Mauritania’s former president Maaouya Ould Sid’Ahmed Taya was ousted earlier this month in a bloodless coup led by senior military officers in the capital city of Nouakchott. The coup occurred while Taya was in Saudi Arabia attending the funeral of King Fahd.
The fully permitted Tasiast project is situated about 300 km north of Nouakchott.
The coup leaders have formed a “Military Council for Justice and Democracy” and plan to hold a referendum to change some provisions of the constitution. The group has promised that presidential and parliamentary elections would follow in no more than two years.
Rio Narcea says it is satisfied that the change in government will have no impact on its plans for Tasiast, and that the minister of mines and his department have already advised the company of the government’s full and ongoing support for the project.
“We were just about to make the decision to proceed at Tasiast and start work when we had a coup in Mauritania,” Rio Narcea CEO John Hick told investors and analysts during a recent conference call.
“We had people on-site and in Nouakchott at the time and there were no safety concerns that we are aware of. It seems to be business as usual,” he said. “We are essentially satisfied that we are in a position to go ahead.”
Rio recently announced it would develop Tasiast following a detailed review of basic engineering work by South Africa-based Senet Engineering. The review focused on optimizing the project’s economics amid rising fuel, steel and shipping costs, with an emphasis on limiting operating costs.
In the end, capital costs have jumped about 30% to US$63.5 million from the US$48.4 million estimated in an April 2004 bankable feasibility study. Rio is quick to point out that the latter figure did not include working capital or a US$1-million payment owing to
The increase is also attributed to a US$5.8-million rise in the cost of the project’s proposed power plant, which will now use heavy fuel oil rather than more costly diesel oil. The company has also added political risk insurance.
Plans at Tasiast call for average annual production of 105,000 oz. gold over 8 years; cash operating cost are pegged at around US$240 per oz. Production during each of the first three years is forecast at 120,000 oz. at US$220 apiece.
Based on a gold price of US$400 per oz., the plan generates a net present value (at a 10% discount) of US$13.8 million and an internal rate of return of 18.2%. Boosting the gold price to US$450 per oz. sends the value to US$32 million, with a return of 28%.
The plan is centred on 9 million tonnes of proven and probable reserves grading 3.1 grams gold per tonne, or around 886,000 contained ounces, based on a gold price of US$370 per oz.
Overall, Tasiast is home to measured and indicated resources totalling 12.1 million tonnes running 3.1 grams gold, for 1.2 million contained ounces; another 12.4 million tonnes averaging 2.25 grams gold are classified as inferred resources. The mineralization remains open at depth.
Rio Narcea plans to finance Tasiast via a combination of cash on hand and project debt; negotiations with banks are ongoing.
Tasiast is slated to begin production in mid-2007.
Salave stalled?
Meanwhile, in northern Spain, Hick says that the government of Asturias has publicly announced that it has declined to issue a ruling on Rio Narcea’s change-of-land-use application, which is required to develop the Salave gold project.
Still, he says that until the company receives official notification of the government’s decision, work will continue on a feasibility study. The company says it will weigh its options, including legal action, once formal notification has been received.
Hick says the announcement came as a surprise in that his company has always enjoyed an excellent relationship with the Asturian government. He was particularly surprised that the government had not contacted the company directly.
“We have not received the formal notification from them as required, and therefore don’t have any further information as to the rationale for their judgment,” he said.
Rio Narcea president Alberto Lavandeira figures the government’s action may be in response to pressure from environmental groups in the nearby village of Tapia de Casariego.
Lavandeira added that the same government had previously expropriated land covering the Salave deposit to allow for development by the company. “It’s quite a unique and strange situation that the government would do that and then not allow the mining project to proceed.”
Hick said that as far as the company understands, the government’s decision has nothing to do with any environmental concerns.
At last count, measured resources at Salave stood at 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 grade 2.5 grams. The estimates use a cutoff grade of 1 gram gold per tonne.
With a 15,500-metre infill drilling program under its belt, the company plans to update the resource estimate later this summer.
Preliminary plans had Salave producing at 150,000 oz. per year by mid-2007.
Growing pains
At the Augablanca nickel-copper mine, 90 km north of Seville in southern Spain, commissioning delays continue, as the semi-autogenous grinding mill throughput still hasn’t reached design capacity of 1.5 million tonnes per year.
Throughput did improve by 59% to 285,224 tonnes during the three months ended June 30. Likewise, the nickel recovery rate climbed by almost 10% to 63.7%, and copper recoveries increased by 12.4% to 92.3%. In July, nickel recoveries averaged 78% and copper recoveries remained within design parameters.
In the end, the mine produced 1,163 tonnes nickel and 1,290 tonnes copper during the recent second quarter.
The improvement in mill throughput is attributed, in part, to the installation of new discharge grates and liners in June. Rio is also considering purchasing a used secondary crusher to help boost throughput.
Engineering and construction contractor Fluor continues to fine tune the plant, and needs to attain at least 90% of design capacity before it can turn the plant over to Rio Narcea. Fluor has yet to begin its performance tests.
The feasibility study at Aguablanca calls for throughput of 125,000 tonnes per month, recoveries of 82% nickel and 85% copper, and concentrate grades of 8-9% nickel and 4-5% copper.
Meanwhile, underground ramp development and infill drilling under the planned open pit at Aguablanca continues. The first phase of underground infill drilling to test mineralization below the proposed pit bottom is slated to wrap up by the end of the year.
At full steam, Aguablanca is expected to churn out around 8,200 tonnes nickel, 6,350 tonnes copper and 20,000 oz. platinum group metals (PGMs) annually over 10 years.
At the end of 2004, Aguablanca had proven and probable reserves of 15.7 million tonnes running 0.66% nickel, 0.46% copper, and 0.47 gram PGMs per tonne.
Rio finished the recent second quarter with a net loss of US$6.2 million or US4 per share, compared with a year-ago net loss of US$288,400 or nil per share. The increased loss reflects a US$5.6-million shortfall on foreign-currency exchange, and a US$2.3-million derivatives loss.
Meanwhile, operating income swung into the black to the tune of US$2.6 million from an operating loss of US$4.4 million in the corresponding period of 2004. The first sales of concentrate from Aguablanca chipped in US$22.4 million, or 62% of company-wide revenue.
Second quarter gold production from the company’s marginal El Valle
and Carls underground mines totalled 13,459 oz. at a cash cost of US$339 per oz., down from the 38,648 oz. poured at US$171 apiece a year earlier.
The company also produced 22,840 oz. gold at US$419 per oz. under its toll-milling agreement with
Looking ahead, Rio expects to produce 70,000 oz. gold at US$385 per oz. from its own operations in 2005.
At quarter’s end, Rio’s cash and equivalent position totalled US$63 million, off US$18.6 million from the end of 2004; long-term debt was US$8.3 million lower at US$22.8 million. The company has about 157.9 million shares outstanding.
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