Friday, December 16, 2016

Defiance Silver - San Acacio project

San Acacio is one of those projects that keep floating around and like one of those irritating dumps you have at your girlfriend's house that keeps bobbing up to surface to rear its ugly head.


Just avoid it.

  • Defiance can't afford the property
  • They can't raise funds to explore the property properly (just some token drilling in 2014/15)
  • The resources are small (15Moz Ag) and low grade (182 g/t Ag).
However, I can't find anything except a summary assay table for the 2014 and 2015 drilling results, so here is a message for Defiance:

FFS, forget the YouTube channel, we're not interested in seeing old dudes pointing to churches or expansive panoramas of Rick Tschauder, what we want are some (any!) maps, like:
  • A surface geology map - simple ones with big red lines saying "vein here"
  • A map (or two) of where your holes are located
  • Some geology sections - the Silver Standard sections are now nearly 20 years old
Even the most retarded junior exploco can give us a fecking map, so why can't you?

Technical stuff

Let us look at how the project has evolved over the years:
  • Silver Standard (1996) Inferred Resources - 2.5Mt @ 182.4 g/t Ag = 14.5Moz Ag
  • Defiance Silver (2015) Inferred Resources - 2.9Mt @ 181.9 g/t Ag = 16.9Moz Ag
Not much for nearly 2 decades of work for a 'high-grade' deposit located in a world-class silver district!

I've ignored the 'gold' credit as it is essentially nothing and will be lost either in processing or to the smelter.

I was surprised amused to read several PRs telling us how Defiance have been 'great' at reducing the property payments (2014 (link) and 2016 (link)). by pushing them all (almost $6M) back to 2018. I hope nothing happens to silver prices that could make it difficult to raise funds...

I've broken the technical part into 2 sections

1. The Rocky Bit

I've brought the Silver Standard data (DH, trench and UG samples) into 3D (link) to see if there is anything interesting, but as Defiance have kindly included absolutely nothing of any geological value in their press releases (not even a gaudy vein photo). so I can't tell you anything about the drilling from 2014 and 2015 except that a couple of holes hit some intersecting grades and the rest were crap.

The San Acacio project covers a big chunk of the Veta Grande (Big Vein) vein, one of the principal veins in the Zacatecas Mining District (historic production estimate >900Moz Ag and >9Moz Au).

white spots = drill-holes and tranches; red lines = veins
I've drawn on various veins and you can see that the majority of the drilling has focused on the NW corner of the property and only on the Veta Grande vein. A few holes were drilled to the SE, but they were crap (<50 g/t Ag).

We can plot a long section of the drilling data:

I've included some buffers around the historic drilling to show where there is not data - this is a useful tool for me to see where I can drill to get some decent results quickly

This is what we see:

  • Silver is restricted to a narrow, near surface zone and:
  • Deeper drilling below historic workings hit minor mineralization
  • Drilling along strike to the southeast didn't hit anything
  • The splay veins (Veta B and C) are small and low grade
So where are Defiance going to define more silver resources?
  • Does the silver zone have a dip to the SE and that the drilling in this area didn't go deep enough?
  • Are the other veins that cross the property any good? Some basic sampling/trenching would answer this.

2. The Money Bit

I normally calculate a quick $/tonne value for a project's resources to see how they compare against operating mines in the same country. This allows me to quickly see if the grades are good enough to support a profitable operation.

For this section I'm making the following assumptions:
  • Silver recoveries will be 76% (San Acacio 2014 technical report)
  • No credits from other metals (all the gold will be lost during processing or treatment)
  • Mining costs will be~$80/tonne (at a hypothetical 1000 tpd), based on costs from:
    • San Jose mine (2000 tpd) = $85.76/tonne (2015)
    • Bolanitos Mine (1500 tpd) = $71.97/tonne (2015)
    • Guanacevi Mine (1200 tpd) = $88.04/tonne
So how do the numbers stack up?

To calculate the value we do this:

(resource grade/31.1) x recovery % = recoverable silver grade in ounces/tonne
  • ((181.9/31.1) x 0.76) = 4.44oz/t (recoverable silver grade)
Ore value = recoverable silver grade x $17.5 (a average silver price)
  • 4.44 x 17.5 = $77.8/tonne 
So, if the mine was operating now, it would be losing a bit of money, but this estimate doesn't include Capex, development costs, sustaining capital etc.

From this you can do 2 things:
  1. Calculate a break even grade for a project - calculate a grade where ore value = mining costs
    • $80/$17.5 = 4.57 oz/t
    • 4.57 * 31.1 = 142.2 g/t Ag (the break even grade at US$17.5/oz silver)
  2. Or calculate a break even silver price for a project
    • 80/4.44 = $18.01/oz
So at last month;s silver prices (thanks Janet), San Acacio would have been break-even at best.

Putting everything together, San Acacio has:
  • A small low grade resource
  • Low-moderate exploration upside
  • A company with limited ability to raise funds
  • Large property payment (~$6m) due in next 24 months
I can't see where Defiance can add significant resources, to get it to ~50M oz Ag, which will make it attractive to companies like Endeavour Silver or Santa Cruz that have recently acquired projects in the district.

If you want to invest in a junior silver exploration company. there are others that are better than Defiance.