ZincOx Resources plczincox.com/wp-content/uploads/2015/03/080619_ZincOxAR071.pdf · 2017-09-06 · Contents Vision ZincOx Resources plc Annual Report & Accounts 2007 World leader

Pioneering in ZincPoised for growthZincOx Resources plcAnnual Report & Accounts 2007

ZincOx Resources plc

Knightway House Park Street Bagshot Surrey GU19 5AQ

T (+44) 1276 450 100 F (+44) 1276 850 281

www.zincox.com

ZincO

x Reso

urces plc A

nnual Report &

Accounts 2007

Co

nte

nts

Visi

on

ZincOx Resources plcAnnual Report & Accounts 2007

World leader in the design of processes to treat unconventional zinc-bearing material

To become a major low cost producer of zinc and zinc oxide

Vision

Contents

Highlights 01

Business Profile 02

Chairman’s Statement 06

Review of Operations 10

Board of Directors 16

Directors’ Report 17

Report of the Independent Auditor 21

Consolidated Income Statement 23

Consolidated Statement of Total Recognised Income & Expense 24

ZincOx Resources plc Annual Report & Accounts 2007

Consolidated Balance Sheet 25

Consolidated Cash Flow Statement 26

Notes to the Financial Statement 27

Report of the Independent Auditor 21

Company Balance Sheet 49

Notes to the Financial Statement 27

Directors and Advisers 56

Hig

hlig

hts

2007

Financial Highlights

2007

Artist impression of Ohio recycling project

News

• £11.4 million profit, or 23.3p per share

• Threefold increase in profits following receipt of deferred payments from Shaimerden

• $120 million raised through a pioneering Yemen project bond

• Jabali mine fully financed

• Over £20 million in cash reserves

• Jabali mine development underway

• Ohio recycling project development commenced

• Winner of Mining Journal’s 2007 Outstanding Achievement Award for Sustainable Development

“2007 was an important year for ZincOx with significant progress on all our projects and a threefold increase in profits to £11.4 million.”

Andrew Woollett Executive Chairman

01ZincOx Resources plc Annual Report & Accounts 2007

Wh

at

we

do

Zin

c b

ac

kgro

un

d

Zinc is vital for construction, foodproduction, health, pharmaceuticals,infrastructure, transport... for life itself

About Zinc

Zinc Resources

About ZincOx

Zinc Uses

Zinc Ore Grades

Zinc Mining

Zinc is a natural component of the earth’s crust and an inherent part of our environment. Zinc is present not only in rock and soil, but also in air, water and the biosphere. Plants, animals and humans contain zinc. Centuries before zinc was discovered in the metallic form, the Romans used its ores for making brass and zinc compounds and for healing wounds and sore eyes.

Almost all zinc is produced from underground mines where the zinc occurs in the sulphide mineral, sphalerite. Zinc mines generally have a grade of between 3% and 9% zinc. The sphalerite is separated from the non-zinc-bearing material by physical methods after the ore has been ground and crushed. The resultant “concentrate” has a zinc grade of about 55% zinc. It is transported to an electro- refinery for the production of zinc metal.

ZincOx was established to recover zinc from non-sulphide minerals – either primary ores or wastes. These materials are generally not amenable to treatment using conventional zinc processing technology and so present metallurgical challenges that need to be solved by a new approach. Over the past eight years ZincOx has investigated all the world’s major primary non-sulphide zinc deposits and has carried out extensive metallurgical testwork, research and design. The Company has developed different ways of recovering the zinc and so is able to consider a broad spectrum of potential feed materials – both natural resources and wastes.

Unlike zinc sulphide, zinc may be recovered from non-sulphide minerals by dissolution from the ore directly without prior concentration. The zinc may be recovered from solution either as metal or as an industrial grade zinc oxide chemical. Using this approach the Company is able to obtain the maximum value of the zinc contained at the mine site rather than sharing the value of the metal with a third party smelter.

Shaimerden mine site

Zinc is essential to all living organisms – plants, animals and man need zinc to live. Over 11 million tonnes of zinc are produced annually of which about half the zinc produced is used in galvanising, a process by which a thin layer of metallic zinc coats the surface of a steel object. The zinc protects the iron from corrosion thereby greatly extending the useful life of the object, which in turn reduces

The ZincOx approach represents a major leap forward in metal recycling

20

15

10

5

0

-5

-10

-15

-20

11000

9000

7000

5000

3000

1000

0

An

nu

al C

han

ge

(%)

Zin

c co

nsu

mp

tio

n (k

t)

Source: ILSGZ, IZA

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005- Underground - Combination - Open Pit

Based on number of mines1 Based on zinc production1

8% 15%12%

21%

80%64%

1 - Based on 75 mines / China and CIS excluded

Source: De Ruiter – TU Delft

1-3 3-5 5-7 7-9 9-11 11-13 13-15 >15

25

20

15

10

5

0

Nu

mb

er o

f min

es

Head Grade (Zn%)

<1


02 ZincOx Resources plc Annual Report & Accounts 2007

Recycling

Growth in demand for Zinc

EAFDType of Mine

Scrap Electric arc furnace Electric arc furnace dust

Zinc ingots

Slag

Pig iron

Steel production

ZincOx has developed a two phase approach to the treatment of EAFD. In the first phase EAFD will be treated in a rotary hearth furnace to produce a zinc oxide concentrate, pig iron and a slag that can be sold as a building aggregate. The pig iron will be sold back to the steel recycling companies that generated the EAFD. Using this approach, hazardous industrial waste is transformed into three

valuable products and no waste; as such it represents a major leap forward in metal recycling. In the second phase, the zinc oxide concentrate will be used as a feed for zinc metal production either by the Company or, after washing, by third party electro-refineries.

ZincOx’s recycling strategy is based on the treatment of electric arc furnace dust (“EAFD”). EAFD is a zinc-bearing waste generated when galvanised steel scrap is recycled in electric arc furnaces. EAFD typically contains 15-25 per cent zinc – a higher grade than most zinc mines. With over 5 million tonnes of EAFD produced annually, it represents a major source of zinc capable of providing about 10% of the world’s zinc requirements.

the consumption of raw materials and contributes to sustainable development of the world’s resources. Apart from galvanising, zinc is used in brass, die-casting and chemicals in a variety of applications including buildings, vehicles and for consumer goods and electrical appliances.

Zinc extends the life cycle of steel and reduces maintenance costs

Zinc can be recycled indefinitely without loss of its physical or chemical properties

20

15

10

5

0

-5

-10

-15

-20

11000

9000

7000

5000

3000

1000

0

An

nu

al C

han

ge

(%)

Zin

c co

nsu

mp

tio

n (k

t)Source: ILSGZ, IZA



8% 15%12%

21%

80%64%



1-3 3-5 5-7 7-9 9-11 11-13 13-15 >15

25

20

15

10

5

0

Nu

mb

er o

f min

es

Head Grade (Zn%)

<1


20

15

10

5

0

-5

-10

-15

-20

11000

9000

7000

5000

3000

1000

0

An

nu

al C

han

ge

(%)

Zin

c co

nsu

mp

tio

n (k

t)

Source: ILSGZ, IZA



8% 15%12%

21%

80%64%



1-3 3-5 5-7 7-9 9-11 11-13 13-15 >15

25

20

15

10

5

0

Nu

mb

er o

f min

es

Head Grade (Zn%)

<1


ZincOx Resources plc Annual Report & Accounts 2007 03

Busin

ess

Pro

file

Ohio Recycling Plant – USA

The Ohio Recycing Plant will comprise a rotary hearth furnace and melter designed to treat 200,000 tonnes of EAFD per annum for the production of 47,000 tonnes of zinc in concentrate and 56,000 tonnes of pig iron each year.

• Developmentunderway• Productionplannedfortheendof2009• Financingclosetocompletion

Current projects schedule

Big River Zinc – USA

The BRZ electro-refinery, located 4km from the centre of St Louis, is the second largest zinc smelter in the USA. It will be used initially, as a site for upgrading by washing zinc concentrate produced from the Ohio Recycling Plant. Following a partialre-development,itwillbeused to produce zinc metal from the Ohio concentrate.

Recycling

Ohio Recycling – USA

Mining

Jabali – Yemen

Shaimerden Zinc Mine – Kazakhstan

Development Production

2008 2009 2010


Aliaga Recycling Plant – Turkey

ZincOxhasreceivedenvironmentalapprovalforthedevelopmentofa plant to treat 200,000 tonnes ofEAFDperannumintheheavyindustrial zone at Aliaga.

HeadquartersBelgium Technical Centre

Jabali Zinc Mine – Yemen

TheJabalizincdepositisbeingdevelopedby ZincOx (52%) with a local company, Ansan Wikfs. Production of 70,000 tonnes, per annum, of high quality zinc oxide is scheduledtocommenceattheendof2009.

ZincOx intends to replicate its Ohio Recycling Plant globally and become the largest zinc recycling company in the world

Shaimerden Interest – Kazakhstan

ZincOx is entitled to substantial ongoing zinc price related deferred payments as a result of the sale of this deposit in 2003.

Recycling Plants – Far East

ZincOxintendstodeveloparecyclingplantinThailandthatwillhavethecapacity to process all domestic EAFD together with EAFD from neighbouring countries.

Bintulu Project – Sarawak, Malaysia

ZincOxisconsideringdevelopinga zinc electro-refinery in a newly established industrial zone in Bintulu, Malaysia. The governmentisplanningtoestablishamajor hydroelectric generation scheme nearbythatwouldprovidelowcostpower.


A threefold increase in profits to £11.4 million now places us firmly among the most profitable companies on AIM...Andrew Woollett, Chairman

I am delighted to announce a threefold increase in profits to £11.4 million (2006: £3.6 million) or 23.33 pence per share (2006: 8.61 pence per share) which now places us firmly among the most profitable companies on AIM. These profits were due to the ongoing deferred payments due from the sale of the Shaimerden mine, and these should continue to 2011 by which time our Jabali mine and first recycling projects should be in full production. The Shaimerden receipts together with funds already in our treasury allowed us to fully finance our equity contribution to the Jabali Mine development without recourse to shareholders. The balance of the US$216 million development was covered by our partners (48%) and the recent issuance of a novel and imaginative project bond which raised US$120 million. The project should be in production before the end of next year.

This rapid development timetable has only been possible due to our decision early last year to order long lead time items of equipment, such as the mining fleet, which is already in the country. We have adopted a similar strategy for the development of our first recycling project, the Ohio Recycling Project, in the USA. In order to do this, we raised £20 million by a placing of new shares with new and existing institutional investors.

These funds are being used to undertake advanced engineering, secure fabrication time with equipment manufacturers and to enable site work to commence in May 2008.

We are now focusing on raising the debt necessary to cover the balance of the development cost and if this is completed as planned, the project should commence production before the end of next year. During the course of the year we confirmed the attractiveness of the Rotary Hearth Furnace and Melter (RHF&M) strategy we conceived in 2006 and we are increasingly convinced that this is a breakthrough in the way that zinc-bearing steel industry waste (EAFD) is treated, both economically, because it is energy efficient, and environmentally because it produces three saleable products and no waste.

Considerable progress on the sourcing of dust around the world has been carried out over the past three years and steel mills in the regions have welcomed our “no waste” approach. Indeed we are increasingly confident that this strategy will enable us to realize our ambition to become the largest zinc recycling company in the world. In Turkey (Aliaga) we received the approval for our Environmental Impact Assessment and in C

ha

irma

n’s

Sta

tem

en

t


Thailand we entered into supply option contracts for 100,000 tonnes of EAFD per annum. The progress we have made with our recycling plans was recognised by our peers at the 2007 annual Mining Journal awards for Outstanding Achievement, at which ZincOx won the award for sustainable development.

Over the past two years, costs across the industry have risen dramatically and including the working capital, contingency and a cost overrun facility, the total financing requirement for the Jabali mine amounted to US$216 million. The Jabali mine will be the first major mining development in Yemen and will be one of the largest zinc mines in the Middle East. While mine developments are generally well suited to project finance, the particular circumstances at Jabali did not fulfil some of the standard prerequisites for this type of finance. The bond facility we put in place was specifically designed to attract specialist

emerging market investors. We were able to find a formula that enhanced the returns to the bond holders by gearing them into the zinc price without dilution of our equity in the project. This is the first time such a bond has been used. Exotix, the specialist emerging market debt adviser, which arranged the bond, is keen to try to repeat a similar formula for the financing of our recycling projects located in other emerging markets such as Turkey and Thailand.

Due to the very limited recourse of this structure we remain unconstrained at a corporate level and this gives us complete freedom when considering options for financing the Ohio project.

Our recycling strategy provides for zinc-bearing hazardous waste from the steel industry to be converted into pig iron, slag and an intermediate product that can be processed into zinc either at our

We believe we have a significant lead on any potential competitiors

Andrew Woollett receiving Mining Journal’s

Outstanding Achievement Award for Sustainable

Development with the editor of Mining Environmental Management Magazine, Katherine Dixon and the

evening’s host, Michael Portillo

Steel scrap


Mining Journal Award for Outstanding Achievement

Big River Zinc refinery in the USA or, after some further treatment, by third party smelters. We believe we have a significant lead on any potential competitors but in order to maintain this lead for as long as possible we decided, over a year ago, to follow a strategy of multiple and integrated concurrent project developments at Ohio, Aliaga and Big River, for a total capital expenditure of over US$400 million. In order to realise these plans we sought a strong industrial strategic partner who could help to fund the developments by taking a direct interest in the projects. As stated in last year’s annual report, Teck Cominco, one of our largest shareholders, had expressed an interest to be that partner. During the first half of 2007, Teck Cominco carried out a detailed technical review that concluded very positively. Towards the end of the year, we were, therefore, surprised to learn that Teck Cominco wished to continue to follow the strategy as a shareholder in the Company but not as a strategic partner. They retain a seat on the board and membership of a joint technical committee.

A review of our options for financing the three initial projects concluded that the period required to undertake due diligence by a new partner would be over six months, without any guarantee that such partner would ultimately commit to the projects. In order to have the greatest confidence in the rapid development of the first recycling project we have modified our strategy to that of a staggered development plan. By

this approach the RHF&M could be developed as stand alone projects producing an intermediate product that could be cheaply upgraded into a concentrate attractive to third parties. Only when the RHF&Ms are being developed for the production of sufficient intermediate product to allow Big River to operate at full capacity will its redevelopment be considered. I should point out, however, that by staggered I do not mean sequential. That is to say, as soon as the first project is financed and its development is underway we would seek to finance and develop the second project; I would expect this to be well before the first project is commissioned.

While the strategic partner approach would have simplified financing, partners would almost certainly have required rights over future projects that would have significantly reduced our medium and long-term value in such projects. We now have the freedom to obtain the best financing or partnership deal on future projects unencumbered by prior agreements.

Over the course of the year we have added significantly to our senior staff as we gear up for the challenge of project development. In order to support our transition to a “producer” we are also in the process of strengthening our board and we recently announced the appointment of Rod Beddows as a non-executive Director. As a founder of Beddows and Co, one of the foremost

We now have the freedom to obtain the best financing or partnership deal on future projects

Ch

airm

an

’s S

tate

me

nt


We are increasingly convinced that this is a breakthrough in the way that zinc-bearing steel industry waste (EAFD) is treated

Ohio Recycling Plant Site

Juliet Beckwith, Andrew Barbut, Brett Grist, Peter

Wynter Bee and Mike Foster from ZincOx, with

representatives from Ansan Wikfs and the

Ministry of Mines and Minerals in Yemen

steel strategy consulting groups, Rod has immense industry experience and this will become increasingly useful as we grow our steel waste recycling business.

As a fast growing company, the staff have worked extraordinarily hard in order to keep pace with the rate of our development and I would like to thank all staff for their efforts over the last year and for those that I am sure they will equally willingly give over the year to come.

Andrew WoollettChairman25 April 2007

Over the course of the year, we have added significantly to our senior staff


Op

era

tion

s R

evi

ew

ORP will produce 47,000 tonnes of zinc concentrate, 56,000 tonnes of pig iron and 48,000 tonnes of construction aggregate and no waste

Zinc RecyclingOhio Recycling Plant USA

The first recycling project to be developed by the group is the Ohio Recycling Project (ORP) together with the washing plant at Big River Zinc (BRZ) at a cost currently estimated to be US$179 million, including working capital and contingency which will generate annual earnings of US$23.7 million (post tax, depreciation and interest payable) assuming a zinc price of US$2,200 per tonne and a pig iron price of US$310 per tonne.

ORP will comprise a rotary hearth furnace and a submerged arc electric melter. It is planned to treat 200,000 tonnes per year of electric arc furnace dust (EAFD) containing an average grade of about 24% zinc. The rotary hearth furnace will produce a concentrate containing zinc and lead, together with iron in the form of direct reduced iron. The latter will be immediately transferred to the melter which will separate the pig iron and by-product slag.

The EAFD will be supplied under the terms of a strategic alliance with Envirosafe Services of Ohio Inc (ESOI). ESOI, the largest disposer of EAFD in landfill in the United States, has a 15 year track record in the sourcing and transportation of EAFD.

In November 2007, a 7 hectare plant site was purchased at Delta, in Fulton County, north-west Ohio and in March 2008 the last of the environmental and other permits were granted so that site work can commence in May 2008. The project has been awarded certain grants and tax incentives.

In order that development will not be delayed, in January 2008 US$40 million was raised for the development of the project. These funds are being used

for the identification and ordering of long lead time items of equipment, site preparation, installation of utilities and detailed engineering design to enable the definition of process equipment tenders.

The strategically located site is well positioned for rail and road transportation networks as well as having good access to power, water and gas. Application for various construction and operating permits is sufficiently advanced to enable construction to commence. ZincOx is working with a major local engineering company to finalise the design and engineering of the plant.

ORP is designed to produce annually 47,000 tonnes of zinc contained in a crude zinc oxide concentrate, 56,000 tonnes of pig iron and 48,000 tonnes of slag. The zinc concentrate will be transported to Big River Zinc (BRZ) for further processing, the pig iron will be sold back to the steel mills from where the EAFD originated and the inert slag can be sold to the construction industry. On the above assumptions, the EBITDA of the project at full production will be US$57.7 million per annum.

The Group’s interim strategy is to wash the Ohio and Aliaga concentrates at BRZ to remove chlorine and fluorine and sell the washed product to existing zinc refineries. BRZ already has a fully permitted washing plant and with a small capital investment it could be operating within a short period of time. This strategy has the advantage of generating early cash flow at a much reduced capital investment than would be required to modify BRZ to produce zinc metal, which is the Company’s long-term plan.


Zinc RecyclingAliaga Recycling Plant Turkey

As with ORP, the Aliaga Recycling Plant (ARP) will comprise a rotary hearth furnace and a submerged arc melter. It is planned to treat 200,000 tonnes per year of electric arc furnace dust (EAFD) containing an average grade of 24% zinc. The plant will produce a concentrate containing zinc and lead, together with iron in the form of direct reduced iron which will be upgraded into pig iron in the melter.

ZincOx has purchased 4.2 hectares of land in the Heavy Industrial Zone at Aliaga, located 60 km north of Izmir on the western coast of Turkey. Turkey is a large recycler of steel, producing well over 200,000 tonnes per year of EAFD. Within the Industrial Zone there are five steel mills which together produce over 100,000 tonnes per annum EAFD. Further EAFD will be supplied by other steel mills in Turkey. During the course of 2007 full environmental approval from the Turkish

environmental authorities was obtained for the proposed plant. The Industrial Zone is well located with respect to transportation by sea, road and rail. Gas and electricity are readily available.

In November 2007 an additional plot was purchased adjacent to the initial plant site. This site will be used as an enclosed stockpile and blending area and for EAFD storage during the construction of the main plant.

ARP will be designed to produce annually 47,000 tonnes of zinc contained in a crude zinc oxide concentrate, 56,000 tonnes of pig iron and 48,000 tonnes of slag. ZincOx plans that the zinc concentrate will be transported to BRZ for further processing, the pig iron will be sold back to the steel mills from where the EAFD originated and the inert slag can be sold to the construction industry.

Ohioproposed plant

Aliagaproject site


During 2007, full environmental approval was obtained from the Turkish authorities for the proposed plant

Zinc RecyclingOther Recycling Plants Far East

During the course of the last year, ZincOx has advanced its plans to roll out the recycling of EAFD in the Far East.

In Thailand, ZincOx is planning to construct a plant consisting of a rotary hearth furnace and melter, similar in size and design to the plants at Ohio and Aliaga. The plant will be a regional facility processing EAFD from Thailand and nearby countries.

An option on land of five hectares has been purchased on a site at Chonburi, a heavy industrial area near the ports of Laem Chabang and Sriracha on the east side of the Gulf of Thailand. The site is near three steel mills. Environmental studies have already been initiated.

EAFD supply option agreements have been entered into with seven steel mills and further supply contracts are expected before the end of 2008.

The construction of another potential recycling plant in the Far East is under review.

Zinc RecyclingBig River Zinc Refinery USA

The Big River Zinc (BRZ) smelter is an electrolytic zinc refinery located about 3 km south east of St Louis. BRZ commenced operation in 1929 and has over many years been expanded to become the second largest zinc smelter in the USA (100,000 tonnes per annum). Due to the closure of the last of the local zinc mines, the smelting operations were suspended at the end of 2005.

In May 2006, BRZ was purchased by ZincOx for US$14 million. Ultimately, BRZ will be used for the production of zinc metal by installing a new leach and solvent extraction purification circuit but using the existing electrowinning, melting and casting facilities. Initially, however, the site will be used to wash the impure concentrates produced by the recycling business to remove the chlorides and fluorides to upgrade concentrate for sale to third parties.

BRZ is currently on care and maintenance while ZincOx carries out design and engineering work for the treatment of the zinc-bearing concentrate to be produced at the Ohio and Aliaga recycling plants.

Op

era

tion

s R

evi

ew

In Thailand, ZincOx is planning to construct a plant consisting of a rotary hearth furnace and melter, similar in size and design to the plants at Ohio and Aliaga


Zinc RecyclingBintulu Project Sarawak, Malaysia

The Group has a long-term strategy to develop refining operations from concentrates produced by recycling. Electrical power is a very significant component in the cost of zinc metal production. In order to achieve the lowest possible cost of production. The Group is seeking locations where power is inexpensive.

Given the progress of the recycling plans in the Far East, and the long lead time required to develop a new greenfield zinc electro refinery, the Group is considering the Bintulu area in Sarawak, Malaysia.

The Malaysian government has established a new industrial zone at Bintulu that will benefit from its proximity to an ambitious multiple phase hydroelectric generation scheme. Companies in the industrial zone may enjoy low cost long-term electrical power contracts. In February 2008, ZincOx entered into a Memorandum of Understanding with the Bintulu Development Authority. Negotiations on the timetable for the project and a framework power agreement are underway.

In February 2008, ZincOx entered into a Memorandum of Understanding with the Bintulu Development Authority

Thailand Charles Horner (Asia Manager)

signing an EAFD option supply

agreement

Big River Zinc Refinery


Zinc MiningJabali Zinc Mine Yemen

The exploitation and development rights to the Jabali zinc deposit are owned by Jabal Salab Company (Yemen) Limited (“Jabal Salab”), in which ZincOx holds a 52% interest. The balance of 48% is held by Ansan Wikfs Investments Limited. The Jabali zinc oxide deposit is located 110 km north east of Sana’a, Yemen’s capital city.

Major advances with the development of the deposit were achieved during the course of the year which culminated in a $216 million financing package for Jabal Salab in February 2008. This included equity and financial security guarantees from the shareholders and a $120 million loan facility provided by a group of emerging market specialist hedge funds.

The term of the loan facility is six years with an interest rate of 11.5% and a three year grace period on principal repayments. In addition, the facility carries an additional coupon linked to the zinc price (“the ZIPPO” or Zinc Price Related Payment Obligation) which is calculated at US$0.16 for each dollar that the average annual international zinc price is above US$1,300 per tonne on every tonne of zinc sold by Jabal Salab over a period of 12 years from close of the financing. The ZIPPO notes are tradable instruments and are believed to be the first such instruments to be launched for a metal related transaction and the first Yemen project bond.

The Government of Yemen is extremely supportive of the Jabali project. It is the first large scale mining project to be developed in Yemen and the Government recognises that mining is a way of diversifying away from its dependence on the oil sector. Jabal Salab has a 20-year

Exploitation Agreement with the Ministry of Oil and Minerals that sets out all the terms and conditions for development of the deposit. The Contract has been approved by the Yemen parliament and ratified as law by the President.

The Company has fostered a close relationship with local communities and stakeholders’ training programmes, employment and improved infrastructure, especially road and water, are benefits to the nearby communities that should prove to be sustainable well beyond the life of the mine.

The Jabali deposit contains a mineable reserve of 8.7 million tonnes of ore at an average grade of 9.2% zinc. The deposit will be mined at the rate of 800,000 tonnes per annum by open pit with a strip ratio of 2:1. Ore will be crushed and calcined prior to milling and leaching using ammonia based solutions. Following purification, zinc carbonate will be precipitated and calcined for the production of 70,000 tonnes per annum of very high quality zinc oxide (>79% zinc). The zinc oxide will be bagged and shipped to customers in the rubber, paint and ceramics industries.

Construction of the mine and associated facilities is scheduled to take 22 months, such that production of a high quality zinc oxide should commence at the end of 2009.

Removal of over burden to expose the deposit sufficiently for ore extraction is scheduled to commence in the third quarter of 2008. Caterpillar mining equipment has already been delivered to Yemen. A site camp sufficient for 300 people is under construction.

Major advances with the development of the deposit were achieved during the course of the year

Op

era

tion

s R

evi

ew


Jabali Brett Grist,

Yemen Manager and Peter Wynter

Bee, Director, at mine site

Jabali Mining trucks purchased for Jabali project

Zinc MiningShaimerden Zinc Mine Kazakhstan

ZincOx sold its interest in the Shaimerden zinc oxide deposit in 2003 to Kazzinc, a large local zinc producer owned by Glencore AG. The Company retained an interest through on-going deferred payments based on a formula linked to the zinc price. The deferred payments which are based on the first 200,000 tonnes of zinc contained in ore that are mined from the deposit, are paid to ZincOx at the rate of $0.2375 per tonne for every dollar that the LME zinc price is above $800 per tonne. They are made regardless of whether or not the deposit is being mined, and based on a deemed minimum and maximum amounts of 40,000 and 60,000 tonnes of contained zinc in ore, respectively. Payments may be suspended if there is a discrepancy of greater than 25% between the contained zinc predicted

by the geological model at the date of sale and actual contained zinc mined.

During 2007, mining in the open pit was severely hampered by greater than expected water inflows and reduced pit stability. Grade reconciliation was poor for the second and third quarters and payments were suspended for these periods. However zinc mined in ore in the first and fourth quarters amounted to 58,558 tonnes and in January 2008 ZincOx received a deferred payment of $31.4 million in respect of 2007. Further payments are expected in January 2009, 2010 and 2011.

Zinc mined in ore in the first and fourth quarters amounted to 58,558 tonnes and in January 2008 ZincOx received $31.4 million



Board of Directorsfor the year ended 31 December 2007

Boa

rd o

f Dire

cto

rs

Andrew WoollettExecutive Chairman

Andrew Woollett co-founded ZincOx with Noel Masson. He is a geologist with over 25 years of international experience of mineral exploration and development. He was the founder and Executive Chairman of Reunion Mining PLC. He is responsible for strategy, new business and investor relations.

Michael Foster Managing Director

Michael Foster is the former Managing Director of Reunion Mining PLC. A graduate geologist with an MBA he has over 30 years experience in the mining industry. He is responsible for strategy implementation at ZincOx.

Peter Wynter Bee Director and General Counsel

Peter Wynter Bee has worked as General Counsel and head of commercial affairs, involved with every aspect of ZincOx’s business since its formation. He is a solicitor with over 25 years experience in private practice, in house with KPMG and subsequently with Reunion Mining PLC. He is responsible for the Group’s legal and commercial affairs and human resources and joined the Board in February 2008.

Simon Hall Finance Director

Simon Hall is a Chartered Accountant and engineer with experience of business development across a range of sectors over the last 15 years. He was formerly head of finance in BT Consumer Mobile before joining ZincOx. He is responsible for all financial matters across the Group.

Peter Beck Non-executive Director

Peter Beck is an economist with over 20 years experience as a stockbroker, working in oil and mining research and latterly as the head of global equities for Paribas. He is on the Remuneration and Nomination Committees.

Peter Fry Non-executive Director

Peter Fry is a Chartered Accountant having his own practice, PG Fry & Company, for 29 years. He is a member of the Audit Faculty of the Institute of Chartered Accountants in England and Wales. He is Chairman of the Audit Committee.

John Thompson Non-executive Director

John Thompson is a geologist and Vice President Technology for Teck Cominco Ltd, a large diversified Canadian mining company which holds a 9.7% interest in ZincOx. He has over 20 years global experience in a range of commodities.

Gilles Masson Non-executive Director

Gilles Masson is a civil engineer in mining with 14 years experience in export and project finance. He is currently an Executive Director with a leading European financial institution where he has responsibility for project and export finance for the Americas and worldwide responsibility for project finance in the mining sector. He is on the Audit, Remuneration and Nomination Committees.

Rod Beddows Non-executive Director

Rod Beddows was appointed to the board in February 2008. He has 20 years experience as a strategy consultant and financial adviser to mining and metals companies; for the last five years as Chief Executive of Hatch Corporate Finance and before that he founded and was chief executive of Beddows and Co, one of the steel industry’s foremost consultancy groups. He is also on the board of the Aluminium recycler, Recovco Ltd. Rod Beddows is on the Remuneration and Nomination Committees.


Directors’ Reportfor the year ended 31 December 2007

The Directors submit their report and the audited financial statements of the Company and Group for the year ended 31 December 2007.

Principal Activities

The principal activity of the Group is the exploration for, re-evaluation of and production from, zinc-bearing material. The Company acts as an exploration, development and holding company.

Review of the Business

A detailed review of the business and future developments is included in the Chairman’s Statement and the Review of Operations.

The Group made a consolidated profit after tax of £11,386,000 for the year ended 31 December 2007 (year to 31 December 2006 – profit £3,636,000). The Directors do not recommend the payment of a dividend, and the profit for the period will be transferred to the accumulated profit and loss reserve in the financial statements.

Due to the Group’s current focus on exploration and research and development activities, the Directors do not monitor any other financial and non-financial key performance indicators.

Directors and their Interests

The details of Directors are set out below.

In accordance with the Company’s Articles of Association, Peter Wynter Bee, Rod Beddows, Simon Hall and Gilles Masson retire at the Annual General Meeting and, being eligible, offer themselves for re-election.

Peter Wynter Bee entered into a service agreement with the Company on 5 November 2001 which can be terminated on 12 months’ notice.

Rod Beddows entered into a letter of appointment with the Company on 25 February 2008 for one year, thereafter the appointment can be terminated on 3 months’ notice.

Simon Hall entered into a service agreement with the Company on 10 January 2006 which can be terminated on 12 months’ notice.

Gilles Masson entered into a letter of appointment with the Company on 7 November 2005 for one year, thereafter the appointment can be terminated on 3 months’ notice.

The Directors in office as at the end of the year and their shareholdings were as follows:-

31 December 20071 January 2007 or subsequent

date of appointment

Ordinary Shares

At £0.25 Options

Ordinary Shares

At £0.25 Options

Andrew Woollett 1,740,000 846,929 1,740,000 723,897

Michael Foster 504,000 793,259 504,000 683,897

Simon Hall – 273,621 – 177,929

Peter Fry 74,619 75,852 74,619 75,852

Peter Beck 70,000 – 70,000 –

Gilles Masson – – – –

John Thompson – – – –

2,388,619 1,989,661 2,388,619 1,661,575

800,000 of the shares of A Woollett are registered in the name of EFG Reads Trustees Limited. 20,000 of the shares of Michael Foster are registered in the name of his wife.

The terms of options are disclosed in note 15 to the financial statements.


Dire

cto

rs’

Re

po

rt

Related Party Transactions

There are no Related Party Transactions in the year (2006: £40,000).

Substantial Shareholdings

As at 21 April 2008 the Directors, in addition to their own holdings, have been notified of the following substantial interests equal to or greater than 3% of the issued share capital of the Company.

Number of Ordinary

Shares

% of IssuedShare

Capital

Hoegh Capital Partners Investments Limited 5,774,656 10.17

Teck Cominco Limited 5,520,491 9.72

Sloane Robinson Investment Management Limited 5,257,187 9.26

UBS-SISU Capital 3,839,330 6.76

M&G Securities Limited 3,271,805 5.76

JP Morgan 2,499,622 4.40

Fidelity Investments 2,148,500 3.78

HSBC Global Custody Nominees Limited 1,841,237 3.24

Statement of Directors’ Responsibilities

The Directors are required by the Companies Act 1985 to prepare financial statements for each financial year which givea true and fair view of the state of affairs of the Company and of the Group as at the end of the financial year and of theprofit or loss of the Group for the financial year then ended.

In preparing those financial statements, the Directors are required to: -

• Selectsuitableaccountingpoliciesandthenapplythemconsistently;

• Makejudgementsandestimatesthatarereasonableandprudent;

• Statewhetherapplicableaccountingstandardshavebeenfollowed,subjecttoanymaterialdeparturesdisclosed and explained in the financial statements; and

• PreparethefinancialstatementsonthegoingconcernbasisunlessitisinappropriatetopresumethattheCompany and the Group will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and the Group and to enable them to ensure that financial statements comply with the Companies Act 1985. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Finally the Directors are responsible for making all information available to the Group’s auditors.

There is no relevant audit information of which the Company’s auditors are unaware; and the Directors have taken all steps that they ought to have taken to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The Directors are responsible for ensuring that the Directors’ Report and other information included in the annual report, is prepared in accordance with Company law in the United Kingdom.

The maintenance and integrity of the ZincOx Resources plc website is the responsibility of the Directors: the work carried out by the auditors does not involve consideration of these matters, and accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differfrom legislation in other jurisdictions.

Directors’ Reportfor the year ended 31 December 2007 continued


Corporate Governance

General The maintenance of effective corporate governance remains a key priority for the Board of ZincOx. The Company has followed the Principles of Corporate Governance set out in QCA (Quoted Companies Alliance) guidelines for an AIM Company.

The Board of Directors The Board meets regularly and included four non-executive Directors at the end of the year.

There are three permanent committees of the Board, details of which are given below. Selection and appointment of Directors are the responsibility of the whole Board.

Internal Controls The Directors are responsible for the Group’s system of internal control and for reviewing its effectiveness. The risk management process and systems of internal control are designed to manage rather than eliminate the risk of failure to achieve the Company’s objectives. Any such system of internal financial control can only provide reasonable, but not absolute assurance against material misstatement or loss.

Full board meetings are held quarterly to review Group strategy, direction and financial performance. The executive Directors meet monthly to review operational reports from all the Group’s areas of operations. The process is used to identify major business risks and evaluate their financial implications and ensures an appropriate control environment. Certain control over expenditure is delegated to on site project managers subject to board control by means of monthly budgetary reports. Internal financial control procedures include:-

• Preparationandregularreviewofoperatingbudgetsandforecasts

• Priorapprovalofallcapitalexpenditure

• Reviewanddebateoftreasurypolicy

• Unrestrictedaccessofnon-executiveDirectorstoallmembersofseniormanagement.

The Board has reviewed the effectiveness of the system of internal financial controls for the period from 1 January 2007 to the date of this report.

Report of the Audit Committee The Chairman of the Audit Committee is Peter Fry. The Committee is formally constituted with written terms of reference. Under these terms of reference, the Audit Committee may examine any matters relating to the financial affairs of the Group and the Group’s audits, including reviews of the annual financial statements and announcements, internal control procedures, accounting policies, the appointment and fees of external auditors and such other related functions as the Board may require.

The membership of the Audit Committee comprises two non-executive Directors, Peter Fry and Gilles Masson, with the Finance Director in attendance. The Chairman and Managing Director are not members, but may be invited to attend meetings of the Committee. The external auditors also attend for part of two meetings per annum and they have direct access to the members of the Committee without the presence of the executive Directors for independent discussions.

Report of the Remuneration Committee The Chairman of the Remuneration Committee is Peter Beck and comprises three non-executive Directors, Peter Beck, Rod Beddows and Gilles Masson. It determines the terms and conditions including annual remuneration of the executive Directors in consultation with the Chairman and Managing Director and takes into consideration external data and comparative third party remuneration. The Committee has access to professional advice from inside and outside the Company.

The key policy objectives of the Remuneration Committee in respect of the Company’s Executive Directors and other senior executives are:-

a. to ensure that individuals are fairly rewarded for their personal contribution to the Company’s overall performance; and

b. to act as an independent committee ensuring that due regard is given to the interests of the Company’s Shareholders and to the financial and commercial health of the Company.


Remuneration of executive Directors comprises basic salary, discretionary bonuses, pensions, participation in the Company’s Share Option Scheme and other benefits. The Company’s remuneration policy with regard to options is to maintain an amount equivalent to 10% of the issued share capital in options to the Company’s Management and employees which will include the issue of new options in line with any new share issues.

Details of Directors’ emoluments are disclosed in note 3b to the financial statement and the Directors’ options are disclosed above. Details of the service contracts of Directors proposed for re-election are set out on page 17.

Report of the Nomination Committee The Chairman of the Nomination Committee is Peter Beck. The membership of the Nomination Committee comprises three non-executive Directors, Rod Beddows, Peter Beck and Gilles Masson, with the Company Secretary and Group HR Manager in attendance. The purpose of the Nomination Committee is to lead the process for board appointments and to make recommendations to the board.

Going Concern After making enquiries, the Directors have a reasonable expectation that the Group has adequate financial resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements.

Social and Environmental Policy The Company is committed to the proper stewardship of the earth’s natural resources and the environment and to carrying out all its activities in a socially responsible manner, as it sees its own long-term success being directly related to the adherence to these principles. It fully accepts and encourages the employment and improvement of the local communities in which the Group operates so that they are left as both short- and long-term beneficiaries of the Company’s operations. This policy includes the following values:

• Treatingallpartieswithequityandrespect;• Promotingtransparentbusinessrelationships;• Understandingandrespectingtherightsofindigenouspeoplestoretaintheirculture,identity,customsand

traditions; and • Developingselfreliabilitythrougheducationandtraining.

The Company is further committed to the protection of the environment and strongly recognises that sound environmental management is essential for its long-term aims and ambitions.

Understanding, minimising and mitigating all environmental impacts, as well as using all resources prudently and efficiently, is critically important to the Company.

International Financial Reporting Standards (“IFRS”) The Group has transitioned to International Financial Reporting Standards (“IFRS”) during 2007. Implementation required restatement of the 31 December 2005 and 2006 balance sheets and restatement of the profit and loss account for the year ended 31 December 2006. The impact of transitioning to IFRS has been disclosed in note 22. The re-statements were not material to the financial position or operating results of the Group.

Financial Risk Management Policies relating to financial risk management are set out in note 17.

Post Balance Sheet Events The post balance sheet events are covered in detail in note 19.

Creditor Payment Terms The Group had trade creditors of £2,982,000 at 31 December 2007 (2006: £1,304,000), and generally settles within 30 days. It is the Group’s policy to settle balances with creditors in accordance with agreed terms of supply and with market practice in the relevant country. Trade creditors at the balance sheet date represented 40 days of average supplies for the period.

Auditors Grant Thornton UK LLP have signified their willingness to continue in office in accordance with Section 385 of the Companies Act 1985. A resolution to reappoint them will be proposed at the forthcoming Annual General Meeting.

On behalf of the Board

Deborah Paxford Company Secretary 25th April 2008

Dire

cto

rs’

Re

po

rt

Directors’ Reportfor the year ended 31 December 2007 continued


Report of the Independent Auditorto the members of ZincOx Resources plc

We have audited the Group financial statements for the year ended 31 December 2007 which comprise the principal accounting policies, the consolidated income statement, the balance sheet, the statement of recognised income and expense and notes 1 to 22. These Group financial statements have been prepared under the accounting policies set out therein.

We have reported separately on the parent company financial statements of ZincOx Resources plc for the year ended 31 December 2007.

This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

The Directors’ responsibilities for preparing the Annual Report and the Group financial statements in accordance with United Kingdom law and International Financial Reporting Standards (IFRSs) as adopted by the European Union are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the Group financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements. The information given in the Directors’ Report includes that specific information presented in the Chairman’s Statement and Review of Operations.

In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding Directors’ remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors’ Report, the Chairman’s Statement and Review of Operations. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the Directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.


Opinion

In our opinion:

• theGroupfinancialstatementsgiveatrueandfairview,inaccordancewithIFRSsasadoptedbytheEuropeanUnion, of the state of the Group’s affairs as at 31 December 2007 and of its profit for the year then ended;

• theGroupfinancialstatementshavebeenproperlypreparedinaccordancewiththeCompaniesAct1985; and

• theinformationgivenintheDirectors’Reportisconsistentwiththefinancialstatements.

Grant Thornton UK LLP Registered Auditor Chartered Accountants

25 April 2008

Re

po

rt o

f th

e In

de

pe

nd

en

t A

ud

itor

Report of the Independent Auditor to the members of ZincOx Resources plc continued


Consolidated Income Statementfor the year ended 31 December 2007

Notes

Year ended31 December

2007£’000

Year ended31 December

2006£’000

Revenue 1 – 169

Cost of Sales – (525)

Gross Loss – (356)

Administrative Expenses (5,607) (5,169)

Operating Loss 3(a) (5,607) (5,525)

Other gains and losses 4 20,016 9,604

Finance Income 5 1,085 748

Finance Costs 5 (37) (3)

Share of losses of Associate 25 45

Profit before tax 15,482 4,869

Taxation 6 (4,096) (1,233)

Net Profit 11,386 3,636

Attributable to:

Equity holders of the parent 11,460 3,683

Minority Interest (74) (47)

11,386 3,636

Basic earnings per Ordinary Share 7 23.33p 8.61p

Diluted earnings per Ordinary Share 7 22.37p 8.36p

The notes on pages 27 to 47 form an integral part of these financial statements.


Consolidated Statement ofTotal Recognised Income & Expensefor the year ended 31 December 2007

Year ended 31 December

2007 £’000


2006 £’000

Currency translation differences (162) (107)

Profit for the financial year 11,386 3,636

Total recognised income for the year 11,224 3,529


Fin

an

cia

l Sta

tem

en

ts


Consolidated Balance Sheetfor the year ended 31 December 2007

Notes


2007 £’000


2006 £’000

ASSETS

Non-current Assets

Intangible assets 8 17,706 10,590

Property, plant and equipment 9 22,031 8,762

Investment in associate 10 – 2

Other financial assets 11 – 235

39,737 19,589

Current Assets

Inventories 973 1,020

Trade and other receivables 12 18,449 9,823

Cash and cash equivalent 12,646 23,176

32,068 34,019

TOTAL ASSETS 71,805 53,608

LIABILITIES

Current Liabilities

Bank loans and overdraft (534) –

Trade and other payables 13(a) (5,034) (3,715)

(5,568) (3,715)

Non-current Liabilities

Other long-term liabilities 13(b) (581) (1,698)

TOTAL LIABILITIES (6,149) (5,413)

NET ASSETS 65,656 48,195

EQUITY

Share capital 14 12,244 12,105

Share premium 14 37,422 37,245

Retained earnings 14 11,364 (1,001)

Foreign currency reserve 14 (162) (107)

Equity attributable to equity holders of the parent 60,868 48,242

Minority interest 14 4,788 (47)

TOTAL EQUITY 65,656 48,195

Approved by the Directors on 25 April 2008

Simon HallDirector




2007 £’000


2006 £’000

Profit before taxation 15,482 4,869

Adjustments for:

Depreciation 920 433

Foreign exchange (loss) (55) (107)

Interest received (1,085) (748)

Interest expense 37 3

Intangible assets written off 3 952

Share-based payments 979 425

Increase/(decrease) in trade and other payables 4,099 (2,400)

Increase in trade and other receivables (154) (446)

Decrease in inventories 47 229

Foreign Tax at Source (4,006) (1,220)

Share of losses of Associate (25) –

Other gains and losses (16,013) (8,429)

Cash generated from operations 229 (6,439)

Interest paid (37) (3)

Net cash flow from operating activities 192 (6,442)

Investing activities

Purchase of intangible assets (7,293) (5,402)

Purchases of property, plant and equipment (13,998) (2,097)

Acquisition of subsidiary – (1,335)

Interest received 1,085 748

Net cash used in investing activities (20,206) (8,086)

Financing activities

Net proceeds from disposal of assets 8,634 218

Net proceeds from issue of ordinary shares 316 33,551

Net cash received from financing activities 8,950 33,769

Net (decrease)/increase in cash and cash equivalents (11,064) 19,241

Cash and cash equivalents at start of year 23,176 3,935

Cash and cash equivalents at end of year 12,112 23,176

Consolidated Cash Flow Statementfor the year ended 31 December 2007

Fin

an

cia

l Sta

tem

en

ts


1 Accounting Policies

(a) Accounting Convention and Basis of Preparation of Financial StatementsThe Company is a public limited liability company incorporated in the United Kingdom. The principle accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been applied consistently to all the years presented, unless otherwise stated.

(b) Adoption of IFRS in the Financial Year ended 31 December 2007In the current year the Group has adopted standards and interpretations issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee that are relevant to its operations and effective for the Group’s financial year end on 31 December 2007. The adoption of these standards and interpretations has resulted in changes to the Group’s accounting policies and the impact of the adoption of IFRS on the results for the year ended 31 December 2007 are set out in note 22.

(c) Basis of PreparationThe financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the EU and the Companies Act 1985, applicable to companies reporting under IFRS. The Group has adopted all of the standards and interpretations issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee that are relevant to its operations.

As at the date of approval of these consolidated financial statements, the following interpretations were in issue butnot yet effective:

• IAS1PresentationofFinancialStatements(revised2007)(effective1January2009)

• IAS23BorrowingCosts(revised2007)(effective1January2009)

• AmendmenttoIAS32FinancialInstruments:PresentationandIAS1PresentationofFinancialStatements–Puttable Financial Instruments and Obligations Arising on Liquidation (effective 1 January 2009)

• IAS27ConsolidatedandSeparateFinancialStatements(Revised2008)(effective1July2009)

• AmendmenttoIFRS2Share-basedPayment–VestingConditionsandCancellations(effective1January2009)

• IFRS3BusinessCombinations(Revised2008)(effective1July2009)

• IFRS8OperatingSegments(effective1January2009)

• IFRIC11IFRS2–GroupandTreasuryShareTransactions(effective1March2007)

• IFRIC12ServiceConcessionArrangements(effective1January2008)

• IFRIC13CustomerLoyaltyProgrammes(effective1July2008)

• IFRIC14IAS19–TheLimitonaDefinedBenefitAsset,MinimumFundingRequirementsandtheirInteraction(effective 1 January 2008)

The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. The Group does not intend to apply any of these pronouncements early.

(d) Basis of Consolidation and Presentation of Financial InformationThe consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries). The results of any subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of the Group. All intra Group transactions, balances, income and expenses are eliminated on consolidation.

The Group accounts incorporate associates under the equity method of accounting.

(e) Segmental ReportingA segment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular environment (geographic segment), which is subject to the risks and rewards that are different from those of other business or geographic segments.

Notes to the Financial Statementsfor the year ended 31 December 2007


1 Accounting Policies continued

(f) RevenueThe Group recognises revenue when the product is shipped and title has passed to its customers net of applicablesales taxes.

(g) Deferred ConsiderationDeferred consideration is not recognised until the receipt is considered to be virtually certain.

(h) Property, Plant and EquipmentProperty, plant and equipment are stated at cost or fair value, net of depreciation and any provision for impairment.Property, plant and equipment are depreciated over its useful life. The major categories of property, plant andequipment which are depreciated on straight-line basis down to their residual values are as follows:

Buildings – 40 years or life of lease

Computer Equipment – 4 years

Fixtures and Fittings – 4 years

Plant and Machinery – 4 to 20 years

Motor Vehicles – 4 years

Any gain or loss arising on a disposal of an asset is determined as the difference between the disposal proceeds and the carrying amount of the asset and is recognised in the income statement.

Residual values, useful economic levies and depreciation methods are annually assessed.

The carrying values of property, plant and equipment are assessed for impairment when indicators of impairment arise and any impairment is charged to the income statement.

(i) Impairment ReviewsThe carrying amounts of property, plant and equipment and intangibles are reviewed for impairment if events or changes in circumstances indicate the carrying value may not be recoverable. Those assets not yet available for use are tested for impairment at least annually.

For the purposes of assessing any impairment on property, plant and equipment and intangible assets the assets are grouped at the lowest levels for which there are separately identifiable cashflows.

An impairment loss is recognised for the amount by which the assets carrying value exceeds its recoverable amount. All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist.

The recoverable amount is assessed as the higher of fair value, reflecting market conditions less costs to sell, and value in use is based on internal discounted cashflow evaluation.

(j) InventoriesInventories are stated at the lower of cost or net realisable value. Cost is determined using the FIFO method. Supplies inventories are accounted for using the average cost method.

(k) Foreign CurrencyThe individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purposes of the consolidated financial statements, the results and financial position of each entity are expressed in pounds Sterling, which is the functional currency of the Company, and the presentation currency of the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency are recorded at the rates of exchange prevailing at the date of the transaction. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing at the balance sheet date.

Exchange differences arising on the settlement of monetary items and on the retranslation of monetary items areincluded in the profit or loss for the period.

Notes to the Financial Statementsfor the year ended 31 December 2007 continued

No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


Fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.

The assets and liabilities in the financial statements of foreign subsidiaries are translated at the actual rate.

The exchange differences arising from the retranslation of the opening net investment in subsidiaries and associates are taken directly to the “Foreign currency reserve” in equity.

The treatment of foreign currency on transition to IFRS is outlined in note 22.

(l) Intangible Assetsi) Computer software

As per IAS 38, purchased computer software that will generate economic benefit beyond one year is capitalised as an intangible asset and amortised over its expected useful economic life of four years on a straight line basis.

ii) Deferred exploration intangible assets

Deferred exploration costs, include the Group’s contribution to costs, of exploring for, and exploiting mineral resources. These include acquisition costs, geological and geophysical costs, costs of drilling, piloting and related overheads.

iii) Development of metallurgical processes and related overheads

Development costs incurred on specific projects are only capitalised in accordance with IAS 38 when recoverability can be assessed with economic certainty. The directors review each project on a technical and commercial basis in line with the impairment testing noted below. In the event that it becomes evident that capitalised costs are unlikely to be recovered from future revenues, they are either written-off immediately to the profit and loss account or an impairment provision is made.

All exploration project costs are transferred to property, plant and equipment after technical and commercialviability is confirmed or the commencement of production, whichever is sooner.

(m) TaxationIncome tax expense represents the sum of tax currently payable and deferred tax.

Current tax is the tax currently payable based on taxable profit for the year using tax rates enacted or substantially enacted at the balance sheet date.

Deferred tax is recognised on the difference between carrying values of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Tax losses which are available to be carried forward as well as other income tax credits to the group are assessed for recognition as deferred tax assets.

Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation. Deferred tax is charged or credited to the income statement, except when it relates to items charged directly to equity, in which case the deferred tax is also dealt with in equity.

Deferred tax assets relating to brought forward tax losses are not yet recognised by the company, but they will be recognised to the extent that taxable profit will be available in the future.

(n) PensionsThe pension costs charged to the financial statements represent the contributions payable during the period to defined contribution schemes.


1 Accounting Policies continued

(o) Leased AssetsAssets held under finance leases and hire purchase contracts are capitalised in the balance sheet and depreciated over their estimated useful economic lives. The related asset is recognised at the time of inception of the lease at the fair value of the leased asset, or, if lower, the present value of the minimum lease payments to be borne by the lessee. The interest element of leasing payments represent a constant proportion of the capital balance outstanding and is charged to the income statement over the period of the lease.

All other leases are regarded as operating leases and the payments made under them are charged to the income statement on a straight line basis over the lease term.

(p) Financial Assets and LiabilitiesTrade receivables and loans are measured subsequent to initial recognition at amortised cost, less provision forimpairment.

Cash and cash equivalents comprise cash on hand, deposits held on call with banks and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. For the purposes of the cash flow statement, cash and cash equivalents are adjusted to reflect bank overdrafts which are repayable on demand.

Trade payables are measured at initial recognition at their fair value.

(q) Share-based paymentsAll share-based payment arrangements granted after 7 November 2002 are recognised in the financial statements.

The fair value of those share options granted to employees and directors is recognised as an expense in the income statement with a corresponding entry to the profit and loss reserve. This fair value is appraised at the grant date.

All goods and services received in exchange for the grant of any share-based payment are equally measured at their fair values.

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are revised subsequently if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options that have vested are not exercised.

Upon exercise of share options, the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.

Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non transferability, exercise restrictions, and behavioural considerations.

2 Critical Accounting Estimates and Judgements

The Group makes estimates and assumptions concerning the future, which by definition will seldom result in actual results that match the accounting estimate. The estimates and assumptions that have a significant risk of causing material adjustments to the carrying amount of assets and liabilities within the next financial year are discussed below:

(a) Impairment of Intangible AssetsIn accordance with the accounting policy stated above, the Group tests annually to see whether any of the exploration and development projects have suffered impairment. The recoverable amount of the cash generating units is determined using cash flow modelling which will require the use of estimates on a number of input variables.

(b) Share-based CompensationIn order to calculate the charge for share-based compensation as required by IFRS2, the Group makes estimatesprincipally relating to the assumptions used in its option-pricing model as set out in note 21.


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


3 (a) Operating Loss

2007 £’000

2006 £’000

Operating loss is stated after charging:-

Fees payable to the Company’s auditors for the audit of the Group accounts

50 21

Fees payable to the Company’s auditors for:

Other Services 62 8

Tax Services 51 38

Depreciation of owned property, plant and equipment 877 411

Depreciation of leased property, plant and equipment 23 19

Amortisation of Intangible assets 20 13

Operating Leases 64 15

3 (b) Directors and Employees

2007£’000

2006£’000

The monthly average number of persons employed by the Group (including Directors) during the year was 69 (2006: 29)

Wages and Salaries 3,156 1,451

Social Security Costs 376 173

Pensions 144 112

Share-based Payments 979 425

4,655 2,161

Remuneration in respect of Directors was as follows:-

Emoluments 920 431

Pension Contributions 43 39

963 470

Highest paid Director emoluments - £354,000 (2006: £146,000).The number of Directors participating in defined contribution pension schemes was three (2006: three).

4 Other Gains and Losses

2007£’000

2006£’000

Deferred consideration on disposal of subsidiary 19,942 5,783

Profit on sale of equity in Jabal Salab Company (Yemen) Ltd – 3,828

Profit / (Loss) on disposal of property, plant and equipment 77 (4)

Loss on disposal of intangible assets (3) –

Loss on disposal of investment – (3)

20,016 9,604

The deferred consideration on disposal of subsidiary relates to the deferred consideration due to the Group’s subsidiary, Zinc Corporation of Kazakhstan, following the sale of its subsidiary, Shaimerden Joint Stock Company on 12 December 2003. The deferred consideration is based on the production during the year representing 58,558 tonnes (2006: 11,616 tonnes).


5 Finance Income / Costs

2007£’000

2006£’000

Interest received 1,085 748

Interest paid (37) (3)

1,048 745

6 Taxation

2007£’000

2006£’000

Taxation on profit on ordinary activities

Overseas taxation 4,096 1,233

Total current tax 4,096 1,233

The tax assessed for the year is lower than the standard rate of corporation tax in the UK 30% (2006: 30%).The differences are explained as follows:

2007£’000

2006£’000

Profit on ordinary activities before tax 15,482 4,869

Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2006: 30%) 4,644 1,460

Effect of:

Tax on minority interest (8) (14)

Disallowed management expenses (5,654) 146

Relief for profit on sale of equity – (1,148)

Excess capital allowances over depreciation 32 (18)

Foreign tax credit 1,100 855

Capital gains / (losses) 2,906 –

Increase in UK tax losses 79 768

Overseas losses / (gains) 997 (816)

Current tax charge for year 4,096 1,233

Unprovided Deferred Tax

Deferred Tax Liability

Accelerated Tax Depreciation (2,279) (2,262)

Deferred Tax Assets

Tax Losses carried forward 3,690 2,805

Accelerated US Tax Depreciation Impairment 2,860 3,572

Other Timing Differences 412 313

Share-based payments 1,126 1,087

Total net unprovided deferred tax asset 5,809 5,515

7 Earnings Per Share

The calculation of the earnings per share is based on the profit attributable to ordinary shareholders of £11,386,000 (2006: £3,636,000) divided by the weighted average number of shares in issue during the year of 48,801,664 (2006: 42,230,332).

The calculation of the diluted earnings per share is based on the profit attributable to ordinary shareholders of £11,386,000 (2006: £3,636,000) divided by the weighted average number of shares in issue during the year of 50,906,836 (2006: 43,504,806).


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


8 (a) Intangible Assets

Deferred Exploration CostsExploration

£’000Development

£’000Total

£’000

Cost

At 1 January 2006 3,005 3,509 6,514

Additions 1,323 4,068 5,391

Amounts written off – (1,330) (1,330)

At 1 January 2007 4,328 6,247 10,575

Additions 3,418 3,637 7,055

Foreign Exchange (80) (74) (154)

Amounts written off – (3) (3)

At 31 December 2007 7,666 9,807 17,473

Provisions

At 1 January 2006 – 378 378

Released during year – (378) (378)

At 1 January 2007 – – –

Charge for the year – – –

At 31 December 2007 – – –

Net Book Value

At 31 December 2007 7,666 9,807 17,473

At 31 December 2006 4,328 6,247 10,575

At 31 December 2005 3,005 3,131 6,136

8 (b) Computer Software

£’000

Cost

At 1 January 2006 10

Additions 11

At 1 January 2007 21

Additions 238

At 31 December 2007 259

Accumulated Amortisation

At 1 January 2006 3

Charge for year 3

At 1 January 2007 6

Charge for the year 20


Net Book Value




TOTAL INTANGIBLE ASSETS

Net Book Value

At 31 December 2007 17,706

At 31 December 2006 10,590

At 31 December 2005 6,143


9 Tangible Assets

Property Plant& EquipmentAt 31 Dec 2007

Land &Buildings

£’000

Plant &Machinery

£’000

Constructionin Progress

£’000

Fixtures &Fittings

£’000

ComputerEquipment

£’000

MotorVehicles

£’000Total

£’000

Cost

At 1 January 2006 328 133 – 21 41 27 550

Additions 1,387 489 – 72 71 78 2,097

Acquisition

of subsidiary 659 6,461 – – – – 7,120

Disposals – – – (11) (10) – (21)

Foreign Exchange (48) (475) – – – – (523)

At 1 January 2007 2,326 6,608 – 82 102 105 9,223

Additions 2,386 96 11,384 16 96 20 13,998

Disposals – – – – (2) (18) (20)

Foreign Exchange 286 (117) – – 2 8 179

At 31 December 2007 4,998 6,587 11,384 98 198 115 23,380

Depreciation

At 1 January 2006 – 11 – 18 15 3 47

Charge for year 26 369 – 9 13 13 430

Released ondisposals – – – (11) (5) – (16)

Foreign Exchange – – – – – – –

At 1 January 2007 26 380 – 16 23 16 461

Charge for Year 80 737 – 19 36 28 900

Released onDisposals – – – – – (5) (5)

Foreign Exchange – (6) – (1) (1) 1 (7)

At 31 December2007 106 1,111 – 34 58 40 1,349

Net Book Value

At 31 December2007 4,892 5,476 11,384 64 140 75 22,031

At 31 December2006 2,300 6,228 – 66 79 89 8,762

At 31 December2005 328 122 – 3 26 24 503


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


9 (a) Finance Lease Liabilities

MinimumLease

Payments2007£’000

Interest2007

£’000

Principal2007

£’000

MinimumLease

Payments2006

£’000

Interest2006

£’000

Principal2006

£’000

Finance lease liabilitiesare payable as follows: 62 5 57 138 16 122

Less than one year 85 4 81 136 11 125

Between one and five years

147 9 138 274 27 247

Assets held within the group under finance leases had a net book value at the year end of £181,000 (2006: £289,000).

10 Investments

Associates£’000

Other£’000

Total£’000

Cost

At 1 January 2006 5 341 346

Share of losses of Associate (3) – (3)

Disposals – (341) (341)

At 1 January 2007 2 – 2

Share of losses of Associate (2) – (2)


Impairment Provision

At 1 January 2006 – 120 120

Released in year on Disposals – (120) (120)

At 1 January 2007 – – –

Net Book Value


At 31 December 2006 2 – 2

At 31 December 2005 5 221 226

11 Other Financial Assets

2007£’000

2006£’000

Amounts owed by Associate – 235

– 235


12 Trade and Other Receivables

2007£’000

2006£’000

Deposits 164 624

Other Debtors 17,354 8,868

Prepayments 931 331

18,449 9,823

Other Debtors at 31 December 2007 includes £15.9m (2006: £4.5m) for the deferred consideration due to the Zinc Corporation of Kazakhstan following the sale of its subsidiary Shaimerden Joint Stock Company in December 2003.

Other Debtors at 31 December 2006 also includes £3.8m due from the sale equity in Jabal Salab Company (Yemen) Ltd.

13 Current Liabilities

2007£’000

2006£’000

(a) Trade and other payables

Trade Creditors 2,982 1,304

Taxation and Social Security 124 123

Accruals 1,017 1,420

Other Creditors 849 730

Finance lease obligations 62 138

5,034 3,715

Non-current Liabilities

2007£’000

2006£’000

(b) Other long-term liabilities

Employee Benefits 242 361

Other Creditors 254 1,201

Finance lease obligations 85 136

581 1,698


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


14 Reconciliation of Movement in Shareholders’ Equity

Sharecapital£’000

Sharepremium

£’000

Foreigncurrency

reserve£’000

Retainedearnings

£’000

Minorityinterest

£’000Total

£’000

At 1 January 2006 7,244 8,555 – (5,062) – 10,737

Profit for the period – – – 3,636 – 3,636

Issue of share capital 4,861 28,690 – – – 33,551

Exchange differences ontranslating foreignoperations – – (107) – – (107)

Share-based payments – – – 425 – 425

Minority interest – – – – (47) (47)

At 31 December 2006 12,105 37,245 (107) (1,001) (47) 48,195

Profit for the period – – – 11,386 – 11,386

Issue of share capital 139 177 – – – 316

Exchange differences ontranslating foreignoperations – – (55) – – (55)

Share-based payments – – – 979 – 979

Minority interest – – – – 4,835 4,835

At 31 December 2007 12,244 37,422 (162) 11,364 4,788 65,656

The minority interest represents amounts due to Ansan Wikfs from financing provided to Jabal Salab Company (Yemen) Limited of which they own a 48% share.


15 Share Capital

2007 £’000

2006 £’000

Authorised

60,000,000 Ordinary Shares of £0.25 each 15,000 15,000

Allotted, issued and fully paid

48,975,309 (2006: 48,418,573)

Ordinary Shares of £0.25 each 12,244 12,105

At 31 December 2007 there were options available over 4,285,121 ordinary shares in the company, 1,989,661 available to Directors (see Directors’ Report) and 2,295,460 to eligible persons. The exercise price of each option is between £0.25 and £2.625. These options cannot be exercised for two years from the date they were granted, and must be exercised within ten years from that date. Additionally, 400,000 options, with an exercise price of £2.00 are available to Investec Bank (UK) Ltd exercisable at any time prior to 21 November 2008 conditional upon its provision of project finance. The number of shares which would have been in issue at the end of the financial year had all options been exercised would have been 53,660,430.

The highest and lowest prices of the Company’s shares during the year were 427.25p and 253.5p respectively, and the share price at the end of the year was 258.5p.

During the year, 556,736 shares were issued with an aggregate nominal value of £139,184 at an average premium of £0.32 per share.

Details of the Company Share Options

Date of issue

At 31 December

2007Number

Exercise Price

Date from which exercisable Expiry date

18 October 1999 284,000 0.250 18 October 2001 18 October 2009

14 June 2001 207,694 0.650 14 June 2003 14 June 2011

30 September 2002 95,238 0.450 30 September 2004 30 September 2012

01 August 2003 352,704 0.540 01 August 2005 01 August 2013

04 May 2005 372,363 1.295 04 May 2007 04 May 2015

15 January 2006 965,738 1.500 15 January 2008 15 January 2016

27 June 2006 763,391 2.075 27 June 2008 27 June 2016

16 January 2007 1,243,993 2.625 16 January 2009 16 January 2017

4,285,121

Details of Company Warrants

Date of issue

At 31 December

2007Number

Exercise Price

Date from which exercisable Expiry date

21 November 2005 400,000 2.000 21 November 2005 21 November 2008

400,000


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


16 Lease Commitments

Non-cancellable operating lease rentals are payable as follows:

2007 £’000

2006 £’000

Less than 1 year 183 183

Between 1 and 5 years 445 481

More than 5 years 56 129

684 793

The Group has also received income from sub-letting plant and machinery which has been included in operating lease rentals above as follows:

2007 £’000

2006 £’000

Less than 1 year 104 87

Between 1 and 5 years 139 208

243 295

17 Other Financial Assets

The disclosures detailed below are as required by IFRS 7 Financial Instruments: Disclosures. The Company’s principal treasury objective is to provide sufficient liquidity to meet operational cash flow requirements and to allow the Group to take advantage of new growth opportunities whilst maximising shareholder value. The Company operates controlled treasury policies which are monitored by the Board to ensure that the needs of the Company are met as they evolve. The impact of the risks required to be discussed in accordance with IFRS 7 are detailed below:

Liquidity and Funding RiskThe objective of the Group is managing funding risk is to ensure that it can meet its financial obligations as and when they fall due. At the year end there was no debt outstanding other than lease commitments in note 9. The Group has a strong credit rating and has good access to capital markets, if required.

Credit RiskThe Group’s principal financial assets are bank balances and cash, trade and other receivables and investments, which represent the Group’s maximum exposure to credit risk in relation to financial assets.

The Group’s credit risk is primarily attributable to its other receivables. It is the policy of the Group to present the amounts in the balance sheet net of allowances for doubtful receivables, estimated by the Group’s management based on prior experience and the current economic environment. There are no doubtful receivables this period.

The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. The Group has no significant concentration of credit risk, with exposure spread over a large number of counterparties and customers.


17 Other Financial Assets continued

Foreign Exchange RiskThe Group’s transactional foreign exchange exposure arises from income, expenditure and purchase and sale of assets denominated in foreign currencies. As each material commitment is made, the risk in relation to currency fluctuations is assessed by the Board and regularly reviewed. The Group does not have a hedging program in place at this time.

Foreign currency denominated financial assets and liabilities, translated into Sterling at the closing rate, are as follows:

2007 2006Euro

£’000USD

£’000YTL

£’000Euro

£’000USD

£’000YTL

£’000

Financial Assets 553 2,190 503 101 1,542 53

Financial Liabilities 663 20,797 4,927 192 11,671 1,958

Short-term exposure (110) (18,607) (4,424) (91) (10,129) (1,905)

The following table illustrates the sensitivity of the net result for the year and equity in regards to the Group’s financial assets and financial liabilities and the Sterling-US Dollar, Sterling-Euro and Sterling-Turkish Lira.

It assumes a +/-10% change of the Sterling/Euro, Sterling/US Dollar and Sterling/Turkish Lira exchange rate for the year ended 31 December 2007 (2006: 10%). These percentages have been determined based on the approximate average market volatility in exchange rates in the previous 12 months. The sensitivity analysis is based on the Group’s foreign currency financial instruments held at balance sheet date.

If Sterling had weakened against the Euro, US Dollar and Turkish Lira by 10% this would have had the following impact:

2007 2006Euro

£’000USD

£’000YTL

£’000Euro

£’000USD

£’000YTL

£’000

Net result for the year 7 144 6 1 156 32

Equity 4 300 26 3 156 29

If Sterling had strengthened against the Euro, US Dollar and Turkish Lira by 10% this would have had the following impact:

2007 2006Euro

£’000USD

£’000YTL

£’000Euro

£’000USD

£’000YTL

£’000

Net result for the year (7) (144) (6) (1) (156) (32)

Equity (4) (300) (26) (3) (156) (29)

Exposures to foreign exchange rates vary during the year depending on the volume of overseas transactions. Nonetheless, the analysis above is considered to be representative of the Group’s exposure to currency risk.


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


Interest Rate RiskThe Group is exposed to interest rate risk in respect of the cash balances held with banks and other highly rated counterparties. If the interest rate the Group received had increased/decreased by half a percent during the year, the net result for the year would have been increased/reduced by £116,000 (2006: £84,000). There would have been no impact on equity.

2007

Weighted Average Effective

Interest Rate

Fixed Interest

Rate £’000

Non-interest bearing

£’000

Total

£’000

Assets

Cash 4.70% 12,646 – 12,646

Trade and other receivables – 18,449 18,449

Inventories – 973 973

Total Financial Assets 12,646 19,422 32,068

Liabilities

Bank loans and overdraft – 534 534

Trade and other payables – 5,034 5,034

Other long-term liabilities – 581 581

Total Financial Liabilities – 6,149 6,149

Net Financial Assets 12,646 13,273 25,919

2006

Weighted Average Effective

Interest Rate

Fixed Interest

Rate £’000

Non-interest bearing

£’000

Total

£’000

Assets

Cash 4.47% 23,176 – 23,176

Trade and other receivables – 10,059 10,059

Other Inventories – 1,020 1,020

Total Financial Assets 23,176 11,079 34,255

Liabilities

Trade and other payables – 3,716 3,716

Other long-term liabilities – 1,698 1,698

Total Financial Liabilities – 5,414 5,414

Net Financial Assets 23,176 5,665 28,841


17 Other Financial Assets continued

Financial AssetsThe Group held the following investments in financial assets:

2007 £’000

2006 £’000

Cash at bank and in hand 12,646 23,176

Cash at bank and in hand comprise cash and short-term deposits held by the Group treasury function. The carrying amount of these assets is approximately their fair value.

18 Capital Commitments

The Group had an outstanding commitment in respect of certain payments for mining assets and equipment which will be satisfied after 31 December 2007, these amounts totalled $2.1m (2006: $2.9m).

19 Post Balance Sheet Events

During December 2007 the Group signed a loan facility of $120m for the development of the Jabali mine in Yemen. At 31 December 2007 the conditions precedent of this loan were still in the process of being satisfied. On completion of the conditions precedent on 19 February 2008 the Group paid in funds comprising $24m cash and $15m as letters of credit as contributions for the 52% that the Company owns of Jabal Salab Company (Yemen) Ltd.

The Group received the Shaimerden payment of $31.4m (£16.0m) shown as Other Debtors during January 2008.

The Group raised gross equity of £20.4m (£19.4m net of expenses) through the issue of 7.8m ordinary shares on 18 January 2008. The shares were issued at a price of £2.62

20 Segmental Analysis

The Company considers that its activities be split into two key areas. Its recycling activity, which is the main activity, and the mining activity which is its secondary activity.

The Company also has a global presence which needs to be reflected in the segmental analysis.

The operations of the Group are in the developmental stage and as such the net assets have been split to reflect as closely as possible the activity and geographical location of where the net assets are deployed.

The activity split of net assets for the Group are as follows:

31 December 2007

£’000

31 December 2006

£’000

Recycling 53,060 40,796

Mining and Exploration 12,596 7,399

65,656 48,195


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


The geographical split of net assets for the Group are as follows:

2007 £’000

2006 £’000

UK 27,810 27,721

Middle East 12,596 7,399

Other Europe 8,254 4,316

North America 16,202 8,332

Rest of the World 794 427

65,656 48,195

The Group does not have any revenue or operating results attributable to operational units and therefore no disclosure has been made.

21 Share-based Payments

Share options to employees are granted on a discretionary basis. The exercise price of the granted options is equal to the market price of the shares on the date of the grant.

Movements in the number of employee share options outstanding and their related weighted average exercise prices are as follows:

2007 2006Weighted

Average Exercise

Price (£ per share)

Outstanding Options

(thousands)

Weighted Average

Exercise Price

(£ per share)

Outstanding Options

(thousands)

At 31 December 2006 1.19 3,597 0.60 2,719

Granted 2.625 1,243 1.74 1,805

Exercised 0.57 (555) 0.54 (927)

Lapsed – – – –

At 31 December 2007 1.68 4,285 1.19 3,597

The weighted average share price of options at the date of exercise during the year was £3.07 (2006: £2.09).


21 Share-based Payments continued

The principal assumptions used in arriving at the valuation are summarised below:

Grant Date16 January

200727 June

20065 January

2006

Share price at grant 2.625 2.075 1.5

Exercise price 2.625 2.075 1.5

Shares under option 1,243,993 763,391 965,738

Expected volatility 27% 27% 27%

Option life (Years) 5 5 5

Risk free rate 4.93% 4.83% 4.15%

Fair value per option £0.88 £0.67 £0.49

Valuation model Black-Scholes

Black-Scholes

Black-Scholes

The total charge for the period relating to employee share-based payment plans was £979,000 (2006: £425,000). The vesting period for the options is two years. The volatility calculation was based on the median 50 day volatility based on a 3 year history of the Company’s share price. No dividend is assumed in the calculation (2006: Nil) of the option fair values.

22 Reconciliation of UK GAAP IFRS Statements

As required under IFRS1, the equity reconciliations at 1 January 2006 (the transition date for IFRS) and at 31 December 2006 (date of last UK GAAP financial statements) are set out below. For comparative purposes the equity reconciliation at 30 June 2006 is also included to enable a comparison of the 2007 published interim figures.

The effect of adopting IFRS rather than UK GAAP for the year ended 31 December 2006 is as set out below.

The changes have no impact on the profit on ordinary activity before tax or the cashflows previously reported, but has led to a change in the format of the cash flow statement.

The key presentational changes in the financial statements arising from the transition to IFRS are:

i) The reclassification of capitalised software costs to intangible assets from property plant and equipment.

ii) Cumulative translation differences on foreign operations are deemed to be nil at 1 January 2006, hence the other reserve has been transferred to retained earnings on transition.

iii) The acquisition of Big River Zinc during 2006 has been treated as an acquisition of assets and liabilities as it does not meet the criteria of a business combination under IFRS. There is no impact on the underlying assets and liabilities, but the description has been changed on the face of the cashflow.


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


(a) Balance sheet reconciliation

As at 31 December 2006 As at 1 January 2006As previously

reported under UK

GAAP £’000

Effect of transition

£’000

As restated under IFRS

£’000

As previously reported

under UK GAAP £’000


£’000


£’000

ASSETS

Non-current assets

Intangible Assets 10,575 15 10,590 6,136 7 6,143

Property, plant and equipment 8,777 (15) 8,762 510 (7) 503

Investment in associates – 22 – 55

Other financial assets – 235 235 – 197 197

Investments 2 (2) – 226 (5) 221

19,354 235 19,589 6,872 197 7,069

Current assets

Inventories 1,020 – 1,020 – – –

Trade and other receivables 9,823 – 9,823 171 – 171

Trade and other receivables due after one year 235 (235) – 197 (197) –

Cash and cash equivalents 23,176 23,176 3,935 – 3,935

34,254 (235) 34,019 4,303 (197) 4,106

TOTAL ASSETS 53,608 – 53,608 11,175 – 11,175


22 Reconciliation of UK GAAP IFRS Statements continued

As at 31 December 2006 As at 1 January 2006As previously

reported under UK

GAAP £’000


£’000


£’000

As previously reported

under UK GAAP £’000


£’000


£’000

LIABILITIES

Current liabilities

Trade and other payables (3,715) – (3,715) (438) – (438)

(3,715) – (3,715) (438) – (438)

Non-current liabilities

Other long-term liabilities (1,698) – (1,698) – – –

TOTAL LIABILITIES (5,413) – (5,413) (438) – (438)

NET ASSETS 48,195 – 48,195 10,737 – 10,737

EQUITY

Share capital 12,105 – 12,105 7,244 – 7,244

Share premium 37,245 – 37,245 8,555 – 8,555

Retained earnings 1 (1,002) (1,001) (4,060) (1,002) (5,062)

Other Reserves (1,109) 1,109 – (1,002) 1,002 –

Foreign currency reserve – (107) (107) – – –

Equity attributable to equity holders of the parent 48,242 – 48,242 10,737 – 10,737

Minority interest (47) – (47) – – –

TOTAL EQUITY 48,195 – 48,195 10,737 – 10,737


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


b) Income Statement Reconciliation

As at 31 December 2006As previously

reported under UK

GAAP £’000


£’000

Other Adjustments

£’000


£’000

Revenue 169 – – 169

Cost of Sales (525) – – (525)

Gross Loss (356) – – (356)

Administrative Expenses (5,169) – – (5,169)

Operating Loss (5,525) – – (5,525)

Others gains and losses 8,384 – 1,220 9,604

Finance Income 748 – – 748

Finance Costs (3) – – (3)

Share of losses of Associate 45 – – 45

Profit before tax 3,649 – 1,220 4,869

Taxation (13) – (1,220) (1,233)

Net Profit 3,636 – – 3,636

The other adjustments reflect the grossing up of revenue for foreign tax deducted at source.


We have audited the parent company financial statements of ZincOx Resources plc for the year ended 31 December 2007 which comprises the principal accounting policies, the Company balance sheet, notes 23 to 36. These parent company financial statements have been prepared under the accounting policies set out therein.

We have reported separately on the Group financial statements of ZincOx Resources plc for the year ended 31 December 2007.

This report is made solely to the Company’s members, as a body, in accordance with Section 235 of the Companies Act 1985. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective Responsibilities of Directors and AuditorsThe Directors’ responsibilities for preparing the Annual Report and the Company financial statements in accordance with United Kingdom law. Accounting Standards (United Kingdom Generally Accepted Accounting Practice) are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements andInternational Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements have been properly prepared in accordance with the Companies Act 1985. We also report to you whether in our opinion the information given in the Directors’ Report is consistent with the financial statements.

In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and other transactions is not disclosed.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. The other information comprises only the Directors’ Report, the Chairman’s Statement and Review of Operations. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information.

Basis of Audit OpinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgments made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements.

OpinionIn our opinion:

• Theparentcompanyfinancialstatementsgiveatrueandfairview,inaccordancewithUnitedKingdomGenerallyAccepted Accounting Practice, of the state of the Company’s affairs as at 31 December 2007;

• theparentcompanyfinancialstatementshavebeenproperlypreparedinaccordancewiththeCompaniesAct1985; and

• theinformationgivenintheDirectors’Reportisconsistentwiththefinancialstatements.

Grant Thornton UK LLPRegistered AuditorChartered Accountants

25 April 2008

Report of the Independent Auditorto the members of ZincOx Resources plc

Re

po

rt o

f th

e In

de

pe

nd

en

t A

ud

itor


Notes

Year ended 31 December 2007

£’000

Year ended 31 December 2006

£’000

FIXED ASSETS

Intangible Assets 26 9,235 6,854

Tangible Assets 27 765 653

Investments 28 100 67

10,100 7,574

CURRENT ASSETS

Debtors due within one year 29(b) 201 4,001

Debtors due after one year 29(a) 26,918 12,233

Cash at Bank and in Hand 11,761 23,013

38,880 39,247

Creditors – amounts falling due after one year 30(a) (777) (1,217)

NET CURRENT ASSETS 38,103 38,030

Creditors – amounts falling due after one year 30(b) (7,468) (2,994)

NET ASSETS 40,735 42,610

CAPITAL AND RESERVES

Share Capital 31 12,244 12,105

Share Premium 32 37,422 37,245

Profit and Loss Account 32 (8,931) (6,740)

EQUITY SHAREHOLDERS FUNDS 40,735 42,610

Approved by the Directors on 25 April 2008.

Simon HallDirector

The notes on pages 50 to 55 form an integral part of this financial statement.

Company Balance Sheetas at 31 December 2007


23 Significant Accounting Policies

The separate financial statements of the Company are presented as required by the Companies Act 1985. As permitted by that Act, the separate financial statements have been prepared in accordance with all applicable UK accounting standards. The principal accounting policies which differ to those set out in note 1 to the consolidated financial statements are noted below.

The financial statements have been prepared on the historical costs basis.

(i) Investments in subsidiaries are stated at cost, less any provision where, in the opinion of the Directors, there has been a diminution in value.

(ii) Deferred tax is recognised on all timing differences where the transactions or events that give the Company an obligation to pay more tax in the future, or a right to pay less tax in the future, have occurred by the balance sheet date. Deferred tax assets are recognised when it is more likely than not that they will be recovered. Deferred tax is measured using rates of tax that have been enacted or substantively enacted by the balance sheet date.

(iii) The requirements of FRS 20 are the same as those set out in note 1 to the consolidated financial statements.

(iv) The Company has taken advantage of the exemption under section 230 (2) of the Companies Act 1985 not to publish its individual income statement and related notes.

(v) Investments in Subsidiaries and deferred consideration.

Fixed asset investments in subsidiary undertakings are stated at cost less provision for diminution in value. The cost of acquisition includes directly attributable professional fees and other expenses incurred in connection with the acquisition.

Sales of fixed asset investments are accounted for on exchange and deferred consideration is not recognised until the receipt is considered to be virtually certain.

24 (Loss) / Profit for the Financial Year

The Company has taken advantage of Section 230(2) of the Companies Act 1985 and has not included its own profit and loss account in these financial statements. The (loss) / profit for the Company was (£3,170,000) (2006: profit £891,000).

The average monthly number of employees of the Company (including Directors) during the year was 19 (2006:12) and their aggregate remuneration comprised:

2007 £’000

2006 £’000

Wages and Salaries 1,806 755

Social Security Costs 195 86

Other Pension Costs 86 67

2,087 908

Notes to the Financial Statementsas at 31 December 2007 continued

No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


25 (Loss) / Profit on Ordinary Activities Before Taxation

The auditors’ remuneration for audit services to the Company was £20,000 (2006: £15,000).

26 Intangible Assets – Deferred Exploration Costs

Company Exploration

£’000

Company Development

£’000

Company

£’000

Cost

At 1 January 2006 2,818 4,036 6,854

Additions – 2,384 2,384

Amounts written off – (3) (3)

At 31 December 2007 2,818 6,417 9,235

Provisions

At 1 January 2007 – – –


Net Book Value

At 31 December 2007 2,818 6,417 9,235

At 31 December 2006 2,818 4,036 6,854

27 Tangible Fixed Assets

Land & Buildings

£’000

Plant & Machinery

£’000

Fixtures & Fittings

£’000

Computer Equipment

£’000Total

£’000

Cost

At 1 January 2007 108 518 66 69 761

Additions – 3 3 306 312

At 31 December 2007 108 521 69 375 1,073

Depreciation

At 1 January 2007 9 75 11 13 108

Released on Disposals 15 130 16 39 200

At 31 December 2007 24 205 27 52 308

Net Book Value

At 31 December 2007 84 316 42 323 765

At 31 December 2006 99 443 55 56 653


28 Investments

Subsidiaries £’000

Associates £’000

Total £’000

At 1 January 2006 174 15 189

Additions 33 – 33

Disposals – – –

At 31 December 2007 207 15 222

Impairment Provision

At 1 January 2007 122 – 122

Provided in year – – –

Disposals – – –

At 31 December 2007 122 – 122

NBV at 31 December 2007 85 15 100

NBV at 31 December 2006 52 15 67

Interest in Subsidiary UndertakingsThe subsidiary undertakings at 31 December 2007, all of which are included in the consolidated financialstatements, are shown below:

Name of Undertaking

Country of Incorporation /

Registration and Operation


Proportion of Issued Shares

and VotingRights held by the Company

and the Group

ZincOx Belgium Sprl Belgium Metallurgical Research 99.99%

Zinc Corporation of Kazakhstan Limited British Virgin Islands Holding 100%

Jabal Salab Company (Yemen) Limited* Cayman Islands Metallurgical Processing 52%

ZincOx Anadolu Cinko Turkey Zinc Extraction 100%

ZincOx Anadolu Metal Turkey Metallurgical Research 100%

ZincOx Resources (USA) Ltd UK Zinc Extraction 100%

ZincOx Resources (Yemen) Ltd UK Holding 100%

Big River Zinc Corporation* USA Zinc Processing 100%

Zinc and Iron Recycling of Ohio, Inc.* USA Zinc Processing 100%

ZincOx (USA) Recycling, Inc.* USA Holding 100%

ZincOx Thailand Company Ltd Thailand Zinc Extraction 100%

Subsidiaries acquired during the yearIn 2007, Zinc and Iron Recycling of Ohio, Inc., ZincOx (USA) Recycling, Inc and ZincOx Anadolu Metal were formed. ZincOx Resources PLC acquired 100% of the issued share capital of ZincOx Anadolu Metal. ZincOx Resources (USA) Ltd acquired 100% of the issued share capital of ZincOx (USA) Recycling, Inc which in turn acquired 100% of the issued share capital of Zinc and Iron Recycling of Ohio, Inc.

With the exception of those holdings marked with an asterisk, all shareholdings are held directly by the Company.


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


Interest in Associate

Name of Undertaking

Country of Incorporation /

Registration and Operation


Proportion of Issued Shares

and Voting Rights held by the Company

and the Group

RIF Zinc LLP Kazakhstan Metallurgical Processing 50%

29 Debtors

2007 £’000

2006 £’000

Amounts owed by Group Undertakings 26,918 11,998

Amounts owed by Associate – 235

(a) Due after one year 26,918 12,233

Deposits 59 59

Other Debtors 78 3,899

Prepayments 64 43

(b) Due within one year 201 4,001

30 Creditors

2007 £’000

2006 £’000

(a) Amounts falling due within one year

Trade Creditors 429 784

Taxation and Social Security 54 33

Accruals 129 339

Other Creditors 1 61

Amount owed to Group Undertaking 164 –

777 1,217

2007 £’000

2006 £’000

(b) Amounts falling due after one year

Amount owed to Group Undertaking 7,468 2,994

7,468 2,994


31 Share Capital

2007 £’000

2006 £’000

Authorised

80,000,000 Ordinary Shares of £0.25 each 20,000 20,000

Allotted, issued and fully paid

48,975,309 (2006: 48,418,573) Ordinary Shares of £0.25 each 12,244 12,105

At 31 December 2007 there were options available over 4,285,121 ordinary shares in the Company, 1,989,661 available to Directors (see Directors’ Report) and 2,295,460 to eligible persons. The exercise price of each option is between £0.25 and £2.625. These options cannot be exercised for two years from the date they were granted, and must be exercised within ten years from that date. Additionally, 400,000 warrants, with an exercise price of £2.00 are available to Investec Bank (UK) Ltd exercisable at any time prior to 21 November 2008 conditional upon its provision of project finance. The number of shares which would have been in issue at the end of the financial year had all options been exercised would have been 53,660,430.

The highest and lowest prices of the Company’s shares during the year were 427.25p and 253.5p respectively, and the share price at the end of the year was 258.5p.

During the year, 556,736 shares were issued with an aggregate nominal value of £139,184 at an average premiumof £0.32 per share.

Details of share options are shown in note 15.

32 Reserves

Share Premium Account

£’000

Profit and Loss Account

£’000

At 1 January 2007 37,245 (6,740)

Retained (loss) for the financial year – (3,170)

Issue of shares 177 –

Share-based payments expense – 979

At 31 December 2007 37,422 (8,931)


No

tes

to t

he

Fin

an

cia

l Sta

tem

en

ts


33 Reconciliation of Movements in Shareholders’ Funds

2007 £’000

2006 £’000

(Loss) / Profit for the financial year (3,170) 891

Issue of shares 316 33,551

Share option exercise posted direct to equity 979 425

Net (reduction) / addition to shareholders’ funds (1,875) 34,867

At beginning of year 42,610 7,743

At 31 December 2007 40,735 42,610

34 Financial Commitments

At 31 December 2007 the annual commitment under operating leases for land and buildings was £54,000 (2006:£54,000) expiring after five years.

35 Contingent Liabilities

There are no continent liabilities at balance sheet date (2006: Nil).

36 Related Party Transactions

There are no related party transactions in the period (2006: £40,000).


Directors Andrew WoollettExecutive Chairman

Michael FosterManaging Director

Peter Wynter BeeDirector and General Counsel

Simon HallFinance Director

Peter BeckNon-executive Director

Peter FryNon-executive Director

John ThompsonNon-executive Director

Gilles MassonNon-executive Director

Rod BeddowsNon-executive Director

Registered Number3800208

Registered OfficeKnightway HousePark StreetBagshotSurrey GU19 5AQ

Company SecretaryDeborah Paxford

Nominated Adviser and BrokerNumis Securities LimitedThe London Stock Exchange Building10 Paternoster SquareLondon EC4M 7LT

BankersHSBC Bank plcApex PlazaReadingBerkshire RG1 1YE

AuditorsGrant Thornton UK LLPGrant Thornton HouseMelton StreetLondon NW1 2EP

SolicitorsEversheds LLPOne Wood StreetLondon EC2V 7WS

RegistrarsCapita RegistrarsThe Registry34 Beckenham RoadBeckenhamKent BR3 4TU

Dire

cto

rs a

nd

Ad

vise

rs

Directors and Advisersfor the year ended 31 December 2007

Vis

ion

is a

n en

viro

nmen

tally

frie

ndly

pap

er o

bta

ined

from

sus

tain

able

fore

sts

and

is m

ade

from

Ele

men

tal C

hlor

ine

Free

(EC

F) b

leac

hed

kra

ft p

ulp

.

Pioneering in ZincPoised for growthZincOx Resources plcAnnual Report & Accounts 2007

ZincOx Resources plc

Knightway House Park Street Bagshot Surrey GU19 5AQ

T (+44) 1276 450 100 F (+44) 1276 850 281

www.zincox.com

ZincO

x Reso

urces plc A

nnual Report &

Accounts 2007

Documents

ZincOx Resources plczincox.com/wp-content/uploads/2015/03/080619_ZincOxAR071.pdf · 2017-09-06 · Contents Vision ZincOx Resources plc Annual Report & Accounts 2007 World leader