Michel Roy, Chairman and CEO of ECU Silver Mining Inc. (TSX: ECU) (“ECU” or the “Company”) and Stephen Altmann, President of ECU, are pleased to provide the following update to its shareholders regarding the following topics:
— 2011 Exploration Program
— Mining and Milling Operations
— Scoping Study
— New N.I. 43-101 Technical Report
— Mergers and Acquisitions
2011 Exploration Program
Our exploration focus this year will be geared to achieve two very important goals: First will be to significantly increase mineral resources, and second will be to convert a material portion of “inferred” resources into “measured and indicated” resources. These goals will be realized by drilling into our high grade massive sulphide discovery, drilling additional known targets, and opening new exploration drifts underground.
Massive Sulphide Discovery
We plan to use a special high performance drill that will target the deep-seated, high-grade massive sulphide veins that we discovered back in July 2008. Due to the very high-grade nature of our two drill intercepts (1,100 g/t AgEq in MSV-1 and 2,180 g/t AgEq in MSV-2), we expect to significantly increase the size of the mineral resource at depth. This particular area is very important as it potentially represents a region identifying the source of mineralization where replacement bodies are typically found, such bodies being usually very large. The initial phase would be four cuts on the same zone plus a second ring of four cuts at a greater distance. Then the drill would test deeper and/or lateral extensions or more similar veins/bodies. The program outlining the number of holes and meters to be drilled is being completed, however we expect expenditures to be approximately $200,000 per month and the program to continue for all of 2011 and beyond.
Drilling Additional Known Targets
There are several known targets on all our properties, most of which having received little or no attention to date. The initial areas to be tested will be on the Chicago Property near drifts that we have currently opened, which outlined several new veins that merit definition and exploration drilling and are ready for testing at depth. On the main Velardena Property we have yet to access the western half of the land package, which hosts the whole Buenaventura sectors and the Pajaro Azul vein. These areas merit immediate attention as they are considered to be silver-rich sectors. Finally, drilling on the San Diego Property is expected to extend known mineralization, rich in silver, in several areas. A $3 million program consisting of 10,000 meters is planned for San Diego. Other targets are also being evaluated for drilling on several properties.
New Exploration Drifts
The further plan for our exploration program is to drive more exploration drifts and, together with the grade reconciliation discussed below, will be aimed at enhancing the categorization of our mineral resource by converting a significant amount of inferred into the measured and indicated category.
Success in these three areas of focus will translate into higher value for our shareholders.
The arrival of the drill rig is expected shortly with drilling scheduled to start in March. We are fortunate to have secured a new drill since equipment availability is scarce due to the very high level of drilling activity in the sector.
Mining and Milling Operations
During the year 2010, our operations increased from one to four underground operating mines: i) the Santa Juana mine (51% of current production), ii) the San Juanes mine (9% of current production), iii) the Terneras West mine (16% of current production), all on the main Velardena Property and iv) the Chicago mine (24% of current production) on the Chicago Property. During this time period, we started implementing in certain areas of the mines the “cut and fill” mining method, which is a more mechanized mining method versus shrinkage mining.
While we initially had productivity problems with cut-and-fill, the new mine manager, hired in May 2010, turned the project around and substantially increased productivity. We are now mining the cut-and-fill areas on a regular basis at a 200% greater productivity than shrinkage mining. The success in cut-and-fill, plus the opening of new mines, has led to the point where we are now capable of mining up to 1000 tonnes per day. This tonnage rate can be increased by adding more underground mining equipment to open additional stopes that are already available and identified. Consequently, we have sourced the necessary equipment and it is scheduled to be delivered to the site in the second quarter.
In 2010, both the cyanide leach mill (the “Oxide Mill”) and the flotation plant (the “Sulphide Mill”) were in operation generating gold/silver dore bars from the Oxide Mill and three concentrates from the Sulphide Mill, a lead/silver, zinc and pyrite/gold concentrate. The gold/silver bars are delivered to a refinery in the USA; the lead/silver and zinc concentrates are sold to Nexxtrade and the pyrite/gold concentrates are sold to Trafigura, both prominent metal trading companies.
At the Sulphide Mill, several types of material were tested to optimize recoveries and the circuit has been modified to increase production capacity. This process is not completed but the additional work needed is relatively simple and we are working to complete it as soon as possible.
At the Oxide Mill, the challenge was that a high level of copper in the feed translated to high copper dissolution and lowered gold and silver recoveries. We could not increase the cyanide concentrations to enhance recoveries without causing havoc in the Merrill Crowe system. We tried several experimental methods before selecting one, testing it in the laboratory, then batch testing, before installing a continuous circuit to remove the copper from the solutions. Initial tests allowed us to remove between 98 and 100% of the copper, thereby producing a copper concentrate with good concentrations of gold and silver. With the new resulting solution being very low in copper, we can now increase the cyanide concentrations in order to improve gold and silver recoveries by 10% or more.
Our experience to date will be valuable information for our expansion plans in the future. We believe that with the current mineral resources alone, the Velardena, Chicago and San Diego properties (collectively the “Velardena District”) could support a series of mines that together would generate at least 5000 tonnes per day or greater. At this rate, the Velardena District would potentially produce over 5 million ounces of silver, 120,000 ounces of gold and 27 million pounds each of lead and zinc, or about 12 million silver equivalent ounces based on current commodity prices. Note that, until a prefeasibility study is completed, there are no assurances that these operational estimates are accurate or will be economically viable.
Our mining operations have over 430 employees and are very professionally managed by experienced people from the area. Given the size of our mineral resources, the Velardena, District will host much larger production facilities in the future.
Scoping Study
The length of time it has taken to complete the scoping study has been a disappointment to management. The third party consulting firm that was preparing the scoping study provided timelines that were not adhered to and missed entirely. Therefore, a few weeks ago, we entered into discussions with a new third party consulting firm that is prominent and has much greater resources to complete the study in a proper timeframe.
This new third party firm sent a technical team of experts on site to review the available and pertinent information. Based on their recommendations following the site visit, we are convinced they will deliver a timely scoping study. As such, we are currently finalizing negotiations with them.
All the necessary data and tests for the scoping study have been completed, which significantly reduces the time to complete the report. We will provide an indication of the expected time frame once we have received an estimate from this consulting firm.
New N.I. 43-101 Technical Report
Our mining activities have shown that our mining grades are constantly higher than the corresponding mineral resource grades reported in our N.I. 43-101 Technical Report. Due to the consistency of this occurrence we are investigating this further, with the expectation that we may integrate the higher grades in the way we calculate the mineral resources. Once we understand the reasons behind this discrepancy, we can compensate or eliminate it in future technical reports.
Notwithstanding the above, we are also actually mining in areas where we have reported “inferred” resources or no resources at all. This is not uncommon for the very continuous epithermal vein systems that we have at our Velardena and Chicago properties where a significant portion of the exploration for, and discovery of, new veins and veins extensions is done by underground development.
The higher actual grades plus mining in inferred resources prompted us to investigate the potential for a grade reconciliation that could positively impact on our mineral resources. In particular, this may have the effect of converting a material portion of our “inferred” mineral resources into the higher confidence level classification of “indicated”.
Depending on whether the reconciliation proves to be material, or not, this will dictate whether we provide an updated N.I. 43-101 Technical Report in the near term, or whether we incorporate additional results from our new exploration programs, with a view to providing an updated N.I. 43-101 Technical Report later in the year.
Mergers and Acquisitions
We believe the value of the Velardena District can be unlocked through many forms. The primary value will be delivered through resource and production growth, for which the Velardena District is well suited. However, this value may be accelerated through merger and acquisition opportunities.
We are consistently evaluating these types of opportunities whether it is talking to other companies to acquire additional assets, engaging merger prospects, entering into JV agreements or considering the outright sale of ECU to a larger mining company.
While several companies have, and continue to express an interest in ECU, we do not yet believe that our stock price represents the true value of our assets. In regard to acquisition of other assets and/or other companies, we will only consider those assets that have a real synergy to our assets or where we feel our expertise will unlock value.
Conclusion
Our mining and milling operations provide a very strong understanding of the feasibility of a much larger operation. Based on the advancements we have made in our mining and milling efforts, we feel the Velardena District will be a major producer of gold, silver, lead and zinc.
The opportunity to substantially increase and convert mineral resources is very strong due to the potential of the massive sulphide discovery, tapping the regions of unexplored mineralized areas and using our mining data to help convert inferred resources into measured and indicated. We believe that this district will be host to major production and that the size of our mineral resource will provide for very long life operations.
We have an extraordinary shareholder base that consists of long-term shareholders who have shown great patience and loyalty to ECU over several years. The management team at ECU remains committed to delivering extraordinary value to our loyal shareholders.
Mr. Michel Roy, P. Geo., a “qualified person” within the meaning of NI 43-101, prepared the technical information disclosed in this news release.
About ECU Silver
ECU Silver Mining Inc. is focused on the exploration, development and mining of gold, silver and base metals at its Velardena District Properties in Durango, Mexico. The Company holds a N.I. 43-101 compliant mineral resource of 40 million silver equivalent ounces in the measured and indicated category and 391 million silver equivalent ounces in the inferred category. The Company also owns two mills with a combined capacity of 820 tonnes per day. ECU’s mission is to become a pre-eminent silver and gold producer through the development of its existing and potential mineral resources at Velardena.
