After Aftermath Silver (AAG.V) has released some very intriguing samples from its Mexican San Andres project, we asked CEO Doug Ramshaw some questions.
– Can you tell us the background story of the San Andres property and mill?
The San Andres mining district was a prolific historical producing silver district. Silver production was responsible for much of the early wealth in the city of Durango. The San Andres mine was the chief contributor to that production during a period of operation from 1890 until the Mexican Revolution of 1915 and historical records suggest production during this time was around 15 million ounces of silver.
With the Mexican Revolution taking place the project largely lay fallow until the group we purchased it from picked up the ground and begun to invest in the project in 2006. As silver prices improved they invested upwards of $6-7 million to place the mine back into production including acquiring all the necessary permits and installing a 300tpd mill at site.
They ran in to some problems during this time through a combination of simply not having sufficient resources blocked off prior to the production decision (something we don’t intend to risk ourselves) and running a lot of oxidized and lower grade material through the plant that ultimately led to lower recovery rates that had been anticipated.
We began the process of negotiating to acquire the project and the mill in early 2013 finally concluding the deal a little over a year later. The cash and stock deal valued the transaction at approximately $600-700k or 10 cents on the dollar of the sunk costs. As part of the transaction we also maintain all permits on the project and believe the upfront transaction costs were appropriate given that as a fully permitted project we could fast track to production under certain conditions that would allow us to distinguish ourselves from a typical exploration story.
– Do you fully own both the mine and the mill, or are there additional property fees due? If so, can you elaborate a bit on this?
We fully own the project and mill subject to some royalties on production. A couple of the royalties are in the order of 4-6% NSR’s and we have options to buy them out at which time they would be replaced by a 2% royalty in favour of the project vendor. As part of the transaction we acquired one of the vendors subsidiaries that held all the permits and in doing so maintained them in favour of Aftermath. As a bonus we also inherited some 40,000,000 pesos in taxes losses (approximately $3 million) that can be applied against future profits.
– Is the mill turn-key ready? Are there mines are there in the neighborhood?
We used an engineering firm during our due diligence to assess the condition and the appropriateness of the mill. It was determined there was some need for refurbishment and the estimate at the time was a little over $3 million. I have since spoken with our engineers that believe there are ways of further reducing this number. But even if the $3M number is ultimately correct, we are confident that if we do our job the restart is financeable even in these challenging times for the junior resource industry as the San Andres mine has a very high average grade and the payback period would be short.
– We know you and your CFO don’t take a salary at this point to conserve cash. What’s your current cash position and are you looking to raise more cash?.
A consequence of the time it took to complete the transaction were significantly higher transaction costs and so I determined that the only way we could advance things was to maximize the money we had available for the project and our Mexican subsidiary. Hopefully this will be a short term sacrifice but it was a necessary one and one that I will stick to until such time as we are in a strong enough position to compensate my employees. I really appreciate their support of my decision and I think it will just push us harder to deliver.
Right now we have a little under $100,000 in Mexico as a consequence of recoverable taxes paid down there that should allow our sub to self-fund our Mexican activities until October. We are on fumes in Canada which is never a good place to be when looking to raise funds. I do, however, believe that the spectacular (and consistent) silver grades we have been returning from sampling the old workings, together with base metal and gold credits that far exceeded our expectations, should allow us to raise the funds required for a drill program after the rainy season.
– Your sampling results at San Andres are extremely promising, what are your next steps to fully discover the potential of the property?
We are very encouraged with what came out of the first phase of our work at San Andres with several multi-kilo silver assays. Our goal is to complete a 1,500 to 2,000 m drill program on the near surface ‘En Medio’-structure that should allow us to establish an initial NI43-compliant resource. If the metal prices cooperate, we’d be looking to get back into production in 2015.
Disclosure: The author holds no position in Aftermath Silver. Please see our disclaimer for current positions.