New Pacific Metals (TSXV: UAG) has delivered a strong preliminary economic assessment for its Silver Sand project in Potosi department, Bolivia. The PEA confirms the potential to develop a low capital intensity conventional open pit and tank leach operation at Silver Sand, producing on average 12 million oz. of silver in dor?(C) bars per annum over a 14-year mine life, generating solid financial metrics.
Under the base case scenario, the project is calculated to have a. pre-tax NPV (5% discount) of US$1.1 billion and an IRR of 52%, and on an after-tax basis, the project generates a US$726 million NPV and an IRR of 39%.
The study assumed a base case silver price of US$22.50 per oz. silver.
Observers say the upfront capital cost for the project is reasonable at US$308 million, which includes a US$52 million contingency component.
The operation is expected to produce 171 million oz. of silver at an average life-of-mine cost of US$8.45 per oz.
Under the current mine plan, the mine will produce more than 15 million oz. between years one through four, with LOM average annual payable metal production exceeding 12 million oz. silver.
Company founder and CEO Dr. Rui Feng suggests the study is a testament to the world-class nature of the deposit can be developed into one of the world's largest silver mines with long life and robust economics. "We are very pleased with the results of this PEA. Given the robust economic parameters of the Project, there is room to accommodate inflation pressure in capital or operating costs," he said in a press release.
BMO Capital Markets Research mining analyst Ryan Thompson said the PEA was encouraging in a note to clients. "In our view, the project has the potential to be a meaningful primary silver asset."
The analyst said incorporating the new data into his model held up well as expected. Using the long-term BMO price deck of US$20 per oz. silver, BMO had previously estimated the NPV of the project at US$630 million and assumed slightly lower upfront capital but higher sustaining capital.
"We had previously assumed lower processing costs/recoveries (with a heap leach), but the PEA is now assuming a conventional processing plant, driving higher recoveries and processing costs. We are now also incorporating the updated resource estimate, which assumes more ounces over the LOM at modestly lower grades," said the analyst.
"Our revised NPV of $621 million is broadly unchanged compared to our previous assumptions."
The equity on Monday closed at $3.42, having traded between $2.55 and $5.58 over the past 12 months and is up nearly 6% over the same timeframe.