Arian Silver builds value in the ground in Mexico

Arian Silver’s share price gives little clue to the good year for exploration, development and production enjoyed by the Mexico-focused silver miner.


Arian Silver’s (LON:AGQ, CVE:AGQ) share price gives little clue to the good year for exploration, development and production enjoyed by the Mexico-focused silver miner.

A diamond drill programme completed last year doubled JORC-compliant inferred and indicated resources at its key San Jose project from approximately 44 million to more than 88 million ounces of silver.

Additional lead and zinc by-products raised the silver-equivalent resource to more than 100 million ounces.

This month, the company revealed that results from its latest stage of exploration drilling had found more multiple high grade silver intercepts along the San José Vein (SJV), including 6.97 metres with 259 grammes per tonne (g/t) silver and 2.59 metres with 270 g/t silver.

The company said the findings supported the potential for a large scale resource along the SJV first revealed by results from 24 holes of this current phase drilled last year.

Jim Williams, Arian’s co-founder and chief executive added: "These most recent drill results show continuity of vein thickness, silver mineralization and grade as we drill along the SJV.”

Research house Edison estimates the results were consistent with its forecast of an additional 55.6Moz of silver – a 63% increase on its current JORC-compliant resource.

Finding additional silver at San Jose would be consistent with its location, as the project, which is 100%-owned by Arian, comprises some 6,300 hectares in the heart of the Zacatecas mining district; a region that has produced more than one billion ounces of silver since records began. 

Even with this history and the doubling of resources revealed last year, Arian’s share price has struggled and slipped back from highs of nearly 60p seen a year ago. 

Weakness in the silver price has played a part as the metal has retreated from $48 per ounce in April 2011 to $30 per ounce now.

Another reason is that, at $18-20 per ounce, Arian is a relatively costly producer due to the hardness of the ore it is processing and the fact it does not have a bespoke mill for this purpose. 

“It is a hard, very abrasive, mix of sulphides and oxides,” Williams said. 

“The metal recovery process ideally requires the ore to be more finely crushed and this is something we have been fine tuning. The finer the grind size the easier it is to extract metals from the ore,” he added. 

“Because of its hardness and abrasiveness, routine items such as rubber liners in the grinding mills, for example, also wear out quickly, which results in more downtime, lower recovery rates and higher costs.”

Arian is working to boost its recovery rates to greater than 60%. Hardened steel liners are now being installed to reduce the downtime and increase efficiency.

A fourth in-line crushing mill is to come on-stream, which will increase throughput at its processing plant from about 250 tonnes daily to up to 400 or more tonnes per day, but Williams admits the current situation is not ideal, although it is workable.

“The mineralogy at San José is unique for a certain type of mill. The mill we have will do the job but it’s not as good as a purpose-built bespoke mill.”

 “We can get 60% recovery but should ideally be getting plus 85% with lead and zinc as by-products” he adds. 

One way to achieve this would be to build a bespoke plant, which the company is evaluating with an independent scoping study, though Williams dismisses suggestions it is something it has to do.

 “Unfortunately the talk of milling options has perhaps had a negative impact on our share price as the market sentiment is of the opinion we have to go and raise finance; this is not so.“

“We do not need to raise money” he says, adding that the mining operations were cash positive in its last two quarters even with exploration costs of $250,000 per month. 

“Obviously, if in the future, we opt for a new mill then finance of some sort will be required but it could be of a non-dilutive nature.”

“The purpose of the current mining and milling operation was never planned to be much greater than it currently is; it was only ever designed to make enough money to pay for ongoing exploration on San Jose and to increase intrinsic value in the ground by adding more silver, lead and zinc.”

 “The step from explorer to developer to producer is a big step; there are always issues and we have had our fair share. However, we have addressed them and corrected them where possible.” 

This phase 4 drilling programme completes this month after which Williams says the plan will be to “step back, look at the data and have a good think.”

A new independent resource estimate is due to be published during this quarter.

This will be based on the latest (Phase 4) drilling data and is expected to push the JORC-compliant resource number up from 88 million to over 100 million ounces of silver plus more lead and zinc. 

“If the market stays the way it is, we will carry on albeit with increasing performance with the mill and make money. We will build the intrinsic value in the ground by adding ounces of silver and pounds of lead and zinc.”

Currently, Arian’s in-the-ground resources are being valued (EV) at about 82c per ounce, which Williams says is half the level of many of its peers. 

This does not account for any ‘blue sky’ potential from other projects such as the early stage Calicanto prospect where there is the possibility of between 25-50 million ounces of silver.

At San Jose, in addition to the SJV vein, drilling has started on a second nearby parallel vein, the Bety Vein, while the north-south trending El Tiempo Vein and nearby stockwork-style mineralisation have yet to be tested. 

Finally, Williams said mention should be made of a skarn-type mineralisation found in the north-east of the concession area.

Edison’s estimates provide the possibility of another 100 million ounces to be delineated by future drilling, in addition to the resources already published.

The research house says that based on a conservative, long-term silver price of US$24.6/oz, the mining operations at the San Jose mine alone are worth at least 29.3p over the next four years before allowing for any upside from ounces in the ground.

Williams said how the silver price behaves will be a major influence on its plans, but if it stays at least where it is and with improved efficiency, Arian will be fine.

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