LONDON (Alliance News) - ZincOx Resources PLC Monday said it has struck a deal to reschedule two of its existing loans, but said the deal is conditional on the company raising further funds before the end of the year and warned it could lose its sole producing asset if it fails to do so.
Last week, ZincOx said it was in talks with its loan provider about amending its existing loans and said it was looking to raise at least USD6.5 million through a share placing before the end of 2015 to use as working capital after the company's cash position was hit by low zinc prices.
On Monday, ZincOx said it will now only need to raise a minimum of USD5.0 million through a placing before the end of the year after striking a rescheduling agreement with its loan provider Korea Zinc Co Ltd.
"The board is therefore now focused on securing at least USD5.0 million of investment and is exploring a number of potential opportunities from both existing and new investors with the aim of completing the fundraising by the end of 2015. There is, however, no certainty that the fundraising will be successful," said ZincOx.
That fundraising is essential, as the company said it will have to transfer 90% of its interest in its Korean subsidiary to Korea Zinc Co if it fails to secure further investment.
ZincOx's Korean subsidiary owns a zinc recycling plant in South Korea, which is the company's only operationing asset and which generates all of its earnings and revenue. The plant was developed using two loans from Korea Zinc Co.
The recycling plant was developed using a long-term offtake loan from Korea Zinc Co worth USD37.7 million which bears a 5% interest and was originally repayable from 50% of free cashflow with whatever balance is left expected to be paid in 2022. The other USD19.4 million short-term development loan bears an interest rate of 9.5% and was originally repayable in six equal monthly instalments starting in early February 2016.
However, on Monday, ZincOx said Korea Zinc Co has now agreed to "roll up" all of the interest payments due on both loans until the end of 2016, thought to total around USD5.4 million. The company will have to restart paying interest if zinc prices rise above USD2,000 per tonne for at least three consecutive months.
The principal repayments due under the USD19.4 million short-term loan also have been postponed by one year, meaning ZincOx will not have to begin repaying that loan until February 2017. However, payments will have to begin sooner if zinc prices rise above USD2,500 per tonne for a three month period, it said.
In return, ZincOx has agreed to increase the zinc concentrate offtake contract with Korea Zinc Co to 1.2 million tonnes in total from 1.1 million tonnes, of which around 141,000 tonnes has been delivered to date.
Importantly, the rescheduling agreement with Korea Zinc Co is conditional on the company raising at least another USD5.0 million before the 2015 year-end. Due to the nature of the agreement, shareholders will have to approve the arrangements at a general meeting.
If ZincOx repays the two loans, Korea Zinc Co has agreed to relinquish its rights under the offtake contract for up to 50% of the concentrate produced from the recycling plant annually. In this way, the total amount of the offtake contract will remain the same but its delivery will be spread over a longer period, the company said.
"The company has shown that the zinc concentrate can be simply and economically upgraded to a zinc oxide chemical having about twice the value of that which is currently being received," said ZincOx.
ZincOx said it would cost around USD20.0 million to upgrade its existing recycling plant so it would be able to upgrade around half of its production to a zinc oxide chemical. That upgrade would take around 18 months to complete.
If successful, ZincOx said it would generate an additional USD11.7 million of earnings before interest, tax, depreciation and amortisation per year, based on a zinc price of USD1,600 per tonne and a breakeven price of USD1,300 per tonne.
"The upgrading potential announced today could, therefore, have a significant medium-term impact on the prospects for the company," it said.
ZincOx shares were up 5.9% to 1.59 pence per share on Monday morning.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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