Last checked at 1 Oct 2008 07:00
AIM: EMED 1 October 2008
RESTRUCTURE OF RIO TINTO PROJECT ACQUISITION ARRANGEMENTS
EMED Mining Public Limited ("EMED Mining" or "the Company") announces that it and its subsidiaries (the "EMED Group") have entered into various arrangements with international metals marketer and trader MRI Group (as defined below) in relation to the ownership and acquisition structure of Proyecto Rio Tinto ("the Rio Tinto Mine").
Notably, as part of the arrangements with the MRI Group, EMED Mining has completed the acquisition of the remaining 49 per cent of EMED Tartessus SL ("EMED Tartessus"), the owner of the Rio Tinto Mine. As a result of the acquisition the Company now owns 100 per cent of EMED Tartessus and is beneficial owner of 100 per cent of the Rio Tinto Mine. Whilst the main payment obligations will remain conditional on the receipt of mine restart approvals from the regulatory authorities in Andalucia, Company shareholder approvals and the drawdown of financing facilities, the restructured arrangements are expected to greatly improve the ability of the EMED Group to obtain such required approvals.
As consideration, the Company has agreed to issue 39,140,000 ordinary shares ("Consideration Shares") to MRI Investment A.G., a member of the MRI Group. In addition it has been agreed that a further consideration of up to €43,883,382.70 (£35,018,938) may be payable to members of the MRI Group, assuming certain milestones in relation to the Rio Tinto Mine are achieved. The Company has also acquired the benefit of certain loans owed to members of the MRI Group which were incurred in relation to the operation of the Rio Tinto Mine amounting to €9,116,617.30 (£7,275,060). These loans have been acquired at their face value, such consideration to be paid once certain milestones in relation to the Rio Tinto Mine have been achieved.
In addition, a subsidiary of the Company, has entered into an Agency Agreement with a member of the MRI Group, MRI Trading AG, in relation to the appointment of MRI Trading AG as the marketing and sales agent in relation to sale of copper-concentrate product from the Rio Tinto Mine.
It is anticipated that the Chief Executive Officer of the MRI Group, Ashwath Mehra, will join the Company's Board of Directors as a Non-Executive Director shortly, and a separate announcement will be made when this occurs.
Harry Anagnostaras-Adams, Managing Director of EMED Mining, commented:
"This acquisition is a significant step for the Company. Full ownership of the Rio Tinto Mine greatly simplifies the structure as EMED Mining progresses towards achieving the approvals and financing required to restart the mine. We anticipate that such restart can occur relatively quickly once the approvals are granted.
"I welcome the MRI Group, as one of our substantial shareholders alongside Resources Capital Fund, Oz Minerals, Fidelity International, RMB Resources, Altima and the management team. As a major international metals trader and investor, the MRI Group will add value to EMED Mining in both its position as a substantial shareholder and as Marketing and Sales Agent for the Rio Tinto Mine."
Summary of Transaction
EMED Mining has acquired the remaining 49 per cent of the quota capital of its subsidiary EMED Tartessus, and therefore now has 100 per cent ownership of EMED Tartessus which owns 100% of the Rio Tinto Mine.
As part of the consideration, 39,140,000 new ordinary shares of the Company were issued to MRI Investment A.G., a member of the MRI Group at an issue price of 21 pence each. As a consequence of this share issue MRI Investment A.G will hold in aggregate 16 per cent of the share capital (14% fully-diluted) of EMED Mining.
As part of the arrangements entered into with the MRI Group, EMED has agreed to find purchasers for 7,900,000 of the Consideration Shares issued to MRI Investment A.G., and it is anticipated that these shares will be transferred to existing shareholders shortly. This would, upon implementation, have the effect of reducing the shareholding of the MRI Group to 13 per cent (11 per cent fully-diluted) of EMED Mining.
Further deferred consideration totalling up to €43,883,382.70 (£35,018,938) is to be paid by the EMED Group on the occurrence of the following events
€17,533,382.70 (£13,991,638) when both (a) the authorisation from the Junta de Andalucia to restart mining activities in the Rio Tinto Project has been granted and (b) EMED Tartessus or another company in the EMED Group has secured senior debt finance and guarantee facilities for a sum sufficient for the acquisition and re-start of mining operations at the Project. These milestones will effectively remain at the discretion of the Company and will not in practice be triggered until approval from the Company's shareholders has been received for the restart;
€13,175,000 (£10,513,650) within 20 business days following the first anniversary of the restart of mining activities at a level of 400,000 mt/month production of ore processing ("Restart"); and
€13,175,000 (£10,513,650) within 20 business days following the second anniversary of Restart.
The Company has also acquired the benefit of certain loans owed to members of the MRI Group which were incurred in relation to the operation of the Rio Tinto Mine amounting to €9,116,617.30 (£7,275,060). These loans have been acquired at their face value, such consideration to be paid once the authorisation from the Junta de Andalucia to restart mining activities in the Rio Tinto Project has been granted and Restart has been achieved.
The funds required to make these payments, should EMED Mining proceed with the restart, would be sourced from planned banking facilities and from project cash flow.
Summary of MRI Group
The MRI Group is a private group owned by the founding shareholders and management comprising Marc Rich + Co. Investment A.G. ("MRI") and its subsidiaries ("the MRI Group"). One of MRI's subsidiaries, MRI Trading AG, is active in international physical commodities trading and investments. Its core business focus is the sourcing and marketing of a diverse range of non-ferrous raw materials to various industrial consumers in the world. It has a global presence through its network of offices and agents.
MRI Trading AG markets copper concentrate, zinc concentrate and lead concentrate and also deals in secondary non-ferrous materials, precious metals, copper cathodes, cobalt and molybdenum concentrates, and is one of the most active and well-known trading houses in the Chinese market. The MRI Group has made various significant investments in the mining industry as well as in processing facilities in various parts of the world. Its annual turnover exceeds USD three billion.
Steps to Restart the Rio Tinto Mine
The transaction announced today reflects the settlement of all outstanding matters with the Project's principal counterparty. It provides for, amongst other things, the acceptance of a structure, the removal of certain litigation risks and an agreement to withdraw all claims against the authorities. Accordingly today's transaction is expected to significantly assist the implementation of the restart-permitting process.
The Company will now continue to progress the permitting process and to resolve the remaining negotiations with private landholders and government agencies.
The principal regulatory approvals required are:
Approval by the Junta de Andalucia of the transfer of mineral rights to EMED Tartessus; and
Approval of the restart, operating and rehabilitation plans all of which are based on long-standing and previously approved practices at Rio Tinto Mine that are being updated as appropriate.
In light of the Project's current status and targeted timetable, EMED Mining currently expects to call a meeting of its shareholders in the first quarter of 2009 to seek approval to proceed with the restart of the Rio Tinto Mine subject to finalisation of finance and regulatory consents. The Company would then expect the restart to follow approximately six months later upon satisfactory conclusion of permitting and access to finance.
The Company now estimates that approximately £60 million will be required to restart the now 100%-owned Rio Tinto Mine. This estimate includes all identified outlays including:
the contingent deferred payments to the MRI Group referred to above;
anticipated settlements with all the vendor's creditors, landholders and government agencies for bonding (environmental, personnel protection and unmet past social-security obligations);
restart costs (repairs, capex, drilling, spares, fills etc); and
EMED Mining Group working capital.
EMED Mining has been refining plans since early 2007 to restart this long-standing and essentially intact major copper production complex. The Company completed a full Restart Plan in August 2007 (updated since) and submitted initial applications to the regulatory authorities in December 2007. Major accomplishments since EMED Mining became involved with the project are:
transformation of the ownership structure;
verification of resources and reserves;
successful testing of key sections of the processing plant; and
establishing a credible corporate reputation in Spain.
In considering the likelihood of being granted the regulatory consent to proceed with this operationally straightforward restart, it is notable that in recent years there have been more permits for new mine developments and redevelopments in the world class Iberian Pyrite Belt than any other part of Europe. These projects include Las Cruces, Aguas Tenidas and Aguasblancas in Andalucia and Neves Corvo in Portugal.
The Rio Tinto Mine is the most significant known mineral deposit in Andalucia and its potential restart would be a major event. The region is suffering an economic downturn and all major stakeholders are engaging constructively. However the Company's progress has been slower than originally expected due to the financial and other issues created by previous owners which are in the process of being resolved.
The approvals from the regional government, the Junta de Andalucia, are currently anticipated to flow over the next six months.
The principal external experts assisting the due diligence of EMED Mining and EMED Tartessus are:
AMC Consultants UK Ltd ("AMC") - mining operational and project economics;
GBM Minerals Engineering Consultants Ltd - plant inspections and assessment;
United Research Services Espana S.L. - tailings dam classification;
LN Metals International Ltd - product marketing;
Oakvale Capital Ltd - hedging and currency advice;
Baker McKenzie - Spanish legal;
Leon y Olarte - Spanish legal;
Field Fisher Waterhouse LLP- UK legal; and
Chrysostomides & Co - Cyprus legal.
Operationally, the project involves restarting the existing open-pit mine, copper concentrator and associated infrastructure. It is anticipated that the reactivation of the mine and plant will take six months following financial commitment, with commencement of copper-concentrate production now forecast for the fourth quarter of 2009.
The Board believes that Rio Tinto Mine will be the largest employer in the area. Most local townships have been financially distressed since the mine's closure eight years ago and local support is therefore understandably strong. The mine operated successfully in the past at the same levels of throughput proposed by the Company in its restart plan.
Board and Management
The Board of Directors of EMED Mining now comprises:
Non-Executive Chairman, Ronnie Beevor - Director of several mining companies. Former Head of Investment Banking , Rothschild Australia;
Group Managing Director, Aristidis (Harry) Anagnostaras-Adams - Chief Executive in mining investments and mining. Former Deputy Chair Australian Gold Council;
Group Finance Director, John Leach, experienced CFO for various international mining companies;
Non-Executive Director, Mike Price - Mining Engineer formerly head of resources lending teams at Societe General & Rothschild (UK); and
Non-Executive Director, Gordon Toll - Director of several mining companies, mining engineer formerly with BHP & RTZ.
It is anticipated that Ashwath Mehra will be appointed as a non-executive director shortly.
The Board of Directors of EMED Spain S.L., one of the Company's Spanish subsidiaries, will effectively oversee the management of the EMED Group's other Spanish companies, including EMED Tartessus. Plans are now also being formulated to start an exploration subsidiary for the Iberian Pyrite Belt to evaluate other expected opportunities in due course. The Board of Directors of EMED Spain S.L includes:
Guillermo Guiterrez, Chairman - Spain, former Minister for Industry in Andalucia - the responsible minister at the time of its closure in 2001;
Bill Enrico, Managing Director - Spain, experienced CEO for companies involved in copper production in several countries;
Tara Wales, Director Legal and HR - Spain, experienced in this role in North America and Spain;
John Leach, Finance Director, experienced CFO for various international mining companies.
The management team for EMED Tartessus is being built and includes selected longstanding project management and staff, along with transferees from EMED Mining such as Chief Geologist John Ingram and new recruits such as Maintenance Manager Richard Earlam. Staff numbers at site currently total 30, most of whom are long-standing project employees.
After the restart is committed to, a 250-person workforce will initially be required at the Rio Tinto Mine. EMED Tartessus or other EMED Mining Group companies will directly employ approximately 80 people. The remaining 170 people will be employed via the mine contractor and laboratory contractor. EMED Tartessus personnel became members of the Socialist Party union in September 2008.
Shareholders of EMED Mining
Following the transaction announced today, the shareholders of EMED Mining are as follows (the figures in brackets are on a fully-diluted basis):
Management and Board 10% (20%)
Resources Capital Funds 13% (11%)
MRI Group 16% (14%)
Oz Minerals (formerly Oxiana) 10% (8%)
Fidelity International 5% (4%)
Altima 4% (3%)
RMB Australia Holdings 4% (4%)
The Company now has a total of 239,692,911 shares in issue. (276,762,765 fully-diluted).
Investment Overview
EMED Mining's approach to this project has been exemplified by a series of steps to clean-up and secure control of the ownership structure and to normalize stakeholder relationships.
The Company considers that the investment opportunity is attractive because of:
Relatively low technical risk with established mine and infrastructure intact.
Relatively low financial risk as copper-concentrate production is planned to restart relatively quickly after permits are received and forecast cash flows provide a rapid payback of investment, and
Realistic expectation of expanding the operation to increase copper-concentrate production.
Permitting risk will be removed prior to drawdown of debt-funding. The Company remains highly confident that the project will proceed. Coupled with the Company's impressive equity investor base, discussions with other potential sources of finance remain encouraging in challenging conditions. Current estimates of total funding required to acquire 100% and restart the project are less than previously announced. Finance plans are focused on the following approach:
minimising expenditure pending the receipt of the various approvals required;
all pre-permitting financing to be by way of equity, advances repayable with equity or pre-sales of metal, to minimise finance risk;
triggering the restart upon receipt of shareholder approval, securing of finance and receipt of regulatory approval; and
post-permitting financing to be mainly by way of debt, so as to minimise equity dilution for EMED Mining shareholders given the potential rapid payback of investment.
Risk management-planning has been in train since early 2007. A consequence of EMED Mining's careful approach to risk management is that the process has taken longer than the Company's initial timetable. A contributing factor to the delay was a judicial decision in Spain earlier this year which led to previous controllers of the vendor company being replaced by the MRI Group.
AMC has verified the input parameters and economic evaluation process (confirmed by EMED Tartessus) and considers Rio Tinto Mine to be a robust project that meets EMED Mining's investment criteria at current long-term metal price forecasts. AMC's reports have been made available to potential financiers.
The current situation for the Company is that it believes that it is poised to generate significant value for shareholders in the short term, but is doing so in the midst of global financial turmoil. In this challenging environment it is important to note certain aspects of the EMED Mining structure and approach to financing. EMED Mining is majority-owned by long-term investors who are especially experienced in the mining industry and some of whom also provide a range of financial services. The Company does not intend to seek debt-based funding until full permitting is received for the restart. Discussions are maintained with several suitable banking institutions for finalisation of the financing terms in due course. The Company intends to generate several financing alternatives for each stage for risk-mitigation purposes.
Enquiries
| EMED Mining | Fox-Davies Capital | RFC Corporate Finance | Bishopsgate Communications |
| Harry Anagnostaras-Adams | Richard Hail | Stuart Laing | Nick Rome |
| +357 9945 7843 | +44 (0)207 936 5230 | +618 9480 2500 | +44 (0)207 562 3350 |
Notes to Editors: About EMED Mining Public Limited
EMED Mining was admitted to trading on AIM in May 2005 following a placing of its shares, and its share market capitalisation has since grown from approximately £4 million to approximately £38 million. The Company is based in Cyprus and has a strong commitment to responsible development of metal production operations in Europe, with an initial focus on copper and gold.
The Group's region of interest are the tectonic belts spanning across Europe and over to the Middle East. The strategy is to evaluate exploration and development opportunities in several jurisdictions throughout this quality mineral belt and to promote sustainable development practices through implementation of European Union and other leading-edge international standards. The Company strictly implements its Environmental & Community Policy which includes:
Integrating environmental management into our business, planning and reporting processes.
Promoting a strong environmental ethic throughout the Company and the community.
Complying with, as a minimum, all applicable local and European Union laws and regulations.
Communicating with community stakeholders in a responsible and transparent manner.
EMED Mining has now established a strong position in the following selected zones:
Exploration areas in Slovakia are centred on a cluster of volcanic centres. Low-detection geochemical methods are being applied to these areas for the first time together with open-pit bulk mining concepts. The principal targeted mineralisation style is low-grade, bulk-mineable porphyry gold. The Company has announced gold discoveries at Biely Vrch, Kralova and Slatinske Lazy in Slovakia.
The mines in Cyprus and at Rio Tinto in Spain, located in the Iberian Pyrite Belt, which is probably among the best known in the world for its mineral endowment. EMED Mining's goal is to restart copper production at its projects in both of these well-endowed, historical mining districts. Both Spain and Cyprus are progressive members of the European Union and EMED Mining has been made to feel welcome in both host countries. The styles of mineral deposits and production techniques are similar in both mining districts.
Exploration areas in Turkey were vended into 32%-owned KEFI Minerals Plc which was admitted to AIM in December 2006. KEFI Minerals owns carefully selected licence areas in Turkey, as well as an extensive proprietary database of regional and specific exploration data providing a pipeline of further projects to evaluate. See www.kefi-minerals.com.
For further information on the Company's activities, visit www.emed-mining.com or www.emed.tv.
Company Reg No: 152217