SilverCrest Mines (SVL-V) is on a roll as rising production at its Santa Elena silver-gold mine in Sonora State, 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 three-year expansion project that includes installing 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 six-hole drill program is scheduled on the underground deposit in 2012’s first quarter.
A third expansion phase would focus on the Cruz de Mayo property where a 30-hole drill program and prefeasibility 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 contained oz. silver at a 30-gram silver cut-off. The property has 6.1 million tonnes of inferred resources at 66.5 grams silver, or 13 million contained oz. 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 also encouraged the company’s plans to expand Santa Elena and explore a potential large, bulk-tonnage discovery at the La Joya silver property southeast of Durango State.
Initial exploratory drilling identified a 2.5-km-long mineralized trend at La Joya with economic intercepts foreseen 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 contained oz. silver and 333,400 contained oz. gold, with 0.21% copper. La Joya has a silver-equivalent inferred resource — including silver, gold and copper — of 102 million contained oz. The La Joya resource added in late January marked a 424% increase — 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 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 metres grading 16.8 grams silver, 0.06 gram gold and 0.072% molybdenum; 208 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 capitalization 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 operating above design throughput levels and the mine is expected to keep producing at least its minimum 3,000-tonne daily throughput rate. 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.