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Santacruz Silver Mine Site Visit

Rosario Mine - San Luis Potosi, Mexico


In April 2012, with the silver price hovering around $30/oz., Santacruz Silver Mining (TSX-v: SCZ) came bursting out of the gate with a fresh public listing, a $20-million financing, and three past-producing silver properties in Mexico.


The company’s lineup of projects, including a low-capital starter mine, followed by two more substantial silver mining projects, combined with proven management, set the company up for rapid, organic growth. Analysts endorsed the company, excited by its potential to be a 5+ million oz. mid-tier silver eq. producer by 2016 through the projects it already controlled.


In 2013, the company ramped up silver production from their first mine. A year after commissioning, it is months away from returning cash from operations. Meanwhile a larger silver project could turn into their second mine and if this comes together, 2014 could be a breakout year.



I flew to San Luis Potosi, Mexico in October and visited Santacruz Silver’s new silver mine. As an investor I wanted to review the project, meet with key managers and get an update since SilverSeek’s last site visit a year ago.


The company’s main focus since going public has been advancing its Rosario project in the State of San Luis Potosi up and running as a 500-ton-per-day operation. With mining and environmental permits already in place and CAPEX at a modest C$12.5 million, the company forecasted production to begin as soon as early 2013.



The mill was assembled very quickly, in just three months but production plans were pushed back due to longer than expected explosives permit, meaning a four-month delay in construction of the main access ramp. The company compensated by starting work on smaller side adits.


The company has been moving mine development forward, led on the ground by Francisco Ramos as COO with more than 30 years of mining experience and eight mines already built. The company made significant progress on access to ore from the main ramp, and by mid-September had intersected both vein structures. 


Santacruz now expects the mine to become cash-flow positive by the end of this year with about 300 tpd production. By the end of the first quarter of 2014 it plans to have production up to 500 tpd, making about 2 million oz. silver eq. of production per year.


Due to the small CAPEX required of $12.5 million to build Rosario, and so much information on the property (more than 30,000 meters of diamond drilling historical and from Santacruz) the company didn’t issue a prefeasibility study, so we will have a clearer picture in the coming quarters of the kind of cash flow and earnings the mine will generate. But Santacruz’s President and CEO Arturo Préstamo Elizondo believes the mine should operate at an attractive $11-12 per silver eq. oz.



In terms of lifespan, the current resource sits at 981,000 measured and indicated tonnes grading 175.7 g/t silver, 0.9 g/t gold, 1.17% lead, and 2.9% zinc for 10.2 million silver equivalent ounces, giving a mine life of about 6 years. But the resource only covers 500 meters of the known 2.5-km strike length of the veins, and to about 200 meters depth, so there’s definite potential to establish more resources in Rosario’s zones of low-sulfidation epithermal, mesothermal, and skarn geology.



Rosario has always, however, only been a stepping-stone to Santacruz’s more ambitious San Felipe and Gavilanes projects.


Santacruz bought the 16,000-ha. San Felipe project in Sonora State from Hochschild Mining for $40 million, spread out over a few years. Santacruz recently secured a deal to delay the final payments on San Felipe and the nearby El Gachi project, with Santacruz to pay $6 million by October 2014 and $16 million by October 2015.


The company thinks they can develop San Felipe for about $45 million, though a prefeasibility study should give a better picture when it comes out late this year or early next year.


Though it doesn’t have the study out yet, Santacruz is looking at an initial mill capacity of 800 tpd, which will yield annual production of about 2.5-3 million oz. silver eq., while full capacity will be closer to 1,500 tpd.


The project is already well along, thanks to Hochschild spending $18 million on the project between 2001 and 2008. San Felipe already has water and environmental permits, a surface agreement in place with the locals, and 18,500 meters of drilling results, plus 13,000 more executed by Santacruz on its Phase I of diamond drilling campaign.


Based largely on Hochschild’s drilling the project has a measured and indicated resource of 4 million tons grading 70 g/t silver, 5% zinc, 2.77% lead, and 0.28% copper, with seven vein structures already identified.


Santacruz has been working to upgrade the resource, with 13,000 meters already drilled and a further 12,500 meters underway.


Results so far are encouraging. On the Las Lamas vein the company hit 6.5 meters grading 721 g/t silver equivalent in hole 5, and on hole 4 it hit 2.4 meters grading 823 g/t silver eq., while the Ventana vein yielded a 5.8-meter intercept carrying 918 g/t silver eq. So far the company has intersected Las Lamas for 300 meters on strike, and says La Ventana is proving to be a robust silver-polymetallic vein with high copper, zinc, and lead grades.


High grade results were announced in October from the previously untested Transversales vein, including 11.8 meters grading 116 g/t silver eq., 3.4 meters carrying 324 g/t silver eq., and 2.6 meters averaging 409 g/t silver eq.


For 2014 Santacruz will be looking to make a production decision at San Felipe and possibly begin mining development work for an anticipated 2015 production start.


Gavilanes, the third silver project in the lineup, is an earlier stage project in Durango State. Santacruz bought Gavilanes from Hochschild and a private group for $5 million, plus a 3% NSR capped at $3 million. Hochschild put 3,200 meters of drilling into Gavilanes, drove a 475-meter exploration ramp, and completed a geotechnical study. Thanks to the previous work, Santacruz thinks it can develop a +3 million oz. silver eq. per year operation for around $40-45 million.


Santacruz drilled 6,000 meters at Gavilanes in 2012 and 2013, with results including hole 22 that hit 2.8 meters grading 2,540 g/t silver, hole 5 that hit 8.5 meters grading 692 g/t silver equivalent, and hole 12 that returned 4.6 meters carrying 1,687 g/t silver.


With results from the first round of exploration looking good, the company launched a +16,000-meter follow up program this year. Results from the second round included a 7.4 meter intercept grading 256 g/t silver, and a 4.6 meter intercept grading 1,687 g/t silver. The company says this confirms the continuity of high-grade mineralization on the GSA vein.


In July, the company postponed the Gavilanes exploration program to conserve capital while it concentrates on making Rosario into a cash-generating operation. But the company already has enough drill results to complete an initial resource on Gavilanes, and expects it out by the end of the year.


Speaking of capital, Santacruz had a little over $10 million in cash at the end of June. The company raised $40-million at $1.85/share in February, but $16-million of that went to a payment on San Felipe.


The company’s share price dipped with the rest of the silver stocks to a low of C$0.85 cents in June from a high near $2.50 a share in 2012, but has since recovered to around $1.10. The company will have to raise more capital sometime next year if it wants to both start work on San Felipe and finish paying for it, but with 38% of shareholders insiders and another 31% institutional, the company looks to have loyal support.


Chart courtesy


Looking longer-term, it’s easy to see why. If Santacruz can spring back from its early snags and get back on its development timeline, the company should become a 5+ million oz. silver eq. mid-tier silver producer in the next three years with just Rosario and San Felipe producing, and then scale up even more if it brings Gavilanes online as well.



Driving past many small Mexican towns and villages in the surrounding valleys of San Louis Potosi, I left Rosario thinking of 2014. Santacruz may well be the fastest growing silver miner in the coming year. 2013 required a lot of hard work to bring the first mine into production and ambitiously moving towards building mine two. It will turn Santacruz Silver quickly into a mid-tier silver producer yet still relatively unknown since their IPO is just a year and half old.



SantaCruz Silver has the right combination of property, people and place to build this relatively new company into a successful producer in the years ahead. With their first silver mine about to kick on positive cash flow combined with an initial resource for Gavilanes, a prefeasibility for San Felipe, and production results from Rosario all expected shortly, investors will soon have a much better picture of Santacruz’s true potential. I believe it will demonstrate a company developing into one of the next successful mid-tier silver producers and one of the best silver growth companies for 2014-2015.


- Peter Spina, President of


Shares Outstanding

91.3 million


2.4 million


6.6 million

Market Capitalization

$99.5 million

Insider Ownership




Peter Spina's experience with the precious metal markets started back in the mid-1990s, which led to the creation of back in 1995. Today ranks in the top three most popular global gold websites and its sister site, ranks as the most visited silver website in the world. Back at the start of the new secular precious metals bull market, Peter established the technically-focused subscription newsletter, which at the start of 2005 was merged into the more comprehensive Gold Forecaster ( service. In addition to the newsletter and websites, Peter frequently appears in the media including MarketWatch, Reuters, and Investors Business Daily.


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