TIDMZOX
RNS Number : 2307K
ZincOx Resources PLC
15 April 2015
15 April 2015
ZincOx Resources plc
("ZincOx" or the "Company")
Final Results for the year ended 31 December 2014
ZincOx Resources plc (AIM:ZOX), developer of the Korean
Recycling Plant (KRP), one of the largest electric arc furnace dust
recycling facilities in the world, today announces its results for
the year ended 31 December 2014.
Highlights
2014
-- Revenues of US$38.2m, an increase of 39% year on year
-- Production of 28,564 tonnes of zinc in concentrate in 2014
-- Consistently high quality zinc concentrate (> 64%)
-- Solution to heat exchanger corrosion implemented in August 2014
Post Year End
-- 90 days uninterrupted operation at KRP
-- January 2015 a record month: 3,786 tonnes of zinc in concentrate produced
-- Improving quarterly performance, Q1 2015 showing record:
throughput, recovery and zinc concentrate production
-- Korean debt restructured, weighted average interest rate
reduced to 6.2%, interest reduced by US$0.5m per annum
-- Recovery and throughput at KRP close to target levels
Commenting on the announcement Dr Rod Beddows, ZincOx's Chairman
said:
"The improvements made at our Korean Recycling Plant in August
last year have significantly enhanced performance so that it is now
generating positive EBITDA(1) and we are looking forward to
finishing the ramp-up to full production later this year"
([1]) KRP earnings before interest, tax, depreciation and
amortisation (adjusted to exclude foreign exchange gains and
losses)
For further information, please contact:
ZincOx Resources plc Tel: +44 (0) 127 645 0100
Andrew Woollett, Chief Executive
Peel Hunt LLP (Nominated Adviser and Tel: +44 (0) 207 418 8900
Joint Broker)
Daniel Harris / Euan Brown
finnCap Limited (Joint Broker) Tel: +44 (0) 207 220 0500
Charlotte Stranner / Christopher Raggett
Tavistock Communications (Financial PR)
Simon Hudson / Nuala Gallagher Tel: +44 (0) 207 920 3150
For further information please go to: www.zincox.com
Chairman's Statement
2014 was a year which saw a transformation in the reliability
and performance of our Korean operation (KRP) and I am pleased to
report that these improvements continued through to the first
quarter of 2015. This has been a record quarter in terms of
throughput of electric arc furnace dust (EAFD) processed while
still maintaining a high level of recovery so that a record zinc
production was achieved.
Revenue for the Group was US$38.2 million for the year, an
increase of 39% compared to 2013. The increased revenue resulted
from the improved performance of KRP that was mainly due to the
success of modifications made to the heat exchangers which had
previously caused several unscheduled stoppages.
KRP showed an improving EBITDA trend through the year, so that
in the first half there was a loss of US$1.4 million and for the
second half it was slightly positive. The EBITDA loss for the year
was US$1.3 million compared to an EBITDA loss for 2013 of US$9.2
million, an improvement of US$7.9 million for the year. The first
quarter of 2015 showed continuing improvement and an EBITDA profit
of US$0.8 million.
http://www.rns-pdf.londonstockexchange.com/rns/2307K_-2015-4-14.pdf
Since the major modification to the heat exchangers in August,
all but two of the months at KRP have had a positive EBITDA and, as
we foresee no closures or supply reductions for the next three
months, we expect the next quarter to be significantly more
positive than the first quarter of this year. KRP is generating
positive monthly operating cash flow which will increase as a
result of ongoing improvements to throughput and recovery. Since
most of the operation's costs are fixed, the final ramp up to full
daily throughput has a disproportionately positive impact on
profitability, so that, at today's zinc price (US$2,150 per tonne)
and assuming target zinc grade of EAFD, in a full operating month
the plant should generate well over US$1 million of EBITDA per
month.
The Company is now in a position where the technology has been
sufficiently demonstrated to be able to plan the development of the
next plant. The profitability of the next plant will, however, be
greatly enhanced by the upgrading of both the zinc and iron
intermediate products made by the rotary hearth furnace (RHF) into
high value final products. We refer to this concept as the "Full
Cycle" approach and in order to accelerate the development of new
projects we are considering the introduction of a strategic
partner.
Our increasing focus on Asia combined with full EAFD recycling
capacity in the USA have led us to record an impairment of the
investment of the Big River Zinc Smelter and other USA related
assets. This one off charge has added US$13.7 million to our
reported losses, which would otherwise have been US$19.5 million a
reduction of US$6.3 million compared to 2013. Given that the
operation now has good reliability and positive operating cash
flow, the results of 2014 do not reflect the current position at
KRP or its prospects for 2015 and shareholders should be reassured
by the recent operational successes so that we can look forward to
very much more positive financial results for the current year.
In order to make the critical modifications to the heat
exchangers, necessary to improve plant reliability and provide
working capital while the modifications were being made, a placing
of new shares and a rights issue was undertaken in April 2014. This
fundraising, which was well supported by existing shareholders,
raised GBP2.9 million.
Globally, the outlook for zinc continues to be positive,
supported by strong demand, falling production and insufficient new
discoveries or mine developments. In a survey of analysts at the
end of the year there was broad consensus that the zinc price will
average over US$2,300 for 2015, rising to US$2,500 and US$2,600
during 2016 and 2017 respectively.
I should like to record my thanks to Guy Lafferty and Jacques
Dewalens who are stepping down from the Board. Guy has represented
Höegh Capital Partners on the Board for the past six years and his
contribution during the critical development period has been much
appreciated. I am delighted that Jacques Dewalens will continue to
work for the Company as a consultant and, by being relieved of his
Board duties, he will have more time available to dedicate to the
optimization of KRP and the management of our Research and
Development activities.
At the beginning of 2014 we faced many challenges; these have
been overcome and the Company is now in its strongest position for
many years, with KRP generating positive EBITDA and demonstrating a
breakthrough technology that can solve one of the world's greatest
hazardous waste challenges. I would like to thank the shareholders
for their loyal support and management for persevering with the
ramp up at KRP and so placing the Company in the position that it
can now realise the full potential presented by the "Full Cycle"
approach.
Dr Rod Beddows
Chairman
15 April 2015
Chief Executive's Review
The performance improvements made in the latter part of 2014 at
KRP have begun the transformation of the Group. These improvements
have been the result of better combustion in the furnace and the
implementation of changes to the heat exchangers which have
protected them from corrosion, and so avoid unscheduled repairs. In
the first half of 2014, however, these repairs severely restricted
production and it was not until the major remediation in August
that the reliability improved.
The plant is currently operating at about 90% of targeted weekly
performance and this is expected to increase to 100% within the
next six months as the plant undergoes final debottlenecking and
optimisation.
The changes to the heat exchangers made during 2014 provide a
permanent solution, but one which will still require maintenance
every three to four months that, in turn, will reduce annual
capacity by about 10%. In order to avoid this reduction and the
cost of their maintenance, an alternative to the heat exchangers is
being engineered. This alternative will have the added benefit of
reduced energy costs, as cheaper coal can replace a high proportion
of the natural gas we are currently using, which constitutes the
single greatest cost in the operation because it is very expensive
in Korea. Taken as a whole, the removal of the heat exchangers
could increase EBITDA by over US$6 million per annum (zinc price
US$2,250/t).
Korea Zinc has recently agreed to restructure the Development
Loan. Under this restructuring, outstanding interest has been
rolled into the Development Loan, the repayment of which, has now
been spread over two and a half years starting in February 2016.
Furthermore, the interest rate on the loan has been reduced from
15% to 9.5%. Consequently KRP's weighted interest rate, including
the long term Offtake Loan, is today only about 6.2%. In
consideration of this restructuring, the offtake agreement for zinc
concentrate is being extended to a total of 1,050,000 tonnes.
In December, certain quite subtle changes to the furnace
operating conditions had a very positive impact on our capacity and
daily throughput substantially increased. This led to improved
operational performance and in addition, the EAFD stockpiled in the
mega-silo was drawn down very much more rapidly than foreseen.
This, together with mill suspensions during the lunar new year
holiday period, resulted in a shortfall of EAFD in February and
March this year. EAFD deliveries continued through the March
maintenance period and these have re-stocked the mega-silo.
Draw-down from the mega-silo will enable the plant to operate at
full throughput into June, by which time, additional EAFD should be
delivered under new supply contracts currently under negotiation.
The EAFD that is being considered under the new contracts has a
grade above the plant's average target feed grade and so deliveries
under these new contracts should help to increase the average zinc
grade of the feed to the plant.
While management has remained focused on the ramp up at KRP,
there have been resources available to consider the next project
and particularly the technology required to upgrade the products of
the RHF. The process for upgrading the zinc concentrate has now
been optimized using a new hydrometallurgical approach designed by
the Company's technical team in Belgium. The product generated by
this process has been tested by internationally recognized
organizations which have confirmed its suitability for use in
glazes and rubbers, the two largest markets for this important zinc
chemical. These applications should double the value of the zinc
that will be produced by new projects and so lead to a very
significant increase in profitability. Since the zinc concentrate
produced at KRP is already contracted for sale to Korea Zinc as
part of the loan agreements, this upgrading will not be immediately
possible in Korea. The RHF's iron product will be melted in a
Submerged Arc Furnace ("SAF").
The new plants will incorporate a rotary hearth furnace and
upgrading processes for both zinc and iron. This is referred as a
"Full Cycle" plant as it represents the complete transformation of
the feed to final products. The upgrading uses standard equipment
and well known chemical processes and this year we plan to
undertake piloting or commercial trials to evaluate the reagent and
energy consumption and create samples for test marketing.
Preliminary studies indicate a plant treating 100,000 tonnes of
EAFD per annum should have an internal rate of return in excess of
25% (pre-tax, ungeared, at a zinc price of US$2,250/t).
At the higher zinc prices expected over the next few years, even
the traditional EAFD processing technology employed by competitors
can work profitably, albeit much less so than our Full Cycle
approach. For this reason, there are competitors vying for EAFD in
many countries across the world. In order not to lose out on the
exceptional opportunity created by the Full Cycle approach we need
to move fast to secure feed supply ahead of the competition.
Over the next year or so the cash flow from KRP is unlikely to
contribute sufficiently to advance the development of the new
projects. In order to progress these exciting new projects, a
search for a strategic partner was initiated with HCF International
and we continue to talk to interested parties that share our vision
for the future and which could support our ambitious roll out
plans.
2015 has started very positively with KRP running well and
continuously so that ongoing improvements can be tested and
implemented. We are now looking forward to being able to roll this
breakthrough technology out to other parts of the world.
Andrew Woollett
Chief Executive
15 April 2015
Strategic Report
The directors of the Company and its subsidiary undertakings (which
together comprise "the Group") present their Strategic Report, as approved
by the whole Board, for the year ended 31 December 2014.
The Strategic Report is a statutory requirement under the Companies
Act 2006 (Strategic Report and Directors' Report) Regulations 2013
and is intended to provide fair and balanced information that enables
the Directors to be satisfied that they have complied with s172 of
the Companies Act 2006 which sets out the Directors' duty to promote
the success of the Company.
Principal Activities
The principal activity of the Group is the production of high grade
zinc concentrate by the recycling of electric arc furnace dust. The
Company acts as a recycling, development and holding company. A detailed
review of the business and future developments is included in the Chief
Executive's Review and the Operational Review section of the Strategic
Report.
Business Model
Scrap iron and steel is mostly recycled in electric arc furnaces (EAF)
where the volatile constituents (Zn, Pb, Cl, Na etc) are driven off
as fine particles and gasses. This electric arc furnace dust, EAFD,
needs to be filtered from the flue gases. Steel is generally protected
from corrosion by galvanising, a process whereby a thin coating of
zinc is applied to the surface of the steel. This coating insulates
the steel from reaction with air and so prevents corrosion. Steel scrap
is, becoming increasingly galvanised and since zinc is a volatile element,
it constitutes part of the EAFD. The zinc content of the EAFD is generally
between 20% and 25%, and also contains 25% to 30% iron, both of which
occur largely as oxides. In addition, the EAFD contains lead, cadmium
and arsenic, all these toxic elements are to some extent soluble in
water, which therefore makes EAFD a hazardous waste. EAFD is probably
the world's largest inorganic hazardous waste problem.
The steel mills need to dispose of the EAFD either in landfill or to
processors which recover the zinc. Process plants based on existing
technology have never been developed unless a significant disposal
fee has been paid by the steel mills.
The breakthrough technology used by ZincOx recovers the zinc using
a rotary hearth furnace (RHF). The zinc forms a unique high quality
zinc oxide concentrate (HZO), an iron intermediate product (ZHBI).
This means that there will be no waste.
The ZHBI can be further processed into pig iron and a clean slag that
can be used by the cement industry. It has recently been demonstrated
that the exceptional quality of the HZO will enable it to be upgraded
to a zinc oxide chemical. The upgrading would greatly enhance revenue
and profitability. When developed with the rotary hearth furnace as
an integrated operation, together with ZHBI upgrading the technology
is referred to as the "Full Cycle" approach.
In 2012, ZincOx commenced production at its first EAFD recycling plant
(KRP), in South Korea. Following the resolution of a number of teething
problems, it is now operating close to full capacity.
ZincOx plans to roll out Full Cycle plants around the world. Preliminary
work in a number of countries is well underway. The development of
additional plants should enable ZincOx to realize its ambition of becoming
one of the world's largest zinc recycling companies.
Operational Review
Korean Recycling Plant (KRP)
The Korean Recycling Plant, KRP is one of the world's largest EAFD
recycling facilities, having a nominal capacity of 200,000 tpa EAFD
for the production of about 70,000 tpa zinc concentrate (HZO) and 100,000
tpa of iron product (ZHBI). KRP has exclusive long term EAFD supply
agreements with eight steel companies that have targeted output of
175,000 tpa. The plant commenced production in April 2012.
All the zinc concentrate (HZO) produced during 2014 has been high grade
(64-68% zinc) and of exceptional quality, having less than 0.03% iron
and with a very high washability of salts. All the production is sold
to Korea Zinc under a long term offtake contract.
The ramp up to full production in the first half of 2014 was hampered
by several stoppages, required to repair corrosion in the radiant heat
exchangers. During this period, a special refractory was tested on
parts of the walls of their inner tubes. These tests were successful
and in August all four heat exchangers were lined with this material.
Production continued uninterrupted until November when the plant was
stopped to repair fallen refractory. Unfortunately the numerous stoppages
for heat exchanger repairs over the previous two years will have weakened
the refractory lining in the RHF and gas handling system. Several areas
of refractory were repaired in August but some new areas showed weakness
in November and were entirely rebuilt, including the drop boxes. An
inspection of the new refractory lining of the heat exchangers showed
that, whilst generally good, some areas had degraded and both refractory
and underlying metal needed to be replaced. This degradation was probably
due to poor installation procedures which have now been reviewed and
improved.
A small failure of refractory near the offtake of the furnace had to
be repaired in December and special care was taken in its rebuild.
It is now believed to be stable. The heat exchangers' lining was again
inspected but only very small repairs were necessary and these too
are believed to have resulted from the poor practices employed during
the August remediation.
A new configuration of burners tested in December proved very effective
and recovery and throughput increased while gas consumption dropped.
Energy and other reagents are close to target consumptions, and whilst
the unit cost of both gas and electricity are significantly above the
levels anticipated before development, the cost of the coal has fallen.
The maintenance of the heat exchangers was planned for February 2015,
but as there was no sign of degradation, the plant was not closed.
Plant throughput was restricted due to a shortage of EAFD in March,
and production was suspended so that the heat exchangers could be inspected.
This showed very little damage to the steel inner tubes of the heat
exchangers so that the linings had provided an efficient barrier to
corrosive gasses. The special refractory lining was refurbished and
other minor repairs undertaken so that the plant recommenced operation
after 14 days on the 4(th) April.
The plant is ramping up to full capacity and is currently operating
at about 93% of targeted throughput and 96% of targeted recovery so
that the overall performance of the plant is at about 90% of target.
http://www.rns-pdf.londonstockexchange.com/rns/2307K_1-2015-4-14.pdf
The refractory lining of the radiant heat exchangers has been shown
to provide an effective barrier to corrosion, and so provides a practical
solution to the problem. If it's assumed that the refractory lining
will need some attention every three to four months, annual running
time and annual throughput will be reduced by about 10% (180,000 tpa
EAFD).
In order to avoid heat exchanger maintenance stoppages and attain the
planned single three week closure per annum, a permanent solution to
the heat exchangers has been designed. This involves the removal of
the heat exchangers and the installation of a coal fired air heater
that will provide pre-heated combustion air for use in the furnace.
Since coal is a very much cheaper source of energy than gas in Korea,
the new configuration will have a lower total energy cost. The savings
in the cost of refractory repair and energy and the ability to operate
at the full nominal throughput are estimated to create a combined benefit
amounting to over US$6 million in EBITDA per annum
Efforts to sell the iron product have, to date, been unsuccessful and
it has been sent mostly to landfill. Testing in some integrated steel
works is expected to start shortly. In order to realize the value of
the iron in the ZHBI, a scoping study for its melting in a submerged
arc furnace (SAF) has been completed.
The steel industry in Korea and in other Asian countries has been severely
affected by cheap Chinese exports. Towards the end of the year, the
amount of EAFD generated by the contracted mills diminished by about
15% and the zinc grade of the EAFD also fell. The average zinc grade
in the first half of the year was 5-10% greater than the target grade
(27.2%). Since the major remediation in August, however, the grade
has only averaged 25.6%. The shortfall in EAFD being experienced in
2015 should be balanced by new contracts commencing in the second quarter
of the year, and discussions are underway with several potential suppliers
of higher grade EAFD that should help to raise the average grade of
the material being treated.
Technology
Zinc Concentrate (HZO) Upgrading
During 2014, testwork on KRP's zinc concentrate was undertaken
to confirm the best way to upgrade it to an industrial zinc oxide
and several processes were tested. The best process was designed by
ZincOx's technical team and is called Consecutive Metal Leaching
("CML"). CML comprises a combination of existing technologies
specifically configured to remove the halides, sulphates and
deleterious base metals from the concentrate. The zinc oxide that
remains after this treatment has a grade of about 99.7% zinc oxide,
high enough to qualify for most industrial uses.
Laboratory scale CML testwork has provided samples of the zinc
oxide. These samples have been used to make glazes for the ceramics
industry and rubber samples, by laboratories that specialize in the
technical qualification of raw materials. In both cases the zinc
oxide produced by upgrading the HZO was shown to be equally
effective as leading market brands.
Iron Product Upgrading
Representative ZHBI samples have been analysed and the results
used to undertake sophisticated computer simulation of the
submerged arc furnace (SAF) technology. The simulation was carried
out by Mintek, an internationally recognised metallurgical
engineering company. The computer modelling gives likely energy and
reagent consumptions as well as iron, slag and fume compositions.
This information has been used in the scoping study for the
installation of a melter at KRP, which indicates that KRP's EBITDA
could be increased by about US$10 million per annum (zinc price:
US$2,250/t, scrap price: US$350/t). Melting trials are planned for
2015.
New Projects
The Full Cycle approach, combining the RHF, CML and SAF
technologies has been modelled financially. At a zinc price of
US$2,250 per tonne, new Full Cycle developments should have rates
of return in excess of 25% (pre-tax, ungeared).
ZincOx has been actively researching potential sites for Full
Cycle plants over the past eight years. Thailand is likely to be
the next development but considerable work has been undertaken
elsewhere so that a series of developments is envisaged.
Other
In the USA, the Group's Big River Zinc facility continues to
provide services to third parties distributing sulphuric acid and
diesel emission fluid. The possibility of using the facility to
upgrade HZO generated by recycling activities would be feasible at
Big River, but the cost of transporting feed material would be
prohibitively expensive. The use of the facility for piloting the
CML upgrading process has been investigated; it would, however, be
more expensive than alternative piloting options available to the
Company. Since the capacity of EAFD recycling facilities in North
America is broadly in balance with the generation of EAFD, the
Company considers the USA to be a low priority target.
In Turkey, the Company has carried out a review of the
availability of EAFD taking into account generation and treatment
facilities. New facilities, either under construction or being
planned by steel mills, will result in surplus treatment capacity
and ZincOx does not feel an additional treatment facility is
warranted.
In Russia, the Company has a joint venture with the Magnezit
group, for the investigation of an EAFD recycling plant to service
steel mills in the former Soviet Union. The investigation, which is
at early stage, is being led by the Magnezit Group.
Performance Review
Financial
Group Results Overview
The Group improved revenues by US$10.7millon (+39%) in the year
which resulted in revenues of US$38.2 million (2013: US$27.5
million). This helped the Group make a reduced gross loss figure in
the year of US$5.3 million (2013: US$12.8 million).
However, a one off impairment charge of US$14.0 million,
included in administrative expenses, has been made in the year,
relating mainly to Big River Zinc, a non-core asset in the USA.
When this one off charge is excluded the Group made an
underlying EBITDA loss of US$6.0 million for the year to 31
December 2014 (2013: US$15.4 million). This significant improvement
was largely due to the turnaround at KRP as the plant continued to
show improved financial performance month on month, finishing the
year with an EBITDA loss at KRP of US$1.3 million (2013: US$9.2
million).
The impairment charge is the key reason why the result for the
year has worsened even though the Group's underlying EBITDA has
improved by US$9.4million. The result for the year attributable to
shareholders of the parent company was a loss of US$33.2 million
(2013: US$26.3 million).
Key Performance Indicators
Building on the physical throughputs and performance of 2013,
the Group sold 28,564 tonnes of zinc contained in concentrate in
the year from KRP (2013: 24,577 tonnes). This was the plant's
second full year in production and although the plant had various
heat exchanger and refractory issues in the year, it has showed
good improvements in key production metrics. These metrics ("KPIs")
continue to be monitored as well as other key economic operating
factors through regular management meetings.
KRP 2014 2013 % change
------------------------------------- --------- --------- ---------
Zinc in Concentrate sold (tonnes) 28,564 24,577 16%
Average zinc price (US$/tonne) 2,164 1,910 13%
Zinc revenue billed (US$ millions) 37.5 27.1 38%
Underlying EBITDA (US$ millions)* (1.3) (9.2) 86%
EAFD processed (tonnes) 119,124 103,420 15%
------------------------------------- --------- --------- ---------
*before any foreign exchange impact
The directors monitor any hazards that are reported on
operational sites and review any accidents and incidents as part of
the ongoing environmental health and safety procedure. During the
year, the total number of man hours worked across the Group was
182,000, with one lost time incident (2013: 208,000 hours and one
lost time incident). The lost time incident in the year involved an
operator at KRP who suffered an injury to his ring finger when an
accumulation of HZO became detached and fell onto his right
hand.
At the Group level, the directors continue to monitor the cash
requirements of the business when compared to cash requirements
especially to maintain development progress on the various projects
until a steady state production is achieved in Korea. Then
consideration is given to any financing opportunities which need to
be pursued. As a result a strategic partner is being sought for new
project developments.
Funding
The Group completed a fundraising of GBP2.9 million (equivalent
to US$4.9 million) after expenses in April 2014. These funds were
raised for further optimisation of the plant during the ramp up,
and ongoing working capital requirements.
The initial development of KRP was funded through equity from
the Group and two external loans from Korea Zinc. The Korea Zinc
"Offtake Loan" for US$37.8 million and the Korea Zinc "Development
Loan" for US$15 million.
Interest charges for the year, in relation to the Offtake Loan
at USD 6 month LIBOR +5%, were US$2.1 million (2013: US$2.1
million) and in relation to the Development Loan at an interest
rate of 15%,were US$2.4 million (2013: US$2.3 million).
In order to assist KRP with its ongoing working capital
management, it was agreed with Korea Zinc that any interest
payments due under both loan agreements could be deferred by twelve
months in order to assist KRP with its ongoing working capital
management during the first half of 2014.
As a result, although the total Group interest of US$5.3 million
has been charged as an expense to the income statement in
accordance with Group policy, the actual interest paid in 2014 by
the Group was US$2.6 million against the two Korea Zinc loans and
US$0.7 million (GBP420k) against the GBP4.2 million of secured loan
notes.
In September 2014 the Korea Zinc Development Loan of US$15
million was renegotiated to delay the capital repayment by twelve
months so that it now falls due in February 2016. In addition,
further negotiations have subsequently taken place with Korea Zinc
during March 2015 to amend the repayment schedule so that instead
of a bullet repayment of US$15 million in February 2016, the
repayments have been split over six equal payments of US$3.1
million, beginning in February 2016, which includes the deferred
interest that Korea Zinc has previously agreed to roll up. In
recognition of this, the offtake agreement with Korea Zinc has been
increased to 1,050,000 tonnes during these renegotiations.
In Korea, the Group also makes use of a rolling "receivables
purchase agreement" with Standard Chartered Bank Korea ("SCBK"),
whereby it can receive funds in between the monthly receipts that
are received from Korea Zinc.
Liquidity
The cash funds of the Group at 31 December 2014 were US$1.2
million (2013: US$4.8 million). These cash funds were held in a
range of currencies at the year end, the most significant of which
were US Dollars 0.7 million (2013: US$3.4 million), Korean Won 355
billion (2013: KRW 2 billion), and Pounds Sterling 0.1 million
(2013: GBP0.7 million).
Going Concern
The directors consider various scenarios in reviewing the
budgets and projections for 2015 and for a period of at least
twelve months from the date of this report. These scenarios review
the financial modelling of various throughput scenarios at KRP over
the next twelve months including (but not limited to) sensitivity
on the zinc price, recovery of zinc from EAFD, tonnes of zinc sold
and key operating costs.
The zinc price assumption started with a review of the actual
price over the last twelve months and predictions of analysts for
the next 12-18 months. These predictions continue to be above
today's prices, due to a supply side deficit expected in the zinc
market in the coming 12-24 months. In light of these parameters,
the directors have made a price assumption that the zinc prices
will rise to US$2,200 per tonne through the second half of 2015 up
from today's levels of US$2,150 per tonne. The ramp up profile is
expected to achieve a throughput at target production by the last
quarter of 2015. There are two further planned maintenance periods
also assumed during the remainder of 2015. The zinc tonnes sold
assume a rising zinc recovery up to target levels through the
remainder of 2015. As throughput rises, so the operating cost
metrics (i.e. measured in consumptions per tonne of EAFD), are
expected to fall through the remainder of the year.
Because of the continued focus on the performance of the KRP
plant in any going concern forecast, the directors entered into the
recent agreement regarding the Development Loan with Korea Zinc to
ensure that the project would have generated sufficient cash to
repay the loan when it falls due. As a result, the capital
repayment required in February 2016 has been reduced to US$3.1
million, as opposed to US$15 million, which was the case prior to
this agreement.
It should also be noted that discretionary spending is regularly
scrutinised and scheduled according to its impact on the Group
during this critical period while completing the ramp up of KRP.
Another factor that may impact the Group is the repayment of the
GBP4.2 million loan notes, due in July 2015. These are secured
against the assets held in Turkey and the directors believe that,
either the remaining land in Turkey will be sold before July to
meet this liability, or that the term of the loan notes can be
successfully renegotiated.
The directors have assessed the material uncertainties
concerning the future funding requirement of the Group which may
cast doubt upon the Group's ability to continue as a going concern
and compared them with the levels of expected finance available at
a corporate and project level and in consideration of the expected
ramp up, have a reasonable expectation that the Group has adequate
financial resources to manage its business risks and continue in
operational existence for the next twelve months from the date of
this report.
Financial Review of Operations
Korean Recycling Plant (KRP)
KRP sold 28,564 tonnes of zinc in concentrate to Korea Zinc in
the year to 31 December 2014 (2013: 24,577 tonnes). All of the
material was sold to Korea Zinc under the offtake agreement which
had been signed in April 2011 as part of the financing of the
project. This resulted in revenues of US$37.5 million (12 months to
31 December 2013: US$27.1 million). The quality of the product was
higher during 2014 with an average zinc grade of 65.6% compared to
65.0% during 2013.
The product sold by KRP is a zinc oxide concentrate sold under
an international formula and as a result, the monthly revenues are
always dependent on the LME zinc price. The LME zinc price can be
volatile and during the year had an average of US$2,164 per tonne
(2013 US$1,908 per tonne), with a maximum over the same period of
US$2,419 per tonne (2013: US$2,187 per tonne) and a minimum of
US$1,941 per tonne (2013: US$1,783 per tonne).
The sales of zinc concentrate are made in US Dollars and the
majority of costs incurred at KRP are incurred in KRW, the high
point for this exchange rate in the year was 1,135 KRW per US$
(2013:1,170 KRW per US$) and the low point was 1,010 KRW per US$
(2013: 1,054 KRW per US$) with an average for the year of 1,055 KRW
per US$ (2013: 1,101 KRW per US$).
The analysts and forecasters who watch the zinc market continue
to suggest that as certain key mines become exhausted over the next
12-24 months, the zinc market will go into a deficit on the supply
side which is expected to have a positive impact on the zinc price.
One key measure for this is the zinc stocks which were 931,175
tonnes at the start of 2014 and dropped by 26% to 691,600 tonnes by
the year end. This has continued since the year end such that by
the end of March 2015 the stock had fallen a further 26% to 513,125
tonnes.
The underlying EBITDA loss for KRP, prior to any foreign
exchange movements, was US$1.3 million during the year (2013:
US$9.2 million).
EAFD is a waste which we receive from the Korean steel mills the
quality of which is dependent up the scrap buying policies of the
steel mills. The incremental revenues in the year were achieved in
spite of the zinc grade in the EAFD reducing to an average of 27.2%
from an average of 28.2% during 2013. This is really due to the
improvement in average recovery in the year to 88% from 84% during
2013, and the improving zinc price.
As has been noted, the plant had various stoppages through the
year to remediate both the heat exchangers and the refractory in
the furnace. These stoppages severely limited the plant's capacity
in 2014.Despite this, the plant still managed to process 119,000
tonnes of EAFD in the year compared to 103,000 tonnes the year
before. The impact of running the KRP below its capacity of 200,000
tonnes per annum was that certain operating parameters were not yet
at the target levels and additional costs were incurred for
remediation.
The remediation and maintenance costs required to fix the issues
amounted to US$5.2 million in the year, (2013: US$5.4 million) and
were charged to cost of sales during the year. In addition landfill
costs for EAFD not processed in the year during the remediation
stoppages, amounting to US$1.1 million (2013: US$1.8 million) has
been charged to cost of sales. With stop/start production the
quality of the DRI produced was extremely variable and the DRI
which was produced in the year was landfilled at a cost of
US$1.7million (2013: US$1.7million). The impact of the stoppages at
KRP resulted in the operation not achieving target cost levels for
utilities and other consumables, notably the gas consumption and
associated cost. Oxygen injection was introduced to the plant early
in the year to help reduce the gas consumption. Since the December
remediation the gas consumption, which is the largest cost on the
plant, has been on target in terms of consumption per tonne EAFD.
When the plant is operating at full capacity however, it is still
expected that the other main operating costs will be close to
planned levels.
A depreciation charge of US$6.1 million (2013: US$5.9 million)
has been included in cost of sales for KRP, in arriving at the
result for the year.
Other Projects
USA
In 2007 the Group purchased a 17 acre site in Ohio which was
intended to be the site of the first RHF plant. KRP, however, has
since become the first RHF for the Group and the land in Ohio will
only be required when the Group develops an RHF in the USA. The
EAFD supply agreements in the USA are under relatively long term
arrangements between the mills and existing recyclers and, as a
result, the land in the USA is currently surplus to requirements.
The directors took the decision to put the land up for sale and, as
a result, the land is shown as an asset held for sale on the
balance sheet with a value of US$0.4 million.
The Big River Zinc smelter in USA has been integral to all the
Group considerations for development of a recycling facility in the
USA. Because of the uncertainty of the timing of a future recycling
plant in the USA, the decision has been taken to financially impair
the investment of the USA related assets (US$13.7 million). The
Group has been seeking alternative activities at BRZ but, in the
immediate absence of firm plans, the directors feel the asset
should be impaired.
Turkey
The Group's land in Turkey in the Light Industrial Zone, which
was purchased in 2006, was split into smaller plots to facilitate
sales. These plots have been marketed over the last three years
which has resulted in the sale of 21 plots (55 in total) during
2014 (2013: 34 plots sold) generating total cash of US$5.2 million
(YTL 11.4 million). Since the end of the year all the remaining
plots have been sold.
The income from the sale of the land in the Light Industrial
Zone, is being used to pay the interest on the GBP4.2 million loan
notes which the Group borrowed in August 2013. These proceeds are
held in escrow for the loan note subscribers. At the end of
December the balance in the escrow account was GBP947k.
The GBP4.2 million was borrowed using the land assets held in
Turkey as collateral. In addition to the funds held in escrow, the
land inside the Heavy Industrial Zone is also being used as
collateral to cover the loan notes. The loan notes have an interest
rate of 10% and a repayment date of July 2015.
The requirement to repay these loan notes in July has meant the
directors need to fully appraise the likelihood of an RHF project
in Turkey. The Turkish EAFD market was re-evaluated during the
latter part of 2014 to determine the availability of material. This
concluded that existing and processing capacity would not leave
sufficient dust for the development of a plant by ZincOx in Turkey.
As a result, the Group has taken the decision to actively market
the land in the Heavy Industrial Zone so that it may be sold to
repay the loan notes.
Environmental, Health, Safety & Quality
The Group believes that what is good for the planet is good for
business and good for the communities in which ZincOx operates.
There is an overriding commitment to Sustainable Development which
is pursued through the effective management of Environment, Health,
Safety and Quality ("EHSQ") using best practices from ZincOx and
other third parties.
As the projects are progressed internationally, the directors
remain relentless in their pursuit of an injury free environment
for all employees and others who come onto ZincOx sites and the
Group seeks to ensure that its business contributes lasting
benefits to society through the consideration of health, safety,
social, environmental, ethical and economic aspects in all
decisions and activities.
During 2014, some one hundred and eighty two thousand hours were
worked in ZincOx worldwide, including projects, with no significant
environmental incidents and only one lost time incident involving
one of our employees at KRP. ZincOx's management believe that all
incidents and injuries are preventable and strives to create a
workplace culture where all employees and contractors share these
beliefs.
Risks
Set out below are certain risks which may affect performance. Such
risks are not intended to be presented in any order of priority. Although
the directors and senior management have significant experience and
take steps continually to mitigate and review risks as far as possible
and reasonably practicable, any of the risks set out below, as well
as any other risks referred to in this annual report, could have a
material adverse effect on business performance. In addition, the internal
and external risks set out below are not exhaustive and additional
risks, not presently known to the directors, or which the directors
currently deem immaterial, may arise or become material in the future.
Operational risks
* Failure of equipment,
* Failure of third party services,
* Unavailability of materials and equipment is managed
through regular dialogue with external suppliers and
monitoring of equipment on the site by the
maintenance team,
* Further remediation at KRP which may impact future
cash generation of the plant,
* Environmental incidents are managed by routine
monitoring and training of staff,
* Health and safety incidents, and nil returns are
reported on a monthly basis,
* Single project dependence,
* Reduced availability of EAFD in Korea, which is being
mitigated by finding new sources of dust, and
* Loss of key personnel.
Financial risks
* Zinc price movements and its associated volatility
will affect the monthly profitability of KRP,
* Zinc price movements will affect the amount of
finance which may be available for the development of
other projects within the Group. Any decline in zinc
prices will therefore have an adverse impact on the
business. No hedging is currently undertaken to
mitigate this risk,
* Unscheduled loss of production at KRP will impact
timing of cash receipts and payments and further this
will impact on generating surplus cash to fund the
Group and repay the debts,
* Foreign exchange movements, notably between US
Dollars and Korean Won (KRW) has a particular effect
on the Group's result as the revenues are received in
US Dollars (matching the borrowings of the Group) and
the critical costs at KRP are in KRW. This is
continuously monitored and no hedging is currently
undertaken to mitigate this risk,
* Cost inflation is managed by reviewing alternative
suppliers where appropriate,
* Renewal of a suitable receivable purchase agreement,
* Insurances may not cover all liabilities. Insurance
policies are held both at the Group level and at the
project level, and are reviewed annually,
* Sale of land in Turkey,
* Maintaining debt equity ratios in respect of
borrowings,
* Negotiation with authorities regarding spend
commitment in Korea and
* Any legal proceedings.
All of these risks could materially affect the Group, its business,
results of future operations or financial condition.
Uncertainties
Set out below are certain principal uncertainties which may affect
potential growth across the Group.
* Dependence on the EAFD supply contracts, which is why
the Group is aiming to sign up long term EAFD
agreements with suppliers of EAFD within target
territories for expansion,
* Availability of capital to fund other recycling
projects. The directors continue to maintain a good
relationship with prospective suppliers of finance,
* Any unplanned stoppages at KRP,
* Ensuring intellectual property and know how is
protected and
* Competing technology.
The Group is further exposed to uncertainty connected with the political,
fiscal and legal systems, including taxation and currency fluctuations
in the territories in which the Group operates.
On behalf of the Board
Andrew Woollett
Chief Executive
15 April 2015
Forward Looking Statements
The Chairman's Statement and the Strategic Report 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 2014
2014 2013
Notes $'000 $'000
----------------------------------------- ------- ----------- -----------
Revenue 38,151 27,522
Cost of sales (43,413) (40,292)
----------------------------------------- ------- ----------- -----------
Gross loss (5,262) (12,770)
----------------------------------------- ------- ----------- -----------
Administrative expenses (net of gains
and impairments) 3 (22,648) (8,912)
----------------------------------------- ------- ----------- -----------
Operating Loss (27,910) (21,682)
----------------------------------------- ------- ----------- -----------
Underlying EBITDA Loss (5,975) (15,366)
Other gains 1,119 1,228
Impairment provisions (13,970) (597)
Foreign exchange (loss)/gain (1,257) 676
Depreciation and amortisation (7,827) (7,623)
Operating Loss
----------------------------------------- ------- ----------- -----------
2 (27,910) (21,682)
----------------------------------------- ------- ----------- -----------
Finance income 3 10
Finance costs (5,322) (4,661)
----------------------------------------- ------- ----------- -----------
Loss before tax (33,229) (26,333)
Taxation - 2
----------------------------------------- ------- ----------- -----------
Net Loss (33,229) (26,331)
----------------------------------------- ------- ----------- -----------
Basic and diluted loss per ordinary 4 (21.11) (24.75)
share (cents)
Adjusted loss per ordinary share (cents) 4 (12.24) (24.19)
*
------------------------------------------- ---- ---------- ----------
* adjusted loss per ordinary share calculation excludes
impairment provisions
ZINCOX RESOURCES PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
$'000 $'000
------------------------------------------------ ---------------------- ----------------------
Loss for the year
Other comprehensive income (33,229) (26,331)
Items that will be subsequently reclassified
to profit or loss
Exchange differences on translating foreign
operations (3,068) (289)
------------------------------------------------ ---------------------- ----------------------
Total comprehensive income for the year (36,297) (26,620)
------------------------------------------------ ---------------------- ----------------------
ZINCOX RESOURCES PLC
CONSOLIDATED BALANCE SHEET
AS AT 31 DECEMBER 2014
2014 2013 2012
Notes $'000 $'000 $'000
------------------------------- ------- ------------ ------------ -----------
Assets
Non-Current Assets
Intangible assets 8,615 16,352 15,302
Property, plant & equipment 115,681 134,078 137,519
Investments 100 106 -
Trade and other receivables 10 - -
------------------------------- ------- ------------ ------------ -----------
124,406 150,536 152,821
------------------------------- ------- ------------ ------------ -----------
Current Assets
Inventories 1,651 1,403 2,011
Trade and other receivables 4,405 3,540 5,199
Restricted cash 1,476 667 -
Cash and cash equivalents 1,195 4,752 10,617
------------------------------- ------- ------------ ------------ -----------
8,727 10,362 17,827
------------------------------- ------- ------------ ------------ -----------
Assets held for sale 3,107 1,484 3,138
Total Assets 5 136,240 162,382 173,786
------------------------------- ------- ------------ ------------ -----------
Liabilities
Current Liabilities
Trade and other payables 6 (14,368) (13,640) (15,959)
Loans and borrowings 7 (12,238) (2,026) (959)
------------------------------- ------- ------------ ------------ -----------
(26,606) (15,666) (16,918)
------------------------------- ------- ------------ ------------ -----------
Non-Current Liabilities
Trade and other payables 6 (4,598) (3,730) (2,751)
Loans and borrowings 7 (52,739) (59,664) (52,035)
------------------------------- ------- ------------ ------------ -----------
(57,337) (63,394) (54,786)
------------------------------- ------- ------------ ------------ -----------
Total Liabilities (83,943) (79,060) (71,704)
------------------------------- ------- ------------ ------------ -----------
Net Assets 52,297 83,322 102,082
------------------------------- ------- ------------ ------------ -----------
Equity
Share capital 46,310 45,795 45,271
Share premium 181,371 176,944 169,985
Retained losses (153,491) (120,592) (94,638)
Foreign currency reserve (21,893) (18,825) (18,536)
------------------------------- ------- ------------ ------------ -----------
Total Equity 52,297 83,322 102,082
------------------------------- ------- ------------ ------------ -----------
ZINCOX RESOURCES PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2014
2014 2013
Notes $'000 $'000
-------------------------------------------------------- ------- ---------- ----------
Loss before taxation (33,229) (26,333)
Adjustments for:
Depreciation and amortisation 7,827 7,623
Interest received (3) (10)
Interest expense 5,332 4,661
Impairment of intangible assets 2 7,503 513
Impairment of property, plant and equipment 2 6,467 -
Impairment of trade and other receivables - 84
Loss on disposal of property, plant and equipment - 39
Share based payments 330 377
Increase / (decrease) in trade and other payables 2,130 (1,340)
(Increase) / decrease in trade and other receivables (875) 1,575
(Increase) / decrease in inventories (248) 608
Foreign exchange losses / (gains) 1,257 (676)
Other gains (1,119) (1,228)
-------------------------------------------------------- ------- ---------- ----------
Cash utilised in operations (4,638) (14,107)
Interest paid (2,571) (3,932)
Taxation - 2
-------------------------------------------------------- ------- ---------- ----------
Net cash flow from operating activities (7,209) (18,037)
-------------------------------------------------------- ------- ---------- ----------
Investing activities
Net proceeds from disposal of assets 1,895 2,688
Net proceeds from disposal of scrapped assets 10 69
Purchase of intangible assets (596) (1,694)
Purchase of property, plant and equipment (2,639) (3,233)
Investment in Russian joint venture - (106)
Interest received 3 10
-------------------------------------------------------- ------- ---------- ----------
Net cash used in investing activities (1,327) (2,266)
-------------------------------------------------------- ------- ---------- ----------
Financing activities
Proceeds from borrowings 1,270 7,967
Restriction of cash (809) (667)
Net proceeds from issue of ordinary shares 4,942 7,483
-------------------------------------------------------- ------- ---------- ----------
Net cash received from financing activities 5,403 14,783
-------------------------------------------------------- ------- ---------- ----------
Net decrease in cash and cash equivalents (3,133) (5,520)
Cash and cash equivalents at start of year 4,752 10,617
Exchange differences on cash and cash equivalents (424) (345)
-------------------------------------------------------- ------- ---------- ----------
Cash and cash equivalents at end of year 1,195 4,752
-------------------------------------------------------- ------- ---------- ----------
ZINCOX RESOURCES PLC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2014
Total Non-controlling
Share Share FX Retained attributable interest Total
capital premium reserve losses to equity equity
holders $'000
$'000 $'000 $'000 $'000 of parent $'000
$'000
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Balance at 1 January 2012 39,525 165,850 (25,279) (85,451) 94,645 (8,931) 85,714
Share based payments - - - 219 219 - 219
Issue of share capital 5,746 4,135 - - 9,881 - 9,881
Capital increase from non-controlling
interest - - - - - 1,333 1,333
Loss of control of subsidiary - - - - - 8,238 8,238
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Transactions with owners
5,746 4,135 - 219 10,100 9,571 19,671
Loss for the year
- - - (9,406) (9,406) (640) (10,046)
Other comprehensive income
Items that will be subsequently
reclassified to profit or
loss
Exchange differences on translating
foreign operations - - 6,743 - 6,743 - 6,743
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Total comprehensive income
for the year - - 6,743 (9,406) (2,663) (640) (3,303)
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Balance at 31 December 2012 45,271 169,985 (18,536) (94,638) 102,082 - 102,082
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Share based payments - - - 377 377 - 377
Issue of share capital 524 6,959 - - 7,483 - 7,483
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Transactions with owners
524 6,959 - 377 7,860 - 7,860
Loss for the year
- - - (26,331) (26,331) - (26,331)
Other comprehensive income
Items that will be subsequently
reclassified to profit or
loss
Exchange differences on translating
foreign operations - - (289) - (289) - (289)
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Total comprehensive income
for the year - - (289) (26,331) (26,620) - (26,620)
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Balance at 31 December 2013 45,795 176,944 (18,825) (120,592) 83,322 - 83,322
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Share based payments - - - 330 330 - 330
Issue of share capital 515 4,427 - - 4,942 - 4,942
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Transactions with owners
515 4,427 - 330 5,272 - 5,272
Loss for the year
- - - (33,229) (33,229) - (33,229)
Other comprehensive income
Items that will be subsequently
reclassified to profit or
loss
Exchange differences on translating
foreign operations - - (3,068) - (3,068) - (3,068)
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Total comprehensive income
for the year - - (3,068) (33,229) (36,297) - (36,297)
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Balance at 31 December 2014 46,310 181,371 (21,893) (153,491) 52,297 - 52,297
----------------------------------------- --------- --------- ---------- ---------- ------------- ---------------- ----------
Notes:
1. Preparation of non-statutory accounts
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2014
or 2013 or 2012 but is derived from those accounts. Statutory
accounts for 2013 and 2012 have been delivered to the registrar of
companies, and those for 2014 will be delivered in due course. The
auditors have reported on those accounts; their reports were (i)
unqualified, (ii) included a reference, without qualifying their
report to an emphasis of matter in relation to going concern in
2014 and (iii) did not contain a statement under section 498 (2) or
(3) of the Companies Act 2006.
2. Critical Accounting Estimates and Judgements
Estimates and judgements are continually evaluated and are based
on historical experience and other factors, including expectations
of future events that are believed to be reasonable under the
circumstances.
The Group makes estimates and assumptions concerning the future,
which by definition will seldom result in actual results that match
the accounting estimate. The estimates and assumptions that have a
significant risk of causing material adjustments to the carrying
amount of assets and liabilities within the next financial year are
discussed below:
(a) Impairment Reviews
In accordance with the accounting policy stated above, the Group
performs an assessment of the recoverability of intangible assets
to see whether any of the development projects have suffered
impairment. This assessment is dependent on the future viability of
the relevant products and processes and the methodology followed in
order to assess the recoverable amount of an individual
cash-generating project is to consider a cash flow model over 20
years or the life of the plant, whichever is shorter, and with
appropriate assumptions for zinc price, operating and capital
development costs. In performing any cash flow analysis the Group
uses risk adjusted discount rates based on support from third
parties.
The Group also 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 cash
flows (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 rates have the most
significant impact on the value in use calculations.
Following the decision to make KRP the first RHF project, the
Group has been seeking alternative uses for its USA assets since
2012 and notably for Big River Zinc. In light of the uncertainty
about a future project in USA, specifically due to the
non-availability of EAFD under long term supply agreements, the
Group has decided to make a financial impairment of the US$7,330k
intangible assets in USA, which were previously held for the Ohio
Recycling Project. These intangible costs reflect the work which
was previously done to enable an RHF development in USA. BRZ was
always intended to be an integral part of any RHF development in
USA because of its ability to wash the concentrate so as a result
of the impairment of the intangible assets in USA, the Group has
also made the difficult decision to also impair the property, plant
and equipment assets at BRZ (US$6,313k).
A further US$173k of intangible assets and US$53k of equipment,
representing group wide costs previously held against future
development, have also been impaired following a review of these
costs.
The table below summarises the impairment provisions made in the
year and included in the Group income statement.
Other Minor Total
ORP BRZ Projects Impairment
Impact on Group Notes $'000 $'000 $'000 $'000
------------------- -------- -------- -------- ------------ ------------
Intangible assets 8 7,330 - 173 7,503
Property, plant &
equipment 9 101 6,313 53 6,467
2014 provision 7,431 6,313 226 13,970
------------------- -------- -------- -------- ------------ ------------
For the year ending 31 December 2013, the Group made impairments
of US$513k against intangible assets and US$84k against trade and
other receivables
(b) Share Based Payments
In order to calculate the charge for share based payments as
required by IFRS2, the Group makes estimates principally relating
to the assumptions used in its option or warrant pricing model. The
charge made in the year in respect of options is US$330k (2013:
US$8k) and for warrants is US$ nil (2013: US$369k).
(c) Going Concern
The directors consider various scenarios in reviewing the
budgets and projections for 2015 and for a period of at least
twelve months from the date of this report. These scenarios review
the financial modelling of various throughput scenarios at KRP over
the next twelve months including (but not limited to) sensitivity
on the zinc price, recovery of zinc from EAFD, tonnes of zinc sold
and key operating costs.
The zinc price assumption started with a review of the actual
price over the last twelve months and predictions of analysts for
the next 12-18 months. These predictions continue to be above
today's prices, due to a supply side deficit expected in the zinc
market in the coming 12-24 months. In light of these parameters,
the directors have made a price assumption that the zinc prices
will rise to US$2,200 per tonne through the second half of 2015 up
from today's levels of US$2,150 per tonne. The ramp up profile is
expected to achieve a throughput at target production by the last
quarter of 2015. There are two further planned maintenance periods
also assumed during the remainder of 2015. The zinc tonnes sold
assume a rising zinc recovery up to target levels through the
remainder of 2015. As throughput rises, so the operating cost
metrics (i.e. measured in consumptions per tonne of EAFD), are
expected to fall through the remainder of the year.
Because of the continued focus on the performance of the KRP
plant in any going concern forecast, this was the reason the
directors made the recent agreement regarding the Development Loan
with Korea Zinc to ensure that the project would have generated
sufficient cash to repay the loan when it falls due. As a result,
the capital repayment required in February 2016 has been reduced to
US$3.1 million, as opposed to US$15 million, which was the case
prior to this agreement.
It should also be noted that discretionary spending is regularly
scrutinised and scheduled according to its impact on the Group
during this critical period while completing the ramp up of KRP.
Another factor that may impact the Group is the repayment of the
GBP4.2 million loan notes, due in July 2015. These are secured
against the assets held in Turkey and the directors believe that,
either the remaining land in Turkey will be sold before July to
meet this liability, or that the term of the loan notes can be
successfully renegotiated.
The directors have assessed the material uncertainties
concerning the future funding requirement of the Group which may
cast doubt upon the Group's ability to continue as a going concern
and compared them with the levels of expected finance available at
a corporate and project level and in consideration of the expected
ramp up, have a reasonable expectation that the Group has adequate
financial resources to manage its business risks and continue in
operational existence for the next twelve months from the date of
this report.
3. Administrative Expenses (net of gains and impairments)
2014 2013
Notes $'000 $'000
------------------------------------------------------------- ------- ----------- ----------
Administrative costs (excluding depreciation/amortisation) (7,262) (8,888)
Other gains 1,119 1,228
Impairment provisions 2 (13,970) (597)
Foreign exchange (loss)/gain (1,257) 676
Depreciation and amortisation (1,278) (1,331)
------------------------------------------------------------- ------- ----------- ----------
(22,648) (8,912)
------------------------------------------------------------- ------- ----------- ----------
4. Loss Per Share
The calculation of the loss per share is based on the loss
attributable to ordinary shareholders of US$33,229k (2013:
US$26,331k) divided by the weighted average number of shares in
issue during the year of 157,388,897 (2013: 106,370,166).
An adjusted loss per ordinary share for the year has been
presented to exclude the impairment provisions made in the year of
US$13,970k (2013: US$597k). It has been calculated based on
adjusted loss attributable to ordinary shareholders of US$19,259k
(2013: US$25,734k).
There is no dilutive effect of the share options in issue during
2014 and 2013.
5. Assets Held for Sale
Following the decision to sell the land inside the Heavy
Industrial Zone at Aliaga, Turkey, this asset has now been
classified as assets held for sale. The historic cost of US$2.2
million (YTL 5.2 million) has been applied as the realisable
value.
ZincOx also owns land in the Light Industrial Zone at Aliaga,
which was originally purchased in 2006 but considered surplus to
requirements in 2011. It has subsequently been split into smaller
plots to facilitate its sale with the majority of the smaller
parcelled plots now sold as at the end of 2014. The historic cost
of US$0.2 million (YTL 0.6 million) for those plots has been
applied as the realisable value.
Subsequent to selling the Group's mining assets in Yemen and the
associated Rubber Grade Plant ("RGP") in Belgium, the remaining
property, plant and equipment relating to the RGP has been
classified as assets held for sale. The carrying value of these
assets has been assessed at a fair value of US$0.3 million (EUR 0.2
million).
The Board took the decision to sell the land in Ohio which was
previously held to develop a recycling project in the USA. This
asset has been classified as assets held for sale with a fair value
of US$0.4 million.
The Turkish land and the remaining property, plant and equipment
at ZincOx Belgium Sprl form part of the Group's recycling segment
activity and fall within the geographical region called 'Rest of
Europe'. The land at Ohio forms part of the Group's recycling
segment activity and falls within the geographical region called
'USA'.
6. Trade and Other Payables
2014 2013 2012
$'000 $'000 $'000
------------------------------- -------- -------- --------
Current
Trade payables 9,003 7,680 8,146
Taxation and social security 254 268 246
Accruals 4,552 5,104 6,616
Other payables 544 566 936
Finance lease obligations 15 22 15
------------------------------- -------- -------- --------
14,368 13,640 15,959
------------------------------- -------- -------- --------
Non-Current
Accruals 3,690 2,795 1,880
Employee benefits 8 10 294
Other payables 886 891 549
Finance lease obligations 14 34 28
------------------------------- -------- -------- --------
4,598 3,730 2,751
------------------------------- -------- -------- --------
7. Loans and Borrowings
2014 2013 2012
$'000 $'000 $'000
--------------------------------------------- -------- -------- --------
Current
Korea Zinc Company Limited secured loans 3,413 976 950
Standard Chartered Bank Korea Ltd facility 2,260 999 -
Secured loan notes 6,541 - -
Other bank borrowings 24 51 9
--------------------------------------------- -------- -------- --------
12,238 2,026 959
--------------------------------------------- -------- -------- --------
Non-Current
Korea Zinc Company Limited secured loans 52,739 52,739 52,035
Secured loan notes - 6,925 -
--------------------------------------------- -------- -------- --------
52,739 59,664 52,035
--------------------------------------------- -------- -------- --------
Korea Zinc loans
In 2011, two separate loans were taken out with Korea Zinc
Company Limited ("Korea Zinc") by ZincOx (Korea) Ltd; a long term
Offtake Loan for US$37.8 million and a shorter term Development
Loan for US$15 million.
The long term 'Offtake Loan' is repayable by 30 June 2022 with
interest chargeable at USD 6 month LIBOR plus a 5% margin. The
shorter term 'Development Loan' has an interest rate of 15% with a
repayment date that was extended in the year by 12 months to
February 2016.
In March 2014, an amendment to the loan agreements was reached
with Korea Zinc to defer the interest payments on both loans for a
period of 12 months. At 31 December 2014, total deferred interest
of US$3.4 million had been accrued against the loans and is
currently shown in current liabilities (see note 8 'Post Balance
Sheet Events' for further details).
Both loans with Korea Zinc are secured by a debenture over the
assets of KRP only.
Standard Chartered Bank Korea Ltd facility
In April 2013, a US$5 million rolling Receivables Services
facility was taken out by ZincOx (Korea) Ltd with Standard
Chartered Bank Korea Ltd ("SCBK"). Interest is chargeable at USD 3
Month LIBOR plus a 4% margin and is payable immediately.
Secured loan notes
In July 2013, the Company issued loan notes to a value of GBP4.2
million (US$6.5 million) together with four year warrants over
9,450,000 new ordinary shares of the Company. Interest is 10%,
payable on a monthly basis with repayment due in July 2015.
The loan notes are secured against the shares in ZincOx Anadolu
Cinko SVTAS, the Company's wholly owned subsidiary that owns the
freehold land held at Aliaga, Turkey.
Other loans
Other bank borrowings represent an unsecured facility taken out
by ZincOx Resources Belgium Sprl to fund short-term working capital
requirements.
8. Post Balance Sheet Events
On 28 January 2015, the Company granted 1,919,000 options over
its ordinary shares at a subscription price of 10.0 pence per
ordinary share and issued a further 1,018,500 options under its
Performance Share Plan at a zero subscription price.
In March 2015, negotiations took place with Korea Zinc regarding
the repayment of the US$15 million Development Loan. The terms of
the renegotiation allow six equal payments of US$3.1 million to be
made every six months beginning in February 2016. In recognition of
the excellent quality of the KRP zinc concentrate the offtake
agreement has been increased to 1,050,000 tonnes during these
renegotiations of the Korea Zinc loans.
On 14 April 2015, following a re-organisation of the Board,
Jacques Dewalens resigned as an executive director and Guy Lafferty
as a non-executive director.
9. Annual Report
In accordance with AIM Rule 20, copies of the Annual Report
together with the Notice of Annual General Meeting and Proxy Card
will be sent to shareholders by 21 April 2015.
The Annual Report, Notice of General Meeting and Proxy Card will
be available to view on the Company's website at www.zincox.com by
21 April 2015, or from the Company at Knightway House, Park Street,
Bagshot, Surrey, GU19 5AQ. It should be noted that online voting
will be available from 22 April 2015.
10. Annual General Meeting
The Annual General Meeting of the Company will be held at
12.30pm on 22 May 2015 at the offices of Eversheds LLP, One Wood
Street, London EC2V 7WS.
-ends-
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EAFLLFEKSEAF
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