Since the end of last year, shares of Russia-focused Silver Bear Resources (TSX: SBR) have soared from 1.5¢ to 24¢ apiece.
“That’s more than a tenfold increase in the last six months — it’s huge,” the junior’s Moscow-based president and CEO Graham Hill says. “People are recognizing that we’re doing what we said we were going to do.”
What the company has said it will do is produce the first silver from its Vertikalny Central deposit in Russia’s Far East by year-end. And while Hill concedes that the target is “a tall order” — he also believes that meeting the self-imposed deadline is entirely possible.
The company has already procured all of the major equipment it needs to build the mine and processing plant, having brought most of it in during the winter road season (January to April), and expects to start commissioning in the fourth quarter of this year. Steady state production is targeted for the first quarter of 2017.
On June 9, Silver Bear released the results of a feasibility study, which Hill describes as “exceptional,” including an initial capex estimate of US$48.6 million, a post-tax payback in just over two years, a post-tax net present value at a 5% discount rate of US$70.7 million and a 40.2% post-tax internal rate of return.
“It really is very, very good,” he says of the study, adding that the open-pit operation, 400 km north of the capital city of Yakutsk in Russia’s Far Eastern Republic of Sakha, will produce 16.8 million oz. silver over a 7.3-year mine life.
“What we are producing is going to be a very high-grade silver powder,” he says. “The final process is an electrowinning-electrolysis process, from which we will provide 99.8% to 99.9% silver powder — we won’t be doing further smelting or doré bars — we don’t need to, we can do off-take agreements on the silver powder.”
Hill notes that the feasibility study used conservative silver prices (US$16 per oz. in the first year of production, US$17.25 per oz. during the second year of production, and US$18 per oz. during the remainder of the project, with a life-of-mine weighted average silver price of US$17.74 per oz.)
“We said, ‘let’s be realistic, let’s look at what forward curves are’ and we took the median of 25 financial institutions,” he explains. “The prices we’ve used further demonstrate the robustness of our project — even if silver doesn’t go beyond US$18 per oz. The median gives you a reasonable set of numbers — those are not extreme numbers in anybody’s books.”
Vertikalny Central is one of the highest-grade silver deposits in the world and has an indicated resource of 800,000 tonnes grading 909 grams silver per tonne for 23.4 million contained oz. silver, and an inferred resource of 680,000 tonnes averaging 615 grams silver for 13.4 million oz. silver. The resource estimate used a cut-off grade of 335 grams silver.
Hill acknowledges that the main reason why the company is able to move so quickly and fast-track the development process is due to the support it has from the local government, Silver Bear’s board of directors and its major Russia-based shareholders. Two of the company’s biggest shareholders are Russian privately held investment management firms: Inflection Capital Partners, with a 25.6% stake, and Aterra Capital, which owns a 25.2% stake. Aterra is owned by Russian billionaire Alexey Mordashov.
“I have the full support of the board and shareholders for advancing this to completion — the money that has gone into the project has come from our two major shareholders and they stand right behind the project,” Hill says, adding that the local community and local government are also supportive.
“The government of Yakutsk is very keen for us to develop our mine here,” Hill says. “We were favourably received, they were encouraging us in terms of making sure we can get our applications completed in time, and there is a Far East Russia tax incentive scheme that gives us necessary tax relief and relief on mineral royalties for a number of years. It’s great encouragement for us and improves returns on projects for all companies looking to start up in a location like this.”
Under the region’s tax incentives, Hill says, there is a five-year hiatus on profit taxes, while mineral royalties are charged on a sliding scale that starts at zero and then increases gradually over a similar time frame.
Silver Bear says that while it has proceeded with construction in advance of regulatory approval for the project, it expects that all of the permits needed for construction and operation will be in place before the start of production.
“There are a series of permits we need to obtain as per the Russian regulatory process; there are ecological permits, safety permits, construction and commissioning permits, so there are a series of permits required — it’s like a sequence of events — so we have started the permitting process and so far we’ve had positive responses to or applications so we are progressing,” he says.
“Our current plan is that we will have all the permits we need by the end of the third quarter, before we start commissioning. It’s an unusual environment to work in [but] we are working as closely as possible with all the regulatory authorities to make sure we get all our permits. It’s a little bit different working in the Russian environment … it’s a challenging environment to work in, but it can also be a supportive environment to work in, so we’re happy to be here and building new mining projects.”
The Vertikalny Central deposit is one of several deposits at the Mangazeisky project. The idea is that a central facility will process ore from all of the satellite pits, which include Vertikalny Northwest, 1 km north of Vertikalny Central; Nizhny Endybal, 2.5 km east of Vertikalny Central; and the Mangazeisky North deposits, 7 km north.
Vertikalny Northwest has an inferred resource of 310,000 tonnes grading 458 grams silver for 4.6 million oz. silver and Nizhny Endybal has an inferred resource of 710,000 tonnes grading 316 grams silver for 7.2 million oz. silver. The Mangazeisky North deposit has an indicated resource of 304,000 tonnes grading 626 grams silver for 6.1 million oz. silver and an inferred resource of 98,000 averaging 671 grams silver for 2.1 million oz., while Mangazeisky South has an inferred resource of 60,000 tonnes measuring 246 grams silver for 500,000 oz. silver.
Hill says the company focused on Vertikalny Central first because that’s where the grade and definition were the best and it was better explored, but is now focusing a bit more on Mangazeisky North to develop that as the next resource that will be fed into the processing plant.
“We’ve also got a few other interesting deposits fairly nearby and hopefully we’ll be making some further announcements on those,” he says. “There are deposits for which we do not have a maiden resource, so hopefully we’ll be producing some maiden resources for additional deposits and adding to our total resource on the property.”
Hill is familiar with working in challenging and often remote conditions. Before joining Silver Bear as CEO in November 2014, Hill helped build the Yatela and Sadiola gold mines in Mali; developed and managed the Amantaytau gold and silver mines in Central Asia in the mountains of Kyrgyzstan and the desert-like Kyzylkum Region of the Navoi Oblast in Uzbekistan; and developed the Passendro gold project in the Central African Republic.