ZincOx’s shares edge up after it declares Korean recycling plant “on budget and on schedule”

Shares in zinc recovery specialist ZincOx Resources (LON:ZOX) edged up a little this morning after it said its Korean recycling plant remains on budget and on schedule for completion in the first quarter of next year. By 10.01am the firm’s share price had put on 3.3 percent to reach 62.5 pence.

The news was described as “encouraging” by analysts who follow ZincOx. 

The company has, so far, committed US$76 million to the zinc recycling project. But it also revealed today that the contingency provided within the total budget for the development will be used to cover an increase in costs of US$1.3 million due to exchange rate movements.

Meanwhile, the first drawdown – amounting to US$12 million – of the US$50 million loan package agreed with Korea Zinc at the end of April has now been made.

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.

Progress at the site is proceeding “very satisfactorily”, according to ZincOx. The firm said that the civil works and foundations for the plant are 85 percent complete, while the installation of equipment is scheduled to commence before the end of this month.

A rotary hearth furnace is being refurbished in the US and is being shipped to Korea in three batches. The first batch has already arrived and erection is scheduled to begin in July. The construction of non-process buildings in nearing completion, while the building of the plant’s process buildings is well underway, added ZincOx.

“We have now tied down almost three quarters of our costs and are very encouraged to be on time and budget with the start of commissioning remaining, as planned, for the first quarter of 2012,” said Andrew Woollett, ZincOx’s chairman.

Independent broker Northland Capital Partners said the news justified ZincOx’s share price increase during the last six months (its shares have improved by around 25 percent since the end of last year).  Northland pointed out that forecasts in the market have ZincOx profitable in 2012 and trading on 5.5 times its estimated earnings per share for 2012. “Given this project will be the only effective Zinc recovery plant in Korea, a major steel producer, and a blueprint for further plants, ZincOx seems good value,” said Northland analyst Simon Miller.

House broker Ambrian Partners was even more bullish, upping its target price to 112 pence each for ZincOx’s shares (from 104 pence). “It is highly encouraging to see that the company has committed 72 percent of the capital, has completed 85 percent of the civil works and is still within a one percent variance of the projected capital costs,” said its analyst Nick Mellor.

Ambrian justified its new target price by explaining it had reduced risk in its net present value calculation due to phase one of the Korean project advancing towards commissioning and phase two reaching the definitive feasibility stage, as well as factoring in what it sees is “a fair portion of the upside once the company gets into steady state production in Korea”.

ZincOx’s directors have been buying sizeable amounts of shares in the business recently. On 11 May, the firm announced that Woollett spent just short of £100,000 on 187,662 shares at 53 pence each, while finance director Simon Hall acquired 10,000 shares at the same price. Non-exec director Gautam Delal paid 54 pence each for 100,000 shares on the same date.