In just a few years, the company has gone from being almost out of business to now being on its way to becoming the next mid-tier silver producer. The change came in May of 2009 when Lenic Rodriguez became the new CEO of Aurcana, and since then, he has been responsible for some significant achievements:

• Raising $85 million in 2010 for the construction of Shafter (quite remarkable since the Mcap was around 30 Mcad at the time)
• Negotiated to terminate the deal with Silver Wheaton for $25 million
• Increased interest in La Negra mine from 80% to 92%
• Increased La Negra’s mill capacity to 1,500 tpd on time and under budget
• Transforming Aurcana from the verge of bankruptcy to a profitable miner
• Increasing Aurcana's ownership in La Negra from 80% to 99.86% (Feb 20, 2012)

La Negra Mine - Growth, Sustainable Cash Flow & ProfitsAcquiring the former producing La Negra mine in 2006, Aurcana put it back into production one year later in April 2007. At first, this was a 1,000 tpd operation, but since then, the mill has undergone an expansion to 1,500 tpd, making the mine a steady 1 Moz/yr silver producing asset. La Negra is currently undergoing a second mill expansion, increasing capacity by 33% to 2,000 tpd expected to be completed in Q1 2012 at a capex of only US$4.5 million. La Negra is producing silver-copper-lead-zinc with historic production of 36 Moz between 1970 and 2000.

One detail that needs to be pointed out as a risk factor, is that although La Negra has a good historical production track record, it doesn't host a long mine life as of now (proven & probable reserves according to 43-101 standard).
When acquiring La Negra, Aurcana focused on putting it into production in order to establish positive cash flow, and therefore exploration has not been their first priority. This is not an unusual approach for a small company when starting from scratch and this was probably the best way to go ahead at the time. Since then, the financial condition of Aurcana has strengthened and a drill campaign is ongoing at La Negra. With a drill program of 15,000 meters, we can expect an updated resource estimate released within a short period of time.

Currently, production at La Negra is conducted from three (out of 28 known) ore bodies and a stunning 83% of the ore produced in Q3 (86% in Q2), came from non-compliant 43-101 resources. This shows great promise and confidence that there is large resource expansion potential at La Negra. However, not having a proven mine life (43-101) is normally associated with higher risk.
La Negra will produce aprox 1.4 Moz/yr after its mill expansion to 2,000 tpd, add to that bi product in form of lead and zinc and the total production coming out of the mine will be in the equivalent of ~2 Moz/yr.

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Flagship Property - Shafter MineThe old management team made a very odd decision when it hedged the company by selling 50% of its silver production at La Negra (to Silver Wheaton) for a lump sum of $25 million (June -08). After all, a silver company should hedge its base metals if anything, not its main product (silver). The money was needed to finance the purchase of the former producing Shafter Mine from Silver Standard and perhaps this was the only way to finance the deal in the midst of a financial crisis.

However, since Lenic Rodriguez was appointed the new CEO in May of 2009, Aurcana has bought back its hedge from Silver Wheaton, making the company 100% hedge free.

Shafter is Aurcana’s flagship property and will really put the company on the map of investors and analysts during 2012. The mine has a production history of ~35 million ounces (1883 to 1942) and with commencement of re-construction the mine in Jan 2011, Shafter is expected to start producing in Q2 2012. All permits are in place and the expected capex to bring Shafter in to production is US$45 million.

Starting up a new mine operation always has its hurdles, but with Shafter, we get the feeling that management is well prepared. The silver mineralization at Shafter mine is over three miles long. It is a Carbonate Replacement Deposit (CRD) which is what also host many of the world's largest mines located in northern Mexico.
Geologist Peter Megaw, who is an expert on these CRD deposits, made a striking comment; "The Shafter mine doesn't know it's not in Mexico. It doesn't know that the Rio Grande is 10 miles away. This deposit is part of the CRD belt in Mexico which is the backbone of the Mexican underground led-zinc-silver mining business".

With the production staff in place and the remaining capex fully funded (and more), we see this coming online as scheduled. The test work executed by previous operators indicates that silver recovery grades are expected at 84-87%, a very competitive number when mining silver. With an estimated cash cost below US$10, the Shafter mine will be extremely profitable. Payback will be achieved within 1 year of process plant start-up with today's silver price.

The production profile shows that the mine will produce 3.8 Moz respectively for the first two years, followed by three years of 3.4, 3.1 and 2 Moz/yr. Since the inferred resources were not included in the mine plan (correctly so), and no major exploration has been done in recent years, there is reason to believe that the mine plan can be expanded significantly.

With Shafter coming online, the overall U.S. silver production will overnight increase by 10%, so this will definitely be a company maker for Aurcana if all goes well. According to the 2010 feasibility study, the initial twelve months of full production will come to ~3.8 Moz of silver at an estimated cash cost of US$7.53. The 43-101 resource bases are very strong, containing 19 Moz in Proven & Probable, 5 Moz M&I and also 22.8 Moz in the Inferred category.

PaperWith the debacle in 2008 in mind, Aurcana is unfortunately one of those juniors which have done a "Ben Bernanke" on its float. Mining is a capital intensive business and it has been very hard for especially juniors to finance themselves. We are of course not big supporters of the existing share structure, but when it comes down to it, it's all about Mcap. Shares outstanding today comes to ~412 million shares. Fully diluted ~558 million shares, but that would also bring in somewhere in the neighborhood of $C75 million.
As a soon-to-be >5 million ounce Ag producer, Aurcana will be getting a lot of attention and as strong believers in much higher silver prices, we feel the time to get some more silver exposure is close.

Potential Growth Within a Few YearsAurcana Corp is moving towards a start up at Shafter Mine in Texas by late Q2. According to the latest press release, everything is on schedule for commencing production in May. In a recent short video presentation of the company, CEO Lenic Rodriguez talks about how the company will grow production to 9-10 Moz silver in 2013. Even if this could be achieved in 2014-15, this would give the growth profile of Aurcana a great boost. Before making too much of this, we would like to see the company make their expansion plans more clear to the public as this would most definitely deserve a higher valuation.
When the cash flows from Shafter start to come, Aurcana will have much more latitude to focus on important things such as upgrading resources, looking at acquisitions and expanding production.


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In the report from Stonecap Securities released January the 13^th, it is explained on page 2 in the report how this production expansion can be achieved. We thank Stonecap for allowing us to enrich our readers with their work and we hope you enjoy reading it.

Aurcana Corp - Q4 In Line; Expansion Underway   (click on icon to download pdf)

An eight minute long YouTube video about Aurcana and Shafter, including comments by people in leading positions of the company.