Rio Narcea axes marginal mines (March 06, 2006)

Rio Narcea Gold Mines (RNG-T, RNO-X) has decided to pull the plug on its marginal El Valle and Carles underground gold mines in Spain’s Asturias province.

The decision comes as the company faces the prospect of increasing mining costs at El Valle, owing to poor rock conditions, low grades and high dilution. While grades and ground conditions are better at Carles, the company says the deposit’s limited size and current cost structure make it impractical as a stand-alone operation.

Also playing a part in Rio’s verdict is the government of Asturias’ decision not to approve the change-of-land-use application required to develop the Salave gold project, around 70 km west. Rio had planned to ship concentrate from Salave for processing at the El Valle plant, thus making the operation more economical.

Rio had envisaged annual production of 150,000 oz. gold per year by mid-2007 at Salave. Measured resources total 354,000 tonnes averaging 2.7 grams gold per tonne, while indicated resources totalled 14.8 million tonnes grading 3 grams. Another 2.8 million tonnes of inferred material grades 2.5 grams. The estimates employ a cutoff grade of 1 gram gold per tonne.

Rio is in the midst of a “legal process” aimed at recovering its total investment and lost profits at Salave.

In the meantime, mining at El Valle and Carles will continue to focus on more stable, high-grade, developed areas. And, work will continue on the high-grade mineralization in Area 107 at the Boinas-El Valle deposit, about 250 metres east of existing underground development.

Limited underground drilling there is highlighted by 5.75 metres running 41 grams gold and 1.3 grams silver per tonne, 5.8 metres of 51 grams gold and 1.7 grams silver, and 12.6 metres grading 16.4 grams gold and 3 grams silver, in the Upper zone. Drilling on the Lower zone included a 16.7-metre section of 9.4 grams gold and 5.8 grams silver. The holes also returned variable amounts of copper. The mineralization remains open at depth and towards the southeast, where the best intersections have been encountered.

Area 107 is not expected to change the plan to close El Valle and Carles. Both mines are to be shuttered by the end of 2006, with total closure costs, including site rehabilitation and statutory employee severance, of no more than $7 million.

Gold production from El Valle and Carles during the three months ended Sept. 30, 2005, came to 20,707 oz. at US$430 per oz., down from the 24,866 oz. poured at US$225 apiece a year earlier. El Valle mined 41,038 tonnes running 2.8 grams gold and 0.9% copper, off the plan of 69,398 tonnes at 4 grams gold and 0.8% copper. Likewise, Carles yielded 38,462 tonnes of ore averaging 6.5 grams gold and 0.8% copper, compared with a budget of 48,367 tonnes at 6.3 grams gold and 0.7% copper. For the first nine months of 2005, production from Carles and El Valle was 87% and 72% of plan, respectively.

The closure of the El Valle processing plant might make Crew Gold’s (CRU-T, CRUGF-O) decision whether to build an on-site concrete plant at its 82.5%-owned Nalunaq gold mine in southern Greenland easier. Crew currently ships ore from Nalunaq for processing at El Valle.

Crew has been studying the economics of a concrete plant, which would be required to build a processing plant. Pending a positive decision, construction of the plant is slated to take about a year.

Greenland-based junior NunaMinerals owns the balance of Nalunaq; Nuna’s principal owner is the government of Greenland.

Aguablanca commissioned

On a brighter note, engineering and construction contractor Fluor has finally commissioned the processing plant at Rio’s Aguablanca nickel-copper mine, 90 km north of Seville, in southern Spain.

The long-awaited milestone was reached after a series of tests in January and February. The mill achieved its design rate of 195 tonnes per hour (1.5 million tonnes per year), with an availability rate of 94% during a pair of 5-day performance tests. Nickel recovery was around 75% (or 92% of the design rate of 82%) to yield a bulk concentrate running 13% combined nickel and copper.

A longer, 30-day reliability test saw slightly lower throughput of 185.25 tonnes an hour as availability fell to 89.3%. Nickel recovery came in at around 72%, or 87.4% of the design rate of 82%, and yielded a bulk concentrate grading 12.35% combined nickel and copper.

In January, nickel and copper concentrate grades of 7.17% and 7.01%, respectively, were achieved.

Fluor had struggled to get the plant running at a minimum of 90% of design — something it needed to do before it could turn the plant over to Rio. Rio is now focusing its efforts on expanding the plant to its final throughput rate of 235 tonnes per hour (1.8 million tonnes per year).

The open-pit and underground mine is designed for annual production of 18 million lbs. nickel, 14 million lbs. copper and 20,000 oz. platinum group elements (PGE) over 10.5 years. At the end of 2004, proven and probable open-pit reserves totalled 15.7 million tonnes grading 0.66% nickel, 0.46% copper and 0.47 gram PGE, based on a cutoff grade of 0.25% nickel.

Based on limited drilling, Rio figures underground mining could produce an additional 200,000-300,000 tonnes of ore later this year.

During 2005, Aguablanca milled 997,244 tonnes of ore grading 0.76% nickel and 0.55% copper to produce 11.9 million lbs. nickel and 10.8 million lbs. copper; recovery rates were 71.3% and 88.7%, respectively. The mine produced its first nickel concentrate during commissioning in late 2004.

Commissioning at Aguablanca was originally scheduled to wrap up during the second quarter of 2004, with a production startup anticipated by mid-2004. That timetable suffered as Fluor worked out some bottlenecks in the flotation circuit and made modifications to the semi-autogenous grinding mill, including the installation of new discharge grates and liners. The project also suffered a 3-week delay in obtaining a permit for construction of an 18-km high-voltage power line.

Rio previously said it was evaluating its legal options “as a result of the design deficiencies of the Aguablanca plant and the remedial actions that have had to be taken.”

The company is in the midst of an underground infill-drill program, with holes being sunk form a recently completed, 2,700-metre decline designed to access mineralization beneath the currently planned Aguablanca pit bottom. Plans also call for regional surface drilling.