Can surface mining boost Silver Bull's Mexico project?
Silver Bull Resources is eyeing surface mining to help lift the economics of its Sierra Mojada project in Mexico.
The project boasts one of the country's largest undeveloped silver and zinc resources with high grade zones, but the 2013 preliminary economic assessment (PEA) needs an overhaul for the project to make the grade in the current price environment.
BASICS
Located in the northern Coahuila state, Sierra Mojada is part of a large land package of 40 mining concessions totalling 21,167ha in a historical mining district.
Following an updated estimate in May, the project's resource stands at 58.7Mt at 3.6% zinc and 50g/t silver, containing 4.670Blb (2.12Mt) zinc and 90.8Moz silver.
Within this, two high grade zones stand out. A high grade zinc zone of 10Mt averaging 11% zinc at a 6% cut-off contains 2.426Blb, and a high grade silver zone of 19Mt averaging 102.5g/t at a 50g/t cut-off contains 62.6Moz silver. Silver Bull is currently working to secure additional surface rights at the project.
PEA
The 2013 PEA proposes a fairly large 8,500t/d open pit operation producing 5.5Moz/y silver over an 18-year mine life, with life-of-mine zinc concentrate output at 982,000t.
But the economics do not stack up at current silver prices of around US$16/oz. The project proposed in the PEA has a healthy after-tax internal rate of return of 23.1% at US$23.50/oz silver, but this drops to 14.1% at US$18/oz silver and 10.4% at US$16/oz, insufficient to warrant investment.
The sizeable pre-production capex of US$297mn is also an obstacle to development in the current market.
SURFACE MINING, STANDALONE ZINC MINE
Since publication of the PEA, Silver Bull has proposed a number of changes to Sierra Mojada, including a smaller scale silver surface mining operation, focusing on surface mineralization.
The resulting lower strip ratio and smaller plant is expected to significantly reduce capex, according to Silver Bull's latest management's discussion and analysis report filed with Canadian securities regulators.
The company is also mulling development of a standalone zinc mine to add value to the project and cash in on the metal's strong prices and fundamentals.
OUTLOOK
The 2013 PEA defined an attractive project for a much higher silver price environment.
But with Sierra Mojada's large resource and high grade zones, Silver Bull will be able to trade size and mine-life for higher grades and lower costs to create a smaller but economically viable project, benefiting from its significant zinc content and surface mining potential.
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