|
For pure scenic splendor, it
is difficult to surpass Vancouver-based Soho Resources
Corp.'s Tahuehueto Project in northwest Durango State of
Mexico. Set in an area of spectacular canyons that match
the famed Grand Canyon in grandeur and exceed it in
depth, and located 250 km NNW of Durango City, the
project covers over 9,000 hectares and is controlled
through Soho's 99.4%-owned Mexican subsidiary, Sacramento
de la Plata S.A. de C.V. More importantly, we believe
the resource development potential that exists at
Tahuehueto is very significant, given the nature of the
property’s mineralization, the release of its second
NI-43-101 compliant resource in early 2009 and the fact
that there is considerable potential in their unexplored
structures.
The project is located in Mexico's prolific Sierra Madre
Occidental geological belt which hosts producing mines
as well as substantial ongoing mineral exploration and
development projects. The Belt stretches from the
USA-Mexican border all the way down to the Guadalajara
region and Tahuehueto is located about midway down the
Sierra Madre in close vicinity to Penoles' producing La
Cienega Mine and Great Panther's producing Topia mine.
Mexico itself is regarded by Canada's well-known Frazer
Institute as one of the best geo-political jurisdictions
in which to conduct mining operations. They have an
understandable and consistent body of mining law, their
political leadership has made it clear that they support
mining, and, given the industry's long history within
the country, the world of mining is regarded as an
important part of the Mexican historical culture. Soho
President Ralph Shearing told us that the company's
dealings with both municipal and state governments have
been conducted in a favorable manner.
Mining in Durango State dates back to the Conquistadors
of the sixteenth century as the conquering Spaniards set
out to discover whatever mineral wealth, particularly
gold and silver, which might be found in their new and
immense territories. They were forced to abandon their
efforts in the Tahuehueto area, however, because most of
the mineral wealth found in the region is contained in
sulphide mineralization and those early
explorer-developers simply lacked the technology to
process such ores.
Some limited production began early in the twentieth
century and continued on a sporadic basis into the
1970s. These past works established several "levels", or
horizontal entry tunnels to recover ores. Several of
these levels remain accessible and could possess
considerable value for future exploration and
development.
Soho Resources acquired the rights to Tahuehueto in
1997, but performed only very limited exploration works
due to the adverse mining economics of that time period.
However, with the strong recoveries in metals prices, by
2004 the company was able to activate exploratory and
development programs. New information from these
programs, combined with previous work from prior owners,
allowed Soho to identify twelve separate ore zones on
the project over at least a 6 km long structural
mineralized trend.
Tahuehueto spans an immense vertical distance from top
to bottom with the lowest altitude levels of the
properties lying along the Las Vueltas River. Rising
from the river, in order, are the following zones: Cinco
de Mayo, Los Burros, Texalcama, Catorce, El Creston, El
Rey, El Perdido and Santiago with other zones spread
throughout the project area. The elevation gain between
the river and the Santiago Zone is roughly 1,200 meters
or about 4,000 feet.
A considerable portion of the company's exploration work
has taken place in the El Creston structure and along a
strong, through-going structure of at least 2.5 km in
length hosting the Cinco de Mayo, Catorce, El Perdido,
Santiago and possibly the Espinal Zones. Soho believes
that the entire project area has the potential to host
multiple deposits and discoveries. However, the
discoveries in Cinco de Mayo and El Creston, plus some
lesser work at the El Rey Zone, were sufficient by
themselves to form the basis for an initial NI 43-101
compliant Resource Estimate that the company published
in April, 2008.
Based on that encouraging report, Soho continued
drilling programs during 2008 and then issued a second
NI 43-101 Resource Estimate in May, 2009. This updated
Resource Estimate showed total resources of 12,245,000
tonnes including 7,377,000 tonnes Measured and Indicated
Resources grading 2.10 g/t Au; 34.97 g/t Ag; 0.28% Cu;
1.06% Pb and 2.01% Zn.
In addition, the Resource Estimate showed 4,868,000
tonnes Inferred Resources grading 1.06 g/t Au; 31.77 g/t
Ag; 0.23% Cu; 1.23% Pb and 2.26% Zn.
Given the metals prices prevailing at year-end 2009 of
approximately (all prices US$) $1,100 per ounce gold,
$17.50 per ounce silver, $3.40 per pound copper, $1.15
cents per pound zinc and $1.10 per pound lead and the
grades mentioned above, an approximation of the ore
value per tonne would be in the neighborhood of $150 -
$180, well above early estimates of production costs.
Shearing did note that in order to conserve cash, the
company has been cutting back on current exploration
until general credit conditions and access to capital
improves. Reducing the flow of new drill core for a
period is also providing an important benefit by
allowing the company to focus on preparing an economic
study of the project with current plans calling for
completion near mid-year 2010. Based on the outcome of
that study, the company plans to produce a full
feasibility study within 2-3 years.
Because of its remote location and the extreme vertical
nature of the surrounding area, there are special
infrastructure problems which must be addressed,
specifically including roads. On that subject, the
company has just received encouraging word from Mexican
governmental authorities.
At present, the only reliable road access into
Tahuehueto involves a nine-hour drive from the state
capital, Durango City. However, Mexico is in the process
of constructing a freeway between the Pacific Coast city
of Mazatlan and Durango City, along with another highway
construction project that will more directly benefit
Tahuehueto by opening the remote northwestern area of
Durango State to the coastal state of Sinaloa via
Tamazula - Tuliacan, then to either one of two deep sea
ports, Mazatlan and Topolabampo. When completed, these
two roads will allow for swifter access between Durango
City and the coastal State of Sinaloa. The northern
route will directly benefit Tahuehueto, presenting an
opportunity for a new access route to supply the project
and for future direct shipment of mineral production
concentrates to deep-water ports on the Pacific.
One benefit of the sharp topical relief at Tahuehueto is
the fact that there is an open exposure of ore
outcroppings that might not be visible in a more gently
sloping or flat region. The company also believes the
potential exists to lower future operating costs
relating to mine production design by taking advantage
of gravity to transport ore via a vertical shaft and
inclined tunnels from higher regions to lower milling
and crushing facilities.
Geologically, the Tahuehueto project lies within a
structurally controlled district scale series of
epithermal vein systems traced for over six kilometers
with the entire project occupying the bulk of the
Tahuehueto Mineral District.
This past summer, Soho announced the addition of the
Jocuixtita Silver Project (JSP), located in Sinaloa
State about 120 Km north of Mazatlan to its inventory of
properties. Through its subsidiary company, Samarkand de
Mexico, S.A. de C.V., Soho entered into two option
agreements to acquire JSP. The property hosts a number
of northwest and crosscutting northeast trending
epithermal vein structures mineralized with silver,
gold, lead and zinc, stretching over at least 3 km of
strike length, including areas of previous historic mine
workings.
Soho plans to commence a $300,000 to $500,000
exploration program at the project. Exploration plans
include opening the access road to the project, underway
now, followed by detailed geological mapping and
sampling; geophysics; and a 10-15 hole diamond drill
program.
The company conducts its Mexican operations administered
through a well-equipped office facility in Ciudad
Durango and implemented in a full mining camp on-site at
Tahuehueto which contains offices; dining hall; core
shack and core splitting facility; dormitory rooms; and
an on-site doctor, paid by Soho Resources to serve the
mining camp.
Water supplies are a vital consideration at Tahuehueto
for both personnel and mining operations. At present,
five pumping stations lift water from the Las Vueltas
River, replacing a well that was previously drilled to
support the camp and drilling activities. Fuels and bulk
food items are trucked in from the city of Tepehuanes, a
five-hour trip over mountain roads. All mining items are
either flown or trucked in from Durango City, a nine
hour drive involving three and one half hours on
pavement, two and a half hours on a reasonable gravel
road and the last three hours on unimproved gravel
roads, but that situation should improve once the
highway construction noted earlier is completed and Soho
establishes new access to the south via Topia to connect
to this new highway.
The area's climate, predominantly warm to hot with a
summer rainy season, presents few problems regarding
mining activities other than the possibility of some
road damage at lower altitudes should the area encounter
a particularly severe rainstorm. Fortunately, these
happen at infrequent intervals and when they do occur,
road repairs are normally accomplished within a few
days.
President Shearing indicated that when it came time to
obtain construction and production financing, debt would
be the most likely option since trying to raise
sufficient funds for the construction of production
facilities - currently suggested to be in the area of
$125 million - would cause substantial stock dilution.
One other option being investigated would be forming a
Joint Venture with a major company in order to utilize
their financial strength and production expertise.
To summarize, we believe that the company shares are
undervalued at this time, given the potential for
significant future upgrading of the resource estimates,
opportunities for new discoveries over the total project
area, as well as the possible attractiveness of
Tahuehueto for either joint venture partners or major
mining companies looking to add to their reserve
holdings. The recent addition of Jocuixtita would appear
to add significant opportunities for future resource
development.
|
