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Rio Tinto Redux

December 6th, 2011

EMED’s Historic Spanish Copper Mine is Set to Reopen 3Q 2012

By Ted Niles

It’s been a difficult four years for EMED Mining Public Ltd TSX:EMD, but it looks as though the company’s luck is finally about to change. The most compelling evidence for this comes from a recent flurry of positive gestures from the government of AndalucĂ­a in support of the Rio Tinto Copper Mine project. Notably, Minister for Economy Antonio Avila Cano made a statement last month from the mine itself committing his government to its anticipated restart date of 3Q 2012. This is a far cry from the sort of attitude EMED met with when it acquired the mine in 2007.

“We came here during an anti-mining era and took on what was, commercially, a mess of a project,” Managing Director Harry Anagnostaras Adams says. “As we completed the cleanup of that mess, Europe had flipped into being pro-mining. ” In Spain, characterized by greater than 20% unemployment, “You see similarly strong statements by the opposition parties—all the political parties—all the mayors, all the unions. It’s been quite a unanimous sort of turnaround.”

EMED's Historic Spanish Copper Mine is Set to Reopen 3Q 2012

This about-face is crucial to EMED’s fortunes, particularly as it acquires crucial segments of the mine’s infrastructure sold to third parties after its 2001 closure. He explains, “We own the mine, and we own the plant, and we own parts of the surrounding lands around the mine and the plant. [Some] property investment companies actually bought pieces of the tailings dam and waste dumps. It’s pretty strange to see that. They clearly didn’t buy it for real-estate development, and they’re being really quite deliberately obstructive and interfering. It’s all part of the game of trying to get a settlement out of us.”

The 1,500-hectare Rio Tinto Mine has been an important part of to the AndalucĂ­an economy for millennia. Located 65 kilometres northwest of Seville, it dates back to the Phoenicians, though it is perhaps better recognized as namesake to the second largest mining company in the world. (Rio Tinto PLC divested itself of the remainder of its interest in the area in the 1990s.) Industrial exploitation of the mine began in 1875, and 128 million tonnes of copper had been extracted by 1976. Production was fitful through the 1980s and 1990s, and in 2001 it was put on care and maintenance due to a low copper price and, according to Adams, “local malpractice.” The mine currently has proven and probable copper reserves of 1.3 billion pounds at a cut-off grade of 0.20% and measured and indicated resources of 2.1 billion pounds.

According to Adams, Rio Tinto has had no exploration drilling since the 1980s. “Even then the drilling was negligible. [Apart from] the underground mines, it has had no drilling under 250 metres anywhere. It is quite a remarkable thing for an exploration team to step onto the world’s largest VMS system with the support of modern exploration. The opportunities are blatantly obvious.” Regarding the mine’s infrastructure, he adds, “If you started from scratch to develop this project, we estimate it would cost $1 billion to get it set up the way it is. We only have to invest $100 million.”

A November 2010 NI 43-101 technical report based on current reserves projects a 14-year mine life, with annual production of 81.6 million pounds, at total costs of $1.57 per pound. Infill drilling around the Cerro Colorado open pit—where the given reserves and resources are based—will, Adams believes, add another 11 years of mine life. This does not include the San Dionisio underground deposit which Rio Tinto PLC reported in 1993 to have (non-NI 43-101 compliant) resources of 551 million pounds. “That’s a subset of the ore body,” Adams notes. “They just reported what was economic then. It needs a lot of work, but we would expect that at today’s copper prices it would be more than economic.”

If you started from scratch to develop this project we estimate, it would cost $1 billion to get it set up the way it is. We only have to invest $100 million —Harry Anagnostaras Adams

To reopen the mine by 3Q 2012, Adams says, EMED must focus on project preparations (which are ongoing), financing (a mandate for which is anticipated in the next two months) and permitting. The success of the first two depends on the last, and the last depends on the continued, active support of the government. “[At this point], the risk in financing this company is very small, as we’ve done far more challenging and risky things,” Adams emphasizes. “The risk of permitting the company is, in our view, 80% behind us, as the government is giving such explicit policy commitments and actually acting on them.”

Adams concludes, “We were effectively company doctors for the first two years, as we cleaned up the legal mess. The people who caused all the trouble are now only causing a little bit of sideshow drama. The last remaining hurdle are the third-party lands. If the government is true to its word, then that’s not an issue because there’s a regulatory process that deals with that. And the government is giving every sign of getting the show on the road as fast as possible.”

At press time, EMED had 709.5 million shares trading at $0.135 for a $95.8 million market cap. The company’s other projects include the Klirou copper-zinc project in Cyprus and the Biely Vrch gold deposit on its Detva License in Slovakia.