Rio Narcea breaks ground in Mauritania

Rio Narcea Gold Mines‘ (RNG-T) has broken ground at its Tasiast gold project, 310 km northeast of Mauritania’s capital city of Nouakchott.

Construction is expected to wrap up by mid-2007, with annual production thereafter pegged at 120,000 oz. at a cash cost of about US$220 per oz., during its first three years. During its currently proposed 8-year life span, Tasiast is forecast to produce an average of 105,000 oz. at US$240 apiece.

At last count, Tasiast was home to measured and indicated resources of 12.1 million tonnes averaging 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, and the company is confident that the mine’s life can be extended. To that end, a regional exploration effort is planned for the surrounding 312-sq.-km license area. The company holds some 17,000 sq. km worth of exploration licenses in Mauritania.

Tasiast carries a price tag of US$63.5 million, up from an original estimate of US$48.4 million. At a gold price of US$400 per oz., the proposed mine generates a net present value (at a 10% discount) of US$13.8 million and an internal rate of return of 18.2%. Those figures climb to US$32 million and 28% at US$450 per oz. of gold.

Rio has singed a mandate letter with Australia’s Macquarie Bank to provide US$45-million worth of debt financing for construction. That includes a US$40-million project loan repayable in quarterly instalments with final maturity in June 2011, and a US$5-million guaranteed loan facility maturing at the end of 2011. The company must also hedge some 340,000 oz. of Tasiast production until March 31, 2012, assuming the entire facility is drawn down.

The company will also chip in cash flow from the Aguablanca mine, 90 km north of Seville in southern Spain.

Nickel recoveries at Aguablanca continued to improve averaging 77% during the third quarter (and increasing to 79% during October) to approach design the specification of 82%. Throughput at the operation’s semi-autogenous grinding mill was 10% off the second quarter pace as some newly installed discharge grates failed. Newly designed grates were installed in October.

Nickel concentrate grades averaged 5.4% during September — well below the design spec of 8.5%. Fine-tuning and optimization pushed grades to between 6% and 7% during October; the company expects further improvement in November.

Engineering and construction contractor Fluor has been struggling to get Aguablanca’s plant running at a minimum of 90% of design something its needs to do before it can turn the plant over to Rio. The feasibility study at Aguablanca calls for throughput of 125,000 tonnes per month, recoveries of 82% nickel and 85% copper, and concentrate grades of 8-9% nickel and 4-5% copper.

Rio says it is evaluating its legal remedies “as a result of the design deficiencies of the Aguablanca plant and the remedial actions which have had to be taken.”

During the third quarter, Aguablanca produced 1,678 tonnes of nickel and 1,315 tonnes of copper. Cash cost of sales were US$2.68 per lb. Full-year production is forecast at 5,443 tonnes of nickel and 4,808 tonnes of copper.

At full steam, Aguablanca is designed to produce around 8,200 tonnes nickel, 6,350 tonnes copper and 20,000 oz. platinum group metals over 10 years.

The company is also examining its legal position at the Salave gold project in northern Spain, where in late August the Asturian government said mining permits would not be granted.

Rio had preliminarily envisaged annual production of 150,000 oz. per year by mid-2007 at Salave. Measured resources there 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 grade 2.5 grams. The estimates use a cutoff grade of 1 gram gold per tonne.

With Salave stalled and the continued marginal performance of the Boinas underground operation, Rio says it is reviewing its “options for the future of the Spanish gold operations.”

Rio ended the third quarter with a net loss of US$10.1 million (or US6 per share), compared with a year-ago loss of US$6.4 million (US5 per share). The increased loss is mostly attributed to a US$7.8 million loss on copper derivatives, of which US$5.9 million were non-cash. Revenue between the two periods jumped by 66% to US$32 million.