Scorpio could mine by next spring (June 13, 2007)

A pre-feasibility study for Scorpio Mining (SPM-T) at the Nuestra Senora silver-zinc-lead deposit in Sinaloa state, Mexico, says a 1,000-tonne-per-day mine would be economic at base-case metal prices.

The study fixes a six-year mine life for the currently estimated reserves, which do not include results from about 6,000 metres of recent drilling. It put the size of the reserve, in three zones, at 1.9 million tonnes grading 127 grams silver per tonne, with 2.97% zinc, 1.42% lead and 0.42% copper.

That reserve came from a January calculation that put the indicated resource at 3.5 million tonnes averaging 118 grams silver per tonne, with 2.27% zinc, 1.06% lead and 0.38% copper (plus 0.15 gram gold per tonne). An inferred resource of 4.1 million tonnes grades 132 grams silver, 2.18% zinc, 1% lead, 0.22% copper and 0.19 gram gold per tonne.

The reserve calculation used a composite cutoff grade of US$80 per tonne gross metal value at the base-case metal prices in the study: US$11 per oz. for silver, US$2,750 per tonne (US$1.25 per lb.) for zinc, US$1,100 per tonne (US50 per lb.) for lead, and US$4,950 per tonne (US$2.25 per lb.) for copper.

Processing 1,000 tonnes per day or 350,000 tonnes annually, the mine would produce 1.1 million oz. silver, 8,200 tonnes zinc, 4,100 tonnes lead and 820 tonnes copper annually, all in concentrate. Metallurgical testing to develop efficient separation of the three base metals into separate concentrates continues (T.N.M. May 7/07).

At the base prices, and assuming a US$40.30-per-tonne operating cost, the project has a net present value of US$14.3 million at a 10% discount rate. The internal rate of return is 26%. Bumping metal prices to current figures brings the net present value to US$46 million and the rate of return to 61%.

While the high metal prices may be fanciful, the study considers it possible that Scorpio could have the project in production by next March, which might allow it to pay back quickly at current metal prices. Even at the much more conservative base-case prices, the study estimated silver production costs at negative US98 per oz., thanks to high byproduct credits from the base metals.

The study’s estimate of the capital cost of a mine and mill is US$26.5 million, which would be paid back in three years at base-case prices.