Highlights of the Feasibility Study Results
In 2014, ZIOC published the results of the Feasibility Study (“FS), managed by ZIOC’s joint venture partner Glencore, which confirm attractive project economics for the Zanaga Project.
The FS was completed on the basis of a staged development of the Project. Stage One consists of a 12Mtpa operation, with Stage Two expanding the operation by a further 18Mtpa to produce a total 30Mtpa of high quality iron ore product over a 30 year life of mine (“LOM”). Transportation to port will be via slurry pipeline in both stages, which facilitates the low cost delivery solution.
- Stage One 12Mtpa initial operation
- $32/t FOB bottom quartile operating costs including royalty
- $2.2bn capital expenditure
- Premium quality 66% Fe content iron ore pellet feed product
- Stage Two expansion to 30Mtpa operation
- $2.5bn capital expenditure for additional 18Mtpa production
- $26/t FOB bottom quartile operating costs including royalty
- Premium quality 67.5% Fe content iron ore pellet feed product
- Benefits of Staged Development
- Lowers capital and execution risk
- Reduces financing requirements
- Maximises return on capital
The Stage One development has been designed as a standalone business case and does not rely on, or require, the Stage Two expansion. The Stage One operation will mine the higher grade upper hematite ores which supports a 12Mtpa operation over a 30 year LOM, producing a 66% Fe content, premium quality iron ore pellet feed product with low impurities.
The initial open pit mining operation will use contractor mining to exploit free dig material with a very low strip ratio, with simpler processing requirements resulting in low initial power demand. The ore will be upgraded into a high grade pellet feed using conventional gravity and flotation concentration methods before being pumped to the port via a slurry pipeline. The Project’s “on-shore” port facilities and infrastructure will include a filter plant for dewatering of the concentrate and a covered ore storage facility located at a proposed new third party port to be constructed 9km north of the existing port of Pointe-Noire (“Pointe Indienne”). Operating costs are estimated at $32/t FOB, including royalty, which would position Zanaga at the bottom quartile of the industry’s cost curve. The capital cost is estimated at $2.2 billion including contingency.
The Stage One development has been designed as a standalone business case, presenting highly attractive economics. The initial cash flows and project returns are maximised by commencing mining of the higher grade near surface ore for the first eight years of operation. The development of Stage Two has robust economics and has been nominally scheduled to suit the project mine development, construction timing and forecast cash flow generation.
The Stage Two 18Mtpa expansion to 30Mtpa of total production will involve open pit mining of the magnetite orebody. The strip ratio will be lower than Stage One as the upper hematite cap will have been mined. The processing plant will be expanded with a second concentrator using magnetic separation to produce a blended 67.5% Fe content, premium quality iron ore pellet feed product. The increased power requirements are expected to be supplied by planned power generation expansion projects in the RoC. A second slurry pipeline will be constructed to transport the ore to port where the port facilities will be expanded as part of the proposed deep water port development.
Capital Cost Estimate
Total Stage One capital expenditures are estimated to be $2.2 billion, with $1.2 billion of direct costs and $1 billion of indirect costs and contingency.
Total Stage Two capital expenditures are estimated to be $2.5 billion, with $1.5 billion of direct costs and $1 billion of indirect costs and contingency.
|Stage One||Stage Two|
|Front End Engineering (FEED)||22||11|
|Port Yard Facilities||173||243|
|Total Direct Costs||1,231||1,535|
|Construction Indirects & Owner’s costs||529||353|
|Engineering Procurement & Construction Management (EPCM)||203||236|
Stage One capital costs have been estimated to an FS level of definition. The Stage Two costs are supported by a lower level of engineering (PFS level) but significantly leverages the work completed for the Stage One development. Cost escalation is excluded from the capital cost estimate. The capital cost estimate assumes the use of a third party port facility at Pointe-Indienne.
Operating Cost Estimate
The average LOM production costs of the Zanaga Project are highly competitive for both Stage One, on a standalone basis, and even more competitive in Stage Two. The LOM annual cash cost is $30 per dry metric tonne excluding royalties and freight. Cash costs are lower in years 1 – 8 at $28 per dry metric tonne FOB (including royalty) driven by the very low strip ratio, higher feed grade and higher plant recovery.
If the Stage Two expansion production commences in Year 9 unit operating costs decrease. The increased efficiency of the expansion case is attributable to economies of scale in all the supporting areas and infrastructure. Average Stage Two cash cost is $23 per dry metric tonne excluding royalties and freight.
The Project’s forecast low operating costs would place Zanaga in a highly competitive position on the seaborne iron ore trade cost curve, especially given the high iron grade of the products. The ability to maintain the Project’s bottom quartile operating cost position under the staged development approach was a significant outcome of the Feasibility Study.
Operating cost estimate ($/dmt)
30 Year Avg.
9 – 30 Year Avg.
|Mining and Processing||19.1||17.4|
The figures shown are rounded; they may not sum to the subtotals shown due to the rounding used. The capital cost estimate assumes the port is built by a third party with a capital charge being included in the operating cost. The capital charge is based on the capital cost of the port development and allows for a theoretical 12% unlevered real rate of return to the port investor over the life of the Project.
The indicative Stage One Development Project Schedule is shown below, subject to a positive investment decision at the appropriate time.
|Activity||Key Date (indicative)|
|Preparation for Front End Engineering (FEED)||6 months|
|FEED (including finalisation of necessary licences & approvals, infrastructure access & user agreements, and financing)||12 months|
|Construction Phase||3 years|
The Stage Two development is subject to a separate investment decision and, if proceeded with, has a similar three year construction period to the Stage One development. The Stage Two development has nominally been scheduled to commence five years following first production from Stage One. Based on this nominal schedule, production from Stage Two is targeted to commence 9 years after first production from Stage One and, depending on prevailing iron ore prices, the Stage Two expansion demonstrates the potential to be self-financed by existing project cash flows.