Iberian to reopen Aguas Tenidas

Seville, Spain — Iberian Minerals (IBZ-V, IZNFF-O) president and CEO Peter Miller was “in the jungles of Venezuela,” where the junior had acquired a number of gold properties, when he was first approached about a Spanish zinc-copper mine that was up for grabs.

However, he didn’t immediately see the promise in the past-producing Aguas Tenidas property, where Navan Mining had extracted more than 895,000 tonnes of polymetallic ore between 1999 and 2001.

“My first reaction was, ‘Mining in Europe? You’ve got to be kidding,'” Miller says.

But three years later, Miller has so much faith in the project that Iberian’s other exploration properties are on the chopping block. If the company has what it thinks it does in Aguas Tenidas — where it plans to restart production in mid-2008 — and its numerous other exploration properties in Spain’s Iberian Pyrite Belt (IPB), totalling more than 360 sq. km — it will have its hands full for quite some time.

Iberian, then known as PGM Ventures, bought Aguas Tenidas in 2004 from Spanish mining contractor Insersa for about $11.8 million. Insersa had acquired the underground mine from Navan, in lieu of debt owed. Although Navan went bankrupt shortly after the transfer, its financial troubles had little to do with Aguas Tenidas and more to do with its other struggling properties and metal prices that were in the tank — comparable, in real terms, to their levels during the Great Depression, Miller says.

Less than six years later — against the backdrop of high base metals prices, a deposit that is steadily expanding with further drilling and more efficient mining methods and processing techniques in the works — Aguas Tenidas promises to launch Iberian as a producer.

Discovered in 1985 by Billiton and a Spanish partner, Aguas Tenidas is a volcanogenic massive sulphide (VMS) deposit, similar to those in Canada’s Bathurst mining camp. The orebody is about 100-150 metres wide, 20-70 metres thick and stretches more than 2 km. A feasibility study completed on Aguas Tenidas in January 2006 calculated a proven and probable reserve of 10.92 million tonnes grading 7.1% zinc and 1% copper plus 9.64 million tonnes averaging 2.4% copper and 0.9% zinc, sufficient for 13 years of production.

However, the deposit has since grown with infill drilling; only 1.2 km of the deposit’s length was incorporated into the feasibility, but the company already knows that it extends at least 2.2 km and is still open to the west. Therefore, the study’s reserve and mine life are likely to at least double.

“There is quite literally, a huge increase in tonnes and a small increase in grade as we do our infill drilling,” Miller says. “Very roughly, when we do infill drilling, the orebody increases in size by several hundred per cent.”

Geophysics indicate that the deposit could continue to the east, too, and it’s possible that a fault that cuts the orebody off to the north could have displaced part of the deposit.

“One of the big unknowns with Aguas Tenidas is whether the orebody is cut in two by a fault,” Miller says.

Miller adds that if that is the case, the current tonnage could be a very low estimate of what’s actually there.

Aguas Tenidas is 120 km northwest of Seville by winding, paved highway. The project is located in Andalucia, the southwestern region of Spain that hosts part of the 50-km-wide IPB, which stretches over 160 km, extending west into Portugal. Although thousands of years of mining have polluted the area, it remains largely agricultural, with a number of orange groves bordering the mine property.

Infrastructure

Navan took little ore from Aguas Tenidas — it extracted only 4.4% of the known mineral reserve calculated by SRK Consulting — but left plenty of infrastructure, including a paved 4.5- by 5-metre ramp that reaches 450 metres below surface, four 400-tonne ore storage bins, a water treatment plant and a 300-tonne-per-hour primary crusher. Infrastructure completed on-site in 2006 includes an assay laboratory and an explosives magazine. The latter has been subject to stringent regulation because of the Madrid bombings in 2004 that killed 190 people using explosives stolen from a Spanish mine.

Iberian also inherited two trackless electric trucks that Navan had used to haul ore. Instead of using the trucks, the management recently decided to build a second ramp at Aguas Tenidas that was not included in the SRK study. The ramp will add to the development costs, estimated at $168 million in the feasibility, but it will also allow Iberian to access a deeper, higher-grade portion of the orebody earlier, allowing for better cash flow sooner. The ramp will also be less steep (15), with larger dimensions than the original, and therefore able to accommodate trucks that hold more ore (60-65 tonnes). The original ramp will be used for personnel, explosives and equipment, while the new ramp, which will surface beside the processing plant, will be used only to move ore. An updated mine plan that will include the second ramp is almost complete, with a revised economic model to follow.

The exploration gallery, which follows the orebody about 80-100 metres above it, is also being extended so that infill drilling can continue to define the deposit. Drilling from surface is also planned for this year on the deposit’s western extension.

During The Northern Miner’s recent visit, excavation at the site of the portal for the second ramp had already begun, as well as preparation for the construction of a 1.6-million-tonne-per-year processing plant. A long-awaited construction licence for the plant and a dry tailings pond was issued in January.

The junior has experienced some delays with such permits, but Iberian chairman and vice-president of exploration Norm Brewster says it hasn’t really delayed the project.

“People keep focusing on the permit, but it’s the wrong way around,” he says, explaining that permitting is an ongoing process.

Now that the construction licence is in place, Iberian needs only the operating permit for the processing plant and tailings dam — but not until Aguas Tenidas is closer to production. Most of the necessary permits are already in hand because the mine never formally closed when production ceased in 2001.

The company is also expecting to hear some time this month about grants from the Spanish government and European Union that could cover up to 20% of its development costs.

In the most conservative case, which does not assume any grants will be received, the SRK study projected an internal rate of return of 13.7% at Aguas Tenidas and a net present value of US$60 million at an 8% discount rate. That scenario employs metal prices of US$1.12 per lb. copper, US55 per lb. zinc, and US34 per lb. lead.

Metal prices are currently well above those levels, and Miller isn’t worried about missing the current metals cycle.

“If you look at some of the big company forecasts like BHP Billiton’s, there’s no way in the world we can produce enough metal,” he says, citing demand from the growing economies of not just China and India, but Brazil, Russia and the rest of Asia.

Processing plant

Under Navan, ore was trucked 28 km to the Almagrera processing plant, but Iberian is building an on-site plant that will be better equipped to squeeze more metal from the relatively complex ore at Aguas Tenidas. Although it’s remarkably clean ore for an IPB deposit, there are two types of mineralization — one rich in copper, the other in zinc. Both are fine-grained, which, combined with their complexity, made for low recoveries in the past.

To improve results, the new plant will have two separate processing circuits, one for each type of ore, and use three-stage primary grinding. Iberian’s on-site assay lab is working on ways to further improve recoveries of 85% for copper from the copper-rich ore; and from the polymetallic ore, 85% for zinc, 70% for copper and 70% for lead — a marked improvement on results obtained by Navan.

Concentrates produced
on-site will be shipped to a port at Huelva, and then to European smelters. Iberian has a long-term offtake agreement with metals trader Trafigura for all concentrate produced at the mine.

About 90% of the ore will be mined by longhole stoping, allowing almost all of it to be recovered. Navan, which used room-and-pillar mining for 65% of the ore, was forced to leave some of it behind. The rest of the ore will be mined by more selective methods — drift-and-fill and bench-and-fill. Paste backfill will be used to fill the mined-out areas — eliminating about 47% of the tailings.

Although Spain can be somewhat bureaucratic, the politically stable, First World setting of Andalucia is remarkably lacking in anti-mining activity or sentiment, perhaps due to the history of mining in the area. The IPB is one of the world’s oldest and most intensely exploited mining districts, and despite environmental disasters such as the Rio Tinto copper mine, and to a lesser extent the tailings dam failure at Boliden’s Los Frailes base metals mine in 1998, the area continues to be a mining-friendly jurisdiction.

Proof of the scale and history of mining in the district is everywhere: from mounds of black slag on one previously mined property to shafts, exploration galleries and adits on others.

Indeed, the five huge open pits of the now-closed Rio Tinto copper mine, “the mother of all mines,” are only 25 km west of Aguas Tenidas.

One of the company’s prospects, Monte Romero, was “possibly the first place on the planet where silver was smelted, around 600 BC,” Miller says, and was actually mined even before Phoenician times.

It was last mined from the late 1800s to 1924, yielding more than half a million tonnes of material estimated to contain about 22% zinc and 6% lead, plus another 200,000 tonnes grading around 4% copper (not National Instrument 43-101-compliant).

“This is typical of what you find around here, what we think we’ll find a lot more of when we start doing intensive exploration,” Miller says during a tour of some of Iberian’s exploration properties. “There’s quite a few very high-grade deposits that are relatively small — one, two, three million tonnes.”

While bringing Aguas Tenidas back into production is the company’s priority, the potential for its nearby concessions to add years to the operation’s life has Iberian planning between 100,000 and 200,000 metres of drilling over the next three or four years within a 5-6 km radius of the mine. As a bonus, the Spanish government provides generous incentives for mineral exploration — about 18-20% of exploration costs.

Many of the company’s concessions have been previously explored by majors such as Phelps Dodge (PD-N) and Rio Tinto (RTP-N).

“We are not starting with very grassroots exploration,” says mine geologist Raul Hidalgo Fernandez.

And the company is expecting to find even more targets. Most of the orebodies that have been mined in the past, with few exceptions, outcropped on surface, Hidalgo notes. The company has detected a number of electromagnetic anomalies in the area that have yet to be explored.

All of these potential riches could effectively paint a target on Iberian’s back, but any would-be buyer would “have to pay us a few pennies for this,” Miller says wryly.

The fact that together, Trafigura, Dundee Resources, Acuity and Ivestec Bank own about 60% of the company may serve to deter any hostile bids. The company’s shares are currently trading at $1.57 in a 52-week trading range of 62-$1.95.

Iberian took down its website last year, after it was warned by the TSX Venture Exchange that some of the information on it was not compliant with National Instrument 43-101. While it has corrected the problems, the website is still not online. The company says it is aiming for a February relaunch of the site.

Nonetheless, Iberian has found its stride in the past year, and progress is finally visible at the mine site with the moving of earth, new infrastructure, and the number of people that are regularly crammed into the company’s mine and Seville offices.

“We’ve kind of got lucky about finding this thing at the right time, just before the metal prices took off,” Miller admits. “It was a struggle to begin with, but I look back from February (2006), we had $26,000 in the till. Now we have 95 — million. It’s all coming together.”