Zinc mining, recycling and refining group ZincOx Resources PLC (AIM: ZOX) said bondholders have pulled out of the Jabali open pit zinc mine being built in Jemen, but that the attractive economics of the project allow it to consider a broad range of financing options.
In its last update on the project on November 18, the company had announced it signed a standstill agreement with the bondholders, following the default event it flagged on October 2 2009 relating to the US$120 million facility for building the Jabali mine.
ZincOx in October started talks with the bondholders, seeking to assure them of the merits of the project after it emerged that a production milestone was likely to be delayed by two to three months. One of the development milestones was that production of 63 percent of capacity is achieved by mid-August 2010. The technical adviser to the bondholders had - in a regular report as envisaged by the bond agreement - informed them that the milestone will be achieved two to three months after the deadline. This constituted a default under the agreed terms and triggered certain rights for the bondholders including the right to demand repayment of the bond.
The bond was put in place in February 2008 to part-fund construction of the Jabali mine and plant. Mining operations there started in February 2009.
Today, Zincox said an agreement in principle has now been reached with the majority of bondholders that in return for the funds in the accounts of mine operator Jabal Salab Co (Yemen) Ltd and an additional payment of US$10 million the security over the shares in Jabal Salab will be released by the bondholders and the bonds and all attached rights will be terminated.
Of the additional payment, US$5.2 million will be paid by the company and US$4.8 million by Ansan Wikfs Investments Ltd, a company owned by a prominent Yemeni business family, in proportion to their respective shareholdings in Jabal Salab of 52 and 48 percent.
There is approximately US$96 million in the Jabal Salab accounts which means that the bondholders will receive around 80 cents for each dollar invested, ZincOx said.
ZincOx's first priority is now to finalise the settlement so that new financing can be put in place as soon as possible.
Site work at Jabali is proceeding with the construction of foundations and other civil engineering works being well advanced, but the rate of development has been slowed pending the arrangement of new financing. The completion date for the project will, therefore, be delayed by the time required to put the new financing in place.
ZincOx chairman Andrew Woollett commented: "Whilst it is disappointing that the bondholders have decided to withdraw from the project, Jabali remains an excellent project with operating costs expected to be among the lowest in the industry. The attractive economics of the project allow us to consider a broad range of financing options."
The Jabali zinc carbonate deposit lies in mountainous desert terrain about 110 km east of Sana’a, the capital of Yemen. The deposit contains a mineable reserve of 8.7 million tonnes of ore at an average grade of 9.2 percent zinc. The deposit will be mined from an open pit at the rate of 800,000 tonnes per annum with a waste/ore ratio of 2:1.
Jabal Salab has a 20-year exploitation agreement with the Ministry of Oil and Minerals.