Resource World Magazine

MINI NG Scorpio Mining ready for a strong rebound in 2013 by Mike Kachanovsky W hile there is a great deal of hand wringing among investors over mining companies these days, the overall bearish market conditions have presented an opportunity. As a group, the junior miners now trade at generational lows relative to current gold and silver prices. This represents a silver lining to the dark clouds of bearish sentiment; it has afforded investors the chance to step up and accumulate companies at bargain valuations. There is always some degree of risk associated with these companies, as mining is an unpredictable business and there are always numerous challenges that can generate unpleasant surprises on the operational front. This was a factor for Scorpio Mining Corporation [SPM-TSX], when the company reported that actual ore grades from its mine had been averaging well below the estimates documented for the resource report at its Nuestra Senora Mine in 2011. The stock had been trading near all-time highs, and has subsequently plunged in a severe correction in the aftermath. In the wake of the uncertainty over the resource numbers, the company commissioned a new study and reported an updated (and more conservatively calculated) estimate in 2012. The study documented a mineral inventory of 4,445,000 tonnes with resources of more than 13 million ounces of silver plus base metals. A review of operations led to several initiatives to reduce costs and improve efficiency. This program has begun to pay off. Throughput at the mill increased during the year, following a rising trend since 2009. Annual production came in at 2.3 million silver equivalent ounces. The company is generating net profits from operations even during this phase of lower metals prices. Scorpio Mining has accomplished a great deal at Nuestra Senora since acquiring the project in 1998. By the time 2004 rolled around, the company had built new underground infrastructure at this formerly producing mine, and completed construction of a modern mill and recovery plant to process the ore. Ongoing exploration work has outlined new resource zones, extending the mine life. An expansion program was subsequently launched that will increase capacity at the plant to 2,750 tonnes per day with Phase I of the build out completed in the last quarter of 2012. Currently the company is working toward commencing development at a second major mine within trucking distance of the mill. Operations have been steady and the company has been able to achieve high recovery efficiency in processing silver, lead, zinc, and copper concentrates. The cash flow from sustained operations at the mine allowed Scorpio to pay off its long term debt obligations and build a cash position in the treasury of more than 42 www.resourceworld.com Inside the processing plant at Nuestra Senora. Source: Peter Hawley $25 million. Meanwhile, the company actively accelerated exploration and development plans at two other projects in Mexico as part of its longer term growth plan. The most advanced of these is the Cosala Norte Project, comprising a package of properties to the north of Nuestra Senora, including the past producing La Verde Mine and the undeveloped El Cajon and San Raphael deposits. The mineral resources for these targets amount to more than 15.5 million ounces of silver at El Cajon, and 45 million ounces of silver at San Raphael, plus associated base metals. Scorpio Mining is now awaiting permitting approval before breaking ground on an entirely new mine development plan that will furnish production growth for the future. The company also controls an advanced project area in Chihuahua, the Parral District properties, which have yielded impressive exploration results. Several distinct vein systems have been identified within the property controlled by Scorpio Mining, and high-grade silver hosted within sulphide alteration bearing gold, lead, and zinc has been encountered. Continued exploration is slated to carry on at this project with further drilling planned for 2013. There are about 200 million shares outstanding for Scorpio Mining and, with the stock trading near multi-year lows, the market capitalization for the company is in the range of $150 million. For a producing junior with no debt, modern infrastructure, a large combined total resource, and strong growth in the pipeline, this represents bargain territory. Mexico offers a number of advantages for a junior mining company, including a rapid process to secure permitting approval, low operating costs, and highly prospective geology. Given that Scorpio Mining has already proven that the company can successfully complete mine development, and the next phase of growth at Cosala Norte will utilize the efficient processing plant already established for Nuestra Senora, it appears the hurdles ahead for the next phase of growth are well within the capabilities of the current management team. n

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