First published in Cleantech magazine, October 2010. Copyright Cleantech Investor Ltd 2010
By Andrew Hore
Andrew Woollett has had a tough few years. Not only did the ZincOx Resources Executive Chairman have to endure a number of disappointments as he tried to launch his first waste zinc recycling facility, he also had to fight off an attempt by rebel shareholders to remove him, and five of his colleagues, from the board earlier this year. The existing board won the vote easily at the general meeting, which was not even attended by the investors who had requisitioned the meeting.
After a number of false starts in the US and Turkey, it now appears that ZincOx will finally get its recycling operations up and running with the construction of its first recycling plant in South Korea. The basic technology being used by the company is proven. The operation takes waste from blast furnaces, processes it and produces zinc oxide. Iron can also be extracted at high temperatures.
Under the terms of a ten year supply agreement, ZincOx has the right to take up 400,000 tonnes of this waste dust, with a zinc grade of about 22%, from Korean steel companies. Korea is one of the most active steel recyclers in the world and produces large quantities of electric arc furnace dust.
Detailed engineering contracts are being awarded for the project and the first site works could be at the beginning of 2011. If all goes according to plan, production could commence by early 2012. ZincOx has spent $4 million on some second-hand waste oxide recycling plant which will help to reduce the overall costs of construction. The recycling plant will be built in two phases, with each phase having the capacity to process 200,000 tonnes of dust. The first phase will cost $124 million and the second phase a further $146 million.
The company’s plan is to site the facility at the Cheonbuk Industrial Complex, which is 10km to the west of Pohang, a major centre of steel production. Although land is expensive in South Korea, the proposed site has foreign investment zone status. This means that ZincOx can come to an agreement with the Government, which will buy the land and rent it to the company for a 50 year period. In addition, no tax will be payable for a period of five years.
The preliminary cash flow model suggests a post-tax net present value for the project of $162 million and an internal rate of return of 21%.
ZincOx had £42.3 million of cash in the bank at the end of June 2010. Whilst this is sufficient to help get the facility up and running, it is not enough for the company to proceed without additional backing.
Woollett is reluctant to issue shares in order to raise more cash until the share price recovers - it has almost halved in the past year. A preferred strategy would be to bring in a partner to cover the majority of the capital cost of the project. An offtake agreement for its zinc production could enable finance to be raised.
ZincOx reported a large loss in the first half of 2010, although that was mainly due to impairment provisions. Those impairments included write-offs relating to the US waste zinc recycling project where development has been suspended.
The interim cash outflow from operations was £1.62 million and the net capital investment, after capital equipment disposals, was £5.21 million.
The final deferred payments from the sale of the Shaimerden zinc project in Kazakhstan will be made at the beginning of 2011. Depending on the zinc price, this could be worth a further $3 million to the company.
ZincOx is also considering spinning off its mining interests into a separate company, since Woollett is aware that the present arrangement is not the most advantageous in order to attract investors to the company.
ZincOx has a 52% interest in the Jabali zinc project in the Yemen, which it had hoped would be producing zinc by now. However, the original financing fell through and a further $115 million will have to be spent in order to complete the project. Although reclaiming zinc has similarities to mining zinc, because the income is based on the zinc price, there are really two separate investor bases. It therefore makes sense to split the two operations in order to attract green investors to the main recycling business.
Once the Korean plant is up and running ZincOx should be able to roll out the concept to other countries, such as Thailand, and even possibly resurrect the project in the US.
| Next > |
|---|
