Grandich's Blog

The market for junior resource companies has been nothing short of abysmal for the last six months and it’s just plain tough to get excited about anything. Having said that, I just can’t pass up the opportunity to get involved with a company that has as much potential as Santa Fe Metals. Santa Fe has all the makings of a winning junior resource company with the prospect of near term production. With an excellent set of properties in Mexico (one of which has very near term production plans), a strong management team and an excellent share structure with just over 15 million shares issued, I feel I can come out of the foxhole for this one.

Cuatro Cienegas Project

The recently-acquired Cuatro Cienegas Project, Santa Fe’s flagship property, is located in Coahuila, Mexico and consists of 3,408 hectares in six mineral concessions. The project is believed to host a breached anti-cline of cupriferous “red bed” type sandstones up to 20 meters in thickness, which can contain very large high-grade copper deposits. In the past, these sedimentary formations have accounted for 30 percent of the world’s copper production.

What makes this project such an exciting prospect is not just the potential for high-tonnage, high-grade copper ore, but the potential for near-term production. As part of the agreement, Santa Fe must put the project into production by November 7, 2009. That means that the project must begin producing more than 1,000 tonnes a day of leachable copper oxides within the next 18 months. Santa Fe plans to develop exploration drifts into the flat-lying sandstone beds as part of its overall exploration plan. The resulting material will be crushed, stacked and acid leached.

The resulting pregnant solution will be run over launders containing scrap iron to produce cement copper – simple, old technology that works. This will provide the company with the funds to continue their exploration plans as the proposed mine site is surrounded by blue sky country. This process will not recover any silver, which may remain as a residue in the heap. The vendor has reserved the right to recover this silver but would assume the environmental liability.

The project has excellent multi-element deposit potential. Copper isn’t the only base metal that has been found on the property. Channel samples have yielded values ranging from 42 to 180 grams per tonne silver, three percent to 4.7 percent lead and 4.7 percent to 9.7 percent zinc. It is possible that there could be a carbonate replacement deposit on the west side of the deposit. This requires further evaluation. These sulphides would be treated in a conventional flotation plant which of course would recover silver-more possible upside.

The Cuatro Cienegas project was acquired from Minería Melina S.A. de C.V. for US $500,000. In addition, the company must pay five additional installments of US $100,000 annually (one has already been made) and 3.5 percent net smelter return royalty payable on future production revenues, of which one percent can be purchased for US $1 million at any time. Melina also agreed to subscribe for 500,000 shares of the Company at $0.60 in a private placement valued at $300,000. The shares are subject to a four month plus one day hold, as per exchange regulations.

Lobos Project

The Lobos project was Santa Fe’s qualifying transaction to obtain its listing on the TSX Venture Exchange. Santa Fe recently began drilling on this polymetallic property in north-central Mexico. The project is located two hours north of Zacatecas, within 150 kilometers of Goldcorp’s Peñasquito property, and has excellent access down a good unpaved road. In fact, it shares many geological and minerological similarities with the Peñasquito deposit, which has proven and probable reserves of 13.0 million ounces of gold, 864 million ounces of silver, 2.67 million tonnes of lead and 5.81 million tonnes zinc. Numerous gold, silver, and base metal showings have been identified on the Lobos project. These showings are hosted in systems that are known to host polymetallic deposits (silver, lead, zinc, gold and copper) in this region of Mexico. The company released a NI 43-101 technical report discussing the Lobos project in December last year.

Santa Fe has just begun an initial 2000-meter drill program, which will target the hydrothermal breccia fields at Espuela, Media Luna and Animas and the Charcas vein system. You can view a geological plan showing these systems on the Company’s web site, www.santafemetals.com. In addition to the proposed drill program, the company plans to use geochemical and geophysical tools to identify other drill targets.

The recently acquired Lobos project was optioned from Minera Gama S.A. de C.V. In return for acquiring a 100 percent interest in the 9,597 hectare projecty, Santa Fe will pay US $2,625,000 over four years in addition to a two percent net smelter return royalty, one percent of which can be purchase within five years for US $1 million. Note that the Company has structured its payments so that the largest payment of $2 million is not due until year four.

Lorena Project

The Lorena project is located in Mexico, approximately 100 kilometers south of Chihuahua down the main north-south freeway. The Company’s target here is carbonate replacement deposit-style silver, lead, and zinc plus gold and copper mineralization of the type found at the world famous Naica mine, located 25 kilometers west of the Lorena property. Santa Fe is working on a NI-43-101 compliant technical report, which it is hoping to complete next month. Following that, it plans to conduct a geophysical program to help identify possible drill targets.

Santa Fe acquired the Lorena project through an option agreement with Ing. Enrique Luis Saldaña Alba in March of 2008. The company can acquire a 100 percent interest in 1,100 hectares in five mineral concessions for US $1.33 million over a six year period. In addition, Santa Fe must pay US $3 million over the first two years of production and a two percent net smelter return royalty commencing in year three of production, one percent of which can be purchased for US $1 million. Again the Company has structured its option payments with the larger amounts due in later years so that most expenditures are spent on property evaluation.

Strong Management

Not only does Santa Fe have real potential as a near term producer, but they also possess a very strong management team with extensive experience. Ian Smith, the President and CEO of Santa Fe, has more than 40 years of experience in the base and precious metals industries. His last company, bcMetals Corporation, was acquired by Imperial Metals Corporation. This gentleman knows how to increase shareholder value and send a company on its way down the road to success.

Between the management and the seasoned board, Santa Fe has more than 200 years of industry experience. Ing. Pedro Rocha Márquez, General Manager Exploration has 30 years of experience exploring for gold and silver, while Doug Brett and Lic. Ana María González Herrera have over 20 years experience in finance and business administration, respectively.
Bottom Line

Santa Fe Metals has really pulled it all together. They have strong, knowledgeable management who have made impressive decisions regarding property acquisitions. With their outstanding portfolio of projects-especially Cuatro Cienegas-they should be able to start producing in the near future and continue to explore to add additional value. Unlike most junior exploration companies, Santa Fe Metals will have cash flow, which should ensure that shareholders will see minimal dilution. Santa Fe Metals is an emerging story for 2008.