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Dump ZincOx

RESULTS: We're throwing in the towel at ZincOx, the hopeful zinc recycler where a recovery is always just around the corner
May 7, 2013

Substantial profits always seem to be flittering just around the corner with ZincOx Resources (ZOX). But production delays and unexpected technical difficulties at the company's new KRP1 zinc recycling plant in Korea have pushed the prospect of operating profits back another year and we're throwing in the towel.

IC TIP: Sell at 19p

True, the company says it has recently resolved most of the mechanical issues with the plant, and that KRP1 has almost ramped up to full targeted capacity. But the current year has started below expectations and ZincOx did not disclose current zinc output rates in its financial results. Broker finnCap has consequently factored in a 28 per cent reduction in forecast revenues for 2013, to $46.7m (£30.1m). This is likely to have a substantial impact on profits, with finnCap now predicting a group pre-tax loss of $14.2m this year. That, in turn, could stretch the company's finances.

ZincOx's ambitious global expansion plans are also on thin ice until the company can demonstrate it can achieve sustainable profits from its operation. True, the shares are lowly rated on 3.3 times forecast earnings for 2014, but profits are incredibly sensitive to changes in output and we would be cautious.

ZINCOX RESOURCES (ZOX)

ORD PRICE:19pMARKET VALUE:£20m
TOUCH:17.5-19p12-MONTH HIGH:75pLOW: 17.5p
DIVIDEND YIELD:nilPE RATIO:na
NET ASSET VALUE:99¢NET DEBT:42%

Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (p)
20080.266.07.1nil
20091.180.0-3.4nil
20101.93-111.0-89.0nil
($m)($m)(¢)(p)
20112.65-12.9-12.4nil
201210.82-10.0-10.4nil
% change+308---

£1=$1.55