the change occurred at the balance sheet date 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
2015 2015 2014 2014
US$000 US$000 US$000 US$000
---------------- ------ -------------- ------- --------------
Pounds Sterling (757) (757) (1,218) (1,218)
---------------- ------ -------------- ------- --------------
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.
Capital management
The Board's policy is to maintain a strong 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. Either the
Group Employee Benefit Trust buys the shares in the Company to be
issued under the LTIP split interest scheme or, share options
awards are made direct to individuals as appropriate.
14 Commitments
The Group had no capital commitments or off-balance sheet
arrangements at 31 December 2015 (31 December 2014: nil).
Related parties
The Group's relationships with Jumelles and Glencore are
described in Note 1 above.
The following transactions occurred with related parties during
the period:
Closing balance
Transactions for the period (payable)/receivable
----------------------------- -----------------------
2015 2014 2015 2014
US$000 US$000 US$000 US$000
--------------------------- -------------- ------------- ----------- ----------
Associate Jumelles Limited 5 38 353 38
Harris GeoConsult Ltd (110) (174) (9) (12)
Funding:
To Jumelles Ltd 1,732 7,000 - -
--------------------------- -------------- ------------- ----------- ----------
Transactions with key management personnel
2015 2014
US$000 US$000
----------------------- ------ ------
Share-based payments * 150 238
Directors' fees * 502 611
----------------------- ------ ------
Total 652 849
----------------------- ------ ------
* Harris GeoConsult Ltd, a company in which Colin Harris has a
controlling interest, was paid a total of GBP73,735 (US$110,000)
for consultancy services provided by Colin Harris during 2015
(2014: GBP105,000 US$174,000).
The Directors' have no material interest in any contract of
significance subsisting during the financial year, to which the
Group is a party.
*** 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
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR SELFAUFMSEIM
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