Spotlight: Mexico silver projects promise sky-high returns

With high-quality silver projects in short supply globally, BNamericas takes a look at some of the highest-return assets in Mexico.

Five projects – with combined capex of over US$500mn – boast post-tax internal rates of return (IRR) in the 23-78% range.

The investments have the potential to produce an additional 23Moz/y of the metal, cementing Mexico’s position as the world’s top silver producer.

LAS CHISPAS

A 2019 PEA on SilverCrest Metals’ Las Chispas gave the market a taste of the project’s economic potential while exploration continues.

The study showed a post-tax 78% IRR, assuming US$16.68/oz silver and US$1,269/oz gold prices – both substantially lower than current spot levels of around US$18/oz and US$1,550/oz, respectively.

But SilverCrest continues to invest heavily in exploration at the Sonora state asset, with US$16mn budgeted for a 125,000m drill program aimed at expanding resources.

The PEA outlined a US$100mn capex project producing 5.4Moz/y silver and 55,700oz/y gold.

The company expects to complete a feasibility study and seek board approval for construction in mid-2020.

EC120

Americas Silver released details of a PFS on its EC120 in 2019, indicating a 47% return at US$17.50/oz silver and US$3/lb copper prices.

The project – part of the company’s Cosalá operations in Sinaloa state – is expected to produce 2.5Moz/y silver and 4.6Mlb copper (or 3.3Moz/y silver equivalent) over a five-year mine life.

The high returns in part reflect low capex of US$17mn, with EC120 benefiting from existing infrastructure and equipment in use at the San Rafael mine.

JUANICIPIO

Juanicipio is one of the biggest mining projects currently under construction in Mexico.

Development was approved by the boards of Fresnillo and 56:44 JV partner MAG Silver in April 2019, with first production forecast around end-2020.

A 2017 PEA indicated a 44% post-tax IRR at US$17.90/oz silver, US$1,250/oz gold, US$0.95/lb lead and US$1.00/lb zinc.

Approval was based on a 2018 feasibility study, which incorporated a number of changes from the PEA. Full details of the 2018 study have not been released.

Capex is forecast at US$395mn, with the mine producing 11.7Moz/y silver and 43,500oz/y gold over an initial 12-year mine life.

SAN FELIPE

San Felipe could be an economically viable silver-lead-zinc investment according to a 2014 study.

But the future of the Sonora state project remains in doubt, with Americas Silver yet to decide if it exercises a purchase option on the property from Hochschild Mining.

A 2014 PEA by former owner Santacruz Silver showed a 37.7% post-tax IRR, but the figure assumed a US$19.91/oz silver price, substantially higher than current levels.

At US$17.92/oz silver – which is roughly in line with spot prices – the figure falls to 25.5%, dropping to 12.1% at US$15.93/oz.

Average production was forecast at 3.2Moz/y silver equivalent over a 7.5-year mine life, with initial capex at US$36.3mn.

A planned sale of the San Felipe option to a subsidiary of Premier Gold Mines was terminated, the latter’s corporate and project development VP Stephen McGibbon told BNamericas in July after the company was unable to define some of the risks during the legal phase of its review.

TERRONERA

An updated 2018 PFS showed a post-tax IRR of 23.5% at Endeavour Silver’s Terronera project, assuming US$17/oz silver and US$1,275/oz gold.

The project is expected to deliver 2.9Moz/y silver and 28,000oz/y gold over an initial 9.5-year mine life, for initial capex of US$75.8mn.

Capex for a phase 2 expansion – which will double underground mining throughput to 1,500t/d – is estimated at US$39.1mn.

But the project metrics at Terronera are about to change, with Endeavour planning to release a final updated PFS in January.