TIDMZOX
RNS Number : 2495G
ZincOx Resources PLC
10 May 2011
ZincOx Resources plc
("ZincOx", "the Company" or "the Group")
Preliminary Announcement of Results
Year ended 31 December 2010
ZincOx Resources plc (AIM Ticker: ZOX) which specialises in the
low cost recovery of high grade zinc compounds from unconventional
sources, today announces its results for the year ended 31 December
2010.
Highlights
-- Korean Recycling Project ("KRP") on track to become the
Company's first recycling project to be put into production
-- KRP awarded Foreign Investment Zone status
-- 50 year lease agreed over KRP site
-- Completed the acquisition of the Waste Oxide Recycling
Facility (WORF) processing equipment, from a subsidiary of
Severstal North America for a consideration of US$4 million
-- Ohio Recycling Project development suspended and Big River
Zinc impaired
-- Impairment of the Jabali project as a result of the political
situation in Yemen
-- Approximately GBP38 million in cash at the end of 2010
Post Period Highlights
-- An off-take agreement and the formal documentation for loans
to be provided by Korea Zinc Co. Ltd for the development of the
first phase of the Company's Korean Recycling Plant
-- Rainwater drainage and sewerage, fencing, lighting and
construction offices have been installed
-- Foundations for non-process buildings are finished and
foundations for process building are underway and all deep piling
work has been completed
-- The refurbishment of equipment in the USA, including the
rotary hearth furnace, is well underway and the first batch is
ready for shipment and should be available on site for the start of
installation in July
-- Over 50% of KRP development cost now committed without
recourse to contingency
-- Board restructured reflecting focus on recycling with four
directors stepping down
Commenting today Andrew Woollett, Executive Chairman, said:
"We are delighted that the development of the Korean Recycling
Project is financed, well underway and remains on budget and
schedule to achieve first production ten months from now."
For more information please go to www.zincox.com or contact:
ZincOx Resources plc Tavistock Communications
Andrew Woollett/Simon Hall Charlie Geller / Paul Youens
+44 (0) 1276 450100 +44 (0) 20 7920 3150
shall@zincox.com cgeller@tavistock.co.uk
Ambrian Partners Limited
Andrew Craig (Nominated Adviser)
Jen Boorer Tel: +44 (0) 20 7634 4700
ZincOx Resources plc
Annual Report 2010
Chairman's Statement
The development of the Korean Recycling Plant, which is the
Company's first recycling project, started in the final quarter of
2010. The project remains on budget and on schedule and is expected
to be in production in less than a year. The Company has weathered
the most serious financial crisis the world has seen for over 50
years and has managed to finance this US$110 million project
without seeking further funding support from its shareholders. We
believe that the technology being installed in the Korean Recycling
Project represents a major step forward in the treatment of steel
industry wastes and we remain convinced that there is a huge
opportunity for ZincOx to roll out this technology across the
world, thereby presenting substantial growth potential for the
company.
The uncertainty of the political and security situation in Yemen
has led the Board to carefully consider the way in which our
investment in the Jabali project should be represented in our
financial statements. Over the past year we have made strenuous
efforts to refinance the development of the Jabali mine and whilst
technically the project has attracted a good deal of positive
interest, the challenging nature of the country has thwarted our
efforts. In spite of that we have had serious interest from parties
that had carried out detailed due diligence. However, the
continuing deterioration of the situation in Yemen, including the
necessity to evacuate all our expatriate staff, has suspended this
interest. While we remain confident of the economic merits of the
project, in the absence of any immediate certainty in its
financing, the Board has determined that, at this point in time,
none of our investment could be recovered with absolute certainty.
We have therefore impaired the Company's share of investment in the
Jabali Project (GBP52 million). When the situation in Yemen
stabilises, it is our hope that interest from third parties may be
revived and a refinancing can take place. If this were to occur,
given the intrinsic value in the project, it could then lead to a
reversal of the impairment charge in Jabali. The impairment of the
investment in Jabali and those previously announced for the USA
have led to a total loss attributable to shareholders of GBP69.3
million for the year (2009 GBP2.6 million) While this loss is
considerable, the stock market has for some time given us no credit
for the Jabali project and the interest of our major shareholders
continues to be focused exclusively on our recycling business,
which is progressing with great speed and success.
Our management team is now almost exclusively concentrated on
recycling and the development and commissioning of our first plant
in Korea represents a watershed for this business.
RECYCLING
Several years ago we recognized the recycling opportunity
presented by the zinc rich waste dust generated by the recycling of
scrap in electric arc furnaces. The increasingly galvanized nature
of steel and therefore scrap and the volatile nature of zinc leads
to the concentration of zinc in the dusts that are generated by the
furnaces. This material is very much richer in zinc than the
average zinc ore-body. Our highly skilled and experienced technical
team have been investigating the best way to recover the zinc from
this material for the past nine years, and about four years ago
selected the Rotary Hearth Furnace as having the potential to
provide a major leap forward in the recycling of this dust, since
it would produce a high grade zinc concentrate, an iron
intermediate product and no waste.
A global review of the steel recycling industry led us to focus
on four countries, the USA, Thailand, Korea and Turkey. The
realization of a recycling plant requires the successful
organization of a number of factors that may not be in the control
of the developer. Bearing in mind these uncertainties we decided to
pursue recycling projects in each of these countries with the
intention of immediately pursuing the first project that could
satisfy all the development prerequisites. Thereafter the other
projects would be pursued once the first project had successfully
demonstrated the technology.
In 2008 the most promising project was in Ohio and an equity
fundraising was undertaken to develop the project. However, the
subsequent commodity price crash, credit crunch and dramatic
reduction in steel output in the USA, and therefore associated
waste generation, derailed its development plans.
Korean Recycling Plant
In April 2009, we signed supply contracts with every steel
recycling company in Korea. These contracts together amounted to
about 400,000 tonnes of waste per annum, and it is the largest ever
contract of waste of this nature. While Korea immediately became
the largest and most exciting project, the extreme shortage of
suitable industrial land in Korea and its very high cost,
significantly reduced the likelihood of Korea becoming the first to
have fulfilled the various development prerequisites.
In mid 2009 we identified a suitable plant site at the Cheonbuk
industrial complex, near Gyeongju in South Korea and at the end of
that year obtained the necessary environmental permit. In order to
encourage the development of projects deemed to be especially
desirable for the country, foreign investors may have projects
granted Foreign Investment Zone status. This provides a number of
tax benefits including a waiver of corporate tax for five years.
Recognising that the high cost of land in Korea is a significant
disincentive for foreign investors, some years ago the Korean
government introduced a scheme by which the site for a project
having Foreign Investment Zone status may be purchased by
government and leased back to the foreign investor, thereby
significantly reducing the initial capital development cost.
The Korean Recycling Plant was granted Foreign Investment Zone
Status in May 2010 and the government purchased the site in July
2010. This purchase marked a significant watershed in the
development of the Korean Recycling Plant. Having had sight of the
draft lease prepared by government, we were confident that our
first recycling plant should be in Korea and we took the decision
to make it the Company's priority development project. The final
piece of the jigsaw required for project development was the
arrangement of project finance and we began to discuss possible
financing scenarios with commercial banks and potential offtakers
of our zinc product. These discussions were sufficiently
encouraging that we started to undertake the basic engineering for
the plant in August 2010. This allowed a costing exercise to be
undertaken in September 2010 that estimated the development cost of
Phase 1 to be US$110 million, which was the basis of a cashflow
model from which the economic indicators were derived.
In January 2010, we completed the purchase of a rotary hearth
furnace and other equipment from Severstal's Rouge Steelworks, in
Detroit. It was acquired for a fraction of the original development
cost and has probably reduced the capital development cost by US$20
million. During 2010, our engineering team have been working
closely with the company that originally supplied and built the
plant, Global Research and Engineering LLC ("Global"). By the end
of December 2010 the equipment had been removed from Rouge and
transported to the original fabricators for refurbishment.
Global is an American company whose directors have been involved
in the design and supply of rotary hearth furnaces for over 40
years. During 2010, Global worked with us to design modifications
to the furnace in order to optimise the recovery of zinc. We have
forged a close technical relationship with Global and this
culminated in the signature of a worldwide exclusivity agreement,
by which Global has agreed not to supply rotary hearth furnaces to
other companies primarily involved in the recovery of zinc provided
ZincOx continues to order furnaces from Global on a regular basis.
This is an important agreement for the Company as it provides us
with a high level of protection for the intellectual property being
developed for our operations.
The equipment we purchased has the capacity to treat
approximately 50% of the EAFD contracted in Korea. Since a furnace
capable of treating 400,000 tpa of EAFD would be larger than any
furnace of this type ever built and in order to reduce the initial
capital cost of the plant, it has been decided to execute the
Korean development in two equal phases. The demonstration of the
operation in the first phase and the cashflows from it will make
lending for the development of the second phase much more
attractive for banks, as it will be seen as the expansion of an
existing operation rather than the development of a new greenfield
site.
Following the costing exercise, in October 2010, Xmetech were
awarded the EPCM contract for the development of the plant. Xmetech
are an independent Korean engineering company that were formerly
the engineering division of Korea Zinc. They are, therefore,
uniquely qualified to manage the construction of the
development.
In December 2010 we entered into a 50 year lease over the
project site and on 13 December we announced the signing of a
Letter of Intent with Korea Zinc, by which they would provide
development loans amounting to US$50 million. The letter of intent
was converted into loan agreements on the 26 April 2011. Since
these loans, together with cash held on deposit by the Company, is
sufficient to develop Phase 1 of the Korean Recycling Plant, the
Company is pressing ahead with the development with all haste and
we look forward to commissioning the plant at the beginning of next
year.
Using a price of zinc of US$2,250 per tonne and pig iron of
US$450 per tonne, over a 20 year life, post tax and financing, at
the first phase of the Korean plant alone it is estimated to have a
net present value of about US$100 million and an internal rate of
return of over 30%. The Korean Recycling Plant will produce a zinc
concentrate of high quality suitable for sale to a conventional
smelter for the production of zinc metal. It is similar in many
ways to that of a conventional mineral concentrate from a mine and
at full production (92,000 tonnes of zinc contained) its capacity
is equivalent to that from a medium/large scale deposit. However,
it is likely that the project will continue to treat steel industry
waste for the foreseeable future, unlike a mine which always has a
finite life. Therefore the life of the Korean Recycling Plant will
not be limited and so the operation will be more like a
conventional manufacturing operation, and we believe earnings are
therefore a better basis for valuing the business. Based on the
assumptions above, the EBITDA of the first phase of the Korean
recycling project are expected to be about US$29 million per
annum.
Further recycling projects
The development of recycling operations elsewhere in the world
will be undertaken after the successful commissioning of Phase 1 of
the Korean Recycling Plant. In the latter part of this year, work
will commence on the basic engineering and costing of these plants,
so that feasibility studies can be completed as Phase 1 is being
commissioned. These studies will provide the basis of financing
either through project finance or industrial partnerships.
MINING
Jabali (52% interest)
Towards the end of 2009, the bondholders that had provided about
50% of the funds required to develop the project served a default
notice. At the beginning of 2010, together with our partners, we
were able to recover 100% of the project free from encumbrances.
During the course of the year we have explored numerous refinancing
options including bank debt and industry partnerships. The project
itself is robust technically, with strong economics at the current
zinc and silver prices. Indeed the increasingly strong silver price
has refocused our attention on the silver content of the ore, which
today represents a very important potential by-product credit.
Although Yemen is a challenging place to operate we have
demonstrated our ability to develop the project physically on the
ground and indeed work continued through the year, albeit at a low
level pending the refinancing. This work was carried out at the
expense of our partners who were catching up with the expenditure
we had made independently during the latter part of 2009.
The uncertainty of the political and security situation which
existed through the year and at the year end have meant that the
refinancing of the project was not achieved in the year. The
continuing deterioration of the political situation has led the
Board to determine that the recoverable amount at this time is nil,
necessitating a full impairment of the ZincOx share of the
project.
Shaimerden
In January 2010 we received US$ 12.2 million from Kazzinc in
respect of the deferred payments due from our sale of the
Shaimerden deposit and in January 2011 we received the final
deferred payment amounting to US$ 3.3 million. The sale of the
Shaimerden deposit has provided the company with revenue for the
past five years while we have been developing our recycling
business.
CORPORATE
In March 2010, two shareholders attempted to change the
direction of the Company by calling for the removal of a number of
directors. These shareholders wanted to use conventional technology
to treat steel waste, but this approach offered nothing new and was
not considered to be attractive by either the Board or the majority
of shareholders, and the resolutions were overwhelmingly defeated.
This exercise was very distracting for management and unsettling
for our business partners.
Our business is now almost entirely focused on recycling and our
mining activites no longer form part of our core business. We have
recently added to our website to help explain the role of ZincOx in
the global steel recycling business and we are excited by the
prospect of rolling out this technology around the world. However,
the Company's resources, both financial and human, are currently
devoted to getting the first phase of Korea up and running within
budget and on schedule.
Board Reorganisation
I am delighted to welcome Gautam Dalal to the Board following
the departure of Jeff Hewitt in January 2011. The structure of our
Board was established at a time when we were actively involved in
multiple mining and recycling projects. As a result of our more
focused strategy on recycling it is now appropriate for us to
reduce the size of the Board. Peter Wynter Bee, Simon Mulholland,
Jerry Saville and Gilles Masson have offered to step down from the
Board. I am, however, delighted to confirm that Peter and Simon
will be available to the Group as required. I am also pleased to
confirm that Rod Beddows has accepted the role of Deputy Chairman.
I would like to thank Jeff, Jerry and Gilles for all their hard
work for the company over the last three years and wish them well
for the future.
I should also like to thank all our staff for their very hard
work over the past year and also the Board and shareholders for
their strong support for the management team's vision to create a
"state of the art" zinc recycling company.
Andrew Woollett
Chairman
9 May 2011
REVIEW OF OPERATIONS
RECYCLING
Korea, Korean Recycling Plant
Significant progress was made with the Korean Recycling Plant
("KRP") project during the course of 2010 and it is now the
Company's flagship recycling project with first production
scheduled for the first quarter of 2012.
At the end of 2009 ZincOx applied for Foreign Investment Zone
Status for the site and this was granted in May 2010. This grant
enabled the government to press ahead with the purchase of the
plant site which was completed in July 2010 and a lease was entered
into on 7 December 2010. A letter of intent covering an offtake for
100% of the zinc product and the provision of US$50 million in
loans was signed with Korea Zinc on 13 December 2010. This was
ratified by fully binding documentation on 28 April 2011. The
balance of the development cost will be provided from the Company's
existing cash resources.
The KRP has been designed to treat 400,000 tpa electric arc
furnace dust ("EAFD"). The EAFD is being supplied by all Korea's
steel recycling companies under 10 year supply agreements. A number
of sampling campaigns over the past 5 years have demonstrated that
the EAFD contains about 23% zinc and 28% iron.
The KRP will be developed in two equal phases, so that each
phase will produce about 46,000 tpa zinc in a high quality zinc
oxide concentrate and about 100,000 tpa of low quality hot
briquetted iron.
Following the decision to prioritise the development of KRP in
July 2010, a contract to cost the development of the plant was
awarded to Xmetech, a Korean company that was formerly the
engineering division of Korea Zinc. Xmetech are uniquely qualified
to assist in the development since they are familiar with projects
of this size and in this region. They are also familiar with the
sorts of equipment and processes being employed and with working
with overseas companies. This exercise indicated a capital cost for
Phase 1 of US$110 million and a schedule for development of 15
months. An internal provisional estimate of the cost of developing
Phase 2 is US$146 million assuming there is a washing plant to
upgrade the zinc product.
The development of Phase 1 will use the rotary hearth furnace
purchased a little over a year ago from Severstal North America.
The furnace and other equipment was dismantled during November and
December 2010 and is currently being refurbished and modified at
the workshops of the original equipment suppliers. The refurbished
plant will then be sent out to Korea and shipments will start in
May 2011.
The KRP site covers 9.2 hectares in the Cheonbuk Industrial
Complex, which lies about 10 kilometers south west of Pohang,
Korea's largest steel making city. Following the signature of a 50
year lease over the site at the end of November 2010, a site soil
survey was conducted that confirmed foundation requirements and the
layout of the plant was confirmed. The plant layout has been
designed for both phases of development and also provides for the
installation of a melting plant for the iron product should this be
required.
The site construction offices and temporary power for
development were installed during January and February 2011 and
this was immediately followed by the installation of site rainwater
drainage, lighting and utility supplies. The rainwater will be
collected in a storage pond and used for plant cooling, although
the evaporation of this water will require additional make up water
from municipal supplies. The laying of foundation for various
elements of the plant is well underway and the construction of
buildings has also commenced with first equipment installation
expected in July 2011.
Commissioning of the feed preparation of the plant is scheduled
for November 2011 and hot commissioning of the RHF in February
2012. Preparations for the production operation are well underway.
Contracts for the supply of utilities, reagents and coal are under
negotiation and senior production staff have already been
recruited.
The development of Phase 2 is in the initial planning phase, and
basic engineering has recently commenced. A feasibility study for
Phase 2 is scheduled for completion before the end of 2011, so that
bank finance for the expansion may be arranged in the first half of
2012. Assuming a smooth commissioning of Phase 1, the construction
of Phase 2 is planned to commence in June 2012 so that full
production of the KRP can commence in mid 2013.
Thailand , South East Asia Recycling Project
The recycling plant in Thailand will treat EAFD generated
throughout the region - the South East Asian Recycling Plant
("SEARP"). We have recently re-engaged with various steel companies
for the provision of their EAFD under long term supply
agreements.
We have obtained strong support from government and the local
steel industry for our plans in Thailand. We are negotiating to
purchase a site in a newly developed industrial area where an
environmental impact assessment will commence shortly. This will be
followed by basic engineering, costing and the production of a full
feasibility study that should enable us to raise the necessary
project finance towards the middle of 2012. As an alternative to
ZincOx providing all the equity component for the development,
discussions have commenced with potential offtakers and other
parties who would be interested to provide finance or act as
partners in the project.
USA, Ohio Recycling Project
Before it was decided to make the KRP the Company's first
development project, considerable work had been undertaken on the
Ohio Recycling Plant ("ORP"). The Company owns a six hectare site
near Delta Ohio, which is well serviced by road and rail and is
capable of offering competitive EAFD transport costs from numerous
mills in the northern USA and southern Canada. The environmental
permit for the site lapsed in August 2010 but subsequent
discussions with the Environmental Protection Agency indicated that
it should be possible to obtain the necessary permits again without
undue delay.
One of the delays in developing this project was the time it was
taking to negotiate long term EAFD supply agreements with the steel
mills. Any difficulties in ORP taking contracted EAFD could cause
the mills severe problems and considerable financial liability.
ZincOx believes that the superior environmental characteristics and
production of a valuable iron product will enable the Company to
enter into suitable long term EAFD supply contracts once the KRP
has demonstrated the technology and reliability of the
equipment.
The development of the ORP could be restarted as early as the
middle of 2012.
Turkey, Aliaga Recycling Project
The Company has been active for many years in Turkey, where it
has two sites amounting to 6.4 hectares in the Aliaga Heavy
Industrial Zone, near Izmir. Turkey is the largest importer of
scrap in the world and its growing steel recycling industry
produces about 400,000 tonnes EAFD per annum. Aliaga is a major
centre of steel production and about 160,000 tonnes of EAFD is
produced in the area annually.
The site at Aliaga is planned to treat 200,000 tpa of EAFD and a
systematic sampling programme of the EAFD in Turkey undertaken some
years ago indicated an average grade of about 24% zinc.
USA, Big River Zinc Smelter
ZincOx owns the Big River Zinc electro-refinery near St Louis,
USA. This 100,000 tonnes per annum zinc facility is currently on
care and maintenance but acts as a base for ZincOx operations in
North America. The Big River site is permitted for the disposal of
halide solutions of the type generated by the upgrading of zinc
oxide concentrates derived from EAFD. As such it could be used as
the washing site for upgrading zinc oxide concentrate derived from
the Ohio Recycling Plant or other rotary hearth based plants in
North America. In the meantime it carries out upgrading of zinc
oxide concentrates from Waelz kiln operations on behalf of third
parties as well as providing sulphuric acid storage and
distribution. An impairment review of assets held in the USA was
performed at the year end. See Financial Review below.
MINING
Yemen, Jabali Zinc and Silver Mine
The exploitation and development rights to the Jabali zinc
deposit are owned by Jabal Salab Company (Yemen) Limited ("Jabal
Salab"), in which ZincOx holds a 52% interest. The balance of 48%
is held by Ansan Wikfs Investments Limited ("Ansan").
The Jabali deposit contains a mineable reserve of 8.7 million
tonnes of ore at an average grade of 9.2% zinc and 68 grams per
tonne of silver. The development of the mine and processing
facilites commenced in 2008 but during 2010 the activity at the
site has been much reduced pending the refinancing of the project.
The deposit has been designed to be mined at the rate of 800,000
tonnes per annum by open pit with a strip ratio of 2:1. Ore will be
crushed and calcined prior to milling and leaching using ammonia
based solutions. Following purification, zinc carbonate will be
precipitated and calcined for the production of 70,000 tonnes per
annum of very high quality zinc oxide (>79% zinc) containing
approximately 56,000 tonnes of zinc. The zinc oxide will be bagged
and shipped in part to customers in the paint and ceramics
industries. The balance will be shipped to Jabali's Rubber Grade
Plant ("RGP") in Belgium where it will be further milled to produce
a high quality product required by the rubber industry. It is
planned to extend the plant to treat the silver bearing zinc plant
residue once the zinc oxide operation has reached operational
capacity. This extension will use conventional processing
technology to recover silver in dore bars and is expected to
produce 1.4 million ounces of silver per annum.
The project was originally financed by US$96 million of
shareholder equity together with US$120 million bond (the "Jabali
Bond"). After the Jabali Bond defaulted in October 2009 ZincOx and
Ansan successfully negotiated to purchase back unencumbered
ownership of the project for US$10 million. ZincOx and Ansan have
been pursuing a number of avenues to re-finance the Jabali project
since then.
While Yemen has a higher risk profile than many other countries,
the directors of ZincOx and Ansan had been confident throughout
most of 2010 that, with strong support from the Government of the
Republic of Yemen, the project would be successfully re-financed.
However, the perceived risk (to potential investors) of operating
in Yemen increased significantly during the last quarter of 2010,
due in particular to the increase in political tensions between
opposing groups in specific parts of Yemen. By the end of 2010, the
directors of ZincOx considered it likely that if the situation
continued to deteriorate the project would not be re-financed in
the near term.
The region has seen dramatic change during the first quarter of
2011, starting with the "Jasmine Revolution" in Tunisia and
progressing on to Egypt, Bahrain, Libya, Syria and Yemen. While the
circumstances of each are different, the impact of the whole is to
decrease the appetite of investment into the region.
The situation in Yemen itself has changed significantly during
March 2011, culminating in the Government of the Republic of Yemen
declaring a State of Emergency. Of greater concern to Jabal Salab
is that the increase in tensions between opposing groups has
exposed the operation to an unacceptable level of risk. As a result
we have had to withdraw all overseas staff from Yemen and all
non-security staff and all contractors from the project site.
ZincOx and Ansan are nevertheless continuing to pursue the
re-financing of the project and will re-assess the cost and
schedule to complete the project once the political environment
allows a clear path forward.
FINANCIAL REVIEW
Results
The Group loss after tax attributable to shareholders of the
parent company was GBP69.3m compared to a loss of GBP2.6m last
year. The Group had an underlying operating loss of GBP2.6m (2009:
loss of GBP11.3m) in the year. The administrative expenses deducted
in arriving at the underlying operating loss in the year amount to
GBP3.6m (2009: GBP11.5m) and include an unrealised foreign exchange
gain of GBP1.2m (2009: loss of GBP5.9m) as a result of the
significant US dollar balances being held as cash at the year end
and due to the significant movement in the US dollar exchange rate
through 2010. Administrative expenses, excluding foreign exchange,
have reduced to GBP4.8m in the year from GBP5.5m in 2009.
The key items within other gains and losses include deferred
consideration in respect of Shaimerden of GBP2.5m (2009: GBP9.7m)
and GBP3m (2009: GBPnil) from the disposal of scrap metal from Big
River Zinc. The Shaimerden gain has been grossed up for withholding
tax deducted at source.
The most significant impact on the financial statements and the
associated result for the year arises due to the impairment review
which is necessary under IFRS and which looks at the carrying value
of an asset against an estimate of the value in use or the fair
value less cost to sell of the cash-generating units to which the
asset has been allocated. This impairment assessment has been
carried out at the year end looking at the mining and recycling
sides of the business separately.
On the recycling side the impairment review has taken into
account the strategic change to the business that the first rotary
hearth furnace would now be in Korea rather than in the USA.
Previously any project spend that was incurred in the USA, which
included the spend incurred at Big River Zinc ("BRZ"), were tested
against the value in use of the rotary hearth furnace in the USA,
which was estimated using discounted cash flow techniques. However,
with the change to the strategy and the location of the first
recycling plant now moving to Korea, the Board has decided to look
at the value of the Group's USA assets on a more stand alone basis,
by estimating the recoverable amounts and to impair the value
accordingly. As explained at the half year this has resulted in
impairment amounts of GBP12.9m (US$20.0m) against property, plant
and equipment and GBP6.6m (US$10.2m) against intangible assets. BRZ
continues to upgrade material for other producers and to provide
acid storage and distribution in the USA at the year end.
On the mining side of the business, the impairment review
considered the investment the Group has made in the Jabali project
in Yemen, and the recovery of this investment at the year end.
Following the previous lenders withdrawal in October 2009 the
project became unencumbered in January 2010. There has been a
considerable effort in finding finance through to the end of the
year against the backdrop of a worsening political situation, which
has deteriorated further since the year end. The political
situation in Yemen and in the wider Middle East at the date of the
accounts give the Board cause to think it may be some time before
the situation in Yemen will enable a refinancing of the project to
occur on favourable terms. The value in use is estimated by
discounting future cash flows, and this process gives rise to
estimates being required in respect of the cash flows themselves
and the discount factors applied and clearly a significant aspect
of any discounted cash flow is the timing and delay that the
political situation will have on refinance. The carrying value,
prior to an impairment provision, of the Groups share of Jabali at
the year end is US$76m. The various scenarios using discounted cash
flows continue to demonstrate a value to the Group even with an
inflated discount rate to reflect risk. However, due to the
deteriorating political situation through the final quarter of 2010
up to the year end, the Board has continued to monitor the
situation and most recently has taken the steps to evacuate the
expat staff from the country. The Board, in reviewing the year end
carrying value of the Jabali investment against the value in use,
has had to seriously consider whether the current political
situation in Yemen will leave the Company unable to complete a
refinancing in a timely way. It has therefore determined that the
recoverable amount, at this time, is nil and considers it sensible
to make a full impairment in the Group's financial statements at 31
December 2010. The resulting impairment has a significant impact on
the results for the year as the impairment affects several areas of
the Group balance sheet. While the directors believe a full
impairment to be the correct approach for the time being, there has
been significant interest in the project during the last year and
there remains the possibility that once the current uncertainties
within the country are resolved, the refinancing of the project
will be possible and any intrinsic value in the project may be
realised.
Liquidity and funding
The cash funds of the Group at 31 December 2010 were GBP38.4m
compared with GBP46.9m at the end of 2009. These cash funds were
held in a range of currencies at the year end but principally US
dollars (US$56.3m) and sterling currencies (GBP1.3m).
The directors have reviewed the budgets for 2011 and the
projections for 2012 developed during the planning cycle. The
directors have considered a range of different scenarios, with
their associated risks and uncertainties, and the impact of these
on the Group's cash balances. Further, the directors have assessed
the future funding requirements of the Group and compared them with
the levels of expected project finance available for the Korean
project and, based on this work, the directors are satisfied that
the Group has adequate resources for at least the next twelve
months from the date of signing these financial statements.
Principal risks and uncertainties
Throughout its operations, ZincOx faces various risks, both
internal and external, which could have a material impact on the
Group's long-term performance. The principal risks facing the Group
in the current economic climate are those relating to the
challenges of delivering a project in Korea for the first Rotary
Hearth Furnace project, which is mitigated by employing quality
contractors in Korea under the supervision of ZincOx's own
technical expertise. There is also the risk due to the ongoing
political uncertainty in Yemen and the wider Middle East which will
continue to influence the speed of any refinancing of the Yemen
project which is being mitigated by continuous monitoring of the
ongoing situation. The volatility of the zinc price affects the
availability of finance as well as the value of projects within the
Group. The geopolitical risks of the Yemen project continue to be
reflected in the future availability, timing and cost of any
refinancing package. Other risks continue to include the risks of
competing technologies and the reliance on the expertise of the key
Group personnel.
The Group has exposure to various other risks connected with the
uncertainties of the political, fiscal and legal systems, including
taxation and currency fluctuations in the territories in which the
Group operates.
Clearly, these are not the only risks that the Group will face.
Some risks are not yet known and some that are not currently deemed
material could later turn out to be material. All of these risks
could materially affect the Group, its business, results of future
operations or financial condition.
FORWARD LOOKING STATEMENTS
The Chairman's Statement, the Review of Operations and the
Financial Review all contain discussion of future operations and
financial performance by use of various forward-looking words such
as "anticipates, " "estimates," "expects," "projects," "intends,"
"plans," "believes" and terms of similar substance. These
forward-looking statements are based on management's current
expectations and beliefs about future events but as with any
projection or forecast, they are inherently susceptible to
uncertainty and changes in circumstances which could cause the
Group's actual activities and results to differ materially from
those contained in the forward-looking statements.
ZINCOX RESOURCES PLC
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2010
2010 2009
Notes GBP'000 GBP'000
--------------------------------- ------- ----------- ----------
Revenue 1,926 1,183
Cost of sales (951) (1,007)
--------------------------------- ------- ----------- ----------
Gross profit 975 176
------------------------------------------ ----------- ----------
Administrative expenses (4,762) (5,524)
Foreign exchange gain / (loss) 1,150 (5,942)
--------------------------------- ------- ----------- ----------
Total Administrative Expenses (3,612) (11,466)
------------------------------------------ ----------- ----------
Underlying Operating Loss (2,637) (11,290)
Other gains and losses 3 5,473 29,598
Impairment provisions 4 (114,138) (18,280)
--------------------------------- ------- ----------- ----------
Operating (Loss) / Profit (111,302) 28
Finance income 141 259
Finance costs (7) (250)
--------------------------------- ------- ----------- ----------
(Loss) / Profit before tax (111,168) 37
Taxation (570) (1,999)
--------------------------------- ------- ----------- ----------
Net Loss (111,738) (1,962)
========================================== =========== ==========
Attributable to:
Equity holders of the parent (69,323) (2,633)
Non-controlling interest (42,415) 671
--------------------------------- ------- ----------- ----------
(111,738) (1,962)
========================================= =========== ==========
Basic and diluted loss per
ordinary share 2 (89.03p) (3.39p)
ZINCOX RESOURCES PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2010
2010 2009
GBP'000 GBP'000
--------------------------------- ---------- ---------
Loss for the period
Other comprehensive income
Exchange differences on (111,738) (1,962)
translating foreign operations 2,869 (6,422)
--------------------------------- ---------- ---------
Total comprehensive income
for the period
Attributable to: (108,869) (8,384)
Equity holders of the parent (67,415) (7,066)
Non-controlling interest (41,454) (1,318)
--------------------------------- ---------- ---------
(108,869) (8,384)
--------------------------------- ---------- ---------
ZINCOX RESOURCES PLC
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2010
2010 2009 2008
GBP'000 GBP'000 GBP'000
------------------------------ ---------- --------- ---------
ASSETS
Non-Current Assets
Intangible assets 8,709 20,708 19,458
Property, plant & equipment 19,448 97,835 62,559
Restricted cash - - 10,350
Trade and other receivables - 227 -
------------------------------ ---------- --------- ---------
28,157 118,770 92,367
------------------------------ ---------- --------- ---------
Current Assets
Inventories 406 420 671
Trade and other receivables 4,037 10,732 14,043
Restricted cash - 169 81,629
Cash and cash equivalents 38,381 46,929 64,458
------------------------------ ---------- --------- ---------
42,824 58,250 160,801
------------------------------ ---------- --------- ---------
TOTAL ASSETS 70,981 177,020 253,168
------------------------------ ---------- --------- ---------
LIABILITIES
Current Liabilities
Trade and other payables (12,671) (15,075) (9,687)
------------------------------ ---------- --------- ---------
(12,671) (15,075) (9,687)
------------------------------ ---------- --------- ---------
Non-Current Liabilities
Trade and other payables (624) (632) (86,951)
------------------------------ ---------- --------- ---------
(624) (632) (86,951)
------------------------------ ---------- --------- ---------
TOTAL LIABILITIES (13,295) (15,707) (96,638)
------------------------------ ---------- --------- ---------
NET ASSETS 57,686 161,313 156,530
============================== ========== ========= =========
EQUITY
Share capital 19,465 19,465 19,394
Share premium 85,336 85,336 85,336
Retained (losses) /earnings (54,203) 15,083 17,053
Foreign currency reserve 11,384 9,476 13,909
------------------------------ ---------- --------- ---------
Equity attributable
to equity holders of
the parent 61,982 129,360 135,692
Non-controlling interest (4,296) 31,953 20,838
------------------------------ ---------- --------- ---------
TOTAL EQUITY 57,686 161,313 156,530
============================== ========== ========= =========
ZINCOX RESOURCES PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2010
2010 2009
GBP'000 GBP'000
---------------------------------------------------- ---------- ----------
(Loss) / profit before taxation
Adjustments for: (111,168) 37
Depreciation and amortisation 1,275 1,185
Foreign exchange gain 25 2,250
Interest received (141) (259)
Interest expense 7 250
Impairment of intangible assets 16,019 701
Impairment of tangible assets 97,132 17,579
Impairment of trade and other receivables 988 -
Loss on disposal of tangible assets 6 2
Share based payments 37 663
(Decrease) / increase in trade and other payables (2,159) 5,458
Increase in trade and other receivables (97) (718)
Decrease in inventories 14 251
Foreign tax at source - (1,999)
Other gains and losses (5,473) (29,598)
---------------------------------------------------- ---------- ----------
Cash utilised in operations (3,535) (4,198)
Interest paid (7) (250)
Taxation (51) -
---------------------------------------------------- ---------- ----------
Net cash flow from operating activities (3,593) (4,448)
---------------------------------------------------- ---------- ----------
Investing activities
Net proceeds from disposal of assets 7,803 10,846
Net proceeds from disposal of scrapped assets 3,018 -
Proceeds from disposal of subsidiary 27 -
Purchase of intangible assets (3,846) (3,096)
Purchases of property, plant and equipment (17,475) (59,567)
Dividends received 3 -
Interest received 141 259
---------------------------------------------------- ---------- ----------
Net cash used in investing activities (10,329) (51,558)
---------------------------------------------------- ---------- ----------
Financing activities
Release of restricted cash 169 91,810
Repayment of borrowings - (66,972)
Net proceeds from cancellation of bond - 1,135
Investment from non-controlling interest 5,205 12,433
Net proceeds from issue of ordinary shares - 71
---------------------------------------------------- ---------- ----------
Net cash received from financing activities 5,374 38,477
---------------------------------------------------- ---------- ----------
Net decrease in cash and cash equivalents (8,548) (17,529)
Cash and cash equivalents at start of year 46,929 64,458
---------------------------------------------------- ---------- ----------
Cash and cash equivalents at end of year 38,381 46,929
==================================================== ========== ==========
ZINCOX RESOURCES PLC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR
THE
YEAR ENDED 31 DECEMBER 2010
Total
attributable
to equity
Share Share FX Retained holders of Non-controlling Total
capital premium reserve earnings parent interest equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Balance at 1
January 2008 12,244 37,422 (162) 11,364 60,868 4,788 65,656
Share based
payments Issue
of share capital
Capital increase
from - - - 1,030 1,030 - 1,030
non-controlling 7,150 47,914 - - 55,064 - 55,064
interest - - - - - 17,091 17,091
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Transactions
with owners
Profit for the
year Other
comprehensive 7,150 47,914 - 1,030 56,094 17,091 73,185
income - - - 4,659 4,659 (1,041) 3,618
Exchange
differences on
translating
foreign
operations - - 14,071 - 14,071 - 14,071
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Total
comprehensive
income /
(expense) for
the period - - 14,071 4,659 18,730 (1,041) 17,689
Balance at 31
December 2008 19,394 85,336 13,909 17,053 135,692 20,838 156,530
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Share based
payments Issue
of share capital
Capital increase
from - - - 663 663 - 663
non-controlling 71 - - - 71 - 71
interest - - - - - 12,433 12,433
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Transactions
with owners Loss
for the year
Other
comprehensive 71 - - 663 734 12,433 13,167
income - - - (2,633) (2,633) 671 (1,962)
Exchange
differences on
translating
foreign
operations - - (4,433) - (4,433) (1,989) (6,422)
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Total
comprehensive
income /
(expense) for
the period - - (4,433) (2,633) (7,066) (1,318) (8,384)
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Balance at 31
December 2009 19,465 85,336 9,476 15,083 129,360 31,953 161,313
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Share based
payments Capital
increase from
non-controlling - - - 37 37 - 37
interest - - - - - 5,205 5,205
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Transactions
with owners Loss
for the year
Other
comprehensive
income Exchange
differences on
translating - - - 37 37 5,205 5,242
foreign - - - (69,323) (69,323) (42,415) (111,738)
operations - - 1,908 - 1,908 961 2,869
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Total
comprehensive
income /
(expense) for
the period - - 1,908 (69,323) (67,415) (41,454) (108,869)
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
Balance at 31
December 2010 19,465 85,336 11,384 (54,203) 61,982 (4,296) 57,686
----------------- -------- -------- -------- --------- ------------- ---------------- ----------
The non-controlling interest represents amounts due from Ansan
Wikfs relating to the financing provided to Jabal Salab Company
(Yemen) Limited of which they own a 48% share. The deficit balance
of GBP4,296,000 at 31 December 2010 is in accordance with the
provisions of IAS 27 and consistent with the terms of the
shareholder agreement between Ansan Wikfs and ZincOx Resources
(Yemen) Limited.
Notes:
1. Preparation of non-statutory accounts
The financial information set out in this preliminary
announcement does not constitute statutory accounts as defined in
section 435 of the Companies Act 2006.
The consolidated balance sheet as at 31 December 2010 and the
consolidated income statement, consolidated statement of
comprehensive income, consolidated cash flow statement,
consolidated statement of changes in shareholders' equity and
associated notes for the year then ended have been extracted from
the Group's 2010 statutory financial statements upon which the
auditors' opinion is unqualified, and does not include any
statement under Section 498 (2) or (3) of the Companies Act
2006.
2. Loss per Share
The calculation of the loss per share is based on the loss
attributable to ordinary shareholders of GBP69,323,000 (2009:
GBP2,633,000) divided by the weighted average number of shares in
issue during the year of 77,860,620 (2009: 77,700,741).
There is no dilutive effect of the share options in issue during
2010 and 2009.
3. Other Gains and Losses
2010 2009
GBP'000 GBP'000
-------------------------------------------------- --------- ---------
Deferred consideration on disposal of subsidiary
Gain on cancellation of Jabali loan
Ohio Bond redemption 2,462 9,702
Gain on intangible previously impaired - 19,250
Gain on disposal of scrap equipment - 561
Loss on disposal of property, plant and - 85
equipment 3,018 -
Final distribution received from previous (10) -
investment 3 -
-------------------------------------------------- --------- ---------
5,473 29,598
================================================== ========= =========
The deferred consideration on disposal of subsidiary relates to
the deferred consideration due to the Group's subsidiary, Zinc
Corporation of Kazakhstan, following the sale of its subsidiary,
Shaimerden Joint Stock Company on 12 December 2003. The deferred
consideration is based on the production during the year
representing 9,826 tonnes (2009: 60,000 tonnes) and has been
grossed up for withholding tax deducted at source.
The gain on disposal of scrap equipment relates to the sales of
anodes and cathodes made in the year from Big River Zinc.
4. Impairment Provisions
The Group performs impairment tests on assets under the course
of development by estimating the recoverable amount of the
cash-generating project to which it has been allocated. This
recoverable amount is estimated by either discounting future
cashflows (value in use) or by considering the fair value less
costs to sell of the assets. It should be noted that, where
discounting is used, the zinc price and the discount rate have the
most significant impact on the value in use calculations.
The impairment review for 2010 in relation to the assets held in
the USA needed to look at the strategic change the Group has made,
whereby its first recycling cash generating unit has moved from USA
to Korea. In considering the alternative use value of the USA
assets which is made up of land in Ohio and assets at BRZ, an
impairment of GBP20m has been made in accordance with IAS36.
For the impairment review of the Jabali project, considering the
uncertainty that existed at the year end surrounding the worsening
security situation and the difficulty that this has caused in
relation to a refinancing, the Directors have determined that the
recoverable amount is nil and have therefore fully impaired the
project costs of GBP94m, the Company's 52% share of this amount
being GBP52m.
The impairment provisions in the year are included in the Group
income statement in arriving at operating loss and are summarised
in the table below.
Jabali USA Other Minor Total
Impact on Group balance Mining Recycling Projects Impairment
sheet GBP'000 GBP'000 GBP'000 GBP'000
Intangible assets 9,375 6,619 25 16,019
Property, plant &
equipment 84,201 12,930 - 97,131
Trade & other receivables 988 - - 988
Total impairment
provision in 2010 94,564 19,549 25 114,138
--------- ----------- ------------ ------------
Group's share 51,927 19,549 25 71,501
5. Post Balance Sheet Events
On 10 January 2011, Jeff Hewitt resigned from the Board as a
non-executive director and was replaced by Gautam Dalal.
On 13 January 2011, the Group received the Shaimerden payment of
US$3.3m (GBP2.2m) shown as other debtors.
On 26 April 2011, signed an off-take agreement and two loan
agreements with Korea Zinc Co Ltd for the development of the first
phase of the Company's Korean Recycling Plant scheduled for
completion in the first quarter of 2012. This follows the signing
of a Letter of Intent previously announced in December 2010.
On 9 May 2011, following a reorganisation of the Board, Peter
Wynter Bee and Simon Mulholland resigned as executive directors
with Gilles Masson and Jerry Saville resigning as non-executive
directors.
6. Preliminary Statement
Copies of the Annual Report will be sent to shareholders shortly
and may be viewed on the Company's website www.zincox.com. The
Annual Report will be available from the Company at Knightway
House, Park Street, Bagshot, Surrey GU19 5AQ and from Ambrian
Partners.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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