Silver Explorer Ready for Upturn

It is 2011. The price of an ounce of silver is at a record US$35 and investors are queuing up to pour their money into greymetal deposits. A group of mining professionals forms Defiance Silver and immediately acquires the advancedstage San Acacio project in the heart of the historic Zacatecas silver mining district. Just 2km to the west is Capstone Mining’s Cozamin project and 60km to the north is the giant Fresnillo silver mine. All the conditions needed for San Acacio’s rapid development seem to have come together. But the good times did not last.

“In 2012, uncertainty seemed to grip the market and metal prices collapsed,” says Bruce Winfield, President and CEO of Defiance Silver. “As a result, people were not interested in investing and they were selling their shares.”

This was the beginning of a painful, four-year downward spiral that saw the silver price sink to a low of US$14/oz in December 2015. Despite sitting on a resource with inferred resources of 18 million ounces of silver equivalent, with no other assets on its books Defiance Silver was forced to sit tight and wait for the tide to turn. This happened in January 2016 when prices began a turnaround. The price has been on an upward curve ever since, a few short blips notwithstanding. Now Winfield is understandably buoyant and is looking forward to ramping up San Acacio’s development.

“We had two lots of warrants exercised that contributed over US$1 million to the treasury and we are currently considering other financing options in order to start drilling again,” he says. “We have received a permit from SEMARNAT to drill up to 60,000m for 4.5 years. Given the interest and excitement in the industry, it is a very positive environment in which to be working.”

His optimism is understandable. The San Acacio deposit has historically produced around 100 million ounces of silver but has only been exploited to around 200m, giving the Defiance team confidence that the resource can be expanded with deeper drilling. Despite difficulties, the company was active during the downturn, unofficially adding 8 million ounces to the 18 million ounces that are fully NI 43-101 compliant. Winfield is hoping to reach an estimated 50 million ounces during the current drilling program, an important figure that would allow the company to start considering a feasibility study and force the major players to start taking note.

But it is not all smooth sailing. The project benefits from its location in mining-friendly Zacatecas, which Winfield admits makes “a world of difference,” but in late 2016 the state government introduced a controversial Ecological Tax on mining waste. Given that Defiance is not yet in the production stage, this does not affect the company directly but the junior is sensitive to anything that detracts from investor interest in the region.

Local operators, including Fresnillo and Industrias Peñoles, openly opposed the reform when it was announced, arguing that mining does as much if not more to protect the environment than other industries. Winfield agrees, and acknowledges the support the mining community has received from the “forward-thinking” local communities. “Unlike other states, Zacatecas has moved on from the idea of mining as an exploitative industry,” he says. “In the past, miners released mercury tailings into the environment without thinking but that is not acceptable anymore and there is no reason for a modern tailings operation to contaminate the ecosystem. The locals understand that.”

Much like many junior explorers, Defiance Silver’s longterm vision is to be acquired by a larger company. Thanks to strong infrastructure and proven mineralization, Winfield insists that San Acacio will be a “low-cost, high-margin” asset when in production. If this does not materialize, however, the company has a team of proven mine-builders in its ranks with plenty of experience in Mexico and would not hesitate to put the mine into production itself. For now, Winfield seems to be happy sitting on a proven, silver-rich resource. Given the industrial applications for silver, including in electronics and solar power, he is looking forward to watching the market develop over the next few years.