5th Jun 2006 07:00
ZincOx Resources PLC05 June 2006 Big River Zinc Smelter Aquisition Agreement Signed • £8.1 million acquisition of Big River Zinc smelter, Illinois, USA • Third largest zinc smelter in the United States • Plant to recycle zinc from steel industry waste (EAFD) • Initial plan to produce 30,000 tonnes zinc metal per annum ZincOx Resources plc ("ZincOx", ticker ZOX), has agreed to acquire Big RiverZinc Corporation ("BRZC") for a total consideration of £8.1 million. BRZC'sprincipal asset is the 100,000 tonnes per annum Big River Zinc "smelter"(electrolytic-refinery) in Sauget, Illinois. ZincOx intends to modify the treatment process at the Big River Zinc smelter(BRZ) so that it can use zinc bearing steel industry waste (EAFD) as afeedstock, as well as conventional mined sulphide concentrates. The BRZ projectwill replace the Mid-West Recycling Project previously planned to lead ZincOx'srecycling strategy in North America. A feasibility study for the redevelopmentof BRZ is already underway. Commenting on the announcement, Andrew Woollett, ZincOx's Chairman, said "Theacquisition of BRZI presents a unique opportunity to establish us rapidly andcost effectively in the USA. BRZ's location adjacent to St Louis on theMississippi river, makes it ideally suited as a central North American recyclingfacility." BRZ is the third largest zinc smelter in the United States. The plant employs asimple roast - single leach - electrowinning - melting and casting flowsheet, torecover metal of SHG quality. In addition, BRZ sold zinc powder suitable for theproduction of alkaline batteries, a significant value added product. BRZ was purchased by Korea Zinc Co., Ltd in 1996 for about US$50 million, sincethen over US$80 million has been spent on upgrading the plant. This has includeda complete refurbishment of the roasters and partial automation of theelectrowinning facilities. Over the past 50 years there has been a steadydecline in mining activities in the continental United States and conventionalzinc concentrates are now only produced as a by-product from lead miningoperations. Consequently, BRZ has had to source zinc concentrates from outsidethe United States. Given the recovery constraints set by the simple flowsheet atBRZ, in the latter half of 2005 it was not possible to obtain concentrates ofthe necessary quality at an acceptable price and Korea Zinc decided to close theplant. The future BRZ recycling operation will require the construction of a new leachand purification plant. This plant will be essentially the same as thatsuccessfully designed by the ZincOx management team, when at Reunion Mining PLC,for the Skorpion electrolytic zinc refinery, in Namibia. Zinc metal will berecovered using BRZ's existing electrolytic cellhouse, melting and castingfacilities, thereby saving considerable capital cost when compared to a newgreen field facility. Initially BRZ will produce about 30,000 tonnes of zinc metal per annum. Whensuitable zinc sulphide concentrates can be sourced, however, this will beexpanded significantly by re-starting the existing conventional roast-leachoperation in parallel with the new EAFD based plant. EAFD is a product of recycling steel in electric arc furnaces, from which theUSA derives about 50% of its steel and which generates over 800,000 tonnes ofEAFD per annum. Due to the galvanised nature of much of the scrap, the EAFDtypically contains between 15% and 25% zinc. EAFD will be supplied to the newBRZ plant under an agreement with Envirosafe Services of Ohio Inc (ESOI) withwhich ZincOx has a strategic alliance in North America. Under the terms of thisagreement, ESOI will source and transport EAFD to BRZ and will be responsiblefor residue stabilisation and disposal, at no cost to BRZ. The vast majority of the world's zinc is produced in smelters that use sulphideconcentrate as a feed material. The cost of the feed is linked to the price ofzinc, the higher the zinc price the more costly the concentrate feed. Zincconcentrate typically amounts to over 60% of the total cost of zinc production.The new EAFD based operation envisaged for BRZ will not have a cost of feedlinked to the zinc price and this should enhance operating margins, especiallyat higher zinc prices. In order to facilitate a rapid start up for the new operation and to assist withthe development, certain key members of BRZC's staff have been reemployed byZincOx. BRZ is located in the centre of the USA with excellent road and rail links andclose to the Mississippi river. As such it is close to and easily accessible byboth the suppliers of EAFD - the steel mills - and zinc customers. Commenting further, Andrew Woollett said "BRZ offers considerable benefits whencompared to an entirely new operation, such as the experienced management team,the reduced capital requirement due to the use of much of the existing plant andinfrastructure, environmental permitting, the existence of established marketsand the potential for value added products". The total cost of acquiring BRZ amounts to £8.1 million of which £0.9 million isconsideration for BRZC itself, £4.8 million in consideration of bondsoutstanding to Korea Zinc, and £2.4 million by way of the provision of aguarantee in respect of workers compensation insurance. The last figure isexpected to diminish significantly over the next 18 months, thereby releasingcash back to ZincOx. The acquisition is subject to various conditions that areexpected to be satisfied by the end of June. Whilst ZincOx has sufficient cashresources to cover the total consideration for BRZC, the Directors areevaluating various funding options for the provision of funding specific to thistransaction. The redevelopment will be planned to be undertaken as rapidly as possible, withproduction targeted for commencement before the end of 2007. To this end, workon the project has been gaining momentum over the past three months. TheIllinois Department of Commerce and Economic Opportunity has already agreed apackage of investment support worth over US$2 million comprising tax credits andtraining grants and a site survey has also been completed. A cost estimate andfeasibility study suitable for project finance is expected to be completed inthe third quarter of this year. The planned conversion of the plant will not prevent the resumption ofconventional zinc production when reasonably priced zinc concentrates can besourced on long term contracts. This will give the advantages of economies ofscale by sharing fixed costs in a way that would not be possible at a new greenfield site unequipped to treat sulphide concentrates. Andrew Woollett, said "The BRZ acquisition is a major leap forward for thecompany and accelerates our plans to become a major player in the zincbusiness". For more information please contact: Andrew Woollett, ZincOx Resources plcTel: +44 (0) 1276 455 700 David Poutney /Chris Wilkinson, Numis Securities LtdTel : +44 (0) 20 7776 1500 Laurence Read/Abigail Singleton, Conduit PRTel : +44 (0) 20 7429 6666 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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