Production from the Penasco and Chile Colorado deposits on
The study, done by Tucson, Ariz.-based M3 Engineering & Technology, recommends mining from a 50,000-tonne-per-day, open-pit operation to produce silver, gold, zinc and lead. The operation would have a 17-year life and produce 220 million oz. silver, 3 million oz. gold, 1.4 million tonnes zinc and 631,000 tonnes lead.
Early gold and silver production would come from the Penasco oxide cap, with a reserve of 27.8 million tonnes grading 25 grams silver and 0.27 gram gold per tonne. Production could start by mid-2007, followed by development of a sulphide reserve on Penasco, which could be exploited once a flotation mill was complete in mid-2008.
The sulphide reserve contains 169 million tonnes grading 0.61% zinc, 0.29% lead, 27 grams silver and 0.6 gram gold per tonne. It would be mined out in 13 years.
Mining on Chile Colorado would start around 2015, starting with an oxide cap containing 18.9 million tonnes grading 18 grams silver and 0.21 gram gold per tonne. Sulphide production could start a year later from a reserve of 89 million tonnes that averages 0.84% zinc, 0.36% lead, 36 grams silver and 0.33 gram gold per tonne.
Both deposits consist of disseminated sulphide mineralization in granitic porphyry and surrounding country rocks; the mineralization concentrates around intrusive breccia pipes.
The mine would produce about 220 million oz. silver over its lifetime, averaging 13 million oz. annually. The mine would also produce about 40,000 tonnes lead and 85,000 tonnes zinc during the years the sulphide deposits were in production. Gold production would average 193,000 oz. annually over the life of the mine.
Oxides would be treated on a conventional leach pad; a conventional flotation mill for sulphide recovery would produce separate lead and zinc concentrates. Metallurgical tests show recoveries of 70% to 84% for lead and 55% to 88% for zinc, depending on ore type.
Silver, which reports mainly to the lead concentrate, showed 75% to 89% recovery rates in material from the Penasco intrusive rocks and the Chile Colorado deposit, where the host rock is mainly sedimentary; recovery falls to 46% in sedimentary rock from Penasco. Gold recovery from intrusive material is also substantially better than from sediments.
Heap-leach tests on the oxides show gold recoveries around 58% and silver recoveries of 23% to 26%.
The mill, which would have semi-autogenous and ball mills, would be designed for 18.3 million tonnes per year, but would operate at that capacity only for the six years starting from 2009.
M3 estimated the capital cost of the project at US$334 million, including US$210 million in direct costs. It would need US$126 million in sustaining capital over the life of the mine. The workforce would number about 300 for most of the mine’s life.
Based on prices of US$6.74 per oz. for silver, US$434 per oz. for gold, US$1,140 per tonne (US52 per lb.) for zinc and US$810 per tonne (US37 per lb.) for lead, the operation would produce silver at a negative cash cost of US$1.91 per oz. Life-of-mine costs per tonne run to US$6.33.
After tax, the project has a 16.2% internal rate of return and an undiscounted net present value of US$877 million. It would pay back in 77 months.
Applying a discount rate of 5% brings the net present value to US$411 million, and 10% brings it to US$163 million.
At metal prices closer to today’s numbers, the complexion of the project changes a great deal. The net present value rises to US$1.47 billion undiscounted, or to US$785 million and US$416 million at 5% and 10% discount rates. But the size of the potentially economic sulphide resource more than doubles, to 538 million tonnes; grades fall to an average 28 grams silver per tonne, 0.29% lead, 0.66% zinc and 0.4 gram gold per tonne.
Western Silver has a 100% interest in the property, subject to two royalties. A 2% net smelter return (NSR) is held by
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