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Korean deal cheers ZincOx
Steel waste recycler ZincOx Resources expects annual revenues of $110 million (£70 million) from 2012 from an agreement with Korea Zinc. The AIM-quoted company, headed by the irrepressible Andrew Woollett, has signed a letter of intent with the Korean company, the world's second largest zinc producer, to provide $50 million of loans to AIM-quoted ZincOx and buy the entire annual output from a plant, the South Korean Recycling Plant, being set up to extract high-grade zinc concentrate and pig iron from waste dust generated by steel mills.
Woollett maintains the loan finance, not cheap in today's low interest environment, and ZincOx's own cash of some £40 million will be enough to fund the recycling project, which will treat an initial 400,000 tonnes of waste dust a year, from which he argues his company's process will be able to extract 92,000 tonnes of zinc concentrate. Korea Zinc will buy it all at spot prices for at least 10 years under the agreement and Woollett contends the project will achieve cash breakeven at a zinc price of below $1,000 a tonne, against today's market price of $2,250 a tonne — though a higher zinc price will bring more deductions for potential project partners.
Arguing that rival technologies mostly require subsidies, Woollett envisages selling some of the zinc concentrate back to the same steel mills which generated the waste, since they will need it to galvanise their steel. The project will also produce a small, quantity of iron, while ZincOx, which originally floated in 2001 at 120p with a mining focus, is still involved with Yemen's Jabali zinc mining project, stalled over political risk and is now decidedly 'non-core'.
After surging to 427p in 2007, ZincOx shares crumbled all the way to 25.5p in late 2008, as projects were thwarted and the company seemed always to be changing direction. Woollett insists the steel waste recycling is now the clear focus and suggests the Korean deal could be a 'company maker'.
Highlighted by Growth Company Investor as a speculation at 60p last year, the shares have slipped to 49p, valuing the company at £38 million, £2 million below its cash resources. They remain speculative, but, if the Korea deal works out as hoped, they should have ample scope for further recovery.
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