With a massive resource and two operating mills, ECU Silver Mining Inc. (TSX: ECU) is a junior mining company poised to exploit the current and future investor demand for gold and silver. The Company’s mission is to become a “Self-Funding Exploration Company” with the goal of growing its mineral resource to more than one billion silver equivalent ounces. ECU, which is focusing on the exploration and development of gold, silver, and base metals at its Velardeña District Properties in Durango, Mexico, has a recent NI 43-101 compliant technical report identifying (i) a measured and indicated resource of 40 million silver equivalent ounces and (ii) an inferred resource of 391 million silver equivalent ounces. In addition, the Company owns two mills with a combined capacity of 800 tonnes per day, with a plan to complete a scoping study for a 1,500 tonne per day operation that will ultimately increase to 5,000 tonnes per day, or larger. We had the opportunity to speak with ECU’s management team about its recent results and expectations going forward, an excerpt of which can be found below.
In March of this year, the Company acquired an oxide mill, can you bring us up to speed in terms of its production?
We are currently treating more than 500 tonnes per day (tpd) of oxide material grading between 3 and 4 grams per tonne (gpt) gold and between 90 and 150 gpt silver through our oxide mill. We treated 15,694 tonnes of mineralized material over 30 days during the month of October, which translates into approximately 523 tpd. We also have a second mill, a sulphide mill, which was restarted just last month with a capacity to treat 320 tpd. Our sulphide mill was operational for four days in October during which time it treated 1,220 tonnes of mineralized material.
Why doesn’t the Company report revenue?
Under Canadian Accounting rules we report as an exploration and development company and as such are prohibited from reporting mineral sales as revenue. Rather than booking revenue, mineral sales are recorded as an offset against mining properties and exploration costs.
What does the Company need to do in order to report mineral sales as revenue?
We would need to do one of two things. Either produce an economic study such as a prefeasibility or feasibility study which demonstrates the economics of mine production, or in the absence of a study, grow mineral sales to a level of significance, which we believe to be approximately $30 million.
Is the Company planning to develop an economic study, either a prefeasibility study or a scoping study?
The Company is working on a preliminary economic assessment, a scoping study, where we will define the parameters for a 1,500 tpd operation. We expect to complete the study in the first quarter of 2010. The scoping study differs from a pre-feasibility or feasibility study in that the scoping study incorporates certain inferred mineral resources into its analysis. It cannot be used to call ourselves a producer. The main benefit of our scoping study is that it will provide the first level of study on our mineral deposit to measure its economic viability.
What do “Deferred costs for the Velardeña property” refer to?
In much the same way and for the same reason we don’t book revenue on the income statement, we also don’t book exploration and development expenses on the income statement either. Our exploration and development costs are categorized as deferred costs and are therefore capitalized. We will continue to report this way until we are considered a “producer,” at which time exploration and development costs will be expensed.