South American Silver advances in Bolivia

Proposed changes to laws governing mines owned and operated by the Bolivian State Mining Corporation, or COMIBOL, will have no impact on South American Silver‘s (SAC-T) 100%-owned Malku Khota silver-indium project, the company says.

The Vancouver-based junior says it is advancing the project into the prefeasibility stage in the second quarter of this year with a budget of $16 million, and into feasibility studies in 2012.

South American Silver describes the project as having the potential to be one of the largest new primary silver mines in the world, as well as one of the largest producers of high-tech metals indium and gallium.

In March, South American Silver announced that an updated preliminary economic assessment of Malku Khota had doubled projected mine throughput to 40,000 tonnes per day for a 15-year mine life.

The study forecast annual production for the first five years would be 13.2 million oz. silver at a cash cost of US$2.94 per oz., net of by-product credits and using a silver price of US$18 per oz.

The PEA doubled projected production of indium to 80 tonnes per year, and first gallium production of 15 tonnes per
year.

At US$18 per oz. silver and US$500 per kg indium, pre-tax net present value (based on a 5% discount rate) is anticipated to be $704 million, with an internal rate of return of 37.7%.

NPV rises to $1.54 billion and IRR to 64.3% at a silver price of US$25 per oz. (At US$35 per oz. silver, the NPV rises to $2.57
billion).

Cash flow for the first five years also increases to an average $185 million per year at the base case, $287 million per year at US$25 per oz. silver, and $430 million per year at US$35 per oz. silver.

South American Silver’s 2010 drill program confirmed the resource with over 80% of the silver classified as measured and indicated within the pit model.

The PEA contemplated an
open pit acid-chloride heap leach operation. In addition to silver, indium and gallium, the mine would produce several million pounds a year of by-product lead, copper and zinc, which would enhance the project’s low operation costs.

The silver and indium at Malku Khota begins at surface and remains open to further expansion laterally and at depth. In late February, the company reported the discovery of a potentially significant new high-grade silver-gold-indium vein system at Malku Khota that may join the mineralized, sediment-hosted Wara Wara and Sucre Zones. The new discovery is in an area that had been classified as unmineralized due to a lack of drilling. 

The new zone of higher grade mineralization falls between the two previously identified zones at Wara Wara and Limosna and includes a silver-gold-indium vein system. The vein system consists of a number of sub-parallel veins and structures up that can exceed 100 metres in width.

On its website the company says that one of its most recent holes, WWD040, included a 26-metre interval of high-grade silver mineralization in the Sucre Vein, which has averaged 125.2 grams per tonne silver and 14.8 grams indium per tonne.

The company is doing metallurgical work to refine the leach characteristics and physical properties of the mineralized zones.

As of March 2011, Malku Khota had measured and indicated resources of 254.99 million tonnes grading 28.1 grams silver per tonne for 230.28 million ounces of contained silver, 5.8 grams indium per tonne for 1,481 tonnes of contained indium, and 4.3 grams gallium per tonne for 1,082 tonnes of contained gallium.

Inferred resources add 230.01 million tonnes grading 18.9 grams silver for 140.03 million ounces of contained silver, 4.1 grams indium for 935 tonnes of contained indium, and 4.3 grams gallium per tonne for 1,001 tonnes of contained gallium.

At presstime in Toronto South American Silver was trading at $2.33 per share, and over the last year has traded between a low of 40¢ per share (Sept. 10, 2010) and a high of $3.35 per share (April 11, 2011). The junior has 98.7 million shares outstanding.