Vancouver — SilverCrest Mines (SVL-V) is on a roll as rising production at its Santa Elena silver-gold Mine in Sonora, Mexico, and a 424% increase in silver-equivalent inferred resources has seen shares jump 33% to a $2.55 high over the past six weeks.
The company announced record fourth quarter production at Santa Elena in mid-January. Silver production increased by 23% to 131,045 oz., and gold production ramped up 8% to 9,536 oz. The mine is operating above design throughput levels, and has forecast cash flows of $28.6 million for 2012.
Santa Elena has probable open pit reserves — based on US$1,000 per oz. gold, US$18 per oz. silver, and a cut-off grade at 0.38 gram gold — of 3.5 million tonnes carrying 87.3 grams silver per tonne and 1.96 grams gold per tonne or 9.7 million contained oz. silver and 217,800 contained oz. gold. The mine has an indicated underground resource of 991,000 tonnes grading 109.1 grams silver and 1.83 grams gold, equalling 3.5 million contained oz. silver and 58,330 contained oz. gold.
SilverCrest is in the first phase of a proposed 3-year expansion project that includes the installation of a processing mill with throughput capacity of up to 3,500 tonnes-per-day. The second phase proposes expanding underground mining operations on additional inferred resources at Santa Elena totalling 1.9 million tonnes at 86.9 grams silver and 1.53 grams gold or 5.3 million contained oz. silver and 94,470 contained oz. gold. A 6-hole drill program is scheduled on the underground deposit in the first quarter of 2012.
A third expansion phase would focus on the Cruz de Mayo property where a 30-hole drill program and pre-feasibility study are underway. According to technical reports Cruz de Mayo has an indicated resource of 1.1 million tonnes carrying 64.2 grams silver or 2.4 million oz. contained silver at a 30 grams silver cut-off. The property has additional inferred resources of 6.1 million tonnes at 66.5 grams silver or 13 million oz. contained silver. The proximity of Cruz de Mayo to Santa Elena could allow SilverCrest to treat lower-grade mineralization on-site as a heap leach operation, and ship higher grade mineralization to the proposed processing facility at Santa Elena.
Assuming US$1,450 per oz. gold and US$38 per oz. silver, the expansion plan would generate a cash flow of US$620.6 million and a net present value of US$491.4 million at a 5% discount rate.
Strong operating cash flows allowed SilverCrest to retire a US$12.5-million bank debt in late-2011. A year-end US$26.2-million cash position will allow the company to proceed with Santa Elena’s planned expansion, as well as continue to explore a potential large bulk tonnage discovery at the La Joya silver property south-east of Durango, Mexico.
Initial exploratory drilling identified a 2.5-km-long mineralized trend at La Joya with potential economic intercepts over widths up to 230-metres. Inferred resource estimates released in early January identified 57.9 million tonnes grading 28 grams silver and 0.18 gram gold equalling 51.3 million oz. contained silver and 333,400 oz. contained gold with 0.21% copper. La Joya has a silver-equivalent inferred resource — including silver, gold, and copper — of 102 million contained oz. The addition of the La Joya resource in late-January marked an increase of 424% — to 125 million contained oz. — in SilverCrest’s total silver-equivalent inferred resource.
In mid-February the company announced results on the Coloradito target at La Joya. The assays are part of a program validating results on 56 historic core-holes drilled between 1979 and 2003. The company believes Coloradito may be a large bulk tonnage target, with highlight drill intercepts of: 55.1 metres grading 16.8 grams silver, 0.06 gram gold and 0.072% molybdenum; 208.2 metres averaging 12.4 grams silver, 0.10 gram gold and 0.226% moly; and 78 metres carrying 12.5 grams silver, 0.15 gram gold and 0.098% moly. Assays are pending on five holes collared at the Santo Nino and Esperanza targets, also adjacent to La Joya’s main mineralized trend.
Canaccord Genuity analyst Nicholas Campbell issued a “speculative buy” rating on SilverCrest, with a price target of $3.75 per share. At presstime, the company had a market cap of $220 million with 86.6 million shares outstanding.
In a Feb. 13 note to clients, Campbell stated that SilverCrest’s reported fourth quarter production of 131,045 oz. silver and 9,536 oz. gold exceeded Canaccord’s estimates by 17% and 6%, respectively. The Santa Elena project is currently operating above design throughput levels; the mine is expected to continue to produce at a daily throughput rate of at least 3,000 tonnes. Campbell forecasts operating cash flows of $28.6 million in 2012 before working capital changes, putting the company in a strong financial position to continue exploring the La Joya project while advancing the Santa Elena expansion project.