Nelson writes down Zeravshan investment

Low gold prices and a mine-plan review have prompted Nelson Gold (NLG-T) to write down its investment in Zeravshan Gold, operator of the Jilau gold mine in Tajikistan.

Although 1998 production increased 37% to 101,000 oz. and costs fell to US$197 from US$229 per oz., persistently weak prices made for a difficult year. Even so, the company achieved an operating profit of US$957,000, compared with a loss of US$817,000 in 1997.

But after factoring in the US$67.6-million writedown resulting from the recent mine-plan review, Nelson posted a net loss of US$66.6 million for last year. This compares with a net loss of US$8.6 million in 1997, when a US$7.8-million writedown of mining interests was recorded.

The review was based on a projected gold price of US$317 per oz., compared with an average of US$342 per oz. used in the life-of-mine plan in 1997.

Nelson Gold holds a 44% interest in Zeravshan; the Republic of Tajikistan holds 51%; and International Finance Corp. holds 5%.

Last year’s production increase is due in part to the commissioning of a second mill line in 1997.

Jilau has reserves totalling 7.86 million tonnes grading 1.29 grams gold per tonne (at a cutoff grade of 0.8 gram per tonne) within a global resource totalling 52.1 million tonnes of 1.08 grams gold.

Current production comes from the Jilau open pit, and Nelson Gold plans to begin developing the underground Taror deposit this year. Trial mining and milling of sulphides have already resulted in the extraction of 4,000 tonnes. Ground conditions were found to be better than anticipated, while gold grades matched the resource model.

Taror will be mined in two phases; the lower, sulphidic ores in phase one, and the upper oxides in phase two. Phase one costs are pegged at US$10 million, and Nelson expects to achieve recoveries of 71% from the sulphides.

The phase-two feasibility study, which will focus on identifying a process to recover gold and copper from both oxide and sulphide ores, is scheduled to be completed early next year.

Total resources at Taror are 10.8 million tonnes grading 5.35 grams gold and 0.84% copper.