Spotlight: What next for Mexico’s massive silver deposits?

Mexico is the dominant force in the global silver mining space, with some of the world’s biggest primary silver producing assets.

But the country also hosts some of the largest undeveloped silver deposits which have been held back by weak economics and shifting prices.

With mining and exploration activities restarting following a COVID-19 suspension, BNamericas takes a look at latest developments at four projects holding a combined 1.78Boz of silver in reserves.

Silver is currently trading in the US$17-18/oz range, down from a recent peak of around US$19/oz in 2H19, but up from a US$14.99/oz average in June last year.

TOP SILVER DEPOSITS

1. Cordero

Owner: Discovery Metals

Silver resource: 595Moz

Outlook: POSITIVE

Discovery Metals has made significant strides forward on the financing and exploration side at Cordero as it seeks to define an economically viable investment.

The company raised Cdn$25.0mn (US$18.5mn) in a non-brokered private placement which closed earlier in June, which will fund further exploration at the Chihuahua state asset, one of the world’s biggest undeveloped silver deposits.

As well as a cash injection, the placement also brought a vote of confidence in Cordero from Canadian billionaire Eric Sprott, who acquired 18.2mn units for Cdn$10.0mn in the placement.

“The strong investment interest in Discovery is a clear reflection of the exposure and leverage that our Cordero project provides to rising silver prices,” Discovery CEO Taj Singh said in May.

On the exploration front, recent highlights have included 169m of 207g/t silver equivalent and 1.0m of 2,153g/t.

Discovery is attempting to outline a smaller, higher-margin project, which could justify investment.

A 2018 PEA indicated a 15.7% IRR at US$20/oz silver, significantly higher than spot prices.

2. Pitarrilla

Owner: SSR Mining

Silver resources: 552Moz

Outlook: POSITIVE

SSR Mining has continued investing in its Pitarrilla project since it was shelved due to falling metal prices and the introduction of mining royalties in Mexico in 2014.

And higher metal prices could underpin an economically viable proposition.

SSR announced a US$4mn 2020 exploration budget for Pitarrilla as part of a US$10mn program involving extending a decline to provide drill access to underground mineral resources.

The company also aims to enhance the grades of existing mineral resources through infill drilling targeting high-grade mineralized structures, the company said in its 4Q19 report.

“Pitarrilla has been looked at from an open pit and an underground perspective, but with higher metal prices there are a lot of options to find something that will work for that deposit,” Scotiabank director of gold and silver global equity research, Trevor Turnbull, tells BNamericas.

“It is quite sizeable. That could be getting a second look.”

A 2012 feasibility study showed an IRR of 12.8% at US$25/oz silver – far above current levels – with a US$741mn capex open pit mine producing 333Moz silver over 32 years.

3. Metates

Owner: Chesapeake Gold

Silver resources: 526Moz

Outlook: NEGATIVE

While Metates is primarily a gold project, it also hosts one of Mexico’s biggest silver resources at 526Moz.

Since shelving the project in 2016 due to lower metal prices, Chesapeake Gold has continued to explore, with a focus on satellite deposits, including the Crisy and San Javier prospects.

The company is also evaluating technologies aimed at lowering production costs, which coupled with higher prices could result in an economically viable development.

The metrics are not there yet.

A 2016 updated PFS put post-tax IRR at just 7.7% at US$1,250/oz gold and US$20/oz silver, rising to 11.3% at US$1,400/oz and US$22.40/oz, respectively.

Many miners require a 15% return at reasonable metal price assumptions for investment.

“Higher prices could solve some of the issues at Metates, but that has stayed toward the bottom of the list [of potential investments],” Turnbull says.

A US$3.46bn price tag is another obstacle to development.

4. La Preciosa

Owner: Coeur Mining

Silver resources: 105Moz

Outlook: NEGATIVE

On a smaller scale, La Preciosa was shelved in 2014 following metal price falls.

Despite its best efforts, Coeur Mining has been unable to set out a viable development focusing on high-grade resources.

Significantly higher prices will be needed for development, with the company continuing to seek ways to reduce capex.

“I’m sure they [Coeur] are looking at it but I don’t expect them to pull the trigger at these levels,” Turnbull says.