Endeavour Silver Corp. (NYSE: EXK) (TSX: EDR) is pleased to announce it has now completed a Feasibility Study (“FS”) on the 100% owned Terronera Project in Jalisco state, Mexico. Robust economics are supported by larger mineral reserves, higher annual production and longer mine life compared to the 2020 Pre-Feasibility Study (“Endeavour Silver Corp. Terronera Project NI 43-101 Technical Report dated July 31, 2020).
The Feasibility Study supports a high grade, silver-gold underground mining operation at Terronera producing an average of 3.3 million payable ounces silver and 32,874 payable oz gold per year over a 12-year mine life. Endeavour management worked with Wood PLC for 12 months to complete the FS, which included comprehensive reviews of the construction, operations, and costs, to provide confidence for project completion within budget and on schedule. Endeavour Silver has commenced initial earthworks and intends to make a formal construction decision subject to completion of a financing package, and receipt of additional amended permits later this year. An additional $13 million budget has been approved to advance the initial earthworks, site clearing, temporary camp and ordering of long lead items for a cumulative 2021 development budget of $21 million approved to date.
Wood PLC will author the Technical Report in accordance with National Instrument 43-101, to be filed on SEDAR and EDGAR within 45 days of this news release.
The FS base case assumes a silver price of $20 per oz and a gold price of $1,575 per oz with an implied 79:1 silver to gold ratio, and a Mexican Peso to US Dollar exchange rate of 20:1. The FS also presents project sensitivities including a sensitivity scenario using a spot silver price of $24 per oz and a spot gold price of $1,800 per oz. All currency references herein are in US$.
Highlights from the Feasibility Study
|Metric||Base Case||Base case at Spot Price Sensitivity|
|After- tax NPV (5%)||$174 million||$282 million|
|Payback Period||3.6 years||2.5 years|
|LOM Cash Cost per oz silver payable, net of gold credit(1)||$0.59 per oz||($1.51) per oz|
|LOM Mine All-in sustaining per oz silver payable, net of gold credit (“MAISC”)(1)||$3.24 per oz||$1.15 per oz|
|Pre-tax cumulative undiscounted free cash flow(1)||$476 million||$716 million|
|After-tax cumulative undiscounted free cash flow (1)||$311 million||$467 million|
Abbreviations include: NPV = net present value, IRR = internal rate of return, LOM = life of mine, MAISC = mine site all-in sustaining cost, AgEq = silver equivalent.
Dan Dickson, CEO, commented, “With the completion of the feasibility study, the Terronera project is now advancing rapidly towards financing and construction. The results provided today support the construction of our largest, and lowest cost mine. We believe there are further opportunities to optimize the project and grow the mineral resource. It is our belief that, with continued drilling success, there is potential to add significant production ounces and mine life at Terronera.”
“In the mining industry, there are very few silver dominant projects that are substantially de-risked and located in favorable jurisdictions such as the Terronera Project. The Feasibility Study reflects a tremendous amount of rigour and work required to elevate the project to be suitable for financial due diligence. We believe the Feasibility Study provides a well-designed, comprehensive plan completed under the direction of our management team and a successful global engineering firm, Wood PLC.”
“Subject to Board review and approval later this year, we plan to formally break ground on construction. We are very pleased to deliver this important milestone for our shareholders, employees, the local communities, and other stakeholders.”
Location, Access, Physiography, Infrastructure
Terronera is located approximately 50 kilometres northeast of the port city of Puerto Vallarta in Jalisco state, Mexico, about a 1½ hour drive on Highway 70 to the town of San Sebastian del Oeste. The property has excellent road access and is situated in a mountainous region at elevations of 1,500-2,200 metres above sea level. Water, power and labour are all available locally; however, for the mining operations, site-power generation and an employee camp will be required. Water for the operations will be supplied from mine dewatering.
Property, History, Geology, Mineralization
Terronera consists of 25 mineral concessions totaling 20,128 hectares. Discovered in 1542, the San Sebastian district went through sporadic periods of small-scale silver and gold production from more than 50 old mines on approximately 20 mineralized veins. All mining halted around 1910-1912 during the Mexican Revolution and little work was done at Terronera until Grupo Mexico acquired the project and conducted some exploration work in the late 1980’s and early 1990’s.
Endeavour purchased Terronera from Grupo Mexico for $2.75 million in 2010, and all expenditures since inception including exploration and engineering to date total $32.9 million. The Company commenced exploration work in 2011 and discovered mineralization in the Terronera Vein in 2012. High grade, silver-gold sulfide and sulfosalt mineralization is hosted in multiple low sulfidation, epithermal veins from 1 to 30 m thick over an area 12 km long by 6 km wide. The veins occur within late Cretaceous andesite to rhyolite volcanic rocks within the Sierra Madre Occidental metallogenic belt where it transects the Trans-Mexico Volcanic Belt.
Mineral Reserves and Resources
The Feasibility Study provides a revised mine plan from the previously completed Pre-Feasibility studies, including revised reserve and resource estimates, mining methods, mining dilution and recovery assumptions. The revised resource estimate uses high yield restriction methodology to ensure that the influence of the high-grade samples did not extend beyond their observed range of continuity.
|Terronera and La Luz Probable Mineral Reserve (FS 2021)|
|Terronera||Tonnes (kt)||Ag (g/t)||Au g/t||Ag Eq g/t||Ag (000’s oz)||Au (000’s oz)||Ag Eq (000’s oz)|
|2021 Terronera Resource Estimate|
|Tonnes (kt)||Ag (g/t)||Ag (koz)||Au (g/t)||Au (koz)||AgEq (g/t)||AgEq (koz)|
|2021 La Luz Resource Estimate|
|Tonnes (kt)||Ag (g/t)||Ag (koz)||Au (g/t)||Au (koz)||AgEq (g/t)||AgEq (koz)|
Initial and Sustaining Capital
The initial capital cost of the project is $175 million, to be incurred over a 24-month period including construction and ramp up to full production. Initial capital is significantly higher than the 2020 PFS due to the larger plant size and footprint resulting in increased higher initial mine development and equipment costs, optimized plant flowsheet, higher costs due to current global macroeconomic trends and improved operability and flexibility. Cumulative sustaining capital(1) is estimated at $105.7 million with over 60% spent in operating years 1-3 for the phased underground mine development.
|Metric ($ million)||Pre-Production||Sustaining||Total LOM|
|Tailings Management Facility||$2.6||$1.1||$3.7|
|Ore Crushing & Handling||$6.6||–||$6.6|
|Mineral Processing Plant||$28.6||$2.0||$30.6|
|Total Direct Costs||$123.9||$105.6||$229.5|
|Project Indirect Costs||$17.2||–||$17.2|
|Total Indirect Costs||$51.1||–||$51.1|
Operating, Cash and All-in Sustaining Costs
The LOM average direct production cost per tonne processed is $87.06, 4% higher than the 2020 PFS, due mainly to higher processing costs, smelter charges and increased administration costs, offset by lower mining costs with the increased use of long hole mining method. Cash costs, net of by-product credits are estimated to be $0.59 per payable oz silver and mine-site all-in-sustaining costs, net of by-product credits are estimated to be $3.24 per payable oz silver, both slightly increased compared to the 2020 PFS.
EBITDA and FCF
The average annual EBITDA(1) during full years commercial production is $63.5 million and after-tax free cash flow is $40.7 million. The cumulative LOM EBITDA and after-tax free cash flow are estimated at $757 million and $311 million, respectively 59% and 43% higher than the 2020 PFS.
At base case prices and a 5% discount rate, the after tax NPV and IRR are most sensitive to metal prices and least sensitive to initial capex. Changes to gold and silver prices have a similar impact on the Project’s financial outcomes.
|Sensitivity Table **|
|Gold Price||Silver Price||After Tax NPV||After Tax IRR|
* Denotes base case pricing assumptions
**Sensitivities are based on a 75:1 silver to gold ratio
|Movement||OPEX NPV||OPEX IRR||Initial
Both Terronera and La Luz will be mechanized ramp access underground mines capable of producing a combined average of 1,700 tpd to meet the plant capacity. The feasibility study mining operations include increased mine development up front to increase the use of long-hole mining. Nearly 60% of the ore deposit will be mined using long-hole mining, with 20% development within ore and 20% cut and fill. At Terronera, both transverse and longitudinal long-hole stoping as well as cut-and-fill extraction are used. At La Luz, shrinkage stoping are used due to reduce development and dilution for the narrow, high-grade vein deposit.
The plant flowsheet with a 1,700 tpd capacity, consists of three-stage crushing, grinding, flotation (flash, rougher, scavenger and cleaner), concentrate thickening and filtration, tailings filter plant and a filtered-tailings (dry stack) storage facility. Ore will be delivered to the crusher primarily through the #1 Portal that will be collared at the stockpile area.
Surface infrastructure to be constructed at Terronera includes conventional surface gravel roads, underground haul roads, power generation plant, reclaim and fresh-water ponds, waste and ore stockpiles, ancillary buildings, communications and camp facilities. The FS provides for energy with a power purchase agreement using liquified natural gas to meet the estimated 8.7 megawatts for the project, including the camp.
A significant number of the government permits for project development are in place. Minor amendments are required for modifications resulting from surface infrastructure changes, tailings storage facility footprint expansion and the additional mine portal access. Designs are being focused on permitted areas to allow early civil works that can be expanded as minor permits are received. SEMARNAT, the agency responsible for permitting, has been responsive as offices are reopening following restricted activities due to COVID; several of these minor amendments have been approved since early July 2021.
Project Schedule and Next Steps
Management has been working with a number of groups to arrange debt financing and the Board has approved additional expenditures to December 31, 2021 totaling $13 million to advance earthworks and purchase long lead items. As of June 30, 2021, the Company had a cash balance of $125 million and working capital of $147 million. The Terronera Project will take approximately 24 months for construction and ramp up to full production. These timeframes do not take into account further disruptions to the labour market and global supply chain interruptions due to the COVID 19 pandemic.
Social Impact and Sustainability Initiatives
Endeavour Silver has made key strategic additions to the Project Management, Community Relations and Environment team over the last year. A Project office has been opened and staffed in Puerto Vallarta, near the project area, and a community relations office in San Sabastian del Oeste, at the project site, to promote dialogue and participation with our interested stakeholders. Endeavour currently employs 50 full time staff at these two locations.
The Project Management team has significant construction and operating experience in underground mines around the world, and especially in Latin America. Key project management were integral in the build of the Escobal mine in Guatemala and the Buritica mine in Colombia, as well as having significant operational experience in Mexico and South and Central America. The Management team has engaged local and state government representatives in all state ministries and are working with and aligning sustainability objectives with leaders.
Over the life of the project, at the base case, the FS estimates $171.6 million in Corporate tax payments which is comprised of $7.0 million in Government Royalties (environmental duties), $36.3 million in Special Mining Duty and $128.3 million in Corporate Taxes, exclusive of local taxes, payroll taxes and other fees and taxes.
The Terronera project will employ 750 people during peak construction and 500 people during the operations phase. Endeavour has already transferred several employees to Terronera from existing operations and will continue to do so. Social studies have provided a good understanding of local services and personnel to maximize local hiring and procurement in the area. Community relations are mainly focusing on the two closest towns, Santiago de los Pinos and San Sebastian del Oeste (combined population of approximately 1,250).
The Company’s initiatives in the communities include:
Key Conceptual Differences Between the Feasibility Study as compared to the 2020 PFS
The following table compares the Feasibility Study to the 2020 PFS.
|TERRONERA PROJECT||FS – PFS Change|
|2021 Feasibility Study Compared to 2020 PFS||2021||2020||% Change|
|LOM Tonnes Processed LOM (thousands)||7,380||5,563||33%|
|Life of Mine (Years)||12.0||10.0||20%|
|Average silver grade (g/t)||197||201||(2%)|
|Average gold grade (g/t)||2.25||2.29||(2%)|
|Silver equivalent grade (g/t) (Base Prices)||374||405||(8%)|
|Average silver recovery||87.7%||85.1%||3%|
|Average gold recovery||76.3%||82.2%||(7%)|
|LOM payable Ag ounces produced (millions)||39.3||29.8||32%|
|LOM payable Au ounces produced (thousands)||393||328||20%|
|LOM payable Ag Eq ounces produced (millions)||70.3||59.0||19%|
|Avg annual payable Ag ounces produced (millions)||3.3||3.0||10%|
|Avg annual payable Au ounces produced (thousands)||33||33||(0%)|
|Avg annual payable Ag Eq ounces produced (millions)||5.9||5.9||(0%)|
|Capital Expenditure Statistics|
|Initial Capital Expenditure (millions)||175.0||99.1||77%|
|Process Capacity (tonnes per day)||1,700||1,600||6%|
|LOM Sustaining Capital||105.7||60.4||75%|
|Total LOM Project Capital||280.6||159.5||76%|
|Operating Cost Metrics|
|LOM Gross Revenue(1) (millions)||1,406.2||942.7||49%|
|LOM Gross COS(1) (millions)||642.5||466.3||38%|
|LOM EBITDA (millions)||756.6||476.4||59%|
|After Tax LOM Free Cash Flow (millions)||311.4||217.4||43%|
|Cash costs net of by-product (per silver ounce)||0.59||0.00||100%|
|All in sustaining (per silver ounce)||3.24||2.10||54%|
|Cash costs by Silver Equivalent (per silver ounce)||9.14||7.90||16%|
|All in sustaining Silver equivalents (per silver ounce)||10.62||8.96||19%|
|Total Direct Production Costs (per Tonne)||87.06||83.82||4%|
|Mining Costs (per tonne)||30.96||44.64||(31%)|
|Processing Costs (per tonne)||25.47||19.27||32%|
|General and Administrative (per tonne)||10.90||6.16||77%|
|Treatment & Refining Charges (per tonne)||15.26||9.76||56%|
|Royalty Costs (per tonne)||4.46||3.97||12%|
|Financial Rate of Return Metrics|
|After Tax Project Net Present Value (millions) (5%)||174.1||137.1||27%|
|After Tax Internal Rate of Return||21.3%||30.0%||(29%)|
|Pay Back Period (years)||3.6||2.7||31%|
Opportunities to Enhance Value
Management has identified several opportunities to enhance value for the Terronera Project that will be further evaluated during the development phase. Management is considering various engineering, procurement, construction and management approaches including hybrid models to incorporate internal expertise and capabilities that provide an efficient transition from development to operations to reduce management costs. Further opportunities include:
Several identified opportunities remain to enhance the value of the Terronera Project and will be further evaluated during the construction phase. The main Terronera and La Luz Vein orebodies are both open to a certain extent to surface and at depth. There are three main areas with significant potential to increase Mineral Resources, the deep central area, the central-north part and the shallow part of the Santa Gertrudis – El Hundido area. As per the news release dated June 8, 2021, the Company announced that it has intercepted high grade silver-gold mineralization in a number of structures near the Terronera vein, highlighting the potential of the area. Four structures, the San Simon, Fresno, Pendencia and Lindero veins are located immediately to the southeast of the Terronera vein, and the Los Cuates vein is located approximately 10 kilometres to the northwest of the Terronera Project. Management continues drilling the Los Cuates vein with further results expected in the fourth quarter.
Qualified Persons and QA/QC
Dale Mah, P.Geo., Vice President Corporate Development of Endeavour, is the Qualified Person who reviewed and approved this news release. The Feasibility Study (FS) team includes Wood PLC QPs, Tatiana Alva, P.Geo., William Bagnell, P.Eng., Alan Drake, P.Eng., Kirk Hanson, P.Eng. and Humberto Preciado, P.Eng., who are the Independent Qualified Persons for the 2021 FS and who have prepared the scientific and technical information on the Terronera project and reviewed the information that is summarized in this press release. The qualified persons preparing the FS report have followed industry accepted practices for verifying that the data used in the study is suitable for the purposes used. Site visits by three of the qualified persons (including Dale Mah from Endeavour and Tatiana Alva and Humberto Preciado from Wood) is part of the data verification procedures. A more detailed description of data verification undertaken by the qualified persons will be included in the relevant sections of the technical report that will be filed within 45 days of this press release
A Quality Control sampling program of reference standards, blanks and duplicates is used to monitor the integrity of all assay results. All samples are split at the local field office and shipped to ALS-Chemex Labs, where they are dried, crushed, split and 30 gram pulp samples are prepared for analysis. Gold is determined by fire assay with an atomic absorption (AA) finish and silver by aqua regia digestion and ICP finish, over-limits by fire assay and gravimetric finish.
About Endeavour Silver
Endeavour Silver Corp. is a mid-tier precious metals mining company that owns and operates two high-grade, underground, silver-gold mines in Mexico. Endeavour is currently advancing the Terronera Project towards a development decision and exploring its portfolio of exploration and development projects in Mexico and Chile to facilitate its goal to become a premier senior silver producer. Our philosophy of corporate social integrity creates value for all stakeholders.
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