Junior snapshot: Nine companies on the move in Mexico

For many Canadian miners and mineral explorers, Mexico stands alongside Canada and the U.S. as a preferred destination for mining projects, with the country boasting a rich mineral bounty (particularly in silver and gold), excellent infrastructure, low costs, great weather and a centuries-old mining culture.

The following are nine examples of companies at various stages of activity in Mexico.

AVINO SILVER & GOLD MINES

Vancouver-based Avino Silver & Gold Mines (TSXV: ASM; NYSE-MKT: ASM) declared commercial production at its Avino silver-gold-copper mine Mexico’s Durango state during the second quarter, after years of effort by its team in Mexico and Canada. It adds a second producing silver mine to Avino’s roster.

The Avino mine has plenty of history, having been first opened by the Spaniards in the 1500s and supplying wealth to Spain for hundreds of years. Avino says the mine operated intermittently ever since, including for 27 years under Avino Silver & Gold Mines beginning in 1974.

The larger Avino property includes the company’s operating San Gonzalo silver mine, which entered commercial production in October 2012. San Gonzalo and the newly reopened Avino mine feed one conventional, three-circuit flotation mill, with a 1,500-tonne-per-day capacity.

During the second quarter, Avino’s company-wide production totalled 380,600 oz. silver, 1,500 oz. gold and 1.05 million lb. copper., or 630,000 equivalent oz. silver.

GOLDGROUP MINING

Keith Piggott-led Goldgroup Mining (TSX: GGA: US-OTC: GGAZF) has two main gold assets in Mexico: the new, fully owned Cerro Prieto mine in Sonora state and the 50%-owned San Jose de Gracia development project in Sinaloa state.

While it produced gold in 2014 and 2015, Cerro Prieto achieved first commercial production in the second quarter of 2016. Goldgroup expects gold production for 2016 to be 15,000 oz. gold at a US$900 per oz. cash cost, with a 5% silver credit.

Mine optimization is ongoing, including hooking up the mine to the state power grid to lower diesel consumption.

Goldgroup’s share of the gold resources on these two properties approaches 900,000 oz. gold, but mostly in the indicated and inferred categories, and so one of Goldgroup’s immediate tasks is to upgrade and expand the resource through drilling.

The junior also has the El Mozo epithermal gold exploration project in southern Ecuador.

McEWEN MINING

McEwen Mining (TSX: MUX; NYSE: MUX) has become a well-known name in the Mexican mining scene, with its El Gallo open-pit, gold-silver mine ramp-up in Mexico’s Sinaloa state to complement its 49%-owned San Jose underground silver-gold mine in southern Argentina. El Gallo saw its first gold pour in 2013 and could produce 55,000 equivalent oz. gold in 2016 .

Despite some permitting delays, McEwen is developing the nearby El Gallo Silver mine project, which is slated to produce 5.2 million oz. silver and 6,100 oz. gold annually.

During the second quarter, McEwen bought a royalty on its El Gallo property for US$5.3 million, ending the quarter with no debt and liquid assets of US$36.7 million in cash, US$14.3 million in precious metals and US$4.7 million in marketable securities.

For all of 2016, McEwen expects to produce 99,500 oz. gold and 3.34 million oz. silver at all-in sustaining costs of US$935 per oz. gold equivalent.

At the head office in Toronto, Donald Brown is joining the company as senior vice-president of projects, after having served as vice-president of projects at Glencore, and construction manager for Bechtel’s Mining and Metals group. Brown will also help develop McEwen’s new Gold Bar gold mine project in Nevada.

MINERA ALAMOS

Chris Frostad’s Minera Alamos (TSXV: MAI) has two advanced, open-pit projects in northwest Mexico: the La Fortuna gold project in western Durango state, and the Los Verdes copper-molybdenum project in southeastern Sonora state.

At La Fortuna, Minera Alamos looks to build a starter-pit that would exploit 4.8 million measured and indicated tonnes grading 1.98 grams gold per tonne, or 308,000 contained oz. gold. The company aims to finish its technical reports in the fourth quarter of 2016, so that it can make a production decision in the first quarter of 2017.

Minera Alamos is expanding its property footprint around La Fortuna and rethinking the project’s expansion potential, based on positive results from its latest grassroots fieldwork.

Meanwhile at the less advanced Los Verdes, the next milestone is a preliminary economic assessment.
Based in Toronto, Minera Alamos has raised $8 million over the last 12 months and is fully funded to finish its current work program, with $2 million in cash and no debt in August 2016.

NEW GOLD

Intermediate gold, copper and silver miner New Gold (TSX: NGD; NYSE-MKT: NGD) has one of its four producing mines in central Mexico: Cerro San Pedro. The wholly owned open-pit, heap-leach mine is near the end of its life, with New Gold ending active mining in late June and transitioning to residual leaching.
Second-quarter gold output at Cerro San Pedro dropped to 17,287 oz. gold and 200,000 oz. silver at all-in sustaining costs of US$941 per oz. gold.

As New Gold winds down its Mexican operations, attention will move to its two growth projects — the Rainy River gold mine under construction in Ontario, and the Blackwater gold project in B.C. — as well as its three operating gold mines: New Afton in B.C., Mesquite in California and Peak Mines in Australia.

As of June 30, the company had US$474 million in liquidity, including US$220 million in cash and equivalents.

PRIMERO MINING

Toronto-based Primero Mining (TSX: P; NYSE: PPP) has evolved in recent years into a dependable producer from two substantial mines: the world-class San Dimas underground gold-silver mine in the town of Tayolta in Mexico’s Durango state, and the underground Black Fox underground gold mine in Ontario’s Timmins camp.

Since mid-2014, Primero has worked on a second expansion at San Dimas that should bring the mine’s nameplate capacity to 3,000 tonnes per day during the third quarter of 2016, or an annual 215,000 equivalent oz. gold per year.

For all of 2016, Primero is guiding San Dimas production at 110,000 to 120,000 oz. gold and 6.5 million to 7.5 million oz. silver, or 135,000 to 145,000 oz. gold equivalent.

Combining the two mines’ output, Primero is set to produce 195,000 to 215,000 oz. gold equivalent in 2016, at total cash costs of US$775 to US$825 per ounce.

Primero is obligated to sell Silver Wheaton the first 6 million payable oz. silver produced per year, plus half of any excess at US$4.20 (plus 1% inflation) per oz. silver. The rest of the silver produced is sold at spot market prices.

SAN MARCO RESOURCES

Billing itself as “one of the largest exploration landholders in the Mulatos gold district,” San Marco Resources (TSXV: SMN) is exploring for gold in eastern Sonora state, and quietly acquiring land in part by staking hydrothermal systems defined by large alteration zones.

Though a small grassroots explorer, San Marco’s board has big names in junior mining: chairman R. Stuart (Tookie) Angus, president and CEO Robert D. Willis, Brian Lock, William Myckatyn, Craig Prenter and Andrew Carstensen.

Its main asset, the Cuatro de Mayo project in Sonora, comprises 732 sq. km within 20 km of three operating mines, and the property hosts “numerous known gold, silver and base metal showings.”

As of Dec. 31, San Marco had 27.8 million shares outstanding, or 44.7 million fully diluted, with insiders holding 21%.

SIERRA METALS

Sierra Metals (TSX: SMT ; US-OTC: DBEXF) has become an experienced polymetallic producer with three underground operations: the fully owned Bolivar copper-silver mine and Cusi silver-lead mine in southwest and central Chihuahua state, Mexico, and the 82%-owned Yauricocha silver-copper-lead-zinc mine near Lima, Peru.

Company-wide, Sierra produced 3 million oz. silver equivalent in the second quarter compared to the year-ago total of 3.2 million equivalent oz. silver.

The Toronto-based company took in US$9.6 million in earnings before interest, taxes, depreciation and amortization over the first six months of 2016, and sat mid-year with US$26 million in cash, US$85 million in debt and US$41 million in liquidity.

Of note, Sierra achieved record throughput at both Bolivar and Cusi during the second quarter.

Sierra Metals is considering adding a listing on a U.S. stock exchange to boost trading volume and liquidity.
Current major shareholders are Arias Resource Capital (51%) and Black Rock (10%).

XTIERRA

Toronto-based Xtierra (TSXV: XAG) has long been developing its wholly owned Bilbao zinc-silver-lead project in Zacatecas state’s Central Silver Belt, having so far spent $22.6 million on the project.

The high-water mark for Xtierra was in 2014, with a resource calculation and preliminary economic assessment by Runge Pincock Minarco, which envisaged mining at a rate of 2,000 tonnes per day to exploit head grades of 2.1% zinc, 63.96 grams silver per tonne and 1.4% lead, and produce concentrates containing annual averages of 20 million lb. zinc, 1 million oz. silver and 17 million lb. lead.

Since then Xtierra has had increasingly severe working capital restraints, and as of late August 2016, was negotiating further extensions of its secured notes with its two largest shareholders (combined 66.4% interest) to avoid foreclosure. As of June 30, total assets stood at $45,000, with liabilities at $1.2 million.

The stock has gone from half a cent as recently as March, and passed the ten-bagger mark in July. At press time shares traded at 6.5¢ for a $6.5-million market capitalization, based on 116.4 million shares outstanding.