30 March 2007
Union Resources Limited
Mehdiabad Zinc Project Update
Union Resources Limited ("Union") announces the following update with respect
to the Mehdiabad Zinc, Lead, and Silver Project (the "Project") in Iran, where
Union and its private Iranian partner ITOK GmbH ("Itok") are in dispute with
their Iranian Government partner Iranian Mines & Mining Industry Development &
Renovation Organisation ("IMIDRO"). Union, Itok and IMIDRO are shareholders in
Mehdiabad Zinc Company ("MZC").
Union has previously advised that:
a. Union received a letter from IMIDRO in December 2006, purporting to
terminate four of the five agreements relating to the Project, namely the
Basic Agreement, the Foundation Agreement, the Management Agreement and the
Engineering Services Agreement, (collectively the "Agreements"). Union is
firmly of the view that the notice of termination was invalid.
b. With respect to the purported termination of the Agreements, IMIDRO claims
that the alleged breach, by Union, relates to Article 9.2.2, of the Basic
Agreement which requires MZC to deliver a Feasibility Study ("Study") to
determine the Optimum Mine Plan and Optimum Ore Process Route for the
Project within two years from the date of closing, which is to be a date
not more than six months after signing the Basic Agreement. The Basic
Agreement was signed on 23 November 1999. However, Article 9.2.2 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".
c. Union is firmly of the view that extensions beyond the first two years
(which would have been at the end of 2001), have both been given, and are
in any case technically justified given both the nature of the Project
discovered in the first two years of the joint venture and the complexities
of preparing a Study related to the Project which would enable
international finance to be raised.
d. Since receiving the letter of purported termination, Union has sought to
protect its investment and enforce its legal rights by invoking the dispute
resolution provisions contained within the Basic Agreement. To date Union's
efforts to resolve the dispute between Union and IMIDRO have been
e. The Iranian Ministry of Finance has confirmed to Union that Union's
investment to March 2006 of US$14 million is protected under Iran's Foreign
Union now advises that:
a. Since, the last announcement, further meetings were held with IMIDRO in
February to discuss the dispute. Other Iranian government stakeholders
attended the February meetings and they support the parties finding a
resolution. Union is hopeful that further meetings will be held in April
with a view to finding a resolution.
The position of the two parties is clear.
i. Union requires IMIDRO to withdraw the termination letter, arrange for its
wholly owned subsidiary IMPASCO to transfer the Exploitation Licence for
the Project to MZC in accordance with the Agreements, and allow MZC to
proceed with development of the Project.
ii. IMIDRO insists that IMPASCO retain the Exploitation Licence and undertake
the mining. IMIDRO suggests that MZC build the process plant, and that
IMIDRO provide MZC with a guaranteed supply of ore for the plant. IMIDRO's
approach is not envisaged in the Agreements and in Union's view it is not
workable. Union continues to assert that the Agreements require that MZC
must control both the mining and processing of the ore, and that compliance
with the procedure stipulated in the Agreements is the most efficient way
of developing the Project.
b. In support of Union's position, Union advises that Aker Kvaerner Australia
(AKAU) has recently delivered to Union a report entitled "Metallurgy and
Process Design Status Report."
In the covering letter AKAU has advised Union that:
"From the information available and after considering various process flowsheet
options Aker Kvaerner Australia is of the opinion that the current proposed
process configuration at a capacity of 50,000tpa zinc from oxide and 150,000
tpa zinc from sulphide resources (50:150k option) represents the optimum
flowsheet for the Mehdiabad zinc project.
The Medhiabad Zinc Project as a whole is considered to meet Aker Kvaerner
Australia's standard for a feasibility study with the following exceptions:
a. Granting of tenure and conditions of the Exploitation Licence
b. Environmental approvals
c. Water supply (determination of sources, quantities, quality, land access
d. An indication of commitment of the project and its stakeholders from the
We understand these outstanding issues are dependent on the resolution of a
number of items by Mehdiabad Zinc Company with the various authorities in Iran.
On resolution of the above outstanding issues Aker Kvaerner Australia is of the
opinion that the Mehdiabad Zinc Project (at the 50:150 k option) will be ready
to move to the next stage of development which would involve a Definitive
Study, Invitation to Bid and Front End Engineering and design (FEED) phases. On
completion of these phases and with the project funding available the project
could move to the Engineering Procurement and Construction Management (EPCM)
Union is firmly of the view that the AKAU reports meet the requirement for the
Study under the Basic Agreement. Union notes that MZC have engaged the Iranian
engineering Company Aseh Sanat, to review both the AKAU study of May 2006 and
the more recent February 20007 Status Report.
(c) Union has temporarily deferred referral of the disputes between Union and
IMIDRO to international arbitration whilst Union continues negotiations with
IMIDRO in an attempt to resolve the issues. However, if Union is unable to
achieve a satisfactory resolution of all matters in dispute with IMIDRO in a
timely manner, then Union will refer the matter to the International Chamber of
Commerce for arbitration.
For further information contact:
Australia: Union Resources Limited
Rob Murdoch - Managing Director
Phone: +61 07 3833 3833
London: Hanson Westhouse Limited
Bill Staple or Martin Davison
0207 7601 6100