Mr. Tim Barry reports
SILVER BULL COMPLETES POSITIVE PRELIMINARY ECONOMIC ASSESSMENT FOR THE SIERRA MOJADA PROJECT, COAHUILA, MEXICO
Silver Bull Resources Inc. has released the results of its preliminary economic assessment for the Sierra Mojada project in Coahuila, Mexico. The PEA was prepared by JDS Energy and Mining Inc. of Vancouver, B.C.
Highlights from the base case study of $23.50 per ounce silver and 95 cents per pound zinc include:
-
Pretax net present value at a 5-per-cent discount rate of $641.1-million and an internal rate of return of 26.9 per cent;
- Aftertax NPV at a 5-per-cent discount rate of $463.9-million and IRR of 23.1 per cent;
- Aftertax payback of 2.9 years after plant start-up;
- Preproduction capital cost (capex) of $297.2-million, including a 15-per-cent
contingency;
- Sustaining capital of $79.6-million over life of mine (LOM), including
a 15-per-cent contingency;
- An 18-year mine life, mining and processing 55.9 million tonnes of ore
at 8,500 tonnes per day, averaging 73.4 grams per tonne silver and 2.79 per cent
zinc, and producing 98.4 million ounces of silver dore and 982,000
tonnes of a high-quality zinc concentrate (64 per cent zinc concentrate grade);
- An overall strip on the open pit of 5.6 to 1, with the first five years of
production of the phase 1 pit having a lower strip of 3.6 to 1;
- An average payable silver production of 5.5 million ounces of silver per
year with a LOM cash cost of $6.58 per ounce of silver, net of byproduct credits;
- Years two to six will produce an average of seven million ounces a year with a
peak production of 9.3 million ounces of silver in year two;
- The JDS study does not take into account the potential mining of an
additional 37 million tonnes of lower-grade ore which lies immediately
outside of the pit and has the potential to extend the current projected
mine life.
Tim Barry, president and chief executive officer of Silver Bull, stated: "We are very pleased with this preliminary economic assessment. It shows the Sierra Mojada project as a robust, long-life, low-cost mining operation that will put it within the top quartile of global silver producing mines. We are fortunate to have a near-surface high-grade zone which will act as our starter pit and is expected to produce an average of seven million ounces per year allowing for a fast payback on initial capital expenditures. It is also important to remember the significant upside on this project. A mineralized lower-grade halo surrounds the core of the orebody that may be mined and be brought into the pit at a time in which we anticipate will be a higher metal price environment. This combined with obvious extensions of mineralization to the east, west and north coupled with the numerous regional showings suggest Sierra Mojada is part of a much larger mineralizing system."
A sensitivity table shows the NPV and IRR at different silver prices.
NPV AND IRR SENSITIVITY
Ag price Pretax Aftertax Pretax Aftertax Pretax Aftertax
per ounce NPV NPV IRR IRR payback payback
($M) ($M) (years) (years)
$16 $ 190.9 $ 135.3 11.7% 10.4% 7.0 7.0
$18 $ 310.9 $ 225.7 15.9% 14.1% 4.9 4.9
$20 $ 431.0 $ 312.4 20.0% 17.5% 3.6 3.7
$22 $ 551.1 $ 399.0 23.9% 20.7% 2.9 3.1
$23.50 $ 641.1 $ 463.9 26.9% 23.1% 2.7 2.9
$25 $ 731.2 $ 528.8 29.7% 25.5% 2.6 2.7
$28 $ 911.3 $ 658.7 35.3% 30.1% 2.3 2.4
$30 $ 1,031.4 $ 745.2 38.8% 33.0% 2.1 2.2
Assumed zinc price of $95 cents per pound zinc.
CAPITAL COSTS AND ECONOMIC HIGHLIGHTS
Unit Value
Silver cash cost (net of byproducts) $/oz 6.58
Avg. operating cash flow during production $M 92.0
LOM operating costs $M 1,483
LOM operating costs/tonne milled $/tonne milled 26.54
Capital costs
Preproduction capital $M 260.7
Preproduction contingency (15%) $M 36.5
Total preproduction capital costs $M 297.2
$/tonne milled 5.31
Sustaining and closure capital $M 67.7
Sustaining and closure contingency (15%) $M 11.9
Total sustaining and closure capital costs $M 79.6
$/tonne milled 1.43
Total capital costs (incl. contingency) $M 376.8
$/tonne milled 6.74
Based on $23.50-per-ounce silver price and 95-cent-per-pound zinc price,
and silver and zinc production as outlined.
MINE PLAN HIGHLIGHTS
Unit Value
Mine plan
Mine life Years 18.0
Total milled M tonnes 55.9
Total waste M tonnes 310.8
Strip ratio w:o 5.6
Average plant throughput tpd 8,500
Average head grades
Zn % 2.79%
Ag g/t 73.39
Production
Total Zn concentrate produced dmt 982,354
Average Zn concentrate produced dmt/yr 54,559
Total Zn production Mlb 1,178.1
Average Zn produced Mlb/yr 65.4
Total Ag dore produced Moz 98.4
Average Ag dore produced Moz/yr 5.5
Resources
The initial mineral resource estimate was developed using MineSight software to create a partial block model, with blocks sized five metres by five m by four m. For the purpose of resource estimation, all assay intervals within the mineralized units were composited to two metres and grades were capped prior to estimation. All resources identified in the Lerchs Grossman (LG) optimized pit fell into the indicated category and were reported in Silver Bull's National Instrument 43-101 resource report published on May 2, 2013.
At Silver Bull's request, JDS combined the partial model resource estimate into one standard block model compatible with Silver Bull's GEMS software. A small underground void was added in an area that had an overlap of solids within the silver orebody and resulted in a minor change in reportable silver grade and tonnes. JDS does not consider this change significant but it does support the recommendation for tighter geologic modelling.
The combined GEMS block model resources have been compared with the original LG optimized pit and are restated in the table at the same 25 g/t silver cut-off.
SIERRA MOJADA INDICATED RESOURCES AS OF SEPT. 30, 2013
Silver Silver Zinc Zinc
Cut-off grade ounces grade pounds
(g/t Ag) Tonnage (g/t) (Moz) (%) (lb)
Greater than 100 g/t 13,553,000 170.1 74.1 1.59 476,081,000
Greater than 80 g/t 19,205,000 146.2 90.3 1.57 662,915,000
Greater than 65 g/t 25,318,000 128.3 104.5 1.54 860,189,000
Greater than 55 g/t 31,321,000 115.2 116 1.50 1,035,550,000
Greater than 45 g/t 39,949,000 101.0 129.8 1.44 1,266,764,000
Greater than 35 g/t 52,560,000 86.3 145.8 1.39 1,613,697,000
Greater than 25 g/t 71,208,000 71.4 163.6 1.39 2,184,270,000
Greater than 15 g/t 95,566,000 58.2 179.1 1.36 2,873,033,000
Greater than 0 g/t 127,722,000 45.7 187.8 1.80 5,068,527,000
Mineral resources that are not mineral reserves do not have
demonstrated economic viability.
The methodology used is consistent with the Canadian Institute of Mining and Metallurgy definitions referred to in National Instrument 43-101. Note however that the assumptions for the LG pit were based on different parameters than those of the PEA which is now a net-smelter-returns-royalty-based block model.
In addition to silver and zinc resources, lead and copper resources were estimated although lead and copper were not considered in the PEA. Results of continuing testwork focused on the economic recovery of lead were not available at the time the PEA was completed.
NSR/mining model construction
Once sufficient work was completed on metallurgical testing for the sulphidization-acidification-recycle-thickening (SART) process, updated silver and zinc recoveries, and operating cost estimates were collated for the PEA analyses to follow. The NSR model is based on the in situ resources for these two metals.
Results of continuing testwork which focused on the economic recovery of lead were not available at the time the PEA was completed, and copper added no significant value anywhere in the envisioned process stream. Lead and copper have been excluded from the NSR model.
JDS constructed an NSR block model from the combined block model described above. The NSR model equates the block value to U.S. dollars to allow a Whittle economic optimization of the resource. The defining variables used for this work are summarized in the table.
PARAMETERS USED TO CREATE THE NSR MODEL FOR THE SIERRA MOJADA DEPOSIT
Parameter Unit US$
Ag price US$/oz $23.50
Zn price US$/lb $1.10
Exchange rate US$:$ 1.00
Ag recovery % 75
Overall Zn recovery from ore % 41
Zn recovery from SART % 99
Zn concentrate grade % 64
Ag payable % 99.5
Zn payable % 85
Zn smelting cost US$/tonne $212.00
Zn haul cost US$/tonne $20.00
Zn insurance US$/dmt $0.02/100
Zn losses 30% of NIV $0.5/100
Zn price participation US$/dmt $5.66
Ag refining US$/oz $0.225
Ag haul US$/oz $0.15
Ag insurance US$/dmt $0.12
Zn dilution factor 1.00
Ag dilution factor 1.00
Short tons to pounds 2,000
Pounds to metric tonnes 2,204.6
Based on Zn price of 95 U.S. cents per pound.
Mining
The mine plan developed for the PEA mines the Sierra Mojada deposit in a series of five phases which have been scheduled targeting ore of the highest value early in mine life. This is done to accelerate capital payback and maximize cash flow.
Standard open-pit mining methods are utilized involving typical drilling, blasting and material movement using shovels and trucks. The fleet required to mine all potential ore grade material and associated waste has been identified with the primary fleet and ancillary/support equipment prices obtained from recent quotes. The primary fleet quoted consists of Caterpillar 777G trucks, 992K wheel loaders, D10T and D9T track dozers, MD6290 and MD6540 rotary drills, and Komatsu PC2000 front shovels.
The base case utilizes a leased mining fleet over the life of mine with realistic market terms expected from equipment dealers in Mexico at a 7-per-cent interest rate. Mining costs per tonne are based solely on fleet operating costs. Leasing costs are applied separately and included in overall operational costs.
In year two of mine operations, a contractor fleet will be used to supplement prestripping of phase 3. The additional waste stripping required in year two is short lived and does not justify the purchase of additional equipment. This also creates the ability to backfill phase 1 beginning in year five and phase 2 in year 13, without affecting ore delivery to the plant -- effectively maximizing backfill potential and minimizing surface area required for waste rock storage and also minimizing haulage costs. Mining phases 3, 4 and 5 during years 15 through 17 will also require assistance by contractor mining. Contractor costs have been assumed to be equal to owner mining costs plus 20 per cent and have been incorporated into the economic model based on projected contractor unit requirements.
Processing
A planned Sierra Mojada process plant is designed to process polymetallic mineralization at a rate of 8,500 tonnes per day. The process facility will consist of a primary crushing plant, grinding circuit, agitation leaching for silver recovery and a bio-SART plant that not only produces a high-grade zinc concentrate but also recovers an estimated 95 per cent of cyanide used in leaching for reuse. The process plant will operate two shifts per day and 365 days per year with an overall availability of 92 per cent. The process plant will produce silver dore and zinc concentrate as separate saleable products.
Infrastructure
The Sierra Mojada project is accessible by paved highway and there is a rail line in use nearby that could be extended to the conceptual plant site location for delivery of bulk supplies and transport of zinc concentrates. Power can be provided either through the national grid which would require extending main transmission lines to the site, or generators located at site or off-site. Diesel and natural gas generation were considered, and the choice of natural gas generators located proximal to an existing natural gas supply line in combination with lower-voltage transmission lines to site was deemed a reliable, lowest-cost option among the alternatives considered. Makeup water supply is planned to be sourced from regional groundwater sources.
Capital costs
The initial capital requirement for the project is estimated to be $297.2-million (U.S.), as detailed in the table.
SIERRA MOJADA PREPRODUCTION CAPITAL COSTS AS OF SEPT. 30, 2013
Preproduction capital costs $M
Prestripping 10.9
Mining equipment 10.5
Site development 4.8
Crushing and coarse ore stockpile 14.2
Processing plant 69.2
Tailings 9.4
On-site infrastructure 24.3
Off-site infrastructure 39.2
Project indirects 38.4
Engineering and EPCM 29.9
Owner's costs 5.6
Preproduction lease payments 4.3
Total precontingency initial capital costs 260.7
Contingency 36.5
Total preproduction capital costs 297.2
The project has a total sustaining capital requirement of $60.9-million. Closure costs amount to $6.8-million. Contingency for sustaining and closure capital amounts to $11.9-million.
Operating costs
Total operating costs per tonne ore milled for the project are outlined in the table.
SIERRA MOJADA OPERATING COSTS
Operating cost $/tonne milled
Mining ($1.68 per tonne mined) 11.03
Processing 11.55
G&A 1.39
Leasing 2.57
Total operating cost 26.54
Financial analysis and sensitivities
Using a silver price of $23.50/ounce and a zinc price of 95 cents/pound, the study yields a pretax NPV5 of $641.1-million and IRR of 26.9 per cent with a payback period of 2.7 years. Aftertax NPV5 amounts to $463.9-million and an IRR of 23.1 per cent with a payback of 2.9 years.
PROJECT NPV SENSITIVITY TO DISCOUNT RATE
Discount rate Pretax NPV Aftertax NPV
(M) (M)
0% $ 1,280.5 $ 945.4
5% 641.1 463.9
7% 491.1 350.3
8% 430.2 304.0
10% 329.9 227.7
Technical report
A National Instrument 43-101 technical report will be filed within 45 days on SEDAR as well as the Silver Bull corporate website.
Qualified persons
The PEA was conducted under the overall review of Gordon Doerksen, PEng, of JDS Energy and Mining of Vancouver, B.C., with the qualified persons shown in the table contributing to their respective sections.
QUALIFIED PERSONS
Gordon Doerksen PEng, project director, JDS Energy and Mining
Greg Blaylock PEng, associate, JDS -- mine, process, and infrastructure
capital costs
Allan Reeves PGeo
Bill Pennstrom QP metallurgy, president of Pennstrom Consulting Inc. --
process flow sheet, and development and operating costsWe seek Safe Harbor.
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