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*** Ag/Au/Cu/Zn/Pb related post (ECU.V ~ ECUXF.PK) ***


ECU Silver Mining Achieves Key Milestone Developments with the Revitalization of Mexican Mining Operations and the Exponential Expansion of a Rich Mineral Inventory

By Marc Davis, Managing Editor
June, 2006

Corporate Overview

ECU Silver Mining Inc. (TSX.V-ECU) is a rare gem among mining juniors. It is a shrewdly managed Company that has successfully established itself as an emerging silver-gold producer (with significant base metals output) in one of Mexico’s most prolific mineral belts.

And from an investment perspective, ECU (http://www.ecu.ca/) has been a stand-out performer in recent months. The stock has appreciated as much as 750% since we initiated coverage. And the powerful value drivers that have propelled ECU to much higher share price multiples are ensuring that the Company is holding onto most of its gains in spite of a recent major correction in resource stocks.

This reality is underscored by the fact that ECU has successfully achieved a number of milestone developments in 2006, making this already a banner year for the Company. And with only about 30% of a major developmental program completed so far, the remainder of the year promises to continue to yield stellar results.

In essence, the key to the Company’s success to date is a unique expertise in the mining of narrow veins of as little as a meter across, or less. And ECU is now well-established in one of Mexico’s leading mining districts where high-grade silver and gold epithermal vein systems are known to be prolific. The Company’s 563-hectare, extensively-mineralized property is located in the state of Durango in central Mexico and at the heart of the prolific Sierra Madre Occidental Gold-Silver Belt.

Production at Core Project Areas Increases, While New Discoveries Bolster Mineral Inventories

Known as the Velardeña Property, ECU’s holdings involve three land parcels consisting of 24 concessions. The centerpiece of which is a cluster of long-established underground workings spanning five small mines in the historic Velardeña Mining District. Modern exploration and development at this core group of underexploited ore bodies has been conducted somewhat sporadically over the last decade. They have also seen some small-scale, intermittent artisinal mining dating back to the 19th century. But it was not until mid 2004 that a revitalized developmental campaign really got underway in earnest.

Investors will take heart in the fact that this is already proving to be a highly rewarding strategy with minimal risk. It involves the systematic expansion -- both laterally and at depth -- of an easily accessible, rich mineral inventory of largely untapped potential. Indeed, the aggressive ramping-up of production, in conjunction with the development of new mineral resources and the upgrading of processing capabilities, is already setting the stage for a long and lucrative future for ECU.

Recent Developmental Highlights

As many of our readers are already well-acquainted with ECU’s fundamental picture, we will therefore take the opportunity to outline in point form the impressive developmental highlights achieved during the last six months.

* A 15,000-metre drill program, initiated in December of last year, is well underway and is already coming up trumps. The drilling is mainly focused at this time on determining the full potential of the Santa Juana Mine. ECU’s other adjoining mines within the same mineralized complex are also scheduled for development by way of underground drilling.

* The first phase of the 50-hole drill program (only about 30% of which is completed) has already led to the discovery of two skarn mineralized systems at depth, just below the deepest existing mine workings at the Santa Juana Mine.

* One of the two new skarn discoveries is gold and silver bearing, while the other boasts impressive zinc values. Both may yet prove to be rich new deposits with size potential.

* An entirely new gold system consisting of bulk tonnage stockworks (veins and veinlets) has been discovered at depth. It has a true width of 28 metres and represents a lucrative new supply of easily and inexpensively extractable gold. This new zone should help to significantly increase production on an expedited basis.

* The Company postulates that the gold and silver rich stockworks systems host more than 800,000 tonnes of ore which could easily supply ECU’s current mill with 8,000 tonnes of ore per month for at least eight years.

* At least 32 new gold veins have been discovered so far by drifting in new areas and also by way of exploratory drilling. Existing well-mineralized veins such as the A4 Vein are also improving in grade at depth, including bonanza values being encountered over narrow intercepts.

* Production at the Company’s mill is expected to reach its new heightened capacity of 340 tonnes per day by early June.

*An upgraded National Instrument 43-101 compliant (see Mining Complex Overview for an explanation of this term) new resource estimate is expected to be announced by mid 2006. It is likely to reveal that ECU’s core mine complex (which is far from fully explored) contains considerably more gold and silver than previously stated in the last 43-101 report.

*The Company has farmed-out exploration and developments rights for its San Diego mine to Golden Tag Resources. In return for a 50% working interest, Golden Tag has agreed to spend US $500,000 in 2006 on the property and a total of US $1.5 million over three years.

* ECU is implementing new technology to increase gold and silver recoveries and to produce cleaner concentrates.

* ECU expects to achieve approximately US $5-6 million in cash flow this year.

* The Company has acquired a new 41-hectare property that adjoins its existing mining operations and which exhibits similar geology. It also hosts at least 10 gold veins that can be traced along surface with strike lengths of up to 1,300 meters.

Mining Complex Overview

This property’s main concentration of interconnected subterranean mine workings are situated approximately 95 kilometers south-southwest of the city of Torreón and 140 kilometers northeast of the state capital, Durango. And a four-lane toll highway connecting Torreón and Durango passes three kilometers east of the village of Velardeña. Then a seven-kilometer gravel road leads from the village to the mine site. Also, the Company’s recently refurbished and upgraded mill is located less than five kilometers away.

By way of background, a past project operator conducted 8,900 meters of drilling and exhaustive sampling during the mid 90’s to arrive at an independently-verified combined resource estimate for these five key deposits. Most of these known resources are situated at the Santa Juana Mine, where the majority of the drilling took place. Importantly, these figures are now “National Instrument (NI) 43-101 compliant,” meaning that they meet the exacting criteria of the Canadian federal government’s recognized standard for a “measured resource.”

These soon to be upgraded resource figures document that the five interconnected mines host a baseline (minimum) inventory of 895,000 tonnes of ore in the measured and indicated category at an average grade of 3.74 grams per tonne (g/t) of gold and 218 g/t of silver. In the inferred category, a further 738,900 tonnes, grading an equally impressive average of 3.99 g/t of gold and 263 g/t of silver, have also been outlined.

Simply stated, these calculations translate into a resource base of 6,268,800 ounces of silver or 12,773,800 ounces silver equivalent (ag-eq) in the measured and indicated category, as well as a further 6,236,600 ounces of silver or 11,918,600 ounces ag-eq in the inferred category. These numbers also allude to an estimated 108,400 ounces of gold or 212,900 ounces of gold equivalent (au-eq) in the measured and indicated category and 94,700 ounces or 198,600 ounces of au-eq in the inferred category.

However, perhaps the biggest near-term value driver for ECU’s share price concerns the Company’s assertion that ongoing developmental work is likely to more than quadruple this existing resource base, as the new NI 43-101 report is likely to demonstrate. The bulk of this new mineral inventory is being outlined in the Santa Juana, San Mateo and San Juanes mines, where most of the Company’s activity is presently focused. This is where modest intermittent production has been concentrated during the last few years.

It is also where ECU is committed to seriously beefing up its near-term output with a view to easily surpassing the 26,058 tonnes of ore mined in 2004 from the Santa Juana Mine, alone. Last year, the ore from this one mine averaged an attention-grabbing 4.59 g/t of gold and 250 g/t of silver. Comparable grades have also being consistently encountered in recent years at the San Mateo and San Juanes mines.

As an aside, astute readers may wonder why ECU has taken so long to develop a property that it has already owned for a few years. That is because a major downturn in the mining industry in the mid to late 90’s intervened to curtail any expansion plans at that time. That was until a demand-driven resurgence in metals prices heralded a turnaround in the mining sector that only really got underway less than four years ago.

Aggressive Development Fuels Exponential Profits Growth

Hence, a reinvigorated ECU is not wasting any time in capitalizing on an ever-improving business environment for mining and marketing metals. Indeed, the Company is proving very adept at fine-tuning its mining operations to make for increasing efficiencies and economies of scale. Of course, this all benefits the bottom line and paves the way for exponential growth in revenues and net profits, alike. Notably, gross revenues are expected to improve significantly this year, largely due to the ramping up of production at the Santa Juana Mine.

In the near-term, the Company’s cash flow generation should receive an additional boost from the reprocessing of 67,000 tonnes of existing tailings, grading a very impressive 5 g/t of gold.

And with production at the San Mateo Mine also coming back on-stream, the story gets even better. Likewise, production at the San Juanes Mine is also ready to start. This rosy picture should make the Company’s 2006 revenue projections of around US $9 million to US $10 million all the more attainable. In turn, this is expected to translate into a very comfortable net cash flow position of at least US $5-6 million.

The dollar value of the ore is also expected to see considerable improvement by way of enhanced recoveries not just for the precious metals but also for lead and zinc in the concentrates. Additionally, the Company is also optimizing milling efficiencies.

“Drifting” All the Way to the Bank at the Santa Juana Mine

As a result of the Santa Juana Mine’s new lease on life, ECU is on-track to significantly increase the number of mine stope from only several in 2005 to nearly two dozen this year. (Stope is a term that refers to the excavation of ore along the vertical axis of a horizontal drift/adit or tunnel. In turn, drifts and adits are closed-ended tunnels). To date, the mine has historically been excavated along a number of stopes and crosscuts (lateral excavations that are conducted from an existing drift/adit) that have traced the mineralization along 18 descending levels of drifts and adits. All told, the workings follow at least 800-metres of strike length (direction of the mineralization) with a 400-metre-plus vertical extent.

The presence of considerable underground infrastructure also means that new zones of mineralization can be easily blocked off via cost-efficient underground drilling conducted from a labyrinth of drifts and crosscuts. In fact, a program of merely drilling along the strike length of the mineralization will go a long way towards generating ready feed for the mill complex. Notably, low-sulphidation epithermal veins in this part of the world are well-known to occur at regular intervals along major geological structures such as fault zones. So, a strategy of drilling-out the veins along strike is one that is shaping up to be a logical and financially pragmatic one.

And the most recent newly-excavated stopes and crosscuts have revealed that plenty of new mineralization is readily accessible from existing workings. This consists of the strike extensions down dip (the angle at which a vein is inclined from the horizontal) along the mine’s two richest structures, the CC and Santa Juana veins.

These strike extensions have yielded remarkably consistent grades when compared to the ore zones mined from a series of levels above. Furthermore, assays taken from the Santa Juana’s new mineralized zones attest to an overall improvement in grades on the largely-unexplored southeast side of the mine. This is where gold grades ranging from 3.16 g/t to 8.36 g/t and silver grades running from 220 g/t to as high as 580 g/t have been intersected.

Similarly, a comparable strategy can later be applied to the exploration and development of the property’s four other adjoining mines by way of developing new resources on a lateral plane and also at depth.

To put matters into perspective, the five mines have many kilometres of known strike length. This encompasses numerous vein systems and stockworks mineralization that are hosted in a series of felsic volcanic rocks and intrusive rocks. Meanwhile, there exist numerous other vein systems of unknown extent and importance. To cost-efficiently develop these existing and recently identified additional resources, the Company has plenty of infrastructures already in place, such as three main shafts and extensive underground adits and cross-cuts.

San Mateo Reveals Lustrous Gold Content and Plenty More Untapped Silver

Meanwhile, the Company’s fundamental picture continues to go from strength to strength. For instance, a summer/fall 2005 developmental program involving drifting along the San Mateo Vein via a new crosscut revealed consistently stable gold values over the width of the planned mining stope. These grades average 2.10 g/t of gold and 198 g/t of silver over 1.84 metres. The main goal of the drifting was to test the strike, dip and grade continuity of the San Mateo Vein beyond the known parameters of its historic workings. These workings have to date reached a depth of 300 metres along a 600-metre extent of the vein’s strike length.

Most importantly, the excellent grades encountered include gold values that surpass the grades that were historically mined on upper levels. In other words, gold grades appear to consistently improve at depth. Otherwise, the newer strike extension of the San Mateo Vein is similar to the overlying mineralized systems, thereby presenting a very comparably favorable geological model. In which case, the rich San Mateo Vein -- by itself -- is believed to host enough of a mineral inventory to keep the Company’s mill busy for quite a few years.

San Juanes Mine has Right Ingredients to Ramp-Up Revenues

In another key event, some meaningful headway has already been made in the expansion of the adjoining San Juanes Mine. Its main mineralized system, the San Juanes Vein, has a strike length of at least 950 metres that can even be traced along surface. Six drill holes have thus far tested the vein to a mining depth of 300 metres.

And assays conducted on 275 channel samples taken from a key bonanza-grade zone returned an eye-popping average of 14.4 g/t of gold and 1,042 g/t of silver. Though the vein is quite narrow, it has also revealed high copper grades with an average of 2.87% copper. And the relatively inexpensive installation of a recovery circuit at the mill targeting copper could also offer a meaningful improvement in revenues if copper can be mined in sufficient enough quantities.

Expansion Plans for San Diego Mine Receive Shot in the Arm

There also exists plenty of “blue sky” potential at the outlying San Diego Mine (one of the two mines that are not part of the core group). This mine’s various mineralized structures are thought to be related to a separate hydrothermal system than the rest of the Velardeña district. They are distinguished from the other ore bodies by lower gold and higher silver contents.

Located approximately 6 kilometres to the northeast of the main cluster of mines, the San Diego Mine has an estimated historic resource of 1.4 million tonnes of near-surface silver-lead-zinc mineralization, with low grade gold values. However, it has seen almost no exploration activity from ECU to date. And the advent of a near-surface bulk tonnage, open-pittable mine would make for very low mining costs.

The Company’s developmental plans have very recently received a shot in the arm from the signing of a joint venture agreement with Golden Tag Resources to renew production at the San Diego Mine while also conducting work to significantly expand its mineral inventory. Golden Tag has an option to earn a 50% interest in the mine by expending up to U.S. $1.5 million over three years.

Key Economic and Political Considerations

The Company has an excellent growth profile that will be greatly amplified by a continuation in strong, up trending silver prices. Indeed, many analysts are predicting a “rising tide” market for silver prices, which should further bolster the Company’s profits. This ideal scenario is underscored by the fact that demand for silver has clearly outstripped supply in recent years. Much of this burgeoning market has been fueled by industrial and consumer demand from China. And there is no indication that this trend is slowing down.

Furthermore, ECU also benefits from the fact that the Company is well-established in a nation that is mining-friendly, especially due the fact that its economy has been dependent on mining for over four centuries. And during this time, Mexico has clearly established itself as the world’s largest producer of silver. In fact, over 250 million ounces of silver have been mined from the Velardeña Mining District, alone. Furthermore, Mexico has favourable fiscal policies and is also a member of NAFTA.

Robust Infrastructure is Already in Place

On a local level, ECU’s property benefits from good infrastructure in the form of paved roads and railway lines. And it is connected to the power grid for the nearby village of Velardeña. There is also a seasoned, skilled workforce in the area with many years of experience in mining the various Velardeña deposits.

The ongoing upgrading of the Company’s mill and the corresponding increase in the efficiency and capacity of the recovery plant should also underscore healthy profit margins. This is particularly the case with the Company’s ability to soon recover a higher percentage of gold in concentrate, as well as the prospect of recovering high-grade copper via the implementation of a recovery circuit

Investment Summary

ECU’s near-term commitment to further upgrading its resources to the “mineable reserves” category as part of a comprehensive pre-feasibility study should also prove very reassuring for investors. It should also offer ample corroboration of the Company’s assessment that there’s enough existing ore in the measured and indicated category to supply the mill for the next 12 years. Similarly, this milestone development should also reveal another 12 years of ore in the inferred resources category.

In essence, the convergence of all of these key dynamics is already beginning to translate into very strong revenue growth on a quarter-over-quarter basis.

From a technical standpoint, the Company has approximately 184.9 million shares outstanding (about 227.7 million fully diluted). Such a situation typically translates into healthy daily trading liquidity, which is always attractive to sophisticated institutional investors. Also the Company’s ability to generate healthy cash flow should negate any near-term need to further dilute its stock with equity financings.

Meanwhile, the Company’s realization of exponential growth in revenues and profits in 2006 and likely well into the future cannot be overstated. Matched with the continued impressive expansion of the Company’s mineral inventory, including exciting new discoveries, there are powerful catalysts in place to ensure a sustained long-term uptrend in ECU’s share price.

At the same time, the prospect of two major skarn discoveries below the Santa Juana Mine offers investors the rare opportunity for a “home run.’’ Accordingly, SmallCapMedia will be watching this junior silver-gold and base metals producer very closely in the coming months as we track ECU’s rising fortunes.

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