ZincOx (LON:ZOX) has signed a letter of intent (LOI) with Korea Zinc Co, securing loans of up to US$50 million to develop the South Korean Recycling Plant (KRP).
The loans will also be used for an off-take agreement to purchase the unwashed zinc concentrate produced from Phase 1 of the KRP development.
These financing arrangements will enable ZincOx to realise more cash from the project in the early years.
The news was met with a very positive response as shares in the company rallied 9% in early deals.
Once finalised, the loans, together with the existing cash within the business, will allow ZincOx to move forward with the construction of Phase 1 of the KRP.
The company intends to achieve first production in the first quarter of 2012.
Under the terms of the LOI, Korea Zinc will be providing two loans, the off-take loan and a development facility.
The off-take Loan is for US$35 million and will bear interest at 5% per annum over LIBOR.
The development facility is for US$15 million at a 15% fixed interest per annum.
The KRP will treat 200,000 tonnes per annum of steel waste dust (EAFD) in Phase 1 and produce approximately 70,000 tonnes of zinc concentrate with a grade of 58% zinc and 95,000 tonnes per annum of an intermediate iron product.
Capacity will then double under Phase 2 which will be developed following the commissioning of Phase 1.
Financing for Phase 2 will be put in place in due course, ZincOx said.
Based on this financing and current zinc and pig iron prices, KRP Phase 1 has a post tax net present value of approximately US$97 million, an internal rate of return of about 30% and is expected to generate project earnings before interest, taxes, depreciation and amortisation (EBITDA) of about US$29 million per annum.
ZincOx noted that its interest in KPR has not been diluted as a result of the financing agreements.
“The offtake and financing package represents a very attractive structure that enables the project to release more cash in the early years than would be possible using normal project finance," said executive chairman ZincOx Andrew Woollett.
“Following our entry into a long term lease over the KRP site last week, we are now able to press forward with the development without delay and are focused on achieving first production in Q1 2012 with a ramp up to full production within six months,” he added.