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A November PEA for the Zacatecas state silver-gold asset, which replaces a 2014 updated study, shows a major boost to economics resulting from higher throughput and lead and zinc byproducts.
Juanicipio, located 8km from Fresnillo's namesake mine, promises to be one of Mexico's largest and lowest cost silver operations.
The project is 56% held by Mexico's Fresnillo and 44% by Vancouver-based MAG Silver.
The main change in the PEA is a 50% rise in throughput to 4,000t/d from 2,650t/d in the 2014 study, made possible by a major increase in resources in the Deep Zone, which lies beneath the Bonanza Zone deposit.
While the Bonanza Zone resource remains largely unchanged, Deep Zone resources have risen to 10.1Mt from 2.7Mt in the inferred category, and 4.7Mt indicated, up from 1.8Mt.
Coupled with higher grades, contained metal in the indicated category rises to 31Moz silver, 359,000oz gold, 304Mlb (138,000t) lead and 486Mlb zinc in the Deep Zone, from 5Moz, 97,000oz, 54Mlb and 102Mlb respectively in 2014.
In the inferred category, contained metal in the Deep Zone is 49Moz silver, 510,000oz gold, 601Mlb lead and 1.129Blb zinc, up from 13Moz, 173,000oz, 128Mlb and 203Mlb.
The higher throughput will require construction of an internal shaft and ramp expansions, and underground crusher and ore conveyor systems, MAG said in a release.
PRODUCTION, MINE LIFE
Life of mine production is expected at 183Moz silver and 747,000oz gold, up from 153Moz and 430,000oz, respectively.
The 2017 PEA indicates a 19-year mine life, up from 14.8 years in the earlier study.
Average annual silver output falls to 9.6Moz from 10.3Moz, with gold up to 39,300oz from 30,000oz.
Meanwhile lead and zinc output more than double, reflecting higher grades of the metals found in the Deep Zone. Life of mine lead output rises to 812Mlb from 361Mlb, and zinc to 1.327Blb from 584Mlb.
Based on the assumption of initial production in 1H20, peak silver output would be in 2021 and gold in 2025, with peak lead and zinc in 2031, MAG CEO George Paspalas said in a November conference call.
Capex increases to US$360mn in the 2017 PEA from the revised US$305mn figure for the 2,650t/d throughput operation.
The 2017 PEA indicates significant economic improvements over the 2014 study, and a project which will deliver high returns at lower metal prices.
Post-tax IRR is among the highest in the sector at 44.5%, assuming US$17.90/oz silver, US$1,250/oz gold, US$0.95/lb lead and US$1.0/lb zinc.
While silver is currently trading around US$17/oz, gold, lead and zinc spot prices are higher than the assumptions in the 2017 PEA.
At US$14.50/oz silver, US$1,000/oz gold and US$0.75/lb lead and zinc prices, post-tax IRR remains a highly attractive 30%.
In the 2014 PEA, which assumed a far higher silver price of US$23.39/oz, post-tax IRR was 43%.
Cash costs are negative US$3.11/oz silver, net of byproduct credits, in the 2017 study, compared to negative US$0.03/oz.
Juanicipio offers significant exploration upside, including the possibility of adding resources from the Juanicipio vein, in addition to the Valdecañas vein, on which the current project is based, Paspalas told the conference call.
Fresnillo and MAG plan to investigate possible optimizations to the project, including gravity recovery methods for precious metals and the potential to add a copper circuit.
A beefed-up operation and higher zinc and lead production greatly improve the economics of Juanicipio, while additional tinkering may result in further gains.
While the scope of changes in the 2017 study comes at the cost of increased capex, this will not be an issue for a company the size of Fresnillo, while MAG is well placed to meet its share of costs following a US$48.2mn private placement.
Following publication of a new feasibility study, a construction decision is expected in early 2018.