April 10, 2015

BIG PICTURE - Arian Silver on path to profitability at San José

Arian Silver's (LON:AGQ, CVE:AGQ) arrival as Mexico's latest silver producer, as announced by chief executive Jim William's at last month's PDAC conference in Canada, marked a significant turning point.


Founded a decade, ago, the firm's road has been a rocky one, but investors are sure to be cheering the fact it finally now looks set on a path to profitability.


Commissioning is now in train at the newly finished and fully permitted ‘La Tesorera’ processing plant and first silver-lead concentrate was produced in late March.


The firm has also pressed go on the zinc circuit and expects first zinc concentrate in the second quarter.


The plant in Mexico's world renowned silver belt has a maximum capacity of 1,500 tonnes per day (tpd) and the firm is currently running through around 750tpd of ore but the throughput will be ramped up over coming months.


City broker Northland reckons production will ramp up first to 1,199tpd with a further expansion planned to take it to 1,500tpd in the first half next year.


Williams has said he sees the silver price heading north, along with gold, from where it is now at around US$16 an ounce and would like to see it at US$20/ US$25 per ounce. The miner's all-in sustaining costs are US$14 per ounce, which gives an idea on margins.


As Williams explained the San Jose property had no resource at all in 2005, but now boasts 120mln ounces of silver along with 'significant' amounts of lead and zinc.


The current mine life is 10 years but there is plenty of potential to increase the resource and the miner has just finished a further 5,000metres of drilling.


Of particular interest is part of a skarn deposit, which goes into Arian's land package in the north east of the property.


Fresnillo (LON:FRES), the world's biggest silver miner, is 40 miles down the road, while the infrastructure, water access, climate and stable government in Mexico all add to the plusses of the Arian story.


Somewhat ironically, the mill (processing plant) is now key to the firm's success but quite the reverse was true in the past when issues surrounding processing have looked like sabotaging the whole project.


A dispute with a previous toll mill owner meant production stopped entirely between 2012 and 2013 but then restarted at the Juan Reyes mill.


However, the firm had its eye on the El Bote plant (now renamed La Tesorera) which it knew would be suitable for the composition of the San Jose ore and purchased it in 2013, removing the need for expensive third party involvement.


To the outsider, the plan for El Bote seemed long winded, but it seems the hard work has paid off, as El Bote was reconditioned in situ, dismantled, then transported and reinstalled at San Jose..


Williams pointed out that the firm paid US$3.5mln for the second hand plant - a piece of kit that, brand new, would have been US$40mln plus.


Also on the positive, the group is also fully financed to full scale 1,500tpd production having struck a US$32mln finance facility with Quintana late last year and, significantly, it has bought the 2% net smelter royalty from the previous project owners at a reduced price, which, as William's pointed out, should improve the bottom line.


Williams said at PDAC that he believed Arian was "significantly undervalued" by the market.


"We are actually in production but we are valued right now as if we were into bankruptcy," he told those assembled.


Arian shares are unchanged today at 27.75p each.



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