Record production lifts Rio Narcea

Rio Narcea Gold Mines (RNG-T) produced a record 61,674 oz. of gold at its El Valle mine in Spain during the three months ended June 30, and rocketed back into the black.

The record production is thanks in large to the mining of higher grades in El Valle’s Charnela zone. Cash costs rang in at US$117 per oz., an improvement over the US$192 per oz. achieved on production of 26,802 oz. a year earlier. First-half production hit 86,791 oz. at US$144 apiece, up form the year-ago 61,297 oz. produced at US$182 each.

Rio now says it expects to eclipse its revised 2002 production target of 160,000 oz. of gold at a less than US$150 per oz.

The second quarter’s record production, and higher (up US$33 per oz. from the previous year) realized gold price of US$301 per oz., sent revenues soaring to US$18 million, up 136% from the previous year. On that revenue, Rio Narcea tallied net earnings of US$6.1 million (or 9 per share). A year earlier, the company suffered a second-quarter net loss of US$2 million (3 a share) on revenue of US$7.6 million. Similarly, cash flow (after changes in working capital) from operations climbed to just less than US$4 million from the year-ago US$1.6 million.

For the six-month period, net income came to US$4.2 million (6 per share) on revenue of US$25 million, compared with a net loss of US$3.1 million (5 per share) on revenue of 17.4 million during the first half of 2001. Cash flow more than tripled to just less than $6.2 million.

Drilling continued with four rigs below the Boinas East pit. Forty-six holes, totalling 4,018 metres, were sunk to better define four near-vertical zones of mineralization on a 25-by-25-metre drill hole spacing. Rio plans another 10,000 metres of drilling in 2003 to further increase the drill hole density. Surface drilling will also test several nearby and regional targets.

At the quarter’s end, Rio tabled a positive bankable feasibility study of its advanced Aguablanca nickel-copper project in southern Spain. The company is in the midst of awarding engineering contracts and arranging project financing

The study envisages an open-pit operation producing 10,000 tonnes of nickel-in-concentrate annually from a resource of 28.4 million tonnes grading 0.67% nickel and 0.49% copper, plus platinum group metals. The bulk of the material is classified as measured and indicated.

During the recent quarter, Rio Narcea closed out its US$365-per-oz. gold calls on 58,244 oz. of gold from 2003 onwards. The hedge book still contains 473,118 oz. under put options at between US$280 and E300 per oz. Another 269,722 oz. are covered by call options at US$365 and E405 per oz. The options run through 2006, as do forward sales contracts for 14,255 oz. at US$300.98 per oz.

At the end of June, the company had US$3 million in cash and a working capital deficiency of US$4.2 million.