Investors May Not Have Much Longer To Wait For Esperanza Silver To Prove Its Worth
By Our Canadian Correspondent
minesite.com
Investors are notoriously impatient, and this fact is not lost on Bill Pincus, the chief executive of Canadian-listed Esperanza Silver, which has two gold projects advancing nicely towards production but is trading near multi-year lows.
Over the past 12 months shares in the Vancouver-based explorer have fallen from a high of nearly C$4 per share down to the current C$1.20 level. Sure, that kind of sell-off has affected many of the exploration stocks, but not ones that aim to have two feasibility studies completed over the next two years.
First up for Esperanza is the San Luis joint venture project in Peru, where its partner Silver Standard Resources is fast tracking the Ayelen silver vein to development. The initial estimate by Silver Standard and Esperanza is a measured and indicated resource of 674,000 tonnes grading 328.9 grams silver per tonne and 12.24 grams gold per tonne, giving a total of 265,000 ounces of gold and 7.1 million ounces of silver. The inferred resource is 14,600 tonnes grading 282.4 grams silver per tonne and 9.33 grams gold per tonne.
The market didn’t much like this calculation, as it’s clearly on the small side. That said, with those types of near-surface high grades, and metallurgical test work yielding 90 per cent recoveries for gold and 80 per cent for silver, a mine operation is almost guaranteed to be extremely profitable. Early back-of-the-envelope estimates suggest that San Luis may produce 100,000 ounces of gold and two million ounces of silver a year, with capital costs ringing in at some US$50 million.
The management team behind Silver Standard has a track record of making money for shareholders, and in this instance the company is certainly putting its money where its mouth is. Silver Standard currently has a 55 per cent interest in the San Luis property while Esperanza holds the remaining 45 per cent. But Silver Standard will increase its interest to 70 per cent by funding the feasibility study, and will up that to 80 per cent by funding the project through to the production stage. In other words, Esperanza is not spending any of its dollars until the proof is in the proverbial pudding with a viable feasibility study.
Based on Esperanza’s current share price, investors are also discounting any exploration upside for the 250 square kilometre property. A case in point is the BP zone, located 6 kilometres southeast of Aleyen. Initial rock samples returned grades of up to 2.2% copper and 11% zinc, while initial drilling returned 45 metres grading 0.53% copper, 62.7 grams silver per tonne, 0.02 grams gold per tonne, 0.11% lead and 0.10% zinc. Not a bad start, but it’s still early days.
Concurrent with the advancement of the San Luis project, Esperanza is aiming to have a resource estimate complete in 2008, and a feasibility study in hand by 2009 for its wholly-owned Cerro Jumil deposit in Mexico. Here, drilling continues to expand the potential resource. Results so far include 79.5 metres at 1.04 grams gold per tonne, and 51 metres running 1.44 grams gold per tonne. But again investors have a concern. This time it’s the lowish grades and potential for high construction costs. Simulated heap-leach testing of material from the main area, dubbed the Southeast Zone, shows gold recoveries of 72 per cent on material crushed to a nominal one inch size, and 73 per cent for 3/4 inch material. Bottle Roll testing, however, yielded recovery rates between 92 per cent and 95 per cent, indicating that conventional processing may be an alternative.
So Esperanza is continuing to study the low-cost heap-leach optimization alternative, as well as the economic viability of higher cost conventional milling and processing. In the meantime, exploration results could dramatically impact the overall economic picture. A step-out hole some 200 to 400 metres northwest of the Southeast zone in an area known as Cerro Las Calabazas West cut 2.41 grams gold per tonne over seven metres and 1.87 grams gold per tonne over 28.5 metres. Should drilling prove up this area, the overall resource would be dramatically enhanced.
Still, at the end of the day, Esperanza has to overcome the skeptics with some hard economic numbers on both San Luis and Cerro Jumil. But with an enviable treasury of north of C$15 million, a first rate partner in Silver Standard, and a proven management team that can enhance shareholder value from the ground up, Esperanza appears well-positioned for a reversal of fortunes on the equity markets in 2008. Current shareholders certainly hope so. |
