Discovery Silver’s Cordero project in Mexico will become one of the world’s largest silver mines, with production starting as early as 2025, CEO Taj Singh tells BNamericas.
A November PEA was a substantial milestone for the Chihuahua state asset, outlining an economically attractive and low-cost project delivering 26Moz/y of silver equivalent over a 16-year mine life.
And Toronto-based Discovery aims to swiftly advance Cordero to the prefeasibility stage in 2022 while exploring for new discoveries on the 35,000ha property.
Along with size and margin, the project also has the potential to be scaled up at higher silver prices, according to Singh.
BNamericas: What are the key strengths of the Cordero project?
Singh: Cordero has the combination of three things – size, margin and scalability.
On size, it’s fairly obvious. With a life-of-mine (LOM) production of 26Moz/y silver equivalent over 16 years and more than 30Moz/y in many years, which was outlined in our November PEA, Cordero would rank among the largest silver mines in the world (top three for LOM and number one in many of the peak years).
For margin, first looking at operating costs (all-in sustaining cash costs), these came in at under US$12.50/oz average for the LOM.
This ranks Cordero among the lowest cost silver mines. A big reason for the very impressive cost profile is that we are an open-pit project whereas most silver mines are underground mines.
The sustaining capital on underground mines can be very heavy per ton of ore (or ounce of silver). We benefit from efficiencies of scale as well. We are a large open pit and so much of the unit mining and processing costs come in very low as the tonnages are high compared to underground mines.
We also have fantastic infrastructure around the project (major roads, power, etc.). Also the ore has simple metallurgy with good and consistent recoveries so that helps bring down operating and capital costs further.
For capital efficiency, you are getting one of the largest silver producing mines in the world for a starting capex of under US$400mn. At US$22/oz silver the project posts an NPV of US$1.2bn giving it a capital efficiency ratio of over 3x (NPV to capex ratio). This again ranks it among some of the very best projects out there on this metric.
If you contrast the NPV of US$1.2bn to our market cap of under US$500mn right now, you see we are trading around 0.4x of the value of the project, which doesn’t consider the US$55mn cash in the bank.
This very significant valuation gap is what we are confident we can close as we continue to advance Cordero.
The last point and probably most rare trait we have compared to other silver assets is scalability. Cordero is one of the world’s largest silver deposits and just outside of the study pit area, where all the above numbers are from, we have around 400Moz of silver equivalent resources.
So conceivably if the silver price moved towards US$30/oz and beyond you could effectively double the LOM production of Cordero.
This natural leverage is extremely hard to find in a deposit – not only do the margins of the current mined material increase as silver prices increase but you actually substantially increase the amount of material that is economic.
In the silver space, it’s becoming clear that Cordero’s natural leverage can’t really be matched by any other deposit.
BNamericas: What held Cordero back previously?
Singh: Levon Resources was the previous operator and discoverer of the asset. They enjoyed good success in 2011-12 when silver prices really shot up and passed US$30/oz.
Their plan with Cordero was a bigger is better approach that required higher silver prices due to low grades, very high tonnages and high capex [as it] needed very high economies of scale.
When silver came back down below US$20/oz, Levon shelved the asset to wait for higher silver prices. We then came along in late 2019, pivoted and planned a staged approach with a manageable development capex that took advantage of the grade variability in various zones of the larger deposit.
We saw that there were very sizeable areas of the deposit that were economic at much lower prices than investors thought (below US$20/oz).
We thought we could grow the high-grade areas of the deposit as they simply hadn’t been drilled enough.
So two years later, after our aggressive drilling program [which] doubled the drilled meters, a complete reinterpretation of the deposit geology and a slew of engineering studies to optimize the deposit’s value and financial metrics, we have an entirely new project.
We have a much higher-grade project (we expanded the high grade domain by approximately four times in size), one that works below US$17/oz silver and also maintains a huge optionality on the remaining resource outside of the high grade pit.
The strip ratio remains very favorable as well. With our much higher grades, capex is essentially half [what it was under] the previous owners for a given production rate. As you pay back the initial capital, you expand the mine and cash flow increases steadily.
BNamericas: What are your priorities in 2022?
Singh: For 2022, one of our main priorities is to advance Cordero to a prefeasibility study (PFS).
This should further de-risk the project and should provide a straightforward and efficient way to realize a higher market cap to NPV ratio.
This will primarily involve more drilling, and more engineering studies to build on the PEA, and permitting.
Since our recently released PEA is something we think is much higher in confidence and quality than a typical PEA, our ability to move to a PFS will be swift and very executable.
Our goal is to release the PFS in 3Q22.
The second key part of our 2022 plan is to hopefully discover a new deposit on the property through property-wide drilling.
Our property package is 35,000ha and the resource area is less than 1,000ha. So we think there is high probability for several new discoveries still to be made (near mine and regional to the mine). We will be getting several targets ready for drilling in 2022, through mapping, sampling and geophysics and then look to drill-test them through the year. Needless to say a brand new discovery on our property would be a huge needle-mover as the market is currently ascribing no value for exploration success in our current share price.
BNamericas: Following the PFS, what are the next steps for the project, and do you have a target for the start of construction and production?
Singh: At a high level we are looking at 3Q22 for the PFS, about a year feasibility study and construction decision, and then about 1.5 years for construction. This timeline could likely be accelerated if the asset sat within a larger, producing company. Early to mid-2025 is a reasonable estimate for a production start.
BNamericas: What is the situation regarding permitting?
Singh: Our permitting situation is very favorable. Chihuahua state is very pro-mining, with many operations in the state.
We are going to start things early, probably in early 2022, and start moving to obtain any permits needed for construction.
Despite some bureaucratic slowdowns related to permitting in Mexico with the current administration, Mexico is still one of the best countries in terms of the efficiency of obtaining permits.
It takes a little longer with the current government but you plan for this, start stuff early, and you will get your permits and move things through.
BNamericas: What are your broader strategic aims for Discovery, including thoughts on M&A?
Singh: Our focus is simple – to efficiently advance the project to a construction decision.
Whether the project gets acquired or we build it, the steps will be the same. You are advancing and de-risking the project to a construction decision and building the team that can put the project into production and that’s the focus.
We are fairly agnostic on the ‘exit point’. If some offer comes in along the way we would obviously have to consider it. Cordero has many attributes that major mining companies would like and as we progressively advance it, the value of the asset from an acquirer’s standpoint increases as well.
BNamericas: Have you had interest to date?
Singh: Obviously, we can’t say too much on this but the project has big-scale appeal.
For the past couple of years we have really been laser-focused on surfacing value through the delivery of the brand-new PEA of this project.
We think there is still substantial value to be surfaced on going to PFS and a feasibility study and potentially finding new deposits on the land package.