Impact Silver aims to survive, then thrive

VANCOUVER — It’s been a tough six months for Mexico-focused producer Impact Silver (TSXV: IPT; US-OTC: ISVLF), with falling precious metal prices and declining mill grades leading to net losses totalling US$2.3 million over the past two quarters.

President and CEO Fred Davidson says the company is “doing what it needs to do to survive,” and says he remains optimistic that Impact will benefit from upside growth as markets recover.

Impact’s portfolio consists of nearly two mineral districts in central Mexico: the Royal Mines of Zacualpan silver district and the Capire–Mamatla mineral district, adjacent and southwest of Zacualpan.

The company produces silver with lead, zinc and gold at its 500-tonne-per-day Guadalupe processing plant in the Royal Mines district.

Impact had also hoped to begin open-pit mining on a small scale at Capire, but shelved a pilot operation in February that was deemed uneconomic due to lower silver prices, recent Mexican mining tax increases, rising hauling costs and low overall silver grades.

So Impact has been left to manage feed grades through three underground mines, namely: San Ramon, Noche Buena and Cuchara–Oscar. The company has seen its production fall over two quarters as it attempts to draw ore from its highest-grade sources, though it decreased its net loss during the second quarter.

“It’s definitely been a tough year,” Davidson commented during a conference call on Aug. 26. “We are working on improving our grades, and we did see a slight increase during the second quarter. We’re hoping to bring our promising [Mirasol discovery] into production soon and open up more of San Roman — which has traditionally been a higher-grade mine — but unfortunately development like that takes time.”

Impact’s silver production totalled 152,600 oz. silver over the past three months, which is an 18% decrease compared to the same period in 2013, but a 3% jump over the company’s first-quarter production. Average feed grades were 142 grams silver per tonne, which was an improvement over a grade of 137 grams silver during the first quarter, but below the 163 grams silver Impact reported for the comparable period in 2013.

Net losses during the second quarter total US$1 million, which is an improvement on the US$1.3-million loss the company posted the previous quarter.

But Impact’s improved bottom line comes almost exclusively from the sale of 3.6 million shares of junior Defiance Silver (TSXV: DEF; US-OTC: DNCVF) at a price of 9¢ per share, which resulted in net proceeds of $322,000.

“The overall performance for the quarter was, unfortunately, just satisfactory,” Davidson conceded. “We’ve made a conscious effort to target high-grade material over the past six months, as well as reduce costs. You’ll notice operating costs have, in fact, risen during the past quarter. This is due to union settlements and layoffs, as labour is our biggest single cost. Unfortunately when you lay off too many employees it can become tough to also dramatically increase productivity. We’ve gone back to a number of our suppliers and pressured them on pricing, and I can say we’ve received some fairly positive responses.”

Impact has curtailed its exploration activities, and capital expenditures during the second quarter sitting were just $700,000.

 Davidson pointed to a number of successes during the past two years when the compnay had the cash to spend on drilling. In November 2012 the company discovered wide silver veins at its Mirasol target, with assays highlighted by 7.2 metres of 216 grams silver from 75 metres deep in hole 21-71; and 12.3 metres of 112 grams silver from 99 metres deep in hole 12-69.

Regarding possible joint ventures, Davidson said said Impact is talking with at least two groups, and is seeking partners on some of its peripheral properties.

“I think the theme for us has been to survive and thrive,” Davidson says. “We’ll hopefully see some results with lower costs and higher grades moving forward, and some relief from the current pricing environment.”