No need to tell anyone in the mining sector that the fizz has gone out of exploration.
If you’re not a superstar name in mining, good luck getting any exploration project funded in the current market conditions.
But there is another way.
The old fashioned way.
Build out a small mine, get the cashflow going, plough it back into the company and expand.
Bob Archer, the chief executive of Pinnacle Silver and Gold has done this before, with Great Panther Mining.
Some years ago, he passed Great Panther on to a new generation of executives who took some wrong turns with the company. But before that time, when Bob was still at the helm, Great Panther ranked as a peer amongst the better-known names in Mexican silver production like First Majestic and Endeavour Silver.
And Great Panther itself, as Archer recalls, was originally built up from scratch: the company acquired a small-scale mining opportunity near the town of Topia in Durango and took things from there.
Now, Archer plans a similar trick.
He’s tried exploration in Nevada and Red Lake, and not found it easy to get funding. That was when Pinnacle was known by its former name, Newrange Gold. But mining in Mexico is something Archer doesn’t have much trouble with.
He’s done it before, and in certain parts of the country, he’s very well known for his successes.
Thus, when he went deal-hunting for Pinnacle, one of the crucial things he brought to the table was credibility.
He was connected to a man who had an old, disused mine close to where Great Panther started out at Topia.
This project, known as El Potrero, had been in private hands for forty years, and never benefited from any modern exploration. But – and here’s the interesting part – historically the mine produced ore grading up to 10 grams per tonne gold equivalent, in a ratio of around 75% gold and 25% silver.
Even a little bit of that sort of material can go a long way in a world where gold is trading at upwards of US$2,900 an ounce.
Even so, as it stands, the project does look small. But that raises two points. First, modern exploration could deliver very easy wins. And second, small is financeable. Growth can come later, when the cashflow has been established.
Accordingly, Pinnacle is currently raising around C$800,000 to get the project back up and running at a rate of around 100 tonnes per day.
“That might sound small,” says Archer. “But we had the same criticism when we acquired Topia.”
And for the record, the Topia mine is still in production, and its revenues provide the main economic driver for the local town.
It’s a case study for what mining can do locally, which is why Archer has plenty of support for his plans.
There’s a mothballed plant too, at El Potrero, and Archer reckons this could be put back into operation at a cost of between US$1 million and US$2 million. So, a medium-term project for the company then, but tangible evidence that a real operation can be made to work here.
Other factors also mitigate in the project’s favour. There are no deleterious elements in the ore, and no base metals. There are no surface rights issues. The permitting ought to be relatively easy, since the site has already been disturbed. There’s a power line within three kilometres. Skilled labour is available in the local town.
All good stuff.
So, the plan, boiled down, amounts to this.
Start producing gold at a rate of around 11,000 or 12,000 ounces a year within two years, build that up over the following couple of years, and go on to bigger and better things from there.
How big or better could things get?
An open question at this very early stage.
But El Potrero is along strike from one of the largest underground mining operation in Mexico, owned by Fresnillo.
“The veins do show good strength and widths,” says Archer. “And we are on same the regional trend as the entire Sierra Madre gold-silver belt.”
Not such a bad place to be in a tough market with sky-high precious metals prices.