Production
On January 1st, 2013, El Gallo 1 declared commercial production. In Q1 the mine produced 6,673 gold ounces and 5,640 silver ounces, representing 6,781 gold equivalent ounces during its first quarter. The mine remains on track to produce 27,300 gold equivalent ounces in 2013.
Gold equivalent cash costs equaled $742 per ounce. Costs were lower than estimated and the Company is lowering its expected costs at El Gallo from $1,135-$1,235 to $750-$850 per ounce for 2013.
All-in sustaining costs totaled $1,483 per gold equivalent ounce. This is higher for several reasons. First, pre-stripping was ahead of schedule. A total of $2.1 million (which added $260 per ounce) of additional pre-strip was completed. The strip ratio for the remainder of 2013 is expected to be less than Q1. Second, there was more exploration drilling than anticipated. Approximately $0.8 million (which added $100 per ounce) in additional expenses were incurred due to the Central discovery. The Company believes Central has the potential to increase the size of the Phase 1 mine life.
The Phase 2 Feasibility Study was completed in September 2012. Phase 2 is expected to increase production by 105,000 gold eq. ounces to an annualized total of 135,000 gold eq. ounces.
Highlights of the Feasibility Study
(All amounts in US dollars)
- Average annual production of 5.2 million ounces of silver and 6,100 ounces of gold during each of the first 6 years at a cash cost of $9.86 per silver ounce (net of gold by-product and including royalties).
- Open-pit mine with conventional crushing and milling (5,000 tonnes per day), using whole ore leaching. Projected overall silver and gold recoveries of 84% and 83%, respectively.
- After-tax Net Present Value (NPV) of $118 million at $25 per ounce silver and $1,415 per ounce gold and a 5% discount rate, giving an Internal Rate of Return (IRR) of 26%. Based on spot silver and gold prices ($32 per ounce silver and $1,700 per ounce gold) the after-tax NPV and IRR increases to $248 million and 44%.
- Pre-tax Net Present Value (NPV) of $190 million at $25 per ounce silver and $1,415 per ounce gold and a 5% discount rate, giving an Internal Rate of Return (IRR) of 37%. Based on spot silver and gold prices ($32 per ounce silver and $1,700 per ounce gold) the pre-tax NPV and IRR increases to $368 million and 61%.
- Estimated initial capital expenditures of $178 million (including a 14.4% contingency). Pre-production mining and sustaining capital total $7 million and $2 million, for total life-of-mine (LoM) capital expenditures of $187 million.
- After-tax pay-back period of 2.6 years at $25 per ounce silver and $1,415 per ounce gold, or 1.8 years based on the spot prices ($32 per ounce silver and $1,700 per ounce gold).
- Pre-tax pay-back period of 2.0 years at $25 per ounce silver and $1,415 per ounce gold, or 1.4 years based on the spot prices ($32 per ounce silver and $1,700 per ounce gold).
The El Gallo technical information on this page was derived from: (1) report titled "El Gallo Complex Phase 2 Project, NI 43-101 Technical Report Feasibility Study, Mocorito Municipality, Sinaloa, Mexico" with an effective date of September 10, 2012. The report was prepared by Stanley Timler, P.E., John Read, C.P.G., Michael Hester, FAusIMM, Dawn Garcia, P.G., C.P.G., Richard Kehmeier C.P.G., Brian Hartman, P.Geo, Aaron McMahon, P.G. all of whom, but John Read, are considered independent of the Company as defined in Section 1.5 of NI 43-101. To access the report click here. And, (2) news release titled “McEwen Mining Provides Q1 2013 Operational And Development Update” released on May 9, 2013 by McEwen Mining Inc. To access the news release click here.
Cautionary Notes
McEwen Mining reports its resource estimates in accordance with standards of the Canadian Institute of Mining, Metallurgy and Petroleum referred to in Canadian National Instrument 43-101 ("NI 43-101"). These standards are different from the standards generally permitted in reports filed with the SEC. Under NI 43-101, McEwen Mining reports measured, indicated and inferred resources, measurements which are generally not permitted in filings made with the SEC. According to Canadian NI 43-101 criteria, the estimation of measured resources and indicated resources involve greater uncertainty as to their economic feasibility than the estimation of proven and probable reserves. Under SEC Industry Guide 7 criteria, measured, indicated and inferred resources are considered Mineralized Material. The SEC considers that in addition to greater uncertainty as to the economic feasibility of Mineralized Material compared to proven and probable reserves, there is also greater uncertainty as to the existence of Mineralized Material. U.S. investors are cautioned not to assume that measured or indicated resources will be converted into economically mineable reserves. The estimation of inferred resources involves far greater uncertainty as to their existence and economic viability than the estimation of other categories of resources.
Mineral resources which are not mineral reserves do not have demonstrated economic viability.