EMED Mining – beating a path to Toronto
Wednesday, December 08, 2010 by Wendy Durham
proactiveinvestors.co.uk
A glance around the mining and exploration sector of London's AIM market right now would leave a casual observer in a state of total confusion! Share prices are volatile in the extreme, some valuations are way out on a limb, and the lowly market cap assigned to many sound and respectable companies bears no comparison with their fundamentals. Capital – whilst a little easier to raise than it has been for the last two years – costs more than ever before, with City institutions demanding ever greater discounts, and thus depressing the share prices of otherwise solid development companies.
Those same solid development companies have now had enough, and many are seeking to list in other markets where a more appropriate market valuation is assigned by knowledgeable investors, and where capital is not as expensive. The latest to make the move is EMED Mining (LON:EMED), who is seeking a listing on the Toronto Stock Exchange in the near future.
Encouraged by the support from Canadian and other international investors earlier in the year, which enabled the company to raise £8.3 million at a smaller discount than might otherwise have been possible, EMED filed a preliminary prospectus with the TSX on 21 October, and anticipates that the listing will take effect within three months. The EMED Mining team is obviously recognised there for having successfully acquired or discovered approximately 1 million tonnes of copper and 1 million ounces of gold in just 5 years since setting up in Europe.
Such an event is an excellent opportunity to raise capital, and EMED plan to raise a minimum of C$20 million (though not more than C$35 million) concurrent with the listing. Canaccord Genuity have been appointed as lead agent to co-ordinate the fund-raising, which was approved at a General Meeting of shareholders on 22 November. Final pricing of the offer is not yet determined, but will not be less than 8 pence per share, and if considered necessary, an additional capital raising will be carried out simultaneously in London. The proceeds will be invested in the further development of the company's core project, the Rio Tinto copper mine (Proyecto Rio Tinto, or PRT) in Spain, and the advancement of the Detva gold project at Biely Vrch in Slovakia.
One massive benefit of a Canadian listing for shareholders – apart from the obvious ISA-ability of the stock - is the availability of comprehensive technical project reports filed publicly under the statutory NI43-101 requirement. It can be an embarrassment of riches for AIM investors, because although AIM juniors are more proactive about keeping shareholders informed than in the past, information is often hard to come by, and must be gleaned from a variety of sources.
From the recently filed independent Technical Report by Behre Dolbear, we learn that the intention is for EMED Tartessus, a wholly owned subsidiary of EMED Mining, to reactivate copper concentrate production at the Rio Tinto copper mine some 65km NW of Seville in Southern Spain. The mine – comprising volcanic-hosted pyrite mineralisation, where operations date back all the way to 1000 BC - is located on the world renowned Iberian Pyrite Belt, and is the largest of eight prolific mining areas, each thought to contain more than 100 million tonnes of ore. Mining in the Rio Tinto area commenced operations during the Phoenician period over 2000 years ago. Since then it has been mined by the Romans, Moors, English and Spanish. Since Roman times, more than 140 Mt of copper ore has been mined from several open-pit and underground mines in the immediate area.
Low metals prices had forced the current mine operations into care and maintenance in 2001, but the resurgence of key infrastructure commodities such as copper led EMED Mining to acquire 51 percent of the mine in 2007, with an option to go to 100 percent, which has since been completed.
The Rio Tinto copper mine project includes the Cerro Colorado copper-pyrite deposit and open-pit mining area, the waste dumps, and parts of the tailings and water facilities, the beneficiation plant
and offices and other maintenance and general infrastructure. The mine covers about 1,500 hectares, and hosts total mineral resources of 203 Mt at 0.46 percent copper (0.93 Mt of contained copper), at a cut-off grade of 0.20 percent copper, more than half of which is at reserve status. It's worth noting that the drilling limit thus far is only 250 metres below ground, and there may be significant resources below that depth should the company decide to commit to an exploration programme.
The redevelopment plan for the project includes processing 9 million tonnes of ore per year over a 14 year minelife to produce around 37,000 tonnes of copper–in-concentrate annually, at a total cost of US$1.57/lb including all operating, capital and acquisition costs. Recovery levels are some 82-86 percent of the contained copper, to produce a concentrate grading approximately 23 percent Cu. At this production level and a copper price of US$3.00 per lb, EBITDA is forecast to be approximately US$70 million pa, leading to an NPV of £414 million or 63p per share and an internal rate of return of 128 percent - high by any standards. In addition, there is significant potential to extend the 14-year mine life by conversion of known mineral resources to reserves, and additional exploration which could increase the mineralisation to more than 300 million tonnes of resource.
EMED does not as yet have access to all of the land required to reopen the mine, as exploitation rights and a Mining Permit are still in the process of review by the Junta de Andalucía. However, all documentation required by the permitting system has been submitted, and it is expected that the necessary approvals will be granted in early 2011 and that, should private negotiations fail to reach a settlement, EMED will be able to rely on a system of compulsory purchase via the authorities.
EMED foresees the next big stage of permitting (“Administrative Standing”) being granted by the middle of next year, along with the necessary Mining Permit, and anticipate a 6 month build up to commissioning. The first stage of government clearances was earlier in 2010 when EMED reached a financial settlement with the Spanish government in respect of moneys owing by previous mine owners. This settlement prevents the government exercising its lien against the properties now owned by EMED. As long as regulatory progress is satisfactory during the first half of 2011, EMED can be expected to start site preparations within a few months. Capex to reach production is around US$120 million and by comparison with peer groups, EMED have a low capex intensity cost of just US$2,703 per annual tonne of copper production, almost half the figure achieved by their nearest peer group member, Pan Australian, who are developing in Thailand and Laos with a capital intensity figure of US$4,762 per tonne.
Whilst the focus is on Western Europe, it's worth noting that EMED Mining has just taken an option from Iberian Portugal over the exploration permit covering the Regua tungsten deposit in neighbouring Portugal. Tungsten has been classified as a critical raw material by the European Commission, due to the tightness of global supply and the Iberian Peninsula has historically been one of the major sources of tungsten supply outside of China.
The last owner of the Regua deposit produced a JORC compliant resource estimate in 2008 of 1.26 million tonnes grading 0.39 percent tungsten trioxide (WO3) in the indicated category, and a further 2.16 million tonnes grading 0.36 percent WO3 inferred. The option acquisition price is 2.5 million EMED Mining shares – which were issued on 6 December - and a commitment to spend €250,000 on the project before the option expiry date of 31 December 2011. If the option is exercised, EMED Mining would pay a further €750,000 to Iberian Portugal either as cash or in EMED Mining shares as well as committing to spend €1,500,000 on the project within three years. The vendor would retain a Net Smelter Royalty of 3 to 4 percent, dependent upon the product selling price. As part of due diligence over the next 12 months, EMED will be examining the exploration potential at Regua, auditing the mineral resource and undertaking a scoping study, which will include the scope for permitting. EMED Mining's preliminary assessment of Regua indicates a potentially valuable tungsten project with considerable potential to add additional resources through further exploration, provided that an access issue to part of the property can be resolved.
Whilst the Iberian Peninsula has been the company's key focus this year, the scope for significant production from EMED's Biely Vrch porphyry gold project in Slovakia should not be forgotten. EMED is currently pursuing planning and permitting for this 1 million ounce deposit, and a scoping study prepared by AMC Consultants (UK) Ltd has confirmed the attractive economics of developing a mine at Biely Vrch. The study envisages a heap leach mining operation to yield about 60,000 ounces of gold per year over a ten-year minelife (recoveries would vary from 85-90 percent using typical CIL processing techniques), and at a capital cost of US$64 million and estimated operating costs at US$529/oz, producing 60,000 oz/y for 10 years at gold prices above US$1,000/oz, the outcome looks highly favourable.
Add in a 20 percent shareholding in current AIM favourite, KEFI Minerals LON (LON:KEFI) - whose interests are centred on Turkey and Saudi Arabia – and the sum of the parts would appear to be far in excess of today's market cap of just £38 million. It's easy to see why, in common with many other undervalued and unloved AIM juniors, EMED are beating a path to Toronto. |
