Mining Markets


Mexico’s silver treasures entice

Mexico is the world's No. 2 silver producer after Peru and even after centuries of silver mining, there are st...

Mexico is the world’s No. 2 silver producer after Peru and even after centuries of silver mining, there are still rich pickings to be had.

The country, which generated about US$10 billion a year in mineral sales over the past two years, has moved up the rankings to become one of the world’s most popular destinations for mining exploration after Canada, Australia and the United States. Mexico’s mining chamber expects mining companies searching for all metals to invest US$13.1 billion over the next three years, and investors have long been impressed by Mexico’s openness to international miners, with none of the resource nationalism that afflicts its energy sector.

Mexico is perhaps more welcoming than ever to investors at it recovers from recession last year, the worst in Latin America. The country’s close ties to the United States put it on the front line of the global economic crisis and Mexican exports collapsed. Mexico’s total mineral output fell 10% last year and several major mines closed, while thousands of miners were laid off as international commodity prices tumbled. Labour problems at Mexico’s biggest copper pits have also cost the country dearly. A two-year strike at the massive Cananea copper mine and other walkouts deemed illegal by the government have cost the mining sector US$3.2 billion since 2006, according to the country’s mining chamber.

But Mexico’s economy is already showing signs of a strong recovery and mineral production is expected to be a part of that, with copper output projected to rise 5% this year to 250,000 tonnes. The mining chamber meanwhile expects silver prices to be above US$15 per oz. this year, as investors see silver and gold as safe havens while the world recovers from last year’s deep recession.

That is good news for London-listed Fresnillo (FRES-L), the world’s largest primary silver producer, which has four mines, all in Mexico: Fresnillo, Cienega, Herradura and Soledad-Dipolos. But Mexico is also fast becoming a haven for a string of mid- and small-tier Canadian miners — both development stage and producers — and a sizable increase in output is expected over the next three or four years. First Majestic Silver, for instance, already has three mines operating and two promising projects, while ECU Silver is aiming for an annual output of 7 million oz., just for starters.

“There’s significant potential here in Mexico and that’s one reason why we decided to come and explore and operate here because I think there’s many more mines to be found,” says Godfrey Walton, president and chief operating office of Endeavour Silver.

One concern for investors is Mexico’s drug war. The conflict has yet to affect mines or miners but it is escalating daily as brutal cartels fight rivals for control of smuggling routes into the United States. President Felipe Calderon has sent some 70,000 soldiers and marines to try to crush the drug gangs since he took office in December 2006, winning praise from Washington. But the three-way war between the army and the cartels has killed 22,700 people so far under Calderon and once quiet mining states such as Durango and Chihuahua are being badly shaken by the violence. “Now we’re at the centre of influence of all the major narco groups,” says Michel Roy, ECU Silver’s president and chief executive, referring to the miner’s Mexican headquarters in the central Mexican city of Torreon. “So there have been a lot of shootings, but they normally shoot at one another and you try not to be in the middle.” 

Great Panther Silver (GPR-T)

When the Vancouver-based miner decided to change its name last year, it was clear its undeniable focus was silver. In December, shareholders bid farewell to Great Panther Resources, and Great Panther Silver was born just in time to unveil some impressive results. The miner increased output by almost a quarter last year to around 2.2 million silver-equivalent oz. and its mines in the central state of Guanajuato produced a record 470,025 silver-equivalent oz. in the fourth quarter.

Production from the firm’s Topia mine in Durango also grew, and the company sees its silver production reaching 2.5 million oz. this year and 3.8 million oz. by 2012. 

Robert Archer, the company’s president and CEO, said in a statement that with new equipment being delivered over the first half of 2010, “development will continue to ramp up throughout the year, leading to significant production increases as outlined in our new three-year growth strategy.”

In the first quarter of this year, total production was up 10% over the year-earlier quarter to 526,950 silver-equivalent oz., but down 16% from the previous quarter.

Exploration efforts at Guanajuato and Topia are expected to yield updated resource estimates by the end of the year.

Great Panther’s focus on Mexico began in 2003, with the acquisition of Minera Mexicana El Rosario and its two projects in the Sierra Madre mineral belt of Mexico that included the Topia mine that was first mined in the 1950s. Archer, who has more than 27 years of experience in the mining business including a spell at Newmont Mining (NMC-T, NEM-N), then took Great Panther to Guanajuato, where it bought the three historic but near-bankrupt mines from a Mexican mining co-operative in 2005 in a district where silver has been mined since the 1500s. Helped by strong silver prices at the time, the company took the bold move of taking the dilapidated mines, investing heavily in them and bringing them back to production with modern mining practices.

Fortuna Silver Mines (FVI-T)

With its silver-gold San Jose project in southern Oaxaca state, Fortuna Silver Mines aims to become a mid-tier Latin American silver producer and add to its only operating mine, the Caylloma silver pit in Peru’s Arequipa region.

In April, Fortuna released a prefeasibility study for San Jose, outlining a nine-year mine life for an operation that would access ore via a decline ramp. Preproduction capital costs were estimated at US$55.7 million, the net present value at US$36.4 million (at an 8% discount rate), and the after-tax internal rate of return was pegged at 18%. San Jose holds 3.5 million tonnes of probable reserves averaging 205 grams silver per tonne and 1.6 gram gold for 23.2 million oz. silver and 181,000 oz. gold.

Fortuna, which started trading on the Toronto Stock Exchange’s main board in January, aims to begin construction at the mine this year, after receiving permits that would allow construction to start on a 1,500-tonne-per-day operation. The processing plant at San Jose will employ conventional flotation for production of high-grade silver concentrates. In early January, Fortuna secured a US$20-million loan to help fund the project and in March closed a C$34.5-million financing deal, issuing around 15 million shares, all of which will be used to build the mine. “We are already working on pre-construction activities with the aim of commissioning our second underground mine at San Jose in Mexico in the third quarter of 2011,” said CEO Jorge Ganoza in a recent statement.

Excellon Resources (EXN-T)

Mining in the middle of Mexico’s silver belt, Toronto-based Excellon Resources expects to produce at least 1.6 million oz. silver this year at its Platosa mine in Durango. With the expertise of geologist John Sullivan, vice-president of exploration, Excellon increased indicated resources by 46% at Platosa late last year to 579,000 tonnes grading 909 grams per tonne silver, 9.09% lead and 10.51% zinc and more than doubled inferred resources to 160,000 tonnes grading 731 grams silver, 7.44% lead and 7.57% zinc.

With a $12.7-million exploration program under way at Platosa, the company is determined to uncover the large-scale mineralization there that is still not fully explored and which Excellon says is one of the highest-grade producing silver, lead and zinc deposits in Mex
ico. In February, the company announced five additional holes at Platosa with “continued evidence that we may be in the vicinity of a large-tonnage proximal carbonate replacement deposit.”

Sullivan added that the discovery of high-grade massive sulphides and further indications of a possible feeder zone were encouraging.

In April, the company added 180 sq. km to the southern end of the Platosa property, located between its mine and the historic Ojuela mine. The prospective ground had recently been released by the Mexican Geological Service and expands Platosa to 420 sq. km.

Excellon, which sold 431,588 oz. silver in the first quarter of this year, also holds the Miguel Auza property in Zacatecas state, where it runs a flotation mill that it inherited from previous owners and which it has expanded and modernized. In the northern section of the Fresnillo-Zacatecas silver belt, the area has a long mining history with veins exploited by the Spanish in the 16th century. However, until Excellon began an initial exploration program there in September to develop drill targets, it had seen little exploration in recent years.

First Majestic Silver (FR-T)

First Majestic is well advanced in its goal to become a sizable silver miner, with three operating mines and two projects, including the recently acquired and very famous Real de Catorce mine, noted in tourist guides as one of Mexico’s most important silver pits in colonial times. In fact, 2010 should be a good year for First Majestic as its new 3,500-tonne-per-day cyanidation plant at its La Encantada mine started commercial production in April. The plant at the mine in Coahuila state, across from Texas, was expected to reach full capacity in May, producing more than 4 million oz. of silver in doré bars per year.

“This will result in our production of silver exceeding six million ounces this year,” said company CEO Keith Neumeyer in an April statement. So far, the signs look good as silver output at the La Encantada, La Parilla and San Martin mines jumped by more than a quarter to a record 1.4 million oz. in the first three months of the year. Vancouver-based First Majestic hopes its Del Toro silver pit in Zacatecas will become its fourth producing silver mine, although it is keeping its development timeline largely to itself.

Two of the areas at the site, San Juan and Perseverancia, were exploited by the Spaniards over 500 years ago and San Juan has at least six levels within the old mine, although it hasn’t been mined for three decades. In a sign of First Majestic’s ambitions, the company bought junior miner Normabec Mining Resources in November to get its hands on Real de Catorce and speed up its development.

ECU Silver Mining (ECU-T)

It looks like ten years of exploring at ECU Silver Mining’s Velardena properties in Durango will soon pay off. The silver-gold mine’s oxide mill has been in operation for a year and the company recently won environmental permits to expand its sulphide operations with a 1,500-tonne-per-day mill, part of a plan to eventually grow to 5,000 tonnes a day. In March, Velardana produced its best results since it started its oxide mill, with a 12% increase in silver to 33,614 oz. and a 27% increase in silver equivalent to 79,443 oz. compared with February.

But this is still small fry for ECU Silver. The Toronto-based company aims to start production on a new level by the end of 2011, processing 1,500 tonnes of material a day.

“We are aiming at producing around seven million ounces of silver equivalent a year to start with,” says ECU president Michel Roy, who also believes global silver prices are still undervalued. Towards the end of the year, ECU Silver aims to expand or build a new mill for abut 500 tonnes a day, although it is still mulling its investment options.

“There’s been mining in the area for a long time and one of the characteristics of the area is that the veins are very continuous,” Roy says. “We’ve been following them for thousands of metres laterally and vertically, and we still have not reached the end of the system, so this is why we’ve been able to build such a large resource and I think the potential in this area is still tremendous.”

ECU sold US$2 million worth of silver and gold in April, a record for the company.

Endeavour Silver (EDR-T)

Since starting up in 2004, Endeavour Silver has looked to Mexico for aggressive silver production and resource growth and already has two operating silver mines, Guanacevi in Durango, and Guanajuato in the state of the same name. Production continues to increase, jumping by a third in the first quarter to a total of 766,210 oz. silver (or 1 million silver-equivalent oz.), with cash costs declining 18% to US6.39 per oz. and revenues rising 115% to US$18.2 million. And the Vancouver-based company sees a third mine coming into production at Guanacevi, known as Porvenir 4, this year.

“By the end of the year, we expect to be approaching 12,000 tonnes a day at Guanacevi and we expect to be producing about 600 tonnes a day at Guanajuato,” says Godfrey Walton, the company’s president and chief operating officer. “We would like to decide whether to expand the plan in Guanajuato to 800 tonnes a day.”

Walton, who spends about half the year in Mexico and has a senior operational chief living full-time in Durango, says Porvenir 4 will start operation in the third quarter of this year in a historical district where mining dates back 400 years.

“It’s a buried deposit, so you can’t see it on surface and to us it is very exciting — another confirmation that there are new mines in some of these very old districts,” he says. Endeavour’s plans don’t stop there. In February, the company acquired an option to buy the San Sebastian silver-gold properties in central Jalisco state from Mexican copper miner Grupo Mexico (GMEXICOB-M). Discovered in 1542, the San Sebastian mines have seen spurts of small-scale mining over the centuries, but little modern exploration since the early 1990s.

Mag Silver (MAG-T)

After a difficult 2009 in which Mag Silver reported a net loss of US$13.5 million and spent much of the year fighting off a hostile takeover bid from partner Fresnillo, the company is expecting better news in 2010 at its 100%-owned Cinco de Mayo property. In April, it announced its thickest molybdenum-gold intercept to date at the Pozo Seco area of the project in Chihuahua, with the hope that a large silver-lead-zinc-skarn-replacement system lies nearby.

“The results from this round of drilling clearly demonstrate width and continuity within the Pozo Seco Prime discovery zone with holes consistently showing grades higher than many of the world’s major molybdenum mines,” said Mag CEO Dan MacInnis in a statement.

Mag’s high-grade silver discoveries at its Juanicipio property in Zacatecas remain its biggest focus, however, so much so that it spent more than $2 million in legal fees to stop Fresnillo from taking over its 44% stake in the project, which Mag says has indicated resources of 36.5 million oz. silver, plus 46.6 million inferred oz.

Fresnillo owns the majority stake in the project and made a $4.45-per-share bid for Mag’s stake in late 2008 but eventually pulled out of the deal after dragging its feet over key documents needed in the formal valuation. The partners now plan to spend US$5.9 million at Juanicipio in 2010 in a program that will include 21,400 metres of drilling and US$1.5 million in engineering work, in support of a prefeasibility study.

Mag announced a $32-million bought-deal financing in April, with proceeds to go toward development of Juanicipio and Cinco de Mayo.

Orko Silver (OK-V)

Like its rivals, Orko sees great promise beneath the barren, mountainous scrub of Durango and boasts one of the largest known primary silver deposits, La Preciosa, or The Beautiful. In its joint venture with Pan American Silver (PAA-T, PAAS-Q), Orko has a project in its hands that hosts indicate
d resources of 10.64 million tonnes grading 185 grams silver per tonne for a silver-equivalent grade of 201 grams per tonne. The contained metal equals 63.2 million oz. silver and 94,000 oz. gold for a silver-equivalent 68.9 million oz. Vancouver-based Orko hopes for a full feasibility study towards the end of 2010.

Highlights of ongoing delineation drilling by Pan American released in late April included 51.1 metres of 0.468 gram gold and 242.7 grams silver per tonne (for 270.8 grams silver-equivalent) from 230.3 metres depth in hole BP09-413. The hole was drilled in the main resource area of La Preciosa and the intercept came from the Martha vein. Orko president Gary Cope said in a release that the drilling confirmed results from previous, more widely spaced drilling by Orko.

The project has seen nearly 200,000 metres of drilling since 2005.

Enviably near the colonial state capital, also called Durango, and within the silver belt that is home to the likes of the Guanacevi and Fresnillo deposits, La Preciosa is Orko’s only major project and the company holds a 45% interest carried through to the production stage, with the remainder in Pan American’s hands.

In March last year, Orko bought Silver Standard Resources’ (SSO-T) 100% interest in the San Juan property just west of La Preciosa and in 2008 concluded a similar agreement with Goldcorp (G-T, GG-N) to get its hands on the 324-sq.-km Santa Monica property nearby.

— The author is a freelance writer based in Monterrey, Mexico, specializing in mining issues.

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