EMED Mining’s £10m placing (7th May 2008) lays the equity foundation
for the exercise of its Rio Tinto options. Although with debt financing still
to be arranged, it appears unlikely that any further equity will be needed.
We set an initial target price of 70p per share, against the current price
of 23.75p.
EMED Mining is on the verge of exercising its option to acquire the Rio Tinto mine
near Seville in Spain, which has a clear and quantifiable value well in excess of
acquisition cost. The share price implies risk of non-completion: however, such
risk appears now to be minimal.
Our estimates suggest a conservative value for the Rio Tinto mine of about
£125m, against the company’s market capitalisation of £47m.
In addition to Rio Tinto, EMED has:
􀁺 A Gold deposit containing 1.2m ounces at its Biely Vrch discovery in Slovakia,
based on preliminary estimates which have yet to be proven to international
JORC Standards
􀁺 Two further gold discoveries in the immediate vicinity.
􀁺 Inferred resources of 41m pounds of copper and 54m tonnes of zinc at Klirou
in Cyprus.
􀁺 Other prospects in Bulgaria, Albania and Turkey (Turkey through its 32%
owned associate KEFI Minerals).
Our estimates assign value only to the Rio Tinto and Biely Vrch projects, with no
value attached to the remainder of the company’s portfolio of prospects.

VALUE
EMED Mining can be viewed in a number of different ways, but the most pertinent
are:
􀁺 As a soon-to-be copper producer at a substantial discount to its copper assets,
with its exploration assets thrown in for nothing, or
􀁺 As a gold explorer, with a price justified by the results of its gold exploration to
date, but with a significant copper mine thrown in for nothing.
We prefer the first of these views, given that there appears now to be a very
small risk indeed that the option to acquire the Rio Tinto mine will not be
exercised: timing of this is still subject to due process.
EMED Mining’s resolution of a difficult and complex legal and regulatory
nightmare means that it is about to acquire a significant mining asset at
a bankrupt price. The Rio Tinto mine has the following characteristics:
􀁺 A comprehensive history of copper production from the area and from the
specific mining assets to be acquired.
􀁺 Well defined reserves and resources under the JORC Code. The numbers are
clearly conservative, and should expand on further work following acquisition.
􀁺 Low grade fully compensated by reasonable C1 cash costs, and
􀁺 Little or no capex requirement. The processing plant and associated assets are
all in place, and can be brought to full production quickly.
Rio Tinto represents a not-to-be-refused off the shelf option for EMED, and should
be valued as such.
Our central estimate of NPV for the Rio Tinto mine is $246m, with an additional
$78m to be added for the Biely Vrch gold discovery in Slovakia. Although our
Biely Vrch estimate is tentative, the estimate for Rio Tinto is certainly
conservative, based as it is on stated reserves, taking no account for expansion of
reserves on further work or the likelihood of additional resource definition. We
have also, conservatively, not assigned any value to the company’s other
exploration assets in Slovakia, Georgia and elsewhere, despite two further gold
discoveries in Slovakia, nor for the copper/zinc project in Cyprus, where a
feasibility study can be expected in due course.