*** ECU Silver update (ECU.V~ECUXF.PK) ***
The following series of recent posts by Mike Kachanovsky, AKA Coach247, from the StockHouse ECU Silver board consists of his observations/conversations taken from last weeks trip to the ECU Silver facility in Mexico.
I've compiled them in a chronological order to, hopefully, better answer some of the questions that have been posed to me since I've taken up the ECU Silver banner.
Need I say that my enthusiasm for owning a piece of this probable multi-bagger has only increased with the added information that the 'Coach' has so elequently shared with his readers?
Post Time: 5/25/2006 17:32
Hi Vic!
I doubt I will be in Van in time for the Cambridge show, but I will be there for sure later in the year. I am in Mexico right now and just finished spending the day at the mine in Velardena. Suffice to say that I will be adding to my ECU shares and those who are selling will probably regret the decision as more drilling results come in. I am on a bird back to Toronto tomorrow morning and I will update the board when I get back on why I am so bullish for the future.
cheers!
COACH247
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Post Time: 5/25/2006 22:14
Okay, I have pounded down a few beers tonight and it was a long day, so I hope I can be coherent in this post. Walking through the mines at Velardena is like hanging out in a sauna for 4 hours while climbing a stairmaster. But it was worth it. I will have more time to post details from my trip when I get home, but I wanted to share a few key notes tonight before the market opens for trading.
The most important point that I should highlight is that I envisioned the skarn system as a halo of ore above an underlying intrusive. The more detailed geological model that I was able to see today demonstrates that the intrusives underlying the property are more like verticle chimney structures, and the skarn is a concentric zone surrounding the intrusives and plunging to depth. The is also strong speculation that sills extend laterally from the intrusive dykes and therefore there is potential for additional skarn systems around the sills. There are two large tonnage dykes on the property we control and we have only just reached the vertical extension of one of them so far.
The project geologists think that the skarn zones will ultimately measure about 100-300m in width, and they could plunge to several thousand meters in depth. So there is a very real potential that we have not one but TWO world class deposits on the little property we control. This could amount to well over 100 million tons. And within this massive tonnage of skarn ore, they expect to find higher grade cores that will be well above the results we are discovering so far.
The narrow veins that have been mined to date are just the remnants of hydothermal fluids that eminated from the heat and presure of the ore body at depth. This is important because the grades are increasing with depth, and the vein widths are also growing. It is an indication of the intensely mineralized system awaiting discovery as we continue the drilling program. Similar narrow veins have been observed in neighboring mines operated by Grupo Mexico and Penoles, and they did not encounter minable widths of the veins but did find a huge tonnage of ore in the underlying skarn systems. The consensus opinion is that becuase the hydrothermal veins at Velardena are of such higher grades and tonnage, then the skarn will also amount to much stronger mineralization.
The stockwork encountered in the last drilling program was just the transition zone from the skarn to the veins. I walked through that today and it goes on for a long way in the drift, with easily identifiable high grade sulphides surrounded by lower grade material with fine veinlets running throughout. This one zone alone could amount to about 1.5 million tons of ore grade material. To put that in perspective, that one zone would be more ore than has been proven up in the majority of producing juniors in Mexico today.
One other thing that impressed me was the amount of activity going on above ground. New buildings are being completed, new power infrastructure is in place, new heavy equipment has been purchased, and the mill has been expanded. Over a year ago, I could see equipment that was barely running due to lack of cash for maintenance, and now I see evidence that the company is well financed and moving forward quickly. You need to prime a pump before it starts flowing and this is what ECU is doing at the operations level.
The company now has opened about 15 or 16 stopes underground, and each one is capable of about 30 tons per day production. The mill facility is rated to deliver a maximum capacity of 340 tpd, and we are close to that now. Some of the stopes are working oxide material, which will just be stockpiled at surface until greater mill capacity is available, but it is comforting to know that ECU is now positioned to run at full capacity, while most other Mexico juniors are struggling to keep enough ore flowing to keep the lights on.
The future is very bright for the company both at the discovery end, and the ongoing operations. I am glad that I have held the bulk of my shares in a core position and do not have a great deal of anxiety on how the market trades these days. I dont think people have discounted in that we are now a wide vein miner and no longer sqeaking by with surgical extraction of narrow veins. And once we have defined a larger area of skarn, school is out...
cheers!
COACH247
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Q: Hello Coach, thks for the update...excellent stuff... you certainly have added a lot of insight on ECU that most of will not have the opportunity to experiance...
My question to you is, did you have a chance to view Golden Tag as well.. ?
Post Time: 5/26/2006 08:16
Hi Cadillac-man!
I did not get to see the JV property because the project would take more than an hour each way to get to. I asked Michel about it though and he says they have the same near surface potential, with several veins already identified and an existing resource that is remnant of past production. He also speculated that the property could have the same type of underlying skarn system that Velardena and the two other mines on either side have also intercepted. Michel thinks it will not take much drilling to block off a resource, and then on a subsequent round, they may go after a deeper discovery hole.
cheers!
mike
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Post Time: 5/27/2006 01:10
I am still getting caught up after my trip, but I wanted to post a couple quick points that have not been discussed on the forum lately, after chatting with Michel earlier today.
About a year ago, ECU arranged to buyout the NSR from the Mexican owners, issuing a cash payment that had been financed from a PP. At the time there was a fair amount of criticism on the forum since cash was in short supply for the company, and the NSR (I believe it was 2% or maybe 2.5%) did not amount to a large payout considering the early production rates. Well in hindsight, it is now very clear that Michel made a very smart move to take that NSR out of the equation. Considering that the mine is running a full capacity now for the current mill, and that we have such a large supply of resources blocked off to allow for a much larger operation, that NSR would have been costing a great deal of profit off the top if it was still in effect. And to try and buy it out now would no doubt have cost a whole lot more cash.
A second point of interest is that ECU is currently leasing the property, well into a 10-year deal. However, Michel negotiated a buyout option for the entire property, amounting to $15 million USD, anytime before the 10-year lease expires. That price is locked in, and the terms are guaranteed and binding by contract. Again, I point out that it would cost a great deal more than $15 million now to gain 100% of the Velardena property, and very unlikely that the Mexican owners would give it up once the larger skarn deposit is proved up. Considering a potential for 10 million gold equivalent ounces awaits confirmation, the asset value could run into the hundreds of millions of dollars for the property. And the original $15 million price tag is now about 10-15% cheaper in real terms, since the Canadian dollar has so outperformed the USD.
Nice work Michel, and I wonder how many people that were bashing your agreement last year will not admit they were wrong? Dont hold your breath...
cheers!
COACH247
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Post Time: 5/27/2006 10:52
Michel says that about 70% of the current drilling program is targeting the near surface vein system that they are already working. Considering that Asarco, the company formaly operating the mines, mined the Terneras Vein system for over 1.5 km strike length and down to 500m depth, there is a great deal of potential still ahead for ECU to further extend the resource in the mines we are currently working. I was able to see the stopes from the mined out zones and they are only about half a meter wide, yet they run for hundreds of meters uninterupted. It is amazing that a company could extract such a large tonnage so surgically such a long time ago.
Asarco was only interested in the oxide material, which was easier to process using the best recovery practices of the day. They stopped working when they encountered the water table since the ore transitioned to sulphides at that depth. A large north-south trending post mineralization fault structure bisects the entire property, and the adjacent rock was displaced by this fault about 30m laterally, and about 200m lower. Past miners were unable to find the continuity of the vein system on the other side of the fault, but Michel has been able to do so, and produced some fantastic grades in the process.
So we know there are several near surface vein extensions to define with further drilling, and the veins are remarkably continuous along their strike, with high grade ore to be had along widths that ECU have proven can be profitably mined. Michel believes there is the potential to add more than another million tons to the net resource.
While I was in the lower levels of the Santa Juana mine, I noticed a big difference in the vein structure than what was exposed since my last visit just 15 months ago. The veins are now several meters in width, very economic to mine with limited dilution, and the veins are also much closer together. This is a much less challenging operating environment for the company. The geologist that was guiding me through the project also explained that the waste rock between the veins also contains lower grades of precious and base metals, and they are processing this material as 'development ore' when they drive the adits and drifts to reach the veins. This development ore yields enough metals to effectively pay for the underground work that must be completed to get to the real money zones.
The remaining 30% of the current drilling program is targeting the skarn system at depth. The problem here is that the drill that ECU is using may not be suited to ideally test at great depth. The progress is very slow and they average only about 50m per day and a more powerful drill will be required.
Keep in mind that drilling is not as simple as just point-and-shoot. The drill rods will buckle and stick in different hardness of rock structure. Longer length drilling will often deflect and shear from the intended target zone. Ideally, once a drill is set up, you want to do a 'fan' program where several cores are extracted from the same origin, each aimed at a different angle of penetration. Also, you want to intercept an ore body as close to perpendicular as possible, so that you can establish the true magnitude. If you plunge a drill core straight down the middle of a vein, you get very little useful information about the true size of the structure. Or, you could end up drilling parallel to a vein, and never intercept it at all. So completed a drill core angled to 40 degrees, and 60%, and then at 85% degrees, will hopefully hit the target structure on each attempt, and then geologists can interpret that information to get an idea of the character of the veins, the width, and since the wider angles will by definition plunge to greater depths, they can have an indication of how far the structure plunges.
The last drill core that reached the skarn ended in mineralization. It was a high angle drill core, and it probably ran straight into the skarn 'pipe' without extending to the other side. It is great news to know that this has confirmed that the skarn extends at least 500m below the original intercept, but we want to know how wide it is at that point. So to get that info, the drill rig will have to be moved laterally, so they can drill to depth at a lower angle and hopefully find a much wider interval.
One final point... One of the skarn cores seems to have just penetrated along the edge of the zone. It has several intervals of pure skarn, and several intervals of the diorite intrusive, and a bit of everything. People often assume that an ore body is just a nice, well defined linear structure that is easy to see and can be neatly drawn on a map. In actual fact they are irregular, discontinuous, and non-linear. It will take a hell of a lot of drilling to get enough data from enough different access points to define exactly what we have. And that is a good problem to have. With such a potentially large ore body, we will probably need to do another 10,000m of drilling at depth just to prove up the cap of the skarn system, maybe 20-25 million tons. Michel believes a higher grade core will be found in this large mass of skarn, somewhere in the middle of the deposit. To hit that we will have to drive quite a few cores into the structure, and follow a trail of higher grades to get to the 'core'. This zone could be the kind of bonanza grades that will get the attention of the entire PM sector when we are lucky enough to find it. And it will be a very large area, but still represent only a fraction of the total area deposit.
We have a lot to look forward to in the months ahead...
cheers!
COACH247
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Q: 1.How many more months (or years) or drilling on the property is required to prove up the the size/mass of the resource that Michel believes is there?
2. Regarding the base metals. Can these be economically produced in concentrate or sold to another firm in ore form, or are they essentailly just part of the waste?
Post Time: 5/27/2006 12:16
Hi Gulo!
Michel expects that we will know some of the magnitude of the skarn deposit within a year. I am guessing about 25 million tons by the completion of phase II of the drilling. He wants to buy a heavy duty drill and put his own people to operate it, so that suggests to me that he is committed to a very long term, high intensity program. My guess is that it will take several years to outline just the first big skarn system.
The base metals will be processed in a recovery circuit to produce a concentrate, as they are doing now, but it will be a much larger operation. Michel says that the zinc skarn is a metalurgists dream. The ore contains sphalerite, which is a zinc mineral that is very easy to separate and using standard recovery techniques they feel they can liberate 90% or more of the zinc.
cheers!
COACH247
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Q: Thanks for the information regarding the leasing of the property. That part has always been a "caution" at the back of my mind.
Can you comment on how difficult it is to secure drilling equipment and other infrastrusture required for an increasingly growing mine.
Post Time: 5/27/2006 13:12
Hi Shallamane!
When it comes it comes to infrastructure I assume you are referring to mining equipment. Depending on who you talk to, it is either impossible, or very easy. Mexico is very much a business environment in which you need to have strong contacts in order to get things done. Importing equipment is a difficult option since the customs delays and expenses can be quite a burden.
While I toured the property, I saw several new (or nearly new) Caterpillar heavy loaders, along with a few newer scoop trams for underground mucking of ore. There were brand new electrical tansformers awaiting installation on site. A new primary grinder was in operation at the mine entrance. A narrow gauge railway serves as the primary ore haulage system within the mines, and they have now acquired a second tram so that there are two currently in operation. Each train hauls 3 buckets of ore with a 3 ton capacity per bucket, so that is about 18 tons of ore per curcuit.
While I was at the mill, I was able to tour a brand new metalurgy lab they have built and a new main office. The drying of concentrate is done by spreading the paste in the open air, and with the full production capacity, an entirely drying area has been set up. Also a third is now under construction to process the concentrate that will be produced in the gold-pyrite circuit. And aluminum roofs have been erected over the drying areas to ensure that production continues uninterupted during the rainy season. The foundations were being poured for the pyrite recovery circuit while I was touring the facility. Lastly, a large new tailings dump is being constructed. Once the pyrite circuit is in operation, the tailings that come from that will be stripped of all recoverable minerals, so they are smart enough to ensure that material is dumped separately from the current tailings pond, where thousands of tons of higher grade tailings remain to be reprocessed.
These are concrete examples (no pun intended!) that I was able to witness for myself, where ECU has improved their infrastructure to build more efficient operations for the future.
In terms of drilling equipment, while I was at the office, I put a call in to Fred Davidson, president of Energold Drilling (V.EGD) to try and arrange a drill for ECU. I did not get ahold of him but I will try again next week. I am pretty sure that Fred may be able to help supply a heavy drilling rig, either on a contract or outright sale agreement. Drilling equipment is tough to come by, but it is more about a shortage of trained crews.
There is something magical about the process of drilling, where it is part science and part art. Good experienced drillers are as rare as hen's teeth. It is not a life I would enjoy. There was drilling ongoing during my visit to the mine, and it is noisy as hell, extremely dangerous, and you are breathing hot air through a respirator to avoid all the dangerous fumes, so that you feel like you are choking in the heat. And these guys go on like that day after day for 8 hours a shift. Michel assured me that he has good drillers already employed at the mine, and if he can buy a drill then I think it will be a good investment for the company.
A final note, to have an on-site metalurgy lab will save ECU about $5,000 per week. They still require an independant lab for assay results of exploration work, and in fact to be safe ECU has their samples checked twice by two independant labs. However, for assay of run of mine ore, they can do that in house and much more efficiently.
cheers!
COACH247
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Q: Can you confirm how big the workings are? The photos on the website seem to show a rather small adit. What dimension are the drifts?
Also ... Are the drillers on bonus or salaried?
Third point ... Do you know how stable the limestone is to work in?
Post Time: 5/27/2006 15:01
Hi Poundmaker!
The workings go on for kilometers, and there is one shaft roughly 1.5kms in the main adit, that goes down as far as level 18 I believe. All of the mine workings they have open at this time are accessed from the main adit at surface.
The newer drifts are all pretty spacious and this is the first time I have toured underground that I did not smack my helmet on the roof at least once. Some of the older workings are narrow and constricted. I would guess all of the tunneling that is in operation at this time would measure at least 6 feet in height, and about 8-10 feet in width.
I do not know any details about the hourly wages for the miners but I do know the company pays them a bonus for meeting objectives, and Michel emphasized that they are reasonable targets that would not require the mine staff to cut corners or risk safety in order to meet.
The limestone workings are extremely stable, with almost no supporting infrastructure in place. Some of those workings have remained stable for hundreds of years with no cave-ins. Where the faults cut across the workings they have reinforced the walls and roof with timber, since that material is more fragmented.
cheers!
COACH247
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Post Time: 5/28/2006 23:58
One interesting detail that I learned during my visit is that the dioritic intrusion has yielded a few assays for gold that are potentially significant. This in itself is very unusual. In fact, most geologists do not even bother to assay diorite, since it is so unlikely to bear anything more than trace values. However, one of the drill cores penetrated a transition zone of the deposit and they decided to test both the obvious skarn material and also the pure diorite intervals. They were very surprised to discover that the diorite itself appears to have small veinlets of gold mineralization, with values ranging from anomalous to up to 3 g/t.
Michel speculated that the higher grades of gold were just created by chance intercepts of the veinlets, but taken as a whole, the entire diorite core could in fact grade as high as half a gram per ton of gold on average. To put that into perspective, the dioritic intrusion would probably amount to several hundred million tons, so if it turns out that there is relatively continuous lower grade gold content, it would be an enormous resource to consider on top of all the other strong potential at Velardena.
To get more information, the company is going to go back and assay more diorite samples they have gained from the drilling, and see if in fact this could be an unexpected windfall that makes the story even more compelling.
If we assume that they continue to find values in the range of half a gram of gold, this would become a major resource with a higher gold price. Consider for example if gold reaches $1000 per ounce. That would mean that material grading half a gram gold would have a gross metal value of about $16 per ton. An operation just processing 30-50,000 tons per day of that material would generate strong cash flow.
Its a big 'IF' - a very big 'IF'. Way too early at this point to get excited or know what the magnitude this anomaly represents. I just threw it out there for the forum because its more evidence of the intense mineralization of this little project they control. The potential envelope of this discovery just continues to grow.
cheers!
COACH247
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Q: Not long ago someone posted some pictures of assay samples awaiting shipment to the lab. They appeared to be about 2 inches thick and perhaps a square foot.
I can only relate to post hole digging but all my samples came out round and the diameter of my drill.
What am I missing from this picture (literally)? Did my eyes once again deceive me?
Post Time: 5/29/2006 15:28
Hi Gambler!
There is no specific shape necessary for sampling to perform assay analysis. Diamond drilling can be completed using a number of different diameter drills, each producing a cylinder of the rock material, but sometimes if the rock is fractured the drill core sample will just be bags of little pieces of stone. Ideally, you want to cut a cylinder of rock from a drill core in half using a concrete saw, in order to preserve the remaining half for information about the geological setting of the deposit, and also to serve for future verification if the assay results are ever called into question for their accuracy. Reverse circulation drilling will just bore out a slurry of the rock material. Grab sampling of various rock chunks will also yield data on the nature of a deposit. You can also do channel sampling, where a concrete saw is used to grind out a channel along a rock face and the chips will be collected, tagged, and assayed. The old hammer and chisel method is perfectly acceptable too.
The bottom line is that to be effective, you want the sampling to accurately represent a certain rock formation. Often, geologists will only sample the most obvious, highest grading portions of a deposit, which is nice, but it does not yield data that is representative of the true grades of the host rock.
Whatever samples a lab receives, they are ground down into a fine pulp, of which only a small portion is actually tested to determine the specific values of each metal that is of interest.
cheers!
COACH247
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Q: Speaking of "down" in Mexico: What is your take on the political climate what with elections comming in July? Thanks in advance.
Post Time: 5/29/2006 21:45
Hi Groden!
I just replied to almost the same question on my own forum:
I did not ask Michel about that question, but I did speak with George Barnett, who is the president of Minera San Jorge (the JV partner with BGL in Mexico) who is a long time resident of the country. George thinks that leftist leaning candidates will be good for business in Mexico. As he put it, Fox talked the talk but nobody walked the walk, and things did not improve for business under his regime. Mining remains one of the higher paying jobs for most of the impoverished central area of the country, and it is growing in importance to the economy. I think the decisions made by other leftist regimes in central and south america will come home to roost with serious problems in attracting foreign investment capital, and that will serve as a lesson to the rest of the world. Mexico has rellied very much on foreign capital to invigorate the mining sector, and that is why they revised the mining laws in the first place back in the mid-90s to bring business back in. For example, the Nuestra Senora mine currently owned by SPM was once a project with the American miner ASARCO, and that company walked away from the mine when Mexico first got tough on foreign mining back in the 60s. It was vacant and attracted no investment capital for 40 years until SPM took over and now it is about to become a big project employing more than a hundred people. SPM is already the biggest employer in the town of Cosala, near the mine. Since Mexico learned the hard way about the effects on local mining when they got involved politically, I think they are very likely to keep the current laws in place and protect the growth that is booming in the mining sector.
cheers!
COACH247
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Q: I'll redouble the previous poster's praise and thank you again. Your professional coverage of ECU is unsurpassed.
My question: what milling capacity is the company targeting for the future?
Post Time: 5/30/2006 11:08
Hi Dullards!
It is still too early to state with confidence, but once a larger skarn deposit has been proven up at depth, the property could very well support two separate recovery plants. The current one we have in operation now is pretty much tapped out at 340 tpd. Adding in a gold-pyrite flotation bank will increase that because they will be able to run tailings, but as for run of mine ore, we are at the ceiling. So they will have to construct a new plant for that, and I imagine Michel would like to see a minimum of 1000 tpd, and probably settle for 1500 tpd capacity.
As for the skarn ore, that kind of deposit will need to run at least 5000-10000 tpd to capture the economies of scale to make lower grade ore profitable. That is a serious undertaking, and probably would require upwards of $100 million to construct, not to mention the infrastructure improvements that would have to be completed as well to support that kind of operation.
Now I would assume it will take at least 2 years to define up tens of millions of tons of skarn anyway, and by then ECU will probably have the vein mining above running at full capacity, generating $1 million per month in cash flow. So who knows what the future holds, but I would say ECU is probably going to get a lot of attention from the majors as the skarn system is proven up, and meanwhile they can keep the dollars rolling in from the current mines.
cheers!
COACH247
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Q: Your statement that ECU will more then likely get a lot of attention from the majors...do you think this gets bought out before we realize the full potential?
Post Time: 5/30/2006 12:36
Hi Scoutaz!
I asked Michel about the potential for a hostile takevoer, and he said there is enough stock controlled by the largest shareholders to block any hostile takeover. I would imagine a more likely scenario would be a JV arrangement if the right terms were offerred. Putting in a bulk tonnage mining operation is not something you learn on the job, and it would make sense to form an alliance with a major that has deep pockets, IMVHO...
cheers!
COACH247
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