Mexican projects shine at Silver Summit

Coeur d’Alene, Idaho — If the recent Silver Summit conference held in northern Idaho is any sign, Mexico is one of the premier destinations for explorers and producers of the white metal. The well-attended show featured dozens of silver-focused companies with a clear majority focused south of the border.

With 92.3 million oz. produced in 2005 (almost one-fifth of annual mined global supply), Mexico ranks second amongst the world’s silver-producing countries, coming in just behind Peru. Over the last 500 years, production of more than 10 billion oz. of silver has come mainly from the rich vein-hosted deposits in the Central Mexican Silver Belt (La Faja de Plata) that roughly parallels the eastern edge of the Sierra Madre Occidental range.

Mineralization in the belt typically occurs as epithermal vein structures and polymetallic (silver-lead-zinc sometimes with values gold and copper) carbonate replacement deposits.

Silver mining in Mexico has been dominated for decades by a few majors, namely: Industrias Peoles (IPOAF-O) the world’s top silver producer; Southern Copper (PCU-N) subsidiary Minera Mexico, which produces significant silver byproduct from its copper mines; and Luismin, which is now a wholly owned subsidiary of Goldcorp (G-T, GG-N) and has its silver production sold through contract agreements with Silver Wheaton (SLW-T, SLW-N).

Peoles’ flagship operation is its Fresnillo underground silver mine in Zacatecas state, which also happens to be the world’s richest, producing about 34 million oz. silver annually plus significant gold, lead and zinc. Tizipa, a joint venture with Dowa Mining (dwmnf-o) (39%) and Sumitomo (10%), annually adds about 3.4 million oz. silver to production. The company also produces significant byproduct silver from its La Cienega gold mine in Durango state, its Francisco I. Madero zinc mine, the Sabinas base metal-silver mine in Zacatecas and the Naica lead-zinc mine in Chihuahua state. It also owns Met-Mex, the world’s fourth-largest metallurgical-smelting-refining complex and the top producer of refined silver. In 2005, Peoles produced 47.4 million oz. silver.

Southern Copper (previously Southern Peru Copper) acquired Minera Mexico in early 2005 and produced about 18.5 million oz. silver last year, mainly as byproduct from its copper operations in both Mexico and Peru. Grupo Mexico is a majority shareholder in the company, owning about 75%.

Goldcorp subsidiary Luismin operates several underground gold-silver mines in the San Dimas district, on the border area of the states of Durango and Sinaloa. All of the silver produced from the mines (7.9 million oz. in 2005) is purchased by Silver Wheaton at a contract set price of US$3.90 per oz., yielding a healthy margin at current price levels.

Goldcorp recently entered into a merger agreement with Reno, Nev.-based Glamis Gold (GLG-T, GLG-N), which holds the massive Penasquito silver-gold deposit in central Mexico. Glamis, which actually acquired the project earlier in 2006 through a takeover of Western Silver, has significantly boosted contained metal resources in the deposit to about 822 million oz. silver and 12.8 million oz. gold classified as measured and indicated. A revised feasibility study for the deposit is evaluating doubling the proposed 50,000-tonne-per-day throughput with full production expected by late 2009.

Pan American Silver (PAA-T, PAAS-Q), one of the world’s top primary silver producers, derived about one-quarter of its total 12.5 million oz. of silver production last year from the La Colorada mine in west-central Mexico. The mine produced 3.1 million oz. silver in 2005 from about 212,000 tonnes of ore averaging over 450 grams silver per tonne. Despite some ground condition and excess water flow issues at the underground operation, 2006 output is projected at about 3.6 million oz.

The company also is set to launch production at its second mine in Mexico. Alamo Dorado will come on-stream in this year’s fourth quarter and contribute about 5 million oz. silver plus 14,000 oz. gold annually from its open-pit operations over a projected 8-year mine life.

Idaho-based Hecla Mining (HL-N) saw production from its San Sebastian mine in Durango state wind down in 2005 as reserves were depleted. Output in its final year was 717,860 oz. silver and 17,160 oz. byproduct gold, however the company continues to explore in the area, hunting for new feed for its Velardena mill, currently under care and maintenance.

Lofty goal

Upstart producer Endeavour Silver (EDR-T, EDRGF-O) has set a lofty goal for itself — to become one of the top-5 primary silver producers in the world. The company looks to reach that milestone by expanding efforts at its Guanacevi mining complex in northwestern Durango state.

In just over two years since its acquisition, Endeavour has turned around a struggling silver operation with a long-needed infusion of capital coupled with a strong exploration push to identify additional ore-feed for a hungry processing facility. It committed US$7 million in the project acquisition and initiated aggressive programs of drilling and underground development. The company is installing a new 600-tonne-per-day mill to boost processing capacity to the 1,000-tonne-per-day level by this year’s fourth quarter. The upgrade will increase capacity beyond current mine output, allowing for processing of stockpiled ore. Guanacevi produced 948,323 oz. silver plus 2,332 oz. gold in 2005 with Endeavour projecting 2006 silver output of about 2 million oz.

The company also recently expanded its Mexican silver portfolio by optioning the Minas Nuevas properties in Chihuahua state. The district has estimated past production of more than 30 million tonnes of ore ranging from several thousand grams of silver in shallow oxide, narrow vein systems, to 100-300 grams silver (plus lead and zinc) over broader widths in the sulphide, hangingwall breccia zones.

Another upstart is Great Panther (GPR-V, GPRLF-O) with its Topia silver-lead-zinc mine in Durango state and its Guanajuato silver-gold mine in Guanajuato state.

The company began production at Topia in late 2005, mining high-grade silver veins and producing concentrates that are shipped to Peoles’ smelter in Torreon. Mill throughput was forecast to increase from 120 tonnes per day to 200 tonnes per day through the third quarter while underground development is scaled up. Topia produced about 93,000 oz. silver in the first half of 2006.

Production at Guanajuato started in mid-2006 at initial throughput of 400 tonnes per day being fed from the underground operation. Great Panther plans on boosting throughput to the 1,200-tonne-per-day level by the end of the year. Guanajuato contributed about 14,000 oz. silver production since operations began in this year’s second quarter.

Junior silver producer First Majestic Resource (FR-V, FMJRF-O) has taken the growth-by-acquisition philosophy to heart, recently taking over First Silver Reserve, which operates the San Martin silver mine, in Jalisco state. San Martin produces about 2 million oz. silver annually.

First Majestic also recently purchased the Quebradillas and Viboras silver mines, plus a 31-sq.-km package of mining concessions in the La Parrilla mining district from Grupo Mexico for US$3 million. The projects are near its La Parrilla mine, in Durango state, where it restarted production in mid-2004 and projects annual silver output of about 1.3 million oz.

Silver Standard

Drilling by Silver Standard Resources (SSO-T, SSRI-Q) on its Pitarrilla project in Durango state has been delivering wide mineralized intercepts of up to 601 metres of 86.7 grams silver plus zinc and lead values. Five main zones at the deposit host a 62.8-million-tonne measured and indicated resource grading 115 grams silver plus additional inferred resources of 64.4 million tonnes at 92.7 grams silver.

The company controls one of the world’s largest in-ground silver resources (107 million contained ounces silver in proven and probable reserves and o
ver 603 million contained ounces silver in measured and indicated resources) in its portfolio of several deposits located in Argentina, Australia, Mexico, the United States, Chile, Peru and Canada.

Impact Silver (IPT-V, ISVLF-O) attained the rank of junior producer in early 2006 through its purchase of Royal Silver Mines of Zacualpan for 300,000 shares and US$1.84 million. The project package comprises a pair of operating silver mines (Guadalupe and San Ramon-Compadres), a 500-tonne-per-day operating plant lease and associated mining concessions, located about 100 km southwest of Mexico City.

The mines are currently feeding the plant at half its rated capacity but the company is developing further underground workings to boost throughput. Operations produced almost 190,000 oz. silver for Impact in the first half of 2006, plus some lead and zinc.

Earlier this year, the company expanded its Mexican silver portfolio with the acquisition of the Veta Grande project in Zacatecas. The package includes four mining concessions with two past-producing mines that operated as recently as 2003, a 200-tonne-per-day plant and surface rights.

Excellon Resources (EXN-V, EXLLF-O) shipped its first truckload of ore from the Platosa-Saltierra mine in mid-2005. High-grade massive sulphide ore from the 4C Manto zone is being mined at a rate of about 125 tonnes per day, crushed and sent to Peoles’ Fresnillo mill for processing under a toll agreement.

A recent resource study at Platosa reviewed 184,500 indicated tonnes grading 1,546 grams silver, 10.9% lead and 10.5% zinc with most of the tonnage contained in the newly discovered Guadelupe and Guadelupe South mantos. The resource increase added at least two years to the company’s test phase at the mine, located in northeastern Durango state.

Fortuna Silver Mines (FVI-V, FVITF-O) and Continuum Resources (CNU-V, CUUEF-O) recently agreed to purchase the San Jose silver-gold project under a joint venture. The project, in Oaxaca state, hosts an inferred resource of 527,283 tonnes grading 396 grams silver per tonne and 3.5 grams gold.

Extensive drilling by Fortuna earlier this year intersected a number of high-grade intervals, extending the mineralized zone. A revised resource estimate, which will aid in a production decision, is being calculated.

Gammon Lake Resources (GAM-T, GRS-X) recently heralded its first gold-silver dor pour at its Ocampo mine in Chihuahua state. Gammon has just added to its Mexican portfolio with the acquisition of Mexgold Resources.

Junior silver producer Genco Resources (GGC-V, GGCRF-O) saw 301,274 oz. silver and 2,720 oz. gold produced at its La Guitarra mine during the first six months of 2006. The operation is in central Mexico’s Temascaltepec mining district.

Although more a base metals operation, Capstone Mining (CS-T, CSFFF-O) recently achieved commercial production at its Cozamin mine in Zacatecas state. Operations produced concentrate containing about 1.1 million lbs. copper, 622,000 lbs. zinc, 309,000 lbs. lead and 63,000 oz. silver in August.

Aspiring miner Palmarejo Silver and Gold (PJO-V, PJOFF-O) has assembled a significant land package in northern Mexico’s Chihuahua state. The Palmarejo-Trogan project has seen extensive drilling by the company since late 2003, leading to a measured and indicated resource estimate of 9.8 million tonnes averaging 1.6 grams gold and 221 grams silver.

The company has begun advanced-stage programs leading to a feasibility study and has completed metallurgical test work that has indicated positive results. Palmarejo has purchased a couple of mills and a flotation circuit from the Los Frailes mine in Spain and has the items ready to ship.

Starcore International Ventures (SAM-V, SHVLF-O) is moving ahead with its plans to purchase the San Martin mine, in Queretaro state, from Luismin for US$26 million. The operation saw production of 349,073 oz. silver and 32,819 oz. gold in 2005.

Orko Silver (OK-V, OKOFF-O) recently tabled a 30% resource increase at its La Preciosa project in Durango state. The inferred resource now stands at 3.42 million tonnes averaging 235 grams silver per tonne and 0.44 gram gold, or about 28.7 million silver-equivalent oz. in addition to significant lead and zinc.

A resource estimate is looming for SilverCrest Mines’ (SVL-V, STVZF-O) Santa Elena project in Sonora state. The study will update a historic, unclassified resource estimate (not compliant with National Instrument 43-101) of about 1 million tonnes at 102 grams silver and 3.5 grams gold at the past producer. The company is also exploring its nearby Cruz de Mayo project, which has a historic resource estimate of about 2 million tonnes of 149.5 grams silver and 0.5 gram gold.

Oremex Resources (ORM-V, ORXRF-O) has a preliminary assessment in hand for its Tejamen silver project, in Durango state, tabling a base-case mining scenario using its inferred resource of 22.6 million tonnes averaging 66.9 grams silver. Initial indications are a 10,000-tonne-per-day, open-pit heap-leach operation could be profitable based on US$8-per-oz. silver. Additional drilling is planned to upgrade the project’s resource classification.

Looking to join the junior silver producer club, UC Resources (UC-V, UCRLF-O) is refurbishing the 200-tonne-per-day mill at its recently acquired La Yesca project. Two past-producing mines are on the property plus 225,750 tonnes of tailings with a grade of 2 grams gold and 220 grams silver (classified as an inferred resource).

Mag Silver (MAG-V, MSLRF-O) has assembled a portfolio of several projects in Mexico’s Silver Belt. Its most advanced property is the Juanicipio joint venture — under option to Peoles, which is earning up to 56% in the project, about 10 km southwest of its flagship Fresnillo mine.

Some of the other explorers actively hunting silver in Mexico include Tumi Resources (TM-V, TUMIF-O), Silver Quest Resources (SQI-V, SQIFF-O), International Northair Mines (INM-V, INNHF-O), Sterling Mining (SRLM-O), Silver Eagle Mines (SEG-T), Aurcana (AUN-V, AUNFF-O) and Queenston Mining (QMI-T, QNMNF-O).

Mexico remains one of the more stable Latin American countries and has attracted a significant number of junior mining companies since overhauling its mining laws in the early 1990s.