RE: RNS12 Apr 2021 11:22
Taken from Edison report December 2011.
First call option. The first call option was granted in 2009 and exercised in February 2011 with Xstrata getting a 50% plus one share stake in ZIOP. By exercising the option Xstrata opted to fully finance the FS, which is expected to be completed no later than Q114. The PFS cost, which was partly funded by ZIOC using the proceeds from the call option premium, amounted to US$106m. The FS should require an additional US$250m in financing to be spent by Xstrata. The exercise of the call option by Xstrata triggered the implementation of the JVA governing the working relationships between Xstrata and ZIOC.
Second call option. According to the JVA, within 90 business days after the completion of the FS, Xstrata has the right to exercise the second option acquiring all the remaining 50% less one share in the Zanaga project from ZIOC. If an offer price is rejected by ZIOC, an independent valuation based on the project’s NPV will be determined. The JVA stipulates that an independent NPV is calculated based on the assumptions taken from the FS, using the average FOB iron ore price forecasts from AME and CRU, discounting the real cash flow at a 10% real rate and making no discount to the NPV.
If Xstrata decides not to exercise the second option, ZIOC will have to either co-finance the construction of the project (which we consider a highly unlikely scenario, given the scale of the project), or be diluted at an NPV. We note though that even if ZIOC is fully diluted, ie the company is not spending a dollar on the project following the completion of the FS, according to the specified formula and based on our own NPV calculation, the company’s interest in the project (therefore fully funded by Xstrata) will only be reduced to c 18% from the current 50%.
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