Write down swamps Rio Narcea

A US$28.4-million write down on the carrying values of the El Valle and Carles mines in Spain pushed owner Rio Narcea Gold Mines (RNG-T) deep into the red during 2004.

In all, the company ended the year with a net loss of US$44.4 million (or 36 per share), compared with year-ago net earnings of $3.2 million (3 a share). The loss is also attributed to lower production, increased mining costs, and a 10% appreciation of the euro against the dollar. Consolidated revenue between the two periods climbed by about 11.5% to US$67.8 million, while revenue from El Valle and Carles slipped by 22% to US$47.3 million.

Cash flow from operations was more than halved to US$8.9 million, with increased underground mining costs at El Valle and Carles the main culprit; mine costs climb by US$1.9 million to US$30.1 million.

Open pit mining at El Valle wrapped up in August; the company plans to use the pit as a tailings containment area during underground operations, which are currently running at a rate of 8,000 tonnes per month. The mining rate is expected to hit 20,000 tonnes per month during 2005.

At the end of 2004, El Valle had proven and probable underground reserves totalling 723,000 tonnes grading 4.4 grams gold per tonne, for 102,279 contained ounces of gold; another 193,000 tonnes of stockpiled material runs 7.6 grams, for 47,035 contained ounces. The company says the reserve also contains some 17.6 million lbs. of copper.

Underground mining began at Carles East in mid-2003; open-pit production ceased in May 2004. During the fourth quarter, underground mine production reached 11,000 tonnes per month, with a monthly rate of 16,000 tonnes expected in 2005. Yearend underground proven and probable reserves stand at 534,000 tonnes running 4.3 grams gold per tonne, for around 73,825 contained ounces of gold.

At the end of 2004, Rio Narcea revised the mining plans at El Valle and Carles; those plans are currently being optimized. Meanwhile, underground infill drilling at El Valle has extended to the east two zones of mineralization between the El Valle and Boinas East pits. Infill drilling will continue in 2005. The company also plans a campaign of underground infill drilling on the Carles North and East zones.

Gold production from the company’s operations in 2004 totalled 118,580 oz. at a cash operating cost of US$215 per ounce, compared with the 174,175 oz. produced at US$146 per oz. a year earlier. The lower production reflects a 16% drop off in head grade to 6.4 grams gold per tonne. The company realized an average of US$408 per oz. during the year, up from US$356 per oz. in 2003.

Still, it wasn’t all doom and gloom during the year, as the company advanced on two fronts. In December, commissioning of the Aguablanca nickel project began, and the company acquired the Tasiast gold project in Mauritania via its takeover of Defiance Mining in September.

At Aguablanca, the construction contractor, Fluor, is currently making modifications (at its expense) to the semi-autogenous grinding mill and flotation circuit. Commissioning is expected to wrap up in the second quarter of 2005. Currently, the plant has achieved 72% of the design throughput and 55% of the design nickel grade in concentrate, 100% of the design copper grade in concentrate, 70% of the design nickel recovery, and 100% of the design copper recovery.

The open-pit and underground mine is designed for annual production of 18 million lbs. of nickel, 11 million lbs. of copper, and 20,000 oz. of platinum group elements (PGE). At the end of 2004, proven and probable reserves were unchanged at 15.7 million tonnes grading 0.66% nickel, 0.46% copper and 0.47 gram PGE.

Also at yearend, Aguablanca’s 3-km decline had advanced around 1,150 metres, and is expected to reach the higher-grade nickel mineralization in the second quarter of 2005. Underground mining at a rate of about 285,000 tonnes per year is slated for the first half of 2006.

In Mauritania, the company expects to complete basic engineering for the Tasiast project in April. Tasiast is home to proven and probable reserves of 9 million tonnes averaging 3.1 grams gold, for 885,000 contained ounces. That reserve is included in a larger measured and indicated resources totaling 12.1 million tonnes grading 3.1 grams, or nearly 1.2 million contained ounces. Another 12.4 million tonnes of inferred material runs 2.25 grams gold. Construction at Tasiast will be funded via debt financing and projected future operating cash flow.

At the end of 2004, Rio Narcea had long-term debt of US$31.1 million, an US$81.9 million in cash and equivalents.

Looking ahead, Rio Narcea expects to produce around 70,000 oz. of gold from its existing operations in 2005; cash costs are figured at US$385 per oz. The company also plans to spend some US$36 million developing the Tasiast open pit gold mine. Plans also call for metallurgical test work and completion of an ongoing 15,500-metre infill-drilling program on the Salave deposit in northern Spain in anticipation of a bankable feasibility study.