Mexico Mike provides an update on GATA supporter ECU Silver...

Hi Bill!

It has been a while since I submitted any commentary about ECU Silver, but the company continues to build strength on the basis of operations and exploration, and I am starting to think it may perform very well in 2011. For sure there have been a number of issues that have come to pass during the last few years that contributed to a steep decline in share price. I think much of the problems have been resolved for the company and a higher trend for both gold and silver has not hurt their operating margins. The debt on the books will need to be addressed, either repaid through cash flow from operations, or perhaps a secondary offering. My preference would be for the company to post a few more solid quarters and demonstrate they are able to make money through mining at optimum efficiency levels, and then roll a chunk of cash to pay down debt.

Those who have endured holding this stock since 2008 have had their patience tested. However, I could point out the longer term trading charts for other companies have followed very similar parabolic rise - steep decline - steady recovery patterns during the same interval. Emerging producers often get hammered in the early stages as the companies struggle to achieve operating efficiency and maintain steady production. Other Mexico juniors like First Majestic and Alamos Gold are now very successful and highly valued producers that were also sold off bigtime early in their development phases. As ECU continues to build stronger results and earn more respect for the improving fundamentals I think it too can achieve a premium multiple.

Even while the stock was in a downtrend I continued to own a core holding in ECU that I have held since 2004. I have always believed the undeveloped resources at this deposit are so compelling that a very large mining operation must one day become a reality at Velardena, and the higher silver and gold climb the more confident I am in that assumption. I do not look to the current mining as anything more than a ways to get more exploration done and service the current debt load. If we consider some of the most profitable mines in Mexico today, I doubt any of them would make any money at all if they were restrained to mining at a rate of just a few hundred tons per day. ECU is a small producer at this point, but it is really and exploration story. This company is not going to be mining on a small scale with marginal economics for the next 100 years, as one might assume based on the current magnitude of operations. As the drilling continues to build the resource it will advance to become a high priority development target, through a joint venture, or in an acquisition deal with a major. That is why I have held the stock for a long time, and recently added more shares to my portfolio.

The company announced more exploration success today, reporting further development along newly discovered vein structures. One encouraging aspect to this underground development work is the grades and tonnage of the resource zones are coming in above estimates. Considering that ECU already has several hundred million ounces of silver resources defined, the concept that these numbers are understated is yet another attractive aspect to the story even as the company continues to expand the mineral inventory. At some point in the new year I hope to hear guidance from the company that they will step up the intensity of exploration efforts and begin to focus on the bulk tonnage targets to depth. If they post further success in that department, then I think the clock will start ticking for a larger mining company to get involved.

I should disclose that ECU Silver runs a paid advertisement on my website and as I have already pointed out, I am a long term shareholder. I have been to visit over 100 mining projects in Mexico during the last few years, including twice touring Velardena, and I think this project can and will support a much larger mine in the future. If they can hold things together and expand the bulk tonnage resources to depth, a major mining company will be attracted to develop a new mine at Velardena that is an order of magnitude higher in total capacity. In such a scenario, my personal opinion is that ECU will either become a minority partner or it will be bought out at a premium, and in either case shareholders will be rewarded well for the patience to hang in with this stock.

cheers!