Juanicipio Gears Up for High-Grade Production

Q: Why was production at Juanicipio pushed back from 2018 to 2019?

A: The delay in production was for all the right reasons. Our JV partner on the project, Fresnillo, is conservative and wants to be sure to meet the guidelines that are set out. We delayed because we will no longer be building the mine at 2,650t/d throughput as originally planned, but rather it will be built at 4,000t/d. That is almost a 50 percent increase in throughput, so inevitably this requires changes to the construction and mine design but thankfully it will not require a substantial increase in capital expenditure given that the mill is already in place.

Another reason for the delay is because we recognized that the deeper part of the vein is volumetrically and compositionally very significant. When we were drilling in 2015 we thought we had reached the bottom of the “bonanza zone” but we discovered that the vein increased in width from 7m to 25m and the grade increased. To reach this deeper deposit, we are planning to build a mine beneath the one we had originally planned. This means that we have to be careful not to underbuild the first operation.

Q: How will the partnership with Fresnillo evolve once the mine moves into construction and operation?

A: Given the history of the JV to date, I do not anticipate exploration slowing down once the mine is producing. The JV property extends for 20km to the south and 8km to the west and there seem to be several structures parallel to the one we are currently developing and that Fresnillo is exploring on their side of the boundary. Geologically it is highly unlikely that some of these veins do not continue into the JV property, and so the upside for ongoing discovery is high.

The Fresnillo district is rapidly emerging as the world’s biggest silver epithermal vein camp. A total of 850 million ounces of silver has been added since 2010 with the discovery of Juanicipio and the Valdecañas vein, on top of the deposits that were already being mined and the 1 billion ounces that has been produced historically. The district now has combined production and reserves of 3.2 billion ounces, which is larger than any other silver district in the world.

It leaves the Cerro Rico de Potosi district in Bolivia in the dust. We hope to continue exploring the district for many years to come.

Q: How do you plan to invest the added cash flow from the 229 Juanicipio project once it goes into production?

A: Some of it will go back into the ground to explore further exploration targets, and depending on the success of those efforts we might be building more mining units. We are constantly looking for new projects around the world, as long as the deposit is high grade and big enough to survive at least one market cycle.

We will also consider paying dividends, but we only want to go down that route when the company is in a strong enough financial position to do so. We have always tried to be financially disciplined, only raising money through equity and at opportune times for our shareholders. We have set aside US$140 million to build the mine at 2,650t/d, but now that we will be increasing that to 4,000t/d we may require a little more capital expenditure.

Q: What can the market expect to see from MAG Silver in the next few years?

A: The focus for the next two years will be to continue advancing the Juanicipio project. During 2017 we will be issuing a new technical report, a new resource and a production go-ahead decision. And we will continue to pursue an aggressive exploration program on the property. We are in the silver business, and 25 percent of all the silver mined in history has come from Mexico. There are 15 deposits worldwide that have produced in excess of 1 billion ounces of silver, eight of which are in Mexico and four of those eight are in the Fresnillo Silver Trend. It is the most sought-after real estate in the silver business, so it is clear that we will be focusing our efforts in Zacatecas.