Rio Narcea swings into the red

Lower production and some non-cash accounting adjustments combined to push Rio Narcea Gold Mines (RNG-T) US$6.4 million into the red during the first three months of 2004.

The loss translates to US6 per share, and compares with year-earlier earnings of US$681,900, or a penny a share. Revenue between the two periods climbed by 18% to US$18.8 million and cash flow from operations rose 21% to US$4.9 million.

The recent quarter’s loss includes a non-cash loss of US$3.5 million related to the mark-to-market of the company’s gold, copper and foreign exchange derivative instruments, a foreign exchange loss of US$943,000 owing to strengthening of the U.S. dollar and expenses of US$526,200 for the accounting of employee stock options.

On the operations front, the company squeezed 31,688 oz. (of gold out of 141,562 tonnes of ore from its mines to yield an average grade of 7.3 grams gold per tonne and a recovery rate of 95%. Cash costs came in at US$213 per oz.

The company also produced 12,149 oz. of gold from the first batch of 26,274 tonnes of ore from Crew Gold‘s (CRU-T) Nalunaq gold mine in Greenland. The ore grade averaged 14.7 grams gold per tonne with the average recovery rate hitting 98%; cash costs averaged US$391 per oz.

Under a deal inked in December, Rio Narcea will buy four to five 35,000-40,000 tonne batches of high-grade (averaging around 31 grams gold per tonne) Nalunaq ore per year. Rio will pay an undisclosed price, less a milling fee.

In all, first-quarter gold production totalled 43,837 oz. at a cash cost of US$263 per oz. During the quarter, some 167,836 tonnes of ore averaging 8.5 grams gold passed through the El Valle plant in northern Spain, which managed an average recovery rate of 96%. El Valle ran through 180,783 tonnes of ore running 8.9 grams gold to produce 49,065 oz. at US$120 apiece during the corresponding period of 2003. The average recovery rate was 95%.

On the sales side, Rio Narcea realized an average of US$406 for each ounce produced, up from US$339 per oz. in the first stanza of 2003, but US$3 per oz. below the quarter’s average spot price.

Looking ahead, the company expects its existing operations to produce around 90,000 oz. of gold at US$240 apiece during 2004. An additional 120,000 oz. are expected under the Nalunaq agreement.

In the near-term open pit mining at the Caolinas satellite pit (in northwest corner of the El Valle pit) is slated to wrap up in June. Meanwhile, preparations to head underground at Boinas East are well underway with ventilation, power and dewatering facilities completed by the end of the first quarter.

Rio also says that contract miner Ingenieria de Suelos y Explotacion de Recursos has already begun development in ore. The plan at Boinas East calls for mining at an initial rate of 150,000 tonnes per year to begin in the second quarter; mining will employ mainly cut-and-fill methods. Most of the ore will be stockpiled for processing in 2005.

Underground reserve definition drilling continued at Boinas East during the first quarter. The holes were focussed on the north-south width of the North Black Skarn mineralized zone between the Boinas East and El Valle pits. Highlights include hole 1038, which cut 12.8 metres running 13.6 grams gold and 12.2 metres of 9.1 grams gold. Rio expects the zone’s copper grade of 1.3% to add significantly to the revenue.

At El Vallle, construction of an underground drift to access the high-grade material below the pit is slated to begin in the second quarter.

At the Carls satellite operation, open pit mining is also nearing completion while underground mining is progressing on schedule. Carls too contains significant copper by-product credits.

Rio is already mining Carls East at the planned initial rate of 10,000 tonnes per month. The company has also begun cutting an access decline from the open pit to allow for development of the upper levels of the Carls North zone.

Meanwhile in southern Spain, construction of the Aguablanca nickel mine is on schedule with start up planned for August; full commercial production will follow in the fourth quarter. The company will spend around US$37 million to complete construction during the second and third quarters.

The open-pit mine is expected to churn out 18 million lbs. of nickel, 11 million lbs. of copper and 20,000 oz. of platinum group elements annually for 10.5 years. Pre-stripping has already exposed the orebody. A decline at Aguablanca is expected to reach higher-grade nickel mineralization within a year. The decline will be used for infill drilling at depth, and for future underground production.

At the end of March, Rio’s cash and equivalent position jumped 37% from a year earlier to US$44.9 million; the company’s total long-term debt more than quadrupled to US$37.6 million, excluding the current portion of US$3.7 million.