Rio Narcea gets green light for Aguablanca (August 07, 2003)

Rio Narcea Gold Mines (RNG-T) has secured a key approval from the Council of Ministers of Spain for a mineral license to exploit the Aguablanca nickel sulfide deposit, situated northwest of Seville in southern Spain.

Rio Narcea already submitted a positive environmental impact declaration in June, and the company is now in discussions with local authorities for obtaining a municipal license for building a processing plant.

The company has also awarded an engineering contract for Aguablanca’s construction to U.S. consulting giant Fluor (FLR-N), with whom it had been advancing engineering plans for the plant under an interim contract.

Fluor was also the prime contractor for Rio Narcea’s El Valle gold plant in northwestern Spain.

Based on positive results from an unoptimized bankable feasibility completed in mid-2002 at Aguablanca by Metallurgical Design and Management, contract miners would 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 prices of US$2.99 and US73 per lb. for nickel and copper, respectively.

At full capacity, the mine should produce about 8,200 tonnes of nickel in concentrate per year — not much by Canadian standards, but still about half of the European Union’s current annual nickel output.

Roughly another 6,100 tonnes copper and 23,000 oz. platinum group metals in concentrate will be produced at Aguablanca as by-product.

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 platinum group metals and 75% for cobalt.

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

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

Earlier this year, Rio Narcea secured an off-take agreement Swiss-trading house Glencore International for the sale of all the mine’s output until 2010.

Drilling activities at Aguablanca in the first quarter focused on the margins of the planned open pit. The company drilled 1,522 metres in 14 shallow holes and one deep hole that 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.

Last December, Investec Bank (UK) and Australia’s Macquarie Bank jointly agreed to provide Rio Narcea with almost all the financing necessary to build a mine at Aguablanca.

The financing comprised: 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 owed.

Rio Narcea is already producing gold at a combined rate of 155,000 oz. per year from its 100%- owned El Valle and Carls open-pit mines in Spain and is completing a feasibility study of its Corcoesto heap-leach gold project in western Galicia.