SilverCrest pours dor

VANCOUVER — There is a new gold-silver mine in Mexico.

In September SilverCrest Mines (SVL-V) completed the first gold-silver doré pour at its new Santa Elena mine in Sonora state.

In late 2005 SilverCrest inked a deal to buy 100% of Santa Elena for staged cash-and-share payments totaling US$4 million. An historic gold-silver mine, Santa Elena produced roughly 100,000 oz. gold and an unrecorded amount of silver from an underground operation in the early 1900s and an open-pit operation in the 1980s. The project came with an historic 1-million-tonne resource carrying average grades of 3.5 grams gold per tonne and 102 grams silver per tonne.

Now Santa Elena is back in operation. For less than US$20 million SilverCrest built an open-pit, heap-leach operation at the site to tap into a near-surface reserve hosting 6.5 million probable tonnes grading 1.61 grams gold and 56.7 grams silver.

SilverCrest has placed more than 100,000 tonnes of ore on the leach pad and expects the mine to reach design capacity by the end of 2010. After that the 2,500-tonne-per-day operation should produce 35,000 oz. gold and 600,000 oz. silver a year. Using metal prices of US$900 per oz. gold and US$17 per oz. silver, Santa Elena carries a pretax net present value of US$102.7 million (using an 8% discount) and should provide a 138.3% internal rate of return. Over its 8-year mine life the operation is expected to produce an ounce of gold equivalent for US$375.

SilverCrest is now investigating options to increase production and mine life, which include adding an underground component. The underground operation from the early 1900s, likely ceased because of the 1910 Mexican Revolution, left behind four accessible underground levels at 15-metre intervals, totaling 1,500 metres of development. There are reportedly five additional levels that are inaccessible.

The company has already defined an underground resource of 1.1 million indicated tonnes grading 2.1 grams gold and 127.6 grams silver plus 1.4 million inferred tonnes averaging 1.94 grams gold and 121.5 grams silver. The underground resource comprises sulphide mineralization, so SilverCrest would need a mill and flotation facility for processing.

The company would have some financial help in that venture, as one of its project finance partners also signed on to pay 20% of the capital expenditures incurred to study and build the underground operation. That partner is Sandspring Resources (SSL-V), which fronted a US$12-million deposit to secure the right to buy 20% of the open-pit gold production from Santa Elena. Sandspring will pay US$350 per oz. for the gold, subject to a 1% annual increase. Sandspring also secured the right to buy 20% of the gold produced from an underground mine at Santa Elena, for US$450 per oz., by promising to cover 20% of the costs to bring that operation into production.

SilverCrest financed the rest of the Santa Elena construction costs through a private placement of $6.3 million and a project loan with Macquarie Bank of US$12.5 million, of which SilverCrest has drawn US$9.8 million to date.

Over the past year, investors have rewarded SilverCrest for its on-time, on-budget progress at Santa Elena with a bumpy but sustained share price climb. A year ago Silver- Crest shares were trading below 80¢; now they sit above $1.25, having hit a high of $1.37. The company has 60 million shares outstanding.