Small caps focus: Korea tie-up boosts ZincOx

By Ian Lyall for MailOnline
Updated: 05:55 EDT, 14 June 2011

The ZincOx Resources story finally seems to be gaining some traction with investors as the recycling firm gears up for first zinc production in the early part of next year.

New horizon: ZincOx site survey in Korea

At 62p, the stock is in territory last seen two years ago. It is up almost 60% in the past year and for those who bought in with the directors a month ago, there has been a 20% gain.

Chairman Andrew Woollett shelled out just short of £100,000 for 187,662 shares at 53p each, while finance director Simon Hall joined him acquiring 10,000 shares at the same price.

Non-executive director Gautam Delal paid 54p each for his 100,000 shares. City broker Ambrian reckons the trio bagged a bargain. It rates the stock a buy with a price target of 104p.

'The project is on budget, on time, and has been co-designed and is being built by Xmetech, formerly the in-house engineering firm for Korea Zinc, the second largest zinc refiner in the world,' said analyst Nick Mellor.

'The next milestone in the project's development will be the installation of the major processing hardware at site from July this year.'

The director purchases underline the board's confidence in the company as it prepares to produce its first recycled zinc from its plant in Pohang, Korea, in quarter one of next year.

ZincOx has found a way of processing the zinc rich dust from arc furnaces that is using a piece of equipment called a rotary hearth furnace. This is a piece of equipment that has been around for 10 years and is traditionally used to treat waste from giant steel mills.

Obviously the company has modified it to extract zinc from the dust, but in doing so has come up with a remarkably efficient and effective recycling process.

ZincOx at a Glance

AIM ticker code: ZOX
Current price: 62p
Year-high: 64p
Year-low: 32.25p
Market value: £48m

And unlike the other technology on the market such as the Waelz Kiln it can process this potentially hazardous by-product without the need of a subsidy.

This is crucial because it means the ZincOx business model is self-sustaining.

The recovery of zinc is high – upwards of 97% – and the fine, white zinc oxide powder created is of much better quality than that produced from the conventional recycling process.

And there is zero waste as there is also a passable iron ore product that can be fed back into arc furnaces.

The decision to set up its first full-scale production facility in Korea is down exclusively to a tie-up with Korea Zinc, which is providing loans that will help finance the Pohang plant.

In April ZincOx revealed it had formally completed an off-take agreement with Korea Zinc, which will take all of the group's production from the first phase of its recycling plant in the country.

'This is a significant boost to Zincox plans to be a significant player in reclaiming zinc from blast furnace waste and steel scrap,' said Simon Miller of City research house Northland.

'The plant will be the only domestic source of zinc in Korea. Zinc remains a strategic metal for the steel industry and the proportion of galvanising in steel has a long way to catch up in Asia and especially China compared to the west. Demand for zinc should continue to grow strongly in the region.'

The revolutionary recycling plant is due for completion in the first quarter of next year, and will cost US$110m to build. ZincOx is meeting $60m of that figure from its own cash resources, while Korea Zinc is stumping up the remainder in two tranches.

The first is a $15m development facility being charged at a rate of 15% a year, and the second is a $35m off-take loan at five percentage points over the London interbank rate.

This is phase one of a two-part roll-out, which could be the prelude to similar operations in Thailand, Turkey and the US. So watch this space.

Ian Lyall is the Editor of Proactive Investors, a portal for investors interested in growth stocks, and also writes the Daily Mail's Investment Extra column. To find out more go to www.proactiveinvestors.co.uk.