Thumbs up for Silver Eagle’s Miguel Auza mine

The fully permitted Miguel Auza mine, which generated its first revenue for Silver Eagle Mines (SEG-T, SVEGF-O) during a bulk-sampling program last year, shows promising economics according to a prefeasibility study.

The mine, in Zacatecas, Mexico, has probable reserves of about 1.95 million tonnes grading 137 grams silver per tonne, 0.17 gram gold, 2.15% lead and 2.25% zinc.

The indicated resource, inclusive of the reserve, is 2.05 million tonnes grading 152 grams silver, 0.19 gram gold, 2.3% lead and 2.41% zinc for a total of 23.21 million silver-equivalent oz.

The mine also has an inferred resource of 860,000 tonnes grading 242 grams silver, 0.23 gram gold, 1.55% lead and 2.42% zinc.

When the mine is operating at full production, its average annual output will likely be about 900,000 oz. silver contained in about 10,000 tonnes each of zinc and lead concentrates.

Production is expected to increase to 550 tonnes per day by the fourth quarter from the current rate of 150 tonnes per day. It is forecast to rise further to 850 tonnes per day by the end of 2009.

Infrastructure includes a 150- tonne-per-day crusher-mill-flotation plant; a ramp accessing the mineralization; two shafts currently used for dewatering; and warehouse, shops, and administration buildings. Silver Eagle also has permits to operate an underground mine and processing plant.

In order to access the entire ore-body, however, an additional 6.1 km of 3.5 by 4-metre ramp development will be required.

The Miguel Auza property, which includes mineral rights to 415 sq. km of land, has several high potential exploration areas identified and targeted for evaluation.

Contained within a 2-sq.-km portion of the Miguel Auza property are several known silver-bearing veins, which have been mined off and on since the Spanish conquistadors first worked the area in the mid-1500s.

The mineralization at Miguel Auza is in the form of polymetallic epithermal veins in shear zones. Mineralizing solutions migrated upwards via shear zones in Cretaceous sedimentary and intrusive rocks.

The Calvario and Northern vein systems are the primary ones and drilling on these veins has returned many assays in excess of 1,000 grams silver per tonne, Silver Eagle says. The East vein system is also returning high values and the company believes it is an eastern extension of the high-grade Northern veins, while the Mill-area vein system appears to be characterized by higher lead and zinc grades, with lower precious metal grades.

According to the prefeasibility study, annual revenues will grow to US$23 million in 2010 from US$6 million this year. During the following four years, revenues will stabilize at about US$19 million.

Average cash costs over the life of mine (excluding capital spending) are estimated at US$5.06 per oz. silver, including byproduct credits from lead and zinc production.

Capital costs over the life of the mine are estimated at US$18.5 million. Capital spending budgeted for this year will be US$9.6 million, 45% of which has already been paid.

At a 7% discount rate, the project demonstrates a net present value of US$18.1 million (US$15 million at a 10% discount rate and US$20.6 million at a 5% discount rate).

About 55% of the ore will be extracted by long-hole mining, and the remainder through mechanized cut-and-fill.

The mill will produce two high-silver- bearing concentrates (zinc and lead), at an estimated rate of about 800 tonnes per month each.

Laboratory tests indicate recoveries of 79% for zinc and 89% for lead, and concentrate grades of 53% zinc and 56% lead. Silver recovery is forecast to be 16% in zinc concentrates and 60% in lead concentrates.

Based on laboratory tests and projected head grades, the silver grade in zinc concentrates over the mine’s lifetime is expected to average 667 grams per tonne, while that in lead concentrates is anticipated to average 2,425 grams per tonne.

Operating costs over the life of the mine will average US$48.01 per tonne milled — or US$5.06 per oz. silver after byproduct credits.