Dan, This silver stock is definitely worth a look. The Pachuca mine is key to its future. It is producing now at a rate of 2 million oz Ag per year, with potential to produce 2 to 3 times this amount. And if the 90 million tons of tailings deposits at Pachuca proves economically feasible to process, their silver reserves would double and production could be increased further. The company is also producing 40,000 oz of gold per year. All this for US$5 million market cap. I view this company's shares as a long term option on silver. Instead of the risk of the option expiring worthless we have the risk of the company going bankrupt or its shares being excessively diluted. I don't have a handle on these risks yet. They already went through a 10 for 1 share consolidation in May '98.
Cheers
Ram
Third Quarter Report
For the nine months ended September 30, 1998
Summary
The Company continues its determined mission of implementing ambitious measures to improve its operating results, as described in the Second Quarter Report. There have been several successes, a few setbacks, and some interesting and on-going developments as follows:
Financial and human resources are focused on the Pachuca silver mine in Mexico, with new scoop trams scheduled for delivery in the fourth quarter and new development in the El Cristo and Dos Carlos areas.
Positive exploration results at the Nixon Fork gold mine in Alaska have given it a far greater potential and have demanded new developments to strengthen this key cash-flow generating operation.
The pilot plant, constructed to test the historic Pachuca tailings for reprocessing, is generating excellent results, confirming the original assumptions derived from laboratory test work and used in the prefeasibility study completed earlier this year. A positive feasibility study will more than double reserves at Pachuca.
Lack of capital has limited exploration and development at both Pachuca and Nixon Fork this quarter, but comprehensive geologic analyses have defined exceptional targets for future exploration.
Magistral del Oro and Aurora, gold operations located in Mexico and Nevada, respectively, continue to be on care-and-maintenance. Both operations have large property positions and excellent exploration potential. Serious exploration and joint venture discussions are in progress with substantial U. S. based gold companies for both properties.
Relocation of corporate offices from Denver, Colorado, to San Antonio, Texas, has been completed, and corporate overhead has been reduced significantly.
Record summer rainfalls in the Alaskan interior slowed down operations at Nixon Fork during the quarter. Lower levels of the mine were inundated and production was reduced by over 50%, as developed production areas were rendered inaccessible. Efforts to de-water the mine are continuing while new production areas are being developed at higher levels in the mine. It is anticipated that ground freezing and reduced precipitation during the winter will allow mining to resume in lower stopes in the fourth quarter.
Although silver's supply/demand fundamentals remain strong, the market has been volatile, with silver prices sliding back to the ranges experienced last year. Much of this is a result of industrial consumption slowing in response to international financial conditions and silver's historical tracking with gold prices. The Company continues to anticipate higher silver prices in the future as inventories decline.
Even at today's depressed gold prices, approximately one-half of the Company's revenues are derived from gold. Magistral del Oro and Aurora have been idled, but gold production continues as the primary
mineral at Nixon Fork and as an important by-product at Pachuca and El Baztán. The Company's mine plans and forecasts are based on operations running profitably at a gold price of $300.00 per ounce.
Results Of Operations
During the quarter, Company operations produced 516,447 ounces of silver, 9,906 ounces of gold, and 1.7 million pounds of copper. This production represents about 1.3 million silver-equivalent ounces, or
alternatively, 23,468 gold-equivalent ounces, based on market prices as of September 30, 1998.
The Company reports a net loss of $3.0 million on revenues of $6.4 million for the quarter compared to a net loss of $7.1 million on revenues of $8.6 million for the same period last year. For the nine months ended September 30, 1998, the Company's net loss was $7.8 million compared to a net loss of $15.4 million for the same period last year. Over half this improvement is a result of lower depreciation, depletion, and amortization charges ($4.4 million less) because of the impairment last year and the balance of 3.2 million is a result of reduced costs.
The Aurora gold mine in Nevada has been placed on care-and-maintenance status because of low gold prices and the need for significant capital expenditures for prestripping, equipment replacement, and the tailings impoundment expansion. Magistral del Oro, a tailings retreatment project and gold exploration property in the State of Durango, continues to be on care-and-maintenance. The Company continues a comprehensive program at all of the operations to increase both production and productivity, lower costs, develop new stopes and haulageways, and explore it highly prospective land positions to enhance operations at Pachuca and El Baztán in Mexico and Nixon Fork in the United States.
Review of Operations
Pachuca
The Pachuca mine complex, which includes the San Juan Pachuca, La Purisima, and La Rica mines; a processing plant with flotation & cyanidation circuits rated at 2,400 tonnes per day; a refinery; and
mining concessions that cover the entire district of Pachuca, Hidalgo, Mexico, are wholly owned by the Company. During the third quarter of 1998, the Pachuca complex mined and processed 117,223 tonnes of ore and produced 503,448 ounces of silver and 2,043 ounces of gold.
At the beginning of the quarter, major maintenance projects at the Loreto Plant were completed, as well as continued operation of a 10-tonne-per-day pilot plant to test the proposed retreatment of tailings. The pilot plant is continuing to confirm assumptions that were made in the prefeasibility study completed in the first quarter of 1998. Upon completion of the pilot plant testing and other preliminary environmental and engineering studies, a feasibility study will be completed which could more than double reserves. Development continues at the north end of the district and in the Dos Carlos area. Additionally, a design and feasibility study for underground primary crushing in the San Juan Pachuca mine was initiated during the third quarter.
Exploration at Pachuca
As discussed in the second quarterly report, the Pachuca mine complex has operated without interruption for five centuries and exploration potential still remains high. The Dos Carlos area, located immediately south of the existing mine, presents an outstanding exploration target with potential for the discovery of significant silver resources with attractive gold grades. During the third quarter, first ore was produced from Dos Carlos at 221 grams silver and 1.23 grams gold per tonne. The Homiguera vein at the El Cristo mine has begun to be explored, and assays of 230 grams silver and 1.0 grams gold per tonne
were encountered. A vertical diamond drill hole was begun at the bottom of the San Juan Pachuca mine to explore for lead, zinc, and silver in limestone replacement deposits. Also, a decline was begun in the 170 Level of the San Juan Pachuca mine to access the Rosario vein (269 grams silver and 1.34 grams gold per tonne). The Rosario mine was refurbished with an emergency exit, ventilation, compressed air and other improvements to facilitate exploration of potential ore zones. |
