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Site Visit: Santa Elena Mine, SilverCrest Mines Inc.


SilverCrest Mines Inc. (TSX-V: SVL | OTCQX: STVZF) is a Vancouver based precious metals producer and mine development company who is rapidly advancing several projects in northern Mexico. The company has grown their flagship Santa Elena Mine in Sonora from an exploration project into a producing mine, drilled out a significant resource at their nearby Cruz de Mayo property, and recently announced a large silver equivalent (Ag, Au, Cu) resource at their La Joya deposit in Durango.

Recently President Peter Spina and I visited SilverCrest’s Santa Elena Mine, which is about a 150 km drive northeast of the Sonora State capital Hermosillo. This is an open pit mine and heap leach operation that reached commercial production in July 2011, and is on track to produce 435,000 ounces of silver and 33,000 ounces of gold, or approximately 2.25 million silver equivalent ounces in 2012. The company has a team of experienced mine builders and operators, cash flow from profitable production with $35 million reported in the treasury in Q1 2012, recently commenced their Santa Elena Mine Expansion Plan, and identified prospective targets that are underexplored on all three properties. Consequently, SilverCrest is well positioned to continue increasing shareholder value over the upcoming months and years.

Company Structure

SilverCrest Mines Inc. (OTCQX.STVZF, TSX-V.SVL) has 89.7 million shares issued and outstanding and a total of 99.0 million shares fully diluted. The company is currently trading around US$1.75 per share so their market cap is $157.0 million. They have about $35 million in cash and are using profits from production to fund exploration, development and their Santa Elena Mine Expansion Plan.

Institutions including Sprott Asset Management, Wellington Management, and Macquarie Bank own 17.6% of the company. Management and insiders own 10%.

SilverCrest has explored several projects in Mexico and elsewhere in Latin America since they IPO’d on the TSX-V in 2003. Now their portfolio is focused on northern Mexico with production ramping up at Santa Elena Mine and their two other projects that have NI 43-101 resources that are being evaluated for near term mine development potential.

(Silver and gold doré being poured during our Santa Elena Mine tour)

Management and Work Force

SilverCrest’s President J. Scott Drever has 45 years of experience in geology, strategic planning, mergers and acquisitions, management and operations. Mr. Drever previously worked for several international mining companies, including Placer Dome, Blackdome Mining, and Goldsource Mines. The company’s COO N. Eric Fier is a CPG and P.Eng with over 25 years of international experience in exploration, acquisition, development, and production in the United States, Mexico, Honduras, Brazil, Peru, and Chile with companies including Newmont Mining, Pegasus Gold, and Eldorado Gold. SilverCrest’s Santa Elena is the fourth mine he has helped bring into production.

Santa Elena Mine General Manager Fabio Velarde showed us around the mine site. Mr. Velarde is from Panama and earned his BSc degree in Metallurgical Engineering in the U.S. at the New Mexico Institute of Mining and Technology, plus a MSc in Metallurgy in Brazil. He has worked for a number of mines in Latin America in operations, development and management. Prior to joining SilverCrest he was the Chief Metallurgist of Goldcorp’s Los Filos Mine in Guerrero, Mexico.

At the mine we also met VP Operations Brent McFarlane, who is a Mining Engineer from the University of Arizona and is based nearby in Tucson. Mr. McFarlane has over 25 years of experience managing, developing, and operating both open pit and underground mines, including over 10 years in Latin America. He previously worked as a project engineer with Pegasus Gold, was General Manager with Knight Piesold at Newmont’s Yanacocha Mine in Peru, and former Mexico Country Manager for Minefinders (recently acquired by Pan American Silver).

Furthermore, SilverCrest is building a diverse technical team that includes experienced and recently graduated geologists, mining engineers, and metallurgists. They are also dedicated to establishing good relationships with the communities where they work, as demonstrated by their pro-active Community Relations program.

Santa Elena Mine

SilverCrest’s Santa Elena Mine is located just outside the small town of Banamichi along the Sonora River Valley. This is an important agricultural region with a series of established farming communities in the Basin and Range Province to the west of the Sierra Madre mountain range. From Banamichi we followed the Sonora River about 100 km north to Grupo Mexico’s Cananea copper mine near the US border. It took us about 4 hours to drive back to Tucson taking the scenic route through the famous historic Arizona mining towns of Bisbee and Tombstone.

(Map from SilverCrest’s June 2012 Presentation)

The Santa Elena Mine is located approximately 75 km east of Timmins Gold’s San Francisco open pit gold mine, which Peter and I visited en route to Santa Elena. The property is also about 35 km east of Yamana Gold’s new Mercedes underground mine and 50 km west of Grupo Mexico’s large open pit La Caridad copper-molybdenum mine near Nacozari.

(Historic church in the farming town of Aconchi near the Santa Elena Mine)

Santa Elena is a high grade epithermal gold and silver vein system that is currently being mined as an open pit operation with standard heap leach and Merrill-Crowe processing. Construction began in October 2009 and the company poured their first gold and silver doré bars here in September 2010. The mine reached commercial production in July 2011, and last year produced over 1.7 million silver equivalent ounces at an average cash cost of $7.79 per silver equivalent ounce sold. This is equal to 377,071 ounces of silver plus 26,969 ounces of gold.

In January, 2012 SilverCrest decided to reinvest some profits from production into retiring all of their previous debt with Macquarie Bank ahead of schedule by 21 months. The Santa Elena mine’s future silver production is entirely un-hedged. The company has also reduced some of their gold hedge book ahead of schedule. 8,300 ounces of gold are hedged in 2012, and the remainder of their Macquarie Bank gold hedge is scheduled to end in 2014. The mine also has a 20% gold stream purchase agreement with Sandstorm Gold Ltd. from the construction financing, but silver production is not included.

Compared to Q1 from the previous year, in Q1 2012 silver production increased 108% to 134,528 ounces and gold production increased 198% to 9,405 ounces as the mine ramped up to commercial production. Last quarter their cash cost per silver equivalent ounce was $7.00 and earnings were $6.3 million, or $0.07 per common share. Management believes the mine is on target to produce 435,000 ounces of silver and 33,000 ounces of gold in 2012, for 2.25 million silver equivalent ounces (with silver to gold ratio of 55:1).

(Santa Elena surface mining operations)

Without the Expansion Plan, Santa Elena’s current Feasibility Study has a designed production rate of 2,500 tonnes per day and 6.5 year life, which will produce about 4,805,000 ounces of silver and 179,000 ounces of gold. This works out to a total of 9,845,000 ounces of silver equivalent at the silver to gold ratio of 55:1. The life of mine cost is estimated to be about $8.20 per ounce of silver equivalent.

(Santa Elena Mine’s mineral processing facilities. Silver and gold moves from right to left via the crusher, leach pad, Merrill Crowe plant and adjacent assay lab. Photo by Peter Spina)

Expansion Plan

The Santa Elena Mine recently began an aggressive four-phase Expansion Plan that intends to approximately double production to about 4.0 million silver equivalent ounces over the next two years. This will involve increasing the mining rate to 3,000 tpd with the addition of underground ore and installation of a Counter Current Decantation (CCD) processing circuit. Initial studies estimate the cash operating cost could be about $9.70 per ounce, and their engineers are optimizing the Plan as exploration drilling and mine development advance.

The April 2011 Preliminary Assessment (PA) for the Expansion Plan found that at base case metal prices of $1,000 gold and $18 silver the pre-tax NPV would be $131.2 million and have a Net Cash Flow of $169.5 million, using a 5% discount rate. Sensitivity analysis shows that using the $1,450 gold and $38 silver prices at the time of the PA study, pre-tax the mine would have a NPV(5) of $491.4 million and Net Cash Flow of $620.6 million. This study estimates the Capital Expenditure to be about $65 million over the next 24 months. Currently SilverCrest’s Market Cap is about $157 million and they have about $35 million in cash.

(Santa Elena pit cleared for a blast with the new underground portal shown at right. Photo by Peter Spina)

Development of underground workings with modern rubber tire equipment began in January of this year and so far has advanced about 470 meters towards the designed length of 1,500 meters. The plan is to mill ore from the first long-hole stopes in 2014, and underground mining is estimated to continue until at least 2022.

(Figure 18: section map of the pit and underground design from the April 2011 Santa Elena 43-101 PA)

Currently one drill is looking to expand the pit reserves, while a second surface rig is testing the extension of this deposit’s underground resource. As the underground workings proceed downwards, shorter in-fill holes will be drilled to try and help upgrade the deeper resources to reserves. Underground drilling will also explore other nearby targets with step out holes.

Cruz de Mayo Deposit

SilverCrest’s Cruz de Mayo deposit is located 35 km from Santa Elena so any future operations could share people and infrastructure with their existing mine. This property’s NI 43-101 compliant technical report estimates an Indicated Resource of 1.14 million tonnes with 2.35 million ounces of silver and 2,300 ounces of gold, plus an additional Inferred Resource of 6.06 million tonnes that contains 12.96 million ounces of silver and 13,000 ounces of gold.

This current resource calculation represents 1.5 km of the system’s known 2.7 km strike length, which is open along strike and at depth. Also, Cruz de Mayo’s study shows potential for a high grade open pit and heap leach operation with more drilling and technical work. In September 2011 the company began drilling the second phase 50-hole program in order to help upgrade and expand the resource for their upcoming Pre-Feasibility Study.

La Joya Deposit

SilverCrest has an agreement to purchase the La Joya property in Durango State, which is directly south of Sonora State. Spanish colonists began mining near the city of Durango in the mid-1500s when they were also exploring and mining several other world class silver and gold districts in the Sierra Madre mountain range. Interestingly, many classic Westerns have been filmed in and around Durango City, beginning with the famous 1948 black and white movie The Treasure of the Sierra Madre that starred Humphrey Bogart as a gold prospector.

The La Joya claims are mostly in Durango State and located along the southeast border with Zacatecas State. This +10,000 hectare property has excellent infrastructure as it is about 75 km southeast of the State capital Durango city, which has a population over 500,000, a large mining community and an airport.

SilverCrest’s La Joya property is surrounded by several major projects including First Majestic Silver’s La Parilla Mine, Pan American Silver’s La Colorada Mine, Grupo Mexico’s San Martin Mine, and Industrias Penoles’ Sabinas Mine. There are also several Canadian juniors with projects in the region including Avino, Orko, and Canasil, plus many local privately owned Mexican mining companies.

(Figure 14: cross section of La Joya block model from the January 2012 NI 43-101)

La Joya is a polymetallic carbonate hosted skarn deposit that is rich in silver, gold and copper. This property contains numerous structurally controlled mineralized zones that vary in thickness from about 15 to 50 meters. Consequently it is being evaluated for bulk tonnage open mining potential. In February 2012 the company’s independent consulting engineers published La Joya’s first NI 43-101 Inferred Resource of 101.9 million silver equivalent ounces, which are contained within 57.9 million tonnes grading 28 g/t silver, 0.18 g/t gold, and 0.21% copper. Using a 15 g/t silver equivalent cutoff grade, this initial estimate contains approximately 51.3 million ounces of silver, 333,400 ounces of gold, and 270.3 million pounds of copper. The company commenced an 80-hole Phase 2 drill program in November 2011 and intends to use the results to revise the resource estimate by the end of this year.

The following table from the company’s April 2012 presentation shows their current NI 43-101 compliant Reserves and Resources for all three of their properties:


The Santa Elena mine is an open pit and heap leach operation that reached commercial production in July 2011. This year the mine is on track to produce 435,000 ounces of silver and 33,000 ounces of gold, or 2.25 million silver equivalent ounces. The company recently began an expansion project that intends to double Santa Elena’s annual production to about 4 million ounces of silver equivalent over the next two years, which involves development of a new underground mine to access the deposit at depth. Their nearby Cruz de Mayo claims are also being drilled as part of a Preliminary Feasibility study to determine the economics of bringing this satellite property into production.

The company’s first NI 43-101 for their La Joya property in Durango was published in February 2012, showing a total resource with over 100 million ounces of silver equivalent, which includes 51.3 million ounces of silver plus a significant amount of gold and copper. With an experienced management team, $35 million in the treasury and cash flow from production, SilverCrest Mines Inc. is well positioned to continue growing shareholder value as they develop their portfolio’s resources and reserves.

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