Well, first off I admit that I was not expecting news prior to the merger closing, and I expected the results to be a disappointment when they came out just based on the delays. So let me say that I am pleasantly surprised today, although its bad luck that these results are out on day when a smackdown is gearing up for the sector. And I bear in mind that this is just one hole from the program, and the historic MS results so far from Velardena amount to just a couple more holes. It is very early in the program in other words...

I am pleased that the company chose to put some discussion in the context of the entire district. It is rarely credited as a district scale play but the fact is the other nearby historic mines were very significant and profitable producers, and ECU sits in the middle of that trend on mostly unexplored and highly prospective ground. If Velardena was located in Val D'Or and started pulling gold grades in line with big historic producers nearby the stock would be many multiples of where it is today. But its Mexico and most people have no clue of just what kind of resource upside this project has. So its very good that the company has started to talk in terms of an intensely mineralized district.

The grades are probably going to disappoint some people that are used to the higher grade narrow veins from this project. However the numbers are actually very good for this type of disseminated ore body. Collectively the two zones reported amount to nearly 7m true width.

Unlike the veins close to surface, this mineralization is tabular or bedded. It extends laterally as a mineralized layer along the margin of the intrusive. Given the relatively narrow true width relative to the extensive core length, I would think this layer is dipping fairly steeply. All of this amounts to VERY favorable mine dynamics. A fat pay zone means you mine the hell out of it without worrying too much about dilution from waste rock. It means you spend money to develop a stope but you haul a hell of a lot of production out, so your production relative to your capital spending is much more favorable. We already know the host rock has supurb stability from the decades of past mining and therefore the steep angle of the zone means gravity is your friend and you can mine a large rock volume more efficiently. Just tunnel underneath, blast the ore zone, and let the ore flow down the stope.

All of this means the lower grades are still going to be extremely profitable to mine this section. You get less metal out of every ton, but mine many more tons and do so more cheaply, so the overall economics are much better.

I would like to see a drill hole map to see how far from the last results they stepped out. To come up with a true width estimate the geos must have a lot of confidence already in the orientation of the zone based on previous holes and the historical data of the region. If they have a pretty good idea where the dykes have intruded the limestone then it becomes a fairly easy exploration scenario to hit more of this rock and build a large resource very quickly. Assuming of course they have the drills figured out and we do not have to wait 6 months for each hole.

The final point that is of interest to me from this news is it appears they have hit a sweet spot in the district. They have the wide mineralized zones of Santa Maria, and also seem to be hitting the enriched precious metals intervals of Reyna. And I will continue to bet that there will be awesome surprises ahead as they eventually run into some enriched areas where high grade veins intersect the MS zones and contribute to fans of very high grade ore across much wider intervals than what is being mined today.

The info on the rock chemisty seems to hint at that. The intrusive at the central zones are more acidic and carry higher gold and silver values. This reacts with the limestone and lowers the acidity of the fluids so the gold and silver precipitate out. There were intervals of green skarn reported in the last program, which indicates sphalerite, lower values of silver but enriched in zinc. Now we are seeing higher PM values as they follow along the contact with the intrusive. There is a gradient and perhaps they will hit a bullseye with a drill core that hits a hotspot with bonanza grades.

The granitic intrusive bears higher levels of chalcopyrite, and the pyrite zones closer to surface are associated with enriched chalco, and also carry higher gold levels. I think the potential for zoning in this deposit is going to deliver a fat ore zone of much higher grades at some point as they carry on with the drilling.

cheers!

mike

Disclosure: I have been adding to my ECU in the last few weeks, and the company is a paid advertiser on my website.