Aurcana shares pop on Red Kite loan proposal

VANCOUVER — Shareholders of Vancouver-based silver producer Aurcana (TSXV: AUN; US-OTC: AUNFF) received some good news at the end of June, as the company released details of a terms sheet from U.K.-based metal merchant RK Mine Finance (Red Kite). The proposal provides Aurcana with increased capital flexibility via a three-year unsecured loan facility that totals US$50 million, and includes an off-take component wherein Red Kite will buy silver produced at the company’s in-development Shafter silver mine 375 km southeast of El Paso, Texas.

The announcement comes at a good time for Aurcana, which had recently fallen to a 52-week low of $1.15 per share and reported a working capital deficiency of US$2.9 million at the end of the first quarter. Back in April the company completed an 8-for-1 share rollback, and has since seen its stock drop 70%, or $3.14 per share, as silver prices have fallen below US$20 per oz.

Aurcana’s sole producing asset is its wholly owned La Negra polymetallic mine in Queretaro State, Mexico, which hosts 27 million measured and indicated tonnes grading 131.31 grams silver per tonne, 0.49% copper, 0.91% lead and 2.36% zinc.

The company completed a 3,000-tonne-per-day mill upgrade during the first quarter, with quarterly silver-equivalent production up 21% year-on-year to 592,500 oz. Total revenues were US$12.8 million on the back of US$29.52 per oz. average realized silver prices and total cash costs of US$7.79 per oz. silver, net of by-products.

Aurcana is in the midst of a 5,000-metre drill program at La Negra to follow-up on a mapping program that outlined six targets showing gold mineralization. The two most promising targets are the Aurifera I and II zones, which returned the most gold values per total number of samples. Assay values range from 0.2 gram gold per tonne to 15.3 grams gold and are associated with silver, lead and zinc values. Aurifera I and II sit at the southern contact of La Negra’s main diorite intrusion, with oxidized, fracture-controlled mineralization hosted in massive skarn.

Meanwhile Aurcana is forging ahead with underground development at Shafter with the goal of hitting a 1,500-tonne-per-day target. During the first quarter Shafter’s main ramp advanced 160 metres, and the company initiated another 457-metre development in early June to access 500,000 tonnes of ore.

Aurcana is hoping to achieve around 600 tonnes per day during the second quarter, and completed 307 metres of development during the first quarter to access its first three stopes. Shafter holds proven and probable reserves of 2.4 million tonnes grading 221 grams silver, as well as measured and indicated resources totalling 2.8 million tonnes averaging 244 grams silver.

Aurcana is pulling material with an average grade of 142 grams silver at Shafter, but expects to hit grades more in line with its reserves as the ramp advances downdip.

Assuming Aurcana can meet its ramp-up goals at Shafter — the company has encountered technical issues with equipment in its processing plant — the mine is slated to add 3.8 million oz. silver production annually to the company’s total production, at average cash costs of US$10 per oz.

Aurcana remains optimistic about Shafter’s exploration upside. An 11,000-metre drill program and surface exploration in 2012 indicating potential for “a larger and more complex mineralizing system than previously recognized, with multiple, discrete pulses of silver, silver-lead-zinc and lead-zinc mineralization, and overprinting silicification.”

The company planned on starting another 3,000-metre program at Shafter in early June to test the Herculano fault at depth for evidence of possible “feeder-style” mineralization.

It also plans to explore the southwest extension of its Presidio deposit, which lies west of the Mina Grande fault and has potential for strike extension.

“Having evidence of complex, multiple stages at Shafter confirms we are exploring in a system with high potential, while demonstrating that although we still have not zeroed in . . . continuing to do so is more than warranted,” says Aurcana’s consulting geologist Peter Megaw. “Seeing high complexity is a positive indicator for a long-lived, multi-staged, large system.”

Aurcana’s shares jumped 22% — or 25¢ — following news of the Red Kite loan and offtake offer before closing at $1.40 per share at press time, after trading 2.1 million shares on the day.

The company has 58 million shares outstanding following its rollback for a $78-million market capitalization.