As share price catalysts go, EMED Mining’s (LON:EMED) news of the ‘fourth signature of non-objection’ is pretty obscure.
On Wednesday it told investors that it has received the necessary signatures on a statement of non-opposition from the liquidators of the Rio Tinto copper mine’s previous owners.
The news sparked a buying frenzy on London’s AIM market, with huge trading volumes and at one stage a 30 percent intraday rally. But what did the statement actually mean?
Basically, EMED has jumped another bureaucratic hurdle as it works towards the redevelopment of the copper mine in Andalucia, Spain.
It has now formally submitted the statement to Andalucia’s regional government – Junta de Andalucia.
The Junta requested the non-opposition statement as a prerequisite before it would consider granting EMED the administrative approvals need for the project.
EMED now expects the Junta to begin a formal review process to determine whether it should receive the various approvals - based on EMED’s legal, technical and economic capacity to operate the Rio Tinto project.
Peter Rose, mining analyst at Fox-Davies, described the update as "the most promising press release put out by EMED for a long time".
“We believe that EMED remain on schedule to restart the Rio Tinto copper mine in late 2011,” Rose said in a note to clients.
The analyst rates EMED as a ‘buy’, with a 53 pence per share target (current price 10.1p).
A significant project with a long history ...
EMED’s flagship asset is the Rio Tinto mine - also known as Proyecto Rio Tinto (PRT) redevelopment - in the Andalucia region of Spain.
First and foremost investors must appreciate the mine’s sheer size and heritage.
It is undoubtedly a significant project. EMED foresees a 9 million tonne per year mining operation that will produce 37,000 tonnes of copper concentrate each year.
One forecast sees the PRT providing annual earnings (EBITDA) of US$70 million, giving net present value (NPV) of £414 million (or 63p per share) and an internal rate of return of 128 percent.
But, in case you haven’t already guessed, restarting the mine is not that straightforward.
In contrast to the assets of many of its exploration focused peers, EMED’s main project is certainly not a new discovery. In fact, with some parts dating back to Roman times, it is one of the world’s oldest copper mines.
More recently (in relative terms anyway) the company that is now known as Rio Tinto (LON:RIO, ASX:RIO) owned the mine since the late nineteenth century.
The mine was operational until 2001, when it was put on care and maintenance by the last owner, Minas de Riotinto SAL, after copper prices slumped in the early 'noughties'.
Subsequently Minas de Riotinto went bust, leaving the mine and its associated assets in the hands of the liquidators.
Prompted by a resurgence of copper prices, EMED acquired a 51 percent stake in the mine back in 2007. It subsequently exercised an option to acquire the remaining 49 percent.
EMED now owns 100 percent of the mining rights over the Rio Tinto mine area.
Now what about the land?
Land ownership is perhaps where things get most complex. Whilst EMED owns the mining rights to the PRT, it does not own all the land required to fully restart the mining operation.
Various parts of the land holdings are subject to liens - a passive right to retain but not sell property assets against an outstanding debt – as a result of Minas de Riotinto’s liquidation.
According to EMED, the only lien that is critical to the re-start of the project is currently held by the Department of Social Security, and earlier this year it took steps to secure the land.
In May it was agreed that the Department of Social Security would not exercise their lien and EMED would repay the total debt owed to the department, over a five-year period.
Additionally, certain parcels of land that are required for the mine’s full operation, including tailings disposal, are held by other parties.
In a recent prospectus – relating to its pending TSX listing – EMED said that negotiations are under way to acquire the remaining land but it may need to use a compulsory acquisition process.
It believes that the compulsory purchases could take less than 12 months, but it put the worst-case scenario at up to two years.
What’s next?
The short answer is the remaining permitting and approvals.
Now that the ‘fourth signature’ has been received and submitted, EMED expects the Junta de Andalucia to begin a formal review process to determine whether it should receive the necessary approvals for the project.
EMED has already submitted all the required permitting documents to the Junta.
It now hopes to reach the next big permitting milestone, referred to as ‘administrative standing’, in early 2011.
Effectively by granting the ‘administrative standing’, the Junta will confirm that EMED is legally, technically and economically competent to operate the mine.
Once this is granted, EMED and the Junta will then finalise authorisations for other associated activities - such as tailings storage, equipment usage, blasting etc.
Finally the Junta will then verify that EMED has the necessary financing and insurances in place, before the mine finally resumes operation.