Silver Penny Plays

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Aurcana shares pop on Red Kite loan proposal

The Northern Miner
Daily News
Jun 28, 2013 6:02 PM

VANCOUVER — Shareholders of Vancouver-based silver producer Aurcana (AUN-V; AUNFF) received some good news as June drew to a close, as the company released details of a terms sheet from U.K.-based metal merchant RK Mine Finance (Red Kite).

The proposal would provide Aurcana with increased capital flexibility via a 3-year unsecured loan facility that totals US$50 million, and includes an off-take component wherein Red Kite will buy silver produced at the company's in-development Shafter silver mine, located 375 km southeast of El Paso, Texas.

The deal comes at a good time for Aurcana, which has seen its share price recently fallen to a 52-week low of $1.15 and has reported a working capital deficiency of US$2.9 million at the end of the first quarter. Back in late April the company completed a one-for-eight share rollback, and has since seen its stock drop 70% or $3.14 per share as silver prices have fallen below US$20 per oz.

Aurcana's sole producing asset is its wholly-owned La Negra polymetallic mine in Queretaro State, Mexico, which hosts 27 million measured and indicated tonnes grading 131.31 grams silver per tonne, 0.49% copper, 0.91% lead, and 2.36% zinc.

The company completed a 3,000-tonne-per-day mill upgrade during the first quarter, with quarterly silver equivalent production up roughly 21% year-on-year to 592,500 oz. Total revenues clocked in at US$12.8 million on the back of US$29.52 per oz. average realized silver prices and total cash costs of US$7.79 per oz. of silver, net of by-products.

Aurcana is in the midst of a 5,000-metre drill program at La Negra, following up on mapping that outlined six gold targets. The two most promising targets are the Aurifera I and II zones, which returned the greatest number of gold values per total number of samples collected. Assay values range from 0.2 gram gold per tonne to 15.3 grams gold and are associated with silver, lead and zinc values. Aurifera I and II sit at the southern contact of La Negra’s main diorite intrusion, with oxidized, fracture-controlled mineralization hosted in massive skarn.

Meanwhile Aurcana is forging ahead with underground development at Shafter with the goal of hitting a 1,500-tonne-per-day target. During the first quarter Shafter's main ramp advanced 160 metres, and the company initiated an additional 460 metres of development in early June in order to access 500,000 tonnes of ore.

Aurcana is hoping to have achieved around 600 tonnes per day during the second quarter, after having completed 307 metres worth of development during the first quarter to access its first three stopes. Shafter holds proven and probable reserves of 2.4 million tonnes grading 221 grams silver, as well as measured and indicated resources totalling 2.8 million tonnes averaging 244 grams silver.

Aurcana is currently pulling material with an average grade of roughly 142 grams silver at Shafter, but expects to hit grades more in line with its reserves as the ramp continues to advance down-dip.

Assuming Aurcana can meet its ramp-up goals at Shafter — the company has encountered some technical problems with equipment in its processing plant — the mine is slated to tack on around 3.8 million oz. of silver production annually to the company's account at cash costs of US$10 per oz.

Aurcana remains optimistic about Shafter's exploration upside, with an 11,000-metre drill program and surface activities in 2012 indicating potential for a "larger and more complex mineralizing system than previously recognized, with multiple discrete pulses of silver, silver-lead-zinc, lead-zinc mineralization and overprinting silicification.”

The company planned on starting an additional 3,000-metre program at Shafter in early June, with drill targets aimed at testing the Herculano Fault at depth for evidence of possible "feeder style" mineralization. Aurcana also plans to explore the southwest extension of its Presidio deposit, which lies west of the Mina Grande Fault and has potential for strike extension.

"Having evidence of complex, multiple stages at Shafter confirms we are exploring in a system with high potential, while demonstrating that although we still have not zeroed in on where to focus, continuing to do so is more than warranted," commented Aurcana's consulting geologist Dr. Peter Megaw. "Seeing high complexity is a positive indicator for a long-lived, multi-staged, large system."

Aurcana's shares jumped around 22% or 25¢ following news of the Red Kite loan and off-take offer before closing at $1.40 per share at the time of writing after trading 2.1 million shares on the day. The company has 58 million shares outstanding following its rollback, for a $78 million market capitalization.

http://www.northernminer.com/news/aurcana-shares-pop-on-red-kite-loan-proposal/1002441559/