The Northern Miner, 10/2/2008

It's a smelter's market

Smelters in Mexico suddenly have the upper hand when making deals with small miners on concentrate shipments, says the president of ECU Silver Mining (ECU-T).

Stephen Altmann says ECU's Mexican staff talked to a lot of people before making a concentrate sales agreement for its Valaderna silver-lead-zinc project in Durango state.

"If you're a small producer it's very difficult to get the attention of the big smelters," Altmann says.

ECU stopped its 200-tonne per day operation last fall because mining and exploration were beginning to interfere with one another. Production resumed in March but it wasn't until recently that the company struck a deal.

"We could've made less money on more onerous terms had we decided to sell it right away but our guys have a tremendous amount of experience in this area so they weren't about to accept the first terms that came to the table," Altmann says.

Altman says the challenge in finding a new sales agreement was unexpected because commodity prices were on the rise last fall.

"We didn't expect there'd be any issues," Altmann says. "So the fact that the smelter markets had tightened that rapidly surprised us."

ECU has made a deal with MK Metals Trading, a division of Nexxtrade, which will act as a broker for the company. The broker will sell its lead concentrate, which includes silver, and zinc concentrate by packaging it with concentrates from other junior producers. A deal will then be made with global smelters, enabling a group of small companies to compete with major producers.

"The smelters in the area have historically been operating below capacity, so once they start operating at capacity they can become more selective in their dealings in purchases of concentrate," Altmann explains. "And the bigger and mores steady state you are in terms of your concentrate production, the more attractive that is to smelters."

The company has sold its current inventory of 400 tonnes of lead concentrate and 450 tonnes of zinc concentrate for about US$1.2 million.

ECU also produces a pyrite-gold concentrate but is still working on improving the quality of it to raise the net smelter return value. The company has run some metallurgical tests and currently has an inventory of 7,000 tonnes containing about 5,000 oz. gold and 35,000 oz. silver.

ECU counts on in its production revenue to help pay for its exploration program. The company plans to update its mineral resource estimate by the end of the year. Over a span of three years the company increased resources from about 25 million silver-equivalent oz. to 200 million oz.

Measured and indicated resources from the Velardena project, which includes three properties and four mines, is 3.7 million tonnes grading 2.29 grams gold per tonne and 126.2 grams silver for 34.3 million silver equivalent oz. including gold and silver, plus 3.3 million sliver equivalent oz. of lead, zinc and copper.

Inferred resources stand at 13.7 million tonnes grading 2.01 grams gold per tonne and 185.7 grams silver per tonne for a total for 139.5 million silver equivalent oz. including gold and silver plus 39.5 million silver equivalent oz. of lead, zinc and copper.

Altmann says the active exploration program and large resource helps make the company appear in a favourable light to smelters.

"The advantage they may see with us is that in the long run when we start putting together a larger facility, we will become one of those larger, steady-state producers."

For now though, ECU has an open agreement whereby it builds up its concentrate inventory and then sells it in batches. "It's more convenient for everyone," Altmann says.

By the end of 2008, ECU will have drilled 25,000 metres on its Valardena properties.

Silver mineralization tends to start at about 200 metres depth and the old mine workings extend to about 500 metres depth. The company's current resource extends as far down as 900 metres below surface but drilling has detected mineralization as far deep as 1,400 metres.

The deepest drill hole, which extended for 900 metres was four inches in diameter, was drilled to test the continuity of the Santa Juana vein system, specifically the A4 massive sulphide vein. The result was a 12.04 metre-intercept grading 3.66 grams gold per tonne, 295 grams silver, 7.87% lead and 12.07% zinc

Altmann says the company hopes to find more mineralization at depth.

"The odds that you would hit that zone are so low, it's inconceivable that there isn't much more down there," he says. "Maybe we're lucky and maybe that's it, but the probability that that's the only massive sulphide that far away … is almost impossible."