For those of you who don't want to get your shoes dirty over at the "other board":

In their latest filing, SFMI discusses the three phases of their business plan. I’ll do a post on each one. My comments are in [brackets].

The Initial Phase:

Our initial phase involves completing construction of a mill, and using the mill to process tailings left over from prior mining operations. We closed on the purchase of our mill site in early December 2009. [Has it been less than a year since they purchased the mill property? Think about it- that’s really amazing progress] We have made improvements to the road to the mill site, located a prefabricated office and mill lodging on the property, drilled a water well, and installed a prefabricated building on the mill site and installed our mill equipment in the building, among other improvements. In May 2010, we began to process tailings leftover from 5 to 6 prior mill sites on the mountain. Our testing indicates that there are sufficient quantities of gold and silver remaining in the tailings to justify further processing, as a result of milling techniques used in the 1800’s that failed to extract all of the gold and silver from the ore. [These “tailings” are actually ore. Only one site on War Eagle has significant amounts of true “tailings” that have been processed in a mill and had at least some of the gold and silver extracted, and SFMI is not processing those. Most of the mine sites have piles of ore that was not transported to the mills because it did not have visible gold. This unprocessed ore is what SFMI is milling.]We elected to build the mill on private property that we own, rather than BLM property, because of lower reclamation costs, even though the offsite property will entail higher transportation costs. We believe we have sufficient financing in place to complete this phase. [Obviously- the mill is complete, in production, and either near the end or past the tweaking stage.]

The Confirmation Phase:

Our second phase is a confirmation program to prove up and locate reserves on our property. [Historic records and contemporary surveys, drilling, and assays all indicate huge reserves- but they don’t meet the recently implemented legal definition of reserves (which specifies at least in part that even valid historical records have to be redone). Therefore, SFMI can’t legally claim any “reserves” even though it’s overwhelmingly obvious from every bit of information available that there is a huge resource in War Eagle.] We need to obtain a satisfactory estimate of the remaining reserves on the property and their location in order to justify moving forward with full development of the mine site. [They are already in the process of developing the Sinker site- do you think that they might have some idea whether the reserves justify doing so?] The program will involve building a three dimensional map of War Eagle Mountain showing the precise location of veins, shafts and tunnels. [From what I hear, a 3D laser mapping that precisely locates everything. They’ll be able to tell exactly where all the tunnels and shafts are in relationship to each other- especially important in connecting them up to the Sinker.] Through exploratory drilling and core sampling, we hope to obtain as much information as possible about the location, thickness and quality of the vein systems near the main shafts, and later throughout the entire mountain. The map will be a valuable tool in analyzing the extent of the remaining reserves, mineralization trends, and other pertinent geological and mining information.

We have retained two independent geologists and a surveying firm, Engineering Northwest, Inc., to perform the confirmation phase. The geologists and surveyors will perform their services under the direction of William Earll, our general manager for our mining operations. [I have seen at least a few criticisms that SFMI doesn’t have any geologists “on staff”. Like most of their work while they were getting operations going, this is being done through contracts. Once everything is up to speed with a steady stream of revenue, maybe then they will hire geologists as part of a staff to do the exploration and surveying work. Until then, using contractors was the best way to go.]
Another aspect of the confirmation phase will involve the development of a plan to use the Sinker Tunnel to mine the interior of the mountain on a year round basis. The plan will involve accessing and draining the mine shafts on the top of the mountain from the Sinker Tunnel, as well as relocating and collaring old shafts on the mountain. We estimate that the confirmation phase will take from 14 to 18 months, and will cost approximately $583,000. We began preliminary work on the confirmation phase in the quarter ended June 30, 2010. [As you can tell from Bobby Joe’s pictures, this work is seriously under way.]

The Development Phase:

The development phase involves transitioning the mine from processing tailings leftover from prior mining activities to extracting and processing raw ore from the mountain. [Processing the above ground ore (not tailings) should easily fund this transition.] We believe that full scale mining of raw ore will be profitable. [Anyone who thinks they haven’t done the work to make sure of this must be pretty naïve.] In particular, historical records of mining on the site, and subsequent reports of the geology of the mountain, indicate that veins containing gold and silver extend much further vertically than could be mined when the site was last mined in the 1880’s. In addition, historical records indicate that gold and silver exists in the veins in sufficient densities to warrant mining using modern extraction and milling techniques. [To put it mildly.] The scope of the development phase will depend on the outcome of the Confirmation Phase, which is designed to test the accuracy of our analysis. Our goal is to develop a drilling program that reaches as many reserves as possible at the lowest cost. Among the improvements to the mine site that we anticipate making in the development phase are:

We plan to connect the mine shafts on the top of the mountain to the Sinker Tunnel in order to provide drainage to the mine shafts;

We plan to drill a 48 inch hole from the top to the Sinker Tunnel to create a more economical means to move material off the mountain to our mill site;

We plan to extend the North Poorman mine shaft down by 240 feet and then drill a horizontal connector tunnel to the adit at the top of a raise from Sinker Tunnel to create an alternative route to remove material;

We plan to install a transportation system in the Sinker Tunnel (either tire mounted trams, narrow gauge railway, or conveyor system) to move ore out of the Sinker Tunnel for transport to our mill site; and

Additional improvements include housing, storage, food preparation facilities, generators for power, etc.

During the six months ended June 30, 2010, we completed started (and have since completed) some improvements to the mine site that were previously part of our development phase, including improving about four miles of the county road linking State Route 78 with Silver City, 1.8 miles of access road to the Sinker Tunnel Complex from the county road, and about 1.6 miles of access road to the Oro Fino vein outcrop area to permit heavier loads and year round access, as well improvements to the physical facilities at the milling location site and mine site to accommodate our workers. [Anyone complaining about how SFMI has spent their money probably has never visited the site. It’s amazing how much work they have done with so little debt and dilution. And it’s not just constructing a mill and getting to production in less than a year. It’s road improvements, clearing mine sites, rehabbing tunnels, conducting sampling and surveys, hauling ore, etc.]

We estimate that the improvements during the development phase will cost about $6 million, and will take 14 to 18 months to complete. [At 125 tons per day and 0.75 oz/t (the lower grade ore they used to tweak) or 2+ oz/t (the better grade ore they will be using when the mill is up to speed) , they’ll generate that much in about a month- or less.]