Wallace, Idaho – Ken Cai bristles when you ask
for comparisons between his Minco Silver Fuwan
silver-mining endeavours in China
and RuiFeng’s
highly successful Ying silver mine in Henan.
And while Silvercorp (TSE: SVM) and Minco Silver
(TSX: MSV) are to some extent apples and oranges, the comparison is
inevitable. Suffice it to say if you missed the Silvercorp
Express, the Minco Silver Bullet is about to leave the station.
To belabour the comparison a bit further, imagine
that if Silvercorp is the Sunshine of China, then
Minco Silver’s Fuwan deposit could well be
the Middle Kingdom’s new Rochester.
Albeit in this case both are underground mines, Silvercorp
is high grade, low volume; Minco’s property will be lower grades at
much higher volume. A question of 2 times 5 or 5 times 2. That said, Minco
Silver is currently trading in the $3 range and Silver Corp is in the $14
range.
Dr. Cai, a Chinese
national, went banging on Teck’s doors a
dozen years ago, after obtaining his degree in mineral economics from QueensUniversity
in Kingston, Ontario
with the outrageous notion of going mining in China. He carried a portfolio of
precious metals mining opportunities in the Middle Kingdom. Bill Meyer,
then-president of Teck Exploration, took an
immediate liking to the young Dr. Cai and his China
ideas, filched $1 million out of Teck’s
parsimonious board of directors, and dispatched Ken Cai
to elephant country to do a deal.
With a mining rights law essentially patterned after
the Canadian model, the logistics of doing a mining deal in China are not complicated. First
you get a deal. Then you get an exploration permit. Then you get a
development permit. Then you get a 20-year mining permit – in a country
where fee-simple ownership of property is less complex than it is, say in Japan.
The beauty and the difficulty is,China
is the biggest small town on the planet. There may be 1.3 billion of those
guys, but they all seem to know each other. And if one of them doesn’t
know you, you might as well be from Mars. Or Japan. So the value of
connections becomes all-important. Chinese culture is nuanced, subtle, almost invisible until you miss it. Trust is everything,
is as important as being polite and observant of local protocol.
(How, for example, do you accept and handle a business
card from a fellow from China?
In China,
a business card is called a Name Card. When a man from China hands
you his business card, he is holding it with both his left and right hands. He
is offering his name, a bit of his essence, up to the universe, and you are
the recipient. You don’t stuff it immediately into a shirt-pocket, or
pick your teeth with its edges. You receive this gift, this piece of his
soul, in the earnestness with which it is proffered. You study it
respectfully, and only after you have memorized its details may it be
repaired to a pocket. Use it for a tooth pick and you’ll blow a
multi-billion dollar deal, as one American oil exec learned recently to his
chagrin. Or show up at the hotel front desk in your bare feet. The Chinese
will run from you in horror as great as the United States Congress runs from
responsibility.)
Not that Dr. Cai needs a
lesson in Chinese etiquette. Being a native, he can teach it. He knows the
players, knows the customs, knows the rules. He
walks and talks smoothly amongst his Chinese peers. The Chinese, unlike the
EPA-enslaved U.S.,
smell a deal and want to do one – at least that’s the impression
we were given at a dinner hosted in Minco’s honour by provincial
officials.
Not much of China has been geologically
explored. After Mao died, the provinces formed-up geological societies, state
companies actually, to go out and bang on the rocks, see what was out there. These
outcrops and anomalies were located and claimed on behalf of the State. The
province then invites foreign capitalists to participate. The partnership
with the provincial company starts at 50-50. The miner’s interest ramps
gradually up to 70%-80% as he invests in the project’s exploration and
development, insofar as the provincial entity usually doesn’t want to
match cash contributions. Play it right, and you can end up with 100% of the
joint venture, provided the province gets 10% or the NSR or the profits. In
which case, you have a sweet deal.
Which is what Ken Cai and Minco Silver have. Their mining
tax will be 10% of net profits. So now it’s time for a little math.
Minco Silver envisions a 5,000 tons/day operation, with silver values at
about $49/ton (calculated at $7 silver and grades of 7-oz/ton) and costs
through the smelter of about $10/ton. The numbers are better than that, but
we are conservative in our dotage: 5,000 tons/day times $40 times 300
workdays a year. Do the
math.
Life of the room-and-pillar mine is planned for 10
years, but as we have certainly learned in the Coeur d’Alene District,
5- and 10-year mines have a way of living a bit longer than that, especially
underground mines with vein structures that improve in grade at depth. Minco
currently has explored only approximately two percent of its land package and
has found two further prospects on strike which may well double or even
triple the current resource. The metallurgy is not complex; it’s a bulk
sulfide deposit that will yield to conventional
flotation milling, with silver reporting out to the mine’s not
inconsequential zinc component. Smelters in China
(not to mention the China
economy’s continued phenomenal appetite for metals) are so hungry for
silver and gold cons that they’re paying up to 90 percent of the
concentrates’ value – that compares to about 67 percent in North America, and they’re paying on delivery.
Access to infrastructure, a problem for any
development-stage project, is another no-brainer for Minco Silver. Fuwan is located in southern China, in the province of
Guangdong, about an hour’s drive up a major 4-lane highway from
Guangzhou City – a little town of 13 million we round-eyes grew up
knowing as Canton a two-hour train ride up from Kowloon and Hong Kong. Standing
atop one of Fuwan’s several pretty outcrops
(one of which was enshrined in an old school-yard, the shrine-makers not
recognizing the silver ore for what it was), a decent pitcher could throw a
rock into the Xijiang River, the major
heavy-shipping arterial leading to the South China Sea. There’s a local
labour pool to draw from of about 30,000. The power lines and roads are in.
Two diamond-drilling rigs currently are at work on
the Fuwan property defining the parallel vein
structure. As of this writing, the company has completed about 8,500 meters of
drilling in 34 surface holes and a further 8,000 meters is
expected before Christmas. (Incidentally, none of the data from these holes
have been included in the 130 million oz resource estimate and we can expect
to see a revised estimate in Q1 which likely will significantly increase the
size of the deposit.) Access will initially be via ramp. Pre-feasibility
studies will commence next year, with production due to commence in 2009
after completion of all the NI 43-101 paperwork.
Scratch beneath Minco Silver’s surface and you
will find much of Teck’s brain trust,
including the aforementioned Bill Meyer and Silver Standard CEO Bob Quartermain, both on the board. The company has good
friends in other places, too, including major placements with Sprott Asset, Van Eck and CIBC, representatives of whom
were along for last month’s site visit and core shack update. With its
viable property, seasoned management and strong share support, Minco Silver
could well be China’s
next “little engine that could”.
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but its accuracy cannot be guaranteed. It is not intended to constitute
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