This technology seems to be proving itself, but the share price has yet to play catch-up.
A small company with some kind of game-changing technology is usually a red flag for me. Such companies rarely seem to get to where the technology suggested they might. I prefer proven earnings, big assets, dividends aplenty and temporary, spurious share price weakness.
Now you know there's a "but" coming, and such is the situation with AIM-listed ZincOx Resources (LSE: ZOX).
It's said that where there's muck, there's brass. But ZincOx shifts this up a gear by selling the muck back as well. The company takes waste product from the steel industry free of charge, puts it through its recycling plant, which yields a high-quality zinc concentrate, then sells back the balance of material as a low-grade iron bearing product.
When I last looked at the company three months ago, its first plant was being tested out for production. And I concluded with: "If the plant is working as expected, the shares will surely be a lot more expensive." I was wrong, the share price was 72p. It's now 69.5p, valuing the company at £62m despite the fact that its first plant in South Korea is seemingly ticking along nicely.
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Going well so far
With the final results for 2011, ZincOx tells us its first plant (which cost $110m, or c.£70m) was completed on time and on budget; that its process has been demonstrated successfully, that production started in May and the first zinc oxide concentrate has been delivered. The company says it will gradually build up to full capacity over the next few months.
ZincOx has £12m in cash following a £6.25m fundraising at 56p per share in December. This will help fund the initial development of a second plant in South Korea and enable the technology to be rolled out in the USA, Turkey and Thailand as the company aims to become the world's largest recycler of zinc.
Its operations are backed by 10-year supply agreements with the Korea Zinc company covering approximately 400,000 tonnes per annum. Each plant in the country will have the capacity to process 200,000 tonnes of EAFD (the initial electric arc furnace dust waste product from the steel industry). When in full production, its two South Korean plants will produce 92,000 tonnes of zinc per year in a high-grade concentrate.
The main dangers are in a depressed zinc price if and any operational problems as the plant steps up production. So it's certainly not for widows or orphans. But it certainly looks a much better speculative investment today than it did a short time ago -- and at a slightly lower price.
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> David owns shares in ZincOx Resources.