Rio Narcea axes marginal mines (February 22, 2006)

Rio Narcea Gold Mines (RNG-T, RNO-X) has decided to pull the plug on its marginal El Valle and Carls underground gold mines in Spain’s Asturias Province.

The decision comes as the company faces the prospect of increasing mining costs at El Valle, owing to poor rock conditions, low grades and high dilution. While grades and ground conditions are better at Carls, the company says the deposit’s limited size and current cost structure make it impractical as a stand-alone operation.

Also playing a part in Rio’s verdict is the government of Asturias’ decision not to approve the change-of-land-use application required to develop the Salave gold project, around 70 km to the west. Rio had planned to ship concentrate from Salave for processing at the El Valle plant, thus making the operation more economical.

Rio had preliminarily envisaged annual production of 150,000 oz. of gold per year by mid-2007 at Salave. Measured resources total 354,000 tonnes averaging 2.7 grams gold per tonne, while indicated resources totalled 14.8 million tonnes grading 3 grams. Another 2.8 million tonnes of inferred material grades 2.5 grams. The estimates employ a cutoff grade of 1 gram gold per tonne.

Rio is in the midst of a “legal process” aimed at recovering its total investment and lost profits at Salave.

In the meantime, mining at El Valle and Carls will continue to focus on more stable, high-grade developed areas. Work will also continue on high-grade mineralization in Area 107, about 250 metres east of existing underground development.

Limited underground drilling there is highlighted by 5.75 metres running 41 grams gold and 1.3 grams silver per tonne, 5.8 metres of 51 grams gold and 1.7 grams silver, and 12.6 metres 16.4 grams gold and 3 grams silver, in the Upper zone. Drilling on the Lower zone included 16.7 metres of 9.4 grams gold and 5.8 grams silver. The holes also returned variable amount of copper. The mineralization remains open at depth and towards the southeast, where the best intersections have been encountered.

Area 107 is not expected to change the closure plans. Both mines are to be shuttered by the end of 2006, with total closure costs, including site rehabilitation and statutory employee severance, of no more than $7 million.

Gold production from El Valle and Carls during the three months ended Sept. 30 came to 20,707 oz. at US$430 per oz., down from the 24,866 oz. poured at US$225 apiece a year earlier. El Valle mined 41,038 tonnes running 2.8 grams gold and 0.9% copper, off the plan of 69,398 tonnes at 4 grams gold and 0.8% copper. Likewise, Carls yielded 38,462 tonnes of ore averaging 6.5 grams gold and 0.8% copper, compared with a budget of 48,367 tonnes at 6.3 grams gold and 0.7% copper. For the first nine months of 2005 production from Carls and El Valle were 87% and 72% of plan.

The closure of El Valle processing plant might also make Crew Gold‘s (CRU-T, CRUGF-O) decision whether to build an on-site concrete plant at its 82.5%-owned Nalunaq gold mine in southern Greenland easier. Crew currently ships ore from Nalunaq for processing at El Valle.

Crew has been studying the economics of a concrete plant, which would be required to build a processing plant. Pending a positive decision, construction of the plant is slated to take about a year.

Greenland-based junior NunaMinerals owns the balance of Nalunaq; Nuna’s principal owner is the government of Greenland.