Telson Mining Corp is a Mexico-focused public company listed on the TSX Venture Exchange (TSXV) that was formed by current CEO Ralph Shearing and a colleague and close friend in the late 1990s. Not long after its founding, the nascent firm discovered the polymetallic Tahuehueto Project in the prolific Sierra Madre Mineral Belt within the state of Durango. Telson has gone on to retain the project to this day, advancing it through several cycles in the commodities sector. The company started to substantially explore the Tahuehueto concessions during the mining boom of 2004-08 before pulling back during the decline of 2015-16. Despite the difficult market conditions at that time, Telson managed to attract vital funding from a Mexican mining group in 2015, which allowed the company to complete bulk sampling work and economic studies that firmed up the project’s viability and convinced Trafigura Mexico to provide a loan facility for the construction of the mine. During this period, Telson also came across the Campo Morado Mine in Guerrero state – a base metals asset that Nyrstar had spent $500 million on but were looking to divest. Telson subsequently acquired the mine for a fee of $20 million in 2017.
“Campo Morado was a very good buy as we were able to quickly get the mine back into production,” says Shearing. “At the same time, we were building our project in Tahuehueto and the funding plan there required cash from Campo Morado to slide over for its construction.”
Telson soon encountered some difficulties with the Campo Morado asset and had to put the mine into care and maintenance in 2019, which stalled the construction of Tahuehueto. But, after further COVID-19 related disruption earlier this year, the company is now producing again at Campo Morado and moving full steam ahead to secure final funding to complete construction at Tahuehueto.
“We have a very good operations team in Mexico, that group came in and funded us five years ago, and we have a good blend of professionals in mining and capital markets. Together, we are working very effectively to move things forward.”
A fantastic polymetallic deposit
Tahuehueto consists of 28 mining concessions spread across a large expanse of prospective ground in the Sierra Madre – which hosts a series of historic and producing mines and most of Mexico’s active exploration and development projects.
The project is a ‘fantastic, rich deposit’ and of ‘district scale’ according to Shearing, who tells RGN that Telson owns around 80% of the prospective ground in the region.
“It’s recognised as a mineralised district. If you were to compare it to any other mineralised region in Mexico, the one that comes to mind is the San Dimas Mining District,” he says before pointing out that San Dimas is about a third larger and has been producing for 150 years, while the Tahuehueto district remains underexplored.
Down the years, the region has received less attention than San Dimas due to a perception of its remoteness in Mexico. However, based on Canadian standards, Shearing believes this not to be the case. “If I can drive to my project in one day, I don’t consider that remote,” he remarks.
Telson’s exploration campaigns have identified gold-silver and base metals reserves at Tahuehueto, including copper, lead and zinc in the single structural zone the company has focused its efforts on thus far.
Inside this structural zone, Telson has defined total probable reserves of 3.26 million tonnes (Mt) with average grades of 3.4 g/t gold, 41.8 g/t silver, 0.35% copper, 1.19% lead and 2.24% zinc. At present, gold resembles around 75% of the value of the project and the current grade estimations will make Telson one of the four highest grade producers in Mexico.
“We’ve really only explored along this one major structure and haven’t yet completed the exploration and development there. It remains open to mineralisation at depth and along strike in both directions.
“In the structural corridor we are working on right now, we think there is likely to be around 7 km of strike length potential and we’ve explored about 2.4 km on that major structure,” says the CEO. There are also seven or eight more mineralised structures exposed on surface within this corridor. We have to follow up with exploration on all of those as time carries on.”
Telson is also developing an underground extension at Tahuehueto and has completed around 90% of the development work for the first three to four years of the operation. That development work has extended one tunnel at least 250 metres past known drill holes intercepts, where continuous mineralisation is already adding new resources to the project, not yet quantified in a new NI 43-101 technical report.
“We’re already growing the asset with the underground development, and as soon as the company is in a healthier state we’ll be able to get drills turning again and bring in new resources and reserves,” assures Shearing.
Here he alludes to the difficult market conditions brought about by the COVID-19 pandemic this year, although the company still managed to negotiate a US$12 million loan facility with Accendo Banco at the height of the global outbreak in June. The deal is expected to close very soon.
Accendo Banco has even advanced $500,000 of the loan figure to help bring in additional funding and has also helped clean up Telson’s balance sheet and paid off some of the debt accumulated at Tahuehueto. At this stage, the bank and bank associates have invested over $1 million to propel the project through to the final funding stage.
Once the deal reaches full closure, Telson will have the funds available to resume construction and finish building the mining operation, which should be completed early next year according to Shearing.
The company is building a plant with an intended capacity of 1,000 tonnes per day (tpd) and targeting to initiate production with one ball mill in the 500 tpd range within eight months of securing final funding, and thereafter ramping up to 1,000 tpd once the second ball mill is installed later in 2021. “With over 60% of construction already completed that is an achievable timeline once we have the funding in place.”
Back on track at Campo Morado
Campo Morado is an underground polymetallic mine with a large resource of 17.6 Mt (including high grade gold, silver, zinc, copper and lead mineralisation) and infrastructure, installations and equipment capable of processing 2,300 tpd of ore.
Although Shearing regards the 2017 acquisition as a good one for Telson, he notes that it has previously been regarded as a difficult asset to operate, predominantly for two reasons: Falling zinc prices and low metallurgical recoveries.
On the latter point, metal grades are relatively high at Campo Morado – with average gold at 1.5 g/t and silver grades of 90-100 g/t – but recoveries are languishing at around 15% gold and 30-40% silver. However, Telson is currently investigating ways of improving its recovery rates at the mine.
“A group out of the UK conducted Leachox testing which achieved up to 60% gold recoveries and 80% silver recoveries. This was first phase testing and I have since spoken to the group and they think they can do better on the second phase.
“If that is successful then we have a path to significantly improving the recoveries of the precious metals and therefore improving the profitability of that project,” says Shearing.
In addition, Telson is looking at improving productivity at the mine by increasing the plant capacity to 3,000 tpd, an expansion which had already been started by Nyrstar and is currently 80% complete.
“At 3,000 tpd, the economies of scale will work to our advantage and certainly improve profitability. At the moment, we are running at 2,100 tpd and making money. But with metal prices [including zinc] improving, we’ll be able to continually operate the project after some interruptions in the last 12 months. With some hard work and ingenuity we will increase the profitability of the mine.”
Growth potential at both projects
In a similar vein at Tahehueto, the company is planning for a long-term expansion of the plant towards 3,000 tpd, based on adding resources and reserves through exploration, to depth and along strike on the current zones where resources and reserves are already defined in the company’s current mine plan, as well as exploring already identified vein structures outside the current mine plan area and finally initiating greenfields exploration within the overall Tahuehueto mineralised district.
Shearing states that both projects contain excellent organic growth potential which will be unlocked when Telson finds itself in a stronger cash position and can subsequently get drills turning again.
The company currently has its hands full with development work schedules at Tahuehueto and Campo Morado, but is also monitoring additional opportunities for external growth via potential acquisitions in Mexico.
In conclusion, Telson is nearing completion of its long-held Tahuehueto high grade gold project in Durango state, with the final funding solution the last piece of the jigsaw ahead of its construction. Meanwhile, Campo Morado in Guerrero state is back into production and primed for an expansion which will boost productivity and profitability.
“Tahuehueto is an advanced in construction, high–grade gold mining project with silver and base metals, recoveries are great and the metallurgy could not be better. Our cash flow models predict very good profitability and excellent free cash flows at Tahuehueto,” Shearing asserts
“Campo Morado has its difficulties but if we are efficient and tackle it properly, we will be able to increase recoveries and throughput production to markedly increase profitability in the future. And there is great exploration potential on both projects, so Telson Mining Corporation has excellent growth potential, building towards becoming a mid–tier mining company in Mexico.”