4th May 2005 07:00
ZincOx Resources PLC04 May 2005 ZincOx Resources plcPreliminary Results - Year Ended 31 December 2004 ZincOx Resources plc, a world leader in the design of processes to treatunconventional zinc bearing material, today announced 12 month results for theyear ended 31 December 2004. ZincOx's objective is to become a major producer of zinc oxide, with operatingcosts among the lowest in the world. Commenting on the results, Noel Masson, Chairman, said: "The past 12 months havebeen the most successful since the company was established with three majorprojects nearing a development decision." Operational Highlights • Proceeds from the sale of the Shaimerden deposit received • Jabali deposit (Yemen) positive feasibility study completed • Aliaga Recycling Project (Turkey) feasibility study commenced •Mid West Recycling Project (USA) strategic alliance and feasibility study commenced •Polykiln piloting commenced For more information please contact Andrew Woollett Leesa Peters/Pam SuttonZincOx Resources Plc Conduit PRTel:+44(0)1276 455 700/07801 479 753 Tel:+44(0)20 7618 8708/07812 [email protected] [email protected] www.zincox.com ZincOx Resources plc Preliminary Results for the year ended 31 December 2004 Chairman's Statement The past 12 months have been the most successful since the company wasestablished. There have been three important developments: the successfulcompletion of a positive feasibility study for the development of a zinc mine atJabali in Yemen, and the commencement of feasibility studies for the developmentof zinc recycling plants in Turkey and the USA. While the basic strategy of the company to bring to account non-sulphide zincresources has not changed, the development of the LTC technology puts us intothe zinc chemical rather than simply the zinc metal business. Since aconsiderable proportion of zinc oxide is made from metal, the price of zincoxide, for all but the lowest grades, sells at a premium to the value of themetal contained and therefore our zinc resources become more valuable to thecompany. By completing the Jabali feasibility study, in March 2005, we fulfilled ourearn-in requirements entitling us to a 60% interest in the Jabali deposit andwere able to apply for a mining contract. The deposit contains a mineralresource of 12.6 million tonnes containing 8.9% zinc. The study envisages themining of 800,000 tonnes per year of ore from a shallow open pit over a minelife of about 11 years. Ore will be treated using the LTC process for theproduction of about 70,000 tonnes per year of high quality zinc oxide suitablefor sale direct to industrial consumers. The capital cost of the projectdevelopment is expected to be about £40 million. Operating costs have been estimated and a cash flow model has been drawn upbased upon the latest fiscal conditions being negotiated with government. Themodel demonstrates that the project has a post tax, ungeared rate of return of25% and a net present value of £31 million, using a conservative long term zincprice (US$1,000 per tonne). The project is expected to have a cost of zinc oxideproduction among the lowest in the world and this should greatly facilitate theraising of project finance for development. Project financing will commence as soon as the mining licence has been awarded.Assuming a debt equity ratio of 2:1, this would imply an equity component of £13million of which our share would be only £7.8 million. Provided the granting ofthe mining licence is not delayed, construction could begin at the start of2006, and first production in the second half of 2007. Our strategy has evolved significantly over the past few years, and in order forshareholders to understand the reasons for this, a special section entitledDevelopment of Technology and Strategy has been included in this annual report. We have been working on the recovery of zinc from waste materials using low costhydrometallurgical, leaching technology for some years. In particular, we havebeen investigating the best way to treat waste produced from the recycling ofsteel scrap, so called electric arc furnace dust or EAFD. Due to the galvanisednature of the majority of scrap and the volatility of zinc, EAFD typicallycontains between 15% and 25% zinc. It is therefore considerably richer in zincthan most zinc mines and represents a very attractive resource. During the course of the year our testwork showed that the LTC process,originally developed for the Jabali project, can produce very high purity zincoxide from EAFD. While we can also produce zinc metal from EAFD using solventextraction, we believe that the use of the LTC process is the best way to treatit. Furthermore, since the EAFD is obtained at little or no cost, the overallcost of producing zinc oxide is very much lower than conventional methods. The Aliaga Recycling Project will be developed in a heavy industrial zone onTurkey's west coast, where five steel recycling plants are located. We haverecently entered into an option agreement to purchase a large site that will besufficient for both the process plant and a permanent residue disposal facility. The feasibility study, which is scheduled for completion in the second half of2005 envisages the development of the plant in two stages. Initially the feedwill come almost entirely from Aliaga and the plant will produce 12,500 tonnesper annum of zinc oxide, but subsequently capacity will be expanded to 30,000tonnes per annum by the treatment of EAFD from elsewhere in Turkey. A preliminary estimate of capital and operating costs has been undertaken andthe cash flow modelled. At a zinc price of US$1,000 per tonne the pre tax netpresent value, using a discount rate of 10% is £30 million and the internal rateof return is 30%. The United States is the world's third biggest steel producer, half of whichcomes from recycling scrap which produces about 850,000 tonnes of EAFD annually.While the majority of this EAFD undergoes energy intensive processing to producea zinc concentrate, about 30% goes to landfill. In January, we announced astrategic alliance with Envirosafe Services of Ohio Inc (ESOI), which handlesmore EAFD than any other landfill facility in North America. Under our alliance, ESOI will provided EAFD to our plant and will take ourprocess residue at no cost or benefit. Zinc feedstock is therefore free. A preliminary estimate of capital and operating costs has been undertaken for aplant initially producing 20,000 tonnes per annum of zinc oxide, rising to30,000 tonne per annum in year four, together with a cash flow model. At a zincprice of US$1,000 per tonne the pre tax net present value using a discount rateof 10% is about £22 million and the internal rate of return is 25%. Zinc oxide may be characterised by chemical purity, grain size and shape, andinternal surface area. Different industries are interested in differentcharacteristics and this can have a significant bearing on price. Our testworkto date, has shown that the LTC process can be modified to produce differentgrades of material which will facilitate our entry into a broad spectrum of themarket place. Today the worldwide production and consumption of zinc oxide is in the order of1,000,000 tonnes. About half of this is consumed by the rubber industry, mainlyin tyres. Other important consumers include the ceramics, oil additives, paints,animal feeds and pharmaceutical industries. With the exception of a few special situations most zinc oxide is produced frommetallic zinc, either from new ingots or from scrap produced by the galvanisingindustry. The cost of the zinc feedstock is therefore either the LME price plusa premium for ingots, or in the case of zinc scrap 85% - 90% of the LME value.So while conventional zinc oxide production has modest capital and operatingcosts, since zinc oxide typically sells for only a 10%-20% premium to the valueof the metal contained, the margins are rather small. The margins for our zincoxide projects, on the other hand, are completely different as we obtain zincfeedstock cheaply in the case of the Jabali deposit and at no cost in the caseof our EAFD recycling projects. The size of conventional zinc oxide production plants is relatively small,typically producing between 10,000 and 20,000 tonnes per annum. The market issplit between several players spread around the world. ZincOx therefore has twosignificant advantages. Firstly, having plants producing between 30,000 and72,000 tonnes per annum the company will enjoy significant benefits of theeconomies of scale. Secondly, in the development of these three projects ZincOxwill be the world's largest producer of zinc oxide which given its very low costof production will enable the company to exert considerable influence on themarket. In addition to our plans for EAFD, we have made considerable progress with thedevelopment of fuming equipment particularly designed for materials where thezinc cannot be recovered by leaching. Lead smelters, for example, produce slagthat contains between 8% and 14% zinc. Such slag has no value and generallyaccumulates in dumps at the smelter. The zinc found in these slags is notrecoverable by leaching but can be concentrated by the well known fumingprocess. Conventional fuming equipment, however, is too energy intensive tojustify slag treatment. A new type of fuming equipment, Polykiln, has beendeveloped and is being tested by a company formed by ZincOx and themetallurgists who developed the Polykiln concept. This company modified andrefurbished a pilot plant in the early part of the year and discontinuous testshave been carried out since August. Various design modifications have been madeand we recently commenced running longer tests that will allow us to determinethe zinc recovery, the energy consumption and therefore the economical viabilityof the equipment. Zinc has been the last of the metals to rise from the depressed pricesexperienced over the past few years. Continuing over supply and high inventoriesof metal have caused zinc to lag behind the other base metals. However, the hugeand sustained appetite for metals from China has finally caught up with zinc andLME stocks have fallen. Consequently, although stocks are still high, the pricehas reacted as expected and at present we are experiencing stronger zinc prices.All commentators seem to be predicting continuing price growth through theremainder of this year at least. While our three main projects, outlined above, are some way from production,current prices are relevant to the value of our Shaimerden project deferredreceipts, which at the current zinc price (US$1,250 per tonne) would be worthUS$21 million to ZincOx. Overburden removal at Shaimerden commenced at thebeginning of 2005 and we can expect our first payment no later than February2007. As a result of the development of the LTC process for the treatment of theJabali deposit, we will not be pursuing the concept of a new zinc smelter atYanbu, in Saudi Arabia. As I look to the year ahead, we are hopeful that the cost savings we expect fromPolykiln will be confirmed, and in anticipation of this, we have already startedto negotiate the acquisition of various slag dumps around the world. We areconfident that the feasibility studies for our Turkish and US recycling projectswill be completed by the end of the year, and we plan that they will be thefirst of a network of plants we will establish around the world. Together withour Jabali project, we now have the projects required to make us into a largelow cost zinc company. The great achievements of 2004 would not have been possible without thestrenuous effort of our staff and my fellow directors and I would like to thankthem all for their hard work. N.J.J.Masson 4 May 2005 Chairman Review of Operations===================== PRIMARY DEPOSITS Jabali, Yemen------------- The Jabali zinc deposit is located 110 km northeast of Sana'a, the capital cityof Yemen. It contains a geological resource, calculated in accordance with theJORC code, of 12.6 million tonnes of oxide ore, grading 8.9% zinc and 68g/tsilver. The mineral rights to the deposit are currently held through an ExplorationLicence which is owned by a joint venture comprising ZincOx, Anglo American plcand Ansan Wikfs (Hadramaut) Ltd, a Yemeni company. Under the terms of the jointventure agreement, ZincOx is entitled to a 60% interest by completing thefeasibility study and Anglo and Ansan will hold 20% each. ZincOx is manager ofthe joint venture. On 15 March 2005, ZincOx completed a feasibility study for the development ofthe Jabali deposit at the rate of 800,000 tonnes per annum of ore, with a minedgrade of 9.2% zinc, over a mine life of 11 years. There is the potential toincrease the mine life by exploration success, as the deposit is open on twosides. A small amount of lead is recovered and sold but generally the lead isnot of an economic grade. The silver, however, passes to the tailings and aseparate study has commenced to assess the viability of its commercial recovery. MDM Ferroman, a mineral engineering firm from South Africa, carried out thefeasibility study. Certain components of the study were contracted to otherparties. SRK Consulting (UK) Ltd carried out the geology and mining sections;Tye Minerals Ltd selected and costed the mining equipment; Scott Wilson Miningundertook the environmental and tailings (waste) disposal sections. ZincOx,together with staff from the Yemen National Water Resources Authority, carriedout water supply studies. The metallurgy and processing sections were producedby ZincOx in collaboration with consultants from the United States, and MDM. Mining will be from an open pit, with a 2:1 ratio of waste to ore. The ore willbe treated by means of the LTC process, test work on which has indicated a 77%zinc recovery. The process flow sheet was designed by ZincOx and tested in apilot plant operated by CTP, an independent Belgian metallurgical laboratory.The plant is designed to produce approximately 70,000 tonnes per year of highquality zinc oxide (99.9% ZnO), containing 80% zinc. Marketing studies and testwork carried out by ZincOx indicate that the final product will be of a qualitysuitable for direct marketing to zinc oxide consumers in Europe, the Far Eastand America. This material will command a substantially higher price for thecontained zinc than that offered by zinc smelters, which typically only payabout 55%-65% of the value of the metal contained. Capital costs are estimated at US$75.4 including working capital. Scott Wilson Mining carried out an Environmental Impact Assessment as part ofthe feasibility study, in accordance with World Bank guidelines and input fromthe Yemen Environmental Protection Authority. The study states that overall theproject is considered to provide a net beneficial impact. The effect of theproject with respect to employment and infrastructure development will have along term positive impact beyond the life of the project and the area of themine. The Government of Yemen has stated its intention to diversify the economy of thecountry away from its dependence on oil and gas and is actively encouraginginvestment in the mining industry. The revenue generated from Jabali in terms oftaxes and industrial development in Yemen will bring significant long termbenefits to the country. ZincOx is currently finalising the terms of an Exploitation Agreement with theGovernment of Yemen, which is intended to confirm the tax and other fiscalconditions assumed in the feasibility study. Discussions have commenced with certain financial institutions with respect tothe provision of debt finance for development of the project. Assuming theExploitation Agreement is finalised by the end of the second quarter, thenfinancing should be completed by the end of this year. Construction will thencommence in 2006 with production scheduled for the second half of 2007. Shaimerden, Kazakhstan---------------------- The Shaimerden zinc oxide deposit is situated in northern Kazakhstan, some 300km south west of the city of Kostanai. ZincOx sold its 95% interest in thedeposit in December 2003 to Kazzinc, Kazakhstan's largest producer of zinc. Theconsideration for the sale was $7.5 million in cash and a deferred receipt toZincOx, details of which are set out below. The deferred receipt is receivable on the first 200,000 tonnes of zinc containedin ore mined from the deposit, at a rate equivalent to $0.2375 per tonne forevery dollar that the LME zinc price is above $800 per tonne. Provided the zincprice is above $800 per tonne and certain other conditions are met (see below),the deferred receipt is receivable, regardless of whether Kazzinc commencemining or not. The payment schedule is based on Kazzinc guaranteeing minimum andmaximum production rates of 40,000 and 60,000 tonnes per annum of zinc containedin ore, respectively, commencing at the start up of production or September2006, whichever is the earlier. Under certain conditions, the deferred receipt may be suspended by Kazzinc.Firstly, if the in-situ resource at a 5% cut-off is more than 25% below thatreported to Kazzinc of 4.55 million tonnes at 21.14% zinc; and secondly, ifthere are certain events, largely of a force majeure nature, that preventKazzinc from mining the deposit. Assuming that the zinc price stays at the current level of approximately $1,250per tonne during the mining of the first 200,000 tonnes of zinc, the deferredreceipt would be worth US$21 million to ZincOx, payable between 2007 and 2011. Kazzinc commenced the removal of overburden at Shaimerden in January 2005. RECYCLING========= EAFD---- Background By 2010, about half the world's steel is expected to come from recycling.Recycling involves the remelting of steel scrap in Electric Arc Furnaces. Thereare, however, various impurities in the scrap and these need to be removed inorder to obtain steel of saleable quality. Certain reagents (fluxes) are addedto the melt in the recycling process that attract the less volatile impuritieswhich then form a slag that floats on the liquid steel. Volatile impuritiesincluding toxic elements such as cadmium are boiled off. These cannot be ventedto the atmosphere, so air is injected into the chimneys, or flues, forming oxidecompounds which precipitate as a fine dust ("EAFD") that is caught on filtersand bagged. The toxic elements in EAFD can, to varying extents, be dissolved by rain waterand may, therefore, be potentially threatening to the environment. For thisreason EAFD is regarded as a hazardous waste that needs special disposal. Inmost parts of the world steel mills will pay for its removal. Steel is increasingly protected from corrosion by coating with zinc, orgalvanising as it is generally known. Since steel scrap contains galvanisedmaterial, zinc, as a volatile metal, is an important constituent of EAFD,commonly amounting to15%-25% by weight. Traditionally, zinc in EAFD has been recovered by energy intensive methods thatproduce an intermediate zinc bearing product which is sold to smelters at abouthalf of the value of the contained metal. For some years, ZincOx has been working on metallurgical methods for therecovery of zinc from EAFD by dissolving the zinc to produce an end productwhich gives the full value of the contained metal. Such an approach is very muchmore cost effective than traditional zinc recovery methods. ZincOx has investigated in detail dissolution methods using three differentreagents, two of which produce zinc metal and the third, LTC, which produceszinc oxide. The zinc oxide is of sufficient purity that it can be sold toindustrial consumers who generally pay a premium to the value of the containedmetal. The LTC approach is ZincOx's preferred treatment method. Aliaga Recycling Project, Turkey-------------------------------- The feasibility study for the Aliaga Recycling Project ("ARP") commenced inNovember 2004. The study is investigating the development of a plant to extractzinc from Turkish EAFD. The ARP is located in the Aliaga Heavy Industrial Zone ("AHIZ") located about 60km north of Izmir, Turkey's third largest city, on the western coast of thecountry. The AHIZ covers an area of about 12km(2), is adjacent to the coast andwell served by electricity, gas, rail, road and port. ZincOx has entered into an option agreement to purchase 25.2 hectares of land inthe north east of the industrial zone. This area will be sufficient for theconstruction of a process plant and permanent residue disposal facility. There are five steel recycling plants located in the industrial zone and withinfour km of the ARP plant site. The ARP will be developed in two phases.Initially, almost all the feed will come from the steel mills in the AHIZ, forthe production of about 12,000-15,000 tonnes of zinc oxide per annum. Soon afterthe project starts, however, production is expected to double as a result of anexpansion to take the remainder of Turkish EAFD. The ARP is expected to employabout 100 people and be developed at a capital cost of about US$23 million. The EAFD will be treated using the LTC process to produce high quality zincoxide. The oxide will be sold to industrial customers in Turkey and overseas. Residue from the processing will be disposed of in a secure fully engineereddouble lined landfill facility. This facility is being designed by SRK, aninternational firm of mineral resource consultants. SRK are also responsible forall the environmental protection aspects of the feasibility study. A preliminary economic study, using a zinc price of US$1,000 per tonne, hasindicated that the project should have a net present value of about £30 million(at a discount rate of 10%) and an internal rate of return of 30%. The feasibility study is due for completion in the second half of the year sothat construction of the project could commence at the beginning of 2006 andproduction in mid 2007. Mid West Recycling Project, USA------------------------------- The feasibility study for the Mid West Recycling Project ("MWRP") commenced inJanuary 2005. The study is investigating the development of a plant to extractzinc from American EAFD. ZincOx has formed a strategic alliance with Envirosafe Services of Ohio Inc("ESOI"), one of North America's largest hazardous waste disposal companies.ESOI has patented technology that chemically and physically stabilises hazardouswaste so that it can be disposed of in non-hazardous landfill sites. Thistechnology has been approved by the US Environmental Protection Agency ("EPA"). ESOI has a stabilisation plant in North West Ohio together with a hazardouswaste landfill facility permitted for 240,000 short tons per annum. ESOI handlesEAFD from all over the mainland USA and has excellent working relations withboth steel producers and the EPA. In addition to disposal, ESOI has considerableEAFD collection and transportation experience. Under the terms of the alliance, ESOI will be responsible for the delivery ofEAFD to the MWRP and will collect the residue and be responsible for itsstabilisation and disposal. Consequently the zinc feedstock for the MWRP will beobtained effectively at no cost. EAFD will be treated using the LTC process to produce about 20,000 tonnes ofzinc oxide per annum for sale direct to industrial consumers in North America.Output will rise to 30,000 tonnes per annum in the fourth year of production. ESOI has carried out tests on the residue produced by the LTC process and hasconfirmed the amenability of their technology to stabilise the material. Several potential sites for the MWRP have been identified and are being reviewedin light of local taxes, infrastructure, and proximity to steel mills andresidue disposal facilities. A preliminary economic study, using a zinc price of US$1,000 per tonne, hasindicated that the project should have a net present value of about £22 million(at a discount rate of 10%) and an internal rate of return of 25%. The feasibility study is due for completion in the second half of the year sothat construction of the project could commence at the beginning of 2006 andproduction in mid 2007. LEAD SLAGS---------- Background Generally speaking, at base metal mines the mineralised rock is crushed and themetal bearing mineral is separated from the other constituents. The metalbearing mineral, the so called concentrate, is then shipped to smelters wherethe metal is recovered. Lead and zinc generally occur together in nature, and mines generally produceconcentrates of each metal. The separation of the metal bearing minerals is notperfect and there is always some cross contamination. At the lead smelter, the zinc and other impurities, such as iron, end up in theslag. The zinc typically amounts to between 8% and 14% of the slag by weight.Slag is a waste material, which due to its content of base metals has restricteduses. In most smelters the slag is stored in dumps. The slag is a vitreousmaterial in which the base metals are strongly bound. In the natural environmentthe metals are not leachable and so slag does not present an environmentalthreat, and by the same token the metals cannot be recovered by simpledissolution, as is the case for EAFD. At certain lead smelters, zinc has been recovered from the slags by the fumingprocess, in which slag is remelted and the zinc is volatilised and burnt, toproduce a zinc oxide concentrate suitable for sale to zinc smelters. Thisprocess is very energy intensive and not generally attractive with prevailingenergy prices. ZincOx has been working on a new type of fuming equipment, Polykiln, which isexpected to have very much lower capital and operating costs than traditionalequipment. ZincOx has identified a number of lead smelter slags around the worldwhere there would be the potential to produce a zinc concentrate profitably,using the Polykiln process. Negotiations to obtain the most prospective slagdumps have commenced. Polykiln-------- Considerable testwork and development was undertaken on Polykiln in the formerSoviet Union in the 1980's. The funding for this work ended with the break up ofthe Soviet Union. The Polykiln equipment effects the fuming process very much more quickly thantraditional methods. The rapid reaction time leads to less energy use andsmaller plant, hence the reduction in operating and capital costs. ZincOx has formed a new company with the inventors of the Polykiln process todevelop the technology. During the first half of 2004 an old pilot plant with acapacity of two tonnes per hour was modified and refurbished. Pilot operationscommenced in August 2004 and various plant modifications have been made tooptimise the process. The pilot operation has confirmed the recovery of bothzinc and lead, and a zinc fume of saleable quality has been produced from thetreatment of lead slag. Continuous tests have recently commenced, and these will confirm reagent, andparticularly energy, consumption. Since lead slags do not differ significantlyaround the world, this will enable operating costs to be estimated for differentoperating environments, which in turn will allow the company to focus on themost economically attractive slag dumps. Development of Technology and Strategy====================================== Primary Deposits-----------------ZincOx was originally formed to bring to account zinc resources that are notamenable to traditional zinc processing technology and which were, therefore,considered to be of little value and could be obtained at little or no cost. Thecompany was established by the former management team of Reunion Mining plcwhich had been responsible for financing and completing the feasibility studyfor the Skorpion zinc oxide deposit in Namibia. The management team designed anew flowsheet for Skorpion that put together existing technologies, used in theproduction of metals other than zinc, so as to recover zinc from ore previouslyconsidered to be uneconomic, in spite of its high grade and amenability to openpit (low cost) mining. The flowsheet involved the dissolution of zinc in dilutesulphuric acid, the physical purification of the liquor by filtration followedby chemical purification using solvent extraction prior to the recovery of metalby electrowinning. The Skorpion deposit has subsequently been successfully developed by AngloAmerican, and currently produces about 140,000 tpa zinc. It is one of thelargest zinc mines in the world and probably has the lowest operating cost. Initially ZincOx carried out a global literature review to identify zinc oxidedeposits with the intention of applying the technology developed for Skorpion.During the course of this study it became apparent that there were few depositsthat would have sufficient size to warrant the large capital expenditurerequired for the development of an integrated mine and refinery, as developed atSkorpion. As a consequence the company began to investigate the development ofalternative lower cost equipment. The success of this programme has allowed usto consider development of deposits of a smaller size. Furthermore, during the course of sampling and testing various primary zincoxide deposits from around the world, ZincOx discovered that no two depositshave exactly the same mineralogy and that even in a single deposit there couldbe very significant variations. In order to bring deposits to account it wasnecessary to develop the technology further and examine different processingmethods and equipment. The first major zinc oxide resource we obtained was Jabali, in Yemen. While ourgeological work has almost doubled the size of the reserve, the ore presented aproblem commonly encountered in zinc oxide deposits. Zinc is generally found inlimestones which are rich in carbonate and therefore neutralise the acid used todissolve zinc. The cost of acid consumed by the Jabali ore precluded economicdevelopment of the deposit using Skorpion technology. The high acid consumptioncould be reduced by concentrating the zinc bearing minerals, thereby reducingthe acid consuming carbonate minerals. Three ore concentration methods were investigated to reduce acid consumption aspart of our studies for producing metal at Jabali: heavy media separation,floatation and fuming. The heavy media and floatation were technically feasible,but suffered from poor separation and low recovery. The fuming of zinc proved tobe too costly. The lack of infrastructure and high cost of power precludedeconomic development. The concentration would have allowed the economictransportation of the mineral to Yanbu, an industrial park on the Red Sea coastof Saudi Arabia where concessionary loan finance and cheap gas woulddramatically reduce the cost of zinc electrowinning. Unfortunately due toescalating political problems in this region, the company was unable to attractthe requisite equity finance. The potential to produce a saleable zinc concentrate through a combination offloatation and fuming was examined, and this produced a viable project, albeitwith rather low zinc recoveries. During the course of 2004, however, we beganexamining another hydrometallurgical process that did not use acid and in whichreagents could be recycled so that reagent consumption ceased to be asignificant cost. This technology produces high purity zinc oxide rather thanzinc metal and is referred to as LTC, an acronym for Leach To Chemical asopposed to the leach to metal approach used at Skorpion. The LTC technology hasbeen used in the production of other metals for several years and ZincOx hasentered into an exclusive technology agreement with one of the leading firmsinvolved in this technology, in respect of zinc applications. The processing of Jabali ore using the LTC approach was been confirmed in apilot plant. A feasibility study for Jabali employing LTC technology wascompleted in March 2005. The zinc oxide product from LTC is of sufficient quality for sale to industrialconsumers and generally commands a premium to the value of the metal content ofbetween 5% and 15%. So that compared to metal, revenue generated is greater andoperating costs are lower since there is not the energy consumption required byelectrowinning. Waste Materials---------------The process development work necessitated by the examination of various primarydeposits led us to consider the amenability of other materials to ourtechnology. In particular zinc bearing waste products that would represent cheapor even subsidised sources of zinc. In many cases zinc bearing waste productsare individually small and diffuse so that their collection, rather than zincrecovery, becomes the issue and is a significant cost. There are, however, two zinc bearing wastes that amount to significant tonnages:lead smelter slags and the dust produced by the recycling of steel scrap inelectric arc furnaces, so called EAFD. The company has been actively seeking todevelop projects based on these materials. Lead Slags----------Zinc and lead commonly occur together in mineral deposits. Mines generallyproduce separate zinc and lead mineral concentrates, however their separation isnot completely efficient and zinc inevitably ends up in the lead concentrate.During smelting of the lead concentrate the zinc is rejected into the lead wasteslag where it typically amounts to 8%-14% by weight. A global literature review has revealed slag dumps amounting to 21,000,000tonnes and current slag production from major smelters amounts to about 500,000tonnes per annum. In parts of the world where energy is cheap, the lead smelters may use energyintensive fuming to recover the zinc as a zinc oxide concentrate that can beused as a feedstock for zinc smelters. Since the zinc in the lead slag is notamenable to a dissolution approach (e.g. Skorpion or LTC processing methods) thecompany has investigated new fuming methods which had the possibility ofsignificantly reducing energy consumption. Considerable testwork was undertaken and we believe Polykiln represents the mostexciting new technology. Polykiln is a highly efficient and rapid system thatshould use significantly less energy and have lower capital costs thantraditional fuming equipment. Piloting of the Polykiln equipment commenced inAugust 2004 and results to date have been encouraging. Electric Arc Furnace Dust, EAFD-------------------------------About 35% of steel is produced from recycling scrap iron in electric arcfurnaces or mini-mills as they are known in the USA. This process concentratesvolatile elements such as zinc and lead and finer iron oxide particles in a dust(EAFD) that is caught in filters and bagged. There are about 3,000,000 tonnes of EAFD produced annually around the world, anddue to the galvanised nature of the recycled scrap it contains between 15% and25% zinc. This zinc is not directly recoverable using conventional technologymainly due to the presence of various impurities. The zinc may be recoveredusing a modified version of the Skorpion flowsheet, and this has been confirmedby ZincOx in pilot tests. EAFD also contains significant quantities of lead (3%-6%) and the companyconfirmed by piloting its recovery using a different leaching approach, namelythe proprietary "MT Leach". However the economics of the MT Leach were notsufficiently attractive to warrant lead recovery, especially given the low metalprices experienced over most of the past four years. Patents over the MT Leachhave been applied for by ZincOx, but no development is foreseen in the immediatefuture. The amenability of EAFD to the LTC process to produce zinc oxide has beendemonstrated by testwork on various EAFD samples from around the world. Inaddition, the residue produced after zinc removal can be disposed of in a safeand cost effective manner without long-term environmental impacts. Currently,zinc is being recovered from EAFD by energy intensive fuming to produce aninferior quality concentrate, the economics of such an operation are such thatnew developments of this type are very unlikely to be economic. We believe thatthe LTC technology represents a breakthrough in the recycling of zinc in EAFDand that it could therefore form the basis of a global EAFD treatment business. ZincOx Resources plc Consolidated Profit and Loss Account for the year ended 31st December 2004 31st December 2004 31st December 2003 £ £ Turnover - -Cost of Sales - - --- --- Gross Profit - - Exploration Costs (463,187) (231,458)Other Administrative Expenses (1,148,053) (650,876) ------------- -----------Total Administrative Expenses andOperating Loss (1,611,240) (882,334) Share losses of Associate (2,623) - Profit on disposal of subsidiary &other fixed assets 84,053 2,975,522 -------- -----------(Loss)/Profit on Ordinary Activitiesbefore Interest (1,529,810) 2,093,188 Net Interest receivable and similarincome 92,416 9,741Amounts written off investments (136,943) (280,000) ----------- -----------(Loss)/Profit on Ordinary Activitiesbefore Tax (1,574,337) 1,822,929 Taxation (3,844) (4,142) --------- ---------(Loss)/Profit for the year taken toReserves (1,578,181) 1,818,787 ------------- ----------- (Loss)/Earnings per ordinary shareBasic £ (0.07). £ 0.08.(Loss)/Earnings per ordinary shareDiluted £0.08. All operations are continuing. ZincOx Resources plc Consolidated Balance Sheet as at 31st December 2004 31st December 2004 31st December 2003 £ £ FIXED ASSETS-------------- Intangible Assets 3,957,997 3,002,179Tangible Assets 12,031 16,465Investments 426,605 1,423,104 --------- ----------- 4,396,633 4,441,748 ----------- ----------- CURRENT ASSETS---------------- Debtors due within one year 83,057 4,210,585Debtors due after one year 116,098 -Cash at Bank and in Hand 2,524,398 105,172 ----------- --------- 2,723,553 4,315,757Creditors - amounts falling duewithin one year (294,262) (353,876) ----------- ---------NET CURRENT ASSETS 2,429,291 3,961,881-------------------- ----------- -----------TOTAL ASSETS LESS CURRENTLIABILITIES 6,825,924 8,403,629--------------------------------------- ----------- ----------- CAPITAL AND RESERVES---------------------- Called up Share Capital 5,906,943 5,906,943Share Premium 5,188,848 5,188,848Other Reserves (1,004,106) (1,004,582)Profit and Loss Account (3,265,761) (1,687,580) -------------EQUITY 6,825,924 8,403,629-------- ----------- ----------- ZincOx Resources plc Consolidated Cash Flow Statement for the year ended 31st December 2004 31st December 2004 31st December 2003 £ £ NET CASH OUTFLOW FROM OPERATINGACTIVITIES (1,306,805) (523,257)--------------------------------- ------------- ----------- ---RETURNS ON INVESTMENTS ANDSERVICING ON FINANCE----------------------------------Interest received 92,416 9,741 -------- -------Net Cash Inflow from Returns onInvestments and Servicing of Finance 92,416 9,741 -------- ------- CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT----------------------------------------------Purchase of Intangible Fixed Assets (1,454,429) (1,401,716)Sale of investments 845,330 -Purchase of Tangible Fixed Assets (5,579) (3,140)Investment in Associate (220) - ------- ---Net cash outflow from CapitalExpenditure (614,898) (1,404,856) ----------- -------------DISPOSALS-----------Sale proceeds on disposal ofsubsidiary 4,249,075 - ----------- --- MANAGEMENT OF LIQUID RESOURCES-------------------------------- (Purchase)/Sale of Short TermDeposits (2,258,063) 200,000 ------------- --------- Net Cash (Outflow)/Inflow frommanagement of Liquid Resources (2,258,063) 200,000 ------------- --------- FINANCING----------- Issue of Shares for cash - 1,742,500Expenses paid in connection withshare issue - (24,625)Net cash inflow from financing - 1,717,875 --- -----------INCREASE/(DECREASE ) IN CASH 161,725 (497)------------------------------ --------- ------- ZincOx Resources plc Consolidated Statement of Total Recognised Gains And Lossesfor the year ended 31st December 2004 31st December 2004 31st December 2003 £ £ (Loss)/Profit for the period taken toreserves (1,578,181) 1,818,787Currency translation differences 476 930 ----- -----Total Recognised (Losses) and Gains forthe Year (1,577,705) 1,819,717 ------------- ----------- Reconciliation of Movements in Consolidated Shareholders' Fundsfor the year ended 31st December 2004 31st December 2004 31st December 2003 £ £ (Loss)/Profit for the Period (1,578,181) 1,818,787 Other Recognised Gains and losses 476 930 New Share Capital and Related SharePremium - 1,807,721 ------------------ ------------Net Movement in Shareholders' Funds (1,577,705) 3,627,438 Opening Shareholders' Funds 8,403,629 4,776,191 ----------- ------------Closing Shareholders' Funds 6,825,924 8,403,629 ----------- ------------ Notes: 1. Preparation of non-statutory accountsThe financial information set out in this preliminary announcement does notconstitute statutory accounts as defined in section 240 of the Companies Act1985. The balance sheet at 31st December 2004 and the profit and loss account, cashflow statement, statement of total recognised gains and losses, reconciliationof movement in shareholders' funds and associated notes for the year then endedhave been extracted from the Group's 2004 statutory financial statements uponwhich the auditors' opinion is unqualified. 2. (Loss)/Earnings per Share ------------------------- 31st December 2004 31st December 2003 Loss Weighted Per Earnings Weighted Per average share average share number of amount number of amount £ shares pence £ shares pence Basicearnings(Loss)/Earnings pershare(Loss)/Earningsattributableto ordinaryshareholders(1,578,181) 23,627,772 (6.68) 1,818,787 22,084,753 8.24 ------ Dilutive effect ofsecuritiesOptions 512.053 -------Diluted Earnings (Loss)/Earnings per share 1,818,787 22,596,806 8.05 --------- ---------- ---- 3.Net Cash Outflow From Operating Activities ------------------------------------------- 31st December 2004 31st December 2003 £ £Operating (Loss) (1,611,240) (882,334)Depreciation less costs of disposalof fixed assets 10,013 11,680Deferred Exploration costswritten-off 463,187 231,458Gains/(Losses) on foreign exchangetranslations 476 (2,746)(Increase)/Decrease in Debtors (106,085) 45,613(Decrease)/Increase in Creditors (63,156) 73,072 ------------------- ------------- Net Cash outflow from operatingactivities (1,306,805) (523,257) ------------- --------------- Reconciliation of Net Cash Flow to Movement in Funds----------------------------------------------------- 31st December 2004 31st December 2003 £ £Increase/(Decrease) in cash in theyear 161,725 (497)Deconsolidation of RIF Zinc (562) -Cash inflow/(outflow) from reductionin liquid resources 2,258,063 (200,000) ----------- ----------- Movement in net funds in the period 2,419,226 (200,497)Opening net funds 105,172 305,669 --------- --------- Closing Net Funds 2,524,398 105,172 ----------- --------- Analysis of changes in net Funds--------------------------------- At 1st January Cashflow Purchase of RIF Zinc At 31st 2004 short term Deconsolidated December deposits 2004 £ £ £ £ £ Cash inhand &at bank 105,172 161,725 - (562) 266,335 Short termdeposits - - 2,258,063 - 2,258,063 --------- ------- ----------- -------- ---------- 105,172 161,725 2,258,063 (562) 2,524,398 --------- --------- ----------- -------- ---------- 4. Preliminary statement ----------------------- Copies of this preliminary statement will be sent to shareholders in due courseand will be available from the company at 7 Tanners Yard, London Road, Bagshot,Surrey GU19 5HD and Numis Securities Limited at Cheapside House, London, EC2V6LH for a period of 14 days from the date of this announcement. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Zincox Resources Plc