Project Update and Floating Port

28 May 2020

 

Floating Port Announcement and Project Update

 

Zanaga Iron Ore Company Limited ("ZIOC" or the "Company") (AIM: ZIOC) is pleased to provide an update to shareholders on the Zanaga Iron Ore Project (the "Zanaga Project").

Highlights

·    Floating Offshore Port facility

o Concept Study completed on the viability of a Floating Dewatering, Storage, and Offloading port facility ("FDSO" or "Floating Port")

o Potential indicated for $184m reduction to capital costs of the 12Mtpa Stage One development phase of the 30Mtpa Project

o No change expected to operating cost, significant NPV and IRR improvement

·    Early Production Project

o 1-5 Mtpa production scenarios under investigation focusing on processing facilities and suitable logistics solutions through Republic of Congo ("Roc") and/or Republic of Gabon ("Gabon")

·    COVID-19 update

 

Clifford Elphick, Non-Executive Chairman of ZIOC, commented:

"We are pleased to announce the conclusion of a Concept Study into a Floating Port facility for the Zanaga Project. This evaluation exercise demonstrates the clear potential of a Floating Port facility to enhance significantly the economics of the Zanaga Project through the reduction of upfront capital costs and enhanced Internal Rate of Return. In addition, there is potential to achieve significant ancillary technical benefits such as reduced environmental impact, elimination of dredging, and significant flexibility on coastal route selection."

Floating Port Study Results

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

Transhipping Solution Background

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

New Floating Port Solution

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

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

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

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

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

Data for comparison from the following sources:

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

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

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

·    Iron ore pricing in the 2014 FS has been altered to a pricing formula based on the 65% Fe concentrate index, with a pro-rata adjustment for the Zanaga Project's higher iron ore content product. The Net Present Value is based on a discounted cash flow model at a 10% real discount rate and the Internal Rate of Return (IRR) is calculated on a 'real' basis, unlevered.

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

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

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

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

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

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

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

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

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

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

Additional FDSO benefits

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

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

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

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

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

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

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

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

Early Production Project (EPP)

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

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

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

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

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

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

COVID19 update

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

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

The Republic of Congo guidelines involve comprehensive measures to combat the virus including a full lock down restricting movement of the population that ended on May 17^th. However, a curfew remains in place daily between 8pm to 5am and a number of measures have been enacted by the Government to protect the health of the population. The Project Team have enacted all required procedures in order to ensure compliance with these new regulations.

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

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

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

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

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

Next steps and future updates

ZIOC will be providing further updates, including an update on discussions with COIDIC, in the Company's Annual Report and Accounts which are scheduled for release in June 2020.

 

The Zanaga Iron Ore Company Limited LEI number is 21380085XNXEX6NL6L23.

 

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                                            Andrew Godber, Edward Thomas

and Corporate Broker                                       +44 20 3100 2000

 

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 investment in its associate Jumelles Limited. The Zanaga Iron Ore Project is one of the largest iron ore deposits in Africa and has the potential to become a world-class iron ore producer.