In the short term, the market is a voting machine, but in the long term it is a weighing machine, said Benjamin Graham, the father of value investing.
Shattering that analogy, AIM (Alternative Investment Market) is as electorally reliable as Russia and as accurate as budget airline luggage scales.
Graham’s claim depends on the market being a reasonably efficient information assimilator, which has not been the case for the UK junior stock exchange for some time.
This context is crucial when talking about Zanaga Iron Ore, a £48 million company with multi-million pound assets.
The last two years of stagnation, driven by economic and political turmoil, have only exacerbated this trend.
This context is crucial when talking Zanaga Iron Orea £48 million company with multi-million pound assets.
The company has attracted $350 million in investments for technical studies and drilling, is fully licensed and has a blue-chip cornerstone investor. These attributes are typical of a promising young woman in natural resources.
However, Zanaga’s journey has not been easy.
The magnitude of the Zanaga Iron Ore Project, its location and its financing needs have posed significant challenges.
To conduct thorough due diligence, potential investors should delve into Zanaga’s history, which reveals a company that has faced numerous obstacles during its 14 years of existence.
However, these historical questions are less relevant to the company’s current situation, on the brink of a significant value inflection point, a reality that has been largely overlooked by the market.
Just under two months ago, Zanaga, occasionally referred to by its stock symbol ZIOC, published an updated feasibility study on its iron ore project in the Republic of Congo.
This update, evaluated through the lens of Chinese contractors noted for their profitability in large-scale mining operations, revealed that capital expenditure estimates have been reduced.
The first stage, which aims to produce 12 million tonnes per annum (Mtpa) of premium pelletizable iron ore concentrate, is now estimated at $1.94 billion, with an additional $1.87 billion needed to expand to 30 Mtpa. .
This investment projects a net present value (NPV) of $3.68 billion, which will increase to $7.36 billion once construction is completed.
The updated feasibility study offers potential strategic investors a wealth of new information.
Several companies are reportedly interested, from those considering acquiring a stake in the consortium to others looking to acquire Zanaga outright.
Although there is no formal deadline, an agreement is expected to be reached within a few months, according to a source.
The Zanaga asset has many similarities with Rio Tinto giant Simandou operation, initially developed by the same team. Management believes Zanaga could even outperform Simandou through reduced infrastructure risk and better economics.
With an ore reserve of 2.1 billion tonnes based on a 27 kilometer deposit drilled to a depth of 150 metres, the project has enough to sustain phases I and II for 30 years.
The length of the deposit is 47 kilometers and the ore extends to a depth of 450 meters, suggesting an even greater potential resource.
The mineral resource base stands at an impressive 6.9 billion tonnes, enough to support an even larger operation capable of becoming one of the largest iron ore mines in the world.
The potential grade of the product is also notable: the stage one pellet feed is expected to be 66% iron (Fe), comparable to the best ore from Brazil, which is priced higher.
Second stage production is expected to produce 68.5% Fe, ideal for low carbon steel production, further enhancing its market appeal.
Despite these promising prospects, the market has yet to respond. This could indicate that a company is on the cusp of a value crystallization event.
Has the market failed to price this in, or is it still influenced by past events beyond management’s control?
Whatever the reason, Zanaga’s current share price does not appear to reflect its future potential, presenting an opportunity for investors. However, substantial returns carry the risk that potential strategic partners may not materialize.
This scenario epitomizes the classic risk-reward balance, rather than risk-free investing.
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