Name and Location
Zanaga iron-ore project, Republic of Congo (RoC).

Client
The project is a joint venture between GlencoreXstrata (50% plus one share) and the Zanaga Iron Ore Company (ZIOC) – 50% less one share.

Project Description
The Zanaga project is located 30 km west of Zanaga, a regional centre of the Lekoumou department of the RoC.

The project has probable ore reserves of 2.5-billion tons grading at 34% iron. A prefeasibility study (PFS) completed on the project has recommended that the optimum scope of work for the initial development of the project’s mineral resource comprise an openpit, low-strip mine operation and a concentrator.

This will produce 30-million dry tons a year of high-quality, 68%-iron-content product over a mine life of more than 30 years.

Value
The PFS has an estimated capital expenditure (capex) at $7.5-billion.

Duration
Not stated.

Latest Developments
As the next phase of the Zanaga iron-ore project starts, the ZIOC expects to reduce the project’s capex costs from a single-stage $7.5-billion development to a two-stage $4.7-billion ramp-up.

Nonexecutive chairperson Clifford Elphick says the recently completed GlencoreXstrata-managed feasibility study shows that a multistage development of the Congo-based mine has “significant advantages” over the 2012 prefeasibility study (PFS), which had considered a single-stage 30-million-tonne-a-year development at a capital cost of $7.5-billion.

“The revised staged-development approach has resulted in major improvements through substantial reductions in capital costs, lower capital and execution risk, and maximised capital returns,” he explains.

The Stage 1 development to an initial 12-million tonnes a year of high-quality iron-ore product is expected to cost $2.2-billion, while the Stage 2 expansion to a 30-million-tonne-a-year capacity will cost $2.5-billion.

Further, the first-stage operation could potentially finance the second-stage expansion through project cash flows, limiting the level of additional equity required for the operation, Elphick has commented.

The bottom quartile operating costs presented by the PFS have been maintained, with a $32/t free-on-board (FOB) bottom quartile operating cost, including royalty, during Stage 1, and $26/t FOB bottom quartile operating cost, including royalty, during Stage 2.

Bokerage firm Liberum’s mining team says the project economics remain robust despite materially weaker iron-ore prices, with the higher recoveries and feed grade in the early years also aiding the economics of the project.

“Inputing the feasibility study estimates, we calculate a 16% internal rate of return using a long-run iron-ore price of $90/t cost and freight to China – versus our $98/t estimate – driven primarily by low operating expenditure (opex) and grade premium,” the firm says.

The Stage 1 cash flows and project returns will be increased by mining the higher-grade near-surface ore for the first eight years of the operation’s 30-year mine life.

“Phase 2 will offer superior economics, with capital intensity of $138/t and opex of $26/t FOB, and will be fundable without additional equity and, potentially, without additional debt, if iron-ore stays at $110/t,” Liberum notes.

The Stage 2 expansion – by 18-million tonnes a year – to the 30-million-tonne-a-year target will comprise the openpit mining of the magnetite orebody.

Following the completion of the feasibility study and a social- and environmental-impact assessment, ZIOC has submitted an application for the project’s mining licence and environmental permit with the Ministries of Mines and Geology and Environment respectively.

Liberum has noted that when the applications are returned – before the end of the year – ZIOC will be in a position to bring in a third party through a sell down from Zanaga and/or GlencoreXstrata.

In the interim, Liberum expects GlencoreXstrata to continue working on delivering key engineering, procurement and construction management contracts for the transport corridor and the processing plant, which should provide a large part of the debt, leaving a relatively small equity component.

ZIOC has entered into negotiations with international contractors regarding the mining convention, as ZIOC prepares for the start of the front-end engineering and design early in 2015.
Key Contracts and Suppliers
None stated.

On Budget and on Time?
DRA (process plant study).

Contact Details for Project Information
ZIOC corporate development and investor relations manager Andrew Trahar, tel +44 20 7399 1105 or email info@zanagairon.com.
Xstrata, tel +41 41 726 6070 or email info@xstrata.com.
DRA, tel +27 11 202 8600 or email info@DRAglobal.com.