Endeavour Sorts Out Q2 Problems

BY STEPHEN STAKIWA decline at Endeavour Silver's Guanacevi mine complex, which produced 1.35 million oz. silver last year and was forecast to produce 1.8 million oz. silver in 2007 before recovery problems and construction delays were encountered.

BY STEPHEN STAKIW

A decline at Endeavour Silver's Guanacevi mine complex, which produced 1.35 million oz. silver last year and was forecast to produce 1.8 million oz. silver in 2007 before recovery problems and construction delays were encountered.

Endeavour Silver’s (EDR-T, EXK-X) chief executive Bradford Cooke says that even though the company had to slash its growth forecast by half this year, it can still meet its 2009 goal to produce 5 million oz. silver at its mines in Mexico.

The company has been tackling problems from a disappointing second quarter, which included construction delays, lower recovery rates and production shortfalls.

At the beginning of the year, Endeavour projected it would produce 2.8 million oz. silver at a cash cost of US$5.50 per oz.

While that won’t happen, the company anticipates silver production will increase by 50% over last year, to 2 million oz. for 2007. Cash costs are expected to ring in at US$6 per oz. silver this year.

Cooke says the company missed its forecast goals because of the industry shortages in labour and equipment, which delayed completion of several refurbishment and expansion projects.

“We didn’t realize the seriousness of the labour shortage and that was holding us back,” Cooke says. “So lesson learned — we don’t want to miss a forecast again.”

Endeavour’s stock had been trading above $5 a share until August, when it dropped to the $3-range.

“The stock has pulled back because of that, however we can recover that when we hit our future targets,” Cooke says.

The company produced 1.35 million oz. from the Guanacevi mines in Durango last year and hoped it would produce 1.8 million oz. silver this year.

Current proven and probable reserves total 9.9 million oz. silver, plus gold (nearly 10.9 million oz. silver equivalent); indicated resources are more than 21 million oz. silver, plus gold (21.2 million oz. silver equivalent); and the company has nearly 10 million oz. silver, plus gold (more than 10.9 million oz. silver equivalent) in the inferred category.

Production ore grades at the Porvenir mine — part of the Guanacevi complex — have been lower than the targeted 400 grams silver per tonne due to higher than expected mine dilution and lower-grade stockpiles.

But the most significant problem at Guanacevi was the delayed plant expansions and refurbishment, which includes a new ball mill and improvements to the circuits. The entire expansion won’t be finished until the second quarter next year, but a new Merrill Crowe circuit is expected to come online at the beginning of October.

“That will give us a lift for the fourth quarter,” Cooke says.

Metal recoveries dropped recently because the old agitation leach and Merrill Crowe recovery circuits lacked adequate residence time, but should rebound to the 75-80% range by the fourth quarter.

The company was producing less than 600 tonnes per day instead of the 800-tonne-per-day average planned, but says it should be able to get production up to 1,000 tonnes per day by the second quarter of 2008.

Capital development projects are now under way at the Bolanitos mines project in Guanajuato, where access has been limited to lower-grade reserve blocks.

Last year, the company produced 256,000 oz. silver and 3,350 oz. gold (423,000 oz. silver equivalent).

The reserves, which are not National Instrument 43-101 compliant, total nearly 5 million oz. silver and 46,500 oz. gold (7.3 million oz. silver equivalent). Grades are lower here at 200 grams silver per tonne and 1.87 grams gold per tonne.

The company is developing a new mine plan that includes a new rigorous grade control program to increase both production grades and output, with estimates that the mine will produce 250 tonnes per day on average for the year — half the plant’s capacity.

Output should rise to 450 tonnes per day next year, the company says, as existing shafts, ramps and drifts are rehabilitated to provide access to higher-grade ore.

The 10-year-old Bolanitos plant is already showing results from the capital improvements. A cone crusher was repaired and a second new cone crusher has been ordered as a back-up unit. The flotation circuit has been rearranged to be more efficient and metal recoveries have improved to 80-85% from 65-70% in recent months.

Endeavour is trying to expand resources at each of its projects and has already drilled 17,000 of 35,000 metres planned for 2007.

The company set a target to increase resources by 20 million oz. to about 60 million oz., but now expects it will only add another 10 million oz. to the resource total — or an increase of 25%.

Endeavour has allotted 10,000 metres of drilling for all of Guanacevi. In September, the company began drilling at the Porvenir mine. A surface drill is testing the northwest extensions of the Porvenir orebody that is now in production. Endeavour is also looking for an underground rig to test the depth of the central part of the orebody, as well as the northwest and depth extensions of the Santa Cruz deposit, which was discovered last year.

In October, Endeavour plans to do 7,500 metres of drilling at the producing Cebada mine at Bolanitos, to test four main prospect areas along a 5-km stretch of the Veta Madre vein. An underground drill will be brought to Cebada once the underground workings are cleaned out so the company can drill at depth.

Endeavour has already drilled 15,700 metres at the Parral project, in Chihuahua state, uncovering a new zone on the El Cometa property. The company plans to commission a resource estimate on El Cometa during the fourth quarter.

Results include 2 metres grading 2.71% zinc, 3.37% lead, 33 grams silver per tonne and 16 grams gold, as well as a 5.6-metre intersection grading 2.85% zinc, 6.25% lead, 52 grams silver per tonne, and 1 gram gold.

“It’s only one kilometre from the existing toll-mill plant,” Cooke says. “If we make a fast-track production decision after assessing the economics, the capital costs will be low.”

Endeavour is also negotiating property acquisitions in the Parral area.

Consolidating the land positions in historic mining districts with pre-existing infrastructure is a part of Endeavour’s business strategy.

“It’s critical for us to ensure long mine lives and additional discoveries,” Cooke says.

Using Guanacevi as an example, Cooke explains why Endeavour’s business model works.

“There’s only one plant, and we own it; therefore, it makes eminent sense to us and all the property owners in the district — if they want things explored and developed — they are going to come to us, sooner or later.”

This will require some time, he says.

“Not everybody’s going to rush into our arms at once.”

The company’s Arroyo Seco project in southeastern Michoacan is different — there are no mines or mining infrastructure in the area — but Endeavour says it’s complementary to its other projects.

The company drilled 750 metres there this year because it hopes the sedimentary nature of mineralization will have tonnage potential.

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