Korean Recycling Plant Financing

13 December 2010

ZincOx Resources plc

Korean Recycling Plant Financing

ZincOx Resources plc ("ZincOx" or the "Company") is pleased to announce the signing of a Letter of Intent ("LOI") with Korea Zinc Co Ltd and its affiliate ("Korea Zinc") for the provision of loans amounting to US$50 million (the "Loans") for the development of the South Korean Recycling Plant ("KRP") and an Off-take Agreement to purchase the unwashed zinc concentrate produced from Phase 1 of the KRP development. The Board is pleased to announce that the Loans, once finalised, together with the existing cash within the business, will allow the Company to move forward with the construction of Phase 1 of the KRP with the intention to achieve first production, on the current development schedule, in Q1 2012.

Korea Zinc

Korea Zinc is an integrated zinc and lead producer with over 30 years of history in smelting. In 2009 it produced 440,000 tonnes of zinc from Onsan in South Korea, 280,000 tonnes from Sukpo in South Korea and 220,000 tonnes from Townsville in Australia.

Korea Zinc entered into the LOI following a due diligence exercise that examined in detail the technology to be used by ZincOx. The Off-take Agreement is for the entire zinc concentrate production and lasts for ten years from first production. The Off-take Agreement is for unwashed zinc concentrate and so it removes the requirement for ZincOx to develop a washing plant, thereby saving approximately US$17 million of capital expenditure from the original phase 1 development plan. This brings the current cost of the project to US$110 million, including financing charges, of which approximately US$5 million has already been spent. The provision of the loans will require a balance of US$55 million for the completion of the project, which will be provided by ZincOx as equity from its existing treasury. As at the 30 June, ZincOx held £42.3 million (US$66 million) in cash.

Under the terms of the LOI, Korea Zinc will be providing two loans, the Off-take Loan and the Development Facility.

Off-take Loan

The Off-take Loan is for US$35 million and will bear interest at 5 per cent per annum over LIBOR. It will be repaid as a single bullet on the expiry of the Off-take Agreement approximately 11 years after first drawdown. It will be drawn down in three instalments following the investment of approximately three equal tranches of equity provided by ZincOx. 

Development Facility

The Development Facility is for US$15 million and will bear fixed interest at 15 per cent per annum. It will be repaid from KRP's free cash flow, after deduction of interest on the Offtake Loan, or as a bullet repayable at the end of three years.

ZincOx will stand as guarantor for both loans which may be repaid at any time without penalty.

KRP

The KRP will treat 200,000 tonnes per annum of steel waste dust (EAFD) in Phase 1 and produce approximately 70,000 tonnes of zinc concentrate with a grade of 58 per cent zinc and 95,000 tonnes per annum of an intermediate iron product. Capacity will then double under Phase 2 which will be developed following the commissioning of Phase 1. Financing for Phase 2 will be put in place by the Company in due course. ZincOx has staged ten year supply agreements for EAFD with all the electric arc furnace operators in South Korea for both Phase 1 and Phase 2.

Based on the financing described herein, at the current metal prices (zinc:US$2,250 per tonne, pig iron US$450 per tonne) as a basis for the pricing of the zinc concentrate and iron intermediate products, KRP Phase 1 has a post tax net present value of approximately US$97 million, an internal rate of return of approximately 30 per cent and is expected to generate a project EBITDA of about US$29 million per annum.

Commenting on the announcement, Andrew Woollett, ZincOx's Executive Chairman said "We are pleased to have reached agreement with Korea Zinc regarding these financing arrangements and that we can now move forward with our first metal recycling project in Korea. The offtake and financing package represents a very attractive structure that enables the project to release more cash in the early years than would be possible using normal project finance. It also means that our interest in KRP has not been diluted as would have been necessary by the introduction of a partner. Following our entry into a long term lease over the KRP site last week, we are now able to press forward with the development without delay and are focused on achieving first production in Q1 2012 with a ramp up to full production within six months."

For further information, please contact:

ZincOx Resources plcAndrew Woollett, Executive ChairmanPeter Wynter Bee, Managing Director+44 (0) 1276 450100

Nominated Adviser and BrokerAmbrian Partners LimitedAndrew Craig / Jen Boorer+44 (0) 20 7634 4700 

Conduit PRLeesa Peters / Charlie Geller+44 (0) 20 7429 6666