MAG, Fresnillo busy at Juanicipio

MAG Silver (MAG-T, MVG-X) has approved a US$25-million budget for mine permitting and underground development work at its Juanicipio silver project in Mexico’s Zacatecas state, a joint-venture with Fresnillo (FNLPF-O, FRES-L).

If the permits are in hand before the end of this year, the partners can start breaking ground on a decline in January. The 18-month project spanning this year and next would involve spending $10 million in 2012 and $15 million in 2013.

The partners have kept their original exploration budget this year at US$8.5 million.

The Juanicipio project hosts three identified high-grade silver (plus gold, lead and zinc) veins: the Valdecanas Vein, Juanicipio Vein and Las Venadas.

“The advancement of the project with the co-operation of the joint-venture partners, combined with the deposit’s current resources and exploration upside, increases the attractiveness of the asset for mining companies, not just Fresnillo,” John Hayes of BMO Capital Markets writes in a note to clients.

The multi-million dollar budget includes the first 2,500 metres of underground development on the project, 44% of which is owned by MAG Silver and the remainder by operator Fresnillo.

According to an updated preliminary economic assessment (PEA) released in June, ramp access is the best and most cost-effective option for Juanicipio. Primary access to the mine would be through a 14% decline.

The PEA demonstrated the project would yield a base-case, after-tax internal rate of return of 43% and an after-tax net present value, at a 5% discount rate, of US$1.23 billion. Payback is expected three years after plant start-up.

The PEA estimated that life-of-mine payable production would reach 153 million oz. silver, 430,000 oz. gold, 361 million lb. lead and 584 million lb. zinc from producing lead, zinc and pyrite concentrates.

Over its estimated 14.8 years of mine life, Juanicipio is forecast to produce an average of 10.3 million payable oz. silver a year at total cash costs of negative US3¢ per oz. silver, net of by-product credits. (MAG’s 44% ownership equates to about 4.5 million oz. payable silver per year.)

The PEA was based on an indicated resource of 5.7 million tonnes grading 702 grams silver per tonne, 1.9 grams gold per tonne, 2.2% lead and 4.2% zinc. Inferred resources add 4.3 million tonnes grading 513 grams silver, 1.4 grams gold, 1.6% lead and 3% zinc.

In his research comment, BMO’s Hayes says the PEA indicated the “potential for an economically robust underground project,” and recommended further drilling and exploration work to upgrade the inferred resources and understanding of the deposit.
Apart from MAG’s stake in Juancipio, the company owns 100% of the Cinco de Mayo discovery in northern Chihuahua state, about 199 km north of the city of Chihuahua. Cinco de Mayo is the most advanced of MAG’s five carbonate-replacement deposit targets in the country.

The Cinco de Mayo discovery was made in 2006, and in late 2009 MAG announced the discovery of a new zone of high-grade molybdenum and gold it named Pozo Seco in the western part of the project area.

In August 2010 the company published its first resource estimate on Pozo Seco, with indicated resources of 29.1 million tonnes grading 0.147% molybdenum for 94 million lb. contained molybdenum, and 0.25 gram gold per tonne for 230,000 oz. gold.

Inferred resources added 23.4 million tonnes grading 0.103% moly for 53.2 million lb. moly and 0.17 gram gold, for 129,000 oz. gold.

The company originally budgeted $3.5 million this year for a 15,000-metre drill program at Cinco de Mayo, including Pozo Seco and Jose Manto.

Since then it has revised its budget and expanded it to $9.6 million for the year. It expects to complete its first resource estimate by the end of September, and start a PEA for the property.

In mid-July MAG reported drill results from Cinco de Mayo. Exploration drill hole 12-431 intersected four distinct and closely spaced zones of massive sulphide, returning 89 grams silver per tonne, 0.78 gram gold per tonne, 0.13% copper, 2.1% lead and 7.3% zinc over 62 metres, including 117 grams silver, 1.13 grams gold, 0.16% copper, 2.7% lead and 9.3% zinc over 32 metres, and 139 grams silver, 1.38 grams gold, 0.11% copper, 2.6% lead and 11.8% zinc over 10 metres.

At the end of June MAG Silver had working capital of $13 million. 

At press time in Toronto MAG traded at $9.40 per share within a 52-week range of $6.17 to $11.46.

It has 55.7 million shares outstanding.