EMED Mining
Edison | Mar 12, 2015 12:28AM ET
Production in late 2015-early 2016
Following successful completion of the permitting process at the Rio Tinto (LONDON:RIO) project, Emed's(LONDON:EMED) focus now shifts to securing a funding package. While we have little doubt that the company will be able to raise the required funds, we note considerable progress on refurbishing the project using available equity and debt financing. We value the Rio Tinto copper project at US$262m on an NPV10 using a copper price of US$2.75/lb. Trading on a fully-funded steady-state EV/EBITDA of 3.5x, the stock looks attractive.
Significant progress on the permitting front
On 11 April 2014, EMED announced that the government of Andalucía had authorised the transfer of the mineral rights for the Rio Tinto copper project, which followed the receipt of the Unified Environmental Authorisation in March 2014. In January it received the mining permit, which includes approval of the Restoration Plan. These are the key regulatory approvals required to restart the project.
Near-term producer with low capital intensity
The Rio Tinto copper project is an advanced development, with first production realistically achievable in late 2015. It has a capital intensity below US$6,000/t to reach a 9Mtpa run rate, which is largely due to management’s ability to reduce pre-production capex by more than US$50m. The project also has a relatively attractive cost positioning, with an estimated C1 cash cost of US$1.55/lb net of by-products.
Strengthened management team
The new management team is well positioned to facilitate EMED’s transition from explorer to producer. Alberto Lavandeira, recently appointed CEO, has over 36 years' industry experience, having been involved during 12 years with Rio Narcea Gold Mines and during more than six years with the development of the copper-cobalt Mutanda JV in the DRC. He also worked in senior positions in the Spanish subsidiaries of Rio Tinto, Anglo American (LONDON:AAL) and Cominco.
Valuation: Attractive on a relative basis
We have updated our model of the Rio Tinto coper project to incorporate the announced cost-cutting initiatives and also slightly update opex estimates. Our NPV10 yields US$262m in equity, using a copper price of US$2.75/lb. On a fully funded basis, we tentatively estimate that EMED trades at a steady-state EV/EBITDA of 3.5x. Leaving the financing and execution risks aside, this valuation looks attractive compared to producing copper peers. Having essentially been de-risked by receipt of the key permits, securing the funding package is the last major hurdle to overcome to restart the Rio Tinto project.
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