Lots of info to sort through in that production update...

First thing that comes to mind is the head grade for the ore processed. The average silver grade was only 95 g/t silver and 2.22 g/t gold. That is much lower than the resource zones of the mines, so it indicates just how much dilution the company is facing when mining across a narrow vein width. "Average" is not a very good number to work from, since we know that some veins are extremely narrow, while others are several meters wide. I have toured this mine twice and have seen examples for myself. So depending on which levels of the mine the company is actively working the production numbers will have a wide variance. My feeling is that the company will continue to improve on the dilution factor over time and efficiency will be higher in future quarters.

There are some clues to this in the NR, which states the company was running development ore during the quarter, which means it is lower grade since it comes from the excavation of tunnels for new infrastructure to open access points, and these tunnels are much wider than a typical mine zone, ie. there is more waste rock since they are designed for efficient access and not optimized to an irregular vein. Also by mining the Chicago vein, we already know that Chicago is very narrow near surface, and that alone contributes to significant dilution.

Now even considering that the dilution is having such an impact on our operations, it is more than offset by the higher metals prices lately. My personal expectation is that metals prices will continue to climb on a yearly basis. I will not at all be surprised in a year or two to see ECU reporting much greater mining efficiency at the same time as we see silver priced $30 - $50 per ounce. The magnitude of increased production and much higher silver prices will rocket the overall financial performance higher.

As the company gets more production from the sulphide zones of the mines, the grades will increase and the dilution will probably decline, since the sulphides are deeper in the mine workings where the average vein widths are shown to be higher. Also we know from prior NRs that the actual mined grades are usually higher than the reported average grades in the resource estimate. Again, this info is very promising for the future since it implies we can look forward to higher metals production. The biggest financial input appears to be from the gold pyrite concentrates, and the more sulphide ore we process the greater the pyrite cons that will be produced. The stockpiles sent to Nevada for processing will be depleted quickly if the sulphide floatation processing is not stepped up. It appears management is aware of this and making decisions pro-actively.

As for the income that others have suggested on this forum, I do not think it will be as high as has been posted. Gross revenues are affected by the prices paid for concentrates that are shipped by ECU, and NOT according to the spot prices for the quarter of the various metals. I would estimate perhaps 10-15% lower revenues for the cons will be booked. Secondly, I am disappointed that ECU appears to be using actual spot prices to book their Silver- EQ estimates. Most companies will plug in more conservative equivalence pricing to take some of the metal volatility out of the reporting from quarter to quarter. In effect it has artificially increased the net silver-eq numbers and I think it is presenting an inaccurate total production number.

Nonetheless as the company gets closer to that magic 1 million ounces silver-EQ anual production, perhaps ECU will gain more respect as a producer. The report is a step in the right direction. It does appear that ECU is now able to generate positive recurring cash flow from operations, which is the first step to gaining market confidence and a higher share multiple. Looking ahead, they need to continue to improve operating efficiency, communicate strong goals to the market and achieve them, and shore up the balance sheet with a few positive quarters.

ECU is a paid advertiser on my website, and I own shares of the company. I cannot remember the last time I traded this stock and have no plans to do so in the weeks ahead.

cheers!

mike