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Silvercrest Mines Inc
Symbol SVL
Shares Issued 118,753,205
Close 2015-03-31 C$ 1.39
Market Cap C$ 165,066,955
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Silvercrest releases 43-101 PFS update for Santa Elena

2015-03-31 20:06 ET - News Release

Mr. J. Scott Drever reports

SILVERCREST ANNOUNCES UPDATE TO SANTA ELENA PRE-FEASIBILITY STUDY; PRE-TAX BASE CASE NPV (5%) OF $144 MILLION, REPLACES RESERVES AND RENEWS 8 YEAR MINE LIFE

Silvercrest Mines Inc. has filed a technical report prepared in compliance with National Instrument 43-101, standards of disclosure for mineral projects, entitled "Update to Santa Elena Pre-Feasibility Study, Sonora, Mexico" (UPFS), for its operating Santa Elena mine. The UPFS updates the Santa Elena prefeasibility study (PFS) and open-pit resource update, dated effective April 30, 2013, as amended March 4, 2014. Summaries of the updated reserves and resources, life-of-mine plan (LOMP), operating costs, sustaining capital costs, and project economics are presented herein. All dollar amounts are expressed in U.S. dollars unless otherwise specified. The effective date of this technical report is Dec. 31, 2014, and the report is available on the company's website and under the company's profile on SEDAR.

The base-case economic analyses use a range of metal prices per ounce for gold and silver. For gold prices, the range is defined as $1,250 (2015), $1,275 (2016) and $1,300 (2017 to 2022), and for silver prices, the range is defined as $18 (2015), $19 (2016), $20 (2017) and $21 (2018 to 2022). On this basis, the following economic highlights for a continued eight-year mine life beginning January, 2015, are:

  • Total operating revenue of $555-million from estimated sales of 12.6 million ounces of silver and 270,700 ounces of gold;
  • Total operating costs of $349-million;
  • Estimated cash operating costs averaging $11.59 per silver equivalent (AgEq) ounce (silver-to-gold average ratio of 64.5 to 1 based on sold ounces for LOMP);
  • Total sustaining capital costs of $31-million, including LOMP underground drilling programs and 2015 surface exploration expenditures;
  • Total pretax undiscounted cash flow of $163-million, including estimated closure cost deductions of $6-million;
  • Pretax base-case pretax NPV (net present value) (5 per cent) of $144-million;
  • Posttax base-case posttax NPV (5 per cent) of $119-million.

Metal price sensitivities were completed including spot prices of $1,193 per ounce of gold and $16.16 per ounce of silver (representing the spot prices in December, 2014), which showed a pretax NPV (DCF (discounted cash flow) at 5 per cent) of $84.3-million.

J. Scott Drever, chief executive officer, stated: "We are extremely pleased with the results of the reserve and economic update for the Santa Elena mine. The study confirms our expectations that the transition from the open-pit heap-leach operation to a conventional mill and underground operation represents a very attractive project with robust economics even at current reduced metal prices. The renewal of an eight-year mine life gives Silvercrest a strong corporate cash flow that provides a solid foundation for continued systematic and aggressive growth. We look forward to a year of continuing operational and financial improvements in 2015 with expansion of our annual metals production at Santa Elena."

Mineral reserves and resource estimates at Dec. 31, 2014

Updates to mineral reserves and resources are shown in the accompanying table. Only indicated resources were used in estimating the mineral reserves related to the UPFS mine plan, schedule and economic analyses. In summary, total updated probable reserves at Santa Elena are 7.45 million tonnes grading 1.23 grams per tonne Au and 78.4 g/t Ag, containing 295,000 ounces of gold and 18.76 million ounces of silver. This represents an overall minimal decrease of 10 per cent in contained gold and 5 per cent in contained silver over previous probable reserves stated in the 2013 PFS, even after reserve depletion by mining and decreased metal prices. Updated indicated resources (exclusive of probable reserves) are estimated at 1.12 million tonnes grading 1.39 g/t Au and 89.7 g/t Ag, containing 50,000 ounces of gold and 3.22 million ounces of silver. This represents a 57-per-cent decrease in contained gold ounces and a 59-per-cent decrease in contained silver ounces over previous indicated resources. Updated inferred resources are estimated at 560,000 tonnes grading 1.69 g/t Au and 106.5 g/t Ag, containing 31,000 ounces of gold and 1.9 million ounces of silver. This represents a 57-per-cent decrease in contained gold ounces and a 74-per-cent decrease in contained silver ounces. The differences in UPFS reserves and resources from the 2013 PFS are based on:

  • A minimal decrease of overall probable reserves even after mining depletion over the last 1-3/4 years and changes in metal prices (cut-off grade analysis) from the 2013 PFS of $1,450 per ounce of gold to $1,300 and from $28 per ounce of silver to $19.50;
  • Underground probable reserves have increased 8 per cent in contained ounces of gold and 8 per cent in contained ounces of silver subsequent to the 2013 PFS and 2014 underground mining depletion;
  • Newly defined El Cholugo underground probable reserve of an estimated 252,000 tonnes grading 2.58 g/t Au and 147 g/t Ag. This high-grade zone is immediately adjacent to current underground development and has been exposed on several levels for easy access and planned mining in 2016. This zone is open in most directions and is a 2015 priority for further resource expansion with potential for conversion to reserves;
  • An 85-per-cent decrease in open-pit probable reserves due to depletion from mining from April, 2013, and some transfer to underground reserves. The open pit was shut down in April, 2014, and reopened in January, 2015;
  • An 18-per-cent increase in leach-pad probable reserves with continuation of open-pit mining in 2013 and 2014 and partial leaching (300-day leach cycle) of ore;
  • Indicated and inferred resources decreased based on conversion to reserves, lower base-case metal prices, updated geological modelling with detailed infill drilling, and changes in geostatistical parameters (smaller search radius) based on more exploration and production data, including infill drilling data generated in 2013 and 2014;
  • Reserve replacement for a renewal of an eight-year mine life, even after mining depletion from 2013 and 2014.

                         SANTA ELENA RESERVES (DEC. 31, 2014)

Classification        Tonnes   Au g/t    Ag g/t   Contained Au oz    Contained Ag oz

Santa Elena
underground
diluted and
recoverable
reserves(1)
Probable           3,981,557     1.67     115.0           214,000         14,724,000
Santa Elena
open-pit
reserves(2)
Probable             121,706     2.75     117.0            11,000            458,000
Santa Elena
leach-pad
reserves (pad
ore)(3)
Probable           3,344,652     0.65      33.3            70,000          3,582,000
Total Santa
Elena reserves
Probable           7,447,915     1.23      78.4           295,000         18,764,000
Santa Elena
resources
(Dec. 31, 2014)
(4)
Indicated          1,117,033     1.39      89.7            50,000          3,220,000
Inferred             564,074     1.69    106.53            31,000          1,932,000

Note: All numbers are rounded. Underground and leach-pad reserves and resources are 
based on LOMP metal price trends of $19.50 per ounce of silver and $1,300 per ounce
of gold and metallurgical recoveries of 92 per cent for gold and 67.5 per cent for 
silver. All mineral resources and reserves conform to NI 43-101 and Canadian Institute 
of Mining, Metallurgy and Petroleum definitions for resources and reserves. Inferred 
resources have been estimated from geological evidence and limited sampling and must 
be treated with a lower level of confidence than indicated resources.
(1) The underground probable reserve is based on a cut-off grade of 2.49 g/t AuEq with 
    an estimated average 10-per-cent dilution and 90-per-cent mine recovery. Average 
    true thickness of the designed stopes is 10 metres.
(2) The open-pit reserve is based on a cut-off grade of 0.2 g/t AuEq in a constrained 
    pit shell with applied capping of eight g/t Au and 300 g/t Ag. 
(3) The leach-pad reserve is based on production and drill hole data for volumetrics 
    and grade model using a cut-off grade of 0.5 g/t AuEq. No capping was applied.
(4) Mineral Resources exclude mineral reserves and are based on a cut-off grade of 
    1.5 g/t AuEq, using assumptions for prices and recoveries as stated above. 
    Capping was applied at 12 g/t Au and 700 g/t Ag.

LOMP

The Santa Elena mine life with update to reserves is scheduled to continue for eight years at nominal milling rate of 3,000 tonnes per day, with reduced throughput in the last two years upon depletion of leach pad reserves. The mine schedule is based on mining long-hole stopes (89 per cent by reserve volume) early in the mine life at attractive lower costs, with small reserves being mined using cut-and-fill stopes (11 per cent by reserve volume) toward the end of the mine schedule. The 2013 PFS showed long-hole and cut-and-fill stopes were 69 per cent and 31 per cent by volume, respectively. The average width of proposed optimized stopes is 10 metres, which is advantageous for lower-cost bulk mining methods. Silvercrest envisions a continued blending strategy during operations at variable rates for mill feed to achieve optimum throughput. A summary of the mine and production schedule is presented herein with proposed initial blending strategy.

                                                                                                               
                                                                                                          Total life
Aspect of operations               2015      2016      2017      2018      2019      2020    2021    2022    of mine

Total tonnes underground        462,200   543,000   521,100   535,400   493,700   497,600 434,300 494,300  3,981,600
Total tonnes leach pad          502,300   543,200   565,100   550,800   592,500   588,600   2,200       -  3,344,700
Total tonnes open pit           121,700         -         -         -         -         -       -       -    121,700
Total tonnes processed        1,086,200 1,086,200 1,086,200 1,086,200 1,086,200 1,086,200 436,500 494,300  7,448,000
Total gold ounces sold(1)        45,000    45,500    37,200    35,800    29,400    38,300  23,500  16,000    270,700
Total silver ounces sold(1)   2,048,400 2,111,400 1,750,000 1,888,800 1,487,200 1,492,100 953,500 914,800 12,646,200

Note: All numbers rounded.
(1) Ounces are based on sold, not in situ reserve.

LOMP operating costs

The operating cost estimates stated herein were compiled using Santa Elena mine site operating experience, Silvercrest financial and operational reports, recent contractor quotes, and other local producing mines and industry estimations in Mexico to a prefeasibility level.

                                                 Underground       Underground
                                                   long-hole      cut-and-file        Leach-pad
Mining method                        Open pit        average           average        reprocess

Process method                       CCD mill       CCD mill          CCD mill         CCD mill

Mining cost/t ore(1)                 $   9.90       $  28.71          $  50.00         $   0.00(2)
Processing cost/t(3)                 $  24.49       $  24.49          $  24.49         $  24.49
General and administration/t(4)      $   5.29       $   5.29          $   5.29         $   5.29

(1) Long-hole stopes are 89 per cent of designed stopes by volume and cut-and-fill stopes are 
    11 per cent of designed stopes by reserve volume. Includes adjustment for exchange ratio 
    effect in the mining costs and excludes ore development costs.
(2) Mining cost of spent ore on leach pad is covered under processing costs.
(3) Processing cost includes crushing, milling, site refining and dry stack tailings disposal.
(4) Estimated based on current operations and may vary on an annual basis. A 4-per-cent annual 
    inflation rate has been applied to general and administrative costs.

Ore development costs are estimated at $36 per tonne of ore and represent approximately 6 per cent of total underground ore planned to be mined during LOMP.

LOMP sustaining capital costs

The sustaining capital cost estimates stated herein are based on internal estimates for remaining capital expenses over the life of mine.

                                                            
SUSTAINING CAPITAL COST TABLE INCLUDING EXPLORATION DRILLING EXPENSE

Site infrastructure                                 $      2,066,200
Mill sustaining capital                             $      1,785,000
Underground waste development expenses              $     16,086,600
Underground equipment and infrastructure            $      6,236,300
Underground and 2015 surface drilling               $      4,783,300
Total capital costs                                 $     30,957,400

Note: All numbers rounded.

UPFS economic analyses

UPFS economic analyses were completed for both pretax and posttax. Base-case pretax and posttax results are stated in the accompanying table.

 
            ASPECTS OF SANTA ELENA UPFS ECONOMIC ANALYSES (BASE CASE)
Production
Gold ounces sold -- after refiner credit(1)                            270,700
Silver ounces sold -- after refiner credit                          12,646,200
Revenue                                                            $     (000)
Gross sales(2)                                                     $   554,530
Operating expenses(3)
Total operating costs(4)                                           $   348,900
Freight and refining                                               $     5,750
Closure costs                                                      $     6,000
Sustaining capital expenses
Underground and surface drilling(5)                                $     4,780
Sustaining capital costs(6)                                        $    26,170
Pretax undiscounted cash flow
Total cash flow                                                    $   162,930
Pretax financial results
Pretax NPV, DCF at 5%                                              $   143,840
Posttax financial results
Posttax NPV, DCF at 5%                                             $   119,170

Note: All numbers rounded.
(1) Sandstorm to be delivered an estimated 54,000 ounce of gold over remaining 
    LOMP.
(2) The financial model adopted a range of realized spot prices from 2015 to 
    2022. Gold prices ranged from $1,250 to $1,300 per ounce and silver prices 
    ranged from $18 to $21 per ounce.
(3) Excludes 0.5-per-cent governmental environmental fee of an estimated 
    $3-million. 
(4) Approximate operating cost per AgEq ounce sold varies between $9 and $16 
    over the life of mine. 
(5) All LOMP underground drilling costs and only 2015 surface program costs 
    included.
(6) Excludes sunk costs, up to Dec. 31, 2014.

The economic analyses considers Silvercrest delivering 54,133 ounces of gold to Sandstorm Gold Ltd. at an average price of $412 per ounce ($350 to $450 per ounce with annual 1-per-cent inflationary increases) under the Sandstorm purchase agreement executed on May 14, 2009. The purchase agreement included an option for Sandstorm to participate in the Santa Elena underground mine, which Sandstorm elected to exercise in February, 2014. The purchase agreement only applies to the original Santa Elena concessions and excludes recent regional acquisitions.

UPFS recommendations

Further optimization of the mine schedule is warranted to investigate continued grade optimization versus stoping costs (long hole or cut and fill), potential to expand and accelerate increased underground production with a second ramp, and expansion of resources with subsequent reserves. Mineralization at Santa Elena is open in most directions, with excellent potential to further increase resources and reserves for increased production and mine life. Further infill and expansion drilling is recommended. The El Cholugo zone, located immediately adjacent to the Main mineralized zone, is a priority target in 2015 for potential resource and reserve expansion. Silver recoveries in the new plant facility need further metallurgical work to potentially increase recovery rates. The recommended budget for further work is estimated at $5-million, to be spent over several years.

The qualified person for the technical report, who has reviewed and approved the content of this news release, is N. Eric Fier, CPG, PEng, chief operating officer of the company.

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