Iberian Buys Peruvian Copper Mine

Vancouver — Iberian Minerals (IZN-V, IZNFF-O) recently took two steps towards its goal of becoming a mid-tier base metals producer with the acquisition of a producing copper mine in Peru and the signing of a US$200-million credit facility to fund development at the company’s Aguas Tenidas copper-zinc-lead-silver mine in Spain.

In September, Iberian announced it is buying 92% of the issued and outstanding shares of Lima-traded Compania Minera Condestable (CMC) from independent commodities trader Trafigura. CMC owns and operates the Condestable mine, located 90 km south of Lima.

The mine has been in continuous production since Trafigura acquired it in 1997. A series of exploration and mill expansion projects has significantly increased production; the final expansion phase under way is expected to bring mill capacity to 6,000 tonnes per day. In 2006, Condestable produced more than 18,200 tonnes copper, 13,500 oz. gold, and 153,500 oz. silver. The mine ran a net profit of US$8.7 million.

The project actually encompasses the Condestable and Raul mines, the latter of which has been the primary mining focus to date. Raul holds proven and probable reserves of 4.63 million tonnes grading 1.53% copper. Condestable holds 532,665 tonnes grading 1.06% copper (reserves as of March 2007).

The transaction is valued at US$115 million, which Iberian will pay by issuing 66 million shares to Trafigura at a deemed issue price of $1.80. The price is a 38% premium to Iberian’s 20-day volume-weighted average trading price of $1.30.

Trafigura currently owns 20% of Iberian’s issued and outstanding shares. The transaction will bring Trafigura’s ownership of Iberian’s 252 million issued and outstanding shares up to 41%, with the remaining 59% held by the public. Completion of the transaction is subject to approval by Iberian shareholders, excluding Trafigura. That vote is planned for late November.

Following completion of the deal, Iberian plans to make a follow-up offer to the minority shareholders of CMC, then delist the company from the Lima stock exchange. Trafigura will retain a 46% net profit interest (NPI) in Condestable, from 2011 until the end of 2014. Iberian has the option to acquire the NPI for $60 million.

In the letter of intent, Trafigura also agreed to provide Iberian with an unsecured loan of $20 million towards development at Aguas Tenidas, and $60 million in additional debt financing at Iberian’s request.

Iberian chairman Norman Brewster pointed to added cash flow as one of the main reasons for acquiring the project.

“With the cash flow from Condestable, Aguas Tenidas is fully financed to complete development,” he says. “It also significantly increases our production expertise.”

Two days after the Condestable announcement, Iberian had more news: the company secured US$200-million in credit from Investec Bank. The new mandate letter significantly increased Iberian’s credit line with Investec from the US$65 million signed in 2005.

The 5.5-year credit facility is composed of a term loan of US$160 million to be repaid in semi-annual installments starting in June 2009; a similar cost-overrun safety net of US$30 million; and a convertible loan of US$10 million to be used alongside the term loan to finance development capital costs at Aguas Tenidas.

Iberian’s 100%-owned Aguas Tenidas project in the Iberian Pyrite Belt (IPB), in southwestern Spain, is a volcanogenic massive sulphide deposit hosting two kinds of mineralization. In the polymetallic zones, Aguas Tenidas hosts proven and probable reserves of 10.66 million tonnes grading 1.03% copper, 6.62% zinc, 1.99% lead, 67.5 grams silver per tonne, and 0.81 gram gold. A more copper-rich zone contains 8.35 million tonnes of proven and probable reserves grading 2.19% copper, 1.24% zinc, 0.27% lead, 28.6 grams silver, and 0.42 gram gold.

Navan Mining (now defunct) extracted more than 895,000 tonnes of polymetallic ore from Aguas Tenidas between 1999 and 2001. When metal prices fell, Navan handed the project to Spanish mining contractor Insersa, which sold it to Iberian in 2004 for $11.8 million.

The previous operators left plenty of infrastructure, including a paved 4.5 by 5-metre ramp to 450 metres below surface, four 400-tonne storage bins, a water treatment plant, and a 300-tonne-per-hour primary crusher.

Iberian is adding to the infrastructure considerably. A recent prefeasibility plan called for a second access ramp to link the surface processing facilities with the main underground system with a portal adjacent to the primary crusher. The new ramp will be 3.8 km long and 585 metres deep with a 15% gradient.

The company is also building a new plant on-site with two processing circuits, one for each type of ore. Mill throughput is planned at 1.7 million tonnes annually, giving a 12-year mine life. The western portion of the deposit, currently an inferred resource, and a predicted continuation of mineralization beyond, will likely add to the life of the project.

Total project capital cost is estimated at US$242.9 million. The internal rate of return is expected to run at 32.6%, giving a 2-year payback, and the net present value is US$226 million, using an 8% discount rate.