Mr. Pierre Lacombe reports

SCORPIO MINING REPORTS SECOND QUARTER 2014 AND RESIGNATION OF VICE PRESIDENT INVESTOR RELATIONS

Scorpio Mining Corp. has released its financial and operating results for the second quarter ended June 30, 2014. This news release should be read in conjunction with the company's unaudited financial statements and management's discussion and analysis for the second quarter ended June 30, 2014, available on the company's website and on SEDAR.

 

                                  HIGHLIGHTS
                                                           Three months ended
                                                    June 30,         June 30,
                                                        2014             2013

Mine operating (loss) earnings ($000)                  $(441)         $(1,975)
Net loss ($000)                                       (1,963)          (3,188)
Loss per share (basic)                                 (0.01)           (0.02)
Adjusted EBITDA ($000) (1)                               856           (1,559)
Adjusted EBITDA per share (basic) (1)                   0.00            (0.01)
Cash flows from operating activities
before changes in working capital ($000)                 887           (1,516)
Underground ore production (tonnes)                  121,630          128,165
Plant throughput (tonnes)                            139,581          126,868
Surface stockpile (tonnes)                            37,150           29,836
Head grades
Silver grade (g/t)                                        87               66
Zinc grade (%)                                          1.37             1.55
Copper grade (%)                                        0.18             0.25
Lead grade (%)                                          0.64             0.77
Recovered metals in concentrates 
Silver ounces                                        316,738          214,926
Zinc pounds (000)                                      3,477            2,895
Copper pounds (000)                                      257              294
Lead pounds (000)                                      1,389            1,318
Silver equivalent ounces (2)                         603,109          504,631
Total cash cost per payable silver ounce 
(U.S. $) (1)                                           12.68            20.29
Payable metals in concentrates 
Silver ounces                                        288,611          180,073
Zinc pounds (000)                                      3,097            2,895
Copper pounds (000)                                      242              294
Lead pounds (000)                                      1,339            1,318
Silver equivalent ounces (2)                         551,109          439,505
Revenue from payable metals ($000)                    11,958            7,600
Revenue distribution 
Silver                                                   53%              45%
Zinc                                                     27%              28%
Copper                                                    8%              11%
Lead                                                     12%              16%

(1) This is a non-IFRS (international financial reporting standards) 
performance measure; please see the non-IFRS performance measures section of 
the management's discussion and analysis.
(2) Silver equivalent ounces were calculated using the following 2014 budget 
metal prices: silver $19 (U.S.) per ounce, zinc 95 U.S. cents per pound, 
copper $2.97 (U.S.) per pound and lead 99 U.S. cents per pound.

Second-quarter 2014 highlights

Financial:

• Revenue from payable metals was $12.0-million in second-quarter 2014, increasing from $11.1-million in first-quarter 2014 due to higher metal prices for copper and zinc, higher silver and lead grades, and higher plant throughput.
• Cash cost per payable silver ounce, net of byproduct credits (1), decreased to $12.68 in second-quarter 2014 compared with $14.15 in first-quarter 2014 due to an increase in payable silver ounces, higher base metal credits due to higher contained metal production of zinc and lead, increased throughput due to high processing plant availability, and lower operating costs.
• Net loss in second-quarter 2014 was $2.0-million or one cent per share (basic) compared with a net loss of $1.2-million or one cent per share (basic) in first-quarter 2014. The net loss in second-quarter 2014 includes $900,000 of shareholder action costs incurred by the company.
• Adjusted earnings before interest, taxes, depreciation and amortization (1) of $900,000 in second-quarter 2014 were the same in first-quarter 2014 as a result of the shareholder action costs, which were offset by higher revenues and lower cash costs discussed above.
• Cash flow from operating activities before movements in working capital of $900,000 in second-quarter 2014 was the same in first-quarter 2014.
• Working capital was $31.5-million at the end of second-quarter 2014, lower than $35.7-million at the end of 2013 due to a decrease in cash and trade receivables, as well as an increase in trade payables.

Operations:

• Scorpio achieved the highest quarterly plant throughput recorded by the company in second-quarter 2014 since the plant start-up in 2008, at 139,581 tonnes and improving on the previous record of 137,317 tonnes set in first-quarter 2014.
• Silver recovery remained consistent at 83 per cent in both second-quarter 2014 and first-quarter 2014, while silver head grades increased from 81 grams per tonne in first-quarter 2014 to 87 grams per tonne in second-quarter 2014.
• Metal recoveries and head grades for zinc and lead in second-quarter 2014 remained consistent with first-quarter 2014 while copper head grades and recoveries decreased in second-quarter 2014 compared with first-quarter 2014.
• Payable silver ounces buoyed by higher head grades and lower smelting deductions stemming from higher-grading concentrates, at 288,611 ounces, were at the highest level since the ounces registered in second-quarter 2011, when a higher silver head grade of 106 grams per tonne was processed, and improving on the 272,110 ounces achieved in first-quarter 2014.
• Recovered silver equivalent ounces (2), at 603,109 ounces in second-quarter 2014, increased by 8 per cent from 556,911 ounces in first-quarter 2014 due to the increase in plant throughput, contained silver, lead and zinc.
• Processing of stockpiled material from the company's wholly owned silver-copper La Verde mine during second-quarter 2014 resulted in the production of 33,141 silver equivalent ounces. Contract mining was curtailed at the end of the first quarter as the company is focusing on performing a more detailed evaluation of the mine area toward definition of resources.
• The company commenced processing of stockpiles available from historical mining activities on various concessions the company holds in the Cosala Norte district. Trucking of these so-called terreros to the plant site will continue through third-quarter 2014, and the mineralized material will be blended as plant feed in conjunction with Nuestra Senora ore, at an expected 2:10 approximate ratio.

(1) This is a non-IFRS performance measure; please see non-IFRS performance measures section of the management's discussion and analysis.

(2) Silver equivalent ounces were calculated using the following 2014 budget metal prices: silver $19 (U.S.) per ounce, zinc 95 U.S. cents per pound, copper $2.97 (U.S.) per pound and lead 99 U.S. cents per pound.

Project development:

• Continuing underground development work at the El Cajon project as of the end of June resulted in 225 metres of ramp advance and 85 metres of lateral crosscuts to establish the powder magazine, sumps and definition drilling stations. Faults encountered required redirecting the ramp advance to minimize ground support issues, which caused delays. Initial development ore availability is still expected for early third-quarter 2014, and the ramp-up to steady-state production may extend into first-quarter 2015.
• The submittal of the documento tecnico unificado combining the provision of both of the environmental impact statement and related request for change of use of land for permitting the execution of a surface exploration program above the El Cajon and San Rafael deposits was done in first-quarter 2014 with the Secretariat of Environment and Natural Resources for the state of Sinaloa, Mexico, for its evaluation and approval. Additional information and clarifications requested by the SEMARNAT in early June were provided to the authorities in early July.
• Upon approval of the DTU, the related exploration program defined for 2014 will put an emphasis on the infill drilling required to enhance the quality of the near-surface resources found within the Main zone of the San Rafael deposit, leaving for later further definition of the deeper silver-copper 120 zone at San Rafael.
• The field visit by the Direccion General de Mineria to provide surveying evidence of where the boundaries of the company's El Cajon project concessions lie relative to those of a neighbour occurred on June 25, 2014. Considering the time lapse since the company's request was issued in late March and the probable duration of the following cabinet work by the DGM before issuing its final assessment, the publication of a prefeasibility study covering the El Cajon project may be postponed until first-quarter 2015. This does not disrupt the current underground development.

Exploration:

• Diamond drilling continues on a routine basis at the Nuestra Senora mine. Specific targets for definition resulted in the identification of a large block of material, outside of the resources, extending between levels 6 and 4.
• Drill targets have been identified within La Verde to follow up recommendations of a structural geology review. A contractor mobilized in early August and started a program of about 2,000 metres of diamond drilling.
• Geochemistry and mapping based on geophysical data have outlined a six-kilometre-long structural zone, related to La Verde, which contains several targets around small prospects conforming to the same La Verde model. Steps are being taken to allow for the detailed exploration of these zones. Archeological studies have been performed and cleared the area for future work.
• Underground drilling of approximately 2,400 metres at El Cajon has commenced in July to assist in mine planning of the first year of production.

Outlook

The company is focused on maintaining ore production at current levels to meet the nominal plant capacity of 1,600 tonnes per day throughout 2014, first through providing the plant with material mined from the Nuestra Senora mine, complemented with output from the La Verde mine and the historical terreros. Subsequently, the El Cajon project is expected to become the primary source of plant feed once it is fully ramped up.

Mining of the reserves and resources at Nuestra Senora will continue, with additional plant feed likely provided as defined by definition drilling. The company is committed to advancing the establishment of a ramp into the El Cajon orebody over the rest of the year and into 2015. This underground development work at El Cajon is expected to be sufficiently advanced by the end of third-quarter 2014 to provide regular mill feed from production stopes. Two additional quarters will be needed to ramp up mining activities to a regular production level. This level of sustainable output will be better determined once underground operations are under way and multiple accesses to the orebody are achieved.

Completion of the PFS related to the El Cajon orebody with the assistance of JDS Energy and Mining Inc. will be delayed as the completion of the review by the DGM regarding the boundary issue may not materialize before fourth-quarter 2014. The resolution of the boundary issue could result in a reduction of resources at El Cajon.

As at June 30, 2014, the company had $15.8-million in its treasury, over $31-million in working capital and no debt. The company is expending significant efforts to maintain positive cash flow from its existing operations and continues to believe that its treasury and future cash flows will be adequate to finance the development of the El Cajon project, define resources at the La Verde mine, derisk the San Rafael project and sustain minimal regional exploration during 2014.

Resignation of an officer

In early August, Victoria Vargas resigned from her position as vice-president for investor relations and corporate communications of the company to pursue other career opportunities. She will be remaining at her post until Sept. 7, 2014, while the company seeks alternate arrangements.

Pierre Lacombe, president and chief executive officer, stated: "In the name of the board and mine, we extend our thanks to Victoria for the years of assistance to the company. Her vast network of contacts and frequent communications with the company's stakeholders provided us with multiple opportunities to tell our story. We wish her the best in her quest for new challenges."

We seek Safe Harbor.