IMPACT Silver is an emerging silver producer whose primary properties are in an area of Mexico with a centuries-long history of prolific silver production. The company currently has four mines that feed a mill, producing silver-lead and zinc concentrates. The mines and mill are located in the town of Zacualpan, southwest of Mexico City, about three hours driving distance. In March 2008, the company invited me to come to Mexico to participate in a mine tour, described in this report.
Day One: Arrival
I flew in to Mexico City on the afternoon of March 29th. The members of the group congregated at the airport, arriving over the course of a few hours. When all of us had arrived, we headed over to the Marriott Hotel at the airport for dinner at Los Huertos. The tour group consisted of:
Š Sean R. – IMPACT Silver Investor Relations consultant
Š Paul F. – Professional Investor
Š Greg M. – Newsletter Writer and Precious Metals Dealer
Š Mike P. – Editor, Investor’s Digest of Canada
Š Nick W. – Professional Investor and Director of MineServe LTD (UK)
Š Mike Z. – Investment Advisor, Haywood Securities
After dinner, a van arrived at the hotel and we all piled in for the three-hour drive to Zacualpan. This was not my first trip to Mexico, but it was the first time I had been in Mexico City. The sheer scale of the city is almost mind-numbing and it took almost an hour traveling at a decent clip to reach the outskirts.
Upon arrival in Zacualpan, we checked in to the Hotel Mineros in the center of town. Zacualpan is a small town with a couple thousand residents. The closest analogy that came to mind for me was central Italy with it’s hill towns and stone-paved streets. The rooms at Hotel Mineros are about as luxurious as a monastery, but I found them to be clean, well maintained and perfectly suited for our purposes. The hotel staff is wonderful and their hospitality is sincere and abundant.
Day Two: The Royal Mines of Zacualpan
After breakfast at the hotel, we walked through town to get to the pickup trucks that were waiting to take us over to the mine offices. Saturday is market day in Zacualpan and the vendors who had begun setting up at 4:00 a.m. directly outside the hotel were in their stalls, ready to do business.
Once at the mine offices, Fred Davidson, IMPACT’s CEO and George Gorzynski, a senior geologist walked us through the latest corporate PowerPoint presentation and described the itinerary for the day.
The first mine we went to see is called the El Chivo Mine. El Chivo is a few kilometers from the mine offices, so we got in the trucks and rolled out. We stopped along the way a couple of times. During these stops, Hector, a senior exploration geologist would tell us about the geological features of the landscape and point out where old workings were located.
Hector would point to half a dozen places, identifying where mineralized veins had been identified. Each vein is named and Hector not only knows their names, but also described the type of mineralization and silver, zinc and lead content for veins they have sampled. To say that his knowledge of the area is encyclopedic borders on understatement.
In some cases, the appearance of a tree in the middle of a cornfield is an indicator that an old shaft or opening is located there. In many cases, information about locations of old workings comes from simply speaking to the locals: farmers who work the land and miners who have lived in the area all their lives.
La Guadalupe/La Gallega
After returning from El Chivo, we went to see the mines which are adjacent to the mill: La Guadalupe and La Gallega. IMPACT acquired the mill and associated mines from a car dealer based in Mexico City who prided himself on having operated the mill and mines without having invested a dime into them.
While this was an arrangement that worked well for the owner, over time it had been detrimental to the mill and the morale of the workforce. After IMPACT acquired the operation, the mill was completely refurbished and mining operations were brought into compliance with modern safety standards and practices. Morale turned around as it became clear that the company was now being run in a manner that would benefit everyone.
The entrance to the Guadalupe mine is about 100 meters from the mine office. After walking into the mine entrance, we came to an elevator that is used to access the lower levels. Another elevator is used to bring ore to the surface for processing after being mined. Down below, the underground tunnels run for kilometers. The company is looking at planning to put in rails that will move the ore more efficiently from where it is being mined to the ore shaft.
First the ore is passed through a large grate, called a “grizzly”. Most of the ore passes through, but the rocks that are too large are broken up until they do fit.
The ore is passed along a set of conveyers through a couple of different types of crushers: a jaw crusher and a cone crusher.
After passing through the crushing circuit, the ore is sent to a ball mill. IMPACT has a couple of ball mills in operation. These mills are huge cylinders that contain dozens or hundreds of steel balls. As the cylinder turns, the balls are raised up by fins on the inside of the mill and then gravity causes them to drop onto the ore, essentially turning gravel-sized rocks into powder.
The powder is then run through a concentration circuit that looks like an industrial mud bath. After this step, the concentrate is run through a process that removes some of the water, yielding a product that has the consistency of clay. The concentrate is then taken in batches and spread across what looks like a parking lot to dry in the sun.
When the concentrate has dried enough, it is scooped up with a front-end loader and dumped into trucks that bring it to a smelter. The dried concentrate is the final product from the mine and mill. It is at the smelter where the concentrate is processed into zinc, silver and lead ingots.
Day Three: Exploring The Mamatla District
About a year ago, IMPACT hired a senior geologist who has been dedicated to the formidable task of assimilating data regarding the old mine workings on their properties. In that time, the number of known workings has increased from fewer than two hundred to over nine hundred. IMPACT expects that number to grow to over two thousand by the time the survey is complete and that this effort will require approximately two more years.
Information about locations of old workings come from: walking the properties, speaking to miners in the local population, speaking with farmers, historical data that was acquired from the previous operators of the Guadalupe mine and data obtained from Valerie Gold.
As IMPACT inventories these workings, information about them is fed into a Geological Information System (GIS). The information being collected includes: the condition of the working (collapsed, intact), size of the working and sample grades of mineralization. As the pictures below depict, the areas hosting a large number of workings are beginning to look like blurs. When an old working has been located, field work includes:
- digging it out
- draining the water
- sampling the rock
- mapping the site
For the Mamatla district, the company has compiled 27,000 assays and analyses. Each analysis has 40 cells associated with it, so this effort is amassing an enormous amount of data and they are still relatively early on in the process. As they are still collecting data on the workings that have already been identified, IMPACT is not actively adding to the list. Even without an active search effort underway, they are still adding 10-14 new occurrences every week.
Previous Work At Mamatla
Mamatla was previously explored by Valerie Gold, in the mid-1990’s. The company spent over $10 million exploring and developing the Aurora and Capire deposits, but were not able to bring them into production. The main reason why they were not able to proceed to production is that they had spent the money they raised quickly in order to capitalize on what was a hot market at the time. Then the Bre-X scandal rocked the industry and it was impossible for most juniors to raise additional funds after that.
Known Mamatla Deposits: Aurora I and Capire
Valerie Gold was able to identify two deposits in the Mamatla district: Aurora I and Capire. There are resource estimates for each of these deposits, but the estimates pre-date 43-101 reporting standards and cannot be relied upon under current regulations. The historical estimates are:
Capire: 1,154,000 tonnes @ 73g/t Ag, 0.22g/t Au, 0.45% Pb, 1.13% Zn
Aurora I: 194,000 tonnes @ 180g/t Ag, 1.28g/t Au, 2.13% Pb, 4.45% Zn
These deposits are of a different character than the operating mines that IMPACT has in the Zacualpan district. Those mines are narrow-vein, high-grade systems. The Mamatla deposits are more widely disseminated systems and are of a type known as VMS systems or Volcanogenic Massive Sulphides. While IMPACT has yet to conduct any deep drilling, one intriguing aspect that may hold the key to massive upside is the possibility of a copper-gold layer of mineralization that lies underneath the silver-lead-zinc layer. We did not discuss this in detail, but it was clear that the geologists believe that this potential merits further attention.
I have owned shares in IMPACT Silver since late 2005. Over that time I have had the opportunity to watch the company grow and develop. My impression has always been that IMPACT is a company being run by extremely competent mining professionals, focused on building a profitable company. It was an honor to have been invited to participate in this mine tour and I am grateful that I was able to do so. What I experienced on the tour only served to strengthen my conviction that initial impressions and instincts were valid.
What you frequently hear cited as the single most critical success factor in mining is the people. Having a great property is meaningless without the personnel with the experience, skills and knowledge to make a successful business from it. Given the ongoing boom in the mining industry, attracting and retaining the right people is no small feat in itself.
I was repeatedly struck by the quality of the people I was able to meet and spend time with on this mine tour. There is just no way that anybody can get a sense of this any other way. Conversations on a trade show floor can give you an indication in this direction, but that’s only scratching the surface. Being able to spend a couple of days with the management team, the geologists, the mining operations managers and yes, even investor relations, provided insights that just cannot be gotten any other way. IMPACT gets high marks on all counts. The team of senior geologists were particularly impressive. Each of these guys can literally pick the company for which they would to work and that they have chosen IMPACT speaks volumes. It’s a great company in a great locale run by a great management team and that is what has enabled them to attract professionals of such high caliber.
Another critical success factor in the mining industry is land position. IMPACT has secured two massive districts, Zacualpan and Mamatla, that the geologists referred to as a “100-year project”. There is no question that, just as this area has been mined for centuries, that there is huge potential there for more years than I will see in my lifetime. While the company has made enormous progress on just understanding what they have in their concessions, a great deal of work remains to be done to complete the picture. In a couple more years, IMPACT will have a much clearer idea as to what they have and with what has already been done, it will certainly be world-class.
Finally, out of the many hundreds of junior exploration companies out there, very few of them will be able to make the transition to becoming a producer. IMPACT, while having the exploration potential of the best of the juniors, has already made that transition and are well on their way towards becoming a mid-tier silver producer. The analogy that comes to mind is of a well-oiled machine. The pipeline of deposits is stuffed full and finding the next one to put into production is not the issue. The issue is to inventory and prioritize the production-worthy deposits.
Last but not least, I think it is important to mention that the people of Zacualpan are also beneficiaries in this process. When IMPACT began operations, the town was in a state of decline. Now that they have gotten the mine turned around, the wealth that is being created is becoming apparent in the local community. Whereas you would never have seen new cars, trucks or houses before, they are starting to appear now. The townspeople have a long affiliation with mining and I am sure that they are seeing a brighter future in their community with a renewed confidence.
I am sure that there will be challenges along the way as IMPACT continues to grow the company and their production. But what is equally clear is that they have the team in place that is up for anything that comes their way. As I packed my bags, said my goodbyes and headed out of Zacualpan, I felt very good about being an owner of this company.
The entire set of photographs from the tour are available here: