Half Yearly Report

26 September 2013

ZincOx Resources plc

("ZincOx", the "Company" or the "Group")

Half Yearly Results for the six months ended 30 June 2013

ZincOx Resources plc (AIM Ticker: ZOX), the developer of Asia's largest zinc recycling project, today announces its results for the six months ended 30 June 2013.

Highlights

Korean Recycling Plant ("KRP")

· Improved operating performance at KRP1

· EAFD throughput up to 11,500 tonnes per month

· Zinc recovery over 90%

· EAFD feed material richer in zinc than originally expected

· Combustion efficiency improved by better gas and air management

Other

· £4.2m million (US$6.3m) raised through loan with warrants

· Testwork confirms ability to upgrade zinc concentrate to zinc oxide of industrial purity

· Overhead cut by 35%

Commenting on the half yearly results, Andrew Woollett, Chairman said "We have resolved the issues of the last six months and are now poised to ramp-up production by the year end and at the same time demonstrate the full potential of this game changing technology""

For further information, please go to: www.zincox.com or contact:

Chairman's Statement

Korean Recycling Plant ("KRP")

ZincOx is pleased to announce continuing improvements in the operating performance at its wholly owned Korean Recycling Plant, where Electric Arc Furnace Dust ("EAFD"), a waste generated by the recycling of galvanised steel scrap, is processed for the recovery of a zinc concentrate and an intermediate iron product. Throughput for August was 11,500 tonnes of EAFD with zinc recovery of around 85%. Our feed material is, however, richer in zinc than originally expected so that the overall tonnage of zinc produced in our zinc concentrate is about 77% of target production. Recent improvements to our gas and air management in the furnace are increasing the performance of the plant which is expected to show additional improvement as further changes are implemented.

The first half of the year was beset by problems in the gas handling system. Poor workmanship by the fabricators of the heat exchangers led to the failure of welding lines, causing air ingress. At the very high temperature at which the heat exchangers operate, oxygen in the incoming air, combined with certain elements contained in the offgasses, creates a highly corrosive mixture that attacked the stainless steel shells. This resulted in large areas being eaten away and the structural integrity of the equipment being compromised, so that repairs were required on a number of occasions. These repairs required the closure of the plant for several days at a time, severely limiting production, with a dramatic impact on our cashflow for the first six months of the year.

In July there was a major closure of the plant to enable large sections of the heat exchangers to be replaced and the plate margins re-welded. To date the major problems experienced in the first half of the year have not recurred. There have also been less critical leaks experienced at the base of the heat exchangers as a result of the areas being subjected to high strain resulting from the expansion of the tubes during operation. Different solutions to this problem were installed and tested during the July closure and the results from one of these, has been most encouraging.

We have established that the highly aggressive environment in which the heat exchangers operate requires periodic replacement of certain parts which is now routinely programmed so that this problem can be managed without it impacting on the overall performance of the plant.

Having overcome most of the issues with the heat exchangers we have been able to focus our effort on improving the plant's performance. Over the past two months we have been experimenting with ways in which gas and air are used in the furnace. These tests have required a slight reduction in throughput, but the results have been very successful and the plant has run well with lower gas consumption and higher furnace temperatures.

Notwithstanding a reduction in the feed rate required by these tests, throughput in August reached a new high of 11,500 tonnes of EAFD; additional modifications to the management of gas and air are planned and these should further improve the performance of the plant over the coming months.

As we increase the monthly production of zinc concentrate, the amount of product passing through the filter baghouse increases. Recently this has not operated as planned and throughput has had to be scaled back slightly.

The KRP was conceived as a two phase development, the second phase was to have commenced operations in October 2013. Unfortunately the delay in ramping up to full production at the first phase of development means that the Company will not be in a position to take EAFD for the second phase, on the timescale originally envisaged.

Under the EAFD supply agreement for KRP2, if ZincOx was unable to treat the EAFD the Company would have been obliged to cover the cost of its disposal. In order to avoid this liability the contracts with the mills, for phase two material, have been terminated and as a consequence the Company has also brought to an end the mandate with Standard Chartered Bank. It is the management's belief that ZincOx can still offer the Korean steel mills the most attractive medium and long-term option for disposal of their EAFD and the Company will re-open discussions with mills and financiers once it has demonstrated that KRP1 is working at nameplate capacity.

The problems with the gas handling system experienced in the first half of the year resulted in lower revenue than expected, a situation exacerbated by a weak zinc price. As a consequence the Company has undertaken a programme to cut its overhead costs which has principally affected the head office in the UK and our technical office and research and development activities in Belgium. To date a 35% reduction has been achieved with further cost savings to come.

In view of the delays experienced in the first half of the year, in July a loan for US$6.3 million (£4.2 million, converted at the rate US$1.5/£) was put in place, a third of which was taken up by the senior management and directors of the Company. The loan, which is secured against the Company's land in Turkey, has a two year term and bears interest at 10% per annum. Lenders are also entitled to 2.25 warrants for every pound lent, amounting to 9,450,000 warrants. These warrants have a strike price of 40 pence and a life of four years.

Other Activities

While the principal efforts of the executives and staff are focused almost entirely on getting KRP in to full production as rapidly as possible, other activities are being undertaken. Earlier this year the Company successfully completed testwork that demonstrated the exceptional quality of its zinc concentrate product enabling it to be simply and cheaply upgraded to a zinc oxide of industrial purity. This material would enjoy terminal markets significantly more valuable than its sale to smelters as an intermediate feed for the production of metal. The production of this chemical will not be possible from KRP in the short or medium term since the production is already contracted to Korea Zinc as part of the development loan financing for the plant. Our plans for projects in other parts of the world can, however, include such a possibility, potentially adding substantially to both revenue and profits. The upgrading process results in the production of a clean brine suitable for marine discharge, so plants will need to be situated at the coast.

It remains our intention to roll this technology out around the world and progress is being made in Turkey, Russia and Thailand.

In Russia, we are in the process of carrying out a survey of the EAFD being generated in the region. Generally speaking the grade of zinc in EAFD is lower than in other countries we are considering, however this is increasing each year as more steel is galvanised and as the zinc content of the Russian scrap increases. There is sufficient tonnage for a plant and the relatively low cost of gas and labour will largely compensate for the lower grade of the feed.

In Thailand, the site we had originally earmarked for a plant is not close to the coast and in order to have the possibility of marine discharge we have had to give up this land. A new site close to the coast has been identified and negotiations for the site are underway.

In Turkey, we own a site strategically situated in an industrial zone hosting five, soon to be six, scrap recycling mills. The development of the sixth mill has been awaiting a rationalisation of a large area of land involving multiple ownership but situated inside the heavy industrial zone, a process that has taken over three years to complete. The final stages of this reorganization have recently been completed and the documentation only awaits final registration, which is expected in the next month or so. Our site, which is close to the coast, is part of this reorganization and it has left us with a more regular shape that is better suited to our purposes.

Financial Results

The adjusted Group loss after tax, attributable to shareholders of the parent company, was US$14.0 million for the six months (period to 30 June 2012: adjusted loss of US$8.4 million, year to 31 December 2012: adjusted loss of US$22.8 million). This represents an adjusted loss per ordinary share of 13.49 cents (period to June 2012: adjusted loss per share 9.38 cents, year to December 2012: adjusted loss per share 25.21 cents).

The Group revenue includes sales of zinc oxide (HZO) from KRP totalling US$13.8 million in the six months (period to 30 June 2012: US$0.5 million, year to 31 December 2012: US$9.7 million). The revenue for the Group improved by 47% for the six months to 30 June 2013 compared to the second half of 2012. It is worth noting that the zinc price fluctuated in the period within the range of US$1,829 per tonne of zinc to US$2,129. The market analysts covering the zinc sector continue to talk of a shortage of zinc due to mine closures in the next twelve to eighteen months. The global inventory of zinc fell by 159,250 tonnes (13%), in the six month period from 1,220,725 tonnes at the start of January to 1,061,475 at the end of June.

The £4.2 million loan provided to the Group during July has an interest rate of 10% which is covered by cash received from land sales in Turkey over which the loan is secured.

The directors have reviewed the future forecasts and funding requirements of the Group based on an underlying set of assumptions for the ramp up at KRP and zinc price. They will continue to keep under review the availability of funds and review if further capital is required. For these reasons they continue to adopt the going concern basis in preparing these financial statements.

Principal Risks and Uncertainties

The principal risks and uncertainties facing the Group have not changed from those disclosed in the Annual Report 2012.

Outlook

The key focus of the Group at the moment is to finish the KRP1 ramp up so that the project generates ongoing cashflow contribution to the Group.

Forward Looking Statements

The Chairman's Statement contains 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 Interim Income Statement

 for the period ended 30 June 2013

ZincOx Resources plc

Consolidated Interim Statement of Comprehensive Income

for the period ended 30 June 2013

ZincOx Resources plc

Consolidated Interim Balance Sheet

at 30 June 2013

ZincOx Resources plc

Consolidated Interim Cash Flow Statement

for the period ended 30 June 2013

ZincOx Resources plc

Consolidated Statement of Changes in Shareholders' Equity

at 30 June 2013

Notes to the Consolidated Financial Interim Statements

1. Basis of preparation

These interim condensed consolidated financial statements are the unaudited Consolidated Financial Statements of ZincOx Resources plc, for the six months ended 30 June 2013. They have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU and the Companies Act 2006, applicable to companies reporting under IFRS. They do not include all of the information required in annual financial statements in accordance with IFRS, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2012.

These interim financial statements were approved by the Board on 25 September 2013. The financial information set out in this interim report does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. The Group's statutory financial statements for the year ended 31 December 2012, prepared under IFRS, have been filed with the Registrar of Companies. The auditor's report on those financial statements was unqualified and did not contain statements under Section 498(2) or Section 498(3) of the Companies Act 2006.

These financial statements have been prepared under the historical cost convention and the consolidated financial statements incorporate the financial statements of the Company and its subsidiary companies.

The financial information for the six months ended 30 June 2013 and 30 June 2012 is unaudited.

2. Significant accounting policies 

The accounting policies and presentation followed in the preparation of this interim report have been consistently applied to all periods in these financial statements and are the same as those applied by the Group in the preparation of its Annual Report for the year ended 31 December 2012.

 3. Critical accounting estimates and judgments

The Group performs an annual assessment of the recoverability of assets to see whether any of the projects have suffered impairment. This assessment is only done at the end of each year unless there are indicators of impairment apparent in the period. In March 2013, following the sale of ZincOx Resources (Yemen) Limited (see note 4), a company that held the Group's interest in the Jabali project, an impairment provision of US$84k was made against the outstanding trade receivable from Jabal Salab Company (Yemen) Limited ("Jabal Salab").

 4. Underlying Operating Loss

The underlying operating loss is stated before exceptional items and foreign exchange gains or losses.

Having completed the construction of KRP1 in 2012, operating costs in Korea are now being expensed through the income statement. The effect of this is that the underlying operating loss for the period to 30 June 2013 includes a full six months of the Korean operation (two months for the comparative period to 30 June 2012 and eight months for the year ended 31 December 2012).

5. Sale of ZincOx Resources (Yemen) Limited

On 11 March 2013, the Group sold ZincOx Resources (Yemen) Limited, a wholly owned subsidiary holding a 52% interest in Jabal Salab to its' joint venture partner, Ansan Wikfs (Jabal Salab) Limited ("Ansan") for US$1. The sale included a series of deferred payments to be made from cash generated from the (currently undeveloped) Jabali deposit. At 30 June 2013, the Group has valued its' retained interest in the Jabali project at US$ nil.

The Group impaired trade receivables from Jabal Salab of $84k at the point of sale.

From 31 May 2012, management control of Jabal Salab had effectively passed to our joint venture partner, Ansan, leading to a change in the accounting treatment of Jabal Salab at this point and a one-off accounting gain to the Group of US$10.5m in 2012.

6. (Loss) / earnings per share

The calculation of basic and diluted (loss) / earnings per ordinary share is summarised in the table below. An adjusted loss per ordinary share has been calculated to exclude (i) foreign exchange movements on long-term borrowings and (ii) a one-off gain on the deemed loss of control of Jabal Salab at 31 May 2012 and its subsequent deconsolidation from the financial statements.

At 30 June 2013, there were no share options (period to 30 June 2012: 932,557 and period to 31 December 2012: nil) in issue which may have a dilutive effect on the basic (loss) / earnings per share in the future.

7. Post balance sheet event

On 12 August 2013 the Company took out a loan for US$6.3m (£4.2m), together with four year warrants over 9,450,000 new ordinary shares at an exercise price of 40 pence per share. The loan is secured against the shares in ZincOx Anadolu Cinko SVTAS, the Company's wholly owned Turkish subsidiary that owns the freehold to land held in Turkey within both the Heavy and Light Industrial Zones at Aliaga.

8. Further copies of this statement

Copies of this statement are available for download from the Company's website at www.zincox.com or on request from the Company Secretary, ZincOx Resources plc, Knightway House, Park Street, Bagshot, Surrey, GU19 5AQ.