www.zincox.com
ZincOx Resources' principal priority is the creation of value by the development of mining and recycling operations that benefit from low cost processing of unconventional zinc bearing materials. Secondarily and where financing is available, added value will be created by the development of refining operations. The company's objective is to become a major low cost zinc producer.
ZincOx Resources: Analysts hail firm's progress at Korean Recycling Project
ZincOx Resources (LON:ZOX) is "substantially undervalued" given the progress it is making in bringing its first recycling plant into production.
That's the verdict of Ambrian analyst Nick Mellor who points out that ZincOx's is one of the few fully financed projects of its kind in the world today.
His 'buy' and 134 pence a share price target on the stock (current price 58.75 pence) chimes with an upbeat assessment of the company's prospects by City firm FinnCap.
Today's interim results underline, meanwhile, the progress being made as the zinc processing facility remains on budget and on schedule to go live in the first quarter of 2012.
Ramp-up to full production at the Korean Recycling Project (KRP) is expected to take around six months.
Most of the major processing hardware for the project is now in place, said Mellor, adding that the build has remained within budget.
"With US$8 million for working capital included in the capex numbers, as well as contingency, we forecast that the company should start hot commissioning with a relatively comfortable cash buffer on the balance sheet," he said.
ZincOx has put in an impressive eight years research into finding the best way of processing Electric Arc Furnace Dust (EAFD), a by-product of the steelmaking process.
The plant uses an existing technology that has been optimised for zinc recovery and is designed to process 200,000 tonnes per year of the dust, which will make it the largest EAFD recycling facility in Asia.
Ambrian notes that this quarter will see the electrics, piping and control systems put in place, along with the commissioning of the feed preparation system.
The working "hot" commissioning of the plant will take place in February next year, followed by a swift ramp-up to full production, it added.
Broker finnCap said the company's shares represented a "distinct buying opportunity" as the group arrived at the brink of completing the transformational project.
Analyst David Buxton highlighted that the firm's closeness to commissioning at the plant should be recognised by the market - and lead to a re-rating.
He said: "The Korean project is likely to be the blue print for further plants across the world, indicating a scalable business model.
"The current share price values the group at a significant discount to our fair value and recent market weakness has also provided a buying opportunity."
The broker has a fair-value price target of 186 pence - a significant premium to the current share price.
According to finnCap’s estimates, the first phase - KRP1 - has the capacity to generate revenues of US$78.6 million and earnings before interest, taxes, depreciation and amortisation (EBITDA) of US$30.3 million. KRP2 has an expected revenue rate of US$69.5 million and earnings of US$22.8 million.
In terms of financing, KRP1 is fully funded through a mix of cash and loans from Korea Zinc, which signed a loan and offtake agreement worth US$50 million with ZincOx last December.
While ZincOx is yet to secure funding for KRP2, which has a similar capital cost, finnCap noted that the project becomes bankable once KRP1 can demonstrate profitability.
“This should move the group from rather expensive interest rates gained on KRP1 to much more vanilla interest rates and funding arrangements,” said Buxton.
Once production starts, finnCap expects to see a re-rating of shares in ZincOx, which would then “move up progressively” as operational milestones are announced.
