Iberian buys Peruvian copper mine and secures $200 million to develop Aguas Tenidas

Vancouver – Iberian Minerals (IZN-V) 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 from Investec Bank to fund development at the companys Aguas Tenidas copper-zinc-lead-silver mine in southwestern Spain.

On Sept 19 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 Condestable 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 currently underway is expected to bring mill capacity to 6000 tonnes per day. In 2006 Condestable produced 18,267 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% (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 the 20-day volume-weighted average trading price of Iberian of $1.30.

Trafigura currently owns 20% of Iberians issued and outstanding shares. The transaction will bring Trafiguras ownership of Iberians 252 million issued and outstanding shares up to 41%, with the remaining 59% held in public flow. 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 in Condestable, commencing in 2011 and ending at 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 an additional $60 million in additional debt financing at Iberians 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 a US$200 million credit facility from Investec. The new mandate letter significantly increased Iberians credit facility with Investec from the US$65 million signed in 2005.

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

Iberians 100%-owned Aguas Tenidas project in Spain’s Iberian Pyrite Belt (IPB) 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 grams gold per tonne. The cupriferous zones contain 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 grams gold.

Navan Mining (now defunct) extracted more than 895,000 tonnes of polymetallic ore 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 pre-feasibility 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 3,800 metres long and 585 metres deep with a 15% gradient.

The company is also building a new plant on site with two spate 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 mine life.

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