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TABLE OF CONTENTS Sep 14 - 20, 2009 Volume 95 Number 30 - 0 comments

Making An Impact


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By: Kip Keen


ZACUALPAN, MEXICO -- In retrospect, George Gorzynski says, he wishes Impact Silver (IPT-V, ISVLF-O) hadn't found the Royal Mines of Zacualpan so quickly. "I had a lot of other properties I wanted to see," he laments, only half in jest.

In 2004, Fred Davidson, president and CEO of Impact Silver, (and also the president of Energold Drilling [EGD-V, EGDFF-O]) which spun off its exploration assets into Impact), had charged Gorzynski, Impact's vice-president of exploration, with finding a mining project in Mexico. At the time, Gorzynski remarks, because most juniors in Mexico were focusing on projects in the country's north, he and Davidson decided to take on districts in Mexico's south, where exploration activity was quiet in comparison.

So, according to that logic, they made a list of a dozen or so properties they wanted to visit starting from the south and working their way north. At the top of the list was Grupo Mexico's (GMEXICO-M) well-known Taxco silver mine, the most southerly of the silver mines in Mexico's silver belt. Next on the list was the Royal Mines of Zacualpan, 25 km to the north.

After visiting Taxco -- a place were Spanish conquistador Hernando Cortes himself had set up shop 500-odd years earlier -- Gorzynski made his way to the Royal Mines of Zacualpan, about three hours southwest of Mexico City by car.

The mine lies below the town of Zacualpan, a hilltop clump of mostly off-white homes, stores and churches, and when Gorzynski visited it he found a sputtering operation that included a couple of active adits, a mill, a processing plant, a tailings pond and a 150-odd strong workforce of Mexican miners, engineers and geologists.

At the time, a Mexican car salesman owned the mine. And with silver trading around US$4 per oz. and the salesman's lack of interest in improving facilities and investing in exploration, it was faltering. Though employee dedication to the Royal Mines of Zacualpan was high -- even under the salesman's tenure mining wages beat those made working cornfields -- morale was generally low.

Yet despite the apparent troubles at the site, Gorzynski was enamoured by the property when he saw it. "I knew right away that this was it," Gorzynski says.

As a geologist, he explains, what impressed him most were the sight of classic-looking epithermal veins in the active and former mines of the area that showed good grades and spoke to an enticing exploration potential within what Impact now describes as the district of Zacualpan, of which it owns 272 sq. km.

He and Davidson also realized that as an area, because Zacualpan was relatively unknown in comparison not only to the rest of Mexico but even Grupo's nearby Taxco, Impact would be able to round up more than just a couple claims; it could swoop into a district filled to the brim with historic mining camps and workings. The decent -- if dying -- infrastructure and associated mine permitting were a bonus.

With Davidson sold as much as Gorzynksi, Impact moved in and, after a bit of last-minute haggling with the owner, it had fully acquired the Royal Mines of Zacualpan by 2006.

Now that Impact was in the driver's seat, there were essentially two goals: First Impact would need to turn production around -- i. e. make a profit -- and then it needed to convince investors of the district's potential for growth. What may come as a surprise as Impact's story unfolds, though -- given that many miners find making money the more difficult task -- is that for Impact it has, in fact, proven easier to stay in the black than to sell its story to investors.

Because the car salesman hadn't invested enough money in his mine's infrastructure nor given much thought about where future mill feed would come from, Impact's immediate focus after buying the Royal Mines of Zacualpan was to make a few simple upgrades to the mill and quickly find more tonnage to mine.

Case in point, Davidson notes, was the issue of a pH meter at the processing plant. Though crucial to recovery, the pH meter at the Royal Mines of Zacualpan had bro-ken and the car salesman was so cheap, Davidson says, that he wouldn't replace it.

When Impact first took over the mine, silver, lead and zinc recoveries were down in the dismal range of 45% to 55%. "One of the first things I did was buy a state-of-the-art pH meter," Davidson says, adding that the mine engineers knew exactly what to do with it when he gave it to them. With the functioning meter, recoveries quickly climbed to near 80%.

"I figure the thing paid for itself in the first three hours," Davidson quips.

Added to the meter, Impact set about improving safety at the mill. Some of the mill's steel walkways, suspended bone-shattering distances above ground, did not have railings. Davidson had them made.

Impact also upgraded parts of the mill equipment to improve throughput. The three ball mills, each of varying size, can now operate at about 500 tonnes per day, combined, but at the time of acquisition could only manage about half that.

The result of Impact's relatively nominal investments is clear, Davidson says.

"You walk around now and the equipment may not be as pretty as in Canada -- painted as nicely -- but it runs good," he says.

And run good it has. Davidson, an accountant by trade, has from the outset at the Royal Mines of Zacualpan stuck to a simple, if often difficult to follow, philosophy: Profit. "Can't survive in a bust without that," he says.

As in 2006 and 2007, Impact achieved that goal again in 2008 with net income of $662,100. It did so with production of 102,426 tonnes of mill feed, at an average rate of about 300 tonnes per day, producing 635,668 oz. silver, 813 tonnes lead and 1,053 tonnes zinc.

In the second quarter of 2009, metal production from 27,618 tonnes of mill feed hit 217,690 oz. silver, 258 tonnes lead and 292 tonnes zinc, a respective 80%, 96% and 75% improvement in production over the same quarter a year earlier.

Most of that production now comes from the Chivo mine, which Impact discovered in 2005 while it had the property under option. The Chivo vein, which pinches and swells into shoots of mineralization, is a few metres thick and frequently high grade. In 2008, for instance, Impact drilled as much as 1.9 metres grading 3,902 grams silver per tonne, 1.34 grams gold, 3.96% zinc and 2.16% lead (though silver grades more typically fall in the 150-to 300-gram range.)

The profits and revenues from Chivo have helped not only to maintain a viable mining operation in Zacualpan, notably without any layoffs, but also to support an aggressive exploration program that has identified numerous targets with the real potential of becoming Impact's next mine.

A few hundred metres underground in Chivo, the difference between what mining was under the control of the former owner, the Mexican car salesman, and what it is now with Impact at the helm is clear to Ricardo Lopez, Impact's general manager of operations. Now, he says, there is more security and far more future mill feed defined.

"Before -- exploration -- there was basically none," says Lopez, who has been working at the mine for 13 years. He also notes proudly, as we watch underground drillers remove freshly extracted core, that his son, who had been studying to become an accountant, has since switched his major to mine engineering.

Indeed, Davidson says that over the last three years, Impact has gone from thinking about where it would get mill feed on a two-month horizon to the point where it is now beginning to plan several years down the road.

Beyond Chivo, Impact is rapidly advancing a new vein, Nocha Buena, to a production decision. At Nocha, Impact has drilled a pattern of 50-metre horizontal and vertical drill holes and outlined what Davidson and Gorzynski have begun talking about as Impact's next mine.

In its latest press release announcing drill results from Nocha, for instance, Impact states that mining engineering and metallurgical studies are "now moving Nocha Buena toward a near-term production decision as it is located within easy hauling distance of Impact's operating processing plant at Guadalupe (Royal Mines of Zacualpan), much of it on a paved road."

Gorzynski estimates with Nocha Buena online, mill throughput would come close to about 500 tonnes per day at the Zacualpan mill.

So far drilling at Nocha has defined a wide northwesterly trending vein system over about 300 hundred metres of strike that shows fairly consistent silver and gold mineralization. Hole 28, for example, recently intercepted 13.5 metres grading 158 grams silver and 0.3 gram gold and hole 27 hit 4 metres grading 368 grams silver and 0.3 gram gold.

Impact has also outlined two small open-pit targets, the Capire-Aurora I project, contained within a 200-sq.-km set of concessions adjacent to and south of the 272-sq.-km Zacualpan properties. Impact picked up the property, which it calls the Mamatla district, from ValGold Resources (VAL-V, VALGF-O) in 2008.

Unlike Zacualpan, the Mamatla district primarily holds volcano-genic massive sulphide (VMS) targets as opposed to the epithermal vein systems Impact has been defining in zones around the Royal Mines of Zacualpan.

Within the Mamatla district, Impact has identified a long list of potential targets, many generated by Valgold. Chief among the targets Impact has drilled are two shallow and near-surface silver-gold-lead-zinc- copper mineralized zones.

Impact's 4,000-metre drill program in 2008 outlined one mineralized zone over 200 by 200 metres at Aurora I. At Capire, about 1 km away, the company outlined another 350 by 150-metre zone.

Intercepts at Aurora I include 6.9 metres in hole 8 grading 317 grams silver, 1.1 grams gold, 0.1% copper, 0.3% lead and 0.7% zinc starting 8.2 metres down-hole. At Capire, Impact drilled similar grades, with hole 50 hitting 4 metres grading 485 grams silver, 0.7 gram gold, 0.2% copper, 2.4% lead and 4.9% zinc.

The results are good enough that Impact is beginning to develop plans to mine Capire-Aurora I. Impact would initially use a portable 200-tonne-per-day mill it recently acquired, although Davidson and Gorzynski envision the Mamatla district one day supporting a second, dedicated mill that might be fed by additional prospects.

Equally important to its near-term targets are those Impact is developing from an extensive catalogue of historical workings in the area. Brian Hall, a consulting geologist to Impact, has compiled a database of 1,000-plus historical workings, many of which Impact has sampled, to help tie together the geology and mineralization of the district.

Coupled with a geographic information system, the database is helping Impact generate insights about the factors controlling mineralization so that it can more effectively locate premium drill targets. "The database has a 62 per cent success rate at exploring (what look to be) economic holes," Hall says.

While Impact has by all accounts achieved some remarkable successes -- three yearly profits posted, the new Chivo mine put into production, advanced projects developing into mines -- selling the story to investors, Davidson admits, has been tough. There is one reason in particular: Impact is without National Instrument (NI) 43- 101 resource estimates.

The resolution to that problem may seem like an easy one; Impact should give the market the security blanket it craves and outline some deposits. But the hitch, of course, is cost. The wide spacings save considerable amounts of money.

In fact, Gorzynski explains, the price of a detailed drill program can in fact be greater than simply putting in an adit and sampling a vein directly. The added bonus here is that then you also have an adit if you decide to go to production. Furthermore, because mineralization in the veins Impact has been mining, and likely will mine, tend to behave well, Impact can drill on wide spacings and its engineers are confident they can judge what will likely become minable in between.

In an email after The Northern Miner's site visit, Gorzynski notes that he is not in principle opposed to NI 43-101 regulation and that for large projects that are capital intensive, or for poorly behaved deposits, extensive drilling and resource estimation make sense.

"So I am not against NI 43-101 standards," he says. "I just think that in specific cases, such as Zacualpan, it is overkill."

For Impact, the NI 43-101 conundrum presents another, slightly perverse, problem. Though Impact isn't considering putting together resource estimates on its vein structures, it might consider calculating a resource estimate for the Capire-Aurora I project were it drilled on hole spacings that would be NI 43-101 compliant.

That happens to be the case because as VMS zones, Capire and Aurora I are completely different geological beasts than the epithermal vein systems Impact's mine engineers at Zacualpan are used to handling. Impact drilled a tighter than usual pattern for the extra confidence in the mineralized area that it would bring.

But if Impact does calculate a resource at Capire-Aurora I, Davidson worries that the market might then judge the company by the sole resource estimate it has on the books -- what would likely be a relatively small open-pittable target in comparison with its more substantial production at mines without resource estimates.

Still, the issue doesn't seem to overly perturb Davidson. For now, he says his solution is to get people to look beyond the lack of resource estimates in Impact's portfolio and instead focus on its so-far-consistent production, profit, growth and exploration program.

And some investors seem to be seeing. Since The Northern Miner visited the Royal Mines of Zacualpan in spring, Impact's share price has climbed to 94¢ from around 50¢. The company has 48 million shares outstanding.

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A conveyor wisks feed from the grizzly to the grinder at Impact Silver's Zacualapan silver-lead-zinc mine in Mexico.
A conveyor wisks feed from the grizzly to the grinder a...
Drillers pull out about 40 metres of HQ core a shift. Assay turnaround at Impact Silver's onsite lab in Mexico is about 24 hours.
Drillers pull out about 40 metres of HQ core a shift. A...

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