And from an investment perspective, ECU (http://www.ecu.ca/) is especially undervalued when compared to other small, emerging precious metals miners. This reality is underscored by the fact that ECU has just recorded two back-to-back profitable quarters and is also primed for exponential earnings in the foreseeable future.

 

ECU has therefore been selected for special consideration by SmallCapMedia due to its proven formula for success, as well as a number of other key value drivers. All of which are steadily building considerable intrinsic value into the Company’s modest stock valuation.

 

However, a recently-established upwards trend in ECU’s share price is a telling sign that this low-key, yet aggressively growth-oriented miner is destined for a very bright future. One that will almost certainly translate into higher share price multiples against the backdrop of a sustained across-the-board bull market for metal prices, particularly for silver.

 

In essence, the key to the Company’s success to date is a unique expertise in the mining of narrow veins of as little as a metre across, or less. And ECU is now well-established in one of Mexico’s leading mining districts where high-grade silver and gold epithermal vein systems are known to be prolific. The Company’s 563-hectare, extensively-mineralized property is located in the state of Durango in central Mexico and at the heart of the prolific Sierra Madre Occidental Gold-Silver Belt.

 

Production at Core Project Areas Set for 400% Growth by Mid 2006

Known as the Velardeña Property, ECU’s holdings involve three land parcels consisting of 24 concessions. The centerpiece of which is a cluster of long-established underground workings spanning five small mines in the historic Velardeña Mining District. Modern exploration and development at this core group of underexploited ore bodies has been conducted somewhat sporadically over the last decade. They have also seen some small-scale, intermittent artisinal mining dating back to the 19^th century. But it was not until mid 2004 that a revitalized developmental campaign really got underway in earnest.

 

Investors will take heart in the fact that this is already proving to be a high-reward strategy with minimal risk. It involves the systematic expansion -- both laterally and at depth -- of an easily accessible, rich mineral inventory of largely untapped potential. Indeed, the aggressive ramping-up of production, in conjunction with the development of new mineral resources, is already setting the stage for a long and lucrative future for ECU.

 

This property’s main concentration of interconnected subterranean mine workings are situated approximately 95 kilometres south-southwest of the city of Torreón and 140 kilometres northeast of the state capital, Durango. And a four-lane toll highway connecting Torreón and Durango passes three kilometres east of the village of Velardeña. Then a seven-kilometre gravel road leads from the village to the mine site. Also, the Company’s recently refurbished and upgraded mill is located less than five kilometres away.

 

By way of background, a past project operator conducted 8,900 metres of drilling and exhaustive sampling during the mid 90’s to arrive at an independently-verified combined resource estimate for these five key deposits. Most of these known resources are situated at the Santa Juana Mine, where the majority of the drilling took place. Importantly, these figures are now “National Instrument (NI) 43-101 compliant,” meaning that they meet the exacting criteria of the Canadian federal government’s recognized standard for a “measured resource.”

 

These resource figures document that the five interconnected mines host a baseline (minimum) inventory of 895,000 tonnes of ore in the measured and indicated category at an average grade of 3.74 grams per tonne (g/t) of gold and 218 g/t of silver. In the inferred category, a further 738,900 tonnes, grading an equally impressive average of 3.99 g/t of gold and 263 g/t of silver, have also been  outlined.

 

Simply stated, these calculations translate into a resource base of 6,268,800 ounces of silver or 12,773,800 ounces silver equivalent (ag-eq) in the measured and indicated category, as well as a further 6,236,600 ounces of silver or 11,918,600 ounces ag-eq in the inferred category. These numbers also allude to an estimated 108,400 ounces of gold or 212,900 ounces of gold equivalent (au-eq) in the measured and indicated category and 94,700 ounces or 198,600 ounces of au-eq in the inferred category.

 

However, perhaps the biggest near-term value driver for ECU’s share price concerns the Company’s assertion that ongoing developmental work is likely to more than double this existing resource base within just a few short months. In fact, a major upcoming drill program is also expected to generate results by mid 2006 that are nothing short of dramatic.

 

All told, a 50-hole drill program spanning 16,000 metres is expected to exponentially increase the property’s known resource base by up to 400%.  The bulk of this new mineral inventory is likely to be outlined in the Santa Juana, San Mateo and San Juanes mines, where most of the Company’s activity is presently focused. This is where modest intermittent production has been concentrated during the last few years.

 

It is also where ECU is committed to seriously beefing up its near-term output with a view to easily surpassing the 26,058 tonnes of ore mined in 2004 from the Santa Juana Mine, alone. Last year, the ore from this one mine averaged an attention-grabbing 4.59 g/t of gold and 250 g/t of silver. Comparable grades have also being consistently encountered in recent years at the San Mateo and San Juanes mines.

 

As an aside, astute readers may wonder why ECU has taken so long to develop a property that it has already owned for a few years. That is because a major downturn in the mining industry in the mid to late 90’s intervened to curtail any expansion plans at that time. That was until a demand-driven resurgence in metals prices heralded a turnaround in the mining sector that only really got underway about three years ago.

 

Aggressive Development to Fuel Exponential Profits Growth

Hence, a reinvigorated ECU is not wasting any time in capitalizing on an ever-improving business environment for mining and marketing metals. Indeed, the Company is proving very adept at fine-tuning its mining operations to make for increasing efficiencies and economies of scale. Of course, this all benefits the bottom line and paves the way for exponential growth in revenues and net profits, alike. Notably, gross revenues are expected to take a 50% jump within the next two quarters, largely due to the ramping up of production at the Santa Juana Mine.

 

In the near-term, the Company’s cash flow generation should receive an additional boost from the reprocessing of 20,000 tonnes of existing tailings, grading a very impressive 5 g/t of gold.

 

And with production at the San Mateo Mine also coming back on-stream within weeks, the story gets even better. Likewise, the San Juanes Mine is also scheduled to resume production in Q1 of next year. This rosy picture should make the Company’s 2006 revenue projections of around US $9 million to US $10 million all the more attainable. In turn, this is expected to translate into a very comfortable net cash flow position of at least US $5 million.

 

Recently, ECU reached a crucial milestone by way of recording its last two quarters of production at the Santa Juana Mine as profitable. With production boosted over the span of the last few months from 180 tonnes per day (tpd) to a current maximum capacity of 340 tpd, the Company is now gearing up to meet another far more aggressive production target of at least 400 tpd by Q2 of 2006. The recent almost doubling of the mill’s output has benefited considerably from such cost-efficient initiatives as the changing of both the flotation and grinding circuits, as well as the addition of a new primary crusher (which is still being fine-tuned).

 

The dollar value of the ore is also expected to see considerable improvement by way of enhanced recoveries not just for the precious metals but also for lead and zinc in the concentrates. Additionally, metallurgical testing is ongoing to further optimize milling efficiencies.

 

“Drifting” All the Way to the Bank at the Santa Juana Mine

As a result of the Santa Juana Mine’s new lease on life, ECU has in the past year more than doubled the number of mine stopes to eight. There are also 14 more stopes that are in the final preparation stage. (Stope is a term that refers to the excavation of ore along the vertical axis of a horizontal drift/adit or tunnel. In turn, drifts and adits are closed-ended tunnels). To date, the mine has historically been excavated along a number of stopes and crosscuts (lateral excavations that are conducted from an existing drift/adit) that have traced the mineralization along 18 descending levels of drifts and adits. All told, the workings follow at least 350-metres of strike length (direction of the mineralization) with a 400-metre-plus vertical extent.

 

The presence of considerable underground infrastructure also means that new zones of mineralization can be easily blocked off via cost-efficient underground drilling conducted from a labyrinth of drifts and crosscuts. In fact, a program of merely drilling along the strike length of the mineralization will go a long way towards generating ready feed for the mill complex. Notably, low-sulphidation epithermal veins in this part of the world are well-known to occur at regular intervals along major geological structures such as fault zones. So, a strategy of drilling-out the veins along strike is one that is shaping up to be a logical and financially pragmatic one.

 

And the most recent newly-excavated stopes and crosscuts have revealed that plenty of new mineralization is readily accessible from existing workings. This consists of the strike extensions down dip (the angle at which a vein is inclined from the horizontal) along the mine’s two richest structures, the CC and Santa Juana veins.

 

These strike extensions have yielded remarkably consistent grades when compared to the ore zones mined from a series of levels above. Furthermore, assays taken from the Santa Juana’s new mineralized zones attest to an overall improvement in grades on the largely-unexplored southeast side of the mine. This is where gold grades ranging from 3.16 g/t to 8.36 g/t and silver grades running from 220 g/t to as high as 580 g/t have recently been intersected.

 

However, SmallCapMedia is interested the most in the average grades for all of the new areas of mineralization combined. This is the real litmus test for whether this high-grade rock is a true harbinger of highly profitable days ahead at the Santa Juana Mine. And the answer is apparently a resounding “Yes.”  Specifically, a total of 117,200 tonnes of NI 43-101 compliant ore in the measured and indicated category were outlined with an exceptional average gold grade of 9.95 g/t. Meanwhile, the average values for the other metals may not have dazzled but they still proved impressive. They are as follows: 336 g/t for the silver, 6.06% for the zinc content and 4.75% for the lead. A total of 169,500 tonnes of ore in the inferred category were also delineated at very comparable average grades, with the most notable being 8.58 g/t of gold and 340 g/t of silver.

 

Underground drifting and test drilling conducted earlier this year at the Santa Juana Mine have also indicated that these veins are open (continuous) at depth. And deep drill intercepts have proven to be gold-rich, returning an overall average of 4.55 g/t of gold, as well as an average of 216 g/t of silver. Notably, these grades are not even representative of the mine’s richer sulphide-based mineralization, which is primarily located on the other side of a fault structure that bisects the mine. Instead, they pertain to new drill intercepts below lesser-quality oxidized ore. Nonetheless, these intercepts also encountered very encouraging base metal values. Lead assays have returned grades ranging from 2.57% up to 9.19%, while zinc values are shown to vary from 3.6% to 11.6%.

 

Similarly, a comparable strategy can later be applied to the exploration and development of the property’s four other adjoining mines by way of developing new resources on a lateral plane and also at depth.

 

To put matters into perspective, the five mines have many kilometres of known strike length. This encompasses numerous vein systems and stockworks mineralization (veinlets) that are hosted in a series of felsic volcanic rocks and intrusive rocks. Meanwhile, there exist numerous other vein systems of unknown extent and importance. To cost-efficiently develop these existing and soon-to-be-identified additional resources, the Company has plenty of infrastructures already in place, such as three main shafts and extensive underground adits and cross-cuts.

 

Early Indications of a Major New Discovery?

The “wild card” component to this story involves the investigation of the origins of rich ore shoots (known as clavos), where bonanza-grade silver intersections have been intercepted in the Santa Juana and San Mateo mines. Indeed, the Company has recently come up with compelling evidence that attests to the existence of a major deep-seated skarn-style ore body that is located beneath the 22^nd level -- the deepest point of the Santa Juana Mine (which has only so far been reached by way of drilling). Otherwise, the deepest horizon of excavation work to date is the 18^th level.

 

Specifically, it was not until last year that this mineralized skarn was encountered, with drill assays returning well-mineralized intercepts of up to 10 meters, and grading as high as 3 g/t of gold and 120 g/t of silver. In fact, the discovery of a multi-million-ounce major ore body would most likely account for the geological mechanisms that fed mineralized fluids into the overlying epithermal vein systems. No doubt, the prospect of the detailed delineation of a major skarn deposit in 2006 by way of ECU’s upcoming, all-encompassing US $3-million-plus worth of drill programs would surely light up the Company’s share price.

 

San Mateo Reveals Lustrous Gold Content and Plenty More Untapped Silver   

Meanwhile, the Company’s fundamental picture continues to go from strength to strength. For instance, a summer/fall 2005 developmental program involving drifting along the San Mateo Vein via a new crosscut has revealed consistently stable gold values over the width of the planned mining stope. These grades average 2.10 g/t of gold and 198 g/t of silver over 1.84 metres. The main goal of the drifting was to test the strike, dip and grade continuity of the San Mateo Vein beyond the known parameters of its historic workings. These artisinal workings have to date reached a depth of 300 metres along a 600-metre extent of the vein’s strike length.

 

Most importantly, the excellent grades most recently encountered include gold values that surpass the grades that were historically mined on upper levels. In other words, gold grades appear to consistently improve at depth. Otherwise, the newer strike extension of the San Mateo Vein is similar to the overlying mineralized systems, thereby presenting a very comparably favourable geological model. In which case, the rich San Mateo Vein -- by itself -- is believed to host enough mineral inventory to keep the Company’s mill busy for quite a few years.

 

San Juanes Mine has Right Ingredients to Ramp-Up Revenues

In another key event, some meaningful headway has already been made in the expansion of the adjoining San Juanes Mine. Its main mineralized system, the San Juanes Vein, has a strike length of at least 950 metres that can even be traced along surface. Six drill holes have thus far tested the vein to a mining depth of 300 metres.

 

And assays conducted on 275 channel samples taken from a key bonanza-grade zone returned an eye-popping average of 14.4 g/t of gold and 1,042 g/t of silver. Though the vein is quite narrow, it has also revealed high copper grades with an average of 2.87% copper. And the relatively inexpensive installation of a recovery circuit at the mill targeting copper could also offer a meaningful improvement in revenues if copper can be mined in sufficient enough quantities.

 

Expansion Plans for San Diego Mine Receive Shot in the Arm

There also exists plenty of “blue sky” potential at the outlying San Diego Mine (one of the two mines that are not part of the core group). This mine’s various mineralized structures are thought to be related to a separate hydrothermal system than the rest of the Velardeña district. They are distinguished from the other ore bodies by lower gold and higher silver contents.

 

Located approximately 10 kilometres to the northeast of the main cluster of mines, the San Diego Mine has an estimated historic resource of 1.4 million tonnes of near-surface silver-lead-zinc mineralization, with low grade gold values. However, it has seen almost no exploration activity from ECU to date. And the advent of a near-surface bulk tonnage, open-pittable mine would make for very low mining costs.

 

The Company’s developmental plans have very recently received a shot in the arm from the signing of a joint venture agreement with Golden Tag Resources to renew production at the San Diego Mine while also conducting work to significantly expand its mineral inventory.  Golden Tag has an option to earn a 50% interest in the mine by expending up to U.S. $1.5 million over three years.

 

Investment Summary

The Company has an excellent growth profile that will be greatly amplified by a continuation in strong, uptrending silver prices. Indeed, many analysts are predicting a “rising tide” market for silver prices, which should further bolster the Company’s profits. This ideal scenario is underscored by the fact that demand for silver has clearly outstripped supply in recent years. Much of this burgeoning market has been fueled by industrial and consumer demand from China. And there is no indication that this trend is slowing down.

 

Furthermore, ECU also benefits from the fact that the Company is well-established in a nation that is mining-friendly, especially due the fact that its economy has been dependent on mining for over four centuries. And during this time, Mexico has clearly established itself as the world’s largest producer of silver. In fact, over 250 million ounces of silver have been mined from the Velardeña Mining District, alone. Furthermore, Mexico has favourable fiscal policies and is also a member of NAFTA.

 

On a local level, ECU’s property benefits from good infrastructure in the form of paved roads and railway lines. And it is connected to the power grid for the nearby village of Velardeña. There is also a seasoned, skilled workforce in the area with many years of experience in mining the various Velardeña deposits.

 

The ongoing upgrading of the Company’s mill and the corresponding increase in the efficiency and capacity of the recovery plant should also underscore healthy profit margins. This is particularly the case with the Company’s ability to soon recover a higher percentage of gold in concentrate, as well as the prospect of recovering high-grade copper via the implementation of a recovery circuit

 

And ECU’s near-term commitment to further upgrading its resources to the “mineable reserves” category as part of a comprehensive pre-feasibility study should also prove very reassuring for investors. It should also offer ample corroboration of the Company’s assessment that there’s enough existing ore in the measured and indicated category to supply the mill for the next 12 years. Similarly, this milestone development should also reveal another 12 years of ore in the inferred resources category.

 

In essence, the convergence of all of these key dynamics promises to translate into very strong revenue growth on a quarter-over-quarter basis.

 

As previously mentioned, ECU is still considerably undervalued, largely due to the fact that there has been no meaningful promotion to date. But now that this profitable junior miner has impressive earnings and profits growth to brag about, it won’t be long before it shows up on the radar screens of the mainstream mining investment community. And the reaction should be very favourable. Especially since investors rarely get to cheer on a mining success story, considering that there are so few of them.

 

From a technical standpoint, the Company has approximately 162.31 million shares outstanding (about 197.31 million fully diluted). Such a situation typically translates into healthy daily trading liquidity, which is always attractive to sophisticated institutional investors.

 

Meanwhile, the advent of exponential growth in revenues and profits cannot be overstated. Matched with the continued impressive expansion of the Company’s mineral inventory, there are powerful catalysts in place to ensure a sustained uptrend in ECU’s share price. At the same time, the prospect of the discovery of a major polymetallic deposit below the Santa Juana Mine or even one at the San Diego Mine, offers investors the rare opportunity for a “home run.’’ Accordingly, SmallCapMedia will be watching this junior silver-gold and base metals producer very closely in the coming months as we track ECU’s rising fortunes.