Kevin Drover: We’re on The Runway to 2020 Silver Production (Aurcana Corporation)

Aurcana Corporation has 100% ownership of the world’s highest-grade silver mine (P&P): the Revenue-Virginius mine in Ouray, Colorado, USA. This fully-permitted mine will also be one of the lowest-cost silver producers in the world at only US$8/oz Ag (AISC) after byproduct credits.  Aurcana is currently securing the final capex needed to commence production which it expects to accomplish in Q4 2020. The company is currently deploying $15M of the needed $37M CAPEX.  In this interview, Aurcana CEO Kevin Drover provides an update on the progress of the Revenue-Virginius mine.

Kevin Drover has over 40 years of both domestic and international experience.  He was previously VP Worldwide Operations at Kinross Gold and possesses experience in all aspects of mining industry operations, process re-engineering, project development and corporate management.

0:15 Introduction

1:20 Just closed C$5.87M oversubscribed placement

2:01 Currently deploying $15M of needed $37M CAPEX

3:16 Update on potential debt facility

4:42 Why Aurcana will succeed when past operator failed

9:12 Concerned at all about cost overruns?

10:27 When will mill be at full capacity?

12:35 First year production will be ultra-high-grade for quick debt payback

13:23 Increasing LOM efficiently

16:30 Future growth plans at RV mine and beyond   TSXV:AUN   OTC: AUNFF

Aurcana’s Investor Presentation:


Bill Powers: Kevin, thank you for joining me again. And how about you give us an update on this financing you just closed. How much did you raise? What’s the significance?

Kevin Drover: Good to be here, Bill. We just closed the financing, the second tranche of the latest one that we started in January. Looks like the total came in just right around six million. That’s way oversubscribed from the four million that we initially went to the market with. Since September when we started out to get the equity piece that we needed for the project Revenue-Virginius mine, we’ve now pretty much got $15 million in the door and it’s gone reasonably well.

Bill: And that $15 million is being used currently towards that initial, I believe, $37 million of Capex needed to bring the mine into production.

Kevin: Yes, that’s correct. We’re focused now on the revenue of Virginius, the Virginius North that we announced some time ago, which is the first phase of getting up to the very high grade portion in the Monongahela and the idea being is that we would get up into the upper zones where the highest grade is and it’s some 50, 60 ounces per ton up in that area. But as we get the raises completed, we’re going up through an area of inferred resources to get to that area and we hope to convert those into M and I resource and add about two years of mine life, we think, to the project.

Bill: We’d be looking at eight years of mine life to start off when hopefully we’ll be producing by the end of this year?

Kevin: That’s correct. We’re focused on getting ourselves into production in the fourth quarter. That’s what we’re working toward right now. The conversion of that inferred area should take us to about eight and a half years with those added two years. We got six and a half years of proven and probable reserves as it stands right now and we would hope to add two more years to that.

Bill: You did this equity raise, but you also said in our last interview that you’re looking at a debt facility for the remainder of the necessary Capex, but I think it’s important for the listeners to know that you’re currently on that runway to production with the financing in September and the financing was just closed. But can you give us a little more information, whatever you can publicly share now about this debt facility you’re looking into?

Kevin: Yes. Well of course the equity piece is an important part of that debt piece, we need to get that done. We are in discussions with a number of very reputable debt providers. Of course I can’t say too much about that, but we are in discussions with a number of them and we certainly hope to be able to get our debt facility in place. Right now, at the RV mine we have one full crew that’s, in fact, up and running and we’re producing, doing development work that we need to do. As of today, we’re starting to add three more crews so we’ll be going full tilt ahead in terms of starting our development work underground.

Bill: And I suppose that would speak to your confidence level because you’re kind of known as a cost cutter and a slasher so if you’re ramping up the further development, you feel good about your prospects of closing the debt deal?

Kevin: I certainly do. It’s not done till it’s done, but like I say, we are going down that path with a number of very reputable people and we certainly hope to get that done in the near future.

Bill: After our first interview, I had some feedback from listeners and one of the concerns was regarding the Revenue-Virginius mine and the objection was, “well if the last operator couldn’t succeed, how is our Aurcana going to succeed?” What would you like to share with the investors listening to us regarding this?

Kevin: Well, I think there’s two things that became problems for the previous operator and one was the mining method that they used. They chose to go in with a shrinkage mining method, which is highly dilutive to the ore body itself. As you know, this is a very narrow vein mine, it’s about one and a half feet is the mining width of the vein itself. That was one thing. The problem with the shrinkage method is the amount of development that is required to sustain that. Geotechnically, it creates some problems and you have to have smaller stopes as opposed to the resue mining method, which is a really a modified cut and fill and that’s what we’re using. The resue mining method is a geotechnically it’s much more stable. We can have much larger stopes, 500 feet by 300 feet as opposed to shrinkage where it’s more or less a 100 feet by a 100 feet. Which means that you’ve got way more development than we would have under the resue mining method. I think that is a very big difference.

The resue mining method, some people say, “Well, this is an untested method.” In fact, it’s not. It’s probably the original mining method. It’s the method that was used particularly in this mine by the AJ Reynolds family for 36 years when it ran from 1876 up to 1916, I believe. It was all done with the resue method and they were profitable every year that they operated that mine.

The second thing, I think that the previous operator, they went into this, I believe under capitalized and in a narrow vein mining environment, when you don’t have enough money, you tend not to get your development far enough out in front of you and that’s kind of the kiss of death in these types of mines. You have to have your development far enough in front of you that you can produce on a consistent basis. If your production is bumping up against your development, that’s going to be a problem for you for sure. I think those two things, the mining method they chose and the under capitalized nature of the company at that particular time were two of the predominant problems that led to their demise.

Bill: And prior to this restart, you did do a feasibility study. The testing of this method I’m sure was done as part of this feasibility?

Kevin: Yes. And as matter of fact, the SRK did the feasibility study, SRK out of Denver. They tested the mining method. It was a full technical crew that was brought on by Lascaux Resource Capital at that particular time. They did four different runs, test mining, to prove the resue mining method along with the proving it up that the method was in fact good. They also developed their productivities for the feasibility study. They developed their dilution profile for the feasibility study. We, subsequent to that, we did sensitivities on dilution on productivities, what effect those things would have on cost and so on and so forth. And those sensitivities proved to be very minor. You can have excessive dilution because the mill is designed for 500 tons a day.

Our mining rate is only designed for 270 tons a day. Even if you had more dilution, which I don’t think we will get from the work that I’ve seen, the mill can handle the added throughput. And from a productivity perspective, we are looking at using five man crews in our stopes. Even if we ran scenarios of up to eight and 10 people in our stopes and the effect on productivity, the effect being that it adds a couple of dollars per ounce so it goes from $8 an ounce to $10 an ounce in terms of all in sustaining cost kind of thing. I think that the mining methods that were used, that the fact that we tested this, we know how it works, we need good people for this and that’s one of the things that we do. We have to get good people but we know where to find those.

Bill: You’re not concerned about cost overruns then with the proposed $37 million CapEx from when you initially announced to production. You’re confident that this number that we put out there will get us to production.

Kevin: I’m always concerned about cost overruns. You’ve got to manage those things. It’s like anything else. We believe that we’ve got enough wiggle room in that $37 million to get ourselves to production without exceeding that. But it’s all about cost control at the end of the day. We just recently hired a new general manager for down there, a gentleman by the name of Mike Lee. Mike is well known in the business and got a lot of experience with narrow vein mining and has been doing this a very long time. And he’s worked for such companies as Coeur and believe Hecla as well and companies like that. We brought him online in preparation for the startup of the development plan and so on. I will be moving down to the site as well, probably sometime late March. Our focus is going to be solely on getting this thing into production. That’s where our efforts are going to be. We’ll get our debt facility in place, we’ve raised their equity and execution is the next step here.

Bill: Your feasibility study says that the mill will be at 60% capacity. At what point do you plan to increase that?

Kevin: Well, we still have some work to do on that, but yeah, the mill is a 500 ton a day mill. The planned throughput is 270 tons per day. I think that’s about 60%. the first thing that we want to do is attain the feasibility parameters which is, the 270 tons a day. We want to get our recoveries in the mill. We want to get our productivities in the stopes, we want to get those costs profiles and so on solid. We want to make sure that we’ve achieved those. Once we’ve done that, probably in the second year we can look at filling the mill. We would need to develop additional stopes in order to increase the throughput but we have the capability of doing that. We have the strike length on our Virginius vein is extensive, well over 15,000 feet. It’s really to develop out laterally and to increase that throughput.

A second means of increasing throughput as well is we’ve done some work on a dense media separation, ore sorting basically. And the preliminary work that we’ve seen suggests that we can discard about in excess of 60% of the rock with only a minor losses, about two and a half to 3% metal losses, which means that if you wanted to go higher than the 500 tons per day, you put an ore sorter in front of the milling circuit itself and you could conceivably, without too much work, you could actually increase the tonnage much higher than 500 tons a day. The mill will only see a maximum of 500 but you could actually mine more than that out of the stopes, sort it and you put a higher grade into the mill basically. That’s another avenue that we have to organically grow our production at this particular mine.

Bill: My understanding is that that first year of production should beat the average grade and annual forecasted production that’s laid out in the feasibility study. Can you talk about this?

Kevin: Yeah. Well, our production profile is designed to pull grade ahead in the early years so that we can pay off any debt that we have rather quickly. We’re going to be going into the mine, in the Monongahela up in the 600, 900 levels, those stopes that are up in the upper portion or the highest grade, and they run 50, 60 ounces per ton, even higher than that actually. Our intention is we’re going to pull that ahead in the first couple of years so that we very quickly be able to, we’ll be able to repay any debt that we have.

Bill: What are you going to do to increase the life of the mine of efficiently? Did you just touch? On that or is there anything more to be said about that?

Kevin: Oh, I think there’s a lot more to be said. When you look at this, pretty much most of our reserves that we have, we do have some reserves on a couple of the other veins, but the majority of our reserves are on the Virginius vein and they’re contained within about 4,500 feet of say 15,000 feet of vein strike length. And even more than that. We recently acquired the Blue Grass claim, which I sort of think that may very well be a game changer for us in terms of grade access, easy access to additional resources whatnot. We plan a drill program on the Blue Grass in the summertime. It’s about $300,000 we’ve allocated for that drilling program. We hope that will prove up at least a year of additional resources reserves kind of thing. And we have the option of other, for instance, extending to 2,000 level out through the Blue Grass claim and you could easily again develop resources and whatnot out that way and take assays of our production development or our development I should say.

That’s easy. We do have a program, a three phase program to the south that we believe will prove up about 25 million ounces. We have to do some work. We do have assays from that southern area, from the historic mining that went on there in the early days. We do have some information that looks really, really good. We believe that this is going to be a very long life mine. And I think that’s one of the things here that people don’t understand about this mine is that it’s not a six and a half year mine life. It’s probably more like a 60 and a half year mine life. These mines typically run a very long time. Mines in this area ran well over a 100 years and they didn’t run out of ore at those particular times. Newmont operated Adorado mine, I believe it was something like a 120 years. This region is very prolific. It’s a mining heritage. There were some 3,000 mines here in the heyday of the San Juan’s kind of thing. We are the only ones in the game. We have the only permitted mill. We have the only milling facility in the area. There’s other mines and other potential operators but we’re the first in the class here right now.

Bill: You’re on the runway to production. It still looks good for production this year, but when do you absolutely need to receive the debt facility to still make it into production this year?

Kevin: Well, we think that, we’re on our runway right now. We’re actually doing development. That’s, as we do that we’re reducing the timeline to production. If we get our debt facility in place by May, June, I think we will still be in pretty good shape for us to be able to make production in 2020.

Bill: And then in terms of growth beyond the revenue Virginius mine, you have the fully permitted Shafter mine in Texas, what would you need to see there in terms of your balance sheet within the company or the external silver price rising before you might do something with that mine?

Kevin: Well the Shafter mine, it’s fully permitted. There’s a 1,500 ton a day mill sitting there. We’ve kept it on care and maintenance. We completed a PEA on it, I believe in 2017, and updated PEA. It showed about a 22 million NPV, I believe with a 48% IRR at $18.50. We would not at this stage of the game, given where we are with the silver price, spend a lot of time on Shafter right now. It doesn’t cost us a lot of money to hold it. But if we saw a silver price north of $20, and increasing, we certainly could, maybe with some cashflow out of the Revenue-Virginius and it’s not a lot of money we’re talking about here. We would want to do some additional drilling down there to prove up the ore body itself and fill in some of the blanks that we’ve got. And once we did that, then we would certainly do a pre-feasibility or a feasibility study on it. But we wouldn’t do that till we got somewhere north of $20 and had the revenue of Virginius mine in operation. Focus being revenue of Virginius. The Shafter project is certainly in the pipeline for growth if we choose to do that.

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