Scorpio Mining has funds for plant expansion

Mon Oct 10, 2011 9:18am EDT

(Reuters) - Canadian silver producer Scorpio Mining Corp is not looking to raise money for the 50 percent expansion of its flagship silver-zinc-copper-lead plant in Mexico next year.

Nor is it scouting for any joint venture partners for the project, its chief executive said.

Scorpio Mining, whose operations are mainly in Mexico's Cosalá district, plans to increase production at its fully owned Nuestra Señora plant to 2,250 tonnes per day (tpd) from 1,500 tpd.

"The expansion next year is very low capital ... we are debt free, we have good cash every month, and late next year we're going to get more since we're going to expand the plant," CEO Parviz Farsangi said in a telephone interview.

"We do not necessarily have to go raise money at this time."

The Nuestra Señora processing facility produces copper, zinc and lead concentrates, with a significant silver component in the copper and lead concentrates. Mineral reserves support about 6 years of production at current processing capacity.

Farsangi said the company paid off a C$20 million debt in April-June, and had C$17 million in cash at the end of that quarter.

"Every month, we add roughly about C$3 million to it," Farsangi said.

NEW PLANT STUDY

Scorpio Mining, which last year bought privately-held Platte River Gold, also plans to begin a feasibility study on a new 4,000 tpd plant to serve the North Cosalá district.

That study will be "relatively cheap" and can be easily funded internally, said Farsangi, who took over as CEO late last year. The study should be completed in the third quarter of 2012.

Scorpio Mining, valued at C$368 million, had cash flow of C$22.8 million for January-June.

"We are looking at the feasibility of a brand new plant a little bit closer to the center of gravity of what we purchased at Platte River Gold.

"If we can look at a possible 4,000 tpd plant there, within three years or so, we could be producing close to 10 million equivalent ounces of silver and around 5-6 million pure ounces of silver," Farsangi said.

Iran-born Farsangi, who was previously chief operating officer of Brazilian iron ore giant Vale, said a positive feasibility should mean "by mid-2014, we should be a 6,500 tpd producer."

With the Platte River acquisition came the San Rafael and El Cajón deposits, as well as the La Verde mine -- all within a 10 km radius of the Nuestra Señora plant.

"The reason we are not mining today (at this site) is because we don't have plant capacity," Farsangi said.

Building the plant would need C$100-C$150 million, Farsangi noted. "By that time, we hope 80-90 percent of that money will be in the bank."

SCALING BACK IN GOLD

The company is looking to dilute its stake of about 15 million shares in Scorpio Gold Corp, as the two firms focus on different metals, and have key operations in different countries. Scorpio Gold is focused mainly in the United States.

"That's C$10 million worth of assets sitting there. So, eventually that's an asset that will become cash for us," said Farsangi.

He said Scorpio Mining plans to go it alone at the Nuestra Señora project, as well as the deposits and mine it acquired from Platte River, and is not interested for now in selling any of those assets.

"We have our own resources, we are operating a mine (Nuestra Señora) that generates pretty good cash, we have got a processing plant that we could expand quickly next year and, if we don't build a new plant, we can always come back and make that existing processing plant even larger," said Farsangi.

"We don't necessarily need others."

(Reporting by Bhaswati Mukhopadhyay in Bangalore; Editing by Ian Geoghegan)

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