Rio Narcea gets green light for Aguablanca (August 18, 2003)

The Spanish government has granted a mineral licence to Rio Narcea Gold Mines (RNG-T) to exploit the Aguablanca nickel sulphide deposit, northwest of Seville.

The decision follows Rio’s submission of a positive environmental impact declaration. The company is now seeking a municipal licence to build a processing plant.

Engineering and construction would be carried out by U.S.-based Fluor (FLR-N), which was the prime contractor for Rio Narcea’s El Valle gold plant in northwestern Spain.

A bankable feasibility, completed last year, proposes that contract miners exploit an open-pit reserve of 15.7 million tonnes grading 0.66% nickel and 0.46% copper, plus 0.47 gram platinum group metals per tonne. The estimates are based on a nickel price of US$2.99 per lb. and a copper price of US73 per lb.

At full capacity, the mine should produce about 8,200 tonnes of nickel in concentrate per year — not much by Canadian standards, but about half of the European Union’s current annual nickel output. In addition, roughly 6,100 tonnes copper and 23,000 oz. platinum group metals in concentrate would be produced as byproduct.

Ore would be processed on-site at a 1.5-million-tonne-per-year flotation plant at a total cash-operating cost of US$1.82 per lb. nickel-equivalent (net of byproduct credits and smelter costs), or US$12.47 per tonne over the life of the mine.

Recovery rates are forecast at 82-86% for nickel, 85% for copper, 75% for PGMs, and 75% for cobalt.

With capital costs forecast at US$64.1 million, the net present value of the project is expected to be US$106 million, based on a 5% discount rate and a nickel price of US$2.99 per lb.

Rio Narcea expects to commission the mine in the second quarter of 2004.

Earlier this year, Rio Narcea secured an offtake agreement with Swiss trading house Glencore International for the sale of all production until 2010.

Drilling at Aguablanca in the first quarter focused on the margins of the planned open pit. The company sunk 1,522 metres in 14 shallow holes, as well as one deep hole. The deep hole confirmed previous intercepts, returning 91.4 metres grading 0.73% nickel in the Main zone and 17.1 metres at 1.08% nickel in the Deep zone.

In late 2002, Investec Bank (U.K.) and Australia’s Macquarie Bank jointly agreed to provide Rio Narcea with almost all the financing required to build the mine. The financing consisted of a 6-year, US$45-million senior loan, a US$5-million convertible loan, a US$5-million “stand-by” loan, and nickel and copper hedging facilities to cover half the nickel produced during the loan’s term.

Rio Narcea also lined up a 6-million-euro credit line with Barclays Bank to help pay taxes.

Rio Narcea is already producing gold at a combined rate of 155,000 oz. per year from its El Valle and Carles open-pit mines in Spain and is completing a feasibility study of its Corcoesto heap-leach gold project in western Galicia.