Silver Miners: Straight-Up Or Played In A Basket

| About: Aurcana Corp. (AUNFF)

"…evidence clearly suggests the bull market in precious metals is far from over-in spite of the mainstream media ignoring the strong trends underpinning this market. If it were time to exit this industry, we wouldn't see SLV holders refusing to sell, Indians buying record amounts of silver, and retail investors hoarding silver bullion at historic levels. -Jeff Clark, Casey Research

Canadian based Aurcana Corporation (OTCPK:AUNFF) the Vancouver, BC junior silver mining company, after finally closing its long anticipated $50 million loan facility, is following expansion plans at its 100% owned Shafter silver mine in Presidio County, Texas. The company also owns the already commercially producing La Negra silver-copper-lead-zinc mine in Queretaro State, Mexico.

At a time metal miners are finding it hard to operate profitably given the current depression in silver and gold prices, and at a time many miners are not able to secure needed financing, Aurcana has pulled it off. It appears 2,900,000 tons of ore grading at cuts of 8.48 ounces of silver per ton (8.48 op/t Ag) and even higher in some zones where grades show up to 10 op/t Ag - that's ounces per ton, not grams - is pretty attractive.

High grade is definitely where the money is

The $50 million, non-dilutive financing facility, secured through MF2 Investment Holding Company, part of Orion Mine Finance which is affiliated with (or previously partnered with Red Kite Mine Finance), is allowing Aurcana to make the necessary improvements needed to achieve its planned through-put capacity of 1,500 tons per day, tp/d, to be completed during Q2 2014.

Two new tailings filter presses providing the needed capacity have been installed and are operating to specifications. Three new precipitate filter presses have been installed and are being commissioned in the refinery, while a new custom built retort and furnace are scheduled for delivery and installation in December 2013. Construction of a counter current decantation CCD circuit is ongoing with completion also estimated during Q2 2014.

Approximately US$13 million from the loan will be used to complete the construction and upgrade work at the Shafter mine with a portion to be used for repayment of an undisclosed amount of debt, and for otherwise advancing the La Negra and Shafter mines.

The Loan facility strengthens Aurcana's balance sheet and provides significant financial flexibility to complete its corporate growth objectives. Lenic Rodriguez, Aurcana's President & CEO says on the company's website:

"The closing of the US$50 million non-dilutive Loan facility is an important achievement for Aurcana and provides the Company with a significant cash infusion during challenging market conditions. The Loan will be sufficient to complete the Shafter ramp up and increase efficiencies at La Negra and provides flexibility in pursuing our growth objectives. This transaction demonstrates the confidence shown in Aurcana's mines, management and leadership by one of the leading mining sector focused investment funds. We look forward to a long term relationship with Orion Mine Finance while we continue to work on our goal to become an emerging senior silver producer."

As a concession

The loan carries an "Offtake Agreement" for silver and gold produced by the company at the Shafter mine. Aurcana has agreed to sell silver and gold produced at Shafter to Orion Mine Finance at market prices for either a 6-year period, or until Aurcana has sold a minimum of 27 million ounces of silver - to the financier - whichever is later, subject to an early buy-out provision.

Aurcana also upgrades its management team

In a press release the company announced the appointment of Andrew Kaczmarek, Director, as interim Chief Operating Officer (COO) effective immediately.

Said CEO Rodriguez:

"As Aurcana has grown, it has become apparent that our management structure would benefit from having a senior mining executive with operating and development experience to support our continued growth and success, ensuring that the potential of our two mineral projects is fully realized. Mr. Kaczmarek's appointment as COO, will strengthen Aurcana's ability to achieve our operational objectives through a more structured and disciplined approach."

Aurcana may finally be on the good foot

Mr. Kaczmarek brings over 40 years of experience in operations, construction, project development and management, with developing and producing companies including Alacer Gold, Kinross Gold, Phelps Dodge, Cyprus Amax, Gold Fields and Hudson Bay Mining and Smelting Co.

While working for Gold Fields, Mr. Kaczmarek was the Chief Engineer at the Gold Fields Shafter Project, now owned by Aurcana. During that time, he was responsible for the construction and commissioning of the two existing 1,000-foot shafts and pre-development work at Shafter.

Another way to play

The PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ) is the first pure-play of its kind to hold exclusively silver explorers and junior silver producers in one basket. Owning 27,600 shares of Aurcana, SILJ holds a total 26 such globally diverse small cap silver companies including many of Aurcana's Mexican peers; the well managed and fastest growing silver miner in the space, Endeavour Silver (NYSE:EXK), southern Mexico's high-grade Fortuna Silver Mines (NYSE:FSM), Excellon Resources (OTCPK:EXLLF) who boast the highest grade silver deposit in Mexico at the La Platosa mine with one of the lowest processing costs per ounce Ag in the industry of $7.77.

There's also the investor favorite and highly regarded, SilverCrest Mines (NYSEMKT:SVLC) as well as Great Panther Limited (NYSEMKT:GPL), Mag Silver (NYSEMKT:MAG) and many others. SILJ's basket includes Canadian, U.S., U.K., and Australian mining companies with properties or operations on five continents where only a few are available for individual investment on the NYSE, making the PureFunds ISE Junior Silver ETF a nice way to insulate one's portfolio with significant diversification within the sector.


Silver remains the most reflective, heat resistant and electrically conductive material on earth and is used in myriad electronics devices. Its beauty and resilience makes it perfect for jewelry. The shiny metal enjoys staunch and rising popularity among retail investors for these reasons and because of silver's close relation to money and value as a hard asset.

Some of the many reasons I remain a self-confessed silver bull.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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