Tasiast a go, Salave a question (August 22, 2005)

Rio Narcea Gold Mines (RNG-T) says it does not expect a recent coup in Mauritania to have an impact on its plan to develop the Tasiast gold project in the West African nation.

Mauritania’s former president Maaouya Ould Sid’Ahmed Taya was ousted earlier this month in a bloodless coup led by senior military officers in the capital city of Nouakchott. The coup occurred while Taya was in Saudi Arabia attending the funeral of King Fahd.

The Tasiast project is situated about 300 km north of Nouakchott.

The coup leaders have formed a “Military Council for Justice and Democracy” and plan to hold a referendum to change some provisions of the constitution. The group promised that presidential and parliamentary elections would follow in no more than two years.

Rio Narcea says it is satisfied that the change in government will have no impact on its plans for Tasiast, and that the Minister of Mines and his department have already advised the company of the government’s full and ongoing support for the project.

“We were just about to make the decision to proceed at Tasiast and start work when we had a coup in Mauritania, ” Rio Narcea CEO John Hick told investors and analysts during a recent conference call.

“We had people on site and in Nouakchott at the time and there were no safety concerns that we are aware of. It seems to be business as usual,” he said. “We are essentially satisfied that we are in a position to go ahead.”

Rio recently announced it would go ahead with developing Tasiast following a detailed review of Senet Engineering’s (South Africa) basic engineering work. The review focussed on optimizing the project’s economics amid rising fuel, steel and shipping costs, with an emphasis on limiting increases in operating costs.

In the end, capital costs have jumped about 30% to US$63.5 million from the US$48.4 million estimated in an April 2004 bankable feasibility study. The latter figure did not include working capital or a US$1 million payment owing to Newmont Mining (NEM-N) under the original acquisition agreement.

The increase is also attributed to a US$5.8 million rise in the cost of the project’s proposed power plant, which will now use heavy fuel oil rather than more costly diesel oil. The company has also added political risk insurance.

Plans at Tasiast call for average annual production of 105,000 oz. of gold over 8 years. Cash operating cost are pegged at around US$240 per oz. Production during each of the first three years is forecast at 120,000 oz. at US$220 apiece.

Based on a gold price of US$400 per oz., the plan generates a net present value (NPV) (at a 10% discount) of US13.8 million and an internal rate of return (IRR) of 18.2%. Boosting the gold price to US$450 per oz. sends the NPV to US$32 million, and the IRR to 28%.

The plan is centred on 9 million tonnes of proven and probable reserves grading 3.1 grams gold per tonne, or around 886,000 contained ounces, based on a gold price of US$370 per oz.

Overall, Tasiast is home to measured and indicated resources totalling 12.1 million tonnes running 3.1 grams gold, for 1.2 million contained ounces; another 12.4 million tonnes averaging 2.25 grams gold are classified as inferred resources. The mineralization remains open at depth.

Rio Narcea plans to finance Tasiast via a combination of cash on hand and project debt; negotiations with banks are well advanced.

Tasiast is slated to begin production in mid-2007.

Meanwhile, in northern Spain, Hick says that the government of Asturias has publicly announced that it has declined to issue a ruling on Rio Narcea’s change-of-land-use application, which is required to develop the Salave gold project.

Still, he says that until the company receives official notification of the government’s decision work will continue on an ongoing bankable feasibility study. The company says it will examine is options, including legal action, once formal notification is received.

Rio Narcea says it has always enjoyed an excellent relationship with the government in Asturias, and is surprised by the decision and that it was not delivered directly to the company.

“We have not received the formal notification from them as required, and therefore don’t have any further information as to the rationale for their judgement,” said Hick.

At last count, measured resources at Salave stood at 354,000 tonnes averaging 2.7 grams gold per tonne, while indicated resource totalled 14.8 million tonnes grading 3 grams. Another 2.8 million tonnes of inferred material grade 2.5 grams. The estimates employ a cutoff grade of 1 gram gold per tonne.

Preliminary plans had Salave producing at 150,000 oz. per year by mid-2007.