Mexico Mike

Silver Eagle Mines Inc approaches commencing mining operations

Mexico is currently an attractive area for mineral exploration and part of the reason is because so many historic mining districts have become available as development targets for newly listed juniors. Acquiring a past producing mining project has a lower risk profile on the exploration front and in fact many of these districts already have significant resources remaining from previous mining activity.

One such project is the historic Miguel Auza silver district, located in the State of Zacatecas, one of the most prolific silver mining jurisdictions in the world with a historic estimated production surpassing 3 billion ounces of silver.

Silver Eagle Mines was launched in order to return the project back into commercial production. An over-subscribed public offering in June 2006 raised over $17 million so the company is adequately financed to pursue its objectives. The professional management team of geologists and mining engineers is superbly capable of generating exploration success, but its greatest strength is at the operating level, with over 120 years of combined mining experience. 

As an investor, I cannot over-emphasize the importance of selecting companies with management that has demonstrated the ability to succeed in an operating mine environment. That is especially important when considering the unique challenges that are characteristic of a narrow vein environment. Many other junior mining companies have encountered difficulties in the past when trying to make the transition from an exploration focus to building a real business, where efficiency is mandatory in order to maintain the highest operating margins. I believe the team at Silver Eagle is qualified to excel in both disciplines.

Through a process of patient acquisition with individual property owners, and additional staking that was completed, the total project amounts to approximately 275 square kilometers comprising most of the known district, controlled by the Mexican subsidiary San Pedro Resources S.A de C.V. (80 per cent owned by Silver Eagle). At least 13 known veins have been identified on the property to date.

Dating back to Spanish colonial times, mining activity at Miguel Auza focused on a series of high-grade vein systems that have been intermittently exploited since 1570.  Larger scale mining operations began in the 1800’s and no fewer than twelve shallow shafts from previous mine workings have been identified within the limits of the property now controlled by Silver Eagle.

The extent of past mining activity was limited by the relatively high water table in the area. Any attempts to drive underground workings more than 100 metres below the surface met with flooding from groundwater beyond the capacity of the pumping equipment available at the time. As a result, a large tonnage of ore grade material remains to be extracted at depth. Recent advancements in pumping technology will enable the company to cope with the groundwater issue.

Silver Eagle completed a drilling program in 2005, in order to outline a preliminary resource compliant within NI43-101 reporting standards. In a series of shallow holes targeting a northeast trending structure known as the Calvario Vein, the company encountered narrow intervals of extremely high grading silver mineralization. Recent exploration has extended the strike length of this vein to nearly 1.5 kilometres, and it still remains open laterally. Based on this data a total resource of approximately 12.5 million silver equivalent ounces has been reported and that estimate does not include many of the highest grading drill holes that the company continues to report from ongoing exploration.

Given the shallow nature of the vein system, it was decided that the most efficient mining plan would be to sink a decline ramp to access the Calvario Vein and underground development work is ongoing at the present time.

One unexpected dividend to the development program was the discovery of entirely new veins as the ramp was advanced, which have been interpreted as part of the Ramal Vein system that will further increase the resources of the project. Sampling along the Ramal 2 Vein generated a weighted average over 1 kilogram of silver per tonne, along with significant gold, lead, and zinc values, across average vein widths of 1.6 metres. The Ramal 3 and 4 Veins also demonstrated high grades of mineralization across mineable widths. 

Data is incomplete from previous mine activity, but the richest known ore zone ever encountered on the property occurred at a depth of 140 metres below the surface, where mineralization averaging 2,300 grams per tonne silver and 35 grams per tonne gold was extracted. The highest grades encountered during the current drilling program have come from this same part of the property, and this is an encouraging aspect going forward, as further work is completed and eventually exploration will shift to test the deeper extensions of the vein systems.

Additional exploration drilling is currently underway, with at least 3 drills turning as part of a follow-up program targeting numerous other veins on the property. Abandoned mine shafts from past production serve as ideal targets for new discovery. Partial assay results have been obtained from this work that outline large zones bearing robust grades of silver and base metals that further illustrate the intensity of mineralization across the project. New veins have been discovered from this drilling in the East Zone of the project.

Mineralized material is already being stockpiled on surface as the underground development work is advanced. Metallurgical data from analysis of sample material has yielded a recovery efficiency of 81 percent for the contained silver.  This is very good for a polymetallic deposit and a favorable economic consideration towards the operating outlook once production commences at the mine.

A revised resource estimate will be prepared to incorporate all of this additional sampling and drilling data, and management expects to have this completed by the first quarter of 2007. Considering the extremely high grades that have been reported as vein systems are proven up during the current program, it is expected that the total resources of the project will be significantly increased when all of the results are included into the updated model.

An interesting aspect to the project is that the current workings are located within the limits of the town of Miguel Auza, in close proximity to residential dwellings. In many areas of the world this would amount to a serious consideration that threatened the ability of the company to continue operations. In Zacatecas there is a long tradition of support for mining ventures and the prospect of the re-opening of the mine is welcomed by residents of the town, with the promise of high paying jobs for residents and a strong boost for the local economy. The close proximity of the town also bestows some unique advantages. Mine workers go home for lunch, and there is no shortage of an enthusiastic labour force as the company expands the scope of its operations.

Silver Eagle has installed a refurbished mill and recovery plant on the property with an initial capacity of 100 tonnes per day. All equipment is in excellent condition for the operation of a floatation cell recovery process. Plans are in place to increase the capacity of the plant to 300 tonnes per day, with the addition of larger crushing equipment and floatation banks. There are no plans to put in place any form of hedging restraint, ensuring that investors remain fully leveraged to the spot market prices for all production.

Management remains alert to additional acquisition opportunities that may become available. Mike Neumann, currently serving in the role of Chief Operation Officer and a Director, is a full time resident of Mexico with access to review many similar past producing mine projects. Two other Directors of the company are also of Mexican background, with strong local connections at various levels of government. This will be an asset going forward to assist the company with negotiations as they work to acquire other projects of interest.

I believe that Silver Eagle Mines has all of the critical factors in place for success. An experienced management team that has a proven track record of success, a property with a long history of high-grade production, a well-funded treasury to allow for rapid development, and a low cost operating environment, should all contribute to a bright future for this young mining company in what appears to be a long term bull market for precious metals. The prospect for organic growth through the drill bit, and strong potential for additional strategic acquisitions in the future, make the outlook going forward even more attractive. I buy $10,000 of Silver Eagle for the Mexico Mike Portfolio.