In a deal potentially valued at more than US$30 million,
The gold project is in northern Spain, about 60 km from Rio Narcea’s El Valle gold mine in the province of Asturias. Several major and junior companies explored Salave between 1970 and 1997, including Lyndex Explorations, a junior company once managed by Sheridan (and previously listed on over-the-counter markets).
The Salave deposit was tested by 176 holes totalling about 35,000 metres, resulting in resource projections ranging from 10 million to 20 million tonnes grading between 3 and 5 grams gold per tonne. But after reviewing reports on which these estimates were based, Rio Narcea noted that none conform to National Instrument 43-101 standards.
The company also reviewed data from past exploration and drilling. While the company believes the data are reliable, it states there is “no certainty that any economic mineral resources exist on the property.”
Rio Narcea intends to complete a technical report that meets current regulatory standards. It also plans to launch an infill drilling program to advance the project to the feasibility stage.
Salave is described as an intrusive-related, disseminated deposit hosted in granodiorite below a shallow dipping, altered but unmineralized roof pendant of quartzites and siltstones. The mineralization is refractory, with the sulphides mainly consisting of pyrite, arsenopyrite and minor molybdenite.
Rio Narcea and Sheridan entered into a lease agreement for Salave in the fall of 1992. However, this was recently terminated, and as consideration for the lease termination, Rio Narcea agreed to pay Sheridan US$5 million, as well as issue him warrants to buy 2 million of its shares, at an exercise price of $5 per share, expiring on Sept. 11, 2008.
As additional consideration, Rio Narcea agreed to pay Sheridan a further US$25 million, based on certain achievements. The first US$5-million would be payable once construction permits are received. Four other US$5-million payments are due after production begins, and after 200,000 oz., 500,000 oz., and 800,000 oz., respectively, are produced. After these goals are achieved, a royalty to Sheridan would be payable, calculated at 5% of the ounces produced and paid for, multiplied by the average gold price received, minus US$200 per oz.
Rio Narcea expects to produce 80,000 oz. gold this year from its El Valle and Carles mines in Spain. The company anticipates additional production from milling agreements with other companies.
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