Santacruz Silver Reports PEA Results and New Resource on San Felipe Project, Mexico

September 11, 2014

Pre-Tax IRR 61% and 5% NPV of US$104 million; Average Annual Production of 3.2 M Oz Ag Equivalent*; All-In Cash Costs of $12.72 oz Ag Equivalent; Significant Resource Increase

Vancouver, B.C. — Santacruz Silver Mining Ltd. (TSX.V:SCZ) is pleased to announce the results of a Preliminary Economic Assessment (“PEA”) and new resource estimate prepared pursuant to National Instrument 43-101 (“NI 43-101”) on its San Felipe Project located 130 km northeast of Hermosillo in Sonora State, Mexico. Highlights of the PEA, using a US$19.91 per ounce silver base case, include:

  • Pre-tax Net Present Value (“NPV”) at a 5% discount rate of US $103.5 million and an Internal Rate of Return (“IRR”) of 60.6%;
  • After-tax NPV at a 5% discount rate of US $61.2 million and IRR of 37.7%;
  • Production of 24.3 million ounces of silver equivalent (after milling and smelting recoveries);
  • Average annual production of 3.2 million ounces of silver equivalent over a 7.5 year mine life;
  • Initial capital cost (“CAPEX”) of US $36.3 million, including $6 million of working capital;
  • Estimated all-in cash costs of US $12.72/oz silver equivalent (including site operating costs, smelter costs, sustaining capital and NSR payments ); and
  • Pre-tax payback of 1.6 years after start-up, and 2.3 years after-tax payback.

At a 150 g/t Ag equivalent cut-off, the new resource estimate for all veins is:

  • Indicated — 1.1Mt at 76.5 g/t Ag, 2.5% Pb and 6.4%Zn = 423 g/t Ag equiv or 15.2 Moz Ag equiv
  • Inferred — 3.3Mt at 64.8 g/t Ag, 1.9% Pb and 4.9% Zn = 326 g/t Aq equiv or 34.3 Moz Ag equiv

Santacruz President and Chief Executive Officer Arturo PrĂ©stamo stated, “This Preliminary Economic Assessment is excellent news for the Company and indicates that the San Felipe project has strong economic parameters and is potentially economically viable in the current market environment. The estimated CAPEX for the project is relatively low, and the property has significant exploration upside. The Company will be initiating the priority studies identified by the study team to de-risk the project immediately. These include completing more metallurgical work, initiating exploration drifting and trial mining to evaluate the continuity of higher grade mineralization and ground conditions for potential future mining.”

He continued, “The significant increase in resources in the recent estimate shows that the efforts of our exploration team are paying off. Some of the resource areas are still open and surface work over the last year has identified additional vein targets. The Company believes that, similar to many vein deposits, if a mine is developed on the current San Felipe resource there will be opportunities to identify new resources to keep the operation going for many years to come. With the PEA now complete, the Company will be initiating the recommended work program to bring the project towards pre-feasibility and will complete permitting for the proposed infrastructure. At the same time, the Company will continue to aggressively explore the rest of the property. In particular, the Company will focus on those areas already identified with high potential to further increase the resources on the San Felipe Project.”

The PEA is preliminary in nature and 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. There can therefore be no certainty that the PEA will be realized. It is also important to note that mineral resources that are not mineral reserves do not have demonstrated economic viability.

*For the PEA, Silver Equivalent was calculated using prices of US$19.91/oz., US$0.99/lb. and US$1.00/lb. for silver, lead and zinc, respectively.

PEA Summary

The PEA models a combined open pit and underground mine and mill that produces both a lead and a zinc concentrate with the lead concentrate containing the payable silver values. Resources on four veins, Ventana, Las Lamas, San Felipe and Transversales are included in the analysis. In the model, the upper parts of the Ventana, San Felipe and Tranversales veins are mined by open-pit methods. Separate underground workings are developed to access the lower parts of the Ventana and San Felipe veins and the Las Lamas vein. Proposed mining is by contractor. Underground mining is modeled to be by long-hole sub-level retreat using diesel mobile equipment. Access to lower levels is by decline. Just over a year of pre-production construction would be required. The proposed 1,250 tonnes/day mill contains a crushing circuit, ball mill and flotation circuits. Concentrates will be sold and delivered to a smelter or concentrate trader.

The PEA was completed by a group of independent qualified persons (as such term is defined in NI-43-101), including Gregory Blaylock, P.Eng, P.E. of JDS Energy & Mining Inc., Deepak Malhotra, Registered SME Member and President of Resource Development Inc., Fletcher Bourke, P.Geo., of Kuu Exploration Ltd. and Hans Smit, P.Geo., of Hans Smit, P. Geo. Inc. The PEA incorporates a new resource estimated by Gary Giroux, P.Eng. of Giroux Consultants Ltd.

A summary of the key parameters and conclusions of the PEA are given in the table below. The 100-day average as of September 4, 2014 was used as the base case metal price. The PEA is based on a stand-alone project and evaluates the potential economics from the start of construction. It does not incorporate costs before any production decision. The PEA and new resource estimate will be available on SEDAR within 45 days of this press release.

The reader is advised that the PEA summarized in this press release is intended to provide only an initial, high-level review of the project potential and design options. The PEA mine plan and economic model include the use of inferred mineral resources. Inferred mineral resources are considered to be too speculative geologically to be used as the basis of an economic analysis except as permitted under NI 43-101. There is no guarantee that inferred mineral resources can be converted to indicated or measured mineral resources, and as such, there can be no certainty the project economics described herein will be achieved.

Note: These tables are in part based on 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.

*The after tax calculation considers the new Mexican tax regime including a 0.5% environmental fee for gold/silver/platinum, a 7.5% royalty and depreciation and amortization annually at a 10% rate.

Risks and Opportunities

The San Felipe project is subject to the usual risks that comparable mining projects face, including decreases in metal prices, increases in costs and changes in mineral title law and taxation. Mexico is considered a reasonably stable country and recent changes in taxation are incorporated in the PEA model. Santacruz has a good relationship with the community of San Felipe and has an agreement regarding surface land-use with the local Ejido. As mentioned above, the PEA is based in part on inferred mineral resources which are too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as mineral reserves. Geotechnical analysis of the rock mass indicates potentially difficult ground conditions. The continuity of higher-grades at a stope scale has not been confirmed. The first year of open pit production is modeled almost entirely on inferred resources and there is limited metallurgical information and no geotechnical information to support this part of the model.

Opportunities include:

  • Higher metal prices — Increases in metal prices from those modeled results in significant increases in NPV and IRR;
  • Higher grades — The grade of material mined may be higher if mineralization is continuous at a stope scale, resulting in decreased dilution and increased mining recovery;
  • Increased resource in mine plan — Any combination of higher metal prices, lower costs, higher recovery or decreased dilution will result in more of the current resource being potentially economic;
  • Resource expansion — the San Felipe vein area is open as is the Transversales vein. Recent exploration has identified new vein targets;
  • Copper extraction — Copper grades average in the range of 0.3 to 0.4% for the material considered in the PEA. If further testwork can show that a copper concentrate is possible, it could add to the project economics.

The effects of changes to various parameters can be seen on the sensitivity tables below:

San Felipe Project Preliminary Economic Assessment 2014 – Sensitivities:

Note: This table is in part based on 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. . Mineral resources that are not mineral reserves do not have demonstrated economic viability.

Mineral Resources:

Giroux Consultants Ltd. completed the mineral resource estimate on the San Felipe Project on six separate mineralized structures drilled to date: the La Ventana, the Las Lamas, the San Felipe, the two San Felipe hangingwall structures and the Transversales vein. The new mineral resource estimate was utilized in preparation of the PEA.

A summary of the new resource at various cut-offs is given in the table below. The San Felipe vein and two hangingwall structures are combined in the table. In addition to silver, lead and zinc, the veins contain low amounts of copper and anomalous gold. Since testwork has not been able to produce an economic copper concentrate and gold values are too low to be significant, the values for these metals have not been considered at this time.

San Felipe Project Resource July 2014

Since the veins contain different metals, a silver equivalent value cut-off is given in the resource tables to better compare value. The metal prices used in the silver equivalent estimation are from a 100 day moving average as of June 3, 2014 and are listed below.

Ag US$ 20.06 per ounce 0.64 $/g
Pb US$ 0.96 per pound 21.16 $/%
Zn US$ 0.92 per pound 20.28 $/%

The recoveries used in the resource estimation for each metal within each vein are shown below.

Vein Ag Rec. Pb Rec. Zn Rec.
Ventana 70% 86% 87%
Las Lamas 73% 82% 88%
San Felipe & Transversales 69% 86% 79%

The equation used to establish Ag Equivalent is:

AgEq = (Pb% * 21.16 * Pb Rec%) + (Ag g/t * 0.64 * Ag Rec%) + (Zn% * 20.28 * Zn Rec%)
(0.64 * Ag Rec%)

Metal prices and recoveries used for the resource are different than those used in the PEA because the resource was completed earlier than the PEA. The new San Felipe mineral resource estimate is supported by 55,050 metres of drilling in 260 drill holes with a total of 11,526 assays. The holes include those drilled by Santacruz in 2013 and by prior operators in the period 1999 to 2000 and 2006 to 2008. The mineral resources were defined to a maximum depth of approximately 450 metres below surface with a total of 1,106 down-hole surveys utilized for control.

The resource estimate was completed by Gary Giroux, P.Eng. and utilized a geological model completed by Hans Smit, P.Geo and Fletcher Bourke, P.Geo. The geological model has six domains; two at La Ventana (HG, LG), Transverales (VT), three at San Felipe (SF, HW-1, HW-2) and one at Las Lamas (LL). Assays for each domain were examined and a top cap was applied to each variable within each domain. Uniform 2 m composites were formed for the domain envelopes. Variography was completed for all domains in the La Ventana and Las Lamas zones. Due to insufficient composites in the VT, SF and HW-2 domains, variography from the HW-1 domain was used with the orientation changed to fit the strike and dip of the structures. Grades for all variables were interpolated into blocks 5 x 2.5 x 5 m using ordinary kriging. For blocks with multiple domains present, a weighted average was determined for the mineralized portion. A specific gravity was established for each domain based on 472 measurements from drill core. Estimated blocks were classified as Indicated or Inferred based on geologic and grade continuity.

Sampling and Laboratory

The resource is based on holes drilled with HQ-sized core. Core was sawn in half at site and for all drill campaigns one half sent to ALS Chemex, a fully accredited and certified laboratory service. Samples were prepared at the ALS Chemex facility in Hermosillo, Mexico, and were then assayed at ALS Chemex in Vancouver, Canada. All samples were analysed using a one assay ton fire assay with an AA finish for Au (Au-AA23) and a 48 element ICP method for other elements (ME-MS61). Samples with silver results above 100 g/t by (ME-MS61) were rerun using an aqua regia digestion and ICP-AES or AAS finish (Ag-OG62). A comprehensive QA/QC procedure was followed using standards, blanks and duplicates.

Qualified Persons

All scientific and technical information included in this press release has been reviewed and approved by Gary Giroux, P.Eng., Gregory Blaylock, P.Eng., P.E., JDS Energy & Mining Inc., Deepak Malhotra, SME Registered Member, Fletcher Bourke, P.Geo., and Hans Smit, P.Geo who are all independent of the Company and each of whom is a qualified person, pursuant to the meaning of such terms in NI 43-101.


The data in the PEA has been verified by a QP and a full description of the verified data will be available in the report that will be filed within 45 days.

About Santacruz Silver Mining Ltd.

Santacruz is a Mexican focused silver company with a producing mine (Rosario); two advanced-stage projects (San Felipe and Gavilanes) and an early-stage exploration project (El Gachi). The Company is managed by a technical team of professionals with proven track records in developing, operating and discovering silver mines in Mexico. Our corporate objective is to become a mid-tier silver producer.


Arturo Préstamo Elizondo,
President, Chief Executive Officer and Director

For further information please contact:

Neil MacRae
Santacruz Silver Mining Ltd.
Telephone: (604) 569-1609

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Forward looking information

Certain statements contained in this news release, such as planned production levels, exploration programs, mining methods, capital and operating cost estimates, metal prices, tax rates, permitting, future studies and the Company’s future plans and cash flow position, constitute “forward-looking information” as such term is used in applicable Canadian securities laws. Forward-looking information is based on plans, expectations and estimates of management at the date the information is provided and is subject to certain factors and assumptions, including, but not limited to, certain assumptions as to production rate, capital and operating costs, recoveries and metal costs, that the Company’s financial condition and development plans do not change as a result of unforeseen events, that any additional financing needed will be available on reasonable terms, that the exchange rates for Canadian, Mexican and U.S. currencies will be consistent with the Company’s expectations, that requisite regulatory approvals and permits will be obtained in a timely manner and on acceptable terms, that future metal prices and the demand and market outlook for metals will be sustained or will improve and that general business and economic conditions will not change in a materially adverse manner. Forward-looking information is subject to a variety of risks and uncertainties and other factors that could cause plans, estimates and actual results to vary materially from those projected in such forward-looking information. Factors that could cause the forward-looking information in this news release to change or to be inaccurate include, but are not limited to, the risk that any of the assumptions referred to prove not to be valid or reliable, that occurrences such as those referred to above are realized and result in delays, or cessation in planned work, that the Company’s financial condition and development plans change, delays in regulatory approval, risks associated with the interpretation of data, the geology, grade and continuity of mineral deposits, the possibility that results will not be consistent with the Company’s expectations, as well as the other risks and uncertainties applicable to mineral exploration and development activities and to the Company as set forth in the Company’s Annual Information Form filed under the Company’s profile at There can be no assurance that any forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, the reader should not place any undue reliance on forward-looking information or statements. The Company undertakes no obligation to update forward-looking information or statements, other than as required by applicable law.

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