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Arian Silver fully funded as it considers next steps in becoming large scale producer

Last updated: 18:34 29 Feb 2012 AEDT, First published: 19:34 29 Feb 2012 AEDT

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Arian Silver Corp (LON:AGQ, CVE:AGQ) has reached a gross profit of US$0.8 million in the full-year to the end of December 2011 and its operations remain funded by cashflow and capital as it considers its next steps in becoming a large scale commercial silver producer, initially from its flagship San Jose property.

The Mexico focused group reported revenues of US$7.5 million for the full-year, and production of 75,000 ounces of silver reached in the fourth quarter means full-year production was improved to 250,000 ounces.

Funding for all its immediate operations will be satisfied by working capital and cash flow from production, and the company remains in a financially robust position, Arian said in a statement.  Working capital stood at US$5.9 million as at December 31 2011.

The company noted the abrupt collapse in silver prices during the second half of 2011 from a midyear high of over US$48 per ounce.  It said today it has seen a strong recovery in recent weeks, with silver currently at just under US$37, and pointed out that most industry commentators are bullish on silver prices.

It is looking at ways to improve silver recoveries at San Jose. The existing mill, which is now exclusively leased by Arian until mid-2013, is not designed for the hardness and abrasiveness of the San Jose Vein ore.

Arian has made improvements to the mill circuit during the year, but silver recoveries remain below 60 per cent and it receives no financial benefits for base metal credits.

It has installed an additional crusher that grinds the ore more finely before it enters the flotation stage of the plant.  It will review data from what is essentially a pilot-scale new milling method to potentially build an optimised/bespoke plant.

In the meantime, Arian has engaged an independent metallurgical and mill consultant to conduct a study for a bespoke milling plant for the San Jose project.

The study will evaluate, amongst other things, the viability of such a plant with proposed future mining operations. Such a plant is expected to significantly increase efficiencies, including recoveries, of silver, lead and zinc at a significantly reduced cost, the company said.

As previously announced, exploration drilling along the San Jose Vein has been extremely successful. Arian announced a significant increase in JORC and NI 43-101 compliant resources in July 2011 and since then results have continued to reflect management's opinion that the vein hosts very significant silver and base metal resources.

It is now working on a further independent estimate of current resources and hopes to report on results soon.

San Jose currently has 30 million ounces of contained silver, along with 69.9 million pounds (lb) of lead and 126.6 million pounds of zinc, in the indicated resource category. And there is 58.4 million ounces of contained silver in the inferred resources category, along with 140 million pounds of lead and 291 million pounds of zinc.

Broker XCAP issued a note on Arian this morning, saying that while silver recoveries have been erratic, the trend is encouraging.

Analyst Tim Freeborn said that taking the fourth quarter and the gross profit from the new crusher, he expects Arian to reach quarterly break even with silver at US$30, or make US$0.5 million if it stays at US$35.

This, he reckons, means cash is not an issue and investors can focus on the next major news: the impending resource upgrade.

“If the resource climbs well above 100 million ounces of silver (forgetting about the base metals), and sees a good shift from inferred to indicated, then we can expect heavy interest from investors who follow larger plays.”
 
“Even assuming only 100 million ounces , the EV/oz (enterprise value per ounce) of US$1.33 looks a serious bargain. We will update our valuation after the resource upgrade, including various scenarios for improved milling,” Freeborn added.

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