Silver Bull Resources (NYSE:SVBL, TSX:SVB) reached an important milestone last week: it released the Preliminary Economic Assessment (PEA) for their 100% owned Sierra Mojada silver-zinc project in Coahuila, Mexico. On Thursday, I discussed the report with Silver Bull CEO Tim Barry. The full audio of our conversation is available above and below; but first, the backstory on Silver Bull.

Restructuring

In 2009, a cash-strapped NYSE listed Metalline Mining held the Sierra Mojada project. Metalline management had lost shareholders’ confidence, so it merged with Vancouver-based Dome Ventures. Brian Edgar, 63, a mining lawyer with close ties to the Lundin Group, was running Dome (Mr. Edgar was Lead Director of Red Back Mining when it sold to Kinross in 2010 for $9 billion). With Tim Barry, 37, exploration geologist, installed as CEO, and Edgar himself as executive chairman, the combined company renamed itself Silver Bull Resources, and partnered with JDS Engineering to re-establish and grow Sierra Mojada’s resource. Along the way, Silver Bull attracted the US’s largest silver miner, Couer d’Alene Mines Corp., as a major shareholder.

Silver Bull’s latest resource statement factors Sierra Mojada’s silver endowment at more than 163.6 million ounces – all in the Indicated category. This is at an average grade of 71.4 grams per tonne, using a 25-gram-per-metric ton cutoff. The silver zone is near-surface and contains some zinc, the statement reported. Directly beneath the silver zone is a large zinc deposit of more than 2.2 billion pounds. Sierra Mojada also contains lead and copper, and it is known as a Carbonate Replacement Deposit (CRD).

PEA

Silver Bull’s PEA will brief investors and potential suitors on the extent of the project’s economics. CEO Tim Barry commented, “The key points of the PEA are an after tax NPV of $463 million. The rate of return is 23.1%, CapEx is $297 million, which includes a 15% contingency, with a 2.9-year payback,” Barry explained on our phone call. “It’s an 18-year mine life, which will produce on average 5.5 million ounces of silver per year, with a very high-quality zinc concentrate of about 55,000 tonnes per year, which equates to about 65 million pounds. Cash costs per ounce, net of byproduct, are approximately $6.58 per ounce of silver produced.”

Silver Bull factored metals prices at $23.50 for silver and $.95 zinc for their PEA, closely following the Energy & Metals Consensus Forecast, but maintaining figures slightly more conservative than consensus.

“The silver price was $24 just two weeks ago,” Barry added. “Sierra Mojada’s not getting built tomorrow, and what we’re trying to do is forecast reasonable metal prices. When this does go into production, we do expect zinc and silver to be higher.”

Silver Bull’s name is a pretty accurate summation of its outlook for silver prices. Still, Mr. Barry painted an especially compelling picture for zinc, noting that several of the industry’s largest zinc mines will reach the end of their lives over the next two years. Smaller, inferior projects are scheduled to replace them. “When you’re losing three of your biggest mines, and there haven’t been any major zinc discoveries in a very long time, it doesn’t bode well for supply.”

“We recognize that people need to see how robust the project is at lower prices, and even at $16 silver, this project still makes money.”

Sensitivity table showing NPV and IRR at different silver prices. (Source: Company PEA News Release)

Our conversation turned to metallurgy. The company says a process called SART (Sulphidation, Acidification, Reduction and Thickening) — commonly used in oxide copper-gold projects — will allow for 75% silver recovery and 40-50% zinc recovery at Sierra Mojada. SART also regenerates 95% of the cyanide used in the metallurgical process, which will save the company considerably during production, as the chemical would otherwise be an ongoing consumable cost. SART is used at Newmont’s Yanacocha mine, Kinross’s Maricunga mine and others, but isn’t well-known to investors. “It’s a good part of my job to get out there and preach the virtues of the SART process,” Barry told me.

For more on SART, listen to the full audio recording.

“Top Quartile”

Sierra Mojada falls in the top quartile for cash costs per ounce and production volume, according to Barry. “[Silver producers] are going to have to replace [mined] ounces, and that’s where a project like Sierra Mojada has tremendous value — any company wants to buy a big asset and there are not many out there.”

Looking forward, Barry made clear his focus will be divided between permitting, feasibility and getting the story out to investors and potential acquirers. News flow will be focused on key permitting milestones, like their Environmental Impact Assessment ratification, of which Barry says they’re well under way. The company is also working to secure all surface rights to the project, and aims to complete a Pre-Feasibility Study in 2014.

The company has $6.5 million in cash, which, at the current burn rate (~$180,000 per month), will last into 2015. [Ed. note: Silver Bull was recently recognized in an article published by Sprott and others for prudent management of its treasury].

“I’m actually an exploration geologist by training and it’s not lost on me the wider exploration upside of this area. We will have a low-level program, mainly with leather on the ground. … I’d love nothing more than to have a Feasibility on Sierra Mojada under way and reporting the news of that and put a hole into a whole new area that’s never been drilled before. Our Palamos Negros target 9km up-strike from the deposit, and sitting in the same structure, has a lot of potential for the company.”

To learn more about the company click here: Silver Bull Resources.