Telling investors exactly what you plan to do and then doing it may seem like an obvious corporate strategy, but in the high-risk world of exploration and mine development, meeting those expectations can be challenging.
Drill holes can come up empty, metal prices can collapse, and angry locals can sabotage development plans. Any number of project assumptions can turn out to be wrong.
So how can Vancouver-based
It’s all about the property, says Chairman and CEO Brad Cooke, a professional geologist with 28 years experience in the mining industry and founder of
The property’s location is advantageous. Santa Cruz is less than a five-hour drive from Durango City, along mostly paved highway. An experienced workforce is available in the surrounding district, which has historically produced more than 500 million ounces of silver. A power line that supplies the nearby town also services the plant and mine.
The Santa Cruz mine has been producing about 400,000 oz. silver per year, while the mill — a remnant of the days when Mexico was building district-scale plants to process ore from a network of small, local producers — has the capacity to handle 3.6 million oz. per year. Exploration prospects (i.e. potential mill feed) abound.
“When we finally arrived at the doorstep of Santa Cruz, what we found was a very small mine feeding a very large and modern plant and once we had a chance to review the exploration upside, we knew that this was the project for us,” says Cooke.
Endeavour bought a 51% interest in the Santa Cruz mine and mill from a private Mexican company in May 2004 for US$3 million and has the option to earn up to 100% by paying another US$4 million over the next two years.
Since the purchase, the company has increased quarterly production by almost 200% to 295,000 oz. silver by adding ore from a new discovery, North Porvenir, located only 1 km northwest along strike from the mine.
Resources at North Porvenir now stand at 4.8 million oz., assuming a silver price of US$6.50 per oz., while a historic resource (non-Instrument 43-101 compliant) contains another 3.8 million oz., for a total of 8.6 million oz.
Management sees potential to outline an additional 30 million oz. with further drilling in zones of known thickness and grade, allowing a rapid increase in production to full capacity by 2007.
These bold projections have already landed Endeavour in hot water with the B.C. Securities Commission. Although the company has softened its tone to comply with securities regulations, Endeavour remains supremely confident that it can do everything it says it can do.
For the 10-month period ending at the company’s new fiscal year-end date of Dec. 31, 2005, the junior expects production to reach 1 million oz. silver at an average cash cost of US$4.50 per oz. For calendar year 2006, production is forecast to jump to 2.5 million oz. at a cash cost of roughly US$3.90 per oz.
In 2007, Endeavour plans to reach its production target of 3.6 million oz. At this stage, “phase one” of its growth strategy will be complete and the company should rank as the fifth-largest primary producer of silver in the world.
(This is not as ambitious a plan as it seems. The number of primary silver producers in the world is limited because most silver is produced as a byproduct of other metals.)
The proposal hinges on continued exploration success at the Santa Cruz vein, the host of the silver mineralization and a classic, high-grade silver-gold, epithermal vein deposit. In past production, grades have averaged 500 grams silver per tonne and 1 gram gold per tonne over true widths of 3 metres. Recent production grades from North Porvenir have been even higher at 700-800 grams silver per tonne.
Neither the top, nor the bottom, of the Santa Cruz ore horizon have been found yet, mostly because the previous owner used all of its production revenue to reward investors in the form of dividends, rather than reinvesting in exploration at the site.
“Our plan is to invest significant capital to find new reserves and expand production to fill the plant,” says Cooke. “It’s not very often that you get the opportunity to develop such a simple business plan.”
The Santa Cruz vein system strikes northwest-southeast over a distance of 2.5 km on the property and dips 45-65 southwest. It varies in depth, reaching 400 metres in some places. The upper parts of the system, above 2,375 metres elevation, contain significant oxide mineralization in some areas. The lower portions are comprised predominantly of sulphide mineralization.
With a grinding/flotation capacity of 800 tonnes per day, a cyanidation/leach capacity of 600 tonnes per day and a trained staff of 71 personnel, the mill is capable of processing both types of ore.
Working with a $3.3 million exploration budget, Endeavour will continue to drill several mineralized zones within the vein system and expects to release an updated resource estimate for the property in the first quarter of 2006.
Meanwhile, the company has completed a total of 524 metres of underground development at North Porvenir since February, including ramps, drifts, crosscuts and raises. At Santa Cruz, 259 metres of development will allow access to new resources in the Victor Breccia and Upper Santa Cruz mine zones.
Growth strategy
A $22-million cash position, including the proceeds of a recent $14.4-million bought deal, will also allow Endeavour to proceed with the next phase of its growth strategy: acquiring other prospects in the Guanacevi district, which is known for its high grades and the purity of its silver deposits. (At Santa Cruz, for instance, the ore is 90% silver with only 10% gold and other metals, giving the company significant leverage to the silver price.)
Cooke says there are about 120 small former producers in the area that have never been explored using modern exploration techniques. The company has already acquired several prospects from
Because Endeavour owns the only mill in the district and most of the other properties are not big enough to justify stand-alone operations, the junior has a competitive advantage over other companies looking to secure ground there.
Phase three of Endeavour’s strategy envisions using cash flow from operations to acquire other silver prospects in Mexico outside the Guanacevi district. The 3-stage plan is ambitious, but provided silver prices continue to hold above US$6.50 per oz., Endeavour will have a fighting chance of success.
— The author is a freelance writer based in Toronto.
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