ZincOx Resources : Annual Report 2016 and Notice of AGM

ZincOx Resources plc

Annual Report & Accounts 2016

ZincOx is a Company dedicated to the recovery of zinc from unconventional primary and secondary resources. It is seeking to add substantial value to these resources by applying its considerable processing knowledge, experience and ability to modify or develop new technology and thereby rebuild the Company.

Highlights

2016

• Memorandum of Understanding entered into with Korea Zinc Company Ltd (KZC) for a JV over the Vietnamese Recycling and Upgrading Plant (VRUP)

• Recycling project approved by Vietnamese Government

• Group overheads substantially cut back

• Legal completion of transfer of 90% of shares in Korean Recycling Plant (KRP) to KZC

  Post Year End

• Sold remaining balance of KRP to KZC for US$7,950,000

• Repaid Corporate Loan Notes in full

• Signed Joint Venture Agreement with KZC for the evaluation and development of VRUP

• Considerable progress with VRUP (land lease signed, commencement of basic engineering and environmental impact assessment)

• Delisting of shares anticipated on 28 April 2017

Contents Introduction

Vision Highlights

Chairman's Statement 1

Chief Executive's Review 2

Strategic Report

Principal Activities 3

Business Model 3

Operational Review 3

Performance Review 4

Financial 4

Environmental, Health, Safety and Quality 5

Risks 5

Uncertainties 5

Corporate Governance

Directors 6

Group Information 8 The Board of Directors 9 Board Committees 9

Directors' Report 11

Financial Statements

Independent Auditor's Report (Group) 12

Consolidated Income Statement 13

Consolidated Statement of Comprehensive Income 14

Consolidated Balance Sheet 15

Consolidated Cash Flow Statement 16

Consolidated Statement of Changes in Shareholders' Equity 17

Notes to the Financial Statements 18

Independent Auditor's Report (Company) 40

Company Balance Sheet 41

Company Statement of Changes in Shareholders' Equity 42

Notes to the Financial Statements (Company) 43

Other Information

Forward Looking Statements 50

Notice of Annual General Meeting 51

I would like to thank the staff, management, shareholders and other Board members for their support over the past year and look forward to a positive outcome to the efforts of management and staff in pursuing the new opportunities.

Following the restructuring of the ownership and debt in our Korean subsidiary at the end of 2015, your Company immediately set about eliminating all expenditures judged as non-critical. The only costs were those required for the effort

focused on finding a new project around which the Company could be rebuilt. The Korean Recycling Plant ('KRP') had proven the Company's technology and so the Board were confident such a project or projects could be secured. The reduction in costs included the elimination of Non-Executive Directors' fees and substantial reductions in management salaries. By mutual agreement Simon Hall resigned as Finance Director. This was appropriate for a Company with limited activities at that time. We welcomed Donald McAlister as part- time Finance Director.

Your management was targeting opportunities where it could bring its considerable zinc experience to bear, particularly where this could add value without the immediate requirement for additional investment by the Company. In view of the Company's very depressed share price, management believed a new project would best be financed through a joint venture with an industry partner or using private equity at the project level rather than through an equity issue at the corporate level.

However, cash flow required the Company to raise £205,000, in February 2016 and in June, a further £300,000, by way of the issue of new shares at a price of 1p per share. This represented a premium to the then price of 82% and 60% respectively. These funds enabled us to continue to look for a suitable new flagship project. The search was successful and resulted in the signing of a Memorandum of Understanding with Korea Zinc Company Ltd ('KZC') in November 2016, for a joint venture, for the design and development of a new EAFD recycling plant in Vietnam. The full joint venture was signed in January 2017 and the Board is pleased to say that work on the Vietnamese Recycling and Upgrading Plant ('VRUP') is well underway.

As your Board expected and much of the market predicted, the zinc price has recovered markedly from the lows at the end of 2015 and this has led to greater interest in zinc projects

INTRODUCTION

Dr Rod Beddows, Chairman.

STRATEGIC REPORT

CORPORATE GOVERNANCE

generally. However, during 2016, KZC were required to support the KRP with an injection of capital; resulting in our interest in KRP being diluted to 8.74%. As it was likely to take some time for any dividends to flow back to the Company from this interest and because the Corporate Loan Notes were still outstanding, it was decided to evaluate the possibility of a sale of our remaining interest. This resulted in us entering a sale and purchase agreement with KZC for the sale of the remaining interest for US$7,950,000 of which US$7,000,000 was paid on 25 January 2017. This enabled us to repay the Corporate Loan Notes thus leaving your Company debt free. The balance of the consideration is due once KZC has completed various procedural requirements in Korea.

FINANCIAL STATEMENTS

OTHER INFORMATION

As has been explained in our press releases, following the disposal of 90% of our interest in KRP in 2015, under the Stock Exchange rules, our shares could not continue to be listed on AIM and will be officially delisted on 28 April 2017. We appreciate that this has been a great frustration to many of our shareholders but we are taking steps for the shares to be traded on an online market place so as to provide some means of buying and selling shares and shareholders will be informed of the trading mechanism in due course. The Company will need to have a substantial and certain project before it can seek to have its shares listed again. Furthermore this needs to be a project that will appeal to a broad spectrum of investors if the share price is to be supported which, in the current climate for commodities, probably means it being close to or having positive cash flow.

I would like to thank the staff, management, shareholders and other Board members for their support over the past year and look forward to a positive outcome to the efforts of management and staff in pursuing the new opportunities.

Dr Rod Beddows

Chairman

29 March 2017

Andrew Woollett, Chief Executive.

3,000

2,800

Zinc price, US$/tonne

2,600

2,400

2,200

2,000

1,800

1,600

Zinc price and zinc stocks - LME and SHFE (Shanghai)

2.0

Zinc Stocks, Million Tonnes

1.5

1.0

0.5

1,400

JAN 2011

JAN 2012

JAN 2013

JAN 2014

JAN 2015

JAN 2016

0

JAN 2017

LME zinc price SHFE and LME stocks

As mentioned in the Chairman's Statement, 2016 has been a year of recovery for the Company, following the loss of control of KRP at the end of 2015. With a stronger zinc price and sufficient cash to enable the Company to pursue further projects, this review aims to look forward to 2017.

Whilst we looked at a number of mining opportunities during the year, the progress we made in our discussions with parties interested in our knowledge of the recycling plants enabled us to enter into a Memorandum of Understanding ('MOU') with KZC to develop a new recycling plant in Vietnam, similar to the one in Korea, but with the facility to further upgrade the end product.

Vietnamese Recycling and Upgrading Plant ('VRUP') In February 2016 the Registration Certificate for VRUP was approved.

The MOU, signed in November, set out the principal terms of a Joint Venture Agreement ('JVA') under which KZC and the Company will jointly design and develop a new recycling plant. Following the year end, on 19 January 2017, a JVA was entered into between KZC and the Company for the joint development of a recycling plant in Vietnam the principal terms being that KZC will fund 100% of a Definitive Development Study ('DDS') in sufficient detail to enable the raising of project finance for the construction of the project. The DDS is expected to cost about US$2.5 million. KZC owns 51% of the special purpose vehicle established in Vietnam set up to develop the recycling plant, with the remaining 49% owned by ZincOx. In the event that the DDS costs more than US$3 million, the interest of ZincOx in the JVA shall be diluted proportionately according to the additional

funds that KZC has contributed, however ZincOx will be able to buy back its interest to 49% on the same terms in the following six months.

The recycling plant is to be based on the Rotary Hearth Furnace ('RHF') technology developed by ZincOx in Korea. KRP is now owned by KZC; this is one of the largest facilities recycling waste dust (EAFD) generated by recycling galvanised steel scrap and has the design capacity of treating 200,000 tonnes per annum.

VRUP is planned to treat up to 100,000 tpa of EAFD and in addition to upgrade both the iron and zinc intermediate products of the RHF to final products.

Zinc Price

As was pointed out in last year's Annual Report, notwithstanding the fall in all commodity prices, the fundamentals for zinc remained strong with mines being closed and demand remaining relatively strong. 2016 saw LME zinc stocks falling and, as a consequence, the price of zinc has recovered more quickly and dramatically than that of most other metals.

Turkish Land

The Company had planned to have sold by now the plot of land it owns in the Aliaga Heavy Industrial Zone. The land is in a prime coastal location, ideally suited for a larger manufacturing operation. The area is, however, subject to certain rezoning and this is taking some time to resolve due to the various interests of the parties involved. We are informed by our lawyers in Turkey that this should be resolved within the next few months which will remove any uncertainty over the land and enable us to obtain full value for it. The Company plans to dispose of this land as soon as it realistically can.

Outlook

Over the past 17 years the Company has been at the forefront of development in new zinc recovery technology. This experience and the experience of developing KRP has meant that we have been able to enter a JVA with KZC for VRUP in which we hold a 49% interest. We continue to look for zinc projects both in mining and recycling with a view to bringing in joint venture partners to assist with the funding.

Andrew Woollett

Chief Executive 29 March 2017