The Value of Efficiency in Allocating ResourcesMon, 10/21/2013 - 14:39
Q: What was the strategy behind signing an option agreement for a 100% interest in the San Acacio silver mine?
A: Our concept was to follow in the footsteps of other recently successful mining companies in Mexico, such as Endeavour Silver, IMPACT Silver and First Majestic. All of these companies worked on a model of finding historic but excellent assets, rehabilitating them, and injecting capital in order to bring them back into production and turn them into small to mid-sized producers. The Vetagrande Vein has historically produced approximately 200 million ounces of silver, with the San Acacio mine that we control having produced around 80-100 million ounces, and we believe that San Acacio has the potential to produce the same amount again. Our strategy was to reach an agreement with the Mesta family on an option to purchase the mine until September 2015. The big attraction about this property was the fact that the Mesta Family has owned it for a long time, but they had lacked access to the capital that was needed to develop the mine. When we reached an agreement in November 2011 the financial markets were much better than they are now. At that time Defiance Silver was confident that, with its expertise in the markets and the company’s overall experience, plus the support of IMPACT Silver, we would be able to finance the project and work diligently to move it forward. Notwithstanding the market downturn, we have still been able to raise the necessary funding to invest in our priority tasks, which are meeting our agreement commitments and carrying out technical studies to move the project forward. However, we have not yet been able to raise the required money to develop the mine.
Q: What are the priorities for Defiance Silver during the current squeeze in the market?
A: Our priority has been getting the Environmental Impact Assessment and the Land Use Change permit for the mill. Work on the San Acacio mine has included compilation studies to better define the geology and alteration as well as revising the resource calculation. Whilst we are short on capital following the downward turn in the cyclical mining market, we have the advantage of being a junior company with an advanced mine-mill project on a NI 43-101 compliant resource. Companies with grassroots projects are in a more difficult position to raise capital.
Q: What are the current priorities for Defiance Silver and its San Acacio mine?
A: Our plans are to refurbish the mill and bring it into production, while simultaneously redeveloping the mine in order to feed the mill. The next step would be to expand production in the mine and mill, as the initial production of 200 t/d can be increased. The agreement with IMPACT Silver is to acquire 10 concessions as well as the mill. The objective is to start short term production, using the mill, and feed from mineralized dumps on one of the concessions that we have obtained with IMPACT Silver. The resource that we have far exceeds the mill’s 200 t/d processing capacity, therefore we want to expand the processing plant to 500 t/d in the future. With a 500 t/d mine and mill operation, Defiance would be producing a significant amount of silver.
The plant we have an option to acquire was developed organically by a resident of Zacatecas, over a period of 10 or more years. We have used an external consulting company in Toronto to evaluate it and, based on their report and recommendations, we estimated that the cost to refurbish and upgrade it would be US$1.2 million. In the past concentrates were dried on patios in the sun, which is not a very sophisticated manner of operating. We plan to install thickeners and filters, which will allow us to dry the concentrates more efficiently. These types of improvements will be applied throughout the mill.
Q: What are Defiance Silver’s development milestones for the coming years, and what are your long term ambitions?
A: Our objective is to raise capital. The immediate milestone for us is to raise a small amount of working capital with which to finance the company and carry on with the technical evaluation of the project. Ultimately, we want to expand our operation to 1,000 t/d or more, depending on future exploration success. These are preliminary estimations, and should be treated as such.
In the next five years we want to become a mid-sized silver producer, producing at least 1 million ounces per year with major potential for further expansion. Our projects are significant enough to have that potential. Our most important asset is the mine, which has only been developed along a distance of 1km and to a depth of 200 meters, while a further 4km has never seen modern exploration. The vein is there, and we are very much looking forward to having the capital to make the most of this tremendous opportunity. It has been only 18 months since we started the project so we are still very much in the early days. This is a long term operation, the potential of which we wholeheartedly believe in.