Sierra ups resource and throughput at Cusi but falls to 52-week low

VANCOUVER – With a new estimate that quintuples the silver resource at its Cusihuiriachic project, Sierra Metals (TSX: SMT) is making good on its plan to gradually ramp up production at the historic Chihuahua state property.

Cusi, as it is known, is home to 12 historic mines that produced 100 to 200 million ounces of silver between 1680 and 1940. Production eventually ceased, not because of a lack of ore, but because of slumping silver prices.

When Sierra picked up the property it quickly put two mines back into production. Santa Eduwiges and Promontorio are still the only two mines in operation at Cusi, but three others – Minerva, La India, and San Juan – are being prepped for restart.

Even with just two operational mines Sierra managed to process 54,125 tonnes of material last year grading 185 grams silver per tonne and 0.57% lead, which means an average rate of 170 tonnes per day (tpd). Material from Cusi is trucked 35 km to Sierra’s wholly-owned Malpaso mill for processing.

Halfway through 2013, Sierra is on track to triple production at Cusi, while throughput is expected to reach 500 tpd by October. Work at Minerva, La India, and San Juan is in full swing, with new access drifts being developed and old adits rehabilitated. The company expects to be producing at a rate of 1 million oz. silver per year by the end of the year, from five underground mines.

With mine development and production rates advancing nicely, Sierra turned its focus to Cusi’s resource count and now a new estimate has increased Cusi’s silver fivefold. The estimate covers the operational Promontorio and Santa Eduwiges mines, as well as the under-development La India and San Juan areas. Combined, those areas now offer resources totaling 1.38 million indicated tonnes grading 165 grams silver per tonne, 0.3% lead, and 0.29% zinc plus 1.65 million inferred tonnes averaging 273 grams silver, 0.14% lead, and 0.08% zinc.

San Juan and La India are structurally controlled epithermal veins, each contained in a single predominant structure. Promontorio and Santa Eduwiges also owe their mineralization to structurally controlled epithermal veins, though these deposits are more complex, having formed between two faults and therefore comprising multiple subparallel shear zones.

Together, the indicated and inferred tonnes contain 21.9 million oz. silver. And the resource estimate did not incorporate results from this year’s drilling at Cusi, which has returned some promising intercepts.

In early July Sierra announced a 4-metre intercept carrying 709 grams silver and 2.12% lead from Veta del Contacto, a vein within the Promontorio mine. Sierra says Veta del Contacto has now been traced from surface to 700 metres downdip and along 250 metres of strike, and averages 2 metres in width.

In late 2012 Sierra’s drills pulled a much longer hit from a similar zone 200 metres to the southeast: 49 metres of 753 grams silver.

Sierra plans to complete another 11,000 metres of surface drilling and more than 4,000 metres of underground drilling over the rest of 2013. Early next year the company will incorporate all results into a new resource estimate, which will then form the basis of a prefeasibility study.

That study will assess Sierra’s options for achieving the second phase of its Cusi plan: building a new mill on site capable of processing 2,000 tpd.

Sierra also owns and operates the Yauricocha mine in Peru and the Bolivar mine in Mexico. Yauricocha processed 206,400 tonnes of material in the second quarter to produce 481,058 oz. silver, 1.7 million lbs. copper, 9.4 million lbs. lead, 12.1 million lbs. zinc, and 1,800 oz. gold.

Bolivar, meanwhile, churned through 88,460 tonnes of material in the quarter to produce 2 million lbs. copper, 655,000 lbs. zinc, and 74,000 oz. silver. The mine, also in Chihuahua state, currently operates at 1,000 tpd but Sierra is currently expanding the operation to 2,000 tpd.

The new resource estimate for Cusi failed to impress investors, who pushed SMT shares down 15¢ over two days to a new 52-week low of $1.95. Last October Sierra shares were worth as much as $3. Sierra, which was known as Dia Bras Exploration until changing its name late last year, has 158 million shares outstanding.