Precious Metals

A closer look at the preliminary economic assessment for Santacruz’s Mexico-based San Felipe project.

Santacruz Silver Mining (TSXV:SCZ) has released a preliminary economic assessment (PEA) and a new resource estimate for its San Felipe project, giving investors plenty to mull over as the silver industry looks to buck recent trends.

The report comes on the heels of Santacruz acquiring a 100-percent interest in the project, as well as the adjacent El Gachi property, after renegotiating terms with Minera Hochschild Mexico (LSE:HOC).

Keeping costs low

Highlights from the PEA include an after-tax net present value of $61.2 million with an internal rate of return of about 38 percent. The report estimates a pre-tax payback of 1.6 years and an after-tax payback of 2.3 years.

The San Felipe project has a life expectancy of about 7.5 years, which helps retain low initial capital costs of US$36.3 million.

“This Preliminary Economic Assessment is excellent news for the Company and indicates that the San Felipe project has strong economic parameters and is potentially economically viable in the current market environment,” Arturo Préstamo, president and CEO of Santacruz, said in a statement.

Indeed, the report’s positive results consider the current state of the silver market. So far this year, the white metal has dropped about 17.9 percent, so an ability to stay economically viable is key to the project’s success.

What’s been found

The PEA examines six areas of interest for the company: the La Ventana, the Las Lamas, the San Felipe, the two San Felipe hanging wall structures and the Transversales vein.

To date, the company has determined that the Ventana vein has a 70-percent recovery rate for silver, 86 percent for lead and 87 percent for zinc. Meanwhile, Las Lamas shows a recovery rate of 73-percent silver, 82-percent lead and 88-percent zinc. The final veins in San Felipe and Transversales show a 69-percent recovery of silver, 86 percent for lead and 79 percent for zinc.

Overall, the project has an indicated resource of 15 million ounces of silver equivalent at a 150 g/t silver equivalent cut off. On the other hand, San Felipe has an inferred resource of 34.3 million ounces of silver equivalent.

The company is aiming for average annual production of 3.2 million ounces of silver equivalent, with all-in cash costs of US$12.72 per ounce.

Potential to expand

“Some of the resource areas are still open and surface work over the last year has identified additional vein targets,” Préstamo said in a company statement, adding that he “believes that, similar to many vein deposits, if a mine is developed on the current San Felipe resource there will be opportunities to identify new resources to keep the operation going for many years to come.”

Moving forward, the company proposes to access three veins by utilizing an open pit, with separate underground access for the rest. Only a year of pre-production construction is required. Santacruz also proposes completing a mill — with a crushing circuit, ball mill and flotation circuits — that would process 1,250 tonnes of material a day.

According to the company’s corporate presentation, it is targeting 2016 as its production date for the project. The Northern Miner reports that if the company is able to get the project up and running by then, it will expand its annual production by 178 percent, to 5 million silver equivalent ounces.

The PEA and new resource results helped boost the share price of the Mexican company just over 1 percent by the time markets closed, with the stock ending the day at $0.99 per share.


Securities Disclosure: I, Nick Wells, hold no direct investment interest in any company mentioned in this article. 


S&P 5003911.74+116.01


Heating Oil4.21-0.03
Natural Gas6.13-0.09