By Dr. Allen Alper, PhD Economic Geology and Petrology, Columbia University, NYC, USA
Telson Resources Inc. (TSX.V: TSN): Planning Production during 2017 Advanced Stage Tahuehueto Gold-Silver Project in Northwestern Durango State, Mexico; Discussion with Ralph Shearing President (PDAC Booth #3033)
Telson Resources Inc. (TSX.V: TSN) is a Canadian-based junior resource company focused on the development towards production during 2017 of its advanced stage Tahuehueto gold-silver project in northwestern Durango State, Mexico. We learned from Ralph Shearing, who is president and secretary and director of Telson Resources, that they have recently published pre-feasibility study that shows very good economics to move the project forward into production at a five hundred and fifty ton a day underground mining operation. Late last year Telson collected an industry scale bulk sample, thirty-five hundred tons and has sold all of the concentrate.
Dr. Al Alper: This is Dr. Allen Alper, Editor-in-chief of Metals News, interviewing Ralph Shearing, who is President and Secretary and Director of Telson Resources Inc. Ralph, could you give our readers an overview of your company?
Mr. Ralph Shearing: Yes, sure Al. Telson Resources Inc. is a TSX Venture exchange-listed company. We have one primary project in Mexico that is at an advanced stage of development. We're actually building a mine as we speak. We're not fully funded, but we are funded enough to get started and we're working away trying to get the full funding completed which will allow us to complete construction late 2017 – early 2018.
The project itself, Tahuehueto, is hosted within a large mineralized epithermal district. We own probably 80% of the concessions within this district and the district is recognized in all the Mexican governmental geological publications as the Tahuehueto Mineralized District. Telson has been exploring that project for quite some time. Off and on, when money's available, we move it forward. The majority of our exploration on the project was conducted between 2005 and the end of 2008. We drilled over 45,000 meters of core drilling which has proven up quite a nice resource.
We have produced several resource reports over time publishing a 43-101 compliant Preliminary Economic Assessment back in 2010, and we've very recently published a 43-101 compliant Pre-Feasibility Study that shows very good economics to move the project forward into production. So that's basically what we're working on at this point in time.
Dr. Al Alper: Sounds excellent. Could you give us some information on your background, the board and the team?
Mr. Ralph Shearing: I'm a professional geologist. I've been practicing mineral exploration development for close to 35 years now. I have managed public companies for 30 years, primarily this company. I formed this company with a co-founder back in 1987 and we explored numerous projects. The one that's really allowed us to move forward and develop the company is Tahuehueto which was acquired by the Company back in 1997.
Recently, I was approached by a Mexican mining group called Reyna Mining. The main driving force behind Reyna is a gentleman named Jose Antonio Berlanga Balderas. Antonio is now the CEO of Telson Resources. He's a metallurgist, mining engineer. He's worked for a number of the big Mexican mining companies, Peñoles, for one.
Antonio is very well connected in Mexico. He was heavily involved in a government organization in Mexico that loaned money to small scale miners in Mexico to try to get their projects into production. Antonio has a really good base of knowledge in Mexican mining projects. Almost two years ago, Antonio and his group decided the markets are coming back and they needed to get back into a quality project for the mining market resurgence. Out of the numerous projects he looked at, he was very impressed with our Tahuehueto project based upon the high grade nature of the resource and the long term future exploration potential to expand resources.
We were introduced to each other almost two years ago and negotiated a deal. Antonio's group, came in and invested two and a half million dollars in two private placements in early 2015, and then in 2016. Now within their group, they control the majority of the shares of the company. Their group has three members on the board, and there are two members on the board from the previous group of Telson directors.
Telson’s team is working very, very well together. Antonio has a very strong mining background. He introduced and brought a high quality project to Cayden Resources. Cayden developed that project for a short period of time and, because of that project, was purchased by Agnico Eagle for over two hundred million dollars. Antonio knows both the public side of the business as well as the technical side. He knows what types of projects to bring to companies to make those companies going concerns.
Another member of Antonio’s and now Telson’s team is Enrique Margalef Vergara. He has investment banking experience in Mexico, and he's been involved in Mexican mining for around 8 -10 years now. Antonio has a full team of technical people, a number of mining engineers, geologists, etc. to also run the technical work.
Because of Antonio's professional connection and friendship with Arturo Bonillas, Arturo joined our company as an independent director. Arturo is known for his involvement and building up of Timmins Gold. He's the President of Timmins Gold and developed the project that Timmins Gold put into production and is currently producing now in Mexico. He's heavily involved in Timmins, but he is overseeing the work we're doing and has been a very good addition to the board of directors.
Finally, we have one other director named Yao Sun. Yao Sun represents a Chinese group of investors that funded us from about 2009 when the recession started and things got pretty tough. This Chinese group became involved and put several million dollars into the company and purchased some private stock from individuals who were looking to exit their share position. Overall, they have probably invested about four and a half million dollars both in direct private placements into the company and purchasing privately owned stock.
This group was unable to fund Telson past 2013 due to deteriorating economic conditions in China. Telson was in pretty rough shape for a period of time until Antonio's group came in however, our Chinese shareholder group are very good long-term investors. In fact, we're still holding the bulk of the shares the Company issued to them on a private placement basis, in safekeeping in our safety deposit box, so it speaks a lot to their dedication to the company and their long-term investment approach.
Then the final member of management is a new CFO named Omar Garcia. Omar joined our company along with Antonio and his group and he took over the CFO position. He has hands-on Mexican mining experience. He's a Canadian citizen and resident out of Vancouver. He's had a decent amount of experience in accounting and working under a CFO for projects like the Campo Morado Mine in Mexico, and several others projects with other TSX.V listed companies. We have a very good talented team within Telson’s board of directors and management, and it's allowed us to continue to rapidly move the project forward.
Dr. Al Alper: A very strong team! I'm very impressed that they are so experienced, working in Mexico and developing projects in Mexico. It sounds like you're very well-prepared to make Telson Resources a mining success. Sounds great!
Mr. Ralph Shearing: Thanks, Al. We are, and we're actually demonstrating that by moving the project forward. We've been able to secure a line of credit from our major shareholder. It's a hundred and fifty million peso Mexican line of credit, and that's really allowed us to continue to develop the project. Late last year we collected an industry scale bulk sample, thirty-five hundred tons. We shipped that ore, over two hundred seventy kilometers, out to a toll mill near Guanaceví and we've processed all of that material. We've sold all of the concentrate for just over US $1.4m.
We are continuing to work on the project and have advanced what we call a haulage level portal at the base of the El Creston Zone going into the side of the mountain. We've taken that in to about a hundred and sixty meters and have crossed our vein where we are preparing to collect another large industrial bulk sample for processing in April. This sample is about two hundred fifty meters lower elevation than where we took our first large scale bulk sample and there is more copper present so will likely process a copper concentrate along lead and zinc concentrates from this area.
We're continuing the development of the mine in advance of getting our full funding because we want to make sure we're well along and can achieve our goals of getting this thing into production by the end of 2017 or very early 2018.
It's a lofty goal, but we're confident we can do it. A recent advancement in our development plans occurred a few weeks ago when we announced the purchase of a mineral processing facility. This purchase gives us about 80% of the equipment that we will need to build our mill on site. It turned out that this mill was very well located in relation to our project. It was located in Durango State, which is the same state as our Tahuehueto Project, so it's quite close and logistically simple to transport to Telsons staging area and subsequently to the project.
The mill is in excellent shape with most of the equipment being refurbished or new so the work necessary to have it prepared for installation at site is minimal. With the addition of some missing equipment and final clean up for and additional estimated cost around one million dollars, we'll have this mill ready to ship and install when the project site is ready to receive the equipment for instillation.
Our pre-feasibility study, originally was calculated at a production rate five hundred, fifty tons mill feed. Planning to start out slowly and once we get it into production, we plan to increase the processing rate towards 1000 tonnes per day in the first year of production.
At five hundred and fifty tons a day Telson expects to produce about eighteen thousand ounces of gold equivalent with gold and silver. Then we have an equal value of base metals, so the project should generate about double the value of the precious metals on a yearly basis. If we successfully ramp the production up to a thousand tons per day, you can basically double the value of metals produced so we could potentially be producing that thirty-five thousand ounces of gold equivalent with gold and silver plus an equal value in base metals, making Telson a very significant Mexican producer.
Tahuehueto is a great project. We believe we can continue to ramp up the processing of this project to even above a thousand tons per day and maybe as high as two thousand to three thousand tons per day, but that will require us to explore and develop new resources, which we're very, very confident that we can do. Geologically speaking, the project is very high potential for a lot of extra discoveries to expand resources and reserves as we continue to move forward.
The resource structures that we've drilled on so far cover about two point four kilometers of strike length and we have not found the limits of the mineralization to depth and along strike so they are what we geologists term are “wide open” to expand resources. The deepest hole we've drilled is four hundred and fifty meters, and that was just one hole to this depth. The majority of our drilling tested the structure to under three hundred meters depth below surface.
We also have gold and base metal mineralization over a large vertical extent over 1 km. In the river we have outcroppings of good gold and silver values at 660 meter elevation and as you go up vertically in the system to main areas we're exploring and developing and plan on mining, we climb to over 1800 m elevation. We're continuing to have gold occurring in what geologists call an overprinted and telescoped mineralized system, so it gives us very good confidence that we will continue to discover new ore and new reserves to continue to develop the mine over a long period of time and increase the production.
Dr. Al Alper: Excellent! That's really great. It's good to have a project with that type of blue sky potential and a solid reserve and resource base from which to start on., so that's excellent.
Mr. Ralph Shearing: Thank you. I guess one other point I'd like to make is that the grade of our deposit, the reserves calculated in the pre-feasibility study are 3.4 grams per ton gold. There's been a recent publications from BNamericas.com listing the highest grade Mexican gold producers that suggests that our Tahuehueto Project, if it were in production today, would be one of the highest grade gold producing mines in Mexico.
Dr. Al Alper: Oh, that's great. Everyone knows grade is king.
Mr. Ralph Shearing: Yes, absolutely.
Dr. Al Alper: Could you tell me a little bit about your share structure?
Mr. Ralph Shearing: Currently we have 93,891,995 shares issued. On a fully diluted basis, we're would have 126,019,245 shares issued. We're currently trading at the thirty-eight cent level, so our market cap is about $35 million
Out of all the stock that's issued, management and insiders own about 42% of the issued stock and 49% of the fully diluted basis. If you add in our Chinese shareholders and a couple other major shareholders, that is good control of about 70% of Telson’s stock, so we're quite a well-structure little vehicle.
Dr. Al Alper: Well, that's very impressive that there's so much ownership by management and insiders. Shows you have confidence in what you're doing and your company. That's great. What are the primary reasons our high-net-worth readers/investors should consider investing in Telson Resources?
Mr. Ralph Shearing: Well, several I guess. This project is potentially a very large project. We're starting out slow. The grade is very good, so that's one good reason to purchase this stock. Another one is we are on the fast track to get this project into production. Not a lot of companies out there are as advanced towards production as we are. If you want to do a couple of comparisons, go back a number of years to when groups like Great Panther, or Endeavor Silver, those kind of companies, first started to go into production in Mexico, and you can see what happened to their stocks over a period of time.
That alone should give people confidence to consider Telson. The exploration potential on the project is very, very good. We've only really developed along one structure and one offsetting structure and we have at least eight more structures that are mineralized.
We know that the mineralization is there and we know the structure is there, and we need to get out and start drilling them. The bulk of our exploration is in a five hundred hector area and we own the majority of the district. Our concession holdings within the district are about seventy-four hundred hectares and I would estimate that Telson controls probably about 80% of the district within our 100% owned concession holdings.
We have both potential to expand the resources, so development potential, and we also have greenfields potential on other mineralized areas around the district to continue to develop as we progress. Another reason I would think people should consider Telson is Antonio Berlanga. His contacts in Mexico are excellent. He's been able to bring high quality projects, in the past, to public companies in Canada that have done very, very well, with his introductions of projects to Canadian resources public companies.
Antonio is intending to do the same for Telson. He has a number of projects that he is targeting for potential acquisition for Telson after we get Tahuehueto into production. So there's an asset play here where we believe we can build the company up with several projects over the next several years. We would be looking at advanced projects, projects that have been mined before and have been shut down for various reasons. That upside potential with additional projects is very good, and a good reason to consider getting involved with Telson and Tahuehueto.
Dr. Al Alper: That sounds great. Excellent reasons. Is there anything else you'd like to add, Ralph?
Mr. Ralph Shearing: Our pre-feasibility study was calculated at a five hundred and fifty ton per day underground mining operation. The results came back at a net present value at 8% discount of seventy-seven million dollars and an internal rate of return of 36%. Payback period is three years, mine life is twenty-one years at five hundred and fifty tons a day. We have enough reserves right now to actually go a thousand tons a day for at least a ten year mine life.
That's really what our plans are, to start out 550 t/dy and ramp it up. Average cost per ton, including mining, processing, etc. is calculated around sixty dollars US per ton, and our average cost per gold an ounce was calculated at about three hundred and five dollars US per ton, so those are really good economics. That gives a lot of room in there to make very good profit on the mine as we move forward.
Again, the plans are to ramp it up to the thousand tons a day and even past that as we continue to develop new resources and reserves on the project. We'll have a good news flow coming out over the next months throughout the year. We're doing more bulk sampling. We're going to start mine construction. We'll be announcing more concentrate sales. With our recent bulk sample, we collected thirty-five hundred tons and shipped that ore over 270km to a toll mill for processing producing 201 tonnes of lead concentrate and 259 tonnes zinc concentrate and sold those for over USD $1.4 million. These concentrates were easily marketed and quickly sold.
In fact, the commodities traders love these concentrates because of the high grade nature of the precious metals, where they can mingle it with their other concentrates that they purchase. Our recoveries were excellent. We had gold recovery of about 86.75% with silver recovery of 88.27. Lead recoveries were 83.76% and zinc recoveries at 75.64%. All tests were very successful and show we can produce and sell a very high grade concentrate.
Dr. Al Alper: That sounds excellent. That's really very good.
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