A reasonable summary for a journo. Covers the potential and also...

A reasonable summary for a journo. Covers the potential and also the problems without getting caught up in the usual emotional reactions most commentators seem to do when talking about Iran

http://www.theaustralian.news.com.au/story/0,20867,21474751-15023,00.html

Union's zinc play - shame about the location

March 30, 2007

TWO year's ago Union Resources was flying high and its shareholders had big hopes that it would pull off one of those classic minnow-to-major miner stories that become the stuff of legend in the industry.
Its Mehdiabad Zinc Project is one of the biggest untapped zinc deposits in the world. So big that the pundits claim should it ever come into production, it would influence zinc prices for the worse.

In March 2005 Union was reporting impressive assay results from Mehdiabad of up to 12.2 per cent grading at shallow levels.

Remember, this was at a time when zinc was only fashionable as something to put on the nose to protect against the sun's rays.

Since then those days the price of zinc has tripled and zinc miners are the ones living it up in the sun.

Mehdiabad's fundamentals look something like this: 12 million tonnes of contained zinc (only preliminary estimates) and a possible 30 year mine life.

Life was so rosy that its own review of the Mehdiabad project showed that the cost to produce a tonne of zinc at Mehdiabad would be around $US600 a tonne for the life of the project.

The spot price of zinc is currently trending around $US3200 a tonne.

But the key to Mehdiabad, and this is crucial to the whole Union Resources story, is that the deposit is in Iran - 550 kilometres to the west of Tehran.

You don't need to be a nuclear rocket scientist to know that Iran isn't the easiest place in the world to do business, let alone $1 billion worth of business as Union wants to do.

But Union had seemed to have built up some key contacts since it first started looking over Mehdiabad in the late 1990s.

Back in 1999 it signed a Basic Agreement with the Iranian authorities which required Union and its partners in the project, the Iranian Mines & Mining Industry Development & Renovation Organisiation (IMIDRO) and engineering firm Itok Iran, to deliver a feasibility study for the project within two years.

Union holds 38 per cent ownership at Mehdiabad with the Iranian State controlling 50 per cent and Itok 12 per cent.

There were provisions in the Basic Agreement for the timeline to be extended, something that appears to have occurred on many occasions and which Union duly needed.

One of the big problems Union faces at Mehdiabad, and there are many, is the issue of how exactly to raise the funds given that European and US banks are loathed to invest in Iran.

BHP Billiton found that out when financing problems forced it to scrap its proposed Iran to Pakistan gas pipeline in 1998.

The best bet for Union is banking interests in the region will stump up the cash. But Union faces more pressing matters than financing at the moment.

Like the fact that IMIDRO wrote to them late last year and told them it wanted to terminate four of the five agreements Union had already signed for Mehdiabad, including the Basic Agreement.

Those close to Union say the threat can mean only one thing; that the Iranians want to get more of the Mehdiabad pie as part of some nationalistic push to control the countries resources.

It is believed that IMIDRO wants to take control of the exploitative mineral rights and let Union build the processing plant to prove itself as a worthy partner.

Union would never go for that and in terms of financing, it might be able to get away with financing say a $100 million "mini" plant before upsizing at a later date.

Because as mentioned before, there is no way anyone is going to give it the billion-plus in funds it needs.

Union managing director Rob Murdoch, a former senior executive at MIM, said today that so far dispute resolution procedures with IMIDRO had been unsuccessful.

However he was hopeful that more meetings scheduled with key Iranian government stakeholders might prove more fruitful.

Mr Murdoch has always maintained that the political situation in Iran has no ramification for Union's hopes for Mehdiabad, but wants IMIDRO to withdraw the termination letter.

"It could be that they feel we won't develop the project," he said. "We still haven't got the water licence, the exploration licence and the environmental licence that we need to move to the Bankable Feasibility Study stage."

If Union can't get resolution with IMIDRO, then it has promised to refer the matter to the International Chamber of Commerce for arbitration.

But, as some analysts have commented, a change of presidency for both Iran and the US could be enough to swing a change of heart over the project.

By the end of September in 2005, Union shares were worth 11c a share. The are now trading at 2.1c.