Excalibur looks to pull gold from Mexican stone

SAN LUIS POTOSI, MEXICO — Cylindrical brick stacks poking out of the barren hillsides can be seen from miles away. But curiously, they don’t attach at the base to any grand warehouse or factory.

The stacks were built by the Cornish miners who dominated Mexican mining from early part of the nineteenth century until the early part of the twentieth century. The Cornish were at the forefront of mining technology at the time, which included building the tall brick stacks as ventilation pipes designed to bring air into the underground tunnels.

Fortunately for Excalibur Resources (XBR-C), such crude ventilation units by today’s standards, only let the miners go so deep, leaving many ounces behind.

The company’s modern plan is to tackle the vast assortment of gold-mineralized veins with a micro-mining technique. Excalibur has started mining numerous shallow, high-grade veins that run across its Catanava gold project — a property that spans 1.43 sq. km at the northern end of the mineralized veins that make up the Pinos Bonanza gold district near Zacatecas, Mexico.

The plan fits well with the investor climate, which is especially wary of excess risk, as Excalibur is offering a low capital expenditure project in a politically stable country, in a region with plenty of historic gold deposits.

Catanava is host to five distinct mining areas over a 1 km strike, with the most important being the San Jose Bautista, Carmen and San Gil veins on the property’s eastern flank, and the Cinco Estrellas, San Miguel, Tanous and the Guapo veins in the west. All of these veins host historic shafts.

“There is much work to be done, especially since we are starting at surface and expect there to be at least 500 metres of mineralization,” the project’s chief geologist Hector Gonzalez says.

The projection of mineralization carrying down to a depth of 500 metres is based not only the typical depth of epithermal systems in the region, but also on the fact that Cornish miners, in select places, mined down to 300 metres before their air stacks forbade them from going any further.

“Really, we are an exploration mine,” Gonzales continues. “We are trying to be a self-sustaining junior miner that is not dependent on ongoing equity financings.”

But planning on generating cash flow from mining to fund further exploration is one thing — executing on the strategy is another.

On that front Excalibur has been taking big steps, including building a fully permitted mill on the site.

The 150-tonne-capacity facility cost $2.7 million to build and was completed late last year. The circuit is made up of a primary and secondary crusher, a cone crusher, a ball mill and gravity tables.

As with most new mills this one has suffered its share of setbacks, the most prominent being the intermittent malfunction of the cone crusher. To get a better handle on the operation, Excalibur brought in Jose Luis Vigil as plant manager in late January. Vigil, a metallurgist by training, formerly worked at Goldcorp’s (G-T, GG-N) Penasquito mine, amongst others, over his career.

He inherits a mine that has stockpiled 1,360 tonnes ore and produced 2,000 kg concentrate, as well as a small, 3 oz. test doré bar.

The mill has been processing ore from the Camino, San Gil and San Miguelito veins where underground development began in earnest last October.

Since then Excalibur has advanced 130 metres on three adits, as it has blasted 40 metres into El Camino, 60 metres into San Gil and 30 metres into San Miguelito.

Mining at the veins is being done at a rate of two blasts and one shift per day — enough to get production up to 40 tonnes per day.

Tim Gallagher, Excalibur’s CEO, says the goal is to expand to three shifts per day, which will help the mill reach commercial production this June.

Commercial production would involve the production of gold concentrate rather than doré bars initially.

Getting to commercial production would be an important landmark for the company, given the deal structure that allowed it to get in on Catanava.

The company’s Mexican gold mining adventure began in September 2010, when it signed a deal with Minera Apolo to form Minera Catanava. The deal gave Excalibur 49% of the company, with Minera Apolo holding the rest.

To earn that 49% stake, Excalibur agreed to fully fund exploration and mill construction up until achieving two months of commercial production. After that the two companies will share expenses according to their ownership share.

And while the project lacks a prefeasibility study, Gallagher says the goal is to produce 1,000 oz. per month, which at today’s gold prices would generate $1.7 million per month in profits.

While that sort of production level won’t overwhelm investors, the idea is to keep things intentionally small to mitigate cost overruns and operational risks. The relatively small but tidy cash flows Excalibur plans to generate would then be pushed out into a dividend for shareholders.

The company’s burn rate is $100,000 per month. As of last November it had roughly $980,000 in cash on its balance sheet, but raised $1.5 million in late December through a non-brokered private placement.

Looking for more

Given Catanava’s rich history, it isn’t surprising that Excalibur’s recent exploration program would focus on mapping and sampling the old mines and relogging the drill holes cut by previous operators.

At the past-producing El Camino mine, high-grade gold veins were expanded and new high-grade silver and gold mineralization was found both at surface and underground. Sampling in the old mine workings returned 13.2 grams gold and 28.2 grams silver per tonne over 0.5 metre, and 6.7 grams gold and 47.8 grams silver over 0.7 metre.

Vein-channel samples at El Camino and San Gil returned values up to 457 grams silver and 1.23 grams gold over 0.8 metre.

At the San Miguelito mine, high-grade gold was found at levels one and two of the past-producing mine, 10 to 25 metres below surface. The San Miguelito vein is part of the Cinco Estrellas and Tanous vein system, a major mineralized trend that extends for 5 km, of which the Catanava property hosts 700 metres. Highlight assays from San Miguelito included 0.97 metre grading 7.69 grams gold and 32.6 grams silver.

An illustrious past

Gold and silver were discovered at Pinos back in 1575, and the area was mined by the Spanish until 1821. The Mexican Civil War, however, decimated the mining industry, and in an effort to revive it after the war, the government turned to the English for financing and mining know-how.

The most distinguished miners in England were the Cornish, and by the middle of the nineteenth century, thousands had made the long sea voyage to Mexico, bringing with them the tools of their trade. They continued to be key cogs in the Mexican mining industry, right up until the Mexican Revolution shut things down again in 1910.

One of the highlight periods in those earlier days was the 1871 gold rush at Pinos, which came after high-grade gold and silver were discovered in the foothills. The find resulted in four separate small-scale roasters being built in the area.

As mentioned earlier, the historic mining didn’t go deep, with most of it stopping at the water level — 110 metres down. Pumps were installed only in a few especially high-grade zones, allowing the miners to go down to the 290-metre level.
Despite this past, exploration in the twentieth century was sporadic at best, with more modern mining exploration techniques coming only in 1960 with the arrival of Canadian Tanous.

Then in 1975, Bethlehem Steel arrived on the scene thanks to Don McLeroy — who is the founder and president of Excalibur’s joint-venture partner at Catanava, Minera Apolo.

McLeroy over
saw the acquisition of land in and around Catanava after the country’s former minister of mines — who held the key claims — died, and the claims lapsed.

Along with Industrias Penoles, Bethlehem Steel launched an exploration program and rehabilitated some of the old shafts. The work led to a non-compliant resource of some 4.9 million tonnes grading 3.86 grams gold and 36.6 grams silver down to the 250-metre level.

On top of that, Bethlehem estimated there was still 300,000 tonnes grading 1.54 grams gold and 64.5 grams of silver in surface dumps, and 500,000 tonnes of tailings grading 1.7grams gold and 20 grams silver.

Much of that information came out of an economic study done on the ground back in 1981. Before it could pursue matters further, however, Bethlehem went bankrupt and sold the claims to Penoles for just $3 million.

While Bethlehem was done, McLeroy wasn’t. In the early 1990s he began buying claims back from Penoles, and in 1994 he sold an option to All-North Resources, which went on to refurbish the San Gil shaft and explored the San Gil vein structure.

In 1996, Hecla Mining (HL-N) arrived nearby at Pinos and drilled 27 reverse-circulation holes south and east of the southern boundary of the Catanava gold property, with the closest drill hole coming within 20 metres of the boundary. The hole hit 3 metres grading 2.2 grams gold and 13.5 grams silver at 202 metres downhole.

Eventually Hecla left, but McLeroy’s dogged determination to consolidate the area continued unabated, and by 2003 he took hold of a final claim, which gave Minera Apolo 99% of the property he fell in love with back in the Bethlehem Steel days.

With the land locked up, a period of quiet descended on the picturesque landscape, until Romarco Minerals (R-T) took an option on the property in 2006. The company drilled eight holes, with vein intersections in seven of them highlighted by 6.1 metres grading 5.16 grams gold and 19 grams silver.

Romarco also extensively sampled underground workings at the Tanous and San Miguelito shafts. At the Tanous shaft, values ranged to 7.2 grams gold and 142 grams silver, while at the San Miguelito shaft, values ranged to 6.94 grams gold and 43 grams silver. Interval widths, however, are unknown.

This past work, combined with the work being done today by Excalibur, has the company confident that the narrow veins, gold and silver veins at Catanava are related to compressive and extensional phases associated with the early Cretaceous Laramide orogeny within a back-arc environment in the accretion of the Guerrero Terrane against ancestral Mexico.

Catanava is a low-sulphidation epithermal chalcedony-ginguro deposit, with veins averaging 1.2 to 1.5 metres wide, with stringers and veinlets in an immediate clay-altered wall rock alteration zone.

The mineralized area sits in the Rio Santa Maria and San Luis Tepehuanes fault zone, which marks the boundary between the Guerrero Terrane and the Santa Maria occidental volcanic province.

It’s a rich geological story, mirrored by a rich mining history. Now Excalibur is looking to guide it into a rich, future gold yield for its shareholders.