SilverCrest Metals Inc. (TSX-V:SIL) (NYSE American:SILV) is pleased to announce the results of an independent Preliminary Economic Assessment completed by Tetra Tech Canada, Inc. for the Las Chispas project in Sonora, Mexico. The PEA is based on the mineral resource estimate, titled “Technical Report and Mineral Resource Estimate” for the Las Chispas Property, Sonora, Mexico, effective February 8, 2019 and announced on March 14, 2019 (the “February 2019 Mineral Resource Estimate”).
All dollar ($) amounts in this news release are in US dollar ($) unless otherwise indicated.
Las Chispas Preliminary Economic Assessment Highlights (Base Case)
The following assumes a silver price of $16.68/ounce (“oz”), a gold price of $1,269/oz and a Mexican Peso/US$ exchange rate of 20:1.
N. Eric Fier, CPG, P.Eng and CEO commented: “With an estimated after-tax NPV (5%) of more than $400 million, an after-tax IRR of 78% and a payback period of less than one year, the economics for Las Chispas are exceptional. The PEA has focused initial development and production on the high-grade Babicanora, Babicanora FW and Babicanora Norte veins, producing an average of 13.7 million ounces of silver equivalent per year, for the first four years, at an AISC of less than $5.00/oz AgEq. This production and cost structure have the potential to generate in excess of $100 million in annual net free cash flow at today’s silver ($14.75/oz) and gold ($1,297/oz) prices. Preliminary economic results suggest that Las Chispas could be a high-margin project, even at low metal prices. Importantly, this assessment is a snapshot of the potential value of Las Chispas. We have been exploring the Las Chispas district for only three years. Continued drilling success may add significant value to the project. The resources used in the PEA consists of 10 of 30 known veins drill-tested near-surface in the district. We currently have 14 drill rigs running at Las Chispas, of which 6 are focused on expanding the resource and testing new targets and 8 are completing infill drilling for re-categorizing resources. The new decline into Area 51 is progressing well with an anticipated intercept of the high-grade Shoot 51 in Q2, 2019 with subsequent surface stockpiling of material grading an average of more than 1,000 gpt AgEq. We have also identified a number of optimization opportunities in the PEA, which we intend to evaluate as we proceed with a Feasibility Study (or “FS”) with anticipated completion in first half of 2020.“
The Company cautions that the results of the PEA are preliminary in nature and include inferred mineral resources that are considered too speculative geologically to have economic consideration applied to them to be classified as mineral reserves. There is no certainty that the results of the PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.
Technical and Financial Details
The PEA Base Case uses a 5% discount rate, metal prices of $16.68/oz Ag and $1,269/oz Au (~3-year historical average) and Mexico Peso/US$ exchange rate of 20:1. Highlights of the Base Case economic estimates used for the PEA are as follows:
|Las Chispas PEA Summary (Base Case)|
|Mine Life||8.5 years|
|Diluted Resource (Tonnes)||3,861,000|
|Average Diluted Silver Grade (gpt)||411.0|
|Average Diluted Gold Grade (gpt)||4.05|
|Average Diluted AgEq(1) Grade (gpt)||714|
|Contained Silver oz(3)||51,004,000|
|Contained Gold oz (3)||502,200|
|Contained AgEq oz(1)(3)||88,666,000|
|Payable Silver oz (LOM)||45,765,000|
|Payable Gold oz (LOM)||473,100|
|Total AgEq(1) oz||81,247,000|
|Average Annual Production (LOM)|
|Average Annual Production (Years 1-4)|
|Mining Cost ($/t) (2)||$50.91|
|Processing Cost ($/t)||$32.61|
|G&A Cost ($/t)||$15.14|
|Total Operating Cost ($/t)||$98.66|
|Initial Capital Cost ($ million)||$100.5|
|LOM Sustaining Capital Cost ($ million)||$50.3|
|LOM AISC ($/oz AgEq(1))||$7.52|
|Years 1-4 AISC ($/oz AgEq(1))||$4.89|
|NPV (5%, $ million)||$406.9|
|Undiscounted LOM net free cash flow ($ million)||$522.5|
|Payback period||9 months|
The PEA presents a range of metal pricing scenarios on after-tax basis to evaluate the economics of the project in both upside and downside commodity price scenarios. As illustrated in the following table, the project is very robust even at downside commodity price scenarios:
|After-Tax NPV (5%, $ million)||$301.0||$406.9||$506.5|
|Undiscounted LOM free cash flow ($ million)||$390.4||$522.5||$646.6|
|Payback period in months||10.9||8.8||7.4|
Additional sensitivities to the price of oil, Mexican Peso, Capex, and Opex will be presented in the PEA Technical Report. The project economics are most sensitive to precious metal prices.
Diluted Resource Estimate and Mining Method
The diluted resource estimate for the PEA is based on both indicated and inferred resources as stated in the February 2019 Resource Estimate for the Las Chispas project. Certain mining factors have been applied to this resource estimate, to generate diluted resources using a conceptual mine plan for the PEA. The February 2019 Resource Estimate is summarized below:
|SilverCrest’s Las Chispas Resource Summary – February 2019
Notes: All numbers are rounded
In this PEA, the February 2019 Resource Estimate was used, which assumed that all mining of this resource would be completed by the cut-and-fill method with split blasting (resue) applied in narrower stopes. In order to maintain a throughput rate of 1,250 tpd, the development plan requires a minimum of 11 underground working faces to initially feed the process plant, ramping up to a peak of 15 working faces by year 5. The PEA estimates a diluted resource of 3,861,000 tonnes grading 4.05 gpt gold and 411 gpt silver, or 714 gpt AgEq, containing 502,200 oz Au and 51,004,000 oz Ag, or 88.7 million oz AgEq using an estimated average mining dilution of 33%. The table below summarizes the vein by vein tonnage, grade and dilution for this diluted resource:
Las Chispas Diluted Resource by Vein
|Vein||Dilution Applied (%)||Tonnes||Au
|Babicanora Area 51||29||598,500||6.6||743||1,238|
|Total Diluted Resource||33||3,860,700||4.0||411||714|
Notes: All numbers are rounded
Process Plant and Metallurgy
Detailed metallurgical test-work was completed from September 2018 to March 2019 to assess potential silver and gold recoveries for the Las Chispas project as announced in a news release dated April 18, 2019 titled “Positive Metallurgical Recoveries for Las Chispas”. A 445-kilogram bulk sample was collected from 51 core hole and nine underground samples and compiled into 15 different samples based on geo-metallurgical domains, which were combined into three master composites (low, medium and high grade). The best recoveries were generated from a process flowsheet that included a gravity recovery circuit with intensive cyanidation of the gravity concentrate and the gravity tails processed through standard leaching. The PEA assumes this is followed by a standard counter-current-decantation milling process with gold and silver recovered through a Merrill-Crowe circuit. The test-work showed recoveries of 91-95% for silver and 98-99% for gold. Additional test-work was completed on intensive leaching of gravity concentrates which showed recoveries of 99% for both gold and silver. For the PEA, the Company has limited the intensive leaching recovery to 90% until further optimization work is completed. Therefore, an average recovery of 89.9% for silver and 94.4% for gold is used in the PEA, except during the six-month start-up period where the company further reduced the recovery by 5%. The process plant has been designed at a nameplate capacity of 1,358 tpd with the production schedule assuming 8% downtime over the course of a year. At 92% operating time, the plant can support throughput of 456,000 tonnes per year or 1,250 tpd.
Initial and Sustaining Capital Cost Estimates
The PEA estimates initial capital requirements of $100.5 million and cumulative sustaining capital of $50.3 million (see details in the table below).
|Capital Item||Initial Capital
All capital, excluding 2019 sunk capital estimated to be $7.3 million, incurred up to the end of 2021 is included in the Initial Capital. Any capital required from 2022 and beyond is included in Sustaining Capital. $14.8 million in contingencies have been included in the Initial Capital which is approximately 17.2%. Sustaining Capital is expected to average approximately $5.2 million per year with an increase in Sustaining Capital in year 5 ($10.3 million) and year 6 ($13.7 million), primarily associated with the increase in underground development associated with opening up and operating the Giovanni, Las Chispas and William Tell veins over the remainder of the mine life. The projected timing of increases in sustaining capital expenditures in years 5 and 6 related to underground development may be pushed further into the future with continued exploration success. See section entitled Las Chispas Opportunities to Enhance Value below.
Operating Cost Estimates
LOM operating costs for the Las Chispas project are estimated to average $98.66 per tonne, which includes a minimum of 5% contingency applied to inputs (see Las Chispas PEA “Technical and Financial Details” table above). During the start-up period, processing and general and administrative costs per tonne are higher until mill throughput ramps up to design capacity. The PEA is based on contractor underground mining, which has an estimated LOM cost of $50.91 per tonne milled. Processing costs are estimated at $32.61 per tonne milled, which includes dry stack and backfill tailings management costs of $1.40 per tonne milled. G&A costs are estimated at $15.14 per tonne milled. The processing and G&A costs per tonne milled are based on an estimated plant operating time of 92% over the LOM with potential to improve these unit costs with a higher operating time or plant expansion (see section entitled Las Chispas Opportunities to Enhance Value below).
All-In Sustaining Cash Costs per Ounce of Silver Equivalent
AISC are estimated to be $7.52/oz AgEq produced, based on LOM production of 81.2 million recoverable ounces AgEq. The break-down of AISC for the Las Chispas project are as follows:
|Total ($ million)||Cost / oz AgEq|
|LOM Operating Costs||$380.9||$4.69|
|LOM Sustaining Capital||$50.3||$0.62|
|Total AISC (Before Development Capital)||$510.3||$6.28|
|Initial Development Capital||$100.5||$1.24|
|Total AISC (Including Development Capital)||$610.8||$7.52|
Note that the above calculation does not include corporate G&A costs or exploration expenditures for the Las Chispas project. These costs would be included once the project is closer production and included in AISC/oz AgEq. Note that producing operations typically report AISC before development capital. Excluding development capital, the PEA outlines an AISC of $6.28 per ounce.
Las Chispas PEA Economic Analysis (Base Case)
The economic summary, including annual production, costs and free cash flow for the Las Chispas project as estimated in the PEA are as follows:
|Tonnes Processed (000s)||–||100||443||456||457||456||456||456||457||456||125||3,861|
|Au Grade (gpt)||–||1.38||7.57||5.28||6.08||4.90||4.39||2.95||1.37||1.37||0.94||4.05|
|Ag Grade (gpt)||–||119.0||656.5||555.8||612.1||496.6||387.6||302.0||218.8||196.1||167.8||411.0|
|Au Recovery (%)||–||89.9||94.9||94.9||94.9||94.9||94.9||94.9||94.9||94.9||94.9||94.9|
|Ag Recovery (%)||–||84.9||89.9||89.9||89.9||89.9||89.9||89.9||89.9||89.9||89.9||89.9|
|Payable Au Production (000s oz)||–||4||102||73||84||68||61||41||19||19||4||473|
|Payable Ag Production (million oz)||–||0.3||8.4||7.3||8.1||6.5||5.1||4.0||2.9||2.6||0.6||45.8|
|AgEq Production (million oz)||–||0.6||16.0||12.8||14.4||11.6||9.6||7.0||4.3||4.0||0.9||81.2|
|AISC(1) ($/oz AgEq)||–||$86.63||$4.10||$5.01||$4.75||$5.81||$7.00||$9.31||$11.46||$9.78||$13.28||$7.47|
|Total Revenue ($ million)||$10||$265||$211||$238||$192||$160||$116||$71||$66||$14||$1,345|
|Total Operating Costs ($ million)||–||($7.8)||($45.6)||($45.3)||($49.8)||($50.0)||($48.5)||($46.2)||($40.1)||($36.1)||($11.4)||($380.9)|
|Royalties(3) ($ million)||–||($0.2)||($17.8)||($13.5)||($15.3)||($11.6)||($9.2)||($5.8)||($2.7)||($2.6)||($0.3)||($79.1)|
|Depreciation ($ million)||–||($4.5)||($35.3)||($20.9)||($19.0)||($21.5)||($25.4)||($28.8)||($21.9)||($15.7)||($11.8)||($202.4)|
|Taxes ($ million)||–||–||($50.8)||($39.7)||($46.4)||($32.9)||($23.1)||($10.7)||($2.0)||($3.5)||–||($211.9)|
|Initial Capex ($ million)||($54.6)||($45.8)||–||–||–||–||–||–||–||–||–||($100.5)|
|Sustaining Capex ($ million)||($2.9)||($5.8)||($3.9)||($6.3)||($10.3)||($13.7)||($6.8)||($0.6)||–||($50.3)|
|Working Capital ($ million)||($10.0)|
|Reclamation Bond ($ million)||($4.0)|
|Net Free Cash Flow(1)(2) ($ million)||($58.6)||($43.6)||$138.8||$107.3||$122.9||$91.5||$68.8||$39.9||$19.6||$23.3||$2.8||$522.5|
|Cum. Net Free Cash Flow ($ million)||($58.6)||($102.2)||$36.6||$143.8||$266.7||$358.2||$427.0||$466.9||$486.5||$509.8||$512.5|
Note: All numbers are rounded.
In the above economic analysis, we have applied 10-year straight line depreciation to the carrying value of development capital costs, exclusive of fixed capital items. Fixed capital items are depreciated at 12% per year, based on applicable Mexican accounting practices. Tax loss carry forwards are used to offset taxes in the first full year of production. After applicable deductions, a corporate tax rate of 30% is applied to the taxable income generated from the mine to estimate the LOM cash taxes payable.
Las Chispas Opportunities to Enhance Value
Several potential opportunities have been identified that may significantly enhance the economic return outlined in the PEA, including but not limited to the following:
With the PEA completed, SilverCrest is moving forward with a Feasibility Study for Las Chispas. The Company is targeting completion of the FS in H1, 2020 and making a production decision following the release of a positive study. Of the 14 drill rigs currently working on site, eight (8) of these rigs are focused on infill drilling in an effort to upgrade inferred resources into the indicated category, for inclusion in the FS reserves. On a related note, the exploration decline into Area 51 has been progressing smoothly. Ground conditions have been excellent, which has allowed the Company to advance the decline rapidly. In less than three months, the exploration decline has been advanced to over 420 metres with a target to intercept the high-grade Shoot 51 of the Babicanora Vein in Q2, 2019. Once Shoot 51 is intercepted, 400 to 800 metres of mineralized development will be completed in H2, 2019. This rapid access to high-grade mineralization will allow us to conduct detailed feasibility work including further metallurgy, assess geotechnical conditions, reconcile underground grades with the resource model, complete test mining to define the optimum mining method, and determine more accurate development costs.
The recommended budget for the Feasibility Study, field support for the study, ongoing exploration work, and exploration decline and development construction over the next 12 months is estimated at $17.5 million.
Tetra Tech’s work to complete the PEA, demonstrates that the Las Chispas project has robust economic potential and recommends that SilverCrest continue developing the project with emphasis on the exploration work required to improve confidence in inferred resources. Tetra Tech recommends that the Feasibility Study evaluate alternate mining methods which could have lower costs than the cut and fill method considered in the PEA.
The Independent Qualified Persons, as defined in NI 43-101 for the PEA and who have reviewed and approved the contents of this news release are Mark Horan, M.Sc., P.Eng, P. James F. Barr, P. Geo., and Hassan Ghaffari, M.Sc., P.Eng. from Tetra Tech.
The “Technical Report and Mineral Resource Estimate for the Las Chispas Property, Sonora, Mexico” with an effective of February 8, 2019, and announced on March 14, 2019, has been filed on SEDAR.
ABOUT SilverCrest Metals INC.
SilverCrest is a Canadian precious metals exploration company headquartered in Vancouver, BC, that is focused on new discoveries, value-added acquisitions, and targeting production in Mexico’s historic precious metal districts. The Company’s current focus is on the high-grade, historic Las Chispas mining district in Sonora, Mexico. The Las Chispas Project consists of 28 mineral concessions, of which the Company has either 100% ownership or the rights to purchase 100% ownership of where all the resources are located. SilverCrest is the first company to successfully drill-test the historic Las Chispas Project resulting in numerous discoveries that are being evaluated for economic viability and potential production in the future. The Company is led by a proven management team in all aspects of the precious metal mining sector, including taking projects through discovery, finance, on time and on budget construction, and production.
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