Rio Narcea slips back into red (September 03, 2001)

Unable to maintain the record-setting production rate attained in the first quarter, Rio Narcea Gold Mines (RNG-T) incurred a net loss of US$474,500 (or 0.07 per share) during the three months ended June 30, after enjoying a small profit in the first quarter.

During the second quarter of 2000, the company lost US$2.8 million (4.3 per share). Revenue between the two periods increased to US$7.1 million from US$4.6 million, whereas cash flow fell to US$2.1 million from US$6 million.

For the first half of 2001, the company’s loss amounts to US$47,600 (0.01 per share), better than the US$3.3 million (5.1 per share) loss in the first six months of 2000. Revenue climbed to US$16.1 from US$11.3 million, while cash flow slid about US$1.8 million, to US$3 million.

In the recent quarter, Rio Narcea produced 26,802 oz. gold at a total cash cost of US$192 per oz., nearly double the 14,161 oz. produced at US$286 per oz. in the year-ago period but off from the record 34,495 oz. cranked out at US$174 per oz. in the first quarter of 2001. The company realized an average of US$267 per oz. for its second-quarter production.

Mill throughput of 135,733 tonnes was off 21,166 tonnes from the first quarter and 46,989 tonnes from the year-ago quarter. Head grades fell to 6.6 grams gold per tonne, from 7.3 grams in the first quarter, whereas year-ago head grades averaged 2.7 grams. The recovery rate in the mill was virtually unchanged from the first quarter, at 93.5%. A year earlier, the figure was 89.7%.

Rio Narcea says the decrease in second-quarter production was expected because lower grades were processed in June. Additionally, 100,000 tonnes of ore running 7-8 grams gold and up to 3% copper were stockpiled, owing to the unavailability of lower-grade copper ore for blending. This material is slated for processing in early 2002.

So far this year, gold production totals 61,297 oz. at a cash cost of US$182 per oz. The company still expects to meet its 2001 gold production target of 125,000 oz. at US$190 per oz.

In mid-July, Rio exercised an option to acquire the Aquablanca nickel-copper-platinum group metals project in southwestern Spain in return for completing metallurgical tests, drilling, geotechnical studies, and the re-logging and re-assaying of considerable core. The property vendors were Atlantic Copper and the Spanish government.

Rio Narcea also examined a mine plan based on a 10-to-12-year, open-pit operation capable of producing 7,000 tonnes of nickel per year, with copper and platinum-group-metal byproducts. The company will carry out infill and deep drilling as part of a bankable feasibility study, slated for completion in early 2002. Pending positive results, commercial production could begin as early as 2003. The drilling and study will be funded by a $4-million debenture facility completed with Deutsche Bank.

The company remains tight on cash and, in July, drew down the remaining US$500,000 of its US$1.5-million working capital facility with Deutsche Bank. At the end of June, Rio Narcea had US$1.7 million in cash and cash equivalents and a net working capital deficiency of US$6.7 million, thanks to an increase in the short-term debt. Long-term debt stands at US$20.3 million.