San Jose project gets thumbs up, Arian Silver says

A contract mining and toll milling operation on three silver blocks at Arian Silver‘s (AGQ-T, AGQ-L) San Jose project in Mexico’s Zacatecas state would likely yield an internal rate of return of 159%, according to a preliminary economic assessment released today.

A daily operation of about 500 tonnes, at an operating cash cost of US$32 per tonne, would also result in an estimated net present value of US$13.44 million based on an 8% discount rate, the study found.

Arian Silver says the past producing, high-grade San Jose silver mine should move into production in the fourth quarter of 2009.

The mine was previously operated by Peoles between 1973 and 1991 and by Monarca between 1993-2001. During that time more than 2 million tonnes were extracted averaging 250 grams silver per tonne. An existing underground development ramp extends 3 km along the San Jose vein.

Arian Silver’s economic assessment was based on a four-year period of contracted mechanized mining. Under the mining scenario, a 500-tonne-per day operation would run about 250 days per year and produce an average of 125,000 tonnes per year, the study said, recovering about 2.15 million ounces of silver, 1,800 tonnes of lead and 3,100 tonnes of zinc.

The company plans to develop the existing underground workings that were created by the property’s previous owners and develop the mining blocks on the San Jose vein in a cost-effective way, it says.

The property already has significant infrastructure, including the 3-km-long main haulage ramp, a 500-tonne-per-day vertical shaft extending down to about 400 metres, various mine storage buildings and offices and an upgradeable electrical substation supplying 3-Ph electrical power to the mine.

Cash flow from initial mining will be ploughed back into further infrastructure building to support larger commercial silver production and for more exploration and drilling along the San Jose strike.

Arian is also planning to do more metallurgical test work to better define the process technology route for the deposit.

The property is less than an hour’s drive from Zacatecas, a city with an international airport and rail line.

The 6,279.56-hectare property consists of two contiguous concessions and an in-house study of San Jose’s National Instrument 43-101 resource areas identified seven blocks of silver, lead, and zinc mineralization.

Of the seven blocks, three were chosen to contract mine because they are of sufficient grade and thickness to be suitable for sub-level open stoping and full mechanization mining, the study said.

The first block, Ramal Norte, has indicated resources of 82,461 tonnes grading 209.7 grams silver per tonne, 0.14% lead and 0.30% zinc, in addition to inferred resources of 24,523 tonnes grading 161.90 grams silver per tonne, 0.10% lead and 0.31% zinc.

The second block, San Jose 75 metre level Central zone has indicated resources of 65,542 tonnes grading 155.9 grams silver per tonne, 1.20% lead and 2.05% zinc and inferred resources of 7,290 tonnes grading 110.10 grams silver per tonne, 0.40% lead and 0.66% zinc.

The Santa Ana block has indicated resources of 208,332 tonnes grading 192.30 grams silver per tonne, 0.80% lead and 1.31% zinc and inferred resources of 63,380 tonnes grading 180.40 grams silver per tonne, 0.30% lead and 0.62% zinc.

The underground workings are all partially developed, or will be readily accessible via either the San Jose West or East ramp.

The total capital requirement to initiate contract mining at San Jose, based upon a production rate of 500 tonnes per day, is estimated to be about US$0.8 million, which includes a 50% contingency factor.

In Toronto the news sent Arian shares up 1 apiece or 16.7% to 7 per share. The junior explorer has a 52-week trading range of 3-25 and 258.1 million shares outstanding.