I made the mistake of dropping by the SH forum this evening and noted the usual crap circulating there. I no longer post there but just wanted to share a few facts about Velardena that contradict what some of the clowns that hang out there want to suggest.
ECU is going to resume commercial production at Velardena. That means that they will focus on running ore grade material through the mill with the intention to earn positive cash flow from operations. Formerly they were using their mill facility as part of a comprehensive test program to process lower grade bulk tonnage material and determine if it could yield economic results in a much larger operation. They did not give up on profitable operations, they just made the decision that it was worth sacraficing commercial operations for a few quarters in order to prove if the lower grade material could feed a much larger operation in the future. I believe they were successful for that work, and the updated resource estimate incorporates a much larger tonnage as a result.
The mineralization from Velardena represents a remarkably diverse range of grades and deposit types. We know there are zones rich in gold, silver, base metals, and sometimes all of them in the same ore. We know that the mineralization ranges from extremely narrow high grade veins a few inches wide, to vein structures that are several metres wide, and also bulk tonnage stockwork and skarn zones. There are also chimney structures that have been encountered with very wide intervals of high grade silver/base metals ore. Therefore it is inaccurate to classify the entire resource area as if it is all narrow vein material.
The company reports an estimated resource based on consideration of all of these zones. However to return to commercial mining they will only be accessing a very small part of the total mineral inventory. They want to preserve the lower grade bulk tonnage zones for a larger operation, and thus will likely concentrate on the developed vein structures peripheral to the mineralized corridor.
We have seen reports for several years that demonstrate vein widths of more than a meter across many hundreds of meters of continuous mineralization, bearing extremely high grade ore. I have been underground to tour the mine workings twice, and I can verify that while some of the veins are very narrow, there are no shortage of wide vein intervals to mine. These are where the next production will be generated, and it can be done with extremely profitable margins even allowing for dilution of waste rock, and modest recovery efficiency at the mill. The people who suggest otherwise, based on just average numbers from a resource report, are talking out their hats.
Narrow vein mining techniques have advanced a lot in recent years and using the best practices a company can manage waste rock quite efficiently. Underground development is completed by first blasting out a meter of wall rock adjacent to the vein, and mucking out all the waste. Thereafter the ore zone is blasted out to another meter width and the ore is extracted, with minimal dilution from waste rock. This strategy ensures optimum clearance to work with heavy equipment.
To get a realistic cost comparison, IPT recently reported in their annual information that the company is producing at around 300 tpd and mining costs average around $55 per tonne. This puts the scale of operations very close to what ECU will be running, and the ore from even the narrow veins will be very profitable to run if ECU can achieve similar results.
The addition of Dan Kappes to the operating team will probably ensure that ECU can achieve even higher recovery efficiency that when the mill was last in production. Combined with stronger pricing for the metals produced, ECU should achieve positive cash flow and shore up the balance sheet.
My final point is the most important: ECU is not working to earn a few hundred thousand dollars per quarter and report a penny per share of earnings if they are lucky. The point of the exercise is to keep the lights on and stretch out the cash in the treasury while they plan the next phase of development. Its that simple. Making the leap from a few hundred tonnes a day to 5000 tonnes per day is not something that will be generated through organic growth. Ultimately the mine will be supporting a large operation of several thousand tonnes per day, but I estimate more than a year of planning, permitting, studies, and financing before any development work commences, and then more than a year of construction after that. In the meantime, there is no reason not to run a modest production cycle to generate cash flow while the exploration work continues and the planning is underway.
I own a nice chunk of ECU stock and the company is a paid advertiser on my website. I do not have any relationship to speak on behalf of the company.
cheers!
mike
