SilverCrest finds strength in consistency at Santa Elena

VANCOUVER — When it comes to early-stage mines, operational reliability can be an elusive target for junior producers, but that has not been the case for Vancouver-based SilverCrest Mines (SVL-V) and its Santa Elena silver-gold operation in Sonora State, Mexico.

SilverCrest’s operations at Santa Elena continue to hum along as the company meets guidance estimates and growth targets with notable consistency. The good news continued to roll in during the second quarter, with silver production jumping 87% year-on-year to 139,850 oz. and gold production rising 57% to 8,584 oz. — though the company noted that it was still in ramp-up during the second quarter of 2011.

According to president and director Scott Drever the results marked the third consecutive quarter where Santa Elena operated at “full, planned production rates.”

Crusher throughput averaged above projected levels at 3,494 tonnes per day, and cash costs were lower than expected at US$6.94 per silver equivalent oz. — the company had projected costs at US$8.20 per oz. Drever commented that strong first half results indicate SilverCrest should meet or exceed its production estimates of 435,000 oz. silver and 33,500 oz. gold for the year.

Processed ore during the quarter included lower grade materials from Santa Elena’s footwall zone and stockpiles, which resulted in a drop in average grade to 39.45 grams silver per tonne and 1.35 grams gold. As a result of the fall in grades, SilverCrest also saw a drop in recoveries with figures clocking in at 35% for silver and 62% gold compared to expectations at 38% silver and 65% gold. The company should hit higher-grade ore for the remainder of the year, most likely returning recoveries to projected levels.

It was not all good news; however, as SilverCrest suffers from falling realized gold and silver prices that are symptomatic across the industry. Comprehensive earnings were down 44% from the first quarter, falling from US$9.2 million to US$6.3 million. The drop was largely attributed to lower realized metal prices, with silver spot sales down 12% and gold sales down 4%. SilverCrest also bumped deliveries to its hedging facility, which jumped from 1,359 oz. gold to 4,210 oz. in the second quarter — SilverCrest hedged gold production with Macquarie Group and Sandstorm Gold (SSL-V) to finance its initial development.

“The open pit tonnes and grades continue to track closely with our geological block models and open pit mine plan,” Drever commented. “[Our] low-cost, open-pit heap leach mine operations continue to perform well and generate cash flows which will contribute to the financing of the Santa Elena expansion plan and the development of our major polymetallic La Joya project.”

SilverCrest maintains operating cash flow estimates of US$2 million per month based on current gold and silver prices. The company is in the process of a three-stage expansion at Santa Elena that would see metal production increase by 100% through 2014.

The company is completing a pre-feasibility study on an underground and mill expansion that would bump millage throughput levels to 3,000 tonnes per day. SilverCrest has completed roughly 550 metres of underground decline development on its main ramp, with 950 metres remaining. The company is also in the process of securing long-lead items for its mill expansion.

SilverCrest’s second phase will involve an underground expansion targeting an indicated resource of 991,100 tonnes grading 109 grams silver and 1.83 grams gold for 6.7 million oz. silver equivalent. The third phase includes a satellite property named Cruz de Mayo that hosts inferred resources of 6 million tonnes averaging 67 grams silver and 0.07 grams gold for 13.7 million oz. silver equivalent.

In addition to Santa Elena, SilverCrest is aiming for an updated resource on its La Joya polymetallic property 75 km of Durango, Mexico, by the fourth quarter. A second phase drill program is testing a 2.5-km trend at La Joya, which includes eight near-vertical structures and stockwork zones. SilverCrest is sinking 80 holes for a total of 15,000 metres, and released the results from 11 holes in mid-July.

Highlights from the second phase at La Joya include: 31 metres grading 43 grams silver, 0.13 gram gold, and 0.43% copper in hole 12-50; 182 metres carrying 36.3 grams silver, 0.1 gram gold, and 0.21% copper in hole 12-53; and 98 metres carrying 29 grams silver, 0.2 gram gold, and 1.3% copper in hole 12-58,

“We have successfully expanded mineralization in all lateral directions along the trend with the possible expansion of the declared resource,” Drever stated. “The most recent holes confirm our interpretation that the area to the south of the declared resource appears to host the most attractive mineralized portion of the trend which in many instances begins at or near to surface.”

SilverCrest announced at the beginning of 2012 that La Joya hosted 58 million inferred tonnes grading 28 grams silver, 0.2 gram gold, and 0.21% copper for a 102 million silver-equivalent oz. resource.

Canaccord Genuity analyst Nicholas Campbell maintains a “speculative buy” rating on SilverCrest with a 12-month price target at $5. Campbell notes that though the strip ratio was up and grade was slightly lower over the second quarter, both are expected to improve through the second half of 2012, which “should set [SilverCrest] up for a large improvement in 2013, in which grades are expected to rise to 100 grams silver and 2.8 grams gold with an associated strip of less than 2:1.”

SilverCrest started the third quarter with a bang. After suffering from falling silver prices during the first half of 2012, the company has rebounded 27% or 45¢ since the beginning of July en route to a $2.09 presstime close. SilverCrest has a manageable 89 million shares outstanding — which should benefit the company as it moves to fund further projects — and a presstime market capitalization of $188 million.


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