Lundin affiliate hits snag with termination letter in Iran

Vancouver – Union Resources (UCL-A), an Australian affiliate of Lundin Mining (LUN-T, LUMI-S) appears to have hit a snag in its bid to develop a project in Iran that is widely regarded as one of the world’s largest undeveloped zinc deposits.

Vancouver-based Lundin said it has learned that Union’s Iranian government partner has allegedly terminated certain agreements in relation to the massive Mehdiabad zinc deposit, which is was expected to cost US$1.64 billion to develop.

They are the basic agreements through which the company holds its interest in the project, and were signed between 1999 and 2001.

In a statement, Union Resources said it was informed of the decision in a recent letter from the Iranian Mines and Mining Industries Development and Renovation Organization [IMIDRO], an Iranian government partner in the Mehdiabad zinc project.

Union said it is of the opinion that IMIDRO has invalidly issued the purported notice of termination and is taking urgent steps to clarify and resolve the situation and ascertain the impact of the letter on Union’s investment in the Project.

Still, the letter appears to be a setback for Lundin Mining, which acquired a 20% stake in Union stake for US$4.4 million in order to get a window not only on the deposit itself, but also on the geology, business climate and culture of Iran.

As a result it holds a 7.6% direct interest in the project, which is estimated to contain a 394 million-tonne resource, averaging 4.2% zinc per tonne, 1.6% lead, and 36 grams silver.

That’s enough to produce at least 300,000 tonnes of zinc metal, 100,000 tonnes of lead and four million oz. of silver annually from an open pit operation with a projected lifespan of up to 40 years, according to Aker Kvaerner of Australia.

However, Lundin said its stake in the project is small and it does not consider the possible termination of the agreement between Union and IMIDRO to be material.

The Mehdiabad Project has operated as an incorporated joint venture through Mehdiabad Zinc Co. (MZC) since 2003. Union holds 25% of the issued shares in MZC and when loans convertible to equity in MZC are added, has a beneficial interest in excess of 40%

The Australian firm said it has complied with all of its obligations under agreements which cover arrangements between shareholders of MZC and the Iranian government, project development and the commercial terms of the joint venture.

While Union said it is a signatory to the Engineering Services Agreement, it relates to work carried out on the project by the other partner to the Joint Venture, Itok GmbH, an Australian consulting firm.

Union has delivered a letter to the office of the Minister of Mines and Industry of the Islamic Republic of Iran requesting an urgent meeting to clarify the issues raised in the letter from IMIDRO.

It is hoped that these meetings will be held prior to the end of 2006 and Union will make an announcement at that time, the company said.