TIDMZIOC
RNS Number : 1370O
Zanaga Iron Ore Company Ltd
28 May 2020
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:
Deep Water Floating
Option Transhipping Port Port
Date of Assessment (Costing
Base Date) 2014 2012 2020
--------------- --------------- ---------------
Financial Capital cost
Impact (USD million) 295 899 111
-------------------- --------------- --------------- ---------------
Operating cost
(USD/t) 6.50 1.48 6.47
------------------------------------ --------------- --------------- ---------------
NPV10 (USD million) 1 268 m - 1 402 m
------------------------------------ --------------- --------------- ---------------
IRR 18.2% - 19.7%
------------------------------------ --------------- --------------- ---------------
Costing accuracy +/-20% +/-15% Conceptual
------------------------------------ --------------- --------------- ---------------
Technical
Impact Logistics handling 5 steps 3 steps 3 steps
-------------------- --------------- --------------- ---------------
Flexibility on Fixed Fixed Flexible
port location
------------------------------------ --------------- --------------- ---------------
Requires Requires Mobile FDSO
suitable suitable with more
land access land access options for
and proximity and proximity location
to 25 m deep to 25 m deep of shore
water water crossing
vs port
------------------------------------ --------------- --------------- ---------------
Environmental Land impact Med/high High Low/med
Impact
-------------------- --------------- --------------- ---------------
Significant Significant Terminal
infrastructure infrastructure station,
required required pump station
to be built to be built and buried
on land on land shore crossing
only
------------------------------------ --------------- --------------- ---------------
Ocean floor impact Medium Medium/high Low
------------------------------------ --------------- --------------- ---------------
Breakwater Large trestle Pipeline
construction structure located on
or below
seabed
------------------------------------ --------------- --------------- ---------------
Dredging required Minor Significant None
------------------------------------ --------------- --------------- ---------------
Some dredging Dredging
required required
------------------------------------ --------------- --------------- ---------------
Data for comparison from the following sources:
-- Cost estimates for the transhipping and deep-water port
options have been taken directly from the Zanaga Project's 2012
Pre-Feasibility Study ("2012 PFS") and 2014 FS.
-- Cost estimates for the floating dewatering storage and
offloading platform (FDSO or "floating port") have been estimated
at an order-of-magnitude level based on interactions between
P&C, port and coastal engineering consultancies and leading
suppliers of floating production and mooring systems.
-- Financial data for the NPV and IRR comparison have been taken
from the Zanaga financial model, as utilized in the 2014 FS.
-- Iron ore pricing in the 2014 FS has been altered to a pricing
formula based on the 65% Fe concentrate index, with a pro-rata
adjustment for the Zanaga Project's higher iron ore content
product. The Net Present Value is based on a discounted cash flow
model at a 10% real discount rate and the Internal Rate of Return
(IRR) is calculated on a 'real' basis, unlevered.
-- A long term freight rate assumption of $22.50 per wet metric
tonne has been assumed, which is in line with the 2014 FS
(equivalent to $24.50 per dry metric tonne).
No re-validation or verification of the 2012 PFS or the 2014 FS
or the 2014 FS costing model was conducted and data was used on an
"as-is" basis from these sources with some adjustment so as to
incorporate indirect costs into direct costs.
Other key items to note in the basis for comparison are as
follows:
-- No escalation has been applied to figures from the 2012 PFS or the 2014 FS.
-- Costing accuracy differs for the various options based on the level of definition of study.
-- The data presented for the transhipping and FDSO options are for 12 Mtpa:
o Tonnage increase to 30 Mtpa is not feasible for the
transhipping option according to historical studies.
o Tonnage increase to 30 Mtpa in the FDSO case would be catered
for by the lease of an additional FDSO vessel and installation of
an additional sub-sea pipeline.
-- The data presented for the deep-water port solution is for 30 Mtpa.
-- The aim is to compare "like-for-like" in terms of upfront
CAPEX spend and OPEX, therefore capital cost for future production
expansion has not been considered.
Additional FDSO benefits
In addition to the cost and cashflow advantages, an FDSO
solution could offer several other potential benefits over the
transhipping and deep-water port options, as outlined below:
-- The land-based footprint is significantly reduced and, in
particular, there is no infrastructure such as a harbour or
quayside required on the shoreline.
-- The FDSO solution can be developed more quickly than a port
facility and it may be possible to optimise schedule or cash
flow.
-- Depending on availability of material, it may be possible to
commission the FDSO ahead of overland pipeline operations and thus
allow for quicker production ramp up.
-- The FDSO could offer the opportunity to be less affected by
adverse weather conditions by comparison with the transhipping
option.
-- The FDSO could be located at sufficient depth to ensure no
upfront or maintenance dredging is required.
-- Once the slurry is dewatered, the product would be stored in
weatherproof holds to ensure concentrate remains below maximum
water content levels until ready for loading onto the ocean-going
bulk carriers.
-- FDSO treatment facilities would treat the excess water from
the dewatering process to the required environmental requirements
and discharge of the treated excess water would be at sea, in line
with the original environmental regime followed in the 2014 FS.
This would eliminate the need for a land-based treatment plant and
marine outfall as per the transhipping and deep-water port
options.
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.
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END
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