With a dwindling cash reserve, Defiance Silver (TSXV: DEF; US-OTC: DNCVF) had to choose between optioning into a mine or a mill, and swiftly chose the former last December.
On Christmas Eve, the Vancouver-based junior said it was dropping its option on Impact Silver’s (TSXV-IPT) Santa Gabriela processing plant to focus on developing the San Acacio silver mine that it’s buying from a private Mexican firm owned by the Amado Mesta family. Both assets are in Zacatecas’ famed silver district in central Mexico, less than 5 km apart.
Defiance signed a purchase agreement for the 200-tonne-per-day mill, related surface rights and 10 mineral concessions in late 2011. Under a revised agreement, it gave Impact 2.7 million shares in 2012 and another 150,000 shares in 2013, making Impact a key shareholder with a 15% interest. Defiance was set to pay $25,000 or 350,000 shares this year, followed by a final $1.9 million payment in 2015 or when commercial production starts. But with the contract now terminated, Defiance can pour its funds and efforts into earning a 100% interest in the past-producing San Acacio mine.
Defiance’s flagship asset controls roughly two-thirds of the Veta Grande vein, one of the three primary vein systems in the Zacatecas silver district. Historically, the Veta Grande vein produced more than 200 million oz. silver, with an estimated 80–100 million oz. coming from the San Acacio mine. Most of the mining done at San Acacio has been shallow, going down to an average depth of 200 metres.
The junior signed an option agreement for San Acacio in late 2011. Roughly a year later, it updated San Acacio’s resource estimate to National Instrument 43-101 standards. The deposit contains 3.55 million oz. silver in indicated (1.15 million tonnes of 95.8 grams silver per tonne) and 12.45 million oz. silver in inferred (2.89 million tonnes of 134.1 grams silver).
The explorer believes it could “significantly expand” San Acacio’s current resource as the mineralization is open at depth and along strike for 4.6 km.
In its latest management’s discussion and analysis, dated Nov. 27, 2013, Defiance said it’s compiling and reinterpreting the existing data and plans to update the resource based on those results for an underground scenario, noting the current resource is for an open-pit mine. Defiance intends to carry out surface sampling for metallurgical testing as well as an exploration program to test the deposit’s vein structure below the historic workings and along strike.
But how much work actually gets done this year depends largely on the amount of funds Defiance can raise. The junior ended Sept. 30, 2013, with $52,800 in cash and a working capital deficiency of $133,300. A month later, it renegotiated a share-exchange agreement with Global Resources Investments in hopes of raising $375,000. Under the proposed financing, Defiance will issue 5.1 million shares at 7¢ apiece. In return, Global, which is looking to list on the London Stock Exchange, will provide Defiance 214,698 of its publicly listed shares for £1 apiece, which Defiance will sell to raise $375,000 in proceeds. If and when the transaction closes, Defiance shares outstanding will increase from 23.9 million to 29 million and Global will own 17.6% of Defiance.
With the mill out of the picture, some other expenses that Defiance has to take care of before it could fully own San Acacio are the option payments. Under a revised 2012 purchase agreement, Defiance has paid the Mesta family a total of US$312,500 from late 2011 to the end of September 2013. It has another US$337,500 due this September followed by US$5.5 million late next year.
Defiance shares recently closed at 3¢, near their 52-week low of 2.5¢ reached on Nov. 27. They hit a year high of 27¢ on Jan. 14, 2013. Defiance has a market capitalization of roughly $723,000.
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