Silvercorp Buys BC Project From Silver Standard

VANCOUVER — Silvercorp Metals (SVM-T, SVM-N) is getting involved in a project a little closer to home. The Vancouver-based company has so far operated mainly in China, but is now set to buy the Silvertip silver-lead-zinc property in northern British Columbia from Silver Standard Resources (SSO-T) for $15 million — $7.5 million of which is payable in Silvercorp shares. The companies expected to have closed the deal by the end of February.

Silvertip is 85 km southwest of Watson Lake, in the Yukon, and is accessible by a 25-km gravel road off the Alaska Highway. Various owners explored the 216-sq.-km property between 1955 and 2000, with more than $40 million spent developing 2.4 km of underground tunnels and drilling 71,500 metres in 491 holes.

Silvertip is home to silver, lead, and zinc contained in a carbonate replacement deposit; pyrite-sphalerite- galena-sulphosalt massive sulphide mineralization is hosted by middle Paleozoic carbonates within stratigraphically and structurally controlled bodies, or mantos. Most of the resource consists of mantos at or near the limestone’s upper, unconformable contact with overlying argillaceous clastics. Recent exploration has been aimed at finding larger tonnage bodies or “chimneys” deeper in the limestone.

Imperial Metals (III-T) owned the property between 1992 and 2002, completing some exploration work to update a historical resource to National Instrument 43-101 standards in late 2002. Silver Standard did no exploration work during its ownership of the property.

The estimate, first calculated in 1997 and based on drilling an area 1,000 metres long by 800 metres wide, pegged Silvertip resources at 1.12 million indicated tonnes grading 378 grams silver per tonne, 7.7% lead, and 9.5% zinc as well as 1.45 million inferred tonnes grading 284 grams silver, 5.4% lead and 8.3% zinc.

Imperial’s resource estimate did not incorporate results from a nearby zone, known as 65 . Imperial found the zone in 1999 by testing a geophysical anomaly and soon hit 31.4 metres grading 318.4 grams silver, 5.5% lead and 8.7% zinc. The company then probed the area with 22 underground drill holes in 2000.

As part of its due diligence Silvercorp completed a new resource estimate that includes the results from zone 65, which increased Silvertip’s resource notably. Using a cut-off grade of 200 grams silver equivalent, Silvertip now hosts an indicated resource of 2.35 million tonnes grading 352 grams silver, 6.73% lead, 9.41% zinc and 0.54 gram gold per tonne. Inferred resources add 459,896 tonnes of 343 grams silver, 6.18% lead, 9.81% zinc and 0.23 gram gold.

If the cut-off grade is raised to 1,000 grams silver equivalent, the indicated resource tonnage falls to 705,373 tonnes but the grades increase to 631 grams silver, 12.24% lead, 13.18% zinc and 0.79 gram gold. Similarly, the inferred resource changes to 120,569 tonnes grading 739 grams silver, 12.99% lead, 14.59% zinc and 0.51 gram gold.

The high cut-off resource is significant because Silvercorp plans to finance exploration at Silvertip by tapping into those high-grade pockets as soon as possible. The high-grade zones are already accessible from existing tunnels, so Silvercorp is looking to acquire a small-mine permit for an operation processing less than 75,000 tonnes per year.

Using the revenue from the smaller mine, the company plans to then further explore the property, develop a feasibility study and complete a full permitting process.

The Silvertip project falls within the traditional territory of the Kaska Dena First Nations. Silvercorp has already signed a resource funding agreement and has started negotiating a traditional knowledge protocol and a memorandum of understanding with the Kaska Dena Council. With the acquisition finalized, Silvercorp plans to expand consultations to include other relevant First Nations and affected people.

Silvercorp also recently announced its third quarter results. The company had net earnings of US$12.4 million for the quarter ending Dec. 31, compared with a loss of US$33.7 million in the same quarter last year. Gross profit margin for the quarter improved to 77% from 35% in the same quarter last year.

Silver production at the Ying mine in China was at an all-time high for the company, with 1.22 million oz. produced, as well as 16.2 million lbs. of lead and 4.5 million lbs. of zinc. Total production costs were negative US$6.87 per oz. silver. The company is on track to open a second mill this quarter at Yin, which will process 1,200 to 1,500 tonnes of ore daily at full capacity. This provides significantly increased capacity at the mine, which currently has only a single 1,000-tonne-per-day mill in operation.

Silvercorp’s share price dropped 32¢ on news of the Silvertip acquisition to close at $6.53. Silvercorp has a 52-week share price range of $2.52-$8.43; the company has 162.7 million shares outstanding.