European and Central Asian projects struggle for profits, capital

Companies with mines and/or exploration projects in Europe are not having an easier time surviving the economic downturn than their North American counterparts.

London-listed Navan Mining recently retained a corporate finance firm to help it “optimize various strategic and financial opportunities” arising from the Krumovgrad gold project in southern Bulgaria. One of those opportunities may be to accept an offer from mining companies interested in acquiring all or part of the advanced exploration project.

Like most of its peers, Navan is struggling to better position itself to ride out what may become a prolonged market downturn. The company says its mining complexes in Spain and Bulgaria are operating well, though the benefits of the improved performance are being eroded by weak metal prices, compounded by debt loads the company incurred at two Spanish projects: developing the Aguas Tenidas mine and upgrading the Almagrera treatment facilities.

As part of a broader effort to acquire previously state-owned mines across Europe, Navan acquired the Aguas Tenidas deposit in the Andalucian region of southwest Spain in 1995. The silver-lead-zinc-copper mine began production in 1999, with a total of 160,000 tonnes trucked to and milled at the Almagrera plant by year end.

Chairman Richard Lockwood told shareholders earlier this summer that the company’s operating performance for 2001 has been “very gratifying.” Total ore treated in the first five months was 30% higher than for the corresponding period in 2000, and copper, lead and silver production were up by 119%, 37% and 69%, respectively. Even so, he says the company’s financial performance for 2001 will be “somewhat lower than expectations.”

In light of the weaker-than-expected financial performance, Navan recently raised US$22.8 million to reduce its debts, and to complete exploration and evaluation studies at Krumovgrad. While no decision has made been to sell the project, Navan says “bringing in a strategic partner” is one of the options being considered.

Navan has identified six mineralized zones in the Krumovgrad region. The most advanced of these is Ada Tepe, which has an inferred resource of 22.7 million tonnes at a grade of 4.25 grams gold per tonne, equivalent to 3.1 million contained oz. This resource is open laterally to the east and west, as well as downdip.

Proceeds will also be used to reduce debt related to the Spanish operations. The company says this reduction in gearing will provide a stronger balance sheet and financial position from which to extract maximum value from the remaining assets.

Meanwhile, across the water in Ireland, Ivernia West (IVW-T) is bearing the brunt of zinc prices at 20-year lows. The company’s 50%-held Lisheen zinc mine produced at record levels during the second quarter ended June 30, after reaching commercial production early this year. The improved performance was overshadowed by depressed metal prices, resulting in a net loss of US$5.9 million for the quarter, and US$11.6 million for the six months ended June 30. The company estimates that during the quarter and first half, respectively, US$2.1 million and US$2.6 milllion of losses can be attributed to the reduction in zinc prices relative to the previous year periods.

As of June 30, Ivernia had a working capital deficiency of US$19.1 million, compared with a working capital deficiency of US$9.4 million at the end of 2000. The increase was attributed to higher amounts owing for the current portion of Lisheen’s long-term debt, which stands at US$86.5 million.

Ivernia West also holds an 9.6% interest in the Magellan project in Australia, which, at last report, had proven and probable reserves of 8.5 million tonnes grading 7.12% lead. A feasibility study completed earlier this year, based on a conventional milling and flotation flowsheet, projected lead recoveries of about 85% to produce a concentrate grading about 70% lead. The concentrate would then undergo on-site batch refining to produce about 55,000 tonnes per year of marketable lead metal of high purity.

With a few exceptions, companies are not carrying out much work in the Central Asian republics of the former Soviet Union. European Minerals (EPM-T), for example, has disposed of its mineral rights and technical database for the Samarskoye copper-gold property in Kazakstan. The company (formerly Kazakstan Minerals) realized net proceeds of about US$700,000 from the sale made to the largest copper mining company in the republic. The junior still retains an interest in the Varvarinskoye gold-copper project there, as well as various oil interests.

Bucking the trend is AIM-listed Oxus Mining, which says it is making good progress towards bringing its first gold mine into production. The company is active in both Uzbekistan and Kyrgyzstan.

A bankable feasibility study was completed on the Amantaytau Goldfields project in the Kyzylkum region of Uzbekistan, with work focused on an open-pit, heap-leach mine handling about 1 million tonnes per year.

The independent study concluded that this production rate is achievable, and will result in production of 637,500 oz. gold and 6.6 million oz. silver over the 9-year mine life.

Capital costs are estimated at US$35.8 million, while cash operating costs are expected to come in at US$113 per oz., based on a US$260-per-oz. gold price. The payback period would be less than two years, with a 42.8% internal rate of return. Production is slated to begin next year, with annual production expected to reach 170,000 oz. in the first full year.

Oxus says the mine has underground potential, based on a scoping study that envisioned production of 190,000 oz. gold over a 10-year mine life, at an average cash cost of US$115 per oz.

Based on existing minable reserves, total output from the combined operation could reach 2.6 million oz. gold and 6.6 million oz. silver over the 14-year mine life. The surrounding land package is considered prospective for additional discoveries and is already being tested by a major drilling program. Drilling is also planned to test regional targets on nearby exploration licences.


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