EMED revives Rio Tinto mine in Spain

In six years, Cyprus-based EMED Mining (EMD-T, EMED-L) has grown from being little more than a concept to a company with very real plans to restart copper production this year from the historic Rio Tinto open-pit copper mine in southwestern Spain.

The driving force behind EMED’s rise is managing director Harry Anagnostaras-Adams, who worked with several mining companies, and as a chairman of the Australian Gold Council (AGC), before starting up EMED in 2005 to focus on gold and copper exploration in Europe.

The company listed on the London Stock Exchange’s AIM market in May of that year, and added a TSX listing last December, offering another 181 million shares to Canadian investors at 13.5¢ apiece.

As of Jan. 11, the company had 691 million shares outstanding, or 935 million fully diluted. After spiking above 30¢ in early January, EMED’s shares recently traded at 26¢ apiece, meaning EMED’s initial $6-million market capitalization has grown to $179 million today.

EMED’s broad areas of geological interest are the tectonic belts running across Europe to the Middle East.

Speaking at a recent presentation in Toronto and later by telephone from Cyprus, Anagnostaras-Adams said this interest, specifically in Europe’s mining opportunities, came about from his meeting many talented geologists during his stint at AGC. He said these geologists were coming back from Europe with stories of potential riches, but they were frustrated “in trying to reactivate an industry that went to sleep in Europe.”

Being optimistic that Europe’s mining industry would indeed reawaken, Anagnostaras-Adams and a few of the current executives headed to Cyprus to set up EMED to be, as he says, “at the forefront of the resuscitation of the industry.”

Anagnostaras-Adams noted that every member of the company’s leadership team lives in Europe, and commented that “the job there is about relationships and politics as much as the other things. Because communities have lost confidence and trust in our industry for all sorts of reasons, we have to rebuild that trust by doing things properly every day.”

And creating relationships is just what the company has been doing in Spain since it acquired its flagship Rio Tinto mine project in 2007.

EMED is now pushing through the permitting process to restart a mine that has been on care and maintenance since 2001, when copper prices touched new lows. The company recently received approval from one of the four regulatory authorities, and expects to receive the rest of its key permits within the coming months.

Located in Huelva province some 65 km northwest of Seville, the Rio Tinto mine property covers 13.2 sq. km of the Iberian pyrite belt, sitting in the heart of one of the world’s largest and historically most productive volcanogenic massive sulphide districts.

Using a 0.20% cutoff, consultants Behre Dolbear calculated last November that the mine still hosts 123 million tonnes of reserves grading 0.49% copper for 1.3 billion lbs. (or 606,000 tonnes) copper. Measured and indicated resources, inclusive of reserves, stands at 203.1 million tonnes of 0.46% copper for 2.05 billion lbs. copper.

The property has, of course, the existing, huge open pit plus a processing plant, tailings storage facilities, and other general infrastructure. It is some 75 km away from Freeport-McMoRan Copper & Gold‘s (FCX-N) Atlantic copper smelter and a major ocean port.

Anagnostaras-Adams describes it as a “very low technical risk project” with no significant technical or design issues.

“There are no large items that need to be bought, it’s really glorified maintenance,” he said, adding that “to get the show on the road” would cost $120 million, of which the company, with $30 million in its pocket, plans to secure the remaining through financings and offtake agreements.

Anagnostaras-Adams admitted the cash cost of the project is a bit higher than the industry average, but argued that what makes it an attractive project is its low capital requirement of US$103 million.

“If you replicated the infrastructure to set up the mine from scratch today, the plant, open pit and tailings facilities would cost about $1 billion to set up,” he said.

Using a copper price of US$2.50 per lb., EMED reckons a commercial mining operation would be “very robust” with an average pretax operating cash flow of US$78 million and cash costs of US$1.37 per lb. And at a 10% discount rate, the project has a net present value of US$262 million and a 41% internal rate of return.

As a base case, EMED would mine 9 million tonnes of ore a year from Rio Tinto to produce 82 million lb. copper in concentrate, but the company aims to increase throughput to 15 million tonnes per year by 2015. Mine life would be at least 14 years, and the stripping ratio would be a low 1.1-to-1.

Aiming to increase grade distribution data and convert more resources to reserves, the company plans to launch a 60,000-metre drill program by June, when it will also test the property’s unexplored underground potential. EMED notes that the Rio Tinto mine property hasn’t been drilled below 250 metres by any previous owner.

This ownership has changed hands several times, from mining titans Rio Tinto (RIO-N, RIO-L, RIO-A) and Freeport, to a local workers’ cooperative named Minas de Rio Tinto. However, the area has been mined from open pits and underground since at least 1,000 B.C. by the Phoenicians and Romans, among others, according to historians.

The industrial-age Rio Tinto mine has a rich but complex history, or as Anagnostaras-Adams puts it: “It went from being an icon of modern Spain to be being a bit of a leper, politically.”

Iconic, because Rio Tinto Plc was created by British investors in 1873 specifically to mine the ancient copper workings at Rio Tinto, and the mine helped usher in the Industrial Revolution (and soccer!) to Spain in the late 19th century.

Rio Tinto Plc sold two-thirds of the property in 1954, and divested the rest later. But before leaving entirely, it built the current processing facility in 1969, which it expanded in the mid-1980s. Then in the early ’90s, the company put large parts of the land into a heritage trust, sold the smelter to Freeport and the mining property to the workers’ cooperative. When the workers’ cooperative got its hand on the mine, Anagnostaras-Adams said it became “a bit of a soap opera of failure,” causing social, economic and political damage.

He noted that the mining property ended up being liquidated due to a toxic mix of poor management, alleged fraud, and low copper prices.

But in 2007, EMED Mining decided to step in as copper prices started to rebound.

“It’s a sad thing to walk on the site sitting quietly near a copper boom,” recalled Anagnostaras-Adams, adding that he was surprised by the upside the property still offered.

Copper prices have catapulted from less than US$1 per lb. in 2001 to today’s prices exceeding US$4.50 per lb., as Chinese copper demand grows, and new copper mines become more expensive to develop.

To acquire Rio Tinto, EMED had to take on the previous owners’ $20-million debt as a first step in the permitting process. By October 2008, EMED had full ownership of the property.

Anagnostaras-Adams said the company has made progress on several fronts over the years by settling with creditors and the local government, getting rid of previous offtake agreements, forming relations with the local communities and gaining the support of the seven mayors in the district.

And since the local economy contracted due to the 2008 recession, the area still has a high rate of unemployment. The company currently has a staff of 70, but looks to increase that number to 500, once the project is running at full throttle.

Some of the other foreign players in southwestern Spain’s re-emerging mining industry include Inmet Mining (INM-T) with its La
s Cruces copper mine, Lundin Mining (LUN-T, LUNMF-O) with its Aguablanca nickel-copper mine and Iberian Minerals (IZN-V) with its Aguas Tenidas copper-zinc-lead mine.

Slovakian gold

EMED is also moving forward its wholly owned Biely Vrch gold project in Slovakia, which is in the permitting and development stage.

Anagnostaras-Adams said that he was initially very reluctant to explore Slovakia because of his impression it was “one of the world’s worst gold addresses.” But the company did eventually go there and made what he refers to as a “textbook discovery” in October 2006.

“We made this virgin discovery of a multi-million-ounce system,” he said, referring to Biely Vrch, which is a porphyry gold system.

Located within the Detva licence area, about 25 km from the Stiavnica-Hodrusa district, the project hosts a NI 43-101 compliant resource of 17.7 million indicated tonnes at 0.81 gram gold per tonne, or 461,000 contained oz. gold, and 24 million inferred tonnes at 0.77 gram gold, or 596,000 contained oz. gold.

According to a scoping study, to build the mine it would cost about US$64 million. Once built, the mine could churn through 3 million tonnes a year to produce 60,000 oz. gold per year at an 81% recovery. It has a 10-year-plus mine life and an average waste-to-ore ratio of 0.84-to-1.

Anagnostaras-Adams noted that currently the project is “too low grade for more than the top million ounces to be economic” at the US$800-per-oz. gold price that was used in the study.

Elsewhere in Europe and beyond, EMED has exploration licences in the copper-mining districts of Cyprus, an option in a tungsten deposit in Portugal, and a 20% stake in KEFI Minerals (KEFI-L), which has projects in Turkey and Saudi Arabia.
“We feel like we got the timing right,” Anagnostaras-Adams said. “The industry is starting to come alive in Europe for the first time in decades, and we are looking forward to deliver results.”

(Editor’s note: this version, posted on Feb. 17, replaces an older version posted on Feb. 15)