Golden Arrow may point to more ore for Silver Standard

Silver Standard Resources’ (TSX: SSO; NASDAQ: SSRI) Pirquitas silver mine in northern Argentina’s Jujuy province is 35 km from Golden Arrow Resources’ (TSXV: GRG) wholly owned Chinchillas silver-lead-zinc project, and the companies have hatched a plan to see whether they should become joint venture partners.

Over the next 18 months, Silver Standard will study Chinchillas to see whether it makes sense to send ore from the project to its Pirquitas mill. If the answer is yes, Silver Standard would take 75% of the joint-venture and be its operator, and Golden Arrow will own the remaining 25%.

On paper, the pairing makes sense, and if the joint venture goes ahead, Chinchillas could supply feed to Pirquitas as early as the second half of 2017. The open-pit mine entered production in December 2009, and as of December 2014 had four years of reserves remaining.

The agreement involves staged expenses over the year-and-a-half assessment period, in which Silver Standard examines the technical and economic viability of processing Chinchilla mineralization. Silver Standard’s minimum expense commitment is $4 million, and could rise to $12.6 million or more as required.

In the first six months, Golden Arrow will oversee up to 17,000 metres of drilling and provide operational support for Silver Standard’s exploration and technical teams.

If Silver Standard proceeds with a joint venture, it will pay Golden Arrow 25% of all mine earnings from Chinchillas and Pirquitas (retroactive from  Sept. 30, 2015).

Paul Benson, Silver Standard’s president and CEO, said in a news release that the plan could extend the mine life at Pirquitas, leverage its infrastructure and workforce to accelerate Chinchillas’ development, and offers exposure to exploration upside at the project.

“It’s a good example of risk-sharing,” Silver Standard’s vice-president in charge of business development and strategy John DeCooman says in an interview. “It really is an option earn-in type of opportunity for which the guys at Golden Arrow need not find the capital, and in this market, it’s challenging for anyone to get capital — and I would include us in that.”

DeCooman notes that the deal not only “pushes the Chinchillas project forward,” but “gives all of us an opportunity that, when the cycle changes — and it will — it will provide a lot of prospectivity, so that you’re not caught flat-footed when the market turns around, and you’re not overexposed if the market takes longer to recover.” 

“We have to be practical,” he adds. “Pirquitas has well short of a five-year mine life, and we have to focus on mine life extension today.”

As of July 2015, Chinchilla has an indicated resource of 25.9 million tonnes grading 77.2 grams silver per tonne, 0.7% lead and 0.7% zinc, for 64 million contained oz. silver, 379 million lb. lead and 379 million lb. zinc. 

In the inferred resource category, it has 47.2 million tonnes averaging 50.2 grams silver per tonne, 0.5% lead and 0.6% zinc for 76 million contained oz. silver, 544 million lb. lead and 661 million lb. zinc.

Jesuit missionaries first prospected the Chinchillas area and mined it on a small scale in the 18th century. A small local company using adits and tunnels then mined it in the late 1960s. It wasn’t until early 2011 that Golden Arrow identified the property as an advanced acquisition target.

The project comprises three contiguous claims totalling 20.4 sq. km, and the deposit hosts silver-lead-zinc mineralization in four areas: the silver mantos and mantos basement zones in the west, and the Socavon del Diablo and Socavon basement zones.

The deposit is considered part of the Bolivian tin-silver-zinc belt that extends from the San Rafael tin-copper deposit in southern Peru into the Puna region of Jujuy. According to Golden Arrow, deposits with similar environments and mineralization styles include San Cristobal, Potosi, Pulacayo and Pirquitas.

Golden Arrow has finished four drilling programs. In the first phase, in May 2012, the junior drilled 27  holes totalling 3,200 metres. The second program took place between November 2012 and February 2013, and included 49 drill holes and 7,300 metres of drilling. Between February 2014 and June 2014, Golden Arrow finished its third phase of drilling, completing 38 holes totalling 9,000 metres. The fourth phase of drilling program lasted from November 2014 to April 2015, and included 55 drill holes over 11,200 metres.

As for Pirquitas, Silver Standard expects the mine will produce up to 10.5 million oz. silver and 12 million lb. zinc this year. Last year the mine turned out 8.7 million oz. silver and 30 million lb. zinc.

The company has cut cash costs at Pirquitas from US$13.32 per oz. silver in the third quarter of 2013 to US$9.45 per oz. silver in this year’s second quarter.