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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, given the nature of the property’s mineralization,
is very significant.
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 Sierra Madre
in close vicinity to Penoles' producing La Cienega 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.
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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 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 startling, amounting to 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 of a new and
fully NI 43-101 compliant Resource Estimate that the company
published in April, 2008.
Using a cut-off of 2.0 grams per
tonne (gpt) gold equivalent for unoxidized resources and 3.0 gpt
for oxidized resources, the Estimate showed Inferred resources
of 6.49 million tonnes containing 1.34 gpt Au, 31 gpt Ag, 0.24%
Cu, 0.78% Pb and 1.43% Zn. By weight, this would amount to
276,000 ounces of gold plus 6.43 million ounces of silver, 33.5
million pounds of copper, 110.5 million pounds of lead and 201.1
million pounds of zinc.
Given the metals prices
prevailing in early June, 2008 of approximately (all prices US$)
$860 per ounce gold, $16.50 per ounce silver, $3.60 per pound
copper, 85 cents per pound zinc and 80 cents per pound lead and
the grades mentioned above, an approximation of the ore value
per tonne would be in the neighborhood of $110 - $120, well
above early estimates of production costs.
Soho continues its strong
development program with 50 holes already completed during
2008. The company has been cutting drill core steadily and
submitting samples to laboratories and assay results are now
(June 2008) being received from this year's drilling. By early
May, the company received assay returns from the Creston,
Perdido, Cinco de Mayo, Texcalama and Santiago zones. It is
worth noting that none of these new returns were included in the
NI 43-101 study.
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Shearing did note that in
order to conserve cash, the company has been cutting
back the current exploration somewhat and would proceed
with only one rig instead of the present two until
general credit conditions and access to capital were
improved. Reducing the flow of new drill core for a
period would actually provide an important benefit by
allowing the company to catch up on the processing of
existing core which has already been developed during
the period of heightened drilling activity earlier this
year.
Several of these results
were most encouraging including Hole DDH08-138 at
Perdido that showed 4.55 gpt Au, 23.25 gpt Ag, 1.37% Pb
and 1.42% Zn over 1.60 meters. Other assay highlights
included DDH08-148 at Creston with 97.20 gpt Ag over
12.20 meters; DDH08-156 at Santiago showing 8.24 gpt Au
and 400.00 gpt Ag over 1.70 meters and DDH08-150 at
Texcalama returning 1.50% Pb and 3.30% Zn over 5.00
meters. Assays from El Creston in 2007 included
DDH07-113 showing 16.22 gpt Au over 8.2 meters and
DDH07-111 returning 112.9 gpt Ag over 5.5 meters.
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As a result of recent results,
the company is raising the priority level for development of the
Texcalama and Perdido Zones. Of six holes drilled recently at
Texcalama, two have provided exceptionally positive assay
returns.
The continuing stream of assay
results and other data will be utilized toward completing an
updated resource estimate that Soho has already contracted for
and which they plan to have completed by year-end 2008. Soho
also plans to initiate a Preliminary Economic Assessment using
the results of the updated resource estimate. Further out, they
plan to complete a pre-feasibility study by mid-2009 and a full
feasibility report within 2-3 years.
Because of its remote location
and the extreme vertical slopes of the project area, there are
special infrastructure problems including roads, air
transportation, electricity and personnel that must be
addressed. The company is currently negotiating a road
improvement program with the local municipality whereby the
municipality and Soho will contribute 50% of costs of access
road improvements to the project area. Shearing noted that
should the project receive a positive feasibility study, the
company is hopeful that the government will provide assistance
in establishing electric power lines into the project which
would also benefit the local area economy and residents as well.
One benefit of the sharp topical
relief at the project 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 the 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.
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.
Air transportation involves
flying for about 75 minutes from Durango City in a small,
prop-driven, fixed wing aircraft and landing on a short, gravel
runway that must be approached through a circuitous landing
pattern. Another landing field is located on the project area,
but that strip has become overgrown and there is no current
access road available. As a point of interest, it is worth
noting that in earlier times, when the landing strip was
operational, a tram ran down from that earlier landing field to
the ore bodies, but that tramway operation ceased decades ago
and all that remains are some foundation pillars which once
supported the service.
Water supplies are a vital
consideration 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
difficult mountain roads and all mining items are either flown
or trucked in from Durango City, a short flight, but 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.
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
easily accomplished within a few days.
One of the locations being
considered for a future milling facility is a relatively flat
area in a valley below the Santiago Zone. Resultant
concentrates could then be trucked for shipment to refineries
while tailings would be disposed of in two manners, either
through storage in tailings ponds or by returning them to the
underground workings as fill material.
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.
Geologically, the project lies
within a structurally controlled series of epithermal vein
systems traced for over six kilometers with the entire project
occupying the bulk of the Tahuehueto Mineral District.
To summarize, we believe that the
company shares are undervalued at this time, given the potential
for significant upgrading of the resource estimates later in the
year, the 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.
For further information, e-mail
Investor Relations at gsandwell@sohoresources.ca or visit the
company's website at
www.sohoresources.ca.
Leonard Melman
June 11, 2008
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