Here are a couple installments from my trip report to Impact Silver's Zacualpan Project last week. I should point out that I own 65,000 shares, and I am neither a buyer nor a seller. I spent a week down at the mine on my own time, and am not being compensated to write about the company. So pleast take this as one man's opinion, based on my first-hand tour of the project, and if you feel that my comments are overly biased or compromised, just click to the next post and disregard what I have to share....
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I was invited to visit the Royal Mines of Zacualpan project as a guest of Impact Silver last week. I have owned shares in this company for more than 2 years, and been very happy with the progress they have achieved. However, it was still very interesting for me to witness the operation in person, and compare it against many other mines that I have been to visit in Mexico. I was bullish on the company before I went to see it, and I am very much more so now. I plan to submit several reports over the next few days, since there is so much to comment on that it will take a while to share it all. This is the first installment...
The mines are located about 3 and a half hours southwest of Mexico City, near the border with Gurrerro State. The entire trip to the town of Zacualpan is on paved roads, and the road access throughout the property area controlled by IPT is very good, with some paved road and some gravel road. Zacualpan is located centrally on the property holdings, and the town is literally surrounded by historic mine workings. Impact is the largest employer in the town and has gone to great lengths to maintain a positive relationship with the community, including hiring a full time PR person. The town supports mining, and the mines support the town, which is an ideal scenario.
The key to understanding the opportunity for IPT shareholders is to realize that they acquired a first class project at a time of duress for the vendor, when silver prices were below $6, and the mines had been allowed to lapse into lower productivity due to a lack of operating capital. This means IPT won the project at distressed prices. There is exceptional development work that has been completed, and an outstanding workforce, on which a value cannot be computed. The upside potential for this deal is limited only by the vision and competence of the new operator, and IPT has already demonstrated that they have plenty of both.
The injection of new capital and strong leadership is rapidly transforming the entire project into a model mining operation and a textbook example of how a company should be run. There are no efforts to cut corners to save money today at the cost of efficiency tomorrow. Morale among the workers is exceptionaly high, and new employees are being hired and trained. A process to upgrade the infrastructure and refurbish the equipment is already paying dividends.
The operating mines are just a few minutes from town. Hydroelectric power is readily available to most of the property. Water is abundant and the town itself relies on water pumped out of abandoned mines. All buildings and infrastructure are well maintained and appear to be in excellent condition.
The currently operating Guadalupe Mine is just steps from the main mine office. This is a former Penoles project, and hence it is modern and well designed. The equipment for the hoist and main shaft is all refurbished and capable of serving a larger production capacity if the company chooses to expand the scope of operations. What is most impressive about this mine is that well over 100 kilometers of workings and tunnels have already been developed through many levels down to the 195 meter depth (about the depth of a 60 story building).
The main vein system is the Lipton vein, which extends for many kilometers across the entire property and has been accessed in several other mines. This vein is mainly a narrow, higher grade structure with common grades of several hundred grams silver per tonne, hosted in sulphide ores along with lead, zinc and some gold. The vein typically averages a couple of meters width but occasionaly swells to several meters and occasionaly runs to much higher grades.
There are other important and productive veins in this mine, including the Liptonia, the Intermediate, and the Paulina veins. Ore is transported from stopes by low-slung trucks to the main shaft where it is hoisted to the surface.
A number of other veins run to the northwest from the north-south trending main veins and where the veins intersect, wide zones of stockwork ore are found across intervals up to 15m. These zones are lower grade but yield a high tonnage of production and can be mined at surprisingly low cash costs for a small underground operation.
As the Guadalupe is mined to lower depths, it is expected that the silver rich ore will transition to more of a base metal rich deposit, as is common with other epithermal vein systems in Mexico. However, at a number of locations elsewhere on the property, the company has encountered enriched grades of gold and copper at depth, leading to speculation that the entire silver district could be underlain by a gold-copper district. At the current time the company is focused on expanding underground development to open new access points of silver rich ore and expand the operation further along the vein system, but at some point in the future management plans to test the potential at depth.
A short drive from the Guadalupe Mine, the Salvadora Mine is now in production. This was an old mine that had been out of production when IPT took over the property, but exploration work from the project geologists identified some new high grade veins near the portal to the mine including the Salvadora Vein which was identified in a news release on January 25th, 2007 (this can be found on the company website). Grades of up to 20 ounces silver were encountered across a 2m width, and much higher grades reported over narrower intervals. However, the main vein system here is again the prolific Lipton Vein, but development work has now opened new stopes accessing several other veins, one of which was only discovered a couple of days before my visit. The geologist that I spoke with confirmed that the same potential for larger stockwork zones may exist at the intersection of converging veins along the strike length of the system, and very little work has been done to depth in this mine. This underscores the high potential for the entire project, and Salvadora is just one of more than a dozen older mine workings that very likely have remnant deposits that could be put back into production.
The San Ramon mine was in production last year when IPT took possession of the property, but it has since been taken offline, as the higher grade ore shoots were mined out, and more exploration work needs to be completed to outline new resources.
A third mine is expected to commence production at the project later this year. The past producing Chivo Mine was recently accessed by project geologists, where high grade sample results were extracted from the open workings near surface. Much of the mine is flooded so a drill program was completed that hit numerous very high grade zones of silver across mostly 1-2m intervals that graded up to 69 ozs. per tonne, and averaged in the range of 20 opt plus associated base metals values. The company is working to drain the mine and open mining access points to target this high grade ore, and plans to have production commence in September.
Additonal exploration success has been achieved at several other targets but I will comment on this in a further update tomorrow. The main consideration is that the project area is huge, about 125 square kilometers. The veins that we were able to see during our tour on just a small part of this property are so numerous I could not write the names of them fast enough. Literally dozens of productive veins run along the countryside near the town, separate in many cases by just a few metres, and running to many hundreds of metres depth. These veins are largely unexplored, and historic development did not continue below the water table. The resource potential of this district, in an area of exceptional infrastructure, with a long heritage of local mining and a supportive local community, cannot be over-emphasized.
The management of Impact Silver is fully aware of the fantastic potential they control. The company owns most of the district, with only small parcels of land remaining to be consolidated, and ongoing negotiations with the vendors are progressing to lock it all up. The project geologists are talented and thorough and some of the best qualified people I have met on any of my mine tours.
With such strong management, a solid business plan to grow at a steady and sustainable pace, a clean balance sheet that will allow for measured capital investment to enable active exploration and development, and the prospect of increasing earnings and production well into the future, IPT represents one of the best juniors in Mexico for stable long term growth. Normally, the market asigns a premium to those well run companies with strong growth potential, but IPT can actually be bought at a discount to its peers. I do not think this situation will persist indefinately.
cheers!
COACH247
Voluntary disclosure: IPT paid my direct travel expenses as a guest to visit the project. I have not received or been offerred any form of compensation for my time or to provide my commentary. I own shares in the company that I purchased at prices below 30 cents in the market, and I have continued to increase my position over time, and may buy more shares in the future. |
