Santacruz Silver on the fast track to production

VANCOUVER — For Mexico-focused Santacruz Silver Mining (SCZ-V) 2013 may well be the year where well-laid plans take root and begin to grow. The Vancouver-based company is working on a trio of advanced-stage silver projects with the goal of achieving inaugural production at its polymetallic Rosario deposit — located 184 km north of San Luis Potosi City — in the first quarter.

Rosario is a 5-sq.km package hosting a low-sulphidation mesothermal vein system notable for high silver grades. The deposit sits in the larger Rey David claim, where Santacruz is operating under an agreement signed in February 2010 that could see the company earn a 100% interest in the project by paying the vendor $2 million by 2014.

A production decision was made on Rosario prior to any feasibility work, though Santacruz expects to release a pre-feasibility study in early 2013. The company completed roughly 7,000 metres worth of diamond drilling on the Rosario I and II veins in 2012 before releasing an updated resource estimate on the project in late December.

Santacruz has the luxury of around 25,000 metres of historic drilling completed by the Servicio Geologico de Mexico, which allowed the company to graduate a portion of its resource into the measured and indicated categories prior to production.

Rosario’s updated resource totals 270,000 measured tonnes grading 210 grams silver per tonne, 0.94 gram gold per tonne, 3.69% zinc, and 1.17% lead for 3.3 million contained silver equivalent oz. Indicated resources clock in at 711,000 tonnes grading 163 grams silver, 0.88 gram gold, 2.6% zinc and 1.18% lead for 6.9 million contained silver equivalent oz.

“The new [resource estimate] on the Rosario project re-affirms management’s expectations based on exploration to date,” commented president and CEO Arturo Préstamo following the release. “This resource classification upgrade provides us with more certainty that the [project] will be an emerging silver producer that will be the foundation of the Company as we advance towards becoming a mid-tier silver producer.”

In late May Santacruz announced it had successfully acquired permits for underground development and mine construction at Rosario, which should allow the company to meet its goal of advancing the project to commercial production by mid-2013.

Santacruz had previously purchased a 500 tonnes-per-day plant from Goldcorp (G-T, GG-N) for $800,000 with the intention of commissioning the mill in December. The company intends on starting up an underground operation with the potential to mine the Rosario veins as a small open pit during early-stage work. Santacruz estimates that start-up costs at Rosario should clock in at around $12.4 million. Both veins remain open along 2 km of untested strike length, and limited drilling has been completed below depths of roughly 200 metres.

“The focus of the company is to bring [Rosario] into production within the first quarter of 2013, and to start generating cash flow. The granting of these permits provides us with the ability to meet our targets,” Préstamo said.

Santacruz’s second advance-stage asset is the San Felipe polymetallic deposit 130 km northeast of Hermosillo City, Sonora, where Hochschild Mining (HOC-L) completed 18,500 metres of drilling from 2001 to 2008. Water and environmental permits are already in place at San Felipe, as is an agreement with the local ejido community.

The project includes mesothermal porphyry intrusive mineralization and hosts 4 million measured-and-indicated tonnes grading 70 grams silver, 5% zinc, 2.77% lead, and 0.28% copper. Resources at San Felipe are defined across three of eight known vein occurrences, including the La Ventana, San Felipe and Las Lamas veins. All three primary veins remain open along strike and to depth.

Préstamo explained that San Felipe is now slated to be Santacruz’s second producing asset, with the 2012 field campaign also raising the company’s expectations on the project’s exploration potential. Santacruz is operating under an agreement that could see it earn a 100% interest in San Felipe through the payment of $2 million in addition to $3 million in exploration expenditures by 2013.

Santacruz’s final asset is the 100%-owned Gavilanes polymetallic project, which lies 110 km northwest of Durango City, Mexico. Gavilanes was also previously explored by Hochschild — which drilled 3,200 metres at the property — and carries a historic resource containing 1.1 million tonnes at an average grade of 420 grams per tonne silver.

Gavilanes also hosts 475 metres of underground mine development via adits that allows the company access to known mineralization.

Santacruz outlined a 6,000-metre diamond drill campaign at the site in 2012, which is focused on the Guadelupe-Soledad-Aranzazú (GSA) and San Nicholas veins. The company released assays from seven holes collared at the GSA vein on Nov. 20, with highlights including: 2.75 metres grading 2,540 grams silver, 0.1% zinc, 0.12% lead from 109 metres depth in hole SCGP-22; and 1.55 metres averaging 212 grams silver, 8.09% zinc, 3.97% lead, and 0.72 gram gold from 109 metres depth in hole SCGP-21.

Santacruz successfully raised $20 million in mid-April, and reported $12 million in cash and equivalents at the end of the third quarter. The company has moved within a 52-week range of 80¢ and $2.50, and started out 2013 trading by closing at $2.20 per share at time of writing. Santacruz has 68 million shares outstanding and a $150 million press-time market capitalization.