Zanaga Iron Ore Company

BUY

07/07/2011 Robert Tyerman

September should bring the keenly-awaited result of the 'Value Engineering Exercise' into the four billion-tonne Zanaga iron ore project in the Republic of Congo.

Stressing that the Republic of Congo is across the river from the strife-torn Democratic Republic of Congo and has recently been trouble-free, AIM-quoted Zanaga Iron Ore Company (ZIOC) owns almost half of the project, where mining giant Xstrata holds 50% plus one share and has spent £66m on a pre-feasibility study.

Under the joint venture agreement, Xstrata is paying £6m a month to fund the Value Engineering Exercise and has the option to fund a full feasibility study by 2014, the deadline for converting the present Zanaga exploration licence into an exploitation licence, and then take the project forward. ZIOC, chaired by ex-Anglo American luminary and current Gem Diamonds boss Clifford Elphick, says it has envisaged producing 45m tonnes of iron ore a year at a cost of $28 (£17.5) a tonne, against a current market price of $170 a tonne, from Zanaga, where the iron ore grade is 33.9% and elsewhere the company says there is ample scope for further exploration.

Stressing Zanaga's iron ore is 'soft' and should be 'easy to extract', ZIOC says the project will need a $2bn railway to the port of Pointe Noire, very close to deep water. The company's directors include Colin Harris, former project chief at mining major Rio Tinto's Simandou project in Guinea, which is 40% larger than Zanaga, and Clinton Dines, former president of BHP-Billiton China, who could be helpful in finding buyers for Zanaga's output.

ZIOC, which has some £30m cash, is tightly held, with directors owning around 72% of the shares. That is likely to change in September, when it is possible the company will issue shares when it publishes the Value Engineering Exercise report. That should not dampen the market, provided the report is positive.

ZIOC floated on AIM last November with a £62m placing at 156p. The shares now trade at 164p and have scope for significant improvement.

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