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Emed Mining

Full transcript of interview with Harry Adams of EMED Mining

When EMED was founded the vision was to create a major mining company based in, and focused on, Europe's untapped geological potential; is that still the vision?

Absolutely. We feel that our projects reflect exactly that vision; we feel that our task list, in the next three, six, twelve months, is specifically focused on exactly that vision.

When we last spoke, EMED had just confirmed the discovery of a gold porphyry deposit in Slovakia. What has the company been up to in Slovakia since?

The first discovery hole was about two years ago and in that time we have deciphered the riddle, so to speak; we know exactly what we're dealing with now, geologically, and because we have our eye into the style of mineralisation and what to look for, we're getting pretty good now at predicting where to go and how to drill, to extent that we've now discovered not just merely Biely Vrch, the discovery area, but we've discovered two more - and we've identified quite a number of other prospects that look very similar. That’s one thing - so, we've got our eye in.

Number two, we've demonstrated that there’s are a number of these deposits, and number three, we have done a lot of pattern drilling at Biely Vrch to convert what was a discovery into a resource measured in respect of international standards. We've done about two thirds of the drilling now that one would need to do, and we expect to finish the rest of that drilling by the end of this year on Biely Vrch, and the way we're heading we think we'll be able to report a drilled resource on that deposit.

When we last spoke, EMED had just acquired the rights to acquire one hundred per cent of the Rio Tinto copper mine in Spain. Can you bring us up to date on progress in Spain, please Harry?

Yes, I'll break down the process and the progress into three or four constituent parts. The first thing is what I would call ‘the technical evaluations’. We've got through the geology, engineering, financials and so on of the project, and we have proven up to JORC standards the resources and reserves - one million tonnes of copper in resources and 600,000 tonnes of copper in reserves. I'd be bold enough to suggest that’s probably the cheapest one million tonnes of copper in JORC resources assembled in the last twelve months in the world.

Moving on from geology, on the engineering side, we've gone right through the whole plant, and tested all the critical parts of the plant and inspected the rest of the plant, and I've done some running repairs whilst we’ve been there just because we feel like we're edging closer to the 'go ahead' and starting to get things ready. The third thing on the evaluation of the project is the economics; we've got detailed financial models and projections of a base case and that’s all very robustly done and independently signed off. So that’s evaluating the project's fundamentals. The second thing is the legal side of things. We inherited a mess of disputes and complications, and not a clean and easy to understand set of legal arrangements, and that’s really the essential reason why the project wasn't operating two years ago.

We've had to spend a lot of time and money with very good lawyers in Spain, and the UK as well, to tidy this thing up to the satisfaction, not just of ourselves and our financiers, but also of the authorities. That’s been the most difficult thing we've had to do, and we feel very comfortable with the position we've got it to and we think we're very close to being able to move forward to the satisfaction of the authorities on that front. That’s the legal side. The third thing is the permitting side, the mining permitting side - all the things one has to have permission for to operate a mine - and all the answers for all the questions for the regulatory authorities have been prepared and most of them submitted. So, they're the three things we've done: the fundamentals, the legal, and the permitting answers for the questions from the authorities.

Can you tell us about the financial position of the company?

Well, we put out our interim report yesterday and it’s all laid out in great detail. We had £7million in the bank at the half year, we have stand-by facilities that we arranged last year that have been all spelt out, and when we trigger the restart we'll need to arrange funding of the one hundred per cent acquisition of the project and the restart process and that’s all been laid out in great detail. We are expecting a financing package in the order of £70 million and we expect that to be mostly by way of debt, because of the debt facilities and guarantee facilities, and because of the rapid pay back from the cash flow to the project once it’s started.

What can we expect over the next twelve months from EMED, Harry?

The critical thing is for the company to actually complete the delivery on a couple of things. One is in Slovakia, to prove up to JORC standards the first deposit and, hopefully, lift to ‘major discovery’ the other deposits we've found. So, that’s fairly easy to convey and we hope that the first deposit is of JORC standard by the end of the year, and we're well on the way. I think in today’s environment for gold that’s a significant achievement - even if that was the only thing we had achieved in the three years since we listed, that would be a great achievement.

To turn to Spain, the first thing to say is that in terms of the project’s probability of going ahead, I think there is a zero probability of it not going ahead - that’s my considered judgment. The second thing is ‘when’; I feel we're on the cusp of cleaning up the legal side, which is the critical thing. Then as far as, let’s call it ‘the technical permitting things’ – blasting, environmental safety and so on - I do wish to highlight that this is a long standing operation. We're not making up ideas on how to operate it - they’re standard practices that have been applied at that particular site for many years, in compliance with the rules and regulations of the country, and we're going to respect those long standing practices and regulations, and we've submitted our answers to nearly all of the questions we've been asked.

So I expect that the technical permitting side, the normal mining side, will be quite procedural and straightforward. I'm sure we'll have to go into great detail with many of the inspectorate and regulatory authorities because they're very careful, and cautious, and responsible people. And so they should be. But really, it’s not a new project where there are any riddles; it’s a longstanding operation. Once we clear the legal barrier, if I can call it that, which again I think we're on the cusp of, I think the rest will be pretty straightforward and I expect that we'll be commissioning by the middle of next year, and that we'll be in full production by the end of next year.

Are you affected by any capital cost pressures at the Rio Tinto mine?

Oh, relative to ninety nine out of one hundred mining projects, generally around the world, the simple answer is ‘no’ because we're not buying any large capital equipment items. Everything is in place; we're just buying the odd spare that has gone astray over the last few years before we came along, and that’s all we've got to expose ourselves to.

Are you still comfortable with the price of copper in regard to operating the Rio Tinto mine?

Yes. Putting aside our views on the long-term price of copper, the key question is ‘what’s the operating cost of the site and how is that vis-à-vis current prices and projected prices?’ And the operating costs of the site, coupled with the capital requirements of the site, are very respectable vis-à-vis other new projects being developed all over the world.

The grade is quite typical of most new projects being developed. So, the low capital required with the high copper prices now projected makes this quite comfortable. The economics are robust. Having said that we will drive very hard for improvements in productivities once we’re up and running, because the site historically was run by a workers’ co-operative in its last five years, and it wouldn’t be fair to not introduce the latest thinking, and most recent work practices, and ideas and efficiencies, once we’ve started up.

Are you under any pressure to undertake work on your gold prospects on Georgia, Harry?

No. We suspended the work there a couple of months ago, fortunately before the military hostilities in the country; that was fortuitous. But, there’s no pressure because we’ve spent more than the money we are required to spend under the regulatory regime there, and that we promised to spend, so we are under no pressure at all.

What’s happening with your copper-zinc prospect in Cyprus?    

There’s a fairly low level of expenditure there at the moment, because all the effort, time and money are being put into our two big projects in Slovakia and Spain. But the deposit has been JORC’d; it’s on the small side. We need more resources to warrant development planning and we’re working carefully with opportunities on the island, both north of the divide and on the southern side of Cyprus, to see what opportunities might emerge from the possible reunification of the island.

There was a major copper mine on the northern side of the island and it stopped production in 1974, when there was the military occupation of that part of the island, and it was a very, very profitable and long-standing copper producer at the time that operations stopped. So, we’re evaluating the possibilities of looking at that part of Cyprus and getting involved with that, if the reunification proceeds which everyone is trying to achieve.

Do you still believe that we’re in a strong metals price cycle, which will last at least another decade?

I do. I think the current turmoil in financial markets is quite distressing - I think, for everybody in the world - and clearly it will lead to some economic damage around the world, not just in the west. Therefore caution and discipline is the order of the day because of what I regard as extreme, and in some respects, unprecedented levels of volatility and distress in parts of the financial community.

However, the fundamentals of the global economies rest, first and foremost, for the next ten or twenty years, on the industrial revolutions taking place in China and India, in particular. Those industrial revolutions have commenced and they won’t stop; having commenced that process, the social fabric of those countries - and the more than two billion people that inhabit those countries - rests on continuing industrialisation over the next twenty years. Albeit that there’ll be ebbs and flows in the processes from one year to another, that process is unstoppable, just as the industrial revolutions of Western Europe and North America were unstoppable, notwithstanding ups and downs in financial markets. So, I think the consumption of copper, in particular, is probably the safest bet of all the metals, because of the amount of copper used in infrastructure, and infrastructure development in India and China is driving the copper price for a long time to come. So, I think the copper price has a lot of upward leverage in it, much more upward leverage in it than downward leverage.

On gold, I think the extreme volatility in financial markets today is driving the gold price. Five years ago, people who thought that the gold price predictions of US$1000 and US$2000 were stupid or bold, I think, today, would not think so. I was on the World Gold Council, and I was reading these reports five years ago and most people were incredulous, and today I don’t think anyone would regard it as incredulous. I think major central banks around the world are now starting to review their policies and have announced an indicated intention to move back into gold as part of official policy. So, I think we’re exposed most to the …. if I can put it: EMED has upside leverage, through the gold side, to the volatility of the financial markets, driving gold up; and EMED has upward leverage on the copper side, to the fundamentals of the global economies, driving copper up. So, I feel we’ve positioned ourselves on two excellent projects within three years of a float, and I think it’s a great achievement.


How are gold porphyries are different from the run-of-the-mill copper porphyries.

As a non geologist, and as a Managing Director, my pre-occupation is really one of the dimensional characteristics of them, and the typical dimensional characteristics of them is that they are very large tonnage because they’re pervasive over hundreds of metres, and that’s a typical characteristic of all the ones of the half a dozen of these types of systems discovered internationally, to date. So, they’re big, that’s the first thing. Again, from an economic geology point of view, the second characteristic I’m focused on is what’s their grade, and these things are all low grade - they’re always 0.2-1.8 grams.

Therefore, the good question is ‘are they closer to the 1.8 or closer to the 0.2?’, because at 0.2 they’re dead; it doesn’t matter how big they are they’re just not economic. But, at 1.8 they’d be enormously profitable and our one is sort of in the middle, the first one we’ve discovered. The drill out of that will demonstrate whether it hangs in there, in the middle, or not. But if it pays around a gram, and it stays big enough, then we’re in business.

The third characteristic I focus on from economics is the metallurgy – how much gold can you actually get out of the thing. It doesn’t matter how much you’ve got in the ground if you can’t get it out cheaply enough. These things typically are just gold - they don’t come with anything else, which is good because it means that it’s not complex to recover. So, we’ve done some preliminary metallurgical tests and that’s certainly the case here, it’s fairly easy to recover in conventional heap leach processes. Recovering sixty to seventy per cent of the metal is a typical recovery and that’s the sort of thing you’d expect here. So, they’re the three things – size, grade and recovery. The half a dozen gold porphyry systems discovered in the world are all exactly as I’ve just described; they’re all big, low-grade and easy to recover …and they always come in clusters. You don’t just find one deposit - you find clusters of them.

When we last spoke you were unhappy with the AIM market and said that too much rubbish had been floated on AIM. What are your thoughts on the AIM market now, and is EMED considering listing on another market?

Well I think the passage of time since that conversation has probably vindicated my views. On what’s happened - now obviously, it’s been mainly driven by world factors, not AIM factors, but I think there’s been a concerted effort by the regulatory authorities on AIM, and all the people who take part in it, to make AIM as strong a market as possible, and I think we’ve seen it in a number ways. So I don’t feel so jaundiced about the AIM market, per say, any more.

But, I think it’s because there’s been a response by everybody concerned - it’s not just my view – I think it’s been demonstrated that AIM has lifted its game, if I can put it that way. Going to the question about the listing, I do believe that it’s the right thing to do, and I think that around the time of going ahead at Rio Tinto we’ll be duel-listed, probably on the ASX market.