EMED Mining resolves inherited debt issue related to Rio Tinto copper mine in Spain

EMED Mining (LON:EMED) has taken another significant step towards the restart of the Proyecto Rio Tinto (PRT) in the Andalucía province of southern Spain. The company’s wholly-owned subsidiary EMED Tartessus SL has settled an outstanding issue with the Spanish Department of Social Security, relating to unpaid social security contributions incurred by the PRT’s previous owners - the now insolvent Minas de Rio Tinto (MRT).

The PRT mine, whose re-start is planned for Q4 2010 and production in 2011, has a JORC-compliant mineral resource of 205Mt (million tonnes) at 0.46% copper for 0.95Mt of copper.

"The restart of PRT has always been as much about the clean-up of the pre-existing legal disputes as it is about the proper planning to elevate PRT both technically and operationally to a 21st century operation ... [this] further demonstrates the progress being made on all fronts”, EMED MD Harry Anagnostaras-Adams commented.
Under the mine's previous ownership, the Department of Social Security was granted liens - a passive right to retain but not sell property assets against an outstanding debt - against the landholdings which underlie the entire mine, minerals title area and plant site of the PRT.

Through its agreement with the Department of Social Security, EMED has extinguished the liens, and agreed a 5-year structured repayment of the €16.9m debt - which covers unpaid social security and interest accrued since MRT went into liquidation. EMED emphasised that it has always been aware of the liens, and accordingly it has already considered the repayments in its financial projections.

The staged incremental repayment structure sees EMED pay an initial €1.3m, followed by five annual payments of €1.1m, €2.9m, €3.6m, €4.2m and €5.9m, including interest. “This transaction is important as it assists the planned project financing arrangements for PRT's restart and the extended repayment profile helps to protect the cash flow of the project in its early years”, EMED stated. In a note, Fox-Davies Capital called the agreement "a very positive move", saying the schedule for the repayments is actually good for EMED: "Whilst the company had always budgeted this payment, the schedule as agreed actually better matches the cash flows of the project."

It said this transaction is important for the central government as they will recover 100% of a large, long outstanding debt with interest. It also assists the planned project financing arrangements for PRT’s restart. The broker noted that solving the debt issue is the second very positive step towards production following the recent announcement that electricity was to be reconnected to the site.

Additionally, the company told investors that it continues to make progress with its permitting activities, as it works co-operatively with all relevant government departments to complete the full range of requested technical submissions on schedule in the coming month.

Specifically, EMED said it still needs to finalise the terms of an acquisition of certain adjacent landholdings needed for the new PRT mine. To that end, the company stated that, in the absence of a negotiated agreement, it will initiate a compulsory acquisition permitted under Spanish law. According to EMED, the relevant independent valuations have already been carried out.

Last month, the company updated investors relating to the PRT permitting, being submitted to the relevant regulatory authorities of the Junta de (Government of) Andalucía. These submissions are being finalised in line with the schedule outlined in the permitting roadmap announced in December 2009. This work has involved regular consultation and interaction between the EMED Mining team, its technical consultants and the authorities where appropriate.

The combined efforts of those various experts have led to many improvements being designed into EMED Mining's plans for restarting PRT. The restart submissions will now be based on an extended mine life of 14 years along with commitments to exploration drilling to be carried out in the first three years.  This exploration is targeted at doubling the current ore reserves.