Highlights of the Ying 2012 Technical Report
- Reported mineral resources of 9.21 million tonnes (inclusive of mineral reserves) in the Measured and Indicated categories grading 324 grams per tonne (g/t) silver (Ag), 0.16 g/t gold (Au), 5.14% lead (Pb), and 1.83% zinc (Zn), containing 95.89 million ounces (oz) silver, 46,300 oz gold, 473,200 tonnes lead, and 168,800 tonnes zinc, representing a 28% increase in contained silver in Measured and Indicated Resources compared to the 2011 Technical Reports whereas the silver grade is reduced by 19%;
- Defined mineral reserves of 9.79 million tonnes in the Proven and Probable categories grading 251 g/t Ag, 0.06 g/t Au, 4.05% Pb, and 1.40% Zn, containing 78.89 million oz silver, 18,900 oz gold, 396,300 tonnes lead, and 137,200 tonnes zinc. In comparison with the 2011 Technical Reports, contained silver in Proven and Probable Reserves is up 36% whereas the silver grade is reduced by 8%;
- Based on Proven and Probable reserves, the Ying mine complex is a viable operation with a projected Life of Mine (LOM) through to 2023 assuming an annual average production rate of approximately 6 million ounces of silver. It also has the potential for an extended LOM via further exploration and development, particularly in areas of inferred resources.
- The results of the 2011 underground drilling program at the SGX mine show that most of the major mineralized vein structures at the SGX area are still open at depth.
- Under plausible price and cost scenarios, Net Present Values (“NPVs”) range from US$760 million to US$1,132 million at an 8% discount rate, with a base case NPV of US$896.6 million.
2012 Mineral Resource and Reserve Summary
Between 2004 and 2010, Silvercorp completed 1,291 underground diamond drill holes and 239 surface holes, for a total of approximately 417,000 metres (m). In 2011, an additional 453 underground holes and 16 surface holes were drilled for a total of approximately 175,000m. Most drill core (core) is NQ-sized.
The Proven and Probable Reserves are sufficient to support a mine life to 2023 assuming an annual average production rate of approximately 6 million ounces of silver. Through extensive exploration and drilling, Silvercorp has successfully increased mine life to 2023 after 6 years of profitable mining operation at the Ying Mining district. Silvercorp is planning on completing a further 100,000 metres of tunneling and 144,200 metres of surface and underground drilling at the five mines of the Ying District during the fiscal 2013 to further expand current resources, and with a view to increase current production capacity. Results of the 2011 underground drilling program show that most of the major mineralized vein structures at the SGX area are still open at depth.
In comparison to the 2011 resource estimates in the 2011 Technical Reports, contained metal in the 2012 Measured and Indicated Resources (inclusive of Mineral Reserves estimates) increased by 28% for silver, 14% for lead and 13% for zinc. Average grades were lowered by 19% for silver, 27% for lead, and 27% for zinc. The increase in contained silver, lead and zinc was achieved even with the Ying Mining District producing 5.6 million ounces of silver, 72.4 million pounds of lead and 13.5 million pounds of zinc, and 3,600 ounces of gold, during the fiscal year ending March 31, 2012.
In the 2012 Ying Technical Report, contained metal in combined Proven and Probable Reserves increased by 36% for silver, 28% for lead and 58% for zinc, compared to the 2011 reserve estimates; average grades were lowered by 8% for silver and 14% for lead but increased by 6% for zinc.
The changes to Measured and Indicated Resources and to Proven and Probable Reserves are attributed primarily to an extensive exploration program comprising of 174,086m of diamond drilling and 40,827m of tunneling in 2011 which has extended known mineralized veins and made new discoveries, and to the conversion of Inferred Resources to Measured/Indicated Resources.
The decrease in average resource and reserve grades (except for zinc for mineral reserves) is attributed mainly to cut-off grade reductions (refer to Table 4 for 2012 mineral reserve cut-off grades). For the 2012 mineral resources, cut-off grades were reduced from 300 g/t to 150 AgEq for the SGX deposit and from 150 g/t to 100 g/t AgEq for the HZG, HPG, and TLP/LM deposits. For the 2012 mineral reserves, cut-off grades were reduced from 161 g/t to 120 g/t for the SGX deposit, from 149 g/t to 110 g/t AgEq for the HPG deposit, from 147.5g/t to 110 g/t AgEq for the TLP/LM deposits and from 161 g/t to 110 g/t AgEq for the HZG deposit.
Main Infrastructure, including Tailings Dam
Silvercorp runs two processing plants, Plants 1 and 2, at the Ying Mine with a total current design capacity of 2,600 tpd. The two plants are situated within 2 km of each other and are about 10 km from the mine sites. Both were designed based on the lab tests completed by HNMRI in 2005. Plant 1 (Xiayu Plant, 600 tpd) has been in operation since March, 2007. Plant 2 (Zhuangtou Plant) has been in production since December 2009, with an expansion from 1,000 tpd to 2,000 tpd completed in October 2011. It is expected that, for 2012, the actual capacity will reach 3,000 – 3,350 tpd.
Capital and Operating Costs
The principal capital requirement in the Ying district is for mine development. Projected processing plant capital requirements are minimal as plant capacity has already been expanded to meet the forecast mine production.
Mining LOM capital costs are summarized by mine in Table 5; the processing LOM sustaining capital is also included as the final line in this table.
Table 5. Total LOM Capital Cost – Ying Property
Mine Total (M) RMB¥ SGX ¥27.2 HZG ¥33.6 HPG ¥12.5 TLP ¥12.1 LM ¥50.0 Total Mining ¥135.5 US$ SGX $4.3 HZG $5.3 HPG $2.0 TLP $1.9 LM $7.9 Total Mining $21.3 Processing Sustaining $0.5
Projected 2012 operating costs are summarized by mine in Table 6. AMC considers these costs to be reasonable for the methods and technology used and the scale of the operations.
Table 6. Operating Cost Summary (2012 US$)
Cost Item (US$/t ore) SGX HZG HPG LM TLP Mining Cost 40.68 40.67 40.50 39.88 34.75 Hauling cost 3.95 4.04 4.23 3.08 3.12 Milling cost 10.68 11.20 10.67 10.59 10.56 G&A and Other Cost 3.72 3.56 4.00 5.24 5.49 Mineral resources tax 1.95 1.95 1.95 1.95 1.95
The principal components of the milling costs are utilities (power and water), consumables (grinding steel and reagents) and labour in approximate proportion of 40/40/20 respectively. “G&A and Other” cost includes an allowance for tailings dams and other environmental costs. The major capital expenditure on the two tailings storage facilities has already been expended and the ongoing costs associated with progressively raising the dam with tailings are regarded as an operating cost.
Although Ying is a producing property and therefore does not automatically require an economic analysis to be compliant with NI 43-101, AMC believes it appropriate to include a summary economic analysis because of the material changes to Mineral Reserve estimations and to the LOM production schedule, with some mines undergoing significant expansion.
The Ying District is largely a mature operation and capital requirements are relatively low. The key parameter in producing a cash flow forecast is therefore the metal price forecast. AMC has used the same metal prices for the forecast as used in the reserve estimate (see above).
Operating costs are assumed to be subject to a 5% annual escalation factor on the 2012 operating costs tabulated above, due largely to an expectation of rising labour costs in China. The only tax considered in the cash flow forecast is the Mineral Resources Tax, equivalent to US$1.95/ tonne of ore. As this tax is equivalent to a royalty, the cash flow forecast is essentially pre-tax. An exchange rate US$: RMB of 6.3 has been used.
Based on the metal price assumptions and other considerations above, the base case NPV at 8% discount rate is US$897M. There are no expected negative cash flow years and most project capital is already sunk. Over the life of the mines, 60% of the net revenue comes from silver, 34% from lead and only 6% from zinc.
As the capital cost component is small, the main sensitivities arise from metal prices and potential operating costs increases. Some plausible price and cost scenarios have been analyzed and the resultant NPVs at an 8% discount rate range from US$760M to US$1,132M, demonstrating that the project is extremely robust.
Full details of the economic analysis, including all assumptions will be set out in detail in section 22 of the Ying 2012 Technical Report.