Vancouver business digs deep on due diligence in initiative to restore historical Ouray silver mine

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In a basin high above Ouray’s bustling tourist shops and hot springs pools, one of the precious metals that birthed this town and fired up its early boomtown days, is readying for a comeback. The first major silver mine in the San Juan Mountains in at least 80 years is on course to be in production next spring.

Aurcana Silver Corp., a Vancouver company that owns Ouray Silver Mines Inc., is deep into pre-production work at the Revenue-Virginius Mine,  one of the largest and oldest silver mines in the San Juan Mountains. There are no known mines with richer silver than the Revenue-Virginius, the company says.

“I think this is tremendously significant,” said Stan Dempsey, president of the Colorado Mining Association. “We’re very pleased this company has been able to successfully reopen this mine.”

The Revenue-Virginius has stumbled through many modern-day false starts as different players tried to bring it back into production. But mine watchers, like Dempsey, and those involved in the current effort to revive the Revenue-Virginius, say they think this attempt is on track to be successful. They cite a number of factors, including a bull market for silver, a new infusion of investor cash and a plan to go back to the mine’s roots using an extraction technique that was successful  in the earliest days of the Revenue-Virginius.

Brian Briggs, the CEO of Ouray Silver Mines, COO of Aurcana and a sixth-generation Ouray mining professional,  also attributes the mine’s anticipated success to diligent background work..

“Study,” he said. “We have done lots and lots of study.”

Briggs said in preparation for reopening the Revenue-Virginius, he delved into 42 failed mining operations around North America to determine what went wrong. He found many mine owners tried to go into production after completing only preliminary mining assessments. Aurcana has gone well beyond that, he said, by taking the next step and completing a pre-feasibility study with test drilling and metallurgy studies. Aurcana then took the ultimate step of doing a costly, full-blown feasibility study with advanced geology work and equipment tests.

Briggs found failed mines also suffered from a lack of financing and from being beholden to “predatory” lenders. He said Aurcana doesn’t have those problems. It needed $36 million to go into production and has raised more than $40 million from investors. A portion of that — a $28-million infusion of investor cash — was announced last week.

An up-and-down history

The Revenue-Virginius has a long history of success, failures and tragedies in its nearly century and a half of operation and downtime.

The mine opened in 1876 in Governor’s Basin about 6 miles south of Ouray at a time when gold and silver mines were proliferating in the San Juans. It became one of the largest and most productive mines in that area after it was purchased by an astute businessman named Albert Reynolds. He built the innovative 7,741-foot Revenue Tunnel so that ore could be hauled out of the mine with the aid of gravity without having to hoist it to the surface. Reynolds also added a large on-site mill.

Miners pose near burro drawn mine ore cars and piled logs at the tailings dump of the Revenue Mine near Ouray in August 1896. (Denver Public Library Western History and Genealogy Department.)

The Revenue-Virginius survived strikes, accidents, a plunge in silver prices and an underground fire in 1906. Around 1916, the mill burned down and that put an end to a high-flying run that had produced 25 million ounces of silver, 160,000 ounces of gold and 108 million pounds of lead.

From the 1930s through the 1980s, sporadic exploration work was done at the mine. Sunshine Mining spent seven years trying to bring the mine back into production in the 1990s and early 2000s.  In 2011, Star Mining purchased the Revenue-Virginius and invested $56 million in restarting it. But, in 2013, two miners died and 20 were injured when they breathed poisonous gas underground. The mine was shut down.

Prior to Aurcana’s purchase of the mine, the most recent attempt to bring it back online was in 2014 when Fortune Minerals acquired it and invested $27 million in pre-production work. That company’s hopes were snuffed out when lenders foreclosed on a loan.

To prepare to reopen the Revenue-Virginius Mine in the San Juan mountains, Ouray Silver Mines Inc. did test drilling in Governor Basin. (Provided by Ouray Silver Mines)

Since Aurcana purchased the mine in 2018, much of the mine and mill has been refurbished. Permits have been obtained. Exploration work has been done on multiple ore veins. Local miners have been lured back from other states to work the mine. A water-mitigation plan is in place. Cleanup of old mill tailings on the property is underway on cleanup. And Ouray County has already reaped $156,000 in severance tax from the project.

Only one thing is left undone before the mine officially gets back into production: The Aurcana board of directors must complete the technicality of approving the mine’s production plan.

“Generally, you don’t stumble at this phase,” Briggs said. “It’s generally about lawyers talking to lawyers and getting all the papers signed.”

Kevin Drover, president and CEO of Aurcana, also expressed optimism about that final step.

“We’ve cleared the final hurdle for silver production in the U.S.,” he said. “We still have to go through normal due diligence. We are hopeful to have that concluded by early December. In the meantime, we will continue with pre-production work.”

A pandemic-induced hiccup

The mine opening was originally slated for this year but was delayed by the COVID-19 pandemic, Drover said. Potential investors were not able to send technical experts to the mine site to examine the operation in the spring and early summer. Securing those investments was necessary to move toward production.

During that time, Ouray Silver Mines did secure $421,000 in Paycheck Protection Program loans to keep miners at work prepping the mine.

The mine and related operations currently employ 71 workers. Briggs said the company is now hiring more warehouse workers, miners, surveyors and geologists. In February or March, he said the 40 miners currently doing underground preparations will be doubled. About 25 more workers will be hired to operate the mill.

Ouray County Administrator Connie Hunt said in spite of a good tourist season in the midst of a pandemic, those jobs will be very welcome in Ouray.

“I am very hopeful that this will be successful and that it will help jobs here,” she said. 

The Revenue-Virginius mine crew is expected to extract 270,000 tons of ore per day from the highest-grade vein in the mine – an 18” slice of ore in a 4-foot wide vein that goes on for more than 18,000 feet. The high-grade ore is removed first, then the waste rock is blasted out so that it is not mixed  – a common way of mining silver in the 1880s.

That silver-containing ore will then be bagged up in 2 ton sacks and shipped to smelters overseas or in Canada. Each ton is expected to yield about 100 ounces of silver. Along with the silver, lead and zinc will also be harvested from the ore.

“It is very surgical. It is very selective,” Drover said.

The silver will be used in products including photovoltaic batteries for solar power systems, parts for wind-power turbines, and as a germicide in hospitals because of its antimicrobial properties. The demand for those uses and the current deficit of silver in the world has pushed the price of silver up to more than $24 per ounce. When Aurcana purchased the mine in 2018, silver was going for around $13 an ounce.   

Besides test drilling for silver and preparing infrastructure prior to startup, Aurcana has also been involved in environmental mitigation projects.  Aurcana received permission from the state to use a $196,000 fine levied against the mine in 2016 to help with tailings cleanup work. Aurcana kicked in another $150,000 or so for the cleanup that addresses mining messes dating to the 1880s.

A worker from Ouray Silver Mines Inc. surveys progress toward lining a tailings pond at the Revenue-Virginius Mine. As the company works to minimize the impact of its contemporary mining activity, it also is cleaning up pollution left 150 years ago. (Photo provided by Ouray Silver Mines Inc.)

At the same time Aurcana is cleaning up historic environmental problems, the company has also been finding ways to lessen future tailings piles. Some of the waste rock from the test drilling at the mine is being crushed and given to Ouray County to use as a road base. Briggs said the mine will continue to sell or give away this crushed material to cut down on the amount of tailings from the mining process.

Aurcana is also working on water problems that have historically bedeviled mines in the San Juans.

The mine has been working with Trout Unlimited and the Uncompahgre Watershed Partnership to improve water quality downstream of the Revenue-Virginius that is located between 10,600 and 12,800 feet in elevation. One project will improve a historic problem with channel instability at a lower elevation area near the old Atlas Mill.

“This company has gone above and beyond on water mitigation,” Dempsey said.

Test case for future investment

Aurcana is counting on the success of the Revenue-Virginius to attract investment to another silver mine — the Shafter-Presidio Silver Project. Aurcana owns that mine near Marfa, Texas, and hopes to bring it back into production once the Revenue-Virginius is producing.

Though he recognizes there are always outside forces that can impact mines negatively, Drover, who has spent 50 years working mines in Canada, Russia, Africa, Costa Rica, Nicaragua and Peru, said he has high hopes both mines will be back in full operation. He is predicting a lengthy future run for the historic Revenue-Virginius – on the order of what Reynolds managed in the early days of the mine.

Drover said the need for silver for new energy technologies should keep prices up. And the amount and quality of the silver left in the Revenue-Virginius means it will not play out any time soon. The mine has access to more than half a dozen other veins that can be drilled once drilling on the main vein is complete.

“We are very optimistic this is not going to be a seven-year move,” Drover said. “It will be 25 to 30 years, in my opinion.”

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