Western Silver expands Penasco

An initial resource calculation at the Penasco silver deposit in Zacatecas state, Mexico, has almost doubled the resource on Western Silver‘s (WTC-T) Penasquito project.

Consulting firm Marlow Mining Engineering Services estimates that Penasco, one of three deposits delineated on Penasquito, has an indicated sulphide resource of 124 million tonnes grading 27.5 grams silver and 0.5 gram gold per tonne, with 0.31% lead and 0.64% zinc. A further 84 million tonnes are inferred, with average grades of 26 grams silver and 0.5 gram gold per tonne, plus 0.29% lead and 0.66% zinc.

Penasco also has an overlying oxide resource, which contains an indicated 26 million tonnes grading 19.7 grams silver and 0.2 gram gold per tonne, plus 0.24% lead and 0.26% zinc. Another 8 million tonnes running 15.8 grams silver, 0.2 gram gold, 0.2% lead and 0.26% zinc are classified as inferred.

The resource at Penasco adds to the large mineral inventory already drilled off at Penasquito on the Chile Colorado and Azul Breccia deposits. Like Penasco, both those deposits have sulphide and oxide resources. At Chile Colorado, about 1.5 km southeast of Penasco, a resource estimate was first tabled in March 2003, and updated a year later.

There, sulphide mineralization makes up a 149-million-tonne indicated resource grading 34.3 grams silver and 0.3 gram gold per tonne, with 0.28% lead and 0.84% zinc; another 45 million tonnes of sulphide is inferred, at grades of 21.1 grams silver, 0.2 gram gold, 0.21% lead and 0.48% zinc.

Chile Colorado’s oxide resource amounts to 25 million tonnes grading 15.3 grams silver and 0.15 gram gold per tonne in the indicated category, and 5 million tonnes grading 11.6 grams silver and 0.1 gram gold per tonne in the inferred category. Base metal grades were not calculated for the Chile Colorado oxides.

The initial resource estimate on Azul Breccia, which formed part of the updated resource study last March, calculated 71.2 million tonnes of sulphides grading 31.5 grams silver and 0.15 gram gold per tonne, with 0.36% lead and 0.72% zinc — all inferred. An inferred oxide resource of 19.2 million tonnes graded 13 grams silver and 0.1 gram gold per tonne.

The new sulphide resource at Penasco was based on a calculated cutoff grade equivalent to US$3.75 per tonne net smelter return, and the oxide resource was cut off at 5 grams silver per tonne. These estimates are based on data from 144 drill holes totalling just over 45,000 metres.

High assays were capped at 246 grams silver and 7 grams gold per tonne, and at 4.3% lead and 8.6% zinc. The capping was based on statistical analysis of the grades, which showed a log-normal distribution.

A prefeasibility study delivered in April by Tucson-based M3 Engineering & Technology estimated the minable reserve at Chile Colorado, including only sulphide material, at 98 million tonnes grading 39.7 grams silver and 0.4 gram gold per tonne, plus 0.34% lead and 0.93% zinc. The study proposed mining Chile Colorado from an open pit, in six phases over a 13.5-year mine life. The average production rate would be 20,000 tonnes per day, and a conventional flotation mill would produce lead and zinc concentrates.

The study estimated capital costs for a mine at Chile Colorado at US$164 million, with operating costs of US$5.63 per tonne. After credits for gold and base metals, the total cash cost of production would be US32 per oz. silver.

The study based the economics of development on prices of US$5.50 per oz. for silver, US$350 per oz. for gold, US30 per lb. (US$660 per tonne) for lead, and US45 per lb. (US$990 per tonne) for zinc. It found the project had an undiscounted net present value of US$245 million, and US$54 million when discounted at 10%.

The discounted cash flow analysis translated to a 15.3% internal rate of return, but the development was highly sensitive to metal prices; at metal prices current in March 2004, the consultants found the project’s internal rate of return rose to 26.3%.

The addition of the resource at Penasco is expected to allow for flexibility in mine planning, and possibly allow for expansion. The company is studying the economics of a heap-leach operation to exploit the oxide resources, which were not part of the prefeasibility study. Early metallurgical tests on the oxide material have been encouraging.