A strong commitment to exploration is beginning to pay off for
“We’ve had pressure in this [low-price] environment to cut back on exploration,” said Alberto Lavandeira, chief executive officer, during a recent site visit. “But I resist, because it’s necessary. We believe our way of growing through discovery works, and we intend to keep a good exploration budget and aggressive programs.”
In 1999, Rio Narcea expects to spend US$2.5 million on exploration, 80% of which is earmarked for El Valle. So far, the newly discovered Charnela zone has been the highlight of this year’s efforts, triggering a change in future mining plans. Grades encountered there are well above the average of El Valle’s current open-pittable reserve, which stands at 3.7 million tonnes grading 4.9 grams gold per tonne within an overall resource of 6.8 million tonnes grading 6.1 grams gold.
The zone was discovered during a summer campaign to test the updip extension of mineralization in a previously undrilled area of of the Main pit. Hole 139 intersected a true thickness of 56.4 metres (starting at 86.4 metres) averaging 38.4 grams, which includes a 21.95-metre interval of 93.9 grams. It was dubbed Charnela, which means “hinge” in Spanish, because of its location at the crest of the Rio Narcea anticline.
The discovery was confirmed by subsequent drilling, which also extended the zone. Hole 141, drilled 25 metres along strike to the southwest of hole 139 in an undrilled area of the Main pit, returned a true thickness of 44.6 metres averaging 19.2 grams gold at a down-hole depth of 100.7 metres. This intersection includes 23.7 metres of 34.3 grams.
Hole 40, drilled to test the new zone 25 metres updip from hole 139, hit three narrower high-grade intercepts: 4 metres of 31.8 grams, 2.3 metres of 40.6 grams, and 2 metres of 11.5 grams.
Luis Pevida, exploration manager, said the new zone has structural controls that render it different from the other known zones at El Valle. The mineralization occurs as a breccia, consisting of skarn and jasperoid clasts in a clay matrix with strongly altered felsite porphyry dykes below a granite intrusive. “The granite acts like a cap on the new zone,” he said, “which explains the higher grades.”
At last report, the Charnela zone had a strike length of 175 metres, an average width of 70 metres and ranged in thickness from 7 metres in the northeast to 40 metres in the southwest. The open-pittable zone is open and untested for more than 200 metres along strike to the southwest.
Once the current drill program is completed on 25-metre spacings, the zone is expected to make a significant addition to reserves while lowering production costs. Plans are already under way to advance production from this new, higher-grade zone.
Grade is important not just because gold prices are low, but because the overall stripping ratio is high, averaging 19-to-1 waste-to-ore over the life of the mine.
Fortunately, Charnela is in a portion of the pit that will have a much lower stripping ratio than the average. “If you were to ask me where I would like to intersect mineralization, this would be it,” Pevida added.
Operations
While exploration is critical to Rio Narcea’s future, so too is producing profits from El Valle, which was officially opened by the King and Queen of Spain in May 1998.
Like most new mines, it has experienced startup problems. During its first 10 months, El Valle produced 58,630 oz., or about 86% of the total anticipated by the feasibility study, from three main pits: El Valle, Boinas East and Boinas West (now in its final stages). Cash operating costs, at US$220 per oz., were higher than expected, reflecting the production shortfall.
Lavandeira told The Northern Miner and a group of mining analysts that considerable progress has been made to reduce cash costs and increase recoveries at El Valle. Record production of 28,200 oz. at a cash cost of US$172 per oz. was reported for the second quarter ended June 30, which represents a 43% production increase and a 13% reduction in cash costs over the previous quarter.
However, production slipped in the third quarter to 24,181 oz. at a cash cost of US$194 per oz., owing to higher smelter charges and lower recoveries resulting from mill modifications and a temporary shutdown of the CIL circuit.
Total production of 72,105 oz. at an average cash cost of US$194 per oz. (total costs US$239 per oz.) for the 9-month period puts the company on track to achieve this year’s target of 100,000 oz. at a cash cost of below US$190.
On the financial front, the company posted a loss of US$571,000 in the latest quarter, compared with a profit of US$536,000 a year earlier, and a loss of US$1.8 million for the 9-month period.
Rio Narcea is still pushing hard to join the ranks of low-cost producers. Toward that end, the company has three main objectives this year: boost sales cash flow; reduce expenditures; and increase revenues and reserves. Each of these objectives requires a variety of initiatives, reflecting the fact that El Valle is a complex operation, not only geologically, but in terms of mining and milling procedures as well.
Geology
At first glance, exploration in northern Spain appears to be a simple matter of going where others have gone before. And like most companies developing mineral projects in southern Europe, Rio Narcea has followed in the footsteps of the ancient Romans, who were the first to work the mountainous Asturias region for gold.
“Basically at El Valle, we’ve extended two Roman pits,” said Gene Spiering, Rio Narcea’s vice-president of exploration. “We’ve even put the plant in the same spot the Romans did.”
The Asturias region was once the Roman Empire’s most important source of gold. During its heyday, an estimated 7,000 slaves and their overseers toiled away at various sites covered by Rio Narcea’s large land package. These workings are found in three main belts: Rio Narcea, Navelgas and Oscos.
The Rio Narcea belt hosts the El Valle deposits, the nearby Carles and La Brueva deposits, and various exploration targets. The geology is generally complex, with multiple stages of mineralization and remobilization.
Gold mineralization at El Valle was initially deposited as calcic and magnesic copper-gold skarns at the contact between the Boinas granodiorite and limestone and dolomite of the Lancara formation.
After extensive erosion, the reactivation of a northeasterly trending fracture zone provided conduits for the subsequent emplacement of porphyritic dykes and low-temperature hydrothermal alteration that crosscut both the monzogranite and the skarn.
The later events are characterized by the development of quartz-calcite-adularia veins and breccia veins, jasperoid, and jasperoid breccias with epithermal gold mineralization. The strongly oxidized, low-temperature mineralization constitues about 80% of the open-pit reserves.
The mineralizing events at El Valle, together with post-mineral deformation, have resulted in a system that has more geometric complexity than most sedimentary-hosted epithermal deposits, but a simpler geometry than is usually associated with skarn deposits.
Within the Rio Narcea gold belt, the company is focusing its efforts on finding extensions to the El Valle deposit, or nearby deposits that can be mined and trucked to the existing plant.
Drill rigs are currently testing the Charnela discovery in the main pit. This new zone comes on the heels of another exploration success — the 1998 discovery of the Sienna zone in the Boinas East pit.
Sienna, which contains the most continuous high-grade mineralization found to date, is a zone of oxidized fault gouge containing jasperoid breccia. The discovery hole hit 67.4 metres averagin
g 5.8 grams gold, which includes 12.2 metres averaging 13.8 grams. Subsequent drilling has found extensions of the Boinas East zone and returned high grades, including 20.3 metres averaging 21.1 grams and 24.2 metres of 14.4 grams.
Rio Narcea is also continuing to test the Black Skarn zone, an underground target below Boinas East. “That’s the future of El Valle,” said Spiering.
The company is investigating the feasibility of underground mining based on a drilled resource of 3.1 million tonnes averaging 7.4 grams gold, which is still open. Cash costs are estimated to be US$200 per oz.
As an added bonus, the infrastructure is already in place. Once open-pit mining is completed at El Valle, its 1.1-km-long drainage adit will serve as a production adit for underground development of the Black Skarn zone, below the Boinas East open pit. The underground potential could extend the life of El Valle by up to 10 years.
Closer on the production horizon is the Carles deposit, 10 km north of El Valle, which hosts a reserve of 1.4 million tonnes grading 4.2 grams gold in an overall resource of 2.5 million tonnes grading 4.4 grams.
The company hopes to begin operations next spring at an estimated capital cost of US$2 million. This would result in annual production of 20,000 oz. gold at an estimated cash cost of US$165 per oz.
Carles is a skarn deposit, similar to Boinas East. Ore would be processed at the El Valle plant, with waste sold to pay for prestripping costs. Recoveries are projected to be 95%, without change to the existing mill circuit. Like El Valle, Carles is believed to have underground potential.
Rio Narcea also aims to develop a small heap-leach operation at Corcoesto in the Galician region of northwestern Spain (in the Malpica gold belt). It has a shallow resource of 7.7 million tonnes averaging 1.5 grams gold. Capital costs for an operation producing 40,000 oz. gold annually are estimated at US$6 million. Cash costs are expected to be US$179 per oz., owing to the low stripping ratio and easily minable ores.
On the exploration front, the company plans to test a gold skarn discovery at Godan (a Hedley-type gold skarn 2.5 km from Carles), as well as the black skarn potential at Villaverde (described as an El Valle look-alike, with one of the largest Roman open pits). Five other targets with known gold mineralization will also be explored.
Rio Narcea has six targets ready for drilling within the Nevelgas/ Oscos gold belts. Numerous Roman pits are found within these belts, as well as a gold porphyry discovery.
In neighboring Portugal, the company holds a 440-sq-km exploration license in a historic but underexplored mining district. Sampling in some of the workings has returned 72 metres averaging 30 grams gold over a 1.6-metre width.
As Lavandiera sees it, Rio Narcea simply has many more exploration targets than money and time to explore them. “We’ll need to bring in some joint-venture partners to help us explore these targets,” he added. “We’ve had discussions with some interested parties.”
Mine and mill
Grade control is important at El Valle because of its complex geology and mineralogy, and the method used here is among the most sophisticated seen anywhere. In recent months, the sampling-blasting-mining sequence has been modified to reduce dilution and optimize the mine’s performance. All blast-holes are located by global positioning systems and all geology is bar-coded, including the 13 different lithologies.
Geotechnical work is also under way in an effort to reduce the high stripping ratio. The mine, which was originally based on pit walls of 38, has been pushed back to 50 for limestones and 45 for sandstones and ore. Another pushback is being considered that would result in pit walls averaging 57 in pits with competent rock types.
Rio Narcea has two contractors mining at El Valle, chiefly to ensure that there will be no disruption if one of them is called away. The cost-cutting exercise will also include negotiations to improve these mining contracts. Prestripping costs not related to deposits are capitalized, and the company receives a development grant to help offset overall costs.
The mill at El Valle was constructed by Fluor Daniel and is a combination gravity/flotation/carbon-in-leach (CIL) plant. It has a capacity of 650,000 tonnes per year but is expandable to 750,000 tonnes; such an expansion would boost gold production to 120,000 oz. annually from its current rate of 100,000 oz.
Recoveries for both oxides and sulphides are currently about 92%, though recoveries dipped to 88% in the third-quarter owing to the startup of the new gravity plant and a mechanical failure in the elution column (since corrected). The ore is blended in accordance with rock hardness and the amount of cyanide-soluble copper present.
Between 20% and 25% of the gold is recovered in the gravity circuit, which includes new spirals. The flotation circuit recovers an additional 40%-to-50% of the gold and between 50% and 60% of the copper. Between 30% and 40% of the gold is captured in the CIL circuit. To increase cash flow in the years ahead, Rio Narcea intends to reduce the amount of gold in its flotation concentrates (for which it gets paid less).
The newly installed copper gravity circuit is now working well and recovering native copper, which has posed problems in the past for the remainder of the mill circuit. It now recovers about 15% to 20% of the copper while at the same time reducing cyanide consumption in the CIL circuit.
The company recently negotiated improved smelter terms, though third-quarter results reflected higher smelter charges for treatment of copper concentrates with a higher-than-normal bismuth level. It also hopes to lower power and reagent costs, mainly for cyanide.
The detoxified tailings are stored in a clay and plastic-lined pond behind a dam of compacted earth. The dam is revegetated as quickly as possible and monitored frequently as it is near a tributary of Rio Narcea, one of Europe’s most important salmon rivers. After mining ends, the Boinas East and West pits will be filled in and the El Valle pit flooded.
Meanwhile, Rio Narcea is in the midst of efforts to restructure its debt payments, reduce overhead costs and sell non-gold assets. It also plans to raise US$10 million in a rights issue, now in progress, to address operating capital requirements.
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