TSXV-listed IMPACT Silver is now well into its 15th year of continuous production in the Royal Mines of Zacualpan district in South-central Mexico. The region has a long and rich history of mining activity going back to the 15th century when indigenous peoples mined silver and built temples in the current location of Zacualpan town, before the Spanish conquistadors arrived and extracted gold and silver for several centuries, leaving thousands of historical mine workings. IMPACT Silver took up the mantle of silver production in 2006 and has produced over 10 million ounces (Moz) in the last decade and a half from multiple mines within its 211 km² land package encompassing two contiguous mining districts.
The properties are comprised of a series of epithermal veins which range from very high-grade sections to lower grade, intermediate mineralisation. In recent years, the firm happened to be working on lower grade sections which – along with depressed silver prices – contributed to a marginally profitable operation. However, a new production strategy for the district and positive developments in the silver price this year are set to add new shine to IMPACT’s horizons. “First of all, we’ve had some discoveries that suggest there’s a lot more happening in this district than previously we could say,” president and CEO Fred Davidson tells RGN. “Secondly, our leverage to the silver price is dramatic. When silver goes from $13-14 [per ounce] to $26-27, that virtually goes straight to the bottom line.”
“What makes us somewhat unique is that we are a dedicated primary silver producer, over 90% of our revenue is from silver production,” Davidson continues. “Recently we have been marginal in terms of profitability, but we’ve got a district–wide programme that’s going forward after a recent financing.
“In August, we completed a C$9.5 million financing from the issuance of about 10 million units of the company at C$0.95 per unit. Each unit is comprised of one common share and one-half warrant. One warrant is exercisable to acquire one share at $1.30 for a 24-month period. We intend to use a significant portion of the proceeds to accelerate current exploration and development of numerous targets.
“That programme is going to be explore not just the potential for higher grade silver veins themselves, but an underlying gold-copper district that hasn’t been seriously exploited in the past 500 years.”
Coping with COVID-19
While major global economic uncertainty stemming from the COVID-19 pandemic has significantly boosted precious metals prices this year, the worldwide health emergency precipitated the closure of all mines in Mexico back in April, as the Latin American nation emerged as one of the worst affected by the pandemic.
The Mexican government soon reclassified mining as an essential business, allowing IMPACT to get back up and running again by June, however the shutdown period knocked the company’s quarterly and annual production targets back, along with revenues.
“We lost probably 25-30% for the quarter in terms of total sales,” Davidson concedes. “In retrospect, I think our loss for the quarter was about $200,000, but our EBITDA was extremely positive. That $200,000 encompassed things like deferred income taxes, amortisation and depreciation, so on a cash generating basis we were cash positive for the quarter.”
As regional, national and international authorities continue to battle the ongoing threat of COVID-19, IMPACT’s boss is relieved that Mexico moved to reclassify mining and points to the country’s long-lasting appreciation of the sector.
“Every Mexican is convinced he is a miner, so there is a real sympathy for mining in Mexico. They understand it. To give an example, the church in the local town has a statue of a miner out in front, so mining is part of the culture there.
“They are one of the countries that has been hit badly and therefore they need revenue and employment. We can offer both while the district continues to have a very low incidence of COVID-19. We shut down the district for outsiders and it was only until about a month ago that we had our first case in the whole district.”
Boosting the bottom line
After silver production peaked across the Zacualpan operations in 2015-17, IMPACT decided to shift its strategy towards lower cost, higher grade production in late 2018 on the assumption that silver prices would not recover in the near term at least.
Under the new approach, IMPACT undertook a strategic review of its properties in the district and closed down a handful of underground mines with low margins. This resulted in declining operating costs and improving average grades across the board.
“Our emphasis during the last couple years has been on positive cash flow. It may not be as pretty, or have the same total of ounces coming out, but the bottom line is better and people tend to forget that mining is more than counting ounces,” Davidson stresses.
“Now that silver prices have improved, we will look to reopen these marginal mines which have become profitable again. It will take time to go back and open up an area, but we are planning to increase overall production by early spring next year.”
In addition, the company is assessing the possibility of re-starting another operation in the region – the Capire project, a VMS located Southwest of Zacualpan – which has been on care and maintenance since 2014, when margins slipped below the profitability line.
The facility is comprised of a 4.5Moz open pit silver mine (with lead and zinc by-credits) and a 200 tonnes per day (tpd) pilot plant. Restarting Capire could add 150,000-250,000 ounces of silver to IMPACT’s annual output, according to Davidson.
Furthermore, IMPACT is evaluating the possibility of lowering costs at Capire through the incorporation of DMS technology. A 2019 study on a low-grade sample found that in a DMS set-up, over 42% of the sample mass could be rejected while retaining 93% of silver and lead and 79-92% of copper, gold and zinc.
“Using DMS we can probably run about 400-450 tpd and get it down to 200 tpd through the mill. This equates to higher productivity and dramatically lower mining costs. We’ve run some heavy samples through the lab with bench scale testing and it works exceptionally well.
“Now we are working on scaling up. Even at the current price of silver we can just mine Capire as it is. We are confident that silver over the next year is going to remain in the $25-30 range,” predicts IMPACT’s boss.
Significant exploration upside
The Royal Mines of Zacualpan silver district is one of the oldest mined areas in the Americas, and over the last two decades IMPACT has identified well over 5,000 historic mine workings which provide ample avenues for near-mine and district-scale exploration.
“When we first entered the district, we started a deep study on the potential of the property. That meant going back into some of the historical records some 200, 300, 400 years. We’ve accumulated that data now, along with our predecessor’s drilling work, and it’s given us a good idea of the structures involved. It’s a massive area.”
Armed with this new geological understanding, IMPACT has identified several exploration targets across four key areas, including a prospective district-scale copper-gold zone in the centre of the Zacualpan property.
“In the last few years, we’ve had sniffs of this underlying gold-copper district and have proven it exists. The Northern Mill is located on a steep canyon with about 2,000 metres elevation. 500 metres below that we’ve found a very large high mag anomaly and radiating out of that appears to be several gold-copper veins. We are just starting to explore that.”
When asked if IMPACT would prefer to remain more of a pure-play silver producer, Davidson quips that he’ll never complain if he’s got too much gold, particularly considering the positive movement in the gold price this year.
“We’re doing soils, rock chip sampling, sediments and one of the outcrops we sampled ran 76 g/t gold and 76 g/t silver, so we know it’s there, It’s just about putting it all together in economic terms.”
IMPACT’s exploration team is also targeting brownfields exploration for silver veins within trucking distance to its Guadalupe plant and early stage exploration for Zacualpan Southeast extension silver veins, while continuing to evaluate the thousands of historic workings across the properties.
Lots of life left
Although the Royal Mines of Zacualpan district has witnessed over five centuries of silver production, IMPACT’s near and long-term exploration programmes will ensure that millions more ounces of silver will flow out of the region, along with significant quantities of copper and gold.
“What we are really looking for is elephants,” Davidson concludes. “As we learn the structure of the whole district, including things like the high mag in the bottom of the valley, it allows us to have a better grasp of what’s occurring. After 500 years of mining in the district I’m confident somebody will be mining here for at least another 100-200 years.”