Em Ed Update
Em Ed Update
Em Ed Update
5 March 2010
Price 13p
EMED Mining Market Cap £43m
Year Revenue PBT* EPS* DPS P/E Yield
End (£m) (£m) (p) (p) (x) (%) Share price graph
12/07 0.0 (11.8) (9.5) 0.0 N/A N/A
Valuation: Rio Tinto Mine worth 39p/share P/E relative N/A N/A N/A
We have revised our valuation since December 2009 based on recent modifications P/CF N/A N/A N/A
to the EMED base case financial model for PRT. On a conservative assumption that EV/Sales N/A N/A N/A
the Rio Tinto Mine is re-started in Q112 and provided production proceeds ROE N/A N/A N/A
Permitting update
Changes to legislation in 2009 effectively delayed the restart of Rio Tinto Mine. The situation has
since been clarified and in December 2009 the Government of Andalucia (Junta de Andalucía)
confirmed the revised permitting process, which requires approval by four provincial regulatory
authorities: Industry, Environment, Culture & Heritage, and Water. The process is described as a
‘roadmap’ and has been revised to incorporate new regulations. The roadmap is specific to the
Proyecto de Rio Tinto (PRT) and specifies additional information needed to complete permitting. It
also sets out the process for review and consultation with the relevant authorities and with the
public. The company has established a team based at the Rio Tinto Mine, which, along with
independent due-diligence experts, is tasked with systematically working through the
requirements.
The company is also required to obtain a number of permits before the Junta de Andalucía will
approve the mineral rights and mining operations. Deliverables include the mining assessment and
operational plans, the AAU and EIA, the tailings dam and waste dump assessments, OH&S
3 | Edison Investment Research | Update | EMED Mining | 5 March 2010
procedures, a final rehabilitation plan, contract documents, mill refurbishment and other
permissions.
Start up preparation
While the company is working through the permitting requirements, the PRT team on-site at Rio
Tinto Mine is preparing for start up and production. Detailed planning is underway as is the
assessment of upside potential. The team’s objective is to advance their knowledge of the orebody
early in the project life so as to optimise mine design. Management also feels it important to
maximise production as early as possible so as to capitalise on what it predicts will be high copper
prices over the next five to 10 years. Much of the work being undertaken as part of the permitting
process is of a technical nature and is directly applicable to the production restart. This includes
operational planning, which is being carried out in collaboration with independent due diligence
experts and specialist consultants. The Rio Tinto Mine is an established facility on care and
maintenance so lead time is expected to be short and re-commissioning carries low technical risk.
The company has also turned its attention to workforce recruitment and is preparing to recruit
more than 300 personnel. To support this the company intends to appoint a personnel manager
whose role will be integral to planning the organisational recruitment, training and induction
programmes for recruits. The company has already engaged with labour unions and reached an
agreement with the main union to formally open negotiations for a workplace agreement.
Resource upside
EMED Mining has defined a JORC compliant resource estimate of 205Mt at 0.46%Cu for 940Kt of
contained copper for Rio Tinto Mine. Of this 123Mt at 0.48%Cu for 585Kt of contained copper is
classified in the reserve category. The on-site team is planning to assess the upside potential of the
resource by means of a 60,000m drilling campaign for which €8.5m has been budgeted. Drill holes
are planned to test extension targets around the periphery of the existing pit. These priority near-
surface targets could increase the open pit resource by up to 120Mt. With no historical exploration
or mining activities having taken place below 250m from surface, there is also significant
underground potential at Rio Tinto Mine. In order to test this potential, the company is collating
historical data from existing underground workings as part of a data compilation programme which
involves validating and capturing historical data into electronic format. By applying modern
industry-standard tools the company will be able to interpret this data to better understand the
4 | Edison Investment Research | Update | EMED Mining | 5 March 2010
controls on copper mineralisation. This will enhance the design and planning of drilling campaigns
aimed at increasing the current resource estimate.
Expansion potential
Planning based on reserves yields a 14 year life-of-mine at an annual production rate of 9Mtpa. An
increase in the size of the reserve by as much as 40% will require a commensurate increase in
production and processing capacity to 15Mtpa to facilitate extraction. Expansion can be partly
accommodated by the existing processing facilities provided all mills are utilised, but provision will
need to be made for additions to the flotation circuit as well as more screens and the addition of
tank cells. The expansion of the plant and tailings facilities will depend on the company being able
to increase the reserves, expand tailings storage capacity, and obtain the necessary permitting
permissions. The capital cost of this potential expansion to 15Mtpa is expected to be relatively low.
Preliminary estimates are €75m.
As a result the company is targeting restart of the Rio Tinto Mine in Q311 according to the
timetable to production shown in Exhibit 3.
Exhibit 3: PRT timetable to production
2010 2011
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Production
Financials
Based on our forecast of net debt, the funding requirement for PRT will reach a peak of €74m in
2011. This is in line with the company’s stated finance strategy in which it expects to apply funding
of €64m to progress both Biely Vrch and PRT. In Slovakia €4m will be used to support permitting
and advances on the project, while in Spain €11m will be required for counterparty settlements and
€49m will be required for repairs, capex and working capital. The company intends to source
funding through equity, debt and product offtake related facilities.
6 | Edison Investment Research | Update | EMED Mining | 5 March 2010
Exhibit 4: Financials
€'000s 2007 2008 2009e 2010e
Year end 31 December IFRS IFRS IFRS IFRS
PROFIT & LOSS
Revenue 0 0 0 0
Cost of Sales (8,814) (1,362) (4,660) (4,660)
Gross Profit (8,814) (1,362) (4,660) (4,660)
EBITDA (11,740) (4,916) (6,686) (6,686)
Operating Profit (before GW and except.) (11,794) (5,001) (6,771) (7,171)
Intangible Amortisation (104) (9,333) 0 0
Exceptionals 0 0 0 0
Other 88 (2,481) 403 0
Operating Profit (11,810) (16,815) (6,368) (7,171)
Net Interest (25) (243) (290) (479)
Profit Before Tax (norm) (11,819) (5,244) (7,061) (7,650)
Profit Before Tax (FRS 3) (11,835) (17,058) (6,658) (7,650)
Tax 0 453 427 0
Profit After Tax (norm) (11,731) (7,272) (6,231) (7,650)
Profit After Tax (FRS 3) (11,835) (16,605) (6,231) (7,650)
BALANCE SHEET
Fixed Assets 974 11,824 12,019 14,964
Intangible Assets 0 3,820 3,820 3,820
Tangible Assets 277 7,505 8,062 11,577
Investments 697 499 137 -433
Current Assets 5,782 3,745 7,945 58,471
Stocks 106 0 0 0
Debtors 1,238 2,325 2,502 2,502
Cash 4,438 1,420 5,443 55,969
Current Liabilities (1,212) (4,145) (3,871) (3,871)
Creditors (802) (1,735) (1,461) (1,461)
Short term borrowings (410) (2,410) (2,410) (2,410)
Long Term Liabilities (3,007) (308) (5,458) (60,458)
Long term borrowings (3,007) (308) (5,458) (60,458)
Other long term liabilities 0 0 0 0
Net Assets 2,537 11,116 10,635 9,106
CASH FLOW
Operating Cash Flow (10,028) (13,227) (6,164) (6,116)
Net Interest 3 93 (290) (479)
Tax 0 0 427 0
Capex (256) (2,112) (642) (4,000)
Acquisitions/disposals 0 (251) 226 0
Financing 9,664 13,109 5,316 6,120
Dividends 0 0 0 0
Net Cash Flow (617) (2,388) (1,127) (4,475)
Opening net debt/(cash) (1,638) (1,021) 1,298 2,425
HP finance leases initiated 0 0 0 0
Other 0 69 0 0
Closing net debt/(cash) (1,021) 1,298 2,425 6,899
Source: Company accounts/Edison Investment Research
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