re: miningnews DESPITE ongoing assurances about the security of...

re: miningnews DESPITE ongoing assurances about the security of tenor of its Mehdiabad zinc project in Iran, Union Resources has revealed its Iranian Government partner has terminated a series of agreements relating to the project, causing investors to flee the stock, cashing in for as little as 1.4c per share.



Union Resources' Mehdiabad lead, silver and zinc project in Iran

Union said it received a letter from its Iranian partner, the Iranian Mines and Mining Industries Development and Renovation Organisation (IMIDRO), advising the company it has failed to fulfil its obligations under four agreements that underpin its stake in Mehdiabad.

"So please convey your authorised representatives during the next two weeks for the final settlement," the letter said bluntly.

Union managing director Rob Murdoch told MiningNews.net the agreements were cancelled by IMIDRO on the basis Union did not complete a pre-feasibility report for the project in the timeframe stipulated under the feasibility report.

"What they're saying is we didn't provide the feasibility report in two years which [was due in] 2001 [so] why are they complaining about it in 2006, five years later?" Murdoch said.

"We did provide a report in the two years, a pre-feasibility report, which said this is a very big … low-grade project and it was [in] 2006 we produced the feasibility study by Aker Kvaerner.

"There's a clause there that says if we need any extra time for technical reasons and we're continuously working on the project, then reasonable extensions of time will be given.

"If you look at our website or our quarterly reports, you can't say we've stopped working on it."

Union has been having difficulties with IMIDRO recently, with the Iranian group stalling over the transfer of the exploitation licence from its control to that of Mehdiabad holding company MZC.

Union has a 25% stake in MZC and by taking into account loans convertible to equity it has an interest of more than 40%, according to Murdoch. The loans should have been converted to equity in MZC by now but have not.

Murdoch remains upbeat about Union's chances of resolving its differences with IMIDRO and not having the project misappropriated after more than seven years of work on it.

"They have no right to cancel [the agreements] but the letter is considered material because of where it's come from and unfortunately we've had to disclose it," Murdoch said.

"Whilst it's a major setback, it's not the end of the ball game.

"We've called for a meeting with the Minister of Mines and we're reasonably confident that will be held before too long.

"[Iran] are on judgement how they handle this and if they handle it in a positive way the outcome for Iran will be good and if they handle it in a negative way then it will not be good."

Murdoch said Union has political risk insurance in both Iran and Australia.

Mehdiabad is described by Union as a world-class project with one of the largest undeveloped zinc resources in the world. The most recent resource estimate for the project is 394 million tonnes grading 4.2% zinc, 1.6% lead and 36 grams per tonne silver.

Recoverable metal equates to 11.6Mt of zinc, 3.3Mt of lead and 134 million ounces of silver.

The zinc price has been storming lately as a result of strong demand and low inventories. It closed at $US4346 per tonne on the London Metal Exchange overnight.

The Mehdiabad feasibility study completed in May this year by Aker Kvaerner was the basis of an economic study by CPK Consulting that concluded a plant producing 300,000t per annum of zinc metal on site plus 100,000tpa of zinc concentrates is optimal.

The plant would also produce 100,000tpa of lead-silver concentrates.

Capital costs for the development have been forecast at $US1.6 billion ($A2 billion) with operating costs of $US600/t of zinc or $US290/t after accounting for lead and silver credits.

The difficulty of raising the necessary capital for the Iranian project forced Union to start a study investigating a staged development in October to reduce the start-up capital costs while maintaining the longer term economic viability of the project.

Union is continuing to work on the study and the wider project in spite of the current crisis.

"Ultimately the way will be cleared properly for investment in Iran because this is a highly embarrassing situation for IMIDRO and the state of Iran," Murdoch said.

Shares in Union traded as low as A1.4c this morning but had recovered somewhat to be trading at 2.4c during early afternoon trade.