Guanajuato Silver Company

A diamond in the rough silver-gold opportunity in Guanajuato, Mexico



Experienced Canadian mining executive James Anderson spent seven-and-a-half years leading junior precious metals explorer NuLegacy Gold to drilling success in Nevada’s Cortez Trend, before seeking pastures new South of the Mexico-US border. “I got a chance to take over a company called VanGold; they had what I consider to be a ‘diamond in the rough’ mining project in Guanajuato, Mexico. It’s a city of 150,000 people and it’s been a mining community for 480 years,” Anderson tells RGN. In June 2021, the company renamed itself Guanajuato Silver Company to better illustrate the region and commodity it is focused on. “The project itself was a very high grade past producer about 110 years ago. A British and an American company were ostensibly mining two halves of the same epithermal system. In 1906 they decided to merge those two companies. That corporate entity became listed on the NYSE and they mined 400 tonnes per day of very high-grade material up until the time of the Mexican Revolution. The violence of that conflict drove the Americans home and that project just hasn’t had a chance to get going again since then.” The project in question is El Pingüico, which was the highest grade silver-gold mine in the region during its time of operation from 1890 to 1913, when it processed ore in what was then heralded as a state-of-the-art facility. 


Anderson reveals that the availability and accessibility of historic stockpiles at El Pingüico put Guanajuato Silver in pole position to acquire another asset – the El Cubo mine and mill complex – located just 8 km away by road.  


After conducting a considerable amount of due diligence on the asset, which has been on care and maintenance for the last 18 months, Guanajuato Silver finalised the acquisition in March 2021 for an exceptionally low entry fee of US$15 million, given that Endeavour Silver purchased the property for $200 million back in 2012. 


“When Endeavour closed it in 2019, they did it for a couple reasons but mostly because silver was $16 [per ounce]. Things change quickly in our business. They also closed it because it could no longer offer the returns for a big company like Endeavour, with its billion+ dollar market cap. For us, it’s very different.” 


Instead, Guanajuato Silver saw El Cubo as the perfect stranded asset that could be brought back to life to provide the nucleus for a combined project using the El Pingüico stockpiles as initial ore feed for the El Cubo mill.  


The TSXV-listed company is wasting no time with this undertaking and anticipates a four to six month refurbishment period for the El Cubo mill, at which point it will be ready to process silver and gold concentrate from the combined project in the fourth quarter of 2021. 


Leading with locals 


The acquisition of El Cubo resembles the execution of Guanajuato Silver’s long-held strategy to develop a portfolio of past producing projects in the Guanajuato region. This not only offers the chance to combine synergistic assets for scale, but also an opportunity to build a distinctly local company with a broad understanding of the intricacies involved in creating a mining project in the Mexican context; from geology to social components, mining laws and more.  


“If you look at a lot of the other junior companies out there, a lot of them will have a project in Peru, another in Mongolia and one more in BC. I’m sorry but you can’t do that,” Anderson stresses.  


“We’re not even putting a mine into production, we’re putting a mine and mill back into production that’s only been suspended for about 18 months, but there’s so many things to consider in such a short period of time, like who do you sell the concentrate to? What kind of terms are you going to get on that? What does the local community think about you coming back into production?” 


So, what has Guanajuato Silver learnt with regards to the wider implications of its ambitions in Guanajuato and how well does it understand the idiosyncrasies of this particular mining jurisdiction? First and foremost, Anderson believes that the operation should be run by local experts – namely the company’s COO Hernan Dorado and his father Gerardo. 


Hernan is a fifth-generation Mexican mining engineer and has worked on projects all over the world, before excelling to his current position at Guanajuato Silver thanks to his extensive knowledge of the El Pingüico deposit. 


“It’s not a position that a lot of Mexican mining engineers get to take on in their own country. I think it makes a big difference to our employees; having a local voice instructing them every morning, as opposed to me telling folks what to do.” 


The company has also taken the time to learn its position within the 480-year mining history of Guanajuato – where the continued preservation of the local ecology is of upmost importance – in tandem with best practice mining methods and corporate governance befitting a 21st century operation. 


As such, Guanajuato Silver maintains a strong connection with its local communities and strongly adheres to all local, state and federal regulations, particularly with regards to disposing mine tailings in a safe and sustainable manner. 


Valuable stockpiles 


The surface stockpile at El Pingüico is around 185,000 tonnes of material at 105 g/t silver equivalent (Ag eq) per tonne, according to the firm. This is moderate grade material by today’s standards, but during the mine’s former life over a century ago, it was deemed waste rock. 


“They decided there wasn’t enough value in there to matter; well it matters to us. We did a 1,000 tonnes bulk sample in June last year, so we know about the metallurgy and how it will recover in a flotation mill and we are very confident on the grade.  


“Underground, there is another stockpile. We think it’s about 150,000 tonnes of material as do the Mexican geological survey, who made an estimation back in 2012, although American engineering firm Behre Dolbear & Company were less generous in our recently completed preliminary economic assessment [PEA], giving us around 25,000 tonnes of material in the underground stockpile.” 


However, the underground material is of a higher grade – around 300 g/t Ag eq per tonne – and it floats well in a mill according to the company’s preliminary metallurgical work. The only challenge remaining is for the engineers to figure out how to bring the stockpile to surface safely. 


“That material is very important. Hernan always says it’s like oxygen for us to be able to put the thing back into production; knowing that the material is there to put through the mill on any given day is vital. 


“There’s also extensions of the epithermal vein systems below and laterally, which we’ve just started drilling. Our drilling is a little hit and miss right now, because geologically there’s a lot of stuff that we do not know about El Pingüico yet, despite these stockpiles.” 


A promising PEA 


Although preliminary in its nature, Anderson describes the resource estimate in the independent PEA for the combined project as numbers generated ‘on the back of a 214-page envelope’. Published in January this year, Behre put the total indicated resources at 718,655 tonnes for 7.2 million ounces (Moz) Ag eq and total inferred resources at 1.45 million tonnes for 20.3 Moz Ag eq.  


While the findings of the study certainly indicate a large resource base at the combined project, the figures – particularly the current seven-year mine life – don’t actually do justice to the sheer size of the mine at El Cubo/El Pingüico and its long-term potential. 


Many would consider the current mine life for the project as short, but it is based on real life, PEA-level data and a direct result of the style of mineralisation at El Pingüico. “It’s very difficult with these narrow vein structures to be able to drill enough to ever see more than five to seven years of mine life in front of you,” Anderson explains. 


“They’ve been mining these structures for 480 years. The Spanish Conquistadors figured out that there’s high grade gold and silver here within 60 years of Columbus sailing. To me, that’s remarkable and speaks to the longevity of these mines. 


“We have a big mine here that has been operating for 200 years on-off and there will be people mining here for another 100 years,” he declares. Guanajuato Silver plans to mine at a rate of 750 tonnes per day, in order to draw the material out of El Cubo and El Pingüico at a sustainable rate. “That’s going to be the formula, the magic, the alchemy that allows us to be profitable from an early point here.” 


Gearing up for production 


Guanajuato Silver’s chairman and CEO has always been a big believer in the precious metals investment thematic, with the current state of affairs in the international central banking space only strengthening his stance as a gold and silver bull. 


“If every central bank and every major Western nation’s treasury wants to bastardise their currency, they can do it. They have the technology to do that; it’s called the printing press. I’m quoting Ben Bernanke here, but they can do it.  


“In that context, what are the best acting currencies in the world? They are gold and silver. Gold especially is a currency, it has very few other utilities. Silver on the other hand has great utility in manufacturing and electronics. So I think that with our business, we have a huge bull market as a tailwind for what we are doing.” 


The recent arrival of former COO of First Majestic Silver Ramón Dávila to Guanajuato Silver’s board of directors has added further credence to the company’s ambitions for El Cubo and El Pingüico in Guanajuato. Dávila has the best CV in Mexican mining according to Anderson, after taking First Majestic from two employees to 4,000 and from zero production to 12 Moz Ag eq per annum. 


“This guy can put a project into production and can put a company into the limelight,” Anderson proclaims. With two excellent assets, including a working mill and ready-to-process stockpiles, Guanajuato Silver is all set to become Mexico’s next significant silver and gold producer before the end of the year.