Endeavour Silver makes strides at Guanacevi

SITE VISIT

Durango, Mexico — Through aggressive expansion plans at its Guanacevi mine in northwestern Durango state, Mexico, aptly named Endeavour Silver (EDR-T, EDRGF-O) is working hard to boost its ranking to top-tier primary silver producer.

In less than two years since its acquisition, Endeavour has turned the struggling silver operation around with a long-needed infusion of capital coupled with an exploration push to identify additional ore-feed for the hungry processing facility.

Recent reserve-resource studies at Guanacevi give the company hope for its growth aspirations. The project now hosts proven and probable reserves of 183,875 tonnes grading 589 grams silver per tonne and 0.85 gram gold per tonne in zones 1, 2 and 3. There were no previously classified reserves at the deposit, which contains almost 3.5 million oz. silver (almost 3.8 million oz. silver equivalent with the gold factored in).

Inferred resources also saw a significant increase, up almost 180% to 755,476 tonnes averaging 439 grams silver and 0.9 gram gold in the Porvenir Mine, Porvenir Dos and Deep Santa Cruz zones, or about 10.6 million silver-equivalent contained ounces.

“Total silver reserves and resources now exceed 13 million oz. at Guanacevi, good for a six-year mine life,” says Endeavour Silver chairman and CEO Brad Cooke. “This updated estimate is further evidence of the robust size and grade of silver mineralized zones in the Santa Cruz vein system.”

Silver mining at Guanacevi dates back to at least the 1500s, with the Spanish exploiting a number of near-surface deposits. The region saw an increased level of activity through to the early 1900s, when up to five processing plants and over 15 mines were in production until the Mexican Revolution in 1910 caused a drop in activity.

In the 1970s, a government agency aiming to stimulate small-scale local mining built a 400-tonne-per-day flotation plant that still forms part of the on-site infrastructure. Subsequently, a cyanide circuit was added that expanded the plant’s capacity to 800 tonnes per day, although it was not operated near full capacity.

Mexican silver giant Industrias Peoles (IPOAF-O) operated area mines throughout the mid-1900s, largely ceasing its activity in the early 1990s and then leasing the Guanacevi concessions to local groups that mined the more accessible mineralization on a smaller scale.

Official production records for the region peg silver output in the order of about 500 million oz. from several dozen mines, placing the Guanacevi area as one of the top five producing districts in Mexico.

Enter Endeavour

Committing US$7 million, Endeavour Silver optioned the Guanacevi project in mid-2004 from the Mexican company owning the plant and the stakeholders of the Santa Cruz mine. The Vancouver-based junior began a surface-drilling and underground ramping program to test the expansion potential of the orebodies.

Recognizing the deposit’s growth potential, the company fast-tracked development of the North Porvenir zone, with capital spending of about US$4 million in 2005.

Now holding a 51% interest in the operation, Endeavour will acquire the remaining 49% for two staged payments, totalling US$3 million, due in January 2007 and 2008.

In 2005, its first year of operation under Endeavour, Guanacevi performed well, producing 948,323 direct oz. silver in addition to 2,332 oz. gold, to give a silver-equivalent yield of 1,088,543 oz. — easily dwarfing the annual production of previous years. The project generated US$1.5 million in net operating cash flow from gross revenue of US$6.5 million.

The Guanacevi plant processed almost 103,000 tonnes of ore grading 385 grams silver per tonne and 0.88 gram gold per tonne (438 grams silver equivalent), and delivered recoveries of 74.7% for silver and 80.5% for gold. Cash operating cost for silver output averaged US$5.07 per oz., net of gold credits, while sales averaged US$7.01 net of smelting and refining costs.

Three-quarters of the ore-feed came from mining at Endeavour’s new North Porvenir zone on its Santa Cruz property. The remaining production came from past tailings, mine dumps, and lower-grade toll-milling ores.

An expansion initiative to boost the mining rate from 350 tonnes per day to the 600-tonne-per-day level is under way. Silver production for 2006 is forecast to double to about 2 million oz., with cash operating costs of US$4.50 per oz. Endeavour has budgeted US$4.3 million in 2006 for the new development and exploration.

During a recent visit by The Northern Miner, the processing facility was being prepared to undergo a capacity upgrade; plant availability is expected to drop to about 70% during the process. The refurbishment period, involving installation and commissioning of a new ball mill, may challenge the company’s goal of producing 2 to 2.2 million oz. silver this year, but not likely by much. Its new mill is expected to come on-stream by mid-year, allowing for faster processing of stockpiled ore during the second half of 2006.

Recently released first-quarter production figures for this year show Endeavour delivering record quarterly silver output of 300,872 oz. plus 605 oz. gold from 24,805 tonnes of ore averaging 479 grams silver and 0.95 gram gold. Due to the plant’s reduced throughput, cash costs, net of gold credits, came in higher than expected at US$5.47 per oz., although it was offset by a booming silver market that saw the white metal average almost US$10 per oz. over the quarter.

To fund its growth, Endeavour recently closed a $23-million financing through a syndicate brokers, including Salman Partners, Canaccord Capital and Dundee Securities, to place 5.1 million special warrants at $4.50 apiece. The brokers retain an overallotment option to sell an additional 1.9 million of the special warrants, each of which entitles the holder to one common share plus half a warrant, with each full warrant exercisable at $5.25 for 18 months. The remaining tranche could add $8.5 million in gross proceeds to the coffers.

In addition to ongoing upgrades at Guanacevi, the cash may also be used to acquire new silver projects. Expansion of the company’s landholdings in the Guanacevi area is an obvious strategy that could see the operation rise to its full capacity of about 3.5 million oz. silver annually, with other possible acquisitions taking Endeavour above 5 million oz. per year. Given the company’s relationship with Peoles, the addition of another small-to-midsize silver mine would not be unexpected.

The geology

Silver mineralization is typical of that found throughout Mexico’s Sierra Madre belt, being low-sulphidation epithermal vein-hosted. The quartz-carbonate veins occur primarily in the Tertiary Lower Volcanic sequence of andesites and volcaniclastics overlain by the Upper Volcanic sequence of rhyolites.

In the Guanacevi area, erosion has exposed the Lower Volcanics in addition to sections of an older, underlying conglomerate unit. The Santa Cruz vein (SCV) system occurs along the western edge of a host structure, paralleling the lower volcanic-conglomerate contact. Mineralized veins have also been discovered within the conglomerate.

The SCV, just one of many vein systems in the area, has been traced over at least 5 km of strike and to depths of over 400 metres, averaging about 3.5 metres wide. Some of the recent drilling has indicated a trend of higher grades at greater depths.

Silver mineralization occurs primarily as argentite plus acanthite with some gold, galena, sphalerite, pyrite and manganese oxides.

A program of drilling, on roughly 50-metre centres, is being conducted along with mining at Guanacevi to outline extensions to mineralization in the Deep Santa Cruz, El Porvenir, North Porvenir and Porvenir Dos zones.

The company says it has four drill rigs working on expanding the three main mineralized zones.

“Both the Porvenir Mine and Deep Santa Cruz zones appear to be thickening at depth, even though the vertical drill e
xtent now exceeds 400 metres,” Cooke says. “Deep Santa Cruz is shaping up to be larger than originally estimated by Peoles. We still have not found the lateral or depth extents of mineralization and the silver-gold grades remain high.”

Shares of Endeavour Silver have recently traded around $3.75, giving the company a $142-million market capitalization based on its 37.9 million shares outstanding. The stock has traded in a 52-week range of $1.51-$5.39.

PHOTOS BY STEPHEN STAKIW