SilverCrest Metals (TSX: SIL; NYSE-AM: SILV) has found a high-grade zone outside the resource area at its Las Chispas project in Sonora, Mexico, 220 km northeast of Hermosillo.
The discovery hole — 19-118 — returned 9 metres grading 44.3 grams gold per tonne and 4,551.3 grams silver per tonne for 7,873 equivalent grams silver tonne, starting from 304 metres downhole.
Another hole, 19-123, cut 6 metres grading 3.54 grams gold and 615.5 grams silver for 881 grams silver-equivalent from 300 metres. The company has called the discovery zone “Area 118.”
“I didn’t really believe it to start with,” Pierre Beaudoin, the company’s chief operating officer, says of the high grades.
The company says infill drilling will help confirm the estimated widths and grades of the new zone, and 17 core drills — one of which drills from underground — operate at Las Chispas.
The high-grade footprint of Area 118 is an estimated 300 metres along strike by 125 metres high, and includes two intersecting veins: Las Chispas and Giovanni.
An updated resource estimate that could include mineralization from Area 118 is expected in the second quarter of next year, along with the results of a feasibility study scheduled for completion in the first half of 2020. A construction decision will follow the feasibility study.
A resource estimate in February for Las Chispas shows an indicated resource of 1 million tonnes grading 6.98 grams gold per tonne and 711 grams silver per tonne for 224,900 contained oz. gold and 22.8 million contained oz. silver. Inferred resources stand at 3.6 million tonnes grading 3.32 grams gold and 333 grams silver for 388,300 contained oz. gold and 38.9 million contained oz. silver.
Eric Fier, the company’s CEO, says the team is “particularly excited” that discovery hole 19-118 was drilled in the Las Chispas area, which, until now, came after the high-grade mineralization delineated in the Babicanora area, less than 1 km away. The hole also surpassed the previous record intercept at Babicanora of 9 metres grading 6,336 grams silver equivalent.
The current drill program focuses on the Las Chispas and Giovanni veins to expand high-grade mineralization by stepping out from historic underground workings along the down-plunging mineralized trend towards previously unmined areas. The results are based on 23 holes, 13 of which establish a footprint for this newly defined high-grade zone within a lower horizon of the Las Chispas and Giovanni veins.
“Las Chispas and Giovanni are among the many targets we are working on. They are only two of the several areas of focus,” Beaudoin says.
The recent discovery points to untested potential to add high-grade resources, Fier says. High-grade mineralization in Area 118 also suggests the potential to extend the production profile as outlined in the first five years of a preliminary economic assessment released in May.
Beaudoin says the PEA is “pretty positive” for the first four years, but the grade starts to decline thereafter. The latest drill results offer “some real interesting possibilities” beyond the fourth year.
The PEA forecast the project will produce an average of 5.4 million oz. silver and 55,700 oz. gold a year. During the first four years, production would come in at 7.6 million oz. silver and 81,600 oz. gold at all-in sustaining costs of US$4.89 per equivalent oz. silver.
Initial capex is pegged at US$100 million, with a nine-month payback period based on metal prices of US$16.68 per oz. silver and US$1,269 per oz. gold. The after-tax net present value is projected at US$407 million at a 5% discount rate, and 78% internal rate of return.
The PEA envisioned an 8.5-year mine life and a production rate of 1,250 tonnes per day that will require at least 11 underground working faces to feed the process plant, before ramping up to 15 working faces by the fifth year.
The PEA assumes that miners will use cut-and-fill methods and split blasting in narrower stopes. This assumption might change in the feasibility study.
While the company has returned its best drill hole to date, it does not mean that it can rest on its laurels, Beaudoin says. “One hole doesn’t make a mine.”
Exploration efforts will continue to focus on outlining the 36 veins the company has identified. The priority veins targeted include Area 118, Babi Vista, Babi Sur and Babi Norte Northwest.
“The large majority of all the company’s efforts are on Las Chispas,” Beaudoin says. “It is one of the best gold-silver assets in world.”
More than 2 km of development underground, of which more than 500 metres exists in the vein, has been completed so far.
The company is sampling and stockpiling mineralized material and expects to have up to 25,000 tonnes on the stockpile by the end of 2019.
On Dec. 3, SilverCrest announced an $80 million bought-deal financing (11 million common shares priced at $7.28 each). The funds will be used for exploration and development work at Las Chispas.
One area of focus is grade reconciliation. According to Beaudoin, while the grade in the resource estimate and the PEA is good, “the grade that we [have] mined so far is two times better than the estimate from the resource model. So obviously, there is something going on with grade reconciliation.”
In October, the company announced that underground, high-grade vein sampling results showed positive reconciliation, compared to the resource model for the Babicanora vein in Area 51. The weighted average grade of underground-sampling results in the Babicanora vein was 2,284 grams per equivalent tonne silver. The estimated grade of the actual mined vein was 2,209 grams per equivalent tonne silver, while the February resource-modelled grade was 892 grams per equivalent tonne silver. This is a 148% difference in silver-equivalent grade between the mined vein and the resource model.
The positive difference owed to the presence of a high-grade clay shear zone within the vein that was not recovered in core drilling; a part of the mined vein that was not intersected in previous exploration drilling; greater consistency in the quartz-argentite part of the vein than previously modelled; and higher-grade mineralization typical in narrow epithermal-type veins.
The tonnage difference — based on vein width — between the actual mined Babicanora vein and the resource-modelled grade saw a 33% decrease to 4,170, from 6,226 tonnes.
Beaudoin says vein mining and grade reconciliation are a “significant de-risking effort,” as it helps the company validate the resource model, access mineralized material for metallurgical test work, and evaluate ground control and mining methods. The grade reconciliation efforts also include studies on the nugget effect by reviewing its assaying method, which could also positively affect the resource estimation.
Grade reconciliation aside, the latest assays have generated positive valuation from analysts.
Analyst Don DeMarco of National Bank of Canada says hole 19-118 is the best so far, and that “Las Chispas shows prolific exploration potential.”
Ryan Thompson with BMO Capital Markets says the company’s aggressive exploration campaign should contribute ounces to the resource inventory and push the lower-grade areas of the property further back in the mine life.
Mark Mihaljevic with RBC Capital Markets expects a positive reaction from the market. While the company has focused on the high-grade Babicanora area, he says the recent success at Las Chispas will provide more room for exploration upside, and could show the prospective nature of the property as a whole.
DeMarco, Thompson and Mihaljevic have “outperform” ratings on the stock and a 12-month target price of $9.50 per share.
Philip Ker of PI Financial says the discovery adds high-grade tonnes that are vital for a sustainable, elevated grade profile beyond the initial five years of mine life. As drilling continues to show upside across the property, he says that “this potential growth supports our outlook and assumption of a further 40 million equivalent oz. silver to be discovered.”
Craig Stanley of Eight Capital says that SilverCrest will attract considerable interest from silver and gold producers given the high grades, robust economics and an average annual production of 10 million equivalent oz. silver per year, as the PEA has forecast. But he also notes that an acquisition is more likely if a decline in silver and gold prices lowers the share price and market capitalization.
“Management expects to make a production decision after the feasibility study in second-quarter 2020,” Stanley writes. “Once a favourable decision is made, management has indicated it would spur any acquisition inquiries until after production commences, and the share price re-rates.”
Both Ker and Stanley rate the stock a “buy” and have a 12-month target price of $10 per share.
At press time, SilverCrest shares were trading at $7.58 apiece within a 52-week range of $2.93 to $8.73. The company has 92 million shares outstanding for a $699-million market capitalization.