Aurcana's Silver Triumph and Golden Surprise

Deep in the heart of Texas, molten silver is pouring once more. Following a 70-year hiatus, the legendary Presidio silver mine is enjoying a new lease on life as Aurcana's (OTC: AUNFF) newly commissioned Shafter silver mine.

I was on hand last Friday for the mine's official inauguration, and held in my hands one of the first silver dore bars produced from this deposit since 1942. These early pours are yielding a highly encouraging surprise, which we'll discuss after I relate a few poignant highlights from my visit to the mine.

A growing miner's nimble sweet spot
Aurcana has just executed a bold and convincing leap into the realm of mid-tier silver producers, bucking the industry's cost-escalation trend by completing construction of the Shafter mine ahead of schedule and under budget. With anticipated production of 3.8 million ounces of silver from Shafter over the next 12 months, Aurcana will now target 5.5 million silver-equivalent ounces and rival Endeavour Silver's (NYSE: EXK  ) enviable production scale (excluding Endeavour's recent acquisition). And that's just the baseline outlook based upon the project's 2010 feasibility study! After meeting with CEO Lenic Rodriguez in January, I dubbed Aurcana "The Greatest Growth Story in Silver Today." Readers will recall that Rodriguez already has his sights set on blasting into the elite club of senior producers in similarly unabashed fashion.

Less than 18 months after construction began in January 2011, the bustling Shafter silver mine is already producing dore bars and scoping out some exciting potential for resource expansion.

Combining a nimble operating framework with exciting upside potential from ongoing exploration, I believe Aurcana now finds itself in the sweet spot of a quality miner's development that we've seen produce substantial shareholder gains in noteworthy silver success stories like Endeavour Silver and First Majestic Silver (NYSE: AG  ) . Endeavour grasped shareholder value from the well of opportunity by responding quickly to new discoveries at Guanajuato with accelerated underground development and aggressive mill expansion. First Majestic CEO Keith Neumeyer hailed those super-spry days from earlier in his company's growth cycle as "an exciting time."

Today, I find Aurcana similarly adept at responding efficiently to opportunity, as epitomized by the seamless integration of a previously unplanned open-pit operation at Shafter. At the inaugural celebration Friday, Rodriguez described how he was approached by Shafter General Manager Jason Cyr with the proposal to mine the surface component of the orebody as an open pit. All within the span of a few short months, the plan progressed from opportunistic brainstorm to timely execution, and as a result the plant is already flush with an ample stockpile of crushed ore of impressive grade even as the underground mine awaits completion of a secondary escape shaft later this month before commercial underground production kicks into high gear.

From this precious stockpile of crushed ore, sourced primarily from the open pit operation, Aurcana is enjoying a very pleasant surprise (see below for details). The steel balls in the foreground are inserted into the plant's 2,500 tpd-capacity ball mill to thoroughly pulverize the crushed ore.

The Megaw factor
He may not be hounded by paparazzi like a Kardashian, but within the universe of mineral geology, Peter Megaw is something of a celebrity. Inside the galaxy of epithermal vein and carbonate replacement mineralization, moreover, one might even say he's a superstar. He co-founded MAG Silver (NYSE: MVG  ) and played a key role in the discovery of several major deposits in that developer's impressive project portfolio. As a technical consultant to Aurcana, and alongside vice president for exploration Nils von Fersen, Megaw is hot on the trail of the sort of resource expansion that could transform Shafter with a far longer mine life than the modest five-year stint envisioned by the 2010 feasibility study.

I had the pleasure of listening to Megaw speak at length about his interpretation of the mineralized trend at Shafter as we drove out to the mine site Friday morning. His obvious excitement regarding the potential to expand the resource is downright infectious. Naturally, much of the company's current exploration effort targets areas nearest to the existing mine infrastructure to guide near-term planning and production, but Megaw reads the broader structure like an encoded roadmap that he hopes will lead to a "feeder zone" that could potentially yield a sizable high-grade deposit. While it is hard to quantify the likelihood of such a game-changing discovery, I am excited as a shareholder to know that Megaw is on the prowl.

Shafter's golden surprise
Rodriguez is a warm and affable guy with a quick wit. When I asked him about the surprisingly high gold content within the first couple of dore bars poured at Shafter, he joked about his supposedly pure silver deposit being "contaminated" with gold. You see, the Shafter mine plan does not call for any appreciable gold by-product, so the project's robust economics are solely a reflection of the deposit's solid average silver grade of 8.6 ounces per ton (in measured and indicated resources).

Aurcana CEO Lenic Rodriguez demonstrates one of the very first dore bars produced at Shafter since the Presidio mine closed in 1942. Rodriguez has two reasons to smile, as he celebrates not only the project's timely completion under budget, but also the encouraging gold content of these early realized results.

Shafter produced 35 million ounces of silver between 1883 and 1942 at an average grade of 15 ounces per ton (467 grams per ton). Former property owner Gold Fields (NYSE: GFI  ) conducted $20 million worth of exploration and development work between 1977 and 1982. Nowhere within that deep well of history was the project thought to contain significant quantities of gold. And yet, gold accounts for roughly 11% by weight of the first dore bars poured at Shafter! While there can be no guarantee that these surprising gold values will continue, at 11% of the dore content, gold accounts for roughly 88% of the anticipated revenue from these first dore bars. Expressed another way, the market value of a dore bar containing 11% gold is roughly seven times that of its silver-only counterpart.

While I don't expect gold values to remain that elevated throughout the orebody, any appreciable gold by-product could significantly enhance the mine's economics. Alongside an average silver grade of 23.37 ounces per ton in Aurcana's latest drill result, representing the "highest grade intersection encountered to date," it's worth nothing that gold grades at or above 0.01 ounces per ton were detected in nearly every segment of the 30-foot intercept. Perhaps more importantly, these unexpected gold values from two distinct portions of the orebody are music to the ears of Megaw, as this gold could potentially help point the way toward the "feeder zone" that could truly provide a game changer for Aurcana and its shareholders.

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Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Aurcana, Endeavour Silver, and First Majestic Silver. Travel and lodging to attend the inauguration of the Shafter Mine was provided by Aurcana. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (13) | Recommend This Article (35)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 04, 2012, at 4:16 PM, BullionBullsBoot wrote:

    Nice article Chris. That must have been an enjoyable visit, ecpecially with Mr Magaw talking about resource potential. I look forward to the next couple of quarterly reports.

  • Report this Comment On June 04, 2012, at 4:44 PM, EGTalbot wrote:

    Sounds like a great visit, thanks for sharing. Your excitement is contagious!

  • Report this Comment On June 04, 2012, at 4:50 PM, XMFSinchiruna wrote:

    Thanks, Brian. It was a fascinating and enjoyable visit.

  • Report this Comment On June 04, 2012, at 5:22 PM, XMFSinchiruna wrote:

    For anyone previously unfamiliar with Aurcana's growth story, I recommend reviewing my two-part discussion from February for additional background.

    http://www.fool.com/investing/general/2012/02/06/the-greates...

    http://www.fool.com/investing/general/2012/02/06/the-greates...

  • Report this Comment On June 05, 2012, at 6:38 AM, skypilot2005 wrote:

    http://www.aurcana.com/s/Shafter.asp

    Overview

    The Shafter silver mine is located in Presidio County, Southwest Texas. The project has a 43-101 silver resource of 24.6 million ounces Measured and Indicated, 22.8 million ounces Inferred and a prefeasibility completed. Production year one is forecast at 3.9 million ounces silver recovered.

    http://www.aurcana.com/i/pdf/CorporatePresentation.pdf

    March 2012

    See pages 5, 10 thru 14. 16, 18

    Sky

  • Report this Comment On June 05, 2012, at 1:44 PM, Chelonian wrote:

    Chris,

    I think you got something wrong. I'm a long time holder of Aurcana.

    I wanted to figure out what the "grade" of gold would be as it seemed high to me from your comments.

    It doesn’t matter what the true weight of a sample is for this work sheet.

    Lets work with a 1000g piece of dore.

    IF 11% by weight is gold that equals 110 g of gold, or 3.88 ounces of gold.Leaving 890g of silver or 31.394 ounces of silver.

    We know we are averaging 8.6 ounces silver per ton of material. Therefore, to get 31.394 ounces of silver, we would need to mill:31.394/8.6= 3.65 tons of material.

    Since we got 3.88 ounces of gold out of that same material, that means we are getting:

    3.88 ounces of gold/3.65 tons = 1.06 ounces of gold per ton, or 30.1g/t of gold.

    There is NO way that went unnoticed until now, if it did the AUN management needs an overhaul. The NI43-101 cut offs are usually around 3 g/t gold in samples.This is substantial gold mineralization.

    Even if, the silver grade was much lower because they are using surface materials to "fire up the mill" , lets say 3 oz/t, that would still be 10.52g/t of gold, which is still a really high mineralization.

    Not to be a wet blanket but I don’t think you got it right. If you did, hang on.

    I don't understand why the company has not released a press release on the mine opening and the "contamination". Good thing this is a great deal even without the gold contamination!

  • Report this Comment On June 05, 2012, at 3:36 PM, BullionBullsBoot wrote:

    Chris, the open pit is news to me. I understood that they were going to process what they mucked out when developing the ramp. This ore would be processed during the ramp up.

    Where is this open pit, and what ore body is being tapped into? New ore body, or part of the feasibility study? I will call IR if you aren't sure. Thanks

  • Report this Comment On June 05, 2012, at 4:31 PM, XMFSinchiruna wrote:

    Chelonian,

    Thanks for your comments. The information presented is correct to the best of my knowledge. I am told the very first dore bars poured have indeed shown a surprisingly high gold content of 11%.

    You have made a courageous attempt to reconstruct the gold grade implied by that early realized result, but I have 2 extremely critical points to make:

    1. I/we do not yet have nearly the depth or precision of data required to render a meaningful estimate of implied gold grade here at this very early stage of pre-commercial production, most notably with respect to realized recoveries. The mill is indeed running lower-silver-grade ore from surface stockpiles here in the early going, and 3opt silver might be in the right general ballpark, but I would caution folks against getting carried away with implied grade calculations at this early stage.

    2. More importantly, given the extremely small sample size involved, in my personal opinion it would not be appropriate at this early stage to make any assumptions or extrapolations regarding implied gold content throughout the orebody. Until or unless we find that elevated gold values persist over time, I view this as a fortuitous and interesting anomaly, and nothing more.

  • Report this Comment On June 05, 2012, at 4:46 PM, XMFSinchiruna wrote:

    BullionBullsBoot,

    I'll get back to you shortly on that point.

  • Report this Comment On June 05, 2012, at 6:30 PM, maxbentley wrote:

    Thanks,Chris.

    If the Shafter extension of the Presidio mine can turn up similar gold bearing mineralization,AUN will do very well,indeed.

    With MeGaw on board and as stoked as he is to have 'come home' to Presidio/Shafter and the Big Bend I expect his future discoveries here to be a large defining part of his already illustrious career.

    Again,my thanks.

    Matt

    Most production came from one mine, the Presidio, in Section 8, Block 8, Houston and Texas Central Railway Company Survey, which produced over 32.6 million ounces of silver and 8,400 ounces of gold.

    In 1946 M. F. Drunzer leased the mine and gleaned the ore from the supporting pillars. He shipped more than 2,000 tons of ore, which held one ounce of gold, 1,056 pounds of copper, 29,368 pounds of lead, and 41,300 ounces of silver.

    More than 92 percent of the silver and 73 percent of the gold reported as produced in Texas came from Presidio Mine.

    http://www.tshaonline.org/handbook/online/articles/gps02

  • Report this Comment On June 06, 2012, at 9:59 AM, XMFSinchiruna wrote:

    http://www.proactiveinvestors.com/companies/news/30125/stone...

    The first dore bar poured at Shafter assayed 79% silver and a surprising 11% gold.

    "We currently do not model any gold production at Shafter and if gold is widely disseminated in the deposit than the economics of the project could be significantly enhanced," Stonecap mining analyst Christos Doulis said.

    "...while the magnitude of the gold potential at Shafter is difficult to quantify at this time, it represents significant potential upside for the company."

  • Report this Comment On June 06, 2012, at 2:17 PM, XMFSinchiruna wrote:

    http://www.aurcana.com/s/NewsReleases.asp?ReportID=529183

    Aurcana Corporation ("Aurcana" or the "Company") is pleased to report that in conjunction with its current underground operations, the Company has initiated some open pit mining commencing on April 23, 2012 from the Mina Grande Pit located on the historic Presidio Mine on strike, west of the Company's Shafter mine.

    To date a total of 4,725 tons have been mined and processed from a historic dump and open pit operations with a combined average grade of 2.2 ounces Ag per ton. The materials from both dump and open pit operations were processed together and not processed separately to determine the average grade from each of the dump and open pit operations A total of 3,813 (80.7%) tons were derived from the Mina Grande open pit and 912 (19.3%) tons came from historic material from the East Shaft Dump. In-house assay results from the first two doré bar pours indicated a silver content of 78.77% and gold content of 11.14% Au and 84.37% Ag and .06% Au, respectively. These assay results have not been independently tested and verified.

    Historic workings of the Mina Grande open pit were surveyed and chip sampled on four levels to a depth of 80 feet and assayed to determine the extent and grade of the mineralized area. Based the encouraging preliminary indications, the Company intends to continue to conduct further operations on the Mina Grande open pit to further evaluate its potential. The Company is unable to forecast future results based on materials mined and processed to date or otherwise determine if these current results will be indicative of the results to be obtained from future mining operations on the underground and open pit.

    Samples were dried and reduced to 10 mesh. A 300 gram sub sample was obtained, pulverized to 95% passing 200 mesh by ring and puck pulverizer. Silver and gold were determined by Fire Assay with gravimetric finish using a 30 gm prepared sub sample.

    Dore samples were analyzed for Au and Ag by Fire Assay and Gravimetric finish.

  • Report this Comment On June 07, 2012, at 7:04 AM, skypilot2005 wrote:

    The term “Icing on the cake” comes to mind…

    Sky

    Long AUNFF since Feb. 2011

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