Zanaga Iron Ore Company’s (LON:ZIOC) share price rise reflects the increased chances of it project being developed after the recent change to the scope, according to Investec.
The Zanaga iron ore project in the Republic of Congo is now a joint venture with Glencore following the trader’s acquisition of original partner Xstrata.
Development plans have changed significantly over the past three years as the feasibility studies have advanced, progressing from a 45mln tonnes per annum (mtpa) railway-transported option to a potential 30mtpa pipeline (both options requiring US$7.5bn capital expenditure).
The new plan envisages a staged development, starting with a 12mtpa pipeline option, supplemented by 1-2mtpa of DSO [direct shipping ore], at what Investec says is a more palatable capital cost of US$2.5-3.0bn.
The feasibility study is due to be completed by the second quarter of next year and to then form the basis for a mining application.
The broker adds that the revised capital requirements are still demanding for a 12mtpa operation, presenting financing risk, but the project delivers a positive net present value at its long-term iron-ore price of US$95/t and significant leverage to higher prices.
Investec’s target for ZIOC is US$109mln or 25p per share applying a 70% risk discount. An unrisked valuation would be US$333m or 76p per share.
The broker has a ‘hold’ rating but adds the Zanaga project remains very much reliant on Glencore’s actions.