Arian Silver Corporation (“Arian” or the “Company”) (TSX VENTURE:AGQ)(AIM:AGQ)(PLUS:AGQ)(FRANKFURT:I3A), a silver exploration, development and production company with a focus on projects in the silver belt of Mexico, today announced the release of its Management’s Discussion and Analysis (“MD&A”) and unaudited Financial Statements (“Financials”) for the nine months ended 30 September 2011.
The MD&A and Financials are available at SEDAR at www.sedar.com and on the Company’s website at www.ariansilver.com. These documents can also be obtained on application to the Company. The following information has been extracted from the MD&A and Financials. The financial information in this announcement does not constitute full statutory accounts.
Arian’s Chief Executive Officer, Jim Williams, commented today, “Production work during the third quarter was focused on the continuing improvement of contract mining at our San Jose property and the production of silver-bearing concentrates at Arian’s exclusively leased pilot-scale processing plant. I am pleased to report that Q3 results showed significant improvements in both operational and financial performances, specifically increases in mined and milled tonnage, and gross profit. It is anticipated that tonnes milled will increase further when a fourth inline ball mill becomes operational in the plant. The ongoing metallurgical information we are gathering from this toll milling operation is, and will continue to be, invaluable as we plan on further advances with milling. In addition, regarding the exploration work, we are aggressively drilling with a Phase 4 drill programme along the western extension of the San Jose Vein and have to-date drilled some 7,000m of a planned 10,000m. Once completed, we anticipate updating the independent resource estimate for the San Jose Vein, to complement the significant silver and base metal resources estimate reported this quarter. We are confident that funding for our operations, including ongoing exploration, will be satisfied by working capital and cash flow from production, and that Arian will remain financially strong as a result.”
OVERVIEW OF THIRD QUARTER OF 2011 AND SUBSEQUENT EVENTS
Financial (all amounts are expressed in US dollars unless otherwise stated)
— $0.5 million gross profit and $2.4 million revenue for the three months
ended 30 September 2011.
— $0.4 million gross profit and $5.1 million revenue for the nine months
ended 30 September 2011.
— Working capital was $7.5 million, as at 30 September 2011.
— Total assets of $16.9 million, including intangible assets of $2.1
million, property, plant and equipment of $6.4 million, trade and other
receivables of $1.9 million and cash of $5.5 million, as at 30 September
2011.
— Consolidated pre-tax loss for the nine months ended 30 September 2011
was $10.5 million including a non-cash employee share options expense of
$8.3 million.
Operations
— San Jose production Q3
— 33,941 tonnes mined
— 21,512 tonnes milled
— 204 silver concentrate tonnes produced
— 65,804 silver ounces produced
— 221 silver concentrate tonnes sold
— 77,587 silver ounces sold
— San Jose exploration
— Phase-4 drilling programme continues
— Extended the mill and plant lease for up to two years
— Independent resource estimate updated by CSA Global (UK) Limited
announced 20 July 2011:
— 88.45 million contained silver ounces, an increase of 105%
— 30.03 million ounces in the “indicated” resource category
— 58.42 million ounces in the “inferred” resource category
— Plus lead and zinc
Post 30 September 2011
— As at the end of October 2011 Phase-4 drilling programme has drilled
approximately 7,000 metres.
— On 24 October 2011 interim drill results were published showing
continuity of vein thickness, silver mineralisation and grade.
THE STRATEGY
Arian’s overall objective is to develop additional resources on the San
REVIEW OF FINANCIAL PERFORMANCE
In the nine months
As at 30 September 2011, the Company had working capital of approximately $7.4 million (31 December 2010: $10.2 million). See Liquidity, Capital Resources and Working Capital for the items of working capital. Intangible assets amounted to $2.1 million (31 December 2010: $1.2 million) which relate to deferred exploration and evaluation costs in respect of the Company’s Mexican projects. Property, plant and equipment amounted to $6.4 million (31 December 2010: $5.4million); $6.3 million of this relates to the San Jose mine development costs. Share capital increased by $1.9 million to $47.3 million (31 December 2010: $45.4 million) as a result of the issue of common shares in connection with the exercise of share options and share purchase warrants.
REVIEW OF OPERATIONS
The Company currently owns 32 mineral concessions in Mexico totalling 8,038 hectares (“ha”).
San Jose Project, Zacatecas State
The 100%-owned San Jose property lies 55 kilometres (“km”) to the southeast of Zacatecas City and covers 11 mining concessions totalling 6,300 ha. The property has significant infrastructure, including a 4 x 5 metre (“m”) main haulage ramp (“SJ Ramp”) extending nearly 3.2 km along the footwall of the San Jose Vein (“SJV”) system, and a 350 m deep, 500 tonne per day (“tpd”) vertical shaft with operational hoist. In addition, a number of shallower vertical shafts are located in a westerly direction along the SJV.
Production Information
Production information summary for San Jose mine is as follows:
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Q3 2011 Q2 2011 Q1 2011 Q4 2010
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Head grade – Ag grams per tonne 199 178 178 154
Tonnes mined 33,941 22,387 19,462 7,600
Tonnes milled 21,512 18,348 21,128 3,385
Ag concentrate tonnes produced 204 144 146 22
Recovery % 47.76 56.66 38.08 56.31
Ag ounces produced 65,804 59,568 46,236 9,462
Ag ounces per concentrate tonne produced 323 412 316 439
Ag ounces sold 77,587 41,868 38,772 6,730
Ag concentrate tonnes sold 221 117 126 13
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Mining Operations
The initial mining operation is limited to the Ramal Norte/Sur, San Jose 75 m Level Central Zone and Santa Ana resource blocks. These were selected by Arian, from several delineated resource blocks, to support an initial pilot scale mining operation with the potential to increase the mining rate to circa 1,500 tpd subject to milling capacity availability.
From January to the end of September 2011, 227 m have been developed along the main westerly strike of the SJ Ramp, in a combination of Run-Of-Mine (“ROM”) and waste material. A substantial amount of ore has been intersected within the ramp, which is advancing in a westerly direction, and a new parallel, but steeper, decline ramp is being developed in largely waste material to ensure the maximum amount of sulphide-rich ore is extracted from the current blocks; this sulphide-rich ore is located, according to drilling information, deeper in the Santa Ana Block.
Contract mining expectations remained unchanged at up to 500 tpd. Mining was planned to operate 20 days per month. Total costs to mine and deliver ore to the mill are estimated at approximately $26/tonne.
Milling Operations
The lease with the custom/toll mill and plant owner was signed in July for a period of up to two years at a cost of MXP 6 million (approx. US$ 0.5 million)/month. There is an early break provision in favour of the owner of the plant in the event that an option to purchase the plant held by a third party is exercised on 31 October 2011. However, if this option is exercised, Arian currently believes it could negotiate its continued use with the new owner. The lease also has an early break provision in favour of Arian giving it the right to terminate the lease after twelve months.
The increase in the new lease cost is due to the installation and operation of an additional in-line 200 tpd ball mill which, when commissioned, should allow Arian to meet its expected milling target of 400 tpd (for 30 days) with up to 125 tonnes of concentrate to be produced per month and with an anticipated silver content of between 370 and 440 ounces per tonne (“opt”).
Although the mill has a maximum rating of 400 tpd, it is not designed for the hardness and abrasiveness of the San Jose ROM material. Arian therefore started with a daily throughput of just 120 tonnes but has now increased this to around 250 following ongoing fine-tuning of the operation. A reconditioned impact crusher was installed within the circuit to partly mitigate this issue by grinding the ROM material more finely before it enters the flotation stage of the plant.
This continuing phase of pilot-scale milling has, and continues, to allow Arian to review all key data providing Arian essential information to potentially build an optimised/bespoke plant, should it decide to pursue this route after all the test work and economic parameters have been evaluated. Arian is also currently reviewing other alternatives as well as continuing to work to improve the current mill design and recoveries.
Based on a contained silver content of 405 opt at a spot price of $30/oz silver, a concentrate value of $11,000/tonne, after deductions, is forecast. Although, the higher the silver price, calculated on a quotation period paying the average of the second month after delivery, the greater the return.
A 2% NSR (net smelter royalty) on SJV revenue is payable to the vendor of the San Jose property.
Exploration Drilling
In May 2011, Arian completed the Phase 3 diamond/core drill programme, which commenced in November 2010, having drilled over 10,000 m. The purpose of the drill programme was to delineate additional areas of mineralisation and to upgrade existing resources, between the Santa Ana and Guanajuatillo resource areas along the SJV. The drill programme had also started to explore in detail the SJV system that lies to the west of the village of Guanajuatillo. The results of Phase 3, which met with expectations, are included in the resource table under the heading ‘Exploration Resource’.
In April and June 2011, the drilling results from the Phase 3 drilling programme were released (see the Company’s press releases dated 4 April 2011 entitled “Arian Silver’s Continuing Exploration Drilling Intercepts High-Grade Silver at San Jose” and 27 June 2011 entitled “Arian Silver Reports Wide High-Grade Silver and Base Metal Intercepts”).
In June 2011, the Phase 4 drilling programme, commenced and at the end of September 2011, drilled 6,000 m. The purpose of this drilling phase is to drill the entire SJV, combining infill and step-out drilling with the objectives to: (1) Potentially increase inferred resources by step-out drilling in a westerly direction and, (2) To upgrade existing inferred resources into the Indicated category.
On 24 October 2011, Arian released interim drill results relating to the Phase 4 drilling programme. These show the continuity of the vein thickness, silver mineralisation and grade along the SJV (see the Company’s press release dated 24 October 2011 entitled “Arian Silver Reports Encouraging Progress on Phase 4 Drilling at San Jose”).
Exploration Resource
On 20 July 2011, Arian reported a significant resource estimate upgrade (see the Company’s press release entitled “Arian Silver Announces Significant Increase in Mineral Resources at San Jose”). The highlights of this announcement were:
— 86% increase in resource tonnage along the SJV over the August 2008
mineral resource estimate
— 10% higher average silver grade;
— 105% increase in contained silver; and
— 34% of gross silver mineral content now in the “indicated” category.
— Mineral resource estimates based on all Phase-1, 2 and 3 drill holes
(152 drill holes totalling over 28,000m); and
— Mineralisation remains completely open along the western strike and to
depth.
Arian’s resource estimate includes all drill programmes from 2006 along the SJV which has a delineated NI 43-101 and a JORC-compliant resource estimate of approximately 30.03 million ounces of silver, 69.9 million pounds of lead and 126.6 million pounds of zinc in the “indicated” mineral resource category, and 58.42 million ounces of silver, 140.1 million pounds of lead and 291.1 million pounds of zinc in the “inferred” mineral resource category. These NI 43-101 and JORC-compliant mineral resources are summarised in the table below:
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Average Grade Contained Metal
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Gross Tonnages
Resource Category Contained Metal Ag Pb Zn Ag Pb Zn
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(g/t) % % (Moz) (t) (t)
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Indicated 8,000,000 117 0.40 0.72 30.03 31,706 57,425
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Inferred 17,000,000 107 0.37 0.78 58.42 63,548 132,041
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1. Geological characteristics and +30 ppm grade envelopes used to define
resource volumes.
2. Each mineral resource estimate is in accordance with CIM standards.
3. The effective date of each mineral resource estimate is 15th July 2011.
4. The estimates are based on geological, statistical and geostatistical
data assessment and computerised IDW(3), Ag grade wireframe restricted,
linear block modelling.
5. The resource was estimated using 152 drill holes and more than 28,000
metres.
6. Resource figures were prepared under the supervision of Malcolm Titley
who is a Qualified Person (as defined in Canadian National Instrument
43-101).
7. Tonnage figures have been rounded to reflect this as an estimate.
8. Ag (silver) ounces have been calculated using 31.1035 g = 1oz.
9. Pb (lead) and Zn(zinc) tonnes have been calculated using 2204.622 lbs =
1 tonne.
10. The mineral resource is 100% owned by Arian.
The following reports prepared by A.C.A. Howe International Limited relating to the San Jose project are available on the Company’s website www.ariansilver.com or on SEDAR at www.sedar.com:-
a. Report dated 22 June, 2009 and entitled “Preliminary Economic Assessment
Report (PEAR) on the San Jose Silver-Lead-Zinc Deposit, Zacatecas,
Mexico”; and
b. Report dated 15 August, 2008 and entitled “Resource Estimation Update
for the San Jose Silver-Lead-Zinc Deposit, Zacatecas, Mexico”.
Readers are reminded that mineral “resources” are not mineral “reserves” as they have not yet demonstrated economic viability. There is no certainty that mineral resources can be upgraded to mineral reserves through continued exploration.
Laboratory Update
The mobile laboratory, purchased in November 2010 from Stewart Group’s Geochemical & Assay Division (“Stewart Group”), became fully operational in April 2011. It comprises a comprehensive sample preparation facility and fire assay and wet chemistry facilities with Atomic Absorption Spectrometry (“AAS”). It is operated under the sole control and management of professional personnel from the Stewart Group in order that results are fully compliant with Arian’s quality assurance and quality control (QA/QC) programme. The laboratory has significantly increased the turnaround times for analysis of Arian’s sampled drill cores. During the reporting period, the “Stewart Group” was acquired by the ALS Group; at the time of reporting there has been no change in (or with) our on-site laboratory personnel.
Calicanto Project, Zacatecas State
Arian owns 100% of the Calicanto Project which consists of seven adjacent mining concessions totalling 75.5ha, namely: Calicanto, Vicochea I, Vicochea II, Misie 1 and Misie 2, and Missie 1 and Missie 2 properties, collectively known as the “Calicanto Group”. The concessions are located in the historic mining district of Zacatecas. The Calicanto Group of concessions comprises at least four main mineralised vein systems.
During the period under review, dewatering of the Calicanto shaft on the Calicanto Vein commenced; this was not at Arian’s cost but at the cost of another mine operator adjacent to the property as the miner requires this water for their ongoing plant operation. Arian will commence further underground evaluation of the deeper levels of the Calicanto Vein once the water has receded to the appropriate level; this will include but not be limited to, mapping and underground sampling and subsequent analyses. There has been no significant expenditure on the Calicanto Project during the past two years.
Additional information in respect of the Calicanto Project is contained in a technical report prepared by A.C.A. Howe International Limited dated 20 March, 2006 and entitled “Technical Report on the Calicanto and San Celso Projects, Zacatecas, Mexico”. A copy of this report is available on the Company’s website www.ariansilver.com or on SEDAR at www.sedar.com.
LIQUIDITY, CAPITAL RESOURCES AND WORKING CAPITAL
During the period, the Group received new funding from:
— the exercise of 1,400,000 share purchase options and 17,342,000 “F”
share purchase warrants which generated GBP 90,000 and Cdn$1,734,200
respectively; and
— the exercise of the Tepal option by Geologix which resulted in the
receipt of a final instalment of $1.55 million, satisfied as to $775,000
in cash and the issue to the Company of 1,089,318 common shares of
Geologix at a price of approximately Cdn$0.70 each.
The following share purchase options are currently outstanding, each
entitling the holder to acquire one common share of the Company:
— 18,485,000 share purchase options with exercise prices in the range GBP
0.055/GBP 0.4925 (Cdn$0.10/Cdn$0.79) expiring on various dates up to
June 2016.
Working Capital – 30 September, 2011
As at 30 September 2011, the Company had working capital of approximately $7.5 million (31 December, 2010: $10.2 million). The items of working capital and changes compared to 31 December 2010 are as follows:
Current assets
— cash and cash equivalents – $5.5 million (2010: $8.3 million);
— assets held for sale – $nil (2010: $2.9 million) – relates to the
carrying value of the Tepal project reclassified from intangible assets
as a result of the grant of the Tepal option. This asset was realised on
exercise of the option from Geologix during the period;
— trade and other receivables – $1.9 million (2010: $0.9 million) –
increase due to the trade debtor for the sale of silver concentrate from
the San Jose mining operation;
— inventories – $0.7 million (2010: $0.1 million) – relates to stockpile
held at cost relating to production at the San Jose mine; and
— other financial assets at fair value through profit and loss – $0.3
million (2010: $nil) – relates to the Geologix shares received as part
consideration for the final instalment for the sale of the Tepal
project.
Current liabilities
— deferred income – $nil (2010: $1.5 million) – related to the value of
the non-refundable first instalment of the Tepal option consideration
pending exercise or termination of the Tepal option. This was recognised
in Q1 2011 as part of the Tepal option exercise; and
— trade payables – $0.9 million (2010: $0.5 million) – the increase
relates to invoices outstanding relating to the production and
exploration costs at the San Jose project.
Qualified Person
Mr. Jim Williams, Eur Ing, Eur Geol, BSc, MSc, D.I.C., FIMMM, the Chief Executive Officer of Arian, a “Qualified Person” as defined in the AIM guidelines of the London Stock Exchange, and a “Qualified Person” as such term is defined in Canadian National Instrument 43-101 (“NI 43-101”), has reviewed and approved the technical information in the Review of Operations other than the mineral resource estimates.
About the Company
Arian is a silver exploration and development company and is listed on London’s AIM; trades on London’s “PLUS” market; is listed on Toronto’s TSX Venture Exchange and on the Frankfurt Stock Exchange. Arian is active in Mexico, the world’s second largest silver producing country. The Company’s main project is the San Jose project in Zacatecas State. Part of Arian’s forward-looking strategy lies in the envisaged use of large scale mechanized mining techniques over wider mineralized structures, which reduces the overall unit operating cost of metals, and to build up NI 43-101 compliant resources.
Further information can be found by visiting Arian’s website: www.ariansilver.com or the Company’s publicly available records at www.sedar.com.
