Silver Eagle’s Miguel Auza mine looks promising

The fully permitted Miguel Auza mine, which generated its first revenue for Silver Eagle Mines (SEG-T) during a bulk sampling program last year, shows promising economics according to a pre-feasibility study.

The mine has probable reserves of about 1.95 million tonnes grading 137 grams silver per tonne, 0.17 gram gold per tonne, 2.15% lead and 2.25% zinc.

The indicated resource, inclusive of the reserve, is 2.05 million tonnes grading 152 grams silver per tonne, 0.19 gram gold per tonne, 2.30% lead and 2.41% zinc, for a total of 23.21 million silver-equivalent ounces.

Miguel Auza also has an inferred resource of 0.86 million tonnes grading 242 grams silver per tonne, 0.23 gram gold per tonne, 1.55% lead and 2.42% zinc.

When the mine is operating at full production, its average annual output will likely be about 900,000 oz. silver contained in about 10,000 tonnes each of zinc and lead concentrates.

Production is expected to increase from the current rate of 150 tonnes per day to 550 tonnes per day by the fourth quarter of this year and to 850 tonnes per day by the end of 2009.

The mine currently has a 150 tonne per day crusher-mill-flotation plant; a ramp accessing the mineralization; two shafts presently used for dewatering; warehouse, shops, and administration buildings; as well as permits to operate an underground mine and processing plant.

In order to access the entire ore body, however, 6,100 additional metres of 3.5 x 4-metre ramp development will be required.

The Miguel Auza property, which includes mineral rights to 41,495 hectares of land, has several high potential exploration areas identified and targeted for evaluation.

Contained within a 2-sq-km portion of the property are several known silver-bearing veins, which have been mined off and on since the Spanish Conquistadors first worked the area in the mid-1500s.

The mineralization at Miguel Auza is in the form of polymetallic epithermal veins in shear zones. Mineralizing solutions migrated upwards via shear zones in Cretaceous sedimentary and intrusive rocks.

The Calvario and Northern vein systems are the primary ones and drilling on these veins has returned many assays in excess of 1,000 grams silver per tonne. The East vein system is also returning high values and the company believes it is an eastern extension of the high grade Northern veins, while the Mill area vein system appears to be characterized by higher lead and zinc grades, with lower precious metal grades.

According to the pre-feasibility study, annual revenues will grow from US$6 million this year to US$23 million in 2010. During the following four years revenues will stabilize at about US$19 million.

Average cash costs over the life of mine (excluding capital expenditures) are estimated to be US$5.06 per oz. silver, including by-product credits from lead and zinc production.

Capital costs over the life of the mine are estimated at US$18.5 million. Capital expenditures budgeted for this year will be US$9.6 million, 45% of which has already been paid.

At a 7% discount rate, the project demonstrates a net present value (NPV) of US$18.1million (US$15 million at a 10% discount rate and US$20.6 million at a 5% discount rate).

About 55% of the ore will be extracted by long-hole mining, the remaining through mechanized cut-and-fill.

The mill will produce two high-silver-bearing concentrates (zinc and lead), at an estimated rate of approximately 800 tonnes per month each.

Laboratory tests indicate recoveries of 79% for zinc and 89% for lead, and concentrate grades of 53% zinc and 56% lead. Silver recovery is forecast to be 16% in zinc concentrates and 60% in lead concentrates.

Based on laboratory tests and projected head grades, the silver grade in zinc concentrates over the mine’s lifetime is expected to average 667 grams per tonne, while that in lead concentrates is anticipated to average 2,425 grams per tonne.

Operating costs over the life of the mine will average US$48.01 per tonne milled–or US$5.06 per oz. silver after by-product credits.

Silver Eagle is trading at about 52 per share. Its 52-week trading range is 54-$1.37 per share.