One month after arranging a US$61-million financing,
Under the deal, Glencore will buy all the nickel concentrate produced from Aguablanca until 2010. No further details were released.
In December 2002, 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 proposed financing consists of the following:
q a 6-year senior loan of US$45 million;
q a subordinated, convertible loan of US$5 million;
q a “stand-by” loan of US$5 million;
q a nickel and copper hedging facility, made up of puts and calls, to cover half the nickel produced during the loan’s term.
Rio Narcea has also lined up a 6-million euro credit facility with Barclays Bank to help finance the payment of taxes related to project construction.
Based on positive results from a bankable feasibility by Metallurgical Design and Management, Rio Narcea expects to be able to fast-track development at Aguablanca and begin commercial production as early as the first quarter of 2004.
Using contract miners, the operation would exploit an open-pit reserve base of 15.7 million tonnes grading a diluted 0.66% nickel and 0.46% copper, plus 0.47 gram platinum group metals per tonne. The estimates are based on a nickel price of US$2.99 per lb. and a copper price US73 per lb.
Ore would be processed on-site at a conventional, 1.5-million-tonne-per-year nickel-sulphide 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.
At a mine life of 10.5 years, Aguablanca would annually produce 9,080 tonnes (20 million lbs.) nickel, 6,810 tonnes (15 million lbs.) copper and 25,000 oz. platinum group metals in concentrate.
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.
The company is confident the project’s economics can be enhanced by optimizing the pit slopes, using second-hand equipment, adding open-pit reserves from nearby mineralized zones, and developing higher-grade, deeper mineralization below the proposed open pit.
In addition, Rio Narcea has budgeted US$3 million for exploration in the nearby region, declaring it wants to “unlock the potential of a new nickel sulphide province” that is “underexplored but has world-class potential.”
Meanwhile, Rio Narcea is reviewing proposals for plant construction and expects to award engineering and construction contracts soon.
As the European Union’s largest gold producer, at 177,000 oz. in 2002, Rio Narcea is best known for its wholly owned El Valle and Carles open-pit gold mines in northwestern Spain, where the company hopes to begin production from underground reserves in mid-2003.
With cash costs falling 27% to US$145 per oz. in 2002, Rio Narcea anticipates booking a profit of about US$10 million for the year, based on revenue in excess of US$52 million.
The company notes it has reduced its hedge position to about 40% of production, and there are no margin requirements. Long-term debt was US$13.5 million at the end of November 2002.
Elsewhere in Spain, the company is proceeding with a feasibility study at its Corcoesto heap-leach gold project, west of El Valle and Carles. Infill drilling is ongoing and, if all permits are in-hand by mid-year, production could begin by early 2004.
At the grassroots level, Rio Narcea recently signed an agreement with Outokumpu’s Spanish subsidiary to acquire up to a 70% interest in the latter’s Lugo gold properties in northwestern Spain. Rio plans to spend US$4.4 million this year exploring the undeveloped properties.
Rio Narcea’s shares have been on a tear, rising from around 50 in January 2002 to more than $2.30 at presstime.
The company has released its restated 2001, 2000 and 1999 financial results, calculated by Rio’s new auditor, Ernst & Young, which verified the work of Rio’s former auditor (now-defunct Arthur Andersen) and brought it more into line with generally accepted accounting principles in the U.S. More details are available at www.rionarcea.com
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