Zinc recycling specialist ZincOx Resources (LON:ZOX) is ramping up its first production plant in Korea after the demonstration period went well, it said today.

The first phase of the Korean Recycling Plant (KRP1) is designed to process 200,000 tonnes per annum of Electric Arc Furnace Dust, a production level that will make it the largest furnace dust recycling facility in Asia.

At a zinc metal price of US$2,250 per tonne and using current energy costs, KRP1 would generate underlying earnings of approximately US$31.2 million each year, the company added.

KRP2, the second phase of the development, will process a further 200,000 tonnes of furnace dust per annum and will make ZincOx the third largest recycler of this material in the world.

When in full production, both plants will produce 92,000 tonnes of zinc per annum in a high grade concentrate.

The KRP1 project was developed largely on time and budget at $110m, it added.

ZincOx made a loss of £8 million, down from £112 million, in 2011, on revenues of £1.65 million.

Andrew Woollett, executive chairman, said: We are delighted that our first recycling plant is now in operation and that the process has been successfully demonstrated in Korea.

We are excited by the prospect of the full ramp up on KRP1 while we start the development of KRP2 and push ahead with working up projects elsewhere in the world." 

KRP2 is estimated to cost a further US$100 million and take about 15 months to bring on stream.

Broker Daniel Stewart added that with KRP1 moving into production all eyes will be on the development of KRP2, which stands to double capacity and significantly increase the revenue generation possibilities for the facility.

“Lessons learned in the development of KRP1 will be extremely useful for the development of the second phase,” the broker said, which has a ‘buy’ recommendation and target price  of 139p.

ZincOx Resources (LON:ZOX) chairman Andrew Woollett said the firm was "delighted" at initial testing of its Korean zinc recycling plant, which has now received a start up permit.

First operations have begun and initial testing showed very promising results - with zinc recovery in the range 87 per cent to 96 per cent.

It showed that good quality zinc oxide concentrate could be recovered with a grade of between 55 per cent and 63 per cent zinc at or above the target of 58 per cent expected for the operation.

The plant was ramped up to 50 per cent of capacity and produced zinc concentrate and Direct Reduced Iron (DRI). 

The plant was issued with a permit from officials from the Korean environment ministry, which now means regular deliveries of electric arc furnace dust (EAFD) can be made.

Operations were in line with expectations with good briquette strength and efficient evacuation of DRI from the furnace. 

Heat and zinc product recovery and other aspects of the gas handling system also worked as foreseen, the company said in the statement.

The operation of the final piece of equipment, the hot briquetting machine, will occur during the next test run, it added.

Woollett said today: "We are delighted with the results from this first operation which prove that the process works in line with our expectations. 

"We are looking forward to optimising the operating conditions and ramping up to full production over the next few months and at the same time preparing to press ahead with our expansion plans both in Korea and elsewhere".

ZincOx takes waste dust from steel furnaces (EAFD) and treats it using what's called a rotary hearth furnace (RHF) to produce a fine white zinc powder and an iron bearing product.

The zinc recycling specialist already has a 10 year offtake agreement with Korea Zinc for its product from the first plant - KRP1.

Analyst David Buxton, from broker finnCap said: “While this initial test batch occurred a few weeks later than first expected, it should be seen as a very significant point in the group’s development, enabling management to press ahead with KRP2 and other projects.”

He added it was an “important announcement” which serves as proof of process and of industrial scale for the company.

The house broker retained a price target of 185 pence.

On the back of the news the share price rose 4.6 per cent to 74 pence. 

ZincOx Resources (LON:ZOX) chairman Andrew Woollett said the firm was "delighted" at initial testing of its Korean zinc recycling plant, which has now received a start up permit.

First operations have begun and initial testing showed very promising results - with zinc recovery in the range 87 per cent to 96 per cent.

It showed that good quality zinc oxide concentrate could be recovered with a grade of between 55 per cent and 63 per cent zinc at or above the target of 58 per cent expected for the operation.

The plant was ramped up to 50 per cent of capacity and produced zinc concentrate and Direct Reduced Iron (DRI). 

The plant was issued with a permit from officials from the Korean environment ministry, which now means regular deliveries of electric arc furnace dust (EAFD) can be made.

Operations were in line with expectations with good briquette strength and efficient evacuation of DRI from the furnace. 

Heat and zinc product recovery and other aspects of the gas handling system also worked as foreseen, the company said in the statement.

The operation of the final piece of equipment, the hot briquetting machine, will occur during the next test run, it added.

Woollett said today: "We are delighted with the results from this first operation which prove that the process works in line with our expectations. 

"We are looking forward to optimising the operating conditions and ramping up to full production over the next few months and at the same time preparing to press ahead with our expansion plans both in Korea and elsewhere".

ZincOx takes waste dust from steel furnaces (EAFD) and treats it using what's called a rotary hearth furnace (RHF) to produce a fine white zinc powder and an iron bearing product.

The zinc recycling specialist already has a 10 year offtake agreement with Korea Zinc for its product from the first plant - KRP1.

ZincOx Resources (LON:ZOX) is looking forward to starting production from its first zinc recycling plant within the next two weeks.

The plant is in the final stages of commissioning, the company said today.

The company takes waste dust from steel furnaces and treats it using what's called a rotary hearth furnace (RHF) to produce a fine white zinc powder and an iron bearing product.

More than 600 tonnes of briquettes have been produced and are waiting to be fed to the furnace. Testing showed they are of excellent quality and after heating demonstrated high zinc removal and iron metallisation.

The RHF has been operated in a cold state with good briquette loading and discharge and is ready for production.

The burners on the furnace are being tuned, before it will be gradually heated up over a two day period, before production begins, the company said.

ZincOx chairman  Andrew Woollett said: "We set ourselves an ambitious development schedule when we started this project 18 months ago so notwithstanding the very fast track approach taken in this development, I am delighted to report that the project has, to date, been developed within budget and without a single lost time injury.

"I look forward to reporting the start of production within a fortnight."

KRP1 is the first plant of the two phase project aimed at producing 92,000 tonnes of zinc powder per year. Once operational, the first plant will then be ramped up to full production at 27 tonnes an hour.

The company already has a 10 year offtake agreement with Korea Zinc for its product from the first plant.

Peel Hunt commented in a note: "There is a slight two week delay to KRP1 before final commissioning. This makes little difference to ZincOx’s long-term potentially very profitable global position in the zinc recycling industry.

"Post hot commissioning we expect a gradual ramp up to full production, with a successful outcome only partially priced into the shares."

It rates ZincOx a 'buy' with a target price of 126 pence.

Elsewhere, Daniel Stewart said its model was based on the firm selling 100,000 tonnes of reclaimed zinc in 2012. That is 50 per cent of capacity, said the broker.

"Commencing production within the next two weeks will therefore be within our contingency parameters, even assuming a gradual ramp-up in production following commissioning.

"No major technology or process issues have been reported and as such we believe any price weakness off the back of this short delay may provide a good opportunity to buy, target price 139p," it said.

As at 1.57pm, the firm's shares were up 0.63 per cent, at 79.50 pence.

The feedstock, a type metal powder called electric arc furnace dust (EAFD), will be processed as part of the ‘live’ commissioning of the plant. This is the final stage of the development, Zincox said.

After around 4-6 weeks the commissioning will be complete and the plant will begin production. This is in line with the group’s targeted first quarter start. Zincox says that the development is now 95 per cent complete and it remains on budget.

"We are delighted with the progress of this project, remaining, as it does, on schedule and within the budget we set when we started the development 16 months ago, and we look forward to our first production before the end of this quarter," said chairman Andrew Woollett.

EAFD is a fine power which is a by-product left over from a steel recycling process. Zincox says that Korea has a thriving scrap steel recycling industry and due to the nature of the galvanised that’s available it can contain high concentrations of zinc – between 18 and 28 per cent.

Zincox has now signed ten-year deals with all the major Korean scrap steel recycling companies.

Through a phased development programme the KRP will initially treat 200,000 tonnes of EAFD to produce 49,000 tonnes of zinc concentrate. The process generates no waste, Zincox says. The by-product is an intermediate iron bearing product that can be sold to recycling companies

The initial development phase has a capital cost of US$110 million. Zincox expects the project to generate earnings of US$31 million, based on a zinc price of US$2,259

It is expected that the phase 2 development will begin in the second half of next year.

ZincOx commissions its first recycling plant in March 2012 and when it does it will become a zinc concentrate producer without the inherent risks of mining, the broker said.

It has a target price of 128p, largely based on the value of the first plant, Korean Recycling Plant 1.

The low cost zinc grade feed the plant will process is waste material derived from Korean steel producers and should be available in perpetuity.

Because of that, the company’s shares can rated on an earnings multiple argues Singer.

On one plant and the current US$2,000 zinc price, the shares trade on a 2013 EV/EBITDA of 4.5, a rating that should fall further as production increases.  

The long term investment case is also very attractive adds Singer. If ZincOx can demonstrate its technology successfully in Korea, there is the possible of more plants around the world and for underlying earnings to exceed US$100m within 5 years.

ZincOx is an “electric arc furnace dust” recycling business, says the broker.

Electric arc furnace dust (EAFD) is the waste material produced by melting galvanised ferrous scrap in electric arc furnaces (EAF) and is classified as hazardous waste due to the arsenic, mercury, lead and cadmium content.

But is also contains zinc (c.20%) and iron (c.25%) and is a high quality zinc pre-concentrate for an EAFD recycler like ZincOx.

If it can obtain a well priced long term supply of EAFD and has the correct technology, the company has a defensive high margin zinc business, concludes Singer.

Shares were little changed today at 53.45p.

Zinc recycling specialist ZincOx Resources (LON:ZOX) this morning announced a placing to raise £6.25 million. The firm will be using the cash raised to fund the initial development costs of the second phase of its waste recovery plant in South Korea, as well as to advance a roll out of its technology to the US, Turkey and Thailand.

Some 11.2 million new shares are being placed at 56 pence each in order to raise the funds.

ZincOx’s Korean recycling plant is intended to produce more than 90,000 tons per annum of zinc in concentrate when in full production – the same capacity as a medium-to-large zinc mine.

The plant is designed to treat 400,000 tons per annum of dust from electric arc furnaces – which are widely used in steelmaking. Sampling projects during the past four years have found that the weighted average grade of this dust is 23 percent zinc and 26 percent iron.

Korea currently generates around 380,000 tons of electric arc furnace dust but this is estimated to rise to 400,000 tons during the next few years.

"I am delighted to announce this placing which will provide the cornerstone for the company's full development of the Korean Recycling Plant and help to accelerate the roll-out of similar plants elsewhere in the world,” said Andrew Woollett, ZincOx’s executive chairman. “It is particularly pleasing that investors are willing to provide funds in such difficult markets and I am pleased to welcome new institutional shareholders.”

The recycling plant is on schedule to begin the first phase of production in the first quarter of next year. After that the plant will ramp up production over a six month period.

Through commissioning the company will test the mechanical equipment in the plant.

"I am very encouraged to report on the start of the commissioning activities which represent the final chapter of our development activities for first production phase, and we look forward to starting production on schedule in the first quarter of next year,” said chairman Andrew Woollett.

The project was budgeted at US$110 million including US$8 million for working capital. Zincox said that it has spent and committed just over US$94 million on construction. The project is expected to be completed slightly under budget, it added.

All the plant’s major equipment has been installed except the hot briquetting section. All the buildings are nearing completion.

Additionally it said the preparations for production are also on track.

ZincOx has now filled the senior management positions and it said that roughly half of the plant operators have been recruited. Training is expected to start shortly. The production offices are now fully operational and management personnel have moved in.

Zinc recovery specialist ZincOx Resources (LON:ZOX) announced late this morning that members of the family of its executive chairman, Andrew Woollett, had purchased 26,112 shares in the firm at 25 pence each. Following the transaction, Woollett has a beneficial interest in more than 2.3 million shares – representing 2.96 per cent of the company’s issued share capital.

Yesterday ZincOx reported its interim results, saying that the commissioning of its Korean recycling plant is expected to be completed by the end of this year with production starting in Q1 2012.

ZincOx’s Korean recycling plant is intended to produce more than 90,000 tons per annum of zinc in concentrate when in full production – the same capacity as a medium-to-large zinc mine.

The plant is designed to treat 400,000 tons per annum of dust from electric arc furnaces – which are widely used in steelmaking. Sampling projects during the past four years have found that the weighted average grade of this dust is 23 per cent zinc and 26 per cent iron.

Korea currently generates around 380,000 tons of electric arc furnace dust but this is estimated to rise to 400,000 tons during the next few years.

Yesterday, ZincOx said that it made a loss before tax during the six months to the end of June of £3.6 million – much reduced on its H1 2010 loss of £25.5 million.

Broker view

News that ZincOx Resources (LON:ZOX) had cut its project budget estimate for its Korean recycling plant was well received by City analysts this morning.

ZincOx said a revised project budget for the full development of its Korean recycling plant showed costs for phase two of the project have been reduced by 32 percent.

Ambrian Partners described the news as “very encouraging”, adding: “The costs for phase two are dramatically lower than originally projected and the impact of this news, when run through our model, increases our target price from 112 pence to 134 pence.”

Another broker, Fairfax, said: “It has taken a long time but it is good to see ZincOx on track to start its first recycling operation early next year with prospects improving all the time for the second phase of project.”

Following a detailed review of the development expenditure required for phase two, the estimated costs for the second stage of the Korean recycling plant are now US$100 million – some US$46 million less than the previous estimate. 

“The experience we have gained by having the actual costs of developing KRP 1, has helped us to make a very accurate estimate of the cost of developing KRP 2, and resulted in a substantial reduction compared to our previous estimate,” said Andrew Woollett, ZincOx’s chairman. “This more accurate estimate has enabled us to start serious discussions with potential lenders for the development of KRP 2.”

Phase one of the plant is fully funded and approximately half way through development. It remains within its budget of US$110 million and is on schedule to begin production in the first quarter of next year.

During phase one ZincOx has found that zinc smelters are interested in obtaining unwashed zinc oxide concentrate, which means the company does not need to wash the product itself and it can save US$18 million on capital expenditure for a washing plant in phase two. Other savings are due to the design of various parts of phase one being sized for the expanded operation, the use of actual Korean costs rather than costs derived from the US and the decision to make phase two an exact copy of phase one (so reducing engineering costs).

ZincOx’s Korean recycling plant is intended to produce more than 90,000 tons per annum of zinc in concentrate when it full production – the same capacity as a medium-to-large zinc mine.

The plant is designed to treat 400,000 tons per annum of dust from electric arc furnaces – which are widely used in steelmaking. Sampling projects during the past four years have found that the weighted average grade of this dust is 23 percent zinc and 26 percent iron.

Korea currently generates around 380,000 tons of electric arc furnace dust but this is estimated to rise to 400,000 tons during the next few years.

Ambrian is maintaining its ‘buy’ recommendation, with a target price of 134 pence per share. At 10:07am, ZincOx’s shares were unchanged at 69.5 pence each.