South American Silver Corp. Issues Positive Preliminary Economic Assessment Study on Malku Khota Silver-Indium Project

• Press Release
• Source: South American Silver Corp.
• On 2:34 pm EST, Wednesday February 25, 2009

VANCOUVER, BRITISH COLUMBIA--(MARKET WIRE)--Feb 25, 2009 -- South American Silver Corp. ("SASC" or the "Company")(Toronto:SAC.TO - News) announces the results of a NI 43-101 compliant Preliminary Economic Assessment Study ("PEA") on its 100% owned Malku Khota silver-indium-gold project located in central Bolivia. The study includes a Base Case with a pre-tax undiscounted NPV of US$1,233 Million (0% discount rate) and IRR 50.7%. The PEA was prepared by Pincock Allen & Holt ("PAH") and is based on the earlier NI 43-101 resource estimate that PAH had prepared in September 2008 (see SASC PR08-12). The full PEA will be filed on SEDAR within 45 days.

 

Key Economic Indicators:

           - Pre-Tax NPV (at 0% discount
              rate)                           US$ 1,233 Million

           - Initial CAPEX                    US$ 104.7 Million

           - Cash Cost (net of credits)       US$ 3.75 /oz silver

           - Pre-Tax IRR                      50.7 %

           - First ten years silver grade     38.6 g/t

           - First ten years indium grade     8.1 g/t

           - Years to payback from start of
              production                      2.2 years

Related Quotes Symbol Price Change SAC.TO 0.43 0.00 {"s" : "sac.to","k" : "c10,l10,p20,t10","o" : "","j" : ""}

The economic study considered a base case mining rate of 20,000 tonnes per day ("tpd") mining 247 million tonnes of leach material over a life of mine of 36 years averaging 25.3 g/t silver and 5.92 g/t indium, using the three year trailing average silver price of US$13.30/oz and US$530 per kg for indium. A three year trailing price is the conventional assumption made in base case scenarios. It includes a series of sensitivities to important parameters such as metal prices (see table below). The Base Case consists of conventional open pit mining and processing by crushing, agglomeration and placement of mineralized material on heap-leach pads. Leaching involves a sulphuric acid plus chloride leach which recovers the silver and the indium.

Ralph Fitch, President of the Company stated that "This study announces to investors that Malku Khota has the economic potential of becoming a major silver project. This is the first independent and un-optimized economic study we have had on the Malku Khota Project and we are very encouraged by the positive results. The PAH study provides the Company with the quality of data we need to scope further resource definition, mine planning and process work for a pre-feasibility study. Clearly, as the silver price increases, the Malku Khota Project becomes far more valuable to the Company and our shareholders."

Base Case

 

The table below shows key parameters of the Base Case.

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                                 Base Case
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               Parameters                        Silver Price US$13.30/oz
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Total Silver Produced                                    152.9 million oz
---------------------------------------------------------------------------
Total Indium Produced                                          974,300 kg
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Tonnes Leachable Material                            247.3 million tonnes
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Strip Ratio                                                           1:1
---------------------------------------------------------------------------
Pre-Tax NPV at 0% discount rate                         US$ 1,233 million
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Pre-Tax NPV at 5%                                         US$ 577 million
---------------------------------------------------------------------------
Pre-Tax NPV at 10%                                        US$ 325 million
---------------------------------------------------------------------------
Pre-Tax IRR%                                                         50.7 %
---------------------------------------------------------------------------
Silver Cash Cost/oz (net of credits)                          US$ 3.75/oz
---------------------------------------------------------------------------
Initial CAPEX                                           US$ 104.7 million
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Mine Life                                                        36 years
---------------------------------------------------------------------------
Years to Payback From Start of Production                       2.2 years
---------------------------------------------------------------------------
Annual Production - Tonnes Leached                       7 million tonnes
---------------------------------------------------------------------------
Average Annual Production -Silver                         4.25 million oz
---------------------------------------------------------------------------
Average Annual Production - Indium                              27,000 kg
---------------------------------------------------------------------------
Mining Cost                                                US$ 1.14/tonne
---------------------------------------------------------------------------
Processing Cost                                            US$ 2.60/tonne
---------------------------------------------------------------------------

IRR equals internal rate of return. NPV equals pre-tax net present value.
CAPEX equals capital expenditure.

Because the mine life is 36 years, further optimization of the Base Case may allow for an expansion of the mining rate as the project moves towards pre-feasibility.

It is noteworthy that the NI 43-101 report indicates there is good potential for additional resources with additional drilling.

Sensitivity Analysis

 

The project is robust with only modest sensitivity to silver and indium
prices, operating and capital costs.

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                                   IRR
---------------------------------------------------------------------
Parameter      Parameter Minus 20%     Base Case   Parameter Plus 20%
---------------------------------------------------------------------
Silver Price                 40.8           50.7%               59.3
---------------------------------------------------------------------
Indium Price                 49.1           50.7%               52.0
---------------------------------------------------------------------
Operating Cost               56.0           50.7%               43.5
---------------------------------------------------------------------
Capital Cost                 60.0           50.7%               43.7
---------------------------------------------------------------------

Metallurgical Test Work

Metallurgical test-work was done at SGS Lakefield in Canada. The metallurgical process envisaged for the property would include crushing the leach material to minus 19 mm and stacking it in heaps constructed over double liners. This material would then be irrigated with a simple solution of sulphuric acid, salt and bleach (the acid-chloride leach). Solutions collected from the base of the heap would be re-circulated to increase the concentration of the dissolved metals, with a portion bled to a commercially available ion exchange unit. The ion exchange unit, which is used in the steel and metal plating industry, regenerates the sulphuric acid and allows most of the acid to be returned to the heap. It also scalps off up to 70% of the metals in solution and these are subsequently precipitated by cementation. It is envisaged that the silver and indium precipitates will be refined to final purity products for commercial sale.

Metallurgical tests have shown that gold, copper and lead are also brought into solution by the acid-chloride leach and may also be recovered and precipitated by similar processes. Further test work is ongoing to maximize recoveries of silver and indium and demonstrate the recovery efficiencies for other metals. To indicate the potential for these additional revenues an estimate has been added to the Base Case model using values obtained from the metallurgical work to date. The following table shows the values used.

 

---------------------------------------------------------------------------
                            Acid-Chloride Leach
---------------------------------------------------------------------------
Potential By-Product
Metal                         Gold        Copper          Lead        Total
---------------------------------------------------------------------------

Assumed Head Grade        0.04 g/t          0.03%         0.16%
Assumed Metal
 Recovery                       50%           60%           25%
Assumed Metal Price  800 US$/tr oz   1.40 US$/lb   0.42 US$/lb
By-Product Value/
 tonne                  0.51 US$/t    0.56 US$/t    0.37 US$/t   1.44 US$/t
---------------------------------------------------------------------------

PAH also included a heap leach option in the PEA based on cyanide extraction, typical of those seen in Nevada gold operations. Cyanide leaching fails to recover the indium. Results for this silver only option, including gold and copper credits were positive at the 20,000 tpd mining rate. For this silver only scenario, PAH describes a pre-tax undiscounted NPV of US$358 million and IRR of 47% using the base case silver price of US$13.30/oz.

The PEA or scoping study clearly points SASC in the direction of the acid-chloride leach. The acid-chloride leach captures other metal values such as the indium, gold, copper and lead, increasing revenues per tonne.

Planned Activities

The next steps for the Company are to continue with more detailed and larger metallurgical tests to prove up a commercial design for the acid-chloride leach and further refinement of the processes required to produce final silver and indium products. The Company will also start scoping the additional information it would need to proceed to a pre-feasibility study. At the same time the Company will explore the remainder of the 15 km trend to establish the best targets for future expansion of the resource.

Indicated and Inferred Resource Estimates

The PEA was based on the Indicated and Inferred Resource previously estimated by PAH (see Press Release 08-12, dated October 1, 2008).

 

---------------------------------------------------------------------------
                        Indicated Resource Estimate
---------------------------------------------------------------------------
Cut Off                   Average       Average        Silver
(g/t                       Silver        Indium          Troy       Indium-
 Silver)      Tonnes   Grade (g/t)   Grade (g/t)       Ounces     Kilograms
---------------------------------------------------------------------------
10       151,355,000        29.71          5.58   144,597,000       845,000
---------------------------------------------------------------------------
20        80,698,000        43.15          6.75   111,966,000       544,000
---------------------------------------------------------------------------
30        45,116,000        57.90          7.75    83,989,000       350,000
---------------------------------------------------------------------------
40        28,505,000        71.54          8.50    65,567,000       242,000
---------------------------------------------------------------------------
50        18,904,000        85.33          9.15    51,861,000       173,000
---------------------------------------------------------------------------
60        13,534,000        97.52          9.80    42,432,000       133,000
---------------------------------------------------------------------------

---------------------------------------------------------------------------
                         Inferred Resource Estimate
---------------------------------------------------------------------------
Cut Off                   Average       Average        Silver
(g/t                       Silver        Indium          Troy       Indium-
 Silver)      Tonnes   Grade (g/t)   Grade (g/t)       Ounces     Kilograms
---------------------------------------------------------------------------
10       230,069,000        24.03          4.21   177,783,000       968,000
---------------------------------------------------------------------------
20        95,330,000        37.81          5.87   115,882,000       560,000
---------------------------------------------------------------------------
30        50,726,000        49.74          7.06    81,120,000       358,000
---------------------------------------------------------------------------
40        31,471,000        59.13          7.69    59,832,000       242,000
---------------------------------------------------------------------------
50        18,236,000        69.78          8.15    40,910,000       149,000
---------------------------------------------------------------------------
60        10,691,000        80.63          8.82    27,714,000        94,000
---------------------------------------------------------------------------

Mr. Barton Stone, C.P.G., Chief Geologist of Pincock Allen & Holt is the Qualified Person for the PEA. He has reviewed the content of this press release.

Certain statements in this press release constitute "forward-looking statements". These forward-looking statements include, but are not limited to, statements regarding estimated mineral resources and the potential for delineation of additional resources through further exploration at the Malku Khota Project, as well as statements regarding estimated net present value, internal rate of return, total and annual production, costs, mineral grades, recovery rates, prices and by-product value. Forward-looking statements express, as at the date of this press release, the Company's plans, estimates, forecasts, projections, expectations, or beliefs as to future events or results. Forward-looking statements are based on certain assumptions, including the key assumptions and parameters on which such estimates are based, involve risks and uncertainties and there can be no assurance that such statements will prove to be accurate. Therefore, actual results and future events could differ materially from those anticipated in such statements. Factors that could cause results or events to differ materially from current expectations expressed or implied by the forward-looking statements, include, but are not limited to, possible variations in mineral resources, grade or recovery rates, silver or indium prices, operating or capital costs; availability of sufficient financing to fund planned or further required work in a timely manner and on acceptable terms; changes in project parameters as plans continue to be refined; failure of equipment or processes to operate as anticipated; political, regulatory, environmental and other risks of the mining industry and other risks more fully described in the Company's Annual Information Form filed and publicly available on SEDAR at www.sedar.com. Readers are cautioned not to place undue reliance on the forward-looking statements contained in this press release. Subject to applicable laws, the Company assumes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or any other reason.

This press release uses the terms 'indicated resources' and 'inferred resources' which are terms recognized and required by Canadian regulations (under National Instrument 43-101 Standards of Disclosure for Mineral Projects). Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will be converted into reserves. In addition, 'inferred resources' have a great amount of uncertainty as to their existence, and economic and legal feasibility. It cannot be assumed that an inferred resource will be upgraded to a higher category. Under Canadian rules, estimates of inferred resources may not form the basis of feasibility or pre-feasibility studies, or economic studies except for preliminary economic assessment as defined under NI 43-101. Investors are cautioned not to assume that part or all of an inferred resource exists, or is economically or legally mineable.

The PEA includes inferred mineral resources which are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. Furthermore, there is no certainty that the results projected in the PEA will be realized and actual results may vary substantially.

SASC is a mineral exploration company that acquires, explores and develops mineral properties, primarily silver, gold and copper in South America. The Company presently holds interests in two material properties: the flagship Malku Khota silver-gold in Bolivia and the Escalones copper-gold-molybdenum property in Chile.

     Contacts:
     South American Silver Corp.
     Richard Doran
     Executive Vice President, Investor Relations
     (303) 512-0919
     (303) 758-2063 (FAX)
     Email: rdoran@soamsilver.com