14th Jan 2008 07:01
ZincOx Resources PLC14 January 2008 ZINCOX RESOURCES PLC ("ZincOx" or "the Company") Trading symbol - ZOX 14 January 2008 JABALI MINE DEVELOPMENT COMMENCES: US$120 MILLION INNOVATIVE DEBT FUNDING, US$31 MILLION SHAIMERDEN DEFERRED INSTALLMENT RECEIVED AND RECYCLING UPDATE Jabali • Jabali Mine development commences • Innovative US$120 million debt financing of the 52% owned Jabali zinc oxide mine in Yemen enables start of 22 month build to production. o First Yemen project bond o First zinc price related bonus instrument • Production expected 4th quarter 2009 Shaimerden • US$31.4 million received as 2007 deferred payment instalment for the sale of the Shaimerden zinc oxide deposit Recycling • New two-stage strategy for development of the Company's zinc recycling projects results in much reduced primary funding requirement • New EAFD supply agreements in the Far East • Plant site selected for Thailand • Talks on funding continue with banks, potential industrial partners and financial institutions JABALI FINANCING ZincOx Resources plc announces the financing of its 52% owned Jabali zinc oxidemine in Yemen. The projected total cost of US$ 216 million is made up ofcapital and working capital cost of US$198 million plus $18m of financialsecurity guarantees. This amount will be financed by an innovative US$120million facility available to the operating company, Jabal Salab Company (Yemen)Limited ("Jabal Salab") and a 100% equity requirement amounting to US$96million, of which US$19 million has been spent. Debt Facility US$120 million Jabal Salab has signed a facility agreement ("the Facility") comprising US$120million of debt finance through a limited-recourse high yield bond and aninnovative Zinc Indexed Price Payment Obligation ("ZIPPO") bonus instrument,linked to the zinc price. The Facility is being provided to Jabal Salab to develop the Jabali zinc depositin Yemen, with only very limited (US$5.2 million) recourse to ZincOx. TheFacility was arranged by Exotix Limited, an investment banking boutiquespecialising in emerging markets (for further information on Exotix, see notesto editors, below). The Facility has been taken up by a number of emergingmarket funds and hedge funds through a special purpose vehicle. The term of the bond is six years with an interest rate of 11.5% and a threeyear grace period on principal repayments. The ZIPPO carries a couponcalculated at US$0.16 for each dollar that the average annual international zincprice is above US$1,300 per tonne on every tonne of zinc produced by Jabal Salabover a ten year period. It is a tradable instrument, and is believed to be thefirst such instrument to be launched for a metal related transaction and thefirst Yemen project bond. The financing is expected to close before 19 February 2008 on the satisfactionof all conditions precedent. Remaining Funding Requirement - ZincOx share US$40 million The remaining funding requirement for the project of $77 million, being made upof the balance of the capital and working capital spend (US$59 million) plus thefinancial security requirements (US$18 million), will be met by ZincOx and AnsanWikfs Investments Ltd, according to their 52% and 48% respective interests inJabal Salab. ZincOx's share of this remaining equity requirement amounts toUS$40 million. The Company has cash reserves of US$51 million following thereceipt of the deferred payment instalment related to the sale of the Shaimerdendeposit in Kazakhstan. Andrew Woollett, Chairman of ZincOx said: "The Jabali mine development programme has already started with the ordering oflong lead time items of equipment, the building of our development team and thedelivery of mining equipment. All the necessary permitting is in place and weexpect development of the site to commence shortly." Peter Bartlett, Managing Director of Exotix, said: "We are delighted that we have been able to arrange a well priced debt facilityfor this complex financing for Jabal Salab's Yemen mine, without resorting totraditional project finance. This is a highly significant deal as it is thefirst Yemen project bond and the first tradable bonus instrument to be launchedfor a metal related transaction. It represents a significant expansion in therange of financing options available to projects in emerging markets. We findthere is a strong demand for less conventional investments, and innovativestructures such as this financing bring these opportunities to a wider pool ofinvestors". (For further information on the Jabali Mine, see notes to editors, below) SHAIMERDEN DEFERRED PAYMENT As part of the sale of the Shaimerden deposit to Kazzinc in 2003, it was agreedthat ZincOx would be due further annual payments in the early years of themine's life. The amount of such payments depends on the zinc price during theyear and the quarterly reconciliation of the mine production with the geologicalmodel. Despite temporarily problematic conditions in the pit during the secondand third quarters, 58,558 tonnes of zinc contained in ore were mined during theyear, which qualified for close to the maximum allowable amount under thedeferred payment formula. Given the average zinc price for the first and fourthquarter of 2007 of US$3,056 per tonne, the amount paid was US$31.4 million. Thefull 200,000 tonnes of zinc in ore is expected to be mined by mid-2008. RECYCLING PROGRESS In addition to its mining interests, ZincOx has a growing portfolio of recyclingprojects based on the recovery of zinc from electric arc furnace dust (EAFD), awaste generated by the recycling of steel scrap. (For further information on therecycling strategy, see notes to editors, below). In recognition of theprogress made by the Company, it was recently awarded the Mining Journal'sOutstanding Achievement Award in the field of Sustainable Development. New two stage development strategy The Company plans the integrated development of two rotary hearth furnaces (Ohioand Aliaga, Turkey) together with the redevelopment of its Big River Zincelectro-refinery at a cost of about US$400 million. Recent test work on the intermediate oxide concentrate generated by the rotaryhearth furnaces has demonstrated that it can be readily washed so as to producean attractive feed for conventional smelters. In addition to which, Big RiverZinc has extensive experience of washing this type of material. The initialdevelopment of the Ohio project alone, in combination with a washing plant atBig River, for a capital cost estimated by the Company to be approximatelyUS$169 million, will allow an interim, low capital entry to recycling cash flow. Using a short and long term zinc price of US$2,200 per tonne and US$1,800respectively, on a post-tax pre-finance basis, ZincOx calculates that theinterim project would have an NPV of US$102 million, an internal rate of returnof 21% (at a 10% annual discount), and at the short term price, would generateprojected earnings of US$36 million per annum. It is the Company's intention that the development of Aliaga and Big River willproceed as soon as finance is available and well before the Ohio recycling plantis developed. Recycling financing The Company has several financing options to fund the intermediate and fullstages of its recycling strategy under active consideration. These include aninvestment by industrial and financial partners, early realisation of theremaining deferred Shaimerden payments and off-taker finance. The Company hasbeen in discussions with Teck Cominco, a major zinc mining company that has an11.5% strategic stake in ZincOx. Teck Cominco has carried out a detailed duediligence operation that supports the technical and financial merits of therecycling strategy. At this time, Teck Cominco has indicated that its preferredexposure to the recycling business is as a shareholder in ZincOx. Teck Comincocontinues to be involved in the Company and the recycling business through ajoint Technical Committee and participation on the ZincOx Board. Far East As part of the Company's strategy to apply its recycling strategy globally,further EAFD supply option agreements for 5 to 10 year periods have been enteredinto. The Company currently has EAFD supply agreements covering 80,000 tonnesper annum in Thailand and 24,000 tonnes per annum in Malaysia. The Company has entered into an option to purchase a suitable plant site in theChonburi Industrial Estate in south-east Thailand. An application forenvironmental permitting is being drawn up. Andrew Woollett, Chairman of ZincOx, said: "The innovative Jabali financing enables us to finance the mine development on avirtually non-recourse basis, thereby leaving us free to finance our recyclingprojects elsewhere in the world without restrictions. Finance for theseprojects in the USA and Turkey is currently being progressed with emphasis on anearly, start in Ohio. Now that the Jabali development is underway and thatmining at Shaimerden is proceeding smoothly, we will be able to devote ourfuller attention to the financing of the recycling projects". For more information please contact: Jabali Recycling and ShaimerdenMichael Foster, ZincOx Resources plc Andrew Woollett, ZincOx Resources plcTel (Direct) : +44 (0) 1276 [email protected] [email protected] John Harrison/James Black, Numis SecuritiesTel: +44 (0) 20 7260 1000 Charlie Geller/ Leesa Peters, Conduit PRTel (Direct) : +44 (0) 20 7429 6604Tel (Mobile): +44 (0) 7970 067 320 Peter Bartlett, ExotixTel: +44 (0) 20 7532 [email protected] Anthony Payne/ Max Hilton, Peregrine CommunicationsTel (Direct): +44 (0) 20 7822 2302Tel (Mobile): +44 (0) 7930 643 [email protected] NOTES TO EDITORS JABALI Jabali deposit The Jabali deposit is located 100 km north east of Sana'a, the capital of Yemen.It was mined for lead and silver about 1000 years ago and currently contains ageological resource of 12.6 million tonnes with a zinc grade of 8.9%incorporating a JORC compliant reserve of 8.7 million tonnes at a grade of 9.2%. The deposit will be mined by open pit methods over a period of 12 years at therate of 800,000 tonnes per annum of ore, for the production of 70,000 tonnes perannum (56,000 tonnes zinc contained) of high quality zinc oxide. Almost allzinc mines around the world sell an intermediate concentrate for sale to aconventional zinc smelter at a discount to the value of the zinc metalcontained; Jabali, however, will sell its high quality product directly to endusers in the ceramics and rubber industries at a premium to the value of thezinc contained. Development of the mine, the on-site processing plant and relatedinfrastructure, is estimated to take 22 months. A contract for the engineering,procurement and construction management of the plant has been entered into withSNC Lavalin Europe, based in Brussels. The first zinc oxide should be producedbefore the end of 2009. Using a zinc price of US$2,200 per tonne over years two to five of the currenttwelve year project life and US$1,800 per tonne thereafter, the projectgenerates a net present value, at a discount rate of 10%, of US$162 million,post financing, post tax, producing an internal rate of return of 28.3%.Operating costs are projected at US$ 986 per tonne of zinc contained andZincOx's 52% share of the projected annual US$67 million net cash flow availableto service the debt principal (assuming $2,200 per tonne) would be US$35million. In July 2007, Jabal Salab signed an Exploitation Contract for the mine'sdevelopment with the Ministry of Oil and Minerals. The Contract has beenapproved by the Yemeni Parliament and was ratified as a law by the President ofYemen on 14 August 2007. The Exploitation Contract sets out all the terms andconditions for mining the deposit over a 20-year term and includes a six yeartax holiday. It is the first of its kind in Yemen. The Yemen Government is keento attract further international exploration and mining companies to the countrywhere there are ample opportunities in what is a relatively under-explored butattractive geological environment. Commenting on the future potential of the mine, Andrew Woollett said: "The Jabali deposit remains unconstrained to the south and east and there is asatellite deposit about 1.2 kilometres away which hosts several ancient workingsand which remains unexplored. We are therefore confident of proving additionalreserves and we look forward to working in Yemen for many years to come." Exotix (www.exotix.co.uk) Exotix is a securities firm specialising in broking illiquid loans, equity andbonds, boutique investment banking and Emerging Market alternative investments.Exotix's core competence is a well researched specialist understanding ofilliquid, distressed, or undervalued debt while it also grows its business innew product areas such as equities, structuring, advising and placing emergingmarket investments, particularly with the recent launch of its Su-Saharan Africaand Middle Eastern stock-broking platform. Based in different cities throughout the world: London, New York, Buenos Aires,Sao Paulo and Tokyo, Exotix is recognised as a market leader in distressed debtof certain African and Latin American countries and several other esotericmarkets such as Cuba, Bosnia and North Korea. A broad research capabilityunderlies all Exotix's unique specialist expertise. Exotix has a global client base largely comprising of hedge funds, assetmanagers, banks and other institutional investors interested in emerging marketsinvestments. RECYCLING Over 4 million tonnes of EAFD are generated annually from steel mills. Due tothe galvanised nature of the scrap the EAFD typically contains from 15% to 25%zinc, as well as 20% to 32% iron and other valuable metals. ZincOx has developed a two stage process for the recovery of all the majormetals contained in the steel waste in the first stage of the process the zincis driven off as an impure oxide concentrate in a rotary hearth furnace and theiron is converted to pig iron as a saleable product. ZincOx has advanced plansfor the development of rotary hearth furnaces in Ohio, USA and Aliaga, Turkey.The second stage will ultimately see the concentrates treated in an adaptedsmelter using solvent extraction technology that is unaffected by the highhalide levels present in the concentrate. In 2006 ZincOx purchased the BigRiver Zinc smelter at St Louis, Missouri, which is being converted to treat theoxide concentrates from rotary hearth furnaces. ZincOx has a fifteen-year, reciprocally exclusive agreement with ESOI, NorthAmerica's largest EAFD landfill company, for the supply of EAFD with immediateaccess to 200,000 tonnes per annum. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Zincox Resources Plc