Results of AMC Prefeasibility Study on Juanicipio

RNS Number : 3975F

Fresnillo PLC

14 June 2012

 



Fresnillo Plc

28 Grosvenor Street

London W1K 4QR

United Kingdom

www.fresnilloplc.com

Fresnillo PLC Reports Results of AMC Prefeasibility Study on Juanicipio Property

Highlights

·     The Prefeasibility Study has been completed in respect of Juanicipio property

·     The study anticipates a 15 year mine life  with an average annual payable production of approximately 10,3 million ounces of silver and 29,200 ounces of gold.

·     Cash cost of US$6.61 per ounce of silver equivalent and US$-0.03 per silver ounce, net of by-product credits.  

·     After-tax NPV of US$1.2 billion at a 5% discount rate and US$23.39 per ounce silver price. 

·     The study was prepared on the basis that the project will be developed on a standalone basis

Fresnillo PLC today reports the results of a prefeasibility study received by Minera Juanicipio S.A. de C.V., its 56% owned joint venture with MAG Silver Corp. (44%) (TSX: MAG and NYSE: MVG), in respect of the Juanicipio property located in the Fresnillo District, Zacatecas State, Mexico.

The study was completed by AMC Mining Consultants (Canada) Ltd. and is based on an assumed initial processing capacity of approximately 850,000 tonnes per annum, (ramping up to a maximum rate of 950,000 tonnes per annum), at the stand-alone project. The AMC study recommends long-hole open stoping and cemented paste backfill as the primary mining method, with processing consisting of a comminution circuit followed by the sequential flotation of a lead -silver concentrate, and zinc concentrate and pyrite (gold) concentrate.

The study anticipates three and a half years of pre-production development from the start of construction to mill start-up, followed by a mine life of approximately 15 years with average annual payable production of approximately 10.3 million ounces of silver, 29.2 thousand ounces of gold, 11.2 thousand tonnes of lead and 18.2 thousand tonnes of zinc in concentrates at a cash cost of US$6.61 per ounce of silver equivalent.

The after-tax net present value would be US$1.2 billion at a 5% discount rate , according to the AMC study. The after-tax net present value does not take into account the cost of the mandatory profit sharing to employees (MPSE) under Mexican Federal Labor Law, which Fresnillo complies with at its Mexican operations. The MPSE is required to be paid at a rate equivalent to 10% over income subject to profit sharing (taxable income adjusted for certain items). MPSE is deductible for income tax purposes.

Summary of Assumptions and Economic Analysis^(1,2)

(All amounts in US$ unless otherwise indicated)

Item	Unit	Base Case		Item	Unit	Base Case
Initial Throughput	tpa	850,000		Mining Costs	$/t milled	$43.92
Silver Grade	g/t	416		Milling Costs	$/t milled	$19.18
Gold Grade	g/t	1.3		Unit G&A Costs	$/t milled	$3.46
Lead Grade	%	1.4%		Cash Cost	$/oz AgEq	$6.61
Zinc Grade	%	2.7%		Initial Capital	$ mm	$302
LOM Payable Silver	moz	153		Sustain. Capital	$ mm	$267
LOM Payable Gold	koz	430		NPV (After-tax)	$ mm	$1,233
LOM Payable Lead	mlbs	361		IRR (After-tax)	%	43%
LOM Payable Zinc	mlbs	584		Payback (Pre-tax)	Years	3
				Corporate Tax	%	28%

⁽¹⁾    The AMC Base Case utilizes a discount rate of 5% and three year trailing average metal prices for silver ($23.39 per ounce), gold ($1,257 per ounce), lead ($0.95 per pound) and Zinc ($0.91 per pound) to December 31, 2011.

⁽²⁾    Source: AMC Mining Consultants  (Canada) Ltd.

AMC was engaged by Minera Juanicipio in July 2010 to prepare the prefeasibility study. The scope of the AMC study includes, among other things: the resource estimate and model developed by Strathcona Mineral Services dated November 2011; a geotechnical assessment and mining options study; a detailed mine design with detailed schedules based on chosen mining methods; a metallurgical and processing review; a capital and operating cost estimate; and an economic assessment and sensitivity analysis of cash flows, pay back, mine life, NPV and IRR. 

While the results of the AMC study are promising, as anticipated by us, it constitutes a preliminary study that, by definition, is preliminary in nature and, among other things, includes inferred mineral resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. The estimates produced in the study have a level of accuracy in the order of +/- 25%.  There can therefore be no certainty that the results reflected in the AMC Study will be realised.  It is also important to note that mineral resources that are not mineral reserves do not have demonstrated economic viability.  

Fresnillo intends to complete a full review of the study and the recommendations made by AMC. The Technical Committee of the Joint Venture, which comprises Fresnillo and MAG Silver representatives, will then discuss and evaluate the implications of the AMC study and recommend to the Board the appropriate next steps. As Fresnillo has previously said, the AMC study was prepared on the basis that the Juanicipio project will be developed on a standalone basis. There are no plans to integrate the project with any of Fresnillo's properties in the area.

For further information, please visit our website: www.fresnilloplc.com or contact:

Fresnillo plc          

London Office                                                                         Tel: [phone]

Arturo Espínola, Head of Investor Relations

Mexico City Office

Gabriela Mayor                                                                        Tel: [phone]

Brunswick Group                                                                   Tel: [phone]

Carole Cable

David Litterick

About Fresnillo plc

Fresnillo is the world's largest primary silver producer and Mexico's second largest gold producer, listed on the London and Mexican Stock Exchanges under the symbol FRES. Fresnillo has seven operating mines, all of them in Mexico - Fresnillo, Saucito, Cienega, San Ramón (a satellite of the Ciénega gold mine),Herradura, Soledad-Dipolos and Noche Buena (new gold mine at Herradura District);two development projects - Saucito II, and Dynamic leaching to treat high grade gold ore from Herraduraand Soledad-Dipolos mine; and five advanced exploration prospects - San Julián, Centauro Deep, Juanicipio, Orysivo and Las Casas as well as a number of other long term exploration prospects. In total, has mining concessions covering approximately 2.1 million hectares in Mexico. Fresnillo has a strong and long tradition in mining, a proven track record of exploration success, reserve replacement, mine development, efficient mine operations with productioncosts in the lowest quartile of the cost curve for both silver and gold. 

Fresnillo's goal is to maintain the Group's position as the world'slargest primary silver company, producing 65 million ounces of silver and 500,000 ounces of gold by 2018.

This announcement contains forward looking statements. All statements, other than statements of historical fact are forward looking statements. By their nature, forward looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results, performance or achievements may, for various reasons, be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. A number of factors could cause results, performance or achievements to differ materially from those expressed or implied by the forward looking statements including, without limitation, general economic and business conditions, industry trends, competition, commodity prices, changes in regulation and currency fluctuations.

The forward looking statements reflect knowledge and information available at the date of preparation of this announcement. Except as required by the UK Listing Rules and applicable law, the Board of Fresnillo plc does not undertake any obligation to update or change any forward looking statements to reflect events occurring after the date of this announcement.

THIS PRESS RELEASE REFERS TO THE STUDY COMPLETED BY AMC MINING CONSULTANTS (CANADA) INC. (THE "AMC STUDY") AS A "PREFEASIBILITY STUDY".  THE AMC STUDY CONSTITUTES A PREFEASIBILITY STUDY FOR PURPOSES OF FRESNILLO PLC and MINERA JUANICIPIO S.A. de C.V., ALTHOUGH FRESNILLO UNDERSTANDS THAT IT DOES NOT CONSTITUTE A PREFEASIBILITY STUDY FOR CANADIAN PURPOSES UNDER NATIONAL INSTRUMENT 43-101 - STANDARDS OF DISCLOSURE FOR MINERAL PROJECTS.

 

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