Rio Narcea cuts high grade at Salave in Spain

The final batch of 30 infill drill holes on the Salave gold project in northern Spain has returned the best-ever grade thickness for owner Rio Narcea Gold Mines (RNG-T).

Hole 70, the final one in the 14,900-metre program, intersected several mineralized intervals, including 18.2 metres (beginning at a down-ole depth of 252.2 metres) grading 29.3 grams gold per tonne, and 21.7 metres (from 281 metres) grading 37.7 grams gold. Higher up, the hole also returned 33.3 metres of 8.7 grams gold and 37.1 metres of 15.7 grams gold.

The vertical hole was offset some 25 metres from existing holes on the property and returned a total grade thickness of 1,798 grams per tonne-metre (grade in grams per tonne multiplied by thickness in metres) over an estimated true thickness of 34 metres. A hole previously sunk 20 metres to the north yielded a grade thickness of around 1,000 grams per tonne-metre.

Highlights from the remaining holes are as follows:

– hole 41 — 25.2 metres (from 198.4 metres) grading 6.1 grams gold, including 10.7 metres (from 208.2 metres) of 10.5 grams;

– hole 42 — 13.8 metres (from 189.7 metres) averaging 6.8 grams gold and 15.4 metres (from 215.1 metres) at 10.8 grams;

– hole 43 — 8.6 metres (from 69.9 metres) of 10.3 grams gold and 19.8 metres (from 137.7 metres) of 7.7 grams;

– hole 48 — 78.6 metres (from 64 metres) of 3.3 grams, including 13.2 metres (form 127.6 metres) of 7.6 grams;

– hole 49 — 42.7 metres (from 123.1 metres) of 2.7 grams, including 4.1 metres (from 145.5 metres) of 9.6 grams;

– hole 50 — 30.4 metres (from 90.5 metres) of 10.6 grams, including 9 metres (from 109.8 metres) of 32 grams;

– hole 60 — 32 metres (from 87.4 metres) of 3.1 grams, including 3.4 metres (from 95.5 metres) of 12.6 grams;

– hole 69 — 10.6 metres (from 74.1 metres) of 9.3 grams, 61.5 metres (from 127.5 metres) of 4.9 grams, and 11 metres (from 282 metres) of 10.3 grams.

Permitting is under way, and a bankable feasibility study is expected later this year.

Salave is 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, plus lesser amounts of sphalerite, stibnite and chalcopyrite.

Late last year, Roscoe Postle Associates pegged Salave’s measured resource at 354,000 tonnes averaging 2.7 grams gold per tonne, while the indicated resource was estimated at 14.8 million tonnes grading 3 grams, and the inferred, at 2.8 million tonnes grading 2.5 grams. The calcuations are based on a cutoff grade of 1 gram gold per tonne (T.N.M., Nov. 19-25/04).

Meanwhile, Rio has arranged the first sale of 20,000 tonnes of concentrate (grading 4.7% nickel and 5.7% copper) produced during commissioning of the Aguablanca nickel-copper mine, 90 km north of Seville.

The sale is expected to generate $7 million in revenue under an existing long-term, offtake agreement with Switzerland’s Glencore International. The contract will see Glencore buy all of the nickel concentrate produced at Aguablanca until 2010.

Engineering and construction contractor Fluor needs to get the processing plant up to at least 90% of design capacity before it can turn it over to Rio Narcea.

The feasibility study 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. In April, mill throughput averaged 108,822 tonnes; recoveries averaged 60% and 87% for nickel and copper, and concentrate grades averaged 6% nickel and 7.9% copper.

Aguablanca has open-pit reserves of 15.7 million tonnes grading 0.7% nickel, 0.5% copper, and 0.5 gram platinum group metals, based on a cutoff grade of 0.25% nickel. Based on limited drilling, Rio figures underground mining could produce an additional 200,000-300,000 tonnes of ore as soon as 2006.

Rio ended the first quarter with a loss of US$16.1 million (or 10 per share), compared with a loss of US$6.4 million (6 a share) a year earlier.

The recent loss includes a US$4.4-million loss related to a stronger U.S.-dollar-euro exchange rate, and a US$5.3-million derivatives-related loss that resulted from a wider spread between spot copper prices and the company’s existing forward contracts, required for project debt. Operating cash flow made a US$16-million swing from positive territory to end at minus US$11.1 million; Rio cites operating expenses at Aguablanca as the main culprit.

Revenue from gold sales between the two periods was more than halved to US$8.9 million, as the company did not treat any high-grade ore in the recent quarter, under an agreement at Crew Development‘s (CRU-T) Nalunaq mine in Greenland. That agreement is designed to keep Rio Narcea’s El Valle plant, in Spain, operating near full capacity.

Meanwhile, underground operations at Rio’s own mines produced a total of 23,435 oz. gold at a cash cost of US$443 per oz., compared with 31,688 oz. produced a year earlier at US$213 apiece. The increased cash costs reflect the ramp-up of underground operations; cash costs are expected to be about US$370 per oz. during the balance of the year. Overall, the company confirmed its 2005 gold production target of 70,000 oz. at US$385 per oz.

On the sales side, Rio realized an average of US$450 per oz. gold during the first quarter of 2005; that’s better than the year-earlier US$426 per oz. and the quarter’s average spot price of US$427 per oz.

At quarter’s end, Rio had US$62 million in cash and equivalents; long-term debt (excluding the current portion) was US$22.7 million.