Apogee Silver Ltd.
TSX VENTURE : APE

Apogee Silver Ltd.

January 17, 2013 08:00 ET

Apogee Silver's Pulacayo Project Demonstrates Positive Feasibility Study Results

TORONTO, ONTARIO--(Marketwire - Jan. 17, 2013) - Apogee Silver Ltd. ("Apogee" or the "Company") (TSX VENTURE:APE) has received the results of a positive Feasibility Study to develop the Pulacayo silver-lead-zinc deposit located at its 100% controlled Pulacayo property in southwestern Bolivia.

Highlights of the Feasibility Study (FS) 1,2,3:

  • Pre-tax Internal Rate of Return of 47%
  • After tax Internal Rate of Return of 32%
  • Total Cash Operating Costs of $8.44/oz AgEq.4,5
  • 2.6 million silver equivalent ounces4 produced/yr average for the first six years
  • After-tax NPV of US$ 72.5 million
  • Annual pre-tax cash flow at production maturity of $39.3 million
  • Annual after-tax cash flow at production maturity of $24.0 million
  • Project capital cost of US$ 46 million
  • Life of Mine - 12 years

The Feasibility Study confirms the technical and financial viability of a silver-lead-zinc mine and base metals concentrator at Pulacayo that will form a platform from which full-scale development of the Pulacayo-Paca resource can take place. The mining scenario presented in the FS considers only 39% of the silver ounces estimated in the Pulacayo Mineral Resource summary (see Table 4 below). It also excludes the prospective Paca project adjacent to the Pulacayo property (see the Company's press release dated Feb 19, 2007). The highlights of the Feasibility Study are summarized in Table 1.

CEO Neil T. Ringdahl stated, "We are delighted with this result for a resource that still shows so much exploration potential. Although the existing mineral resources at Pulacayo could support a significantly higher production profile, it is the Company's preference at this time to build a robust underground operation with a conservative footprint and reduced capital cost. In this way, technical execution risk is reduced while allowing subsequent growth to take place at a pace that respects the needs and concerns of local communities - something we take very seriously. The initial mining scenario forms the foundation for future production growth and could provide the Company with the opportunity to fund future expansion from internally generated cash flow."

Table 1 - Base Case Projected Operating Highlights and Project Performance of the Feasibility Study
Financial Analysis
Internal Rate of Return (IRR), pre-tax 47.1%
Average annual cash flow, pre tax $ 27.0 million
Annual pre-tax cash flow at production maturity $ 39.3 million
Annual after-tax cash flow at production maturity $ 24.0 million
Net Present Value (NPV@8%), pre-tax $ 126 million
Internal Rate of Return (IRR), after-tax 32.1%
Average annual cash flow, after tax $ 17.8 million
Net Present Value (NPV@8%), after-tax $ 72.1 million
Silver price assumption3 $ 28/oz
Lead price assumption3 $ 0.89/lb
Zinc price assumption3 $ 1.00/lb
After tax capital payback period 3.9 years
Net Smelter Return (NSR) ($/tonne milled)6 $ 171/t
Capital Costs7
Project capital $ 45.9 million
Maximum cash funding (incl. working capital) $ 55.4 million (month 19)
Sustaining capital (Life of Mine) $ 41.1 million
Operating Costs (Average over the life of mine)
Mining ($/t milled) $ 30.65/t
Processing ($/t milled) $ 15.21/t
G & A ($/t milled)8 $ 9.02/t
Mine operating cost ($/t milled) $ 54.88/t
Cash operating cost ($/oz AgEq.)4,5 $ 8.44/oz
Cash operating cost ($/oz)5 $ 11.20/oz
Production Data
Life of Mine (LoM) 12.5 years
Number of Years at steady state (1,000tpd) 9 years
Ore tonnes milled 360,000 tpa or 1,000 tpd
LoM metallurgical recovery (silver) 86.3%
LoM metallurgical recovery (lead) 85.6%
LoM metallurgical recovery (zinc) 85.8%
Silver produced over the LoM 19.5 million oz
Lead produced over the LoM 67,021 t conc./ 70,9 Mlbs metal
Zinc produced over the LoM 104,903 t conc./ 117.9 Mlbs metal
Average annual silver produced (oz AgEq. 1st steady state production)4 2.56 million oz Equiv.
Average annual silver produced (oz 1st steady state production) 1.94 million oz
Average annual equivalent silver produced (oz AgEq. over LoM)4 2.11 million oz Equiv
Average annual silver produced (oz over LoM) 1.63 million oz Equiv

Additional Technical Information Related to the Feasibility Study

Financial Analysis

Projected prices3 of $28.00 per ounce of silver, $0.89 per pound of lead and $1.00 per pound for zinc were used as the base case in the Feasibility Study. The silver price projection is based on a three-year trailing average at Nov 30, 2012, while the base metal price projections are based on independent market analysis. The financial analysis for the base case indicates a project with an expected pre-tax IRR of 47.1% and projected to generate $25.7 million of average annual after-tax cash flow for the first 6 years of production with a payback period of 3.9 years. Annual after-tax cash flow while in operation is expected to be $18.8 million. The project is sensitive to silver price, as set out in Table 2, still positive at a US$20/oz, and increasingly attractive at higher (current market) silver prices. The project is less sensitive to operational and capital costs (Table 3).

Table 2 - Project Sensitivity to Silver Price
Ag - Price
US$/oz
NPV
$M
IRR
%
20 20 16
24 46 24
28 (Base Case) 73 32
32 99 39
36 125 46
39 142 50
Table 3 - Project Sensitivity to Capex and Opex
Fluctuations
Escalation Factor OPEX CAPEX
NPV
$M
IRR
%
NPV
$M
IRR
%
+15% 61 28 64 28
0% (Base Case) 73 32 73 32
-15% 84 36 81 37

Project Location & Infrastructure

The Pulacayo-Paca property currently comprises approximately 22,828 hectares of contiguous mining concessions centered on the historic Pulacayo mine and town site. The property is located in southwest Bolivia, approximately 460 km from the capital city of La Paz, 130 km southwest of the town of Potosi and 18 km east of the city of Uyuni (Figure 1). It is accessible by good roads from La Paz which are now paved to the town of Uyuni and Pulacayo. Uyuni has railway connections with Argentina and Chile. The Pulacayo Mine is supplied by a 44kV power line that is shared by the Pulacayo town which will be upgraded for the project. Project designs are also sensitive to the protection of potable water. This is currently fed via a twelve kilometer pipeline from a reservoir that collects water from a historical drainage tunnel as well as surface runoff from precipitation.

Geology

The Pulacayo Deposit supported the second largest silver mine in the history of Bolivia, with over 600 million reported ounces of past silver production. The deposit is associated with a low sulphidation epithermal system that hosts both precious and base metal mineralization within Tertiary sediments of the Quenhua Formation and intruding andesitic volcanic rocks of the Rotchild and Megacristal units. Of the 1,000 m vertical extent of sulphide mineralization, the top 450 m section is hosted within the intruding volcanic unit and the bottom 550 m is hosted in the underlying sedimentary unit. Mineralization hosted by volcanic rocks occurs over tens of meters in thickness as a stockwork of narrow veins and veinlets accompanied by disseminations in associated argillicly-altered marginal areas. The intruded sedimentary rocks host spatially constrained, bonanza style, high-grade veins that locally measure up to several meters in width. These typically bifurcate into the wider stockwork and disseminated zones that characterize the overlying volcanic sequence. Veins are commonly banded in texture and can contain semi-massive to massive sulphides, with the primary minerals of economic importance being galena, sphalerite, tetrahedrite and other silver sulfosalts. In combination, these comprise the Tajo Vein System that constitutes the main Pulacayo deposit that is the subject of this Feasibility Study.

Mineral Resources & Reserves

Mineral resources (Table 4) were reported by Michael Cullen (P.Geo) of Mercator Geological Services Limited and Eugene Puritch (P.Eng.) of P&E Mining Consultants Inc. at an effective date of September 28th, 2012. Mineral reserves based on the September 28th, 2012 resource estimate were reported by Professor Jim Porter of TWP at an effective date of December 11, 2012 (Table 5). Please refer to the Company's press releases dated September 28th, 2012 and November 14, 2012 regarding disclosure of the resource estimate and associated technical report.

Table 4 - Pulacayo Mineral Resource Summary as of September 28, 201211,12,13,14
Resource Class Type Tonnes Ag g/t Pb % Zn % Ag
(Oz)
Pb
(lbs.)
Zn
(lbs.)
Combined Open Pit and Underground Resources including Oxide and Sulphide Zones
Open Pit Resources (Base case 42° Average Pit Wall Slope Angle)
Open Pit Indicated Oxide 1,500,000 95.9 0.96 0.13 4,626,000 ~ ~
Open Pit Inferred Oxide 248,000 71.2 0.55 0.31 569,000 ~ ~
Open Pit Indicated Sulphide 9,283,000 44.1 0.66 1.32 13,168,000 135,896,000 269,540,000
Open Pit Inferred Sulphide 2,572,000 33.4 0.92 1.36 2,765,000 51,989,000 76,878,000
Waste Rock 71,679,000 ~ ~ ~ Strip Ratio 5.3 : 1
Underground Resources (all blocks below 4159 m ASL with NSR > $US 58)
Underground Indicated Sulphide 6,197,000 213.6 0.86 1.74 42,547,000 117,492,000 237,717,000
Underground Inferred Sulphide 943,000 193.1 0.43 1.61 5,853,000 8,939,000 43,471,000
Total Indicated Oxide + Sulphide 16,980,000 110.5 0.74 1.49 60,341,000 253,388,000 507,257,000
Total Inferred Oxide + Sulphide 3,763,000 75.9 0.797 1.43 9,187,000 60,928,000 120,349,000

The resource estimate is based on validated results of 69,739 meters of diamond drilling and 606.34 meters of surface trenching carried out by Apogee Silver through various programs between 2006 and 2012. This includes 226 surface drill holes, 42 underground drill holes and 6 surface trenches.

Mineral resources that are not mineral reserves do not have demonstrated economic viability.

The probable mineral reserve which constitutes 57% of the Underground Indicated Mineral Resource and 21% of the estimated Total Indicated Mineral resource, is set out in Table 5 below.

Table 5 - Mineral Reserve Summary as of December 11, 201215,16
Probable Mineral
Reserve(tonnes)
Ag (g/t) Pb (%) Zn (%) Ag (oz) Ag (oz agEq.)3 Pb (t) Zn (t)
3,557,683 239 1.09 1.91 27,385,190 35,457,378 38,927 67,905

Mining

The mining strategy adopted for the Pulacayo deposit has accommodated the complexity of the stockwork of veins, the exceptionally weak geotechnical condition of the ore and the existence of some 100 years of planned and unplanned mining activities. Considerable execution risk has been mitigated through the adoption of a highly selective mining method. Furthermore, a conservative approach to the production build up that considers stope redundancy necessitated by the potential intersection of unplanned voids during stope development was considered. Together with the risk assessment, the strategy optimises capital investment in proportion to the mining production plan.

The mining method employed is predominantly mechanised, underhand cut and fill mining using longhole drilling and a cemented paste backfill. Limited conventional shrinkage stoping is also employed on the top level. Access is by means of spiral ramp systems from surface together with the existing underground infrastructure.

Processing and metallurgy

The design of the concentrator plant is modular (500 t/d each, 2 modules), each circuit is conventional with a single ball grinding mill and a differential lead and zinc flotation circuit, followed by concentrate pressure filtration to produce final lead and zinc concentrates. The results of the locked cycle tests were used to create a grade-recovery prediction model, which was applied to the range of feed grades over the life of mine. The average life of mine feed grades and their predicted recoveries are shown in Table 6 below. Further testing to improve silver recoveries will be conducted.

Table 6 - Predicted Recovery on Average LoM Plant Feed Grade
Lead
Circuit
Feed
Grade
%
Lead
Floatation
Recovery
%
Zinc
Circuit
Feed
Grade
%
Zinc
Floatation
Recovery
%
Overall
Plant
Recovery
%
Concentrate
Grade
%
Silver
Grade in Concentrate
g/t
Silver g/t 240 68.5 77 18.2 74.34
Lead % 1.1 85.6 0.16 22.4 88.86 48 8,382
Zinc % 1.92 7.6 1.81 86.8 89.43 51 454

Extensive sampling and metallurgical test work was undertaken on the deposit to define the most suitable base metals recovery technology into which the silver reports. Bench batch scale, open circuit and locked cycle, flotation test results indicate that a conventional differential flotation process provides the best performance for recovery and grade. Locked cycle tests were performed under the proven differential flotation flowsheet by Maelgyn Minerals Services Africa, an accredited laboratory. The results were used as the metallurgical input data for the economic evaluation conducted on the project. Four metallurgical programs have been completed. Additional testing was carried out to establish the concentrates filtration rate, tailings settling characteristics and cemented paste backfill preparation technologies.

Next Steps

The completion of the Feasibility Study marks an important milestone in the development of the Pulacayo-Paca Project. The next important step for the Company will be the completion and submission of the Environmental Impact Assessment (ESIA) Report as part of the Project's permitting process. The submission of this report to the Bolivian Ministry of Mother Earth is expected before the end of first quarter 2013. With the completion of the Feasibility Study, the Company will now progress financing discussions both in Bolivia and abroad.

The Company expects to file the full NI 43-101 compliant technical report (Feasibility Study report) on the SEDAR profile of the Company at www.sedar.com in respect of the Pulacayo Deposit within 45 days of this press release. A corresponding press release will be issued when that filing has been made.

Notes to this press release

  1. All currency figures are expressed in US dollars, unless noted otherwise
  2. Please see caution regarding forward looking information
  3. Base silver prices for the feasibility economic study are the three-year trailing average of Ag $28/oz at Nov 30, 2012. A lead price projection of $0.89/lb and $1.00/lb for zinc was used; both projections are based on an independent review conducted by Exen Consulting Services of Ontario, Canada and TWP.
  4. The application of "silver equivalent ounces", or silver equivalent (oz AgEq.1) means the US dollar value of lead & zinc metals divided by the price of silver and added to the pure silver ounces in any applicable category. Unless otherwise indicated, all economic calculations are done using metal prices discussed in Note 3; where operating costs per oz AgEq are quoted, equivalent ounces refer to equivalent ounces produced after mining and processing modifying factors. The calculation for lead equivalent ounces is Lead AgEq. = (Lead Tonnes x 2204lbs/t x $0.89/lb) / $28oz and for zinc equivalent ounces is Zinc AgEq. = (Zinc Tonnes x 2204lbs/t x $1.00/lb) / $28oz
  5. Due to the inclusion of royalties in cash costs per ounce, cash costs increase or decrease as the price of silver fluctuates up or down. Government imposed royalties include a 6% export royalty on all silver metal exported, 5% export royalty on lead & zinc metal exported, apart from an additional 2.5% of NSR to COMIBOL (Corporacion Mindera de Bolivia), and 1.5% of NSR to the Pulacayo Cooperative. Royalties are exclusive of amortization, reclamation, capital, and exploration and development costs.
  6. Net Smelter Return (NSR) is the gross revenue (total revenue minus production costs) that the owner of a mining property receives from the sale of the mine's metal/non metal products less transportation and refining costs. It does not include royalties. Unless otherwise indicated, all NSR calculations are done using metal prices in Note 3.
  7. The pre-production and sustaining capital costs do not include the salvage value of plant and equipment.
  8. G & A cost means general and administrative costs and includes items such as administration, labour, accommodation, safety, training, office, legal, material transport and other third party services costs.
  9. Cash operating costs per ounce represent the mine site operating costs such as mining, processing, metal transport, refining, administration, and government imposed royalties14.
  10. Government imposed royalties due, namely 6% export royalty on all silver metal exported, 5% export royalty on lead & zinc metal exported, value due 2.5% of NSR to COMIBOL (Corporacion Mindera de Bolivia), 1.5% of NSR to the Pulacayo Cooperative and are exclusive of amortization, reclamation, capital, and exploration and development costs. Due to the inclusion of royalties in cash costs per ounce, cash costs increase or decrease as the price of silver fluctuates up or down.
  11. Modeling was performed using Gemcom Surpac® 6.3 modeling software with silver, lead and zinc grades estimated independently by inverse distance squared (ID2) interpolation from 1.0 meter down hole assay composites capped at 1500 g/t, 15 %, and 15 % respectively. Block size was 5 meters (x) by 3 meters (y) by 3 meters (z) with one unit of standard sub-blocking allowed. Block model results were checked using ordinary Kriging and Nearest Neighbour interpolation methods.
  12. A bulk density model was interpolated by ID2 methodology from 1.0 meter down hole bulk density composites using the grade interpolation parameters for each metal.
  13. Mineral Resource estimate (Table 4) values for the blocks occurring within the sulphide zone were determined by means of a net smelter calculation using a 36 month trailing average silver price of $25.00 USD/oz and prices of $0.89 USD/lb lead and $1.00 USD/lb zinc.
  14. Open pit resources to an elevation of 4159m ASL (top of crown pillar) were determined within a Whittle optimized maximum NPV pit shell utilizing $1.80 USD/tonne mining cost, $1.60 USD/tonne surface haulage cost, $2.50 USD /tonne G&A, and $19.00 USD/tonne and $9.10 USD/tonne respectively for oxide and sulphide processing costs. Pit slopes varied from 42 to 43 degrees. In the pit optimization process, only silver derived NSR values were used in the oxides, while silver, lead and zinc derived NSR values were used in the sulphides.
  15. The estimation of the Probable Mineral Reserve was conducted by TWP under the supervision of Qualified Person Professor J. Porter and includes modifying factors including and NSR cutoff of US$ 70/t, 2% mining dilution, 2% mining loss, 2% lashing loss and 5% void loss due to historical mining. A silver price of US$25/oz, lead US$0.89/lb, and zinc US$0.89/lb was used in the determination of the NSR of mining blocks. Professor Porter is independent of Apogee.
  16. The Company is not aware of any imminent undisclosed risk could materially affect development of the reserve. The development of the mineral reserve nevertheless could be affected by risks including possible delays to environmental permitting, legal risks, lease title rights risks, potential changes to taxation and royalty laws, possible sociopolitical unrest, potential marketing challenges, or other relevant issues.

Qualified Persons

This independent Feasibility Study was prepared by TWP Sudamerica under the supervision of Professor Jim Porter a Fellow of the Southern African Institute of Mining and Metallurgy and Director of the Centre for Mechanised Mining Systems at the University of the Witwatersrand, and Graeme Farr, an independent qualified Process Engineer with 37 years experience in Mineral Processing, a Fellow of the South African Institute of Mining and Metallurgy and Senior Process Consultant for TWP Projects. The technical and scientific information in this press release has been reviewed and approved by Professor Jim Porter, Graeme Farr, Michael Cullen (P.Geo) and Eugene Puritch (P.Eng.), each of whom is independent of the Company and each of whom is a Qualified Person under NI 43-101.

About Apogee Silver Ltd

Apogee Silver Ltd. is a mineral exploration and development stage company listed on the TSX Venture Exchange under the symbol APE. Apogee targets advanced silver-zinc-lead projects in South America that demonstrate potential to be developed to production. Currently its projects are located in the historic silver producing regions of southwest Bolivia and northern Chile. There are currently 301,066,809 common shares of Apogee issued and outstanding.

Apogee's most advanced project is the 100% controlled Pulacayo-Paca project in Bolivia. This project includes the property that covered the second-largest silver mine in the history of Bolivia with a historical estimate of over 600 million ounces of past production.

About TWP Sudamérica

TWP Sudamérica S.A. based in Lima, Peru is a wholly-owned subsidiary of TWP Projects and the Basil Read Group, which is a capable international resource and infrastructure focused engineering project house with 30 years of experience. It provides a full range of engineering, architectural, finance and project management solutions. The TWP group employs in excess of 1,400 multi-disciplinary professionals and administrative personnel around the world. The company has a project portfolio with a capital value of more than US$15-billion and has offices in South Africa, Australia, Mozambique, Namibia, Peru and Chile. TWP Sudamérica's Peru office employs more than 150 professionals and is completing work in Chile, Colombia, Bolivia and Peru and Canada.

TWP Weblink: http://www.twp.co.za

Cautionary Note Regarding Forward-Looking Information:

This press release contains "forward-looking information" within the meaning of applicable Canadian securities legislation. Forward-looking information includes, but is not limited to, statements, projections and estimates with respect to results of the feasibility study and the mineral reserve and resource estimate, the potential effect of the metallurgical results, the impact and anticipated timing of future metallurgical results, potential effect of the toll milling and trial mining process and impact upon the future development of the property, the future financial or operating performance of the Company, its subsidiaries and its projects, the development of and the anticipated timing with respect to the Pulacayo-Paca project, the ability to obtain financing; and the impact of concerns relating to permitting, regulation, governmental and local community relations. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Estimates underlying the results of the feasibility study arise from engineering, geological and costing work of TWP Sudamerica, Mercator Geological Services, P&E Mining Consultants and the Company. See the technical report relating to the feasibility study for a description of all relevant estimates, assumptions and parameters. Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to: general business, economic, competitive, geopolitical and social uncertainties; the actual results of current exploration activities; other risks of the mining industry and the risks described in the annual information form of the Company. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.

To view Figure 1, please visit the following link: http://media3.marketwire.com/docs/847348FIG1.pdf.

Contact Information