Ancient mine to re-open

There now seems to be nothing in the way to prevent the full-scale go-ahead by AIM and TSX listed EMED Mining from re-opening one of Europe and the World’s most historic mining sites. The Rio Tinto mine in Spain has been mined since 3000 BC, as well as being the birthplace at the end of the 19th Century of one of the world’s biggest mining companies – Rio Tinto, although it is no longer involved in the Spanish mine.

EMED has now announced receiving the final operating licence from the Rio Tinto Municipality, which is the last piece of paper necessary to let it go ahead with initiating mining operations at the historic site. Wet commissioning of the rebuilt and refurbished concentrator is already under way and the company says it is now scheduling first commercial production in Q3 this year.

Company CEO, Alberto Lavandira commented on the permitting award: “The receipt of the licence is a major milestone for the company as it represents the final permit required to start building up production over the next few months, ahead of the originally anticipated target date of January 2016.”

It has been a long and frustrating wait for EMED shareholders, permitting seems to have taken forever! London broker/banker Investec describes the past 12-18 months as having been transformational as progress has been accelerated and the necessary permitting, which held back the project for several years, put in place.

To be fair to the previous management, this may well have just been a fortunate matter of timing for the new management team, at least as far as the permitting has been concerned.

But for mining engineers and mining historians, this is a fascinating project.

Mining operations at Rio Tinto on what was by then an open pit mine had ceased back in 2000 due to a fall in the copper price to below $1/lb. EMED acquired the operation in October 2008 and since then has undertaken extensive studies leading to a decision to move forward and bring the mine and plant, which had been kept on a care and maintenance basis, back on stream. But while studies were positive, seemingly interminable delays in permitting had held the operation back from an originally estimated start date of 2013 to today.

Broadly, the project as envisaged in a 2010 NI 43-101 compliant report prepared by Behre Dolbear suggested annual production of approximately 37,000 tonnes of copper in concentrate based on processing 9.0 million tonnes of ore per year. There is a very good waste-to-ore ratio of approximately 1.1:1.0 for the life of mine and total cash costs were estimated at approximately $1.57/lb including all operating, capital and acquisition expenses, with an NPV of $654 million.

But herein lies the rub. These estimates were prepared on the assumption of a copper price of $3.50/lb. It is currently languishing at around $2.50/lb.

Since the NI 43-101 study was prepared, substantial tweaks have been made in reducing capital costs and lowering initial throughput to 5 million tonnes a year, with a fairly rapid Phase 2 expansion to 7.5 million tonne per year. Upping this further to the original 9-10 million tonne/year is a potential longer term aim. Capital costs have been slimmed down substantially – a good part due to changes in exchange rates between the dollar and the euro, and through efficiencies put in place by the new management team as well as some costs being deferred.

The company is also now fully financed through to the 7.5 million tonne/year Phase 2 expansion helped by financing related offtake agreements with Chinese group XGC and with Red Kite (now Orion) and Trafigura effectively covering production for 15 years.

Ore reserves are put at a total of 123.0 million tonnes in the Proven and Probable categories at 0.49% copper (0.61 million tonnes of contained copper), at a cut-off grade of 0.20% copper. Measured and Indicated resources total 203.1 million tonnes at 0.46% copper (0.93 million tonnes contained copper), at a cut-off grade of 0.20% copper and the company feels there is excellent potential for increases in both reserves and resources in areas surrounding the planned operations.

So with production commencing during the current quarter it will be interesting to see how the company fares financially at the current low copper prices. Assuming it can keep its head above water at $2.50 copper then it should be well-placed if and when the cycle picks up and copper prices start to rise again.

This article appears courtesy of Mine Web. To read more daily international and financial mining news click here.

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