ZincOx Resources (AIM: ZOX) has given notice of a general meeting to be held Friday 23 April, in response to a requisition from minority shareholders holding approx 5%. The rebellious minority shareholders want to oust 6 directors and propose an alternative strategy in favour of Waelz Kiln zinc recycling rather than RHF technology (Rotary Hearth Furnace).
The requisitioning shareholders are Aldersgate Investment Managers and US SDR LLC - owned by Mr Russ Robinson. US SDR LLC was founded in 2006 to build and operate Waelz Kiln processing plants to recycle EAFD to produce zinc oxide and waelz iron product. US SDR sold its Waelz Kiln plant in Alabama in October 2009.
In response to the requisition, ZincOx said the proposals are not in the company's best interests and they are misguided. “The board believes that Mr Robinson's plans may not be achievable, would take significant time to implement, would become vulnerable should zinc prices fall and are unlikely to be as attractive to steel mills given they cannot offer the same reduced level of tipping fee or environmental benefits”, ZincOx stated.
In terms of the respective technologies, ZincOx said that Waelz Kiln is inferior to the RHF and adopting the alternative technology would fundamentally compromise the company’s ambition to create a global low cost, environmentally superior, zinc recycling company.
According to ZincOx, RHF has both commercial and environmental advantages over Waelz Kiln.
Commercially, ZincOx stated that RHF enables the recovery of more zinc into a higher quality product, thereby generating more revenue. Furthermore the company noted the commercial benefit of the production of a valuable pig iron co-product, which can subsequently be sold to steel mills.
“RHF technology was selected by ZincOx after considerable investigation because, due to the revenue generated by the pig iron co-product, the board believes that it enables a positive operating margin to be maintained even when market prices for zinc are low”, ZincOx stated.
Specifically ZincOx said that, despite the technology's well established nature, Waelz kiln operators experienced financial problems during the low zinc prices experienced during 2002 and 2003.
In terms of the environment, ZincOx believes that the RHF process is superior compared to the Waelz kiln technology, as it has lower greenhouse gas generation, cleaner gaseous emissions and effluent discharge and it has a higher recovery of zinc, pig iron and lead.
ZincOx highlighted that the development of the first ZincOx RHF recycling plant in Ohio, USA, has re-started. Through the economic downturn, it established opportunities to reduce capital costs, by sourcing equipment and re-configuring the project. Consequently the company reduced the initial capital development cost of the plant by 42% to US$105m from US$180m.
Furthermore, now that steel and EAFD production are increasing, with USA steel production at approximately 70% of capacity - more than double the rate in 2009 -, the board believes that ZincOx is well placed to proceed with the project.
Moreover, ZincOx said it has received a banking mandate and term sheet, which currently being considered to raise US$60m project finance, which together with current cash resources, is expected to be sufficient to develop the Ohio Recycling Project without further recourse to shareholders.
Aside from ZincOx’ technological assertions against the proposals, the company also noted certain details regarding Mr Robinson’s background as a company director. “The directors are aware that on 14 April 2005, Mr Russ Robinson and Metaleurop SA (a French company of which he was a director) were fined by the Sanctions Committee of the AMF in France as a result of their intention to conceal the deterioration of the Metaleurop group's financial situation”, ZincOx stated.
Following a decree, dated 13 December 2005, the Court of Appeal of Paris reduced the financial penalties to, respectively, €90,000 (from €150,000) for Mr Russ Robinson and €140,000 (from €200,000) for Metaleurop SA. Additionally, ZincOx noted that a further decree, dated 30 May 2007, by the Court of Cassation dismissed an appeal by Mr Russ Robinson.
Accordingly, ZincOx informed investors that in light of this information, its Nominated Adviser (NOMAD) Numis Securities told the company it would be obliged to consider its position should Mr Robinson to become a director of ZincOx.
ZincOx claims it has strong support among its major shareholders, as the company last week announced that it has received written confirmations to that effect representing more than 50% of the company’s issued shares. Despite the support behind the board, the requisitioning shareholders have not withdrawn their propopsals, therefore a shareholder vote will be held at the meeting on 23 April.
The six directors named by the minority shareholders consist of executive chairman Andrew Woollett, managing director Peter Wynter Bee, finance director Simon Hall, technical and production director Jacques Dewalens, project development director Simon Mulholland and non-executive director Gilles Masson.
Furthermore, the directors stated that if the resolutions were passed at the general meeting, all the remaining directors intend to resign from the board.
Disclosure: The author holds no positions in the company