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La Joya

Location: 75 kilometres southeast of the city of Durango, Mexico.
Status: Development & Exploration - Development & Exploration SilverCrest has completed its Phase II drilling program and released the first PEA

  • Excellent Infrastructure & Access: Highway
  • Railway and Power Lines nearby
  • 2 Hour Drive From Durango City & International Airport

La Joya Preliminary Economic Assessment Base Case Pre-Tax NPV(5%) of US$133 Million and 30% IRR for "Starter Pit"

SilverCrest has completed the Preliminary Economic Assessment ("PEA") for its La Joya Silver Copper Gold Project ("La Joya") located in Durango, Mexico. Summaries of the current resources used for the PEA, a preliminary Life of Mine Plan (LOMP), operating costs, capital costs and project economics are presented in tables below. A Technical Report compliant with NI43-101 is being completed by EBA Engineering Consultants, a Tetra Tech Company (EBA) with an effective date of September 23, 2013 is to be filed by the end of the year. All currency values are presented in US$ unless otherwise specified.

N. Eric Fier, President & COO stated, "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. 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".

The PEA focuses on the first stage of La Joya development ("Starter Pit") as a low strip, open pit with an initial 9 year life of mine plan ("LOMP") and opportunities for expansion. This approach provides attractive economic returns using conservative metal price estimates and lower initial capital costs, which are more attractive in the current market. The conceptual open pit operation would be in conjunction with a 5,000 tonnes per day (tpd) conventional mill and flotation/leaching plant to produce a high grade silver-copper concentrate with gold credits. The Starter Pit will have a conceptual average annual production of 3.9 million silver equivalent (AgEQ)* ounces per year and approximately 5 million ounces AgEQ* per year for each of the first 4 years of operation. An expansion of the Starter Pit to include additional resources within a larger pit would then be contemplated.

The Company cautions that the PEA is preliminary in nature in that it is based on Inferred Mineral Resources which are considered too speculative geologically to have the economic considerations applied to them that would enable them to be characterized as mineral reserves, and there is no certainty that the PEA will be realized. Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Highlights of the Preliminary Economic Assessment

The PEA incorporated Base Case metal prices of $22/oz Ag, $3/lb Cu and $1200/oz Au (5 year historical average). Highlights of the Base Case economic estimates for the Starter Pit are as follows:

  • Pre-tax NPV5% of $133 million and an Internal Rate of Return (“IRR”) of 30.5%
  • Pre-tax NPV5% of $156 million and IRR of 34% using current metal prices of $21.93/oz Ag,  $1316.25/oz Au and $3.27/lb Cu (as of 18/10/2013)
  • After-tax NPV5% of $93 million and an IRR of 22%
  • Payback period of approximately 2 years on initial capital
  • Pre- production capital costs of $141 million including contingencies of $17 million
  • Sustaining capital is estimated at $8 Million
  • Cash operating costs for the first three years average $10 per ounce AgEQ* and $13 per ounce AgEq* for the  9 years Starter Pit
  • Pre-tax undiscounted  operating cash flow before  capital expenditures totalling $342.5 million at an average of $38 million per year with the first four years averaging $60 million per year
  • A 9 year LOMP with 15.5M tonnes grading 50g/t Ag, 0.33%Cu and 0.19 g/t Au
  • Life of mine production of an estimated 34.8 million payable AgEQ*ounces, consisting of 19 million ounces of silver and 53 thousand ounces of gold and 93 million pounds of copper in concentrate, and
  • Production of an attractive high grade silver-copper concentrate (averaging 35% Cu and 4kg/t Ag) with a gold by-product.

* Silver equivalency for the PEA includes silver, gold and copper and excludes lead, zinc, molybdenum and tungsten values. The Price Ratio for  Ag:oz Au is (54.4:1), lb Cu:oz Ag is (7.3:1), both  based on 5 year historic metal price trends of US$22/oz silver, US$1200/oz gold, US$3/lbs. copper. Metallurgical recoveries are incorporated in the economic analysis (see Summary of PEA parameters in table below).

PEA Economic Analysis

* Silver equivalency for the PEA includes silver, gold and copper and excludes lead, zinc, molybdenum and tungsten values. Price ratio for Ag: Au is (54.4:1), Ag:Cu is  (7.3:1), both  based on 5 year historic metal price trends of US$22/oz silver, US$1200/oz gold, US$3/lbs. copper. Metallurgical recovery is incorporated as recoverable metal.

The PEA for the Starter Pit reports strong revenues in the initial four years of operations and a decrease in the revenues for subsequent two years due to decrease in the grades. It is anticipated that additional drilling and optimization of the mine schedule could improve these results based on the presence of high grade material in some sectors of the deposit which may ultimately be incorporated into the mine plan.
Sensitivity analyses were completed by adjusting commodity prices, the results of which are presented in the following graph.

The Starter Pit economics are more sensitive to silver and copper price, as they represent 55% and 36% of the total revenues respectively under the base case scenario. Each 10% increment in metal prices from the base case changes the pre-tax NPV by approximately $60 million and the IRR by approximately 8%.

PEA CAPITAL COSTS

EBA completed detailed cost estimates for the mine and processing plant based on preliminary vendor quotes, contract mining and similar projects recently completed in Mexico. Pre-production capital costs are estimated to total US$141 million including a $17 million contingency using an open pit mine contractor. This includes development of the project over a period of 1.5 years including initial mining for one year before start-up of operations. The La Joya property has excellent infrastructure to keep capital costs reasonable with a nearby international airport, highways, railway, main power grid and lines, several operating mines and communities with available workforce. The pre-production capital costs from the PEA are summarized below.

Pre Production Capital Costs (US$000) LOMP Total Year -2 Year -1
Overall Site $17,915   $17,915
Pre Stripping $6,700 $2,010 $4,690
Ore Handling $9,095 $2,728 $6,366
Process Plant $44,992 $13,497 $31,494
Tailings and Water Management $6,850   $6,850
On-Site Infrastructure-Environmental $9,116 $2,731 $6,385
Total direct $94,666 $20,967 $73,699
Indirect $24,825 $7,447 $17,377
Owners costs $4,733 $1,420 $3,313
Subtotal $29,558 $8,867 $20,691
Contingency $16,966 $5,090 $11,876
Totals $141,190 $34,924 $106,266
Sustaining Capital $8,128    


Provisions for $8 million of working capital and $6 million in mine closure have been made as part of the economic analyses in the PEA.

PEA STUDY PARAMETERS

The PEA has incorporated the following operational and economic parameters used in the Net Smelter Return Model (“NSR”) for the silver-copper-gold concentrate and also gold-silver dore production model from tailings leaching.

SUMMARY LA JOYA PEA PARAMETERS
Exchange Rate
USD/MXN
$13.00
USD/CAD
$0.97
Metallurgical Recoveries (%)
Silver recovery - Manto concentrate
76%
Silver recovery - Manto dore
7%
Silver recovery - Structure concentrate
76%
Silver recovery - Structure dore
7%
Gold recovery -Manto concentrate
55%
Gold recovery -Manto dore
5%
Gold recovery -Structure concentrate
45%
Gold recovery -Structure dore
10%
Copper recovery - Manto concentrate
86%
Copper recovery - Structure concentrate
84%
Copper Grade Concentrate (%)
35%
Item Cost US$
Total Mining Ore cost US$/t
$2.16
Processing cost US$/t
$13.85
G & A US$/t
$1.81
Road freight US$/t copper concentrate
$50.00
Ocean freight US$/t copper concentrate
$65.00
Marketing US$/t copper concentrate
$2.50
Smelting US$/t copper concentrate
$70.00
Concentrate refining costs Ag US$/troz oz
$0.60
Concentrate refining costs Cu US$/lbs
$0.07
Gold Dore refining costs US$/troy oz
$10.00
Dore transportation US$/troy oz
$1.00
Fuel Costs US$/litre
$0.81
Deductions (%)
Insurance % (copper in concentrate)
0.15%
Copper In Concentrate
1%
Gold Dore-Copper Concentrate
3%
Silver Dore
7%
Concentrate losses (%)
0.42%
Moisture Copper Concentrate (%)
8.50%
Conversion factors  
Grams per troy ounce
31.1
Lbs. copper per tonne
2204


No smelter penalty charges for deleterious metals were applied to the concentrate for the PEA. The study assumes that silver copper concentrate will be shipped overseas by trucking from site to a port in Mexico which is the most used route for concentrate producers in operation near La Joya.

PROCESSING & METALLURGY

The most recent metallurgical studies indicate that a conventional flotation circuit will potentially recover a high grade silver copper concentrate with gold credits.  Depending on mineralization style and conditioning applied on the ALS locked cycle flotation tests, preliminary metal recoveries to the third cleaner concentrates range from 82.7 to 86.7% Cu, 76.7 to 84.3% Ag, and 18.2 to 42.4% Au for Manto and Structure composites. A gold leaching circuit with potential to recover 90% of gold and silver from the tailings to produce metal dore has also been incorporated in the PEA.

  
3RD CLEANER CONCENTRATE  (Excluding Leaching)
COMPOSITE
ORE TYPE
HEAD ASSAY
ASSAY
RECOVERY(%)
Cu%
Ag g/t
Au g/t
Cu%
Ag g/t
Au g/t
Cu
Ag
Au
Manto
0.35
47
0.19
36.6
4460
12.9
86
77
55
Structure
0.46
64
0.27
33.7
4300
9.61
84
77
40


The bulk silver copper concentrates from preliminary results produced from Manto and Structure composites show certain potentially deleterious elements for smelting such as arsenic, antimony and bismuth. Adding cyanide at cleaner flotation stages reduces the arsenic content to acceptable market limits without sacrificing copper, silver and gold recoveries. Additional test work is in progress to assess the distribution, concentration and potential reduction of antimony and bismuth.

La Joya Resources

The La Joya mineral deposit is defined as a silver copper- gold skarn with disseminated to semi-massive sulphide (bornite –chalcopyrite) with three main ore types; Mantos, Structures and Contact Zone. The updated Mineral Resource estimations for the La Joya Project provided estimated Inferred Resources of 126.7 million tonnes grading 23.5 gpt Ag, 0.19%Cu and 0.17 gpt Au containing 198.6 million ounces of silver, 533 million pounds of copper and 95,900 ounces of gold. These resource estimates were announced by news release dated January 29, 2013 and are contained in a technical report dated March 27, 2013 titled “Updated Resource Estimate for the La Joya Property, Durango, Mexico and are the basis for the PEA.

Ag Eq
Cut Off g/t
Tonnage
(000)
Ag
gpt
Cu%
Au
gpt
Ag Eq
gpt
Ag Oz
(000)
Au Oz
(000)
Cu Lbs
(000)
Ag Eq* Oz
(000)
15
126,700
23.5
0.19
0.17
48.7
95900
716.2
533.2
198.6
30
71,200
34.4
0.28
0.22
69.8
78700
524.8
436.8
159.8
60
27,900
57.5
0.48
0.28
112.2
51600
258.8
288.4
100.8

 *Silver equivalency for the resource estimation filed on March 27th, 2013 includes silver, gold and copper and excludes lead, zinc, molybdenum and tungsten values. Ag:Au is 50:1, Ag:Cu is 86:1, based on 5 year historic metal price trends ofUS$24/oz silver, US$1200/oz gold, US$3/lb copper. 100% metallurgical recovery is assumed. Classified by EBA, a Tetra Tech Company and conforms to NI 43-101 and CIM definitions for resources. All numbers are rounded. Inferred Resources have been estimated from geological evidence and limited sampling and must be treated with a lower level of confidence than Measured and Indicated Resources. Note that AgEQ calculation for resources is different than PEA economic analysis based on change in metal prices. Mineralization boundaries used in the interpretation of the geological model and resource estimate are based on a cut-off grade of 15 g/t AgEq using the metal price ratios described above.

The conceptual first stage for development of La Joya with an initial 9 year Starter Pit uses the 60g/t Ag Eq cut off Inferred Resource for Manto and Structure Zones representing mineralized zones close to the surface. The PEA conceptual open pit and economic analysis excludes the Contact Zone, Santo Nino and Cerro Coloradito resources which are included in the above table.

The Contact Zone resources, not incorporated in the PEA, contains consistent Tungsten mineralization which is currently the subject of additional studies aimed at definition of preliminary economic parameters to be integrated in future assessment of  the La Joya Project.

PEA Potential Production

The Whittle Pit analysis examined the NPV of 41 potential pits utilizing a 5,000 tpd operational capacity. The optimum pit is #31 with the highest NPV(see Table below) producing a 15.8 years LOMP, but it did not meet the criteria established for a Starter Pit with low strip ratio(less than 3:1) and reasonable capital costs. On this basis the selected pit for mine design & scheduling was Pit # 18.

*41 Optimized pit shells have been generated by keeping the parameters used for the Whittle optimization constant (Operating Costs, Metallurgical Recoveries, Pit Slope Angles and Discount Factor) and by varying the Revenue using   a range of  metal prices illustrated in the table above

The optimal mine scheduling incorporates, mining ore and waste in the year-1 grade optimization and stockpiling of material for reprocessing during the project life. is The production scheduling (Mill Feed Tonnes & grades) is  illustrated as follows:

The 5,000 tpd processing plant will be comprised of crushing, milling and standard flotation facilities with production of a silver-copper concentrate as well as a gold-silver leaching circuit for re-treatment of tailings. The PEA adopted as a guideline a mitigation of environmental and social impact by minimizing the footprint of all proposed operational facilities in the region.

PEA Opportunities and Future Studies

Several opportunities are identified that could significantly enhance the economic return outlined in the PEA, including the following:

  • The current Inferred Resources at La Joya provide opportunity for significant project expansion,
  • Mineralization at La Joya is open in most directions with excellent potential to further increased resources. Further infill and expansion drilling is recommended to reclassify resources at a Pre-Feasibility Study level,
  • Additional and detailed metallurgical test work will be completed aiming to optimize the metallurgical flow sheet and potentially improve metal recoveries,
  • Review and optimization of the mining schedule could potentially provide opportunities for reduction in waste and haulage costs which could decrease capital and operating mining costs,
  • This PEA does not address the potential for recovery of several other identified potential products including tungsten, molybdenum, lead, zinc, and tin which may have significant value. Further work is recommended, and
  • Several other targets have been identified on the plus 10,000 hectare concession that remain to be explored for potential new discoveries

La Joya Exploration Potential

• 10,600 hectare land package within the Fresnillo Silver Trend
• Operating mines nearby

Purchase Details:

The Company has entered into agreements for purchase and sale to purchase 100% of the property from local vendors for payments of US$2.68 million payable over a 3 year period plus a 2% NSR for "La Joya West" which consists of 521.6 hectares and payments of US$1.5 million payable over a 3 year period plus a 2% NSR for "La Joya East" which consists of 1103.6 hectares. To date, Property payments have been made totaling $340,000.

Geology & Mineralization

The La Joya Property is underlain by Cretaceous sediments along the western margin of the Mexican Mesa Central, at the transition from the Sierra Madre Occidental, along the broadly defined San Luis-Tepehuanes fault system. The fault system is commonly referred to as the Mexican Silver Belt based on the country scale distribution of silver producing mines juxtaposed along the trend. The sedimentary package at La Joya consists of the Cuesta del Cura Limestone comprised of limestone with minor chert and siltstone overlain by the younger Indidura Formation comprised of calcareous siltstone, mudstone and siliciclastics.

The La Joya Deposit is a carbonate hosted copper skarn deposit with associated silver and gold mineralization, similar in style to the Fortitude-Copper Canyon deposit in Nevada, USA, and to the Sabinas/San Martin mines in Zacatecas, Mexico. Calcsilicate skarn mineralization is found on the property as andradite garnet, pyroxene, actinolite and wollastonite and is distributed amongst three styles of mineralization recognized to exist on the property. Ag-Cu-Au mineralization is concentrated within stratiform manto-style skarn controlled along sub-horizontal bedding. Ag-Cu-Au, Pb-Zn, and W mineralization is concentrated within structurally controlled stockwork and veining related skarn. Finally, W mineralization is found within late stage retrograde skarn development along the intrusive contact.

Sulphide mineralization generally transitions from chalcopyrite-dominant in proximal skarn to bornitedominant in distal skarn. Late sub-vertical laminated quartz-calcite veins bearing freibergite and arsenopyrite cross-cut pre-existing skarn mineralization and, although related to magmatic fluids, is not considered to be related to the skarn mineralizing events. Trace amounts of oxide from meteoric weathering processes are present within the structural corridors at depth.

History

Previous work on the property, mainly by Luismin SA de CV, consists of a number of drill holes and surface work completed from 1985 to 2001. Surface mapping, sampling by the Company and previous drill results suggest that geology and mineralization is similar to the nearby San Martin Mine which is operated by Grupo Mexico and considered historically to be one of the largest polymetallic (Ag, Cu, Zn, Pb) producers in Mexico.

Due diligence work completed by the Company shows several near vertical veins and structures with widths up to 50 metres which cross-cut shallow-dipping mineralized manto (skarn) deposits up to 50 metres thick associated with an anticlinorium complex. Mantos appear to be mineralized near the apex of a series of anticlines. The main alteration and mineralized area appears to be approximately 2.5 kilometres in strike length, 300 to 500 metres wide and is associated with a nearby exposed intrusive stock. Geochemistry for the system is Ag-Cu-Au-Sb with sulfide mineralization consisting of tetrahedrite, bornite, and chalcopyrite. Native silver may also be present.

In late 2011 SilverCrest completed a phase I drill program. Data compilation for the Phase I drilling program and a newly received historic database has identified a large, near-surface bulk tonnage target at its La Joya. The compilation by SilverCrest has involved data and/or drill core review of 51 historic holes (14,786 metres) and 26 Company drill holes (5,716 metres) totaling 20,502 metres of drilling in 77 holes on the property.