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  • SilverCrest: Santa Elena Mine on Track for First Dore in Q2 2010 0 comments
    Dec 1, 2009 3:00 AM
    By Doug Hadfield, resourceINTELLIGENCE TV

    Watch the latest episode of RITV with SilverCrest Mines HERE.

    Since SilverCrest Mines (TSXV: SVL) made the decision to build a mine at its Santa Elena project in northern Mexico, resourceINTELLIGENCE TV has keep a close eye on news from this soon-to-be producer. It's not often you get to see a company build a $30 million, high-grade, open pit mine on top of a $200 million gold and silver deposit, so we're on the case.

    If you read press releases from SVL then you'll know that the company's first dore pour is slated for Q2 2010. At the rate construction is progressing, I'm putting my money on an early Q2 pour, possibly by April but certainly no later than June.

    To build the mine, SilverCrest has contracted Sonoran Resources. Sonoran is a new company, privately funded, but the people behind it -- such as industry titan Jesse Munoz, COO and President --have decades of experience and dozens of completed mines behind them. 

    Already the company has achieved major milestones in the construction process. Mr. Munoz, who we have interviewed before,speaks Spanish and English fluently and is an expert particularly with Merrill-Crowe recovery systems, which is what SilverCrest requires at Santa Elena. 


    Investors prefer evidence to stories: To date at Santa Elena, six kilometres of roads have been upgraded for heavy equipment; construction is complete on long lead-time equipment; and all major contractors have been selected. The construction water system is in place, a tall reservoir that watches over Santa Elena like a sentinel. 

    For their part, President and CEO Scott Drever and his team have completed the 100% acquisition of the property; no payments or royalties outstanding. Full funding for the project construction has been arranged. And all major permits are now in hand. 

    With mining companies you need to go on past performance. People who habitually get everything done ahead of schedule are the most likely candidates to do so in the future. President and CEO Scott Drever and his team have overseen this job in a way that more than one analyst has been blown away by. SilverCrest acquired this project in 2006 and have paid $4 million for 100% ownership. A fast-track program drilled off a sizable reserve and raised the capital required to build a mine in less than four years. Now that is impressive. 

    Better than that, the proposed mine will be an open pit heap leach operation expected to produce approximately 35,000 to 45,000 ounces of gold and 600,000 to 1,000,000 ounces of silver per year with an 8 year mine life at an average operating cash cost below US$375 per equivalent ounce of gold. Let's look at what that means.

    At today's gold and silver prices it means a payback of less than one year. It means a net (pre-tax) cash flow of over $200 million. It means an IRR of about 160%, which is more than 100% higher than what most companies can boast to their investors.

    Based on what Mr Drever and COO Eric Fier have said about the potential for upside here, as well, we see this project as presently undervalued with a future of exceptional growth.

    At present SilverCrest is sitting on 1.3 million gold equivalent ounces(gold and silver). Eric Fier told us on his last appearance on RITV that he could "conceivably see us at 1.5 to 2 million ounces of gold equivalent in the next couple of years" added to existing ounces. That would better than double the company's value.

    Upside potential comes in several forms. There are parallel mineralized systems running nearby. Just one of these could dramatically change the scope of the project. To that end the company has continued methodically drilling in the neighborhood of Santa Elena to unearth the next deposit. 

    There is also additional opportunity of capturing value in the leach pad. Because of the high gold and silver grades and the lower recovery values attributable to heap leaching, which is how the open pit will be mined, there is a high metal content left on the depleted leach pads that can be recovered by conventional milling. Mr. Fier tells us that at today's gold and silver prices there will remain over $100 million locked in the depleted leach pads. 

    Cruz de Mayo is another SilverCrest 100%-owned project some 35 km from Santa Elena. The company has been drilling this project out for a few years. Thus far, drilling has indicated and inferred some 15 million ounces of silver, near surface with a high-grade core that is open pitable. Because the project is situated close to Santa Elena, Fier figures the ore could be processed at the Santa Elena Merrill-Crowe plant.

    SilverCrest's mid-term plan is expansion. "I've been discussing this with the rest of the management team," Fier says. "With success we'll have a sizable bank account in a couple years." He says the company will have options open to it, either as an attractive takeover target or in a financially secure position to consider mergers and acquisitions. 

    With an inferred company value of $41 million (shares outstanding x present share price) and an established project value of about $200 million and growing at Santa Elena, investors have yet to take up the $159 million difference,which is the primary reason we continue to place SilverCrest Mines in our Top 10 rank for juniors. Once the first bars of gold and silver have been poured and SilverCrest has proven its model for 35,000 to 45,000 ounces of gold and 600,000 to 1,000,000 ounces of silver per year, we suspect those still on the sidelines will have missed the boat.

    Watch the latest episode of RITV with SilverCrest Mines HERE.

    Resource Intelligence TV: Better due diligence for resource investors, stock brokers and analysts. A web-based resource investor relations program. Interviews with some of the best and brightest minds in the mining and exploration investment sectors.

    Disclosure: No Positions.

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