Re: Union Resources Limited ("Union")
Possible termination of agreements covering Mehdiabad Project in Iran
In accordance with the obligation to disclose any material information under
Listing Rule 3.1 of the Australian Securities Exchange ("ASX") Listing Rules
and the continuous disclosure requirements of AIM in London, Union advises that
the Company received a letter on 5 December 2006 from the Iranian Mines and
Mining Industries Development and Renovation Organization ("IMIDRO"), an
Iranian government partner in the Mehdiabad Zinc Project (the "Project").
The IMIDRO letter is signed by its Chairman Mr A. A. Harati Nik. The full text
of the letter is set out below:
"On the basis of the conditions of Article 9.2.2 of Basic Agreement and subject
to the other conditions of the Agreements which are related to the Medhi Abad
Mine, those have been concluded between that Company and General Iranian Mining
Company, we hereby as the legal Successor of GIMCO, declare the termination of
the following Agreements because of failure of your Company to fulfill and
complete your obligations under the Agreements.
1. Foundation Agreement dated 30,10,1999
2. Basic Agreement dated 22,11,1999
3. Management Agreement dated 17,01,2001
4. Engineering Services Agreement dated 17,01,2001
So, please convey your authorized representatives during next two weeks, for
the final settlement."
End of letter.
Union is of the opinion that IMIDRO has invalidly issued the purported notice
of termination and the board of Union is taking urgent steps to clarify and
resolve the situation and ascertain the impact of the letter on Union's
investment in the Project.
Union is further of the opinion that the Company has complied with all of its
obligations under the Foundation Agreement, the Basic Agreement and the
Management Agreement, and that no basis exists for termination. Whilst Union is
a signatory to the Engineering Services Agreement, it relates to work carried
out on the Project by the other partner to the Joint Venture, Itok GmbH.
The Mehdiabad Project has operated as an incorporated joint venture through
Mehdiabad Zinc Company ("MZC") since 2003. Union holds 25% of the issued shares
in MZC and when loans convertible to equity in MZC are added, has a beneficial
interest in excess of 40%.
The Foundation Agreement, Basic Agreement and Management Agreement (the
"Agreements") are the principal agreements through which Union holds its
interest in the Project.
The Foundation Agreement is an agreement between the MZC shareholders and the
Iranian Ministry of Mines and Industry (the "Ministry"). The subject of the
Foundation Agreement is the conduct of exploration and feasibility studies, and
the exploitation and processing of the mineral resources. The Foundation
Agreement commits the Ministry to issuing among other licences, the
Exploitation Licence to MZC. Union's view is that this agreement cannot be
terminated by IMIDRO.
The Basic Agreement sets out the commercial arrangements relating to the joint
venture. Article 9.2.2 provides that the joint venture company MZC would
deliver a feasibility study (the "Study") within the first two years. Union
advises that the Company did produce a Pre-Feasibility Study within the first
Any right for GIMCO (the original partner and signatory to the Basic Agreement)
to terminate this agreement should MZC have failed to complete the Study in a
format acceptable to international financial institutions within 2 years, is
subject to Article 5.2.4, which states that if MZC has worked continuously on
the Project and for valid technical reasons needs more time to complete the
Study, then the parties will agree to a reasonable extension.
Union notes that IMIDRO is not a signatory to the Basic Agreement and that
Union and MZC continue to work on the Project. Union is currently planning the
First Stage of the development. There have been no changes to Union's existing
operational activities which continue as planned in the belief that the matter
can be resolved. For the technical status of the project please refer to the
quarterly report released 31 October 2006.
The Pre-feasibility Study and all subsequent studies since then have shown that
the Project is both world-class in size and metallurgically complex. Further,
the development of the Project requires substantial capital investment. To
secure the amount of capital required internationally requires extensive
Because of the nature of the Project and the fact that MZC has worked and is
still working continuously on the Project, Union is of the view that MZC either
has been granted a further extension of time by all parties to the Basic
Agreement, or that circumstances clearly exist which would make any request by
MZC for such an extension of time to complete the Study not unreasonable, and
in fact is the fastest way for IMIDRO to ensure the development of the Project.
In particular, the Project is now close to being ready to be developed and
Union and MZC are the lawful owners of all the intellectual property associated
with the Project, including all work to date on the Study. In Union's opinion
it would not make sense for IMIDRO to do other than encourage Union and MZC to
finalise their work and start the development at the earliest opportunity,
which Union is prepared to do.
In the opinion of Union's board of directors, terminating the Basic Agreement
and attempting to develop the Project, without access to the extensive
international standard technical information that has been gathered under
Union's management would be very difficult to achieve.
The Management Agreement sets out the terms under which Union provides project
management services to the joint venture. This agreement can only be terminated
by board resolution of MZC and cannot be terminated by IMIDRO.
Union notes that IMIDRO has not proposed the termination of the Shareholders'
Agreement which relates to the activities of the joint venture company, MZC.
Union therefore assumes that at this time IMIDRO is supporting MZC as a company
continuing to operate under this agreement and in accordance with the Iranian
Commercial Code. However, MZC will still need to hold the Exploitation Licence
in order for the Project to be financed.
Union advises that IMIDRO's subsidiary company IMPASCO, which currently holds
the Exploitation Licence, has been called upon to transfer the Exploitation
Licence to MCZ as required under the Foundation Agreement and Basic Agreement,
and to date has failed to do so.
As a result of the letter received, Union is considering its position in
relation to both the Agreements and the notice of purported termination from
IMIDRO. Union has experienced difficulty with its joint venture partners in the
recent past, notably with respect to the transfer of the Exploitation Licence
to MZC and in the approval of its expenditure by MZC made under the Management
Agreement and the conversion of this expenditure to equity in MZC as disclosed
in the June 2006 and September 2006 quarterly reports.
Union holds a current political risk insurance policy in respect of its
investment in Iran and has notified the Australian Government Export Finance
and Insurance Corporation and the Ministry of Economic Affairs and Finance,
Organisation for Investment Economic and Technical Assistance to Iran of the
letter received from IMIDRO.
Union yesterday delivered a letter to the office of the Minister of Mines and
Industry of the Islamic Republic of Iran requesting an urgent meeting to
clarify the issues raised in the letter from IMIDRO. Union's representatives in
Iran will shortly meet with IMIDRO to discuss this development and with a view
to seeking withdrawal of the purported termination letter and seek to resolve
all outstanding issues between IMIDRO, Union and MZC.
It is hoped that these meetings will be held prior to the end of 2006 and Union
will make an announcement at that time. In any event an announcement will be
made at the end of 2006, even if no progress has been made.
Union will endeavour to find an amicable solution that will allow the Project
to proceed in accordance with its world class potential as quickly as possible.
For further information:
Union Resources Limited (Tel: 00 61 7 3833 3833)
Rob Murdoch - Managing Director
Hanson Westhouse LLP (Tel: 020 7601 6100)
Bankside Consultants (Tel: 020 7367 8888)