Using base case prices of $22 an ounce of silver, $3 per pound of copper, and $1,200 per ounce of gold, the pre-tax net present value of the project was estimated at $133 million at a discount rate of 5%, with an internal rate of return (IRR) of 30.5%. After tax, the figures are projected at $93 million and 22%, respectively. With another solid production quarter behind its belt, SilverCrest Mines (CVE:SVL)(NYSE MKT:SVLC) has now announced results from a preliminary economic assessment at its developing La Joya project in Mexico that prove attractive even when using conservative metal prices.
Using base case prices of $22 an ounce of silver, $3 per pound of copper, and $1,200 per ounce of gold, the pre-tax net present value of the project was estimated at $133 million at a discount rate of 5%, with an internal rate of return (IRR) of 30.5%. After tax, the figures are projected at $93 million and 22%, respectively.
According to a company statement released Monday, the figures, on a pre-tax basis, move higher to $156 million and an IRR of 34% using current metal prices (as of October 18) of $21.93 an ounce of silver, $3.27 per pound of copper and $1,316.25 an ounce of gold.
The payback period for the project was pegged at roughly two years on initial capital, while pre-production capital costs were estimated at $141 million, including contingencies. Sustaining capital is seen to cost about $8 million.
These economics are for a first stage, low strip, open pit that has nine years of mine life, with opportunities for expansion. The operation would run alongside a 5,000 tonnes per day conventional mill and flotation/leaching plant to produce a high grade, silver-copper concentrate, with gold credits.
The company said the starter pit will have average annual production of 3.9 million silver equivalent ounces per year, which would build on its existing output of 725,000 anticipated silver ounces and 30,000 gold ounces for 2013 from the Santa Elena project. After the first four years of the La Joya mine, SilverCrest would look to expand the initial pit to include additional resources.
Cash operating costs for the first three years average about $10 per silver equivalent ounce, and $13 an ounce for the whole nine years.
“The positive results of this PEA will enable us to plan the next steps, establish achievable milestones and identify additional studies and analyses to optimize the project economics,” said president and COO Eric Fier in the release.
“We have engaged extensively with local communities at this early stage of the La Joya project development, emphasizing the importance of building collaborative, long term and sustainable relationships with all stakeholders.”
Indeed, the company said ways to improve on the La Joya economics include expanding inferred resources — with mineralization open in most directions — and optimizing the metallurgical flow sheet. Ways to decrease operating and capital costs also exist, such as a review of reduce waste and haulage costs. In addition, other targets at the 10,000 hectare have yet to be explored.
Just from La Joya alone, however, operating cash flow, undiscounted and before tax, would total $342.5 million at an average of $38 million per year. Over the nine years, it would produce an estimated 34.8 million payable silver equivalent ounces.
The technical report was completed by EBA Engineering Consultants, and will be filed within 45 days, SilverCrest said.
During the third quarter, the company reported 642,877 ounces in silver equivalent production, up 24 per cent from a year ago as an expansion at its flagship Santa Elena mine is nearing completion with the construction of a 3,000 tonne per day mill expected in the first quarter of next year. Last week, Stonecap Securities analyst Christos Doulis upped his rating on the company to outperform from sector perform, following a recent selloff in the Mexico-focused silver miner’s shares.
The analyst cited the fact that he believes SilverCrest is one of two silver producers within Stonecap’s coverage universe “best able to survive in the current precious metal environment.”
Shares of SilverCrest advanced 5.8% to $2.01 in early deals Monday after the La Joya announcement. In the past three months, its stock has increased almost 13%
