ECU Silver Mining

An Extraordinary Junior Mining Company –
JULY 2008 UPDATE

By Adrian Douglas

Deep Encounters of the First Kind!

InOctober 2006 I wrote an extensive article on ECU Silver Mining whichdiscussed at length the geological setting and the explorationpotential of the company (ECU Silver Mining – An Extraordinary JuniorMining Company. http://www.lemetropolecafe.com/pfv.c... ).I am now writing an update to that article because the company is onthe verge of what could be an event of epic proportions in thecompany’s evolution. In that article I said:

“Thegeological phenomenon associated with intrusives suggests there couldbe a real bonanza as the exploration goes deeper in Velardeña. Alreadymore numerous veins have been encountered with increasing depth,including the discovery of new stockwork zones, and the vein width andgrades are increasing with depth. As the skarns are explored further,there is also the possibility of encountering massive sulfide lenseswhich are typically found near the intrusive/skarn contact”

That was written almost two years ago so I was very excited to read the press release made by ECU on July 2, 2008.

“ECU Silver Deep Drilling Encounters Mineralization at Depth at Santa Juana”

http://www.ecu.ca/s/NewsReleases.asp...

Investorswill very shortly find out if the company has indeed hit the “motherlode” of its exploration potential that I postulated could be the real“bonanza’ of the Velardeña property if the geological model is correct.

Judgingby the recent stock performance investors are not paying attention tothis potentially game-changing exploration activity. I would like topoint out why this deserves serious consideration by the investmentcommunity.

To understand the significance of the latestdeep exploration drilling let’s make a recap on the geologicalenvironment with some excerpts taken from my 2006 article.

Talking Geology – “Intrusions” are welcome! – Especially the Second Time Around!

Thegeological environment of the Velardeña region is very complicated. Thesource of the silver, gold and base metal deposits is from magmaintrusions that thrust their way into the overlying limestoneformations to create what is known as a “skarn”. Understanding thegeological model, even at a rudimentary level, is absolutely essentialto understanding the vast potential that ECU has to add resources andreserves, and why it is an extraordinary situation.

Duringthe Cretaceous age (between 135 million years ago to 65 million yearsago), in what was then a marine environment, calcareous sedimentarydeposits (limestone) were laid down which over time and with burialformed massive limestone layers.

In the Central Mexicoregion where Velardeña is located, toward the end of the Cretaceousgeological age, in a period known as the Laramide Orogeny, tectonicactivity caused the limestone layers to be buckled into mountains andvalleys and also caused extensive faulting and fracturing. This was avery high energy geological event which gave rise to the RockyMountains and the Sierra Madre mountain ranges, which can be seen tohave been folded in a NW-SE alignment. This immense disturbance of theearth’s crust gave rise to a period of magmatism and volcanic activity.The liquid magma was squeezed through cracks and faults in theoverlying rocks. When the magma escapes to surface it is “extrusive’,which we know as a volcano, while if the magma is contained within therock it is “intrusive”.

A generalized schematic of an acid magma intrusive is shown in Figure 1.

Themagma intrusive is acidic in nature and extremely high temperature (300to 500 degrees Celsius). The hot, acidic intrusive reacts with theoverlying limestone in a complex geochemical reaction. The contact zonebetween the magma and the limestone is a zone of intense metamorphosisand the chemically altered rock is called “skarn”. As the intrusivemagma continues to force its way into the limestone, it causesuplifting which leads to radial cracks or fractures as shown in Figure1 in the plan view. There may also be other cracks or faults in therock that were pre-existing before the magma intrusive event.

Atthis stage hydrothermal alteration may occur. Superheated aqueousfluids are created by the heat of the intrusive magma and undergroundwater and volatile fluids that come from the magma. These fluidsdissolve metals and minerals and concentrate them. These hot fluidspercolate through the fractured limestone rock depositing the mineralsand creating the mineralized veins by filling the fractures. Thispercolation may continue for hundreds of thousands of years.

Thecrystallization of minerals occurs in the fractures at shallower depthfirst as this is the coolest environment. The dissolution of thelimestone wall of the fractures in the hydrothermal alteration processis most aggressive near the intrusive because the circulating fluidsattain their highest temperature there and as a result the pressure andvelocity of flow are highest. This explains why the mineralized veinstypically have an increasing aperture with depth. The fact that thedeposition of minerals occurs last of all close to the intrusive meansthat the mineral content can be expected to be higher close to theskarn. The residual fluids after the fractures are mineralized arecooked over time and may result in the formation of massive mineralsulfide lenses.

InVelardeña there were several magma intrusives that were forced up frombelow the earth’s crust. The first was in the San Mateo area and wasnot associated with any mineralization. A plan view of these intrusivesis shown in Figure 2. The first intrusive is shown in blue shading.

Themagma intrusive created fractures in the limestone and the contact zonewas cooked into metamorphic skarn rock but there were no dissolvedmetals in the hydrothermal fluids at that time and so no mineralizationoccurred. The intrusive is mainly diorite, a material similar togranite but with less quartz content.

At a later stagethere was a second phase of magmatic intrusion. These are shown ingreen shading in Figure 2. Figure 3 shows a simplified representationof the intrusives in the Santa Juana/ San Mateo area in a cross-sectionlooking NW (the section A-A indicated in Figure 2).

Thesecond intrusive in the Santa Juana/ San Mateo area intruded throughthe same weakness of the limestone formation as the first intrusive.This caused not only fracturing of the intruded limestone, but also ofthe first intrusive thereby creating conduits through which latermineralizing hydrothermal fluids could circulate.

Thesecond intrusive event was accompanied by mineralization. Thecirculation of superheated aqueous, mineral rich, volatile fluids ledto the transport and deposition of minerals that can be seen in theVelardeña vein systems.

Thegeological phenomenon associated with intrusives suggests that if thesource of the mineralizing event can be located where the veins meetthen there is not only the possibility of very densely spaced veins ofwide aperture and rich grades but also the possibility of very mineralrich massive sulfide lenses. Such a discovery would, by its nature, bea candidate for underground bulk mining.

Over the last twoyears ECU has done an outstanding job of extending its mineralinventory to 217 million silver equivalent ozs and up to 960 millionsilver equivalent ozs of potential mineral have been identified. Itshould be noted that ECU has been very conservative on their resourceestimates and a large portion of their “potential” category could bereclassified as “inferred” with very little extra sampling. Theimpressive increase in mineral inventory and potential minerals has,however, only been achieved by way of extensive exploration anddelineation of the vein system and only includes mineral inventory upto 450m below level 18. The latest deep drilling extends 900m belowlevel 18, twice as deep as the current limit of resource estimates, sothe discovery of massive sulfides would dramatically INCREASE thecurrent NI-43-101 resource estimate. The new drill results down to 900mbelow level 18 should also allow a significant amount of “potentialminerals” of the current NI-43-101, (the portion located between 450mand 950m below level 18), to be re-classified as “inferred mineralinventory”.

Looking to Make Contact!

Let’s examine the latest press release of July2, 2008.

ECU stated:

QUOTE

Thehigh number of mineralized veins encountered are consistent with thegeological model as they are within the marble/skarn alteration zonethat envelopes the intrusive event, which in turn sourced the veinmineralization of the Santa Juana veins system. We believe the CalciteVeins are within an alteration zone that surrounds a potential deepseated massive sulphide replacement (Mantos-type) body. This is furthersupported by the presence of the M-S Veins 48 metres (160 feet) belowthe Calcite Veins. Confirmation of assay results for M-S Veins ispending.

END

As one approaches thecontact of the intrusive one would expect three types of mineralizationcreated through metamorphic alteration. First there are densely spacedcalcitic veins that are consistent with the limestone being cracked bythe intrusive and the cracks being filled with metal rich minerals.Second there are cracks in the alteration zone filled with massivesulfides, and then thirdly there are the massive sulfides formed at theintrusive contact. From the press release we can see that the depthcapability of the drilling equipment was reached (900m) before reachingthe contact of the intrusive. What ECU is referring to as “MassiveSulfide Veins” could already be the start of a massive sulfide lensbecause the first “vein” is almost 4m thick and drilling ceased whilein the second “vein”. This massive sulfide lens could easily be tens ofmeters thick, and judging by the size of the intrusive could havelateral extent in the hundreds of meter range.

What isextremely intriguing is that ECU released the assays for the calciticveins but did not release the results from the Massive Sulfide veins.They said “confirmation of assay results for M-S Veins is pending”. Noteit is not the assays that are pending but confirmation of them. I canthink of only one viable reason why assays would have to be “confirmed”and that is because they are extraordinarily good! I titled my 2006article “ECU Silver Mining - An Extraordinary Junior Mining Company”and my interpretation of this press release is that they may well liveup to that billing by announcing some extraordinary results. We willknow very shortly.

When I wrote my article in October 2006the silver price was $11/oz and ECU had only 98 million ozs of silverequivalent of NI-43-101 compliant mineral inventory comprised of:

• 17.4 million Indicated silver equivalent ozs.
• 81 million Inferred silver equivalent ozs.

Thestock was trading at CDN$2.50. The company has now booked 217 millionsilver equivalent ozs of NI-43-101 compliant of mineral inventorycomprised of:

• 37.6 million Measured & Indicated silver equivalent ozs.
• 179.0 million Inferred silver equivalent ozs.

TheCompany has also identified an additional mineral potential range of549 million to 960 million silver equivalent ozs yet the stock istrading at $1.68! Furthermore, the silver price is $18/oz. ECU stock isprobably at least a factor of 10x undervalued and should be trading atcloser to $16 than $1.68. The fact that ECU has been categorized as athin vein mining play has unjustifiably held down its valuation. Thecurrent deep drilling results could dramatically change ECU’sprospects. The discovery of massive sulfides in a large lens withextraordinarily rich grades could transform the company’s fortunes andthe true valuation of the company could be recognized by the market inexplosive fashion.

Michel Roy, CEO and Chairman of ECU, isan extremely talented and experienced exploration geologist. Thegeological model he defined has been proved correct in press releaseafter press release and by the astonishing growth of NI-43-101compliant resources. The geological prowess of the ECU team isexemplified by an outstanding discovery. In August last year thecompany announced they had located the western extension of theTerneras Vein which had eluded all previous exploratory efforts forover 100 years! Michel Roy’s team located it!

The ECUteam has demonstrated they are world class explorationists and now theyhave drilled a deep hole that has intercepted mineralization near theintrusive that has long been postulated to be the biggest explorationjewel of the Velardeña property. The assays of the calcitic veins showgood grades and increasing gold and silver content with depth. Inrespect of the Massive Sulfide veins ECU is apparently needing to“confirm” the results. The track record of ECU can only lead me tobelieve that this could be the most exciting news out of the companyyet.

Watch this company closely. It could, yet again, turn out to be “extraordinary”!

ECU Silver Mining trades on the Toronto exchange under the symbol ECU.TO and on the NASDAQ Pink Sheets as ECUXF.PK

Adrian Douglas
July, 2008