Last checked at 7 Apr 2009 07:00
EMED MINING QUARTERLY REPORT
SUMMARY OF ACTVITIES FOR THE THREE MONTHS TO MARCH 2009
7 April 2009
EMED Mining Public Limited ("EMED Mining" or "the Company"), the European-based minerals exploration and development company, is pleased to provide shareholders with an update for the three month period ending 31 March 2009.
Key Points
During the quarter, EMED Mining completed the following steps towards the start of production at the Proyecto Rio Tinto copper project in Spain ("Rio Tinto Mine") and the further advancement of its gold discovery in Slovakia.
Rio Tinto Mine - Copper in Spain:
Prepared the updated regulatory applications for the project which are to be submitted to the authorities shortly. The previous applications (recently withdrawn, see announcement 2 Feb 2009) had been submitted before the Company had taken full ownership of the Rio Tinto Mine (see announcement 1 Oct 2008) and could exercise unhindered control of project planning and documentation. We have also updated plans to account for lower copper prices;
Terminated contracts with previous owners and the inherited senior project management;
Revised project acquisition agreements to significantly reduce initial finance needs, in response to lower copper prices and changes in the capital markets;
Updated economic studies for prices and exchange rates (as at 29 Mar 2009) to ensure the feasibility of the project. Average projected EBITDA is £27 million, IRR is 39% and NPV £104 million (10%, after tax). Trade and project finance facilities required at the time of the restart have been reduced to approximately $78 million (£53 million).
The large scale of the proposed investment is warranted by the scale of the opportunity to increase mine life and production volumes beyond the levels assumed in the base case.
Total investment that has always been built into the base case which is estimated to aggregates in the order of £189 million ($278 million) over the first 6 years of the project. This includes the acquisition, refurbishments, start-up, overburden removal and the planned project upgrades and improvements. In addition base case also includes the cost of guarantees and insurances in the order of £80 million (environment, personnel entitlements). All these sums are subject to review and approval by the regulatory authorities.
Detva Gold - Gold in Slovakia:
Reported an initial Mineral Resource for the Company's 100%-owned Biely Vrch gold deposit of 41.7 million tonnes at 0.79g/t gold, containing 1.1 million ounces of gold (JORC Code compliant, see announcement of 23 Feb 2009);
Prepared other sites for drilling to commence this quarter to test the grade of some of the porphyry systems on our licences which are analogous with the Biely Vrch Prospect;
Prepared information packages for examination by potential joint venture parties.
Corporate:
Arranged an $8.5 million (£5.6 million) Convertible Loan Facility (see announcement of 23 March 2009) provided by major shareholders Resource Capital Funds ("RCF") and RMB Holdings. This facility covers the budget for 2009. Ongoing discussions continue with potential financiers (including existing shareholders) for project funding and guarantee arrangements for Rio Tinto Mine when the regulatory requirements are established.
The EMED Mining ownership structure remains dominated by a core group of international mining industry specialists in mine development, operation and marketing as follows:
Resource Capital Funds (RCF) 15.1% (fully-diluted 28.9%). A large mining private equity fund based in the USA and Australia. RCF invests exclusively in the mining industry;
RMB Holdings 4.4% (fully-diluted 8.8%). A specialist mining financier based in South Africa, Australia, UK and USA;
MRI Group 12.4% (fully-diluted 6.3%). One of the world's largest metal trading groups based in Switzerland and China;
OZ Minerals 10.7% (fully-diluted 5.5%). The leading Australian mining company that withdrew from the Rio Tinto Mine project and referred it to EMED Mining;
Board of Directors and Management 9.6% (fully-diluted 13.1%). Specialists who moved to Europe in order to establish EMED Mining and its projects;
The Company's shareholders and Goldman Sachs, lead-arranger for the Rio Tinto Mine project finance and guarantees, remain ready to support EMED Mining in the start of production at Rio Tinto subject principally to regulatory consent and to the recent copper price recovery remaining steady notwithstanding the global financial crisis.
Cyprus's leading copper explorer - Copper projects under review across the island
EMED Mining continues to assess its large geological database of historical copper mining in Cyprus. Discussions are progressing with stakeholders over the entire island in a manner appropriate to the current re-unification efforts.
KEFI Minerals (32%-owned) - Separately listed on AIM
KEFI Minerals, admitted to AIM in December 2006, has established an exploration portfolio in Turkey and has announced intentions to enter Saudi Arabia via a strategic alliance with an appropriate local organisation;
KEFI Minerals's joint venture in Turkey with Centerra Gold Inc. of Canada continues to focus on the Artvin Project in northeastern Turkey. The Artvin Project comprises 15 tenements, which cover approximately 254km2;
KEFI Minerals closed a £585,000 share placement and EMED Mining maintained its 32% shareholding (see KEFI announcement of 19 February 2009)
Harry Anagnostaras Adams, Managing Director of EMED Mining, commented:
"Having re-positioned the Company within the context of the global financial crisis, it is now important to progress our core projects. We have made an important gold discovery in Slovakia and our relationships with the local communities and the government have positioned us well to advance the project towards development.
The progress in Spain has been much slower than had been anticipated when we acquired rights over the assets two years ago. The clean-up of the Rio Tinto Mine in a legal and commercial sense was seen by us to be the big challenge compared with the straightforward restart and upgrading of a well-built industrial complex. We have installed the project leadership team as permitting and other progress warrants so as to start modernising the operating systems and practices; and we are well supported by international mining specialists AMC Consultants and other international and local experts.
Although some legal and commercial matters remain to be completed at Rio Tinto, we now focus more on the project's permitting in a technical, economic and social sense and will continue to work with the regulatory authorities to achieve this in 2009.
We would like to take this opportunity to thank shareholders for their support and patience. At Rio Tinto we will continue to strive towards completion of the permitting process in 2009 for a start up in 2010. "
OVERVIEW OF STRATEGY
EMED Mining is led by international mining-industry specialists with corporate headquarters in Cyprus, the site of the Group's first project. Cyprus is geographically central to the Company's areas of interest and is a member of both the European Union and the British Commonwealth. EMED Mining has a strong commitment to responsible development of metal production operations in Europe, with an initial focus on copper and gold.
Most personnel are local experts based at the projects. Upon restarting the Rio Tinto Mine the Company would intend to make Rio Tinto the site of the Group's operational headquarters and to encourage the formation of sustainable enterprises which will leverage off the economic activity of the mine. This has already commenced with the introduction to Rio Tinto of ALS Services, a leading international environmental and metallurgical laboratory group. ALS Services has commenced servicing the local region from Rio Tinto and is currently seeking international accreditation for the laboratory.
Please click link at the end of the release to access diagram - Map of EMED Mining Projects
The strategy is to evaluate and prioritise exploration and development opportunities in several jurisdictions throughout the well-known belts of base and precious metal mineralisation.
SPAIN - RIO TINTO MINE
Since 1 January 2009 the following material developments have ensued:
Prepared for submission of the updated and expanded regulatory applications for the project;
Terminated contracts with previous owners and the inherited senior site management;
Revised the project acquisition agreements with MRI Group to reduce by approximately £27 million (€31 million) the consideration payable during the first 3 years following the project having been permitted (see announcement of 5 March 2009). As a quid pro quo the purchase consideration is subject to upward revision if the price received by the project for its copper product exceeds $3/lb ($6,600/ t).
Verified economic studies at current market prices (prices and exchange rates as at 29 Mar 2009) to ensure the feasibility of the project. Summary of outputs are as follows:
Average projected EBITDA is £27 million;
NPV £104 million (10%, after tax) and IRR 39%;
Trade and project finance facilities required at the time of the restart is in the order of £53million;
Total investment will aggregate in the order of £189 million including costs to date and planned investment over the first 6 years of the project:
£58 million for capital expenditure;
£50 million for removal of overburden in the initial years of mining;
$16 million for mining equipment factored into mining contract charges;
£65 million for project acquisition deferred payments and other settlements.
In addition we have factored in the costs of guarantees and insurances in the order of £80 million (environment, personnel entitlements);
Local regional GDP impact over €1 billion in the first 10 years;
All these sums are subject to review and approval by regulatory authorities;
Steps taken previously to improve the project include:
Acquisition of 100% of EMED Tartessus which conditionally owns (subject to regulatory permits, our election to proceed with the restart of the mine and to meeting various payment obligations) the Rio Tinto Mine;
Completion of extensive geological, engineering and other technical verification work to establish JORC Code (standard) compliant Mineral Resources of 940,000 tonnes of contained copper (205 million tonnes at 0.46% copper) and Ore Reserves of 585,000 tonnes (123 million tonnes at 0.48% copper) of contained copper. This is sufficient for a 14 year project life based on current ore reserves;
Upgraded mine planning systems and planned the removal of overburden to allow mining of all ore reserves in the whole of the entire integrated open pit now called Cerro Colorado (East and West). The pit was historically mined in separate smaller sections;
Planned detailed exploration programs including 60,000 metres of drilling in the first 3 years with a view to increasing mine life;
Tested key sections of the processing plant to ensure it could operate properly to modern standards once planned refurbishments and improvements are implemented;
Completed the full start up, operational and improvements plans reviewed by AMC Consultants (UK) Ltd and other specialist consultants.
The Board is confident of success, but remains cognisant of the ongoing holding costs for this opportunity, especially during the current global financial crisis when raising ongoing working capital is expensive. The Company continues to seek the cooperation of all relevant stakeholders in Andalucia and the regulatory authorities through full and open discussion and is hopeful of resolving the permitting and related issues in a timely manner. If the Company is successful in restarting this mining operation, the mine is expected to operate for over 20 years and therefore our challenges should, in due course, prove to have been worthwhile.
It should be reiterated that the Rio Tinto Mine is a particularly high-profile project in Andalucía with a very poor recent history in production, economic, social and political terms. The Company has been confronted with more complexity than had been anticipated. Both the Company and the authorities are justifiably cautious and careful to ensure the avoidance of a repeat of past disappointments and inadequacies. EMED Mining has carefully considered these issues and is confident of its plans.
COMMODITY PRICES
EMED Mining has significant exposure to the current volatility and future outlook for 3 metals -copper and silver at Rio Tinto Mine and gold at the Detva Gold Project.
At Rio Tinto Mine initial project plans are for estimated annual production of 37,000 tonnes of contained copper and 500,000 oz of contained silver. This is based on initial ore reserves which are adequate for 14 years. Life of mine production forecasts based on the current ore reserves estimate future sales of 517,000 tonnes of contained copper and 7.4 million oz of contained silver. At recent average forward prices of $2/lb for copper and $14/oz for silver this would potentially generate revenues of ~£1.5 billion (~$2.1 billion).
At the Detva Gold Project we have reported an initial Mineral Resource of 1.1 million ounces of contained gold at the Biely Vrch prospect [and commenced initial scoping level work on the development of this deposit]. The strong rise in the gold price over the last 6 months to its current level of over US$900/oz, combined with a significant fall in diesel costs will have a significant positive impact on the economics of a potential bulk open pit operation at Biely Vrch.
Some comments follow on the outlook for the copper price as it has recently weakened more than gold or silver and it has the largest impact on the Company's short-term business plans.
Copper Price Outlook
Based on current spot and forward copper prices (spot price of $1.83/lb and forward currency rates on 29 March 2009, source Bloomberg) and estimated capital and operating costs for the current mine plan, we estimate a positive NPV (10% after tax) for the Rio Tinto Mine. Nevertheless the current global financial crisis has taken its toll on recent global copper consumption and the copper price has declined sharply, as have the prices of many other commodities.
Many industry commentators agree that:
the recessionary outlook will constrain near-term copper demand growth;
copper demand will however continue to increase due to growing demand from emerging countries, particularly China;
copper supply growth is very constrained as bottlenecks restrict development of new copper mines and supply disruptions among established producers continue to mount; and
average costs (operating plus capital) in the industry have risen towards $2.00/lb ($4,400/tonne)
Their conclusion is that the fundamentals of the copper outlook continue to point towards a strong rebound in the copper price even though the short-term outlook is affected by current market turmoil.
EMED Mining's policy is to protect the project and the associated financial obligations by a package of arrangements including the following elements:
complete the preparations and adapt the timetable to the financial environment;
concurrent with the restart:
install bonding to cover environmental responsibilities and personnel entitlements;
install hedging to insure product prices and currency exchange rates for the first 5 years during which period it would be intended that all debts are repaid and capital recouped;
introduce the latest international operating practices to ensure unit costs are minimised;
invest in exploration and operational improvements to further extend mine life, reduce unit costs and optimise value.
SLOVAKIA - DETVA GOLD PROJECT
Biely Vrch Mineral Resource Estimate:
The Company's 100%-owned Biely Vrch gold deposit has initial Mineral Resource (JORC Code compliant) of 41.7 million tonnes at 0.79g/t gold, containing 1.1 million ounces of gold (see announcement of 23 February 2009).
The Biely Vrch porphyry gold deposit is located within the Company's Detva Licence in central Slovakia and is hosted in a quartz-veinlet stockwork zone associated with an andesitic porphyry intrusion.
The initial Mineral Resource estimate for Biely Vrch is tabulated below and approximately 62% of the resource is in the oxide zone, with the remainder in the primary zone.
| Resource Category | Tonnes (millions) | Gold Grade (g/t) | Contained Gold (ounces) |
| Oxide (cut-off grade = 0.22g/t gold) | |||
| Indicated | 12.6 | 0.85 | 345,000 |
| Inferred | 13.1 | 0.77 | 322,000 |
| Total | 25.7 | 0.81 | 667,000 |
| Primary (cut-off grade = 0.34g/t gold) | |||
| Indicated | 5.1 | 0.71 | 116,000 |
| Inferred | 10.9 | 0.78 | 274,000 |
| Total | 16.0 | 0.76 | 390,000 |
| Oxide + Primary | |||
| Indicated | 17.7 | 0.81 | 461,000 |
| Inferred | 24.0 | 0.77 | 596,000 |
| Grand Total | 41.7 | 0.79 | 1,057,000 |
The above resource estimate is based on:
Data from 34 diamond drillholes totaling 10.6 km of drilling;
Nominal drillhole spacing of 100m by 100m; and
Ordinary Kriging geostatistical resource estimation technique.
The Mineral Resource measures approximately 350m north-south and 300m east-west and extends from surface to a depth of 250m. Mineralisation within a vertical pipe-shaped structure continues below this depth.
The key parameters for estimating the cut-off grades of 0.22g/t gold for the oxide resource and 0.34g/t gold for primary resource are:
A Gold price of US$700/ounce;
5 million tonnes per annum open-pit, heap-leach operation;
Costs derived using benchmark assumptions based on comparable mineralisation, mines, and processing methodology; and
Metallurgical recoveries of 80% for the oxide resource and 60% for the primary resource.
The Mineral Resource was limited to a potentially economic open-pit based on benchmark cost estimates and a gold price of US$1,100/ounce. The resultant strip ratio is approximately 1.0:1.0, i.e. - one tonne of waste rock is mined for one tonne of resource.
Depending upon future gold prices, there may be potential for economic mineralisation below the pit outlined at this stage. The diagram below depicts the mineralisation below the pit shell within which mineral resources are estimated. The "hotter colors" depict slightly higher grade material.
Please click link at the end of the release to access diagram - Mineralisation below the pit shell
Metallurgical recoveries and geotechnical ground conditions are also key drivers in determining the resource estimate. Further work is planned to be undertaken in order to better define the metallurgical response of the Biely Vrch mineralisation and to collect more geotechnical information.
Other Prospects:
Exploration is progressing at other promising prospects within the Company's large (1,000km2), 100%-owned licences in central Slovakia. This is conducted by the Company's exploration team based in Central Slovakia and includes mapping, geochemistry and scout drilling.
Gold mineralisation at both the Kralova and Slatinske Lazy Prospects is hosted in a similar suite of rocks to the mineralisation at Biely Vrch, providing confirmation that EMED Mining has discovered a district containing a cluster of porphyry gold deposits. Drilling during 2008 determined that these two deposits had a grade which was sub-economic and no further work is planned on those two prospects.
Activities during the second half of 2008 included the preparation of four prospects for drilling - Sementlov, Zlatno, Stozok and Beluj Prospects. Fieldwork indicates that these prospects have excellent potential for large porphyry gold and copper-gold deposits.
Strategy:
More than 20 prospects have been identified within the Company's licences and exploration activities will this year primarily be carried out at the Sementlov, Zlatno, Stozok and Beluj Prospects.
Exploration to date in Slovakia has been successful not only from a discovery viewpoint but has also been very cost effective. EMED Mining plans to continue this approach during 2009 and drilling of selected targets will be undertaken by EMED Mining's drilling team utilising the multi-purpose drilling rig owned by the Company.
Low-cost evaluation work is planned to be undertaken at Biely Vrch in order to progress the deposit towards potential mine development. The current strong gold price assists the economics of potential development scenarios.
CYPRUS - COPPER-ZINC
EMED Mining's 95%-owned copper project in Cyprus holds the island's largest portfolio of exploration licences. The Company also owns the largest geological database including coverage of the large mines operated by once-multinational Cyprus Mines Corporation which stopped production in 1974 due to the military and political division of the island at that time.
Discussions are taking place with stakeholders over the entire island with a view to optimizing the future exploration and development potential for the benefit of all stakeholders. The Company works carefully to ensure its efforts assist re-unification efforts.
COMPETENT PERSONS FOR REPORTING OF RESOURCES AND RESERVES
Information in this report as regards the Rio Tinto Mine that relates to Mineral Resource estimates is based on information compiled by Mr. Pat Stephenson, BSc (Geology) and Mr. Ron Cunneen, BSc (Geology), Mr. Stephenson taking responsibility for the Mineral Resource estimates and Mr. Cunneen taking responsibility for the data on which the estimates are based. Mr Stephenson is Regional Manager, Vancouver and Principal Geologist with AMC Mining Consultants (Canada) Ltd and a full-time employee of that company. He is a Fellow of The Australasian Institute of Mining and Metallurgy. Mr. Cunneen is Head of Exploration for EMED Mining and a full-time employee of that company. He is a Member of The Australian Institute of Geoscientists. Mr. Stephenson and Mr Cunneen have sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activities which they are undertaking to qualify as Competent Persons as defined in the JORC Code.
Information in this report as regards the Rio Tinto Mine that relates to Ore Reserve estimates is based on information compiled by Mr. Andy Robb, BSc (Mining Engineering). Mr. Robb is Principal Mining Consultant with AMC Consultants and a full-time employee of that company. He is a Member of the Australasian Institute of Mining and Metallurgy and has sufficient experience relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the JORC Code.
References in this report as regards the Mineral Resources or exploration results and potential in Slovakia, Cyprus or elsewhere have been approved for release by Mr. Ron Cunneen.
CORPORATE DIRECTORY
| Directors | Non-Executive Chairman - Ronnie Beevor Managing Director - Harry Anagnostaras-Adams Finance Director - John Leach Non-Executive Directors - Ross Bhappu, Ashwath Mehra, Gordon Toll | |
| Nominated Adviser | RFC Corporate Finance - Stuart Laing (+61 8 9480 2500) | |
| Brokers | Fox-Davies Capital Limited - Jason Bahnsen (+44 207 936 5230) Lewis Charles Securities Ltd - Kealan Doyle (+44 (0) 207 456 9111) | |
| Public Relations | Bishopsgate Communications - Nick Rome (+44 207 562 3350) | |
| Share Registrar | Computershare Investor Services Plc | |
| Issued Capital | 253.5 million shares on issue 50.9 million options on issue, with exercise prices ranging from 4.1p to 22p per share. 505.9 million shares on issue on a fully-diluted based on the assumption that all convertible loan facilities are fully drawn and serviced with the issuance of shares. (for detailed breakdown refer ww.emed-mining.com/investor info/capital structure) | |
| Significant Shareholders (fully diluted) | 13% Management and Board (mainly Australian citizens) 29% Resource Capital Funds, (Australia and USA) 6% MRI Group (Switzerland) 6% OZ Minerals (Australia) 9% RMB Australia Holdings Limited | |
EMED Mining Share Price (pence)
Please click link to access diagram
http://www.rns-pdf.londonstockexchange.com/rns/2400Q_-2009-4-6.pdf
EMED Mining is listed on AIM (Code: EMED)
Enquiries:
Investors/Media: Harry Anagnostaras-Adams +357 99457843
General: Cyprus office: +357 2244 2705, Email: info@emed-mining.com