Discovery Silver (TSXV:DSV) has reported results from the 100%-owned Cordero silver project’s Preliminary Feasibility Study (PFS) in Chihuahua State, Mexico. The project team was led by Ausenco Engineering Canada, AGP Mining Consultants, and Knight Piesold. 

Tony Makuch, CEO, commented in a press release: “We are extremely pleased with the results from our Pre-Feasibility Study. The PFS positions Cordero uniquely in the silver developer space with a long mine life of 18 years and production averaging over 35 Moz AgEq in the first 12 years of the mine life. This represents an approximate 40% increase in total ounces produced compared to our 2021 PEA. Despite significant industry-wide cost escalation over the last year, cost savings from a streamlined process design and improved metallurgical performance have resulted in a highly capital efficient project with excellent margins.

“The Study also outlines the significant economic contribution the Project will have through employment, taxes and the purchases of local goods and services in the Municipality of Parral, in Chihuahua State and in Mexico. We now look forward to advancing the Project toward a Feasibility Study and surfacing additional value through numerous optimization opportunities we have already identified.”

Highlights from the Preliminary Feasibility Study are as follows:

• Excellent project economics: Base Case after-tax NPV5% of $1.2 Billion (C$1.5 Billion) and IRR of 28% (Ag – $22.00/oz, Au – $1,600/oz, Pb – $1.00/lb and Zn – $1.20/lb).
• Extended mine life & higher production: 18-year mine life with average annual production of 33 Moz AgEq representing an increase of ~40% in total AgEq ounces produced over the life of the Project compared to the 2021 Preliminary Economic Assessment (“PEA”).
• High margins & low capital intensity maintained: average AISC of $12.80/oz AgEq in Years 1 to 12 with an initial development capex of $455 M resulting in an attractive NPV-to-capex ratio of 2.5x.
• Significantly de-risked Reserve base: new Reserves declared of Ag – 266 Moz, Au – 790 koz, Pb – 2,970 Mlb and Zn – 4,650 Mlb; more than 70% of mill feed in Years 1 to 5 classified as Proven.
• Exceptional silver price leverage: PFS mine plan assumes only 42% of Measured & Indicated Resource tonnes are processed; clear potential to significantly extend mine life at higher silver prices.
• ESG/economic contribution: total estimated taxes payable of $1.2 Billion, a peak estimated local workforce of over 1,000 employees and over $4 Billion of expected goods and services purchased locally within Mexico over the life of the mine.

PRE-FEASIBILITY STUDY SUMMARY

Project Economics

The economics for the PFS were based on the following metal prices: Ag – $22.00/oz, Au – $1,600/oz, Pb – $1.00/lb and Zn – $1.20/lb. Sensitivity of the Project’s expected after-tax NPV, IRR and payback at different commodity price assumptions is outlined in the table below:

	Units	Base Case	Spot Price	Base Case +15%	Base Case -15%
After-Tax NPV (5% discount rate)	(US$ M)	$1,153	$1,723	$1,797	$508
Internal Rate of Return	(%)	28.0%	35.9%	37.5%	16.9%
Payback	(yrs)	4.2	3.4	3.2	6.0

• Spot Price assumptions (as at close on January 20, 2023): Ag = $23.87/oz, Au = $1,925/oz, Pb = $0.97/lb, Zn = $1.54/lb

Production & Costs

Annual production over the life-of-mine (“LOM”) is expected to average 33 Moz AgEq. In Years 5 – Year 12 production averages 40 Moz AgEq with peak production in Year 11 of 52 Moz AgEq. These production levels position Cordero as one of the largest primary silver mines globally.

All-In Sustaining Costs (“AISC”) average $12.80/oz AgEq in Year 1 – Year 12 and $13.62/oz AgEq over the LOM. This represents an approximate increase of 10% versus the PEA. This increase is primarily due to higher treatment and refining charges and industry wide cost escalation including higher assumed prices for consumables, diesel ($1.10/L vs $1.00/L in PEA) and power ($0.068/kWh vs $0.062/kWh). These increases were offset to a large extent by cost reductions from lower reagent consumptions and unit cost reductions attributable to higher throughput rates in the PFS compared to the PEA.

A summary of AgEq production and AISC is provided in the table below. A breakdown of the production proportions of each individual metal and AISC over the LOM is provided in the graph below the table.

	Units	Year 1 – 4	Year 5 – 12	Year 13 -18	LOM
AgEq Produced – Average/yr	(Moz)	30	40	25	33
AgEq Payable – Average/yr	(Moz)	25	34	21	27
AgEq Produced – Total	(Moz)	118	322	151	591
AgEq Payable – Total	(Moz)	102	268	124	494
All-In Sustaining Cost (AISC)	(US$/AgEq oz)	$12.29	$12.99	$16.05	$13.62

Note – AgEq Produced is metal recovered in concentrate. AgEq Payable is metal payable from concentrate and incorporates metal payment terms outlined in the Concentrate Terms section below. AgEq is calculated as Ag + (Au x 72.7) + (Pb x 45.5) + (Zn x 54.6); these factors are based on metal prices of Ag – $22/oz, Au – $1,600/oz, Pb – $1.00/lb and Zn – $1.20/lb. AISC is a non-GAAP measure; refer to the Non-GAAP Measures section of the release for further information on this measure. See Technical Disclosure section for AISC calculation methodology.

LOM Production & AISC

Note – Au/Pb/Zn production is shown on an AgEq basis based on: Ag = $22/oz, Au = $1,600/oz, Pb = $1.00/lb and Zn = $1.20/lb

2023 PFS vs 2021 PEA Summary

The PFS incorporates numerous significant positive developments in comparison to the PEA. Based on drilling success at depth and in the northeast of the deposit the size of the open pit has increased by over 30% and the strip ratio has improved to 2.1:1. This additional drilling has also significantly increased the confidence level of the underlying resource with the PFS supported by Reserves of which 54% are in the Proven category.

The PFS incorporates throughput rates of 25,500 tpd in Phase 1 and 51,000 tpd in Phase 2, ~25% higher than the PEA. This has resulted in average annual production increasing by 27% over an extended mine life of 18 years. The process design has been streamlined based on the excellent results from the 2022 metallurgical testwork program with the co-processing of oxides and sulphides via flotation allowing for the elimination of the heap leach circuit.

The payback period has increased to 4.2 years. This is due to the delay in processing oxide material from eliminating the heap leach and given the mill expansion occurs in Year 3 of the mine life (deferral of the expansion would reduce the payback period to 3.0 years). The payback period has been significantly de-risked with more than 70% of the mill feed in Years 1 to Year 5 in the Proven category and the removal of the elevated risk typically associated with heap leach ramp ups.

Initial capital increased by 24% to $455 M. This was primarily due to the 25% increase in the initial size of the plant, a switch to owner-operated mining (assuming lease finance of mine equipment) driven by the growth in size of the open pit (the PEA assumed contractor mining) and cost inflation.

PARAMETER	UNITS	2023 PFS	2021 PEA
SUMMARY
After-Tax NPV (5% discount rate)	(US$ M)	$1,153	$1,160
Internal Rate of Return	(%)	28.0%	38.2%
Mine Life	(yrs)	18	16
Initial Capital	(US$ M)	$455	$368
Payback	(yrs)	4.2	2.0
OPERATIONS
Tonnes Processed (LOM – Total)	(Mt)	302	228
Strip ratio (LOM)	(w:o)	2.1	2.2
PRODUCTION & COSTS
AgEq Produced (LOM – Annual Average)	(Moz)	33	26
AgEq Produced (LOM – Total)	(Moz)	591	426
All-In Sustaining Cost (Y1 – Y12)	(US$/AgEq oz)	$12.82	$11.73
All-In Sustaining Cost (LOM)	(US$/AgEq oz)	$13.62	$12.35

Project Economics are based on Ag = $22.00/oz, Au = $1,600/oz, Pb = $1.00/lb, Zn = $1.20/lb. See Technical Disclosure section for AgEq and AISC calculation methodology.

Feasibility Study Opportunities

The Feasibility Study (“FS”) is already being advanced and is expected to be completed in 1Q 2024. Key areas for optimization in the FS include:

• Metallurgical performance: further testwork to improve recoveries and optimize the mine schedule through modifying the blending of rock types and oxides/sulphides.
• Mining costs: an evaluation of optimal bench height and mine equipment sizing to potentially increase the size of mining equipment and reduce unit mining costs.
• Processing costs: additional comminution testwork targeting reduced power and grinding media consumption and further flotation testwork targeting lower reagent consumption and reagent substitutions.
• Timing of mill expansion: evaluation of deferral of the mill expansion to accelerate the payback period
• Tailings Storage facility (TSF): optimization of the tailing storage design as well as the water efficiency and recirculation within the TSF. Further work will be completed on the option to use filtered (dry stacked) tailings (the PFS assumed high-density thickened tailings).
• Mine life extension: the FS will incorporate an additional ~30,000 m of drilling in and around the pit focused on upgrading the resource classification within the pit and expanding and upgrading resource blocks between the open pit and the Resource constraining pit shell. There is also over 270 Mt of Measured & Indicated Resource that sits outside the PFS design pit but within the Resource pit shell that could significantly extend the mine life at higher metal prices.

 

 

The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a licensed professional for investment advice. The author is not an insider or shareholder of any of the companies mentioned above.