Cyprium starts trial mining at Potosi

Cyprium Mining (TSXV: CUG) has begun small-scale mining at the past-producing underground Potosi silver-lead-zinc mine in northern Mexico, with plans to increase throughput.

Potosi is in Chihuahua’s historic Santa Eulalia district. Discovered in the 1500s, the district ranks as one of Mexico’s top silver and base metal producing districts.

In the past 100 years Santa Eulalia churned out nearly 500 million oz. silver, along with a lot of lead and zinc, the company’s chairman and CEO Alain Lambert says. The 48 sq. km district is also the largest carbonate-replacement deposit in Mexico.

Three companies control Santa Eulalia, which is divided into three camps.

Grupo Mexico, through its subsidiary Southern Copper (NYSE: SCCO), owns the Buena Tierra mine in the West camp and the San Antonio mine in the East camp. MAG Silver (TSX: MAG; NYSE-MKT: MAG) controls all the ground south of the district and in the Central camp. Cyprium has the Potosi mine and the nearby La Chinche project in the West camp.

The Potosi mine, held by the Valenzuela family since the 1950s, operated until 1991, before closing due to labour disputes, high costs and low metal prices.

Workers extract broken material at the Potosi silver mine in northern Mexico. Credit: Cyprium Mining

In the past decade, third-generation owner Daniel Valenzuela extracted small amounts of ore from Potosi, with little success until 2014, Lambert notes.

The executive — who co-founded Cyprium in 2012 — describes how  he learned about Potosi last year when Valenzuela was looking for a business partner.

Cyprium’s business plan — similar to other Canadian miners in Mexico, such as First Majestic Silver (TSX: FR; NYSE: AG) and Endeavour Silver (TSX: EDR;     NYSE: EXK) — calls for acquiring past-producing assets in Mexico. “The two criteria we have are that these mines can be brought back into production inexpensively and rapidly. And they need to have very good exploration potential,” Lambert says.

The past-producing Potosi mine fits the bill. Last October, Cyprium bought 53% of the joint venture that owned the Potosi mine, the nearby San Guillermo processing facility and La Chinche from Valenzuela.

In exchange, Cyprium agreed to commit US$2.5 million to work at Potosi by year-end. So far, it has spent US$1 million, and expects to raise the rest through financings, Lambert says.

As part of the transaction, Valenzuela received 1 million Cyprium shares and 100,000 warrants exercisable at 10¢ per share. Valenzuela owns 45% of the joint venture, while Cyprium’s director Carlos Arzola holds the remaining 2%.

The historic mine has six shafts, 22 levels and is 1 km deep. However, the levels below 18 contain water.

To date, Cyprium has mined mostly the upper Tunel body, particularly on levels 2 and 4, the oxide zinc body on level 14 and the larger sulphide mineralized Santo Domingo body, which was partly mined in the past on levels 6, 9, 10 and 11.

In May, the junior rehabilitated the Potosi No. 3 shaft and improved infrastructure and security at the mine. The No. 3 shaft gives the junior access to levels 0 to 4.

In July, Cyprium kicked off small-scale mining at Potosi, by extracting broken mineralized material left in stopes on levels 1 and 2 by past mining activities, at an extraction rate of 20 tons (18 tonnes) per day.

Cyprium aims to increase the extraction rate to 80 tons (72.5 tonnes) per day, after it receives the explosive permits to begin blasting.

The company had expected to get the explosive permit by August, but Lambert is confident that Cyprium will receive it shortly.

Alain Lambert (left), Cyprium Mining chairman and CEO, with a visitor at the Potosi silver-lead-zinc mine in Chihuahua state, northern Mexico. Credit: Cyprium Mining.

“Once we get the explosive permit, we can have a bigger tonnage. Then we are going to haul whatever’s stockpiled and whatever comes out of the mine to the Aldama plant for treatment,” Lambert says, noting Cyprium has been stockpiling the material extracted earlier.

The company has an exclusive right to use the 100-tonne-per-day plant — sitting 42 km from Potosi — until May 2019. It will sell all the lead and zinc concentrates with silver content produced at the plant to Trafigura Mexico.

Meanwhile, Cyprium intends to complete a resource estimate by year-end on the larger Santo Domingo body. The estimate would include old technical data and old sampling results, plus new sampling results and potential long-hole drilling.

After the resource estimate, Cyprium will consider rehabilitating shafts No. 1 and 5.

Lambert notes that shaft No. 1 is a small, 150-ton-per-day (136-tonne-per-day) production shaft that will provide access to level 6 as well as levels 9 to 11, while shaft No. 5 is both a production shaft and an elevator for employees, and will go down to levels 9 to 11. The latter has a production capacity of 400 to 500 tons (363 to 454 tonnes) per day.

The executive estimates the cost for rehabilitating shaft No. 1 at several hundred thousand dollars, and US$1.5 million for shaft No. 5.

Before the company can reopen the shafts, Lambert says his year-end goals include finalizing the joint-venture interest by raising US$1.5 million. The money would improve shaft No. 3 and double capacity at the Aldama plant, as well as finish the resource estimate. He concedes the company is also on the lookout for partners for the La Chinche exploration property, south of Potosi.

Cyprium closed Aug. 23 at 7¢ per share in a 52-week trading range of 5.5¢ to 12.5¢.