MAG Silver Corp. (TSX:MAG)(NYSE MKT:MVG)(NYSE Amex:MVG) is pleased to announce the results of an updated National Instrument 43-101 (“NI 43-101″) compliant Preliminary Economic Assessment for the Juanicipio Project in Zacatecas State, Mexico. The Updated Preliminary Economic Assessment was commissioned by Minera Juanicipio S.A. de C.V., a Mexican joint venture company (the “Joint Venture”), owned 44% by MAG and 56% by Fresnillo plc (“Fresnillo”) and was carried out by AMC Mining Consultants (Canada) Ltd. (the “AMC Study”).
The AMC Study defines the Juanicipio Project as an economically robust, high-grade underground silver project exhibiting minimal financial or development risks that will produce an average of 15.1 million payable ounces of silver over the first full six years of commercial production and 10.3 million payable ounces per year over a 14.8 year total mine life.
With the completion of the AMC Study, MAG and Fresnillo now have a framework on which the joint venture Technical Committee can build upon for the continued advancement of the Juanicipio Project.
AMC STUDY BASE CASE HIGHLIGHTS1
- Pre-tax Net Present Value (“NPV”) at a 5% discount rate of $1.762 Billion and an Internal Rate of Return (“IRR”) of 54%;
- After-tax NPV at a 5% discount rate of $1.233 billion and IRR of 43%;
- Payback of 3 years after plant start-up;
- Initial capital cost (“CAPEX”) of $302 million over a 3.5 year (42 months) pre-development period;
- Sustaining Capital of $267 million over life of mine;
- A 14.8 year mine life from mining and processing 13.3 million tonnes, averaging 416 grams per tonne (“g/t”) silver, 1.3 g/t gold, 1.4% lead and 2.7% zinc;
- Life-of-Mine (“LOM”) payable production of 153 million ounces silver, 430,000 ounces gold, 361 million pounds lead and 584 million pounds zinc from the production of lead, zinc and pyrite concentrates;
- Annual payable silver production averages 10.3 million ounces at a total cash cost of (negative) ($0.03) per ounce silver, net of by-product credits (MAG’s 44% annual share of payable silver ounces is 4.5 million ounces);
- For the first full six years of commercial production, payable silver production averages 15.1 million ounces per year at a cash cost of $0.27 per ounce silver, net of by-product credits (MAG’s 44% annual share is 6.6 million ounces) and;
- The AMC Study does not take into account any potential mining, processing or infrastructure synergies from any association with the adjoining property owned by Fresnillo.
- The AMC Base Case utilizes a discount rate of 5% and three year trailing average metal prices for silver ($23.39 per ounce), gold ($1,257 per ounce), lead ($0.95 per pound) and zinc ($0.91 per pound) to December 31, 2011.
Table 2 below illustrates the effect of silver and gold prices on key economic measures. Note that the gold price varies with the silver price at a constant ratio of approximately 53.7:1.
Table 2: Silver Price Sensitivity Analysis
Discount Rate (5%) Base Case Au ($/oz) 1,075 1,257 1,342 1,476 1,612 1,746 1,881 Ag ($/oz) 20.00 23.39 25.00 27.50 30.00 32.50 35.00 Pre-Tax NPV ($M) $1,407 $1,762 $1,930 $2,192 $2,455 $2,717 $2,979 After-Tax NPV (M) $976 $1,233 $1,355 $1,544 $1,734 $1,923 $2,113 Pre-Tax IRR 47% 54% 57% 61% 65% 69% 73% After-Tax IRR 37% 43% 46% 50% 53% 57% 60% Cash cost $/oz. Ag (net of credits) 0.36 (0.03) (0.21) (0.49) (0.79) (1.07) (1.36) Cash cost $/AgEq oz. 6.33 6.61 6.73 6.89 7.05 7.20 7.33 Payback (Years) From Plant Start up 4 3 3 3 3 2 2
Note: Cash costs include smelter, refining and transportation.
Life-of-Mine Payable Metal Production
Table 5 below sets out the AMC Study estimates of LOM production by metal as recovered and as payable silver and silver equivalent ounces (Silver Eq.oz.).
Table 5: Payable/Production
Metals from Pb/Zn/Py Concentrates Total Recovered Metal Recovery as
% of in-situ
Silver M oz. 168 94 153 91 Gold k oz. 508 91 430 85 Lead M lbs. 392 94 361 92 Zinc M lbs. 754 95 584 77
Life Of Mine Production Global Annual
Payable Ounces (M) 153 10.3 15.1 19.3 Silver Eq. oz. Payable (M)1 213 14.4 19.3 23.8
- Silver Equivalent estimated using 3 year base case trailing average metal prices.
Payable production for each metal is based on processing recoveries less smelter deductions and losses during third party treatment of the lead, zinc and pyrite concentrates. The mine is expected to average 10.3 million ounces of silver per year of payable production (MAG 44% equates to 4.5 million ounces) with the first six years of full production averaging 15.1 million ounces per year (MAG 44% equates to 6.6 million ounces). Peak production is reached in year 6 at 19.3 million payable ounces.
On Site Operating Costs
The estimated on site operating cost for the base case study is $66.56 per tonne of mill feed. AMC estimated the OPEX based on industry first principals, proprietary information and experience.
Table 8: On Site Operating Cost
Area Cost ($/tonne mill feed) Mining 43.92 Processing 19.18 G & A 3.46 Total: 66.56
Off-Site Costs (Concentrate Transport, Treatment and Refining Charges)
Treatment terms and transport charges for the lead and zinc concentrates were provided to AMC by Neil S. Seldon & Associates, specialist consultants in concentrate marketing. It is anticipated that the zinc concentrate will be sold primarily to smelters in Asia while the lead concentrate could potentially be sold to a smelter in Mexico or exported to offshore smelters. For purposes of its analysis, AMC has assumed that both the lead and zinc concentrates will be treated in Asia and subject to a transport cost of $125/wmt. However, AMC notes that in the event that the lead concentrate were treated in Mexico, this would result in a saving in the transport cost, although these savings would need to be shared between the company and the smelters.
Life-of-mine off-site costs for lead and zinc concentrates included in the UPEA are estimated to average $35.3 million annually or an average of $39.36/tonne of mill feed. Off-site costs comprise freight charges (highway and ocean), port handling fees, and smelter treatment and refining charges.
AMC has assumed that the gold rich pyrite concentrate will be sold to a customer able to recover gold and silver using a conventional cyanide leach process and that the joint venture receives a net payment equal to 60% of the value of the contained gold and silver in lieu of treatment and transportation charges.
Overall Cash Operating Cost (On-Site and Off-Site Costs)
Life-of-mine combined on-site and off-site operating costs are $105.92 per tonne of mill feed, or $1,410 million. The Life-of-mine Cash Cost (on-site and off-site) is US$6.61 per silver equivalent ounce and US$(0.03) per silver ounce, net of by-product credits.