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Zanaga Iron Ore is a speculative buy at 18p argues Doc Holiday

By Doc Holiday | Thursday 11 April 2013

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

The Zanaga (ZIOC) story is a rather familiar one for those who have followed resources stocks in recent times. It listed at 156p when shares in anything resource related were top of the pops. These days the sector makes the Jimmy Savile fan club look fashionable and the shares languish at 18p.

But I see a real case for this West African iron ore play. The company’s sole asset is a stake of 50% minus one share in the eponymous Iron ore project in the Congo. Its partner is Xstrata which assigned $100m to delivering a Pre-Feasibility Study. This demonstrated that Zanaga was a world class asset with a 2.5 billion tonne probable reserve and a 6.8 billion tonne mineral resource. Targeted production is 30 million tonnes per annum of high quality iron ore with a 68% Fe content with operating costs forecast to be in the lowest quartile among world producers. Essentially whatever the outlook for iron prices Zanaga should be profitable.

The market cap of Zanaga is £50 million and net cash is £23 million. So 50% of a world class project (worth at least £110 million) is in there for very little. Perhaps that is because the free float (27%) is not large. So why have the shares slumped? It’s no secret that the sector has been somewhat unloved.

Furthermore Xstrata (Zanaga’s partner) is merging with Glencore which is finalising their future with the Chinese government (Announcement pending 2nd May 2013) and this is all taking longer than expected. Does the enlarged group really want to build out Zanaga? I think they will as Xstrata does not have any other Iron Ore plays like this and certainly not on this scale. The stocks has also been hit by a forced institutional seller which has driven the share price down from 40p. Relief will come when the overhang has cleared and it is my understanding that this should not take too much longer.

The next month will be key as I expect firm news on when or whether developments at Zanaga are accelerated. On good news the re-rating could be dramatic.

Doc Holiday can be followed on Twitter at Doc_Holiday and writes on resource stocks at

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