SmallCapNews | Mine over matter: Interview with Harry Anagnostaras-Adams, MD of EMED Mining plc

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Mine over matter: Interview with Harry Anagnostaras-Adams, MD of EMED Mining plc

13 March 2009

Depressed commodity prices, tumbling share values and tough credit markets are conspiring to make life difficult for AIM’s army of junior miners. For Harry Anagnostaras-Adams, the current climate has demanded searing cost cuts and tough exploration decisions – but he remains quietly confident about the company’s prospects.

“As far as the economic downturn goes, we’re in the thick of it but I think we’re one of the luck ones,” says the managing director of EMED Mining plc. “It’s terribly challenging for a lot of people.”

For Adams, the current state of the market calls into question the business model of floating what he describes as ‘cash-spending machines’ which need regular support from shareholders.

“It is a strategy that is founded on the old venture capital model, where a business achieves certain milestones and comes back for more support for the next few steps,” he says. “The model hasn’t died but its viability is certainly in question.

“It highlights to me that you can’t just look at the people and the projects of a company any more - you need to look at the shareholder structure. That third element today is perhaps of equal importance to the other two. I think any company in the junior resources sector that doesn’t have cash generative assets today and is reliant on the retail shareholder base is in a pretty dire situation.”

Shareholder strength

Since bringing EMED to AIM in May 2005, Adams has got his hands on two major projects – a gold mine in Slovakia and a copper mine in Spain – as well as a string of other interests, including a 32% stake in spin-off company KEFI Minerals plc.

While the company has not yet made any money out of its assets, production at the Spanish Rio Tinto mine is set to begin within 12 months, which should see a welcome flow of cash into the company. Production at the Slovakian Detva discovery is expected within a couple of years.

With this in mind, Adams has just agreed an $8.5 million secured loan from two of EMED’s mining-focused shareholders, Resource Capital Fund IV and RMB Australia Holdings, to fund its activities through 2009. He says the company’s deliberate efforts to attract investors who understand the company and its markets have set it in good stead.

“We build our shareholder structure in the same careful way that we build our teams and build our assets,” he says. “In most presentations people don’t focus on it, but for people in the industry – people who are actually building a mining company and dealing with governments and communities – the structure, stability and strength of your shareholder base is as important as the people in your company and as important as your assets.

“We’re building a mining company, albeit only four years old, and it does have some strong people, it has some strong assets and it has some strong shareholders, and a diversified base of shareholders.”

Nevertheless, EMED has not been immune to the wider economic environment and like many of its peers has been forced to make redundancies. Spending this year has been slashed to less than half of what it was in 2008 – with every penny now earmarked for developing its two core projects.

In Spain, where EMED acquired the Rio Tinto copper mine and processing facility in 2007, local permitting is ongoing with a view to production starting in 2010. With world prices for copper hitting near-lows in recent months, the company has been keeping an eye on the viability of the operation, but Adams is confident that a rise of around 20% to $1.80/lb would be enough to trigger production.

“In our own view, the meltdown in the markets caused by the rush for liquidity has hit every asset class except gold,” he says. “But copper will be the first to recover because it has the tightest fundamentals for supply/demand.

“From the point of view of the operational focus, as a business builder, we have a view that gold is still in a rising market and we don’t see it has a lot of downside. We believe that our assets in Slovakia will grow and we will end up with more than 1m ozs when we have finished the work there.

“So, the strength of gold and the prospectivity of our assets means that we feel quite comfortable that we’ve got something worth developing, expanding and then producing from – starting in two or three years time.”

Adams says the company takes comfort from the fact that it has two assets, either one of which justifies its efforts and either one of which gives it multiples of upside. And with a market cap of around £8.9 million, he points out that the valuation can be interpreted in one of two ways.

“Our reading of the situation is that the market cap applies $15 per ounce to our gold and ignores our copper – that is a very conservative valuation of our gold and adds the copper for free.

“Or, for people who really got involved in our company because they want to back the upside in Spain, they are actually getting one million tonnes of copper for $17 per tonne and getting the gold for free.

“So from the point of view of value, we go to bed at night as shareholders and as managers knowing we have some protection in our diversity.”

Ben Hobson, SmallCapNews.co.uk