Volume 10 | Issue 2 | Year 2007

All that glitters is not gold. Indeed, according to Clive Maund of SilverSeek.com, “Silver has broken out of its large triangular consolidation to commence a new uptrend that should take it comfortably to new highs…Silver is viewed as being stronger than gold.”

Roger Scammell, who at the beginning of 2007 became president of Scorpio Mining Company, shares this confidence not only in the value of silver, but the overall metals market. “Of course, no one has a crystal ball, but future prospects for the metals market overall looks very good right now.”

Scorpio Mining was founded precisely to take advantage of an increasingly healthy silver market to put a property in production that had first been mined in the 17th century. The Nuestra Senora mine, located about 10 kilometers east of the town of Cosala in Sinaloa State, Mexico, was opened in 1650 by Spanish explorers to process high-grade silver ore from the upper levels of the site up until 1700. In the mid-1880s, the French further developed the mine for about 20 years, after which the mine went out of use until 1954 when the American Smelting and Manufacturing Company (ASARCO) resumed production. By 1963, ASARCO had constructed a 450-ton-per-day mill on site and produced silver-lead and zinc concentrates for Mexican smelters.

Shortly thereafter, ASARCO ceased operations when the Mexican government nationalized the mines and mandated 51 percent government ownership. Small-scale mining on the property occurred sporadically until 1992. After Mexico adopted its current mining law to allow full foreign ownership again, in 1998, Scorpio obtained the option to purchase 100 percent of the rights to the properly and in 2004 began removing an initial two million tons of ore from the upper levels of the four known deposit sites.

“The extent and character of the mineralization on the Nuestra Senora property suggest a large mineralizing system, the full potential of which has not been tapped by historic or modern exploration,” Scammell notes. “Current technological capabilities coupled with existing market conditions promise at least five years of profitable operations at Nuestra Senora at the most conservative estimate; more than likely we’re looking to be mining for at least 15 years.”

Scorpio has acquired a mill from a property in Arizona, which it disassembled and is scheduled to rebuild on Nuestra Senora some time in 2007. “It’s been in storage for two years while we clean it up,” Scammell explains. “All the rubber seals and gaskets have deteriorated and need to be replaced and we’re sandblasting all the components to clean them to be in the best working order.” He notes that preliminary mining has proceeded in advance of establishing the mill because, “you always want a stockpile of ore, so if a vein you’re mining does go dry, or there’s a shutdown for some reason, you don’t have to interrupt mill operations.”

Silver Lining
While the mine is expected to produce silver primarily, copper and zinc will also be extracted as byproducts of ore processing. “What happens is you have a rock of about fist size that is crushed, and about 1 percent of the rock might contain copper,” Scammell explains. “Then you take that residue with whatever else you’ve processed
until you come up with a rock that has a concentrate of about 25 percent copper. That’s what you sell to smelters.”

He points out that, “It used to be that the smelters set the prices and the mines would take whatever was given to them. Today, it’s the other way around. Demand is so high that the smelters are coming to us, and we’re getting the prices we ask for.”

While ore processing is an automated process, the actual mining of the ore is somewhat labor intensive. “Thanks to advances in technology, we now have robots we can send into dangerous areas not only to explore, but also to extract rock,” Scammell notes. “Another way technology makes working conditions safer is a computer system in which each miner has a chip in his lamp that constantly transmits his location – that way we know exactly where everybody is immediately, which is particularly important in case there’s an incident. A key safety feature is that we’re able to tell miners immediately where they need to go if there’s a need to evacuate. All too often, miners get lost during an emergency and end up going towards a cave in and not away from it. With this system, we’ll be able to track everyone and tell them if they’re going the right way and direct them out.”

Scammell also points out that there are a lot more electronics involved in the mining industry. “On the equipment side, electronics are extremely useful in monitoring equipment and making sure that potential problems are detected before failure occurs. Equipment failure means downtime, and downtime costs money through lost efficiency. We’re also able to develop computer generated 3D models of the mine that help us more efficiently determine where deposits are and then plan for the most cost efficient removal.”

Local Support
Technology has not gone so far as to eliminate the need for a human workforce, however, and Scammell emphasizes Scorpio Mining’s commitment to use local labor. “Our objective is to employ Mexican nationals 100 percent.” Currently, the company employs about 120, and expects to expand in the near future to around 400.

Scammell also applauds the support of the local government to encourage the economic development of the area. “I’ve been working in this business in Mexico for 40 years, and I have to say that Sinaloa State has been the most supportive of our business than any government entity I’ve ever dealt with. We have a very good relationship and we’re both committed to improving the local economic conditions and the overall quality of life for the people who live here and work with us.”

Towards that end, Scammell notes that Scorpio Mining not only complies fully with increasingly strict Mexican environmental regulations, but in fact adheres to much higher Canadian mandates. “We’re very concerned about our people and the community we work in; we strive in all respects to be good corporate citizens.”

Future Prospects
Scorpio Mining is just getting started, but does not intend to put all its rocks, so to speak, in one basket. “The Nuestra project is on track to be a highly productive and successful operation,” Scammell says. “At the same time, we’re looking to acquire additional properties here in Mexico that are already in operation. We’re developing a property now for the long term, and our strategy is to supplement that with additional working mines that are in production to support our flagship operations.”

Indeed, according to CEO Peter J. Hawley, “2006 was a very busy and rewarding year for the company. Despite restricted human resources in the industry, we have successfully increased our staff levels with senior, experienced team members in the areas of accounting, administration, mine planning and development. On the project side, the success of our geological team in discovering two additional mineralized zones, as well as continued definition of the Nuestra Senora deposit, exemplifies their dedication to making the project a success. On the financial front, Scorpio raised over $40 million in equity financing and received proceeds of more than $4 million from the exercise of warrants. The company’s accomplishments are reflected in a share price appreciation from $0.345 in January to a year high of $1.98, rewarding shareholders with our continued dedication to advancing the project to a production decision. The rise of metal prices in 2006, in particular our main metal components, silver, zinc and copper, also bodes well for success of the operation over the next year. Year 2007 promises to be our busiest yet.”

When it comes to mining potential, Scorpio has discovered a mother lode.

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