| ||Located in the Cosalá District of Sinaloa State, Mexico, the Nuestra Señora Mine is a fully automated, low-cost underground operation with the benefit of flexible mining methods and diversified metal production. The nearby Nuestra Señora processing facility has an existing capacity of ~1,500 TPD but is expandable up to ~4,000 TPD. The plant produces zinc, copper and lead concentrates; with a significant silver component in the copper and lead concentrates. |
Nuestra Señora Operation, Sinaloa State
Nuestra Señora Mine & Processing Facility
| ||Current Operations|
FIRST QUARTER 2013
Production from the Nuestra Señora Operation in the first quarter ended March 31, 2013 ("Q1") totalled 502,934 silver equivalent ounces. The operation delivered increased recoveries in Q1 for all metals compared to Q4 2012, and record plant throughput in Q1 compared to any previous quarter. Lower head grades for silver and zinc were largely offset by higher head grades of copper and lead compared to Q4 2012, with total silver and zinc produced in Q1 2013 decreasing by 15.2% and 3.8% respectively, while copper and lead produced increased by 26.7% and 35.9% respectively. The net effect to the total silver equivalent ounces production for Q1 2013 was a decrease of 3.5% compared to the previous quarter. Net earnings for the quarter were $1.3 million or $0.01 per share (basic).
A summary of the Q1 operating and financial results are presented in the Company's April 25, 2013 and May 10, 2013 press releases, with complete details provided in the Q1 2013 Financial Statements and Management's Discussion & Analysis.
FIRST QUARTER 2013 HIGHLIGHTS & SUBSEQUENT EVENTS
Q1 2013 Financial
- Revenue from metals payable of $11.0 million in Q1 2013 is down from $12.5 million in Q4 2012 due to lower recorded metal prices for all metals and lower silver and zinc head grades, albeit compensated by higher copper and lead grades;
- Cash cost per silver payable ounce, net of by-product credits(1), decreased to $10.42 in Q1 2013 compared to $10.56 in Q4 2012 due to decreased costs and an increase in by-product credits from increased production of lead and copper;
- Net earnings in Q1 2013 decreased to $1.3 million or $0.01 per share (basic) compared to net earnings of $1.4 million, or $0.01 per share (basic), in Q4 2012;
- Adjusted EBITDA(1) of $3.2 million in Q1 2013 decreased from $5.3 million in Q4 2012 as a result of lower revenues described above; and
- Cash flow from operating activities before movements in working capital of $3.3 million in Q1 2013 decreased from $5.5 million in Q4 2012.
Q1 2013 Operations
(1) This is a non-IFRS performance measure; see Non-IFRS Performance Measures section of the Q1 2013 Management's Discussion and Analysis.
- Achieved the highest plant throughput in Q1 2013, compared to any previous quarter, and an increase of 6% compared to Q4 2012;
- Increased recoveries in Q1 2013 for all metals compared to Q4 2012;
- Recovered metals in concentrates in Q1 2013 reflect an increase in lead and copper and a decrease for silver and zinc, compared to Q4 2012;
- Recovered silver equivalent ounces(2), at 502,934 ounces in Q1 2013, decreased 4% from 521,295 ounces in Q4 2012 mainly due to a reduction in silver and zinc head grades, which was partially offset by higher lead and copper grades;
- Increased production of lead and copper concentrates;
- Continued focus on decreasing costs and increasing efficiencies to reduce overall cost per tonne of material mined and processed; and
- Took receipt of a mechanized roof-bolter (Sandvik DS410) for underground development and commenced its commissioning.
(2) Silver equivalent ounces were calculated using the following metal prices: silver US$24/oz.; zinc US$0.90/lb.; copper US$3.50/ lb.; and lead US$0.90/ lb.
Q1 2013 Project Development
- Increased plant throughput achieved in Q1 2013, and going forward, is largely due to the installation of efficient cyclone feed pumps and resizing of cyclone components near the end of Q4 2012, as well as the effect of the flash flotation cell on the mill circulating load;
- Advanced definitive engineering for the development of the El Cajón Project;
- Received archaeological clearance for the new haulage road between the Cosalá Norte development area and the existing Nuestra Señora processing plant;
- Subsequent to the end of Q1 2013, the Company received approval of its Environmental Impact Statement ("EIS", the acronym in Spanish "MIA") for exploitation of the El Cajón and San Rafael underground deposits from SEMARNAT;
- Subsequent to the end of Q1 2013, the Company hosted a site inspection by SEMARNAT technicians as part of the process to obtain the Change of Land Use Permit for the Cosalá Norte projects; and
- Nuestra Señora reserve estimate and Cosalá Norte District Preliminary Economic Assessment ("PEA") slated for completion in Q2 2013, by Reno-based Mine Development Associates ("MDA").
OUTLOOK FOR 2013
- The Nuestra Señora operations continue on their path to improvement with the processing plant operating at full capacity. Cost reduction programs are ongoing and are meeting with continued success.
- Mining and processing rates are anticipated to continue at 1,500 tpd.
- The Company looks forward to the near-term receipt of the PEA study by MDA. The PEA will include an updated reserve estimate for the Nuestra Señora Mine and an economic assessment of the nearby El Cajón and San Rafael projects based on a sequential development schedule. Now that the EIS has been received, construction and mine development at El Cajón, located 14 kilometers by existing road to the Nuestra Señora processing facility, is scheduled to commence upon receipt of the Change of Land Use permit.
- As an updated Nuestra Señora reserve estimate and associated mine plan are received, additional controls are envisaged to enable the stabilization of head grades being delivered to the processing plant. In addition, there are significant on-going efforts to upgrade areas containing Inferred resources as well as to define ore sources currently outside of the existing resource model.
- The decision to proceed with the final (Phase II) of the Nuestra Señora plant expansion, targeting an increase of the plant capacity by 80%, from 1,500 tpd to 2,750 tpd, is on hold pending receipt of the PEA, completion of internal trade-off and optimization studies, and permitting of the El Cajón and San Rafael projects.
- Scorpio Mining's 2013 exploration drilling program will concentrate on developing new resources within and around the Nuestra Señora Mine (11,500 meters) as well as testing of priority targets within the Cosalá District (5,000 meters). To enhance targeting, the Corporation has commissioned a 1,100 line kilometer heli-borne magnetic, radiometric and EM-VLF survey as well as a property-wide ASTER alteration survey. Additional drilling in 2013 will be success-driven.
- As at March 31, 2013 the Company had $26.0 million in its treasury and the cash flow generated from its Nuestra Señora operation continues to allow the Company to finance its immediate capital, development and exploration plans, as well as to look for growth opportunities.
Production for the year ended December 31, 2012 totalled 2,282,512 silver equivalent ounces with net earnings of $7.1 million or $0.04 per share (basic). A summary of the Q4 and 2012 year end operating and financial results are presented in the Company's January 18, 2013 and March 18, 2013 press releases, with complete details provided in the 2012 Annual Financial Statements and Management's Discussion & Analysis.
- Revenue from metals payable was $55.0 million in 2012, down from $70.3 million in 2011 due to lower recorded metal prices and lower head grades for all metals.
- Cash cost per silver payable ounce, net of by-product credits(1), increased to $11.93 in 2012 compared to $1.49 in 2011 due to increased costs, lower production of contained metals as a result of lower head grades for all metals, and lower credits due to a decrease in base metal prices.
- Net earnings in 2012 decreased to $7.1 million or $0.04 per share (basic) compared to net earnings of $12.6 million or $0.07 per share (basic) in 2011.
- Adjusted EBITDA(1) of $15.5 million in 2012 decreased from $35.0 million in 2011 as a result of lower revenues and higher costs described above.
- Cash flow from operating activities before movements in working capital of $15.6 million in 2012 decreased from $34.8 million in 2011.
- Focused on decreasing costs and increasing efficiencies to reduce overall cost per tonne of material mined and processed.
- Increased annual ore processing throughput to a record 521.6 kilotonnes, representing increases of 2% and 37% from 2011 and 2010 throughput, respectively.
- Recovered silver equivalent ounces(2) decreased 16% from 2011 mainly due to a reduction in head grades.
- Implemented a number of changes in the Nuestra Señora processing plant to increase overall quality and value of concentrates produced.
- Operations have been strengthened with the addition of a Mine Manager, Chief Mine Geologist, Mine Maintenance Superintendent, Safety Manager and emergency response contractors; and, as of March 2013, the hiring of a Chief Operating Officer based in Cosalá.
2012 Project Development
(1) This is a non-IFRS performance measure; see Non-IFRS Performance Measures section.
- Completed Phase I of the Nuestra Señora plant expansion in preparation to increase capacity by up to 80% to 2,750 tonnes per day ("tpd").
- Received environmental approval from Mexico's Secretary of Environment and Natural Resources ("SEMARNAT") to operate the existing processing plant up to a maximum throughput of 4,000 tpd if required by the Corporation in the future.
- Completed preliminary mine design and production planning for the El Cajón deposit.
- Engaged Canadian-based JDS Energy and Mining to perform the definitive engineering for the development of the El Cajón deposit.
- Land lease agreements concluded with Ejidos for properties located in the Cosalá Norte District.
- Received archaeological clearance for the first phase of the Cosalá Norte development.
- Successfully negotiated land right usage for a proposed new 10.8 kilometer route from the El Cajón Project to the Nuestra Señora processing facility.
- Submitted the Environmental Impact Statement for exploitation of the El Cajón and San Rafael deposits with SEMARNAT.
(2) Silver equivalent ounces were calculated using the following metal prices: silver US$24/oz.; zinc US$0.90/lb.; copper US$3.50/ lb.; and lead US$0.90/ lb.
| ||Expansion Plans|
| ||On January 30, 2012, Scorpio Mining announced plans for a major expansion project that is expected to increase current production capacity at its 100% owned Nuestra Señora processing plant by over 80%.|
Internal engineering and scoping studies carried out in Q3 2011 determined an optimum size of the Nuestra Señora plant expansion from its current capacity of 1,500 TPD to approximately 2,750 TPD, reflecting an increase of over 80%.
Phase I of this expansion, including engineering, civil works and the purchasing of long lead time items was completed in 2012.
A recently completed Preliminary Economic Assessment outlines positive economics for continued mining of the Nuestra Señora deposit along with the development of El Cajón and San Rafael underground operations and San Rafael open pit mining. The study outlines a production schedule that would call for completion of Phase II, including construction and commissioning, by the end of 2014 (see Preliminary Economic Assessment section).
| ||Mineral Resource & Reserve Estimates|
MINERAL RESOURCE ESTIMATE
The following mineral resource estimate for the Nuestra Señora deposit was prepared by independent consultant, Mine Development Associates ("MDA") of Reno, Nevada using a 60 g/t silver equivalent ("Aq eq") cutoff grade (see June 29, 2012 press release).
Nuestra Señora Deposit - Mineral Resource Estimate - June 22, 2012
The database contains data from over 170,000 meters of core from 1,500 holes for a total of around 48,000 samples generated up until February 20, 2012 for detailed interpretations.
- Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability. There is no certainty that all or any part of the estimated Mineral Resources will be converted into Mineral Reserves.
- All Mineral Resources have been classified in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the Standards Committee on Reserve Definitions and adopted by the CIM Council on December 11, 2005 and updated on November 27, 2010.
- Mineral Resource estimates are as of June 22, 2012.
- Silver Equivalent (AgEq) is calculated using metal prices of $24/oz Ag, $0.85/lb Zn, $0.85/lb Pb, and $2.70/lb Cu.
- AgEq is calculated on a contained-metal basis using the metal prices noted above, without recovery factors taken into account.
- Mineral Resources tonnage and contained-metal have been rounded to the nearest thousand and numbers might not add due to rounding.
The Mineral Resource estimate was prepared by Mr. Steven Ristorcelli, C. P. G. and Mr. Michael Lindholm, C. P. G., of MDA, both of whom are "Qualified Persons", as defined in NI 43-101. Further details including the general methodology used for the estimation is presented in the Company's June 29, 2012 press release. A NI 43-101 technical report supporting the updated Mineral Resource estimate was filed on SEDAR on August 10, 2012.
MINERAL RESERVE ESTIMATE
- 533,000 diluted tonnes mined through 2013;
- $43.0 million in net revenue (after smelting treatment and transportation charges);
- Operating costs of $26.6 million;
- Sustaining capital costs of $4.9 million;
- Net after-tax cash-flow of $21.4 million;
- NPV (5%) of $20.5 million; and
- MDA notes that, due to the complex geological nature of the Nuestra Señora deposit, there may be zones that have not been included in the current Proven and Probable reserves, and it is anticipated that Scorpio will continue to find and develop ore that is not included in this estimate.
The following mineral reserve estimate for the Nuestra Señora deposit was prepared by MDA using a $60/tonne Net Smelter Return ("NSR") value cutoff.
Nuestra Señora Mineral Reserve Estimate - December 31, 2012
|Fully Diluted P&P
Notes to Mineral Reserve Estimate:
- All Mineral Reserves have been classified in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines prepared by the Standards Committee on Reserve Definitions and adopted by the CIM Council on December 11, 2005 and updated on November 27, 2010.
- Proven and Probable reserves have been estimated using only Nuestra Señora Measured and Indicated resources and are based on underground development and stope designs created by MDA. Adjustments have been made for depletion of resources since the June 22, 2012 dated mineral resource estimate to the end of the year 2012. As such, the effective date of the new Nuestra Señora mineral reserve estimate is December 31, 2012.
- Calculation of NSR values were based on smelter parameters, operating costs and metal prices of $25/oz Ag, $0.85/lb Zn, $0.90/lb Pb, and $3.40/lb Cu.
- Stope designs were based on a NSR cutoff of $60/t. Reserves calculations are based on the total tonnage of material inside of the final stope designs and include internal dilution (the inclusion of sub-grade Measured and Indicated resources and non-resource).
- Fully diluted Proven & Probable reserves reflect a 35% reduction of mine design volumes to reflect for ore loss due to unmined material and a 35% volume increase to reflect external dilution due to unintended breakage. The 35% adjustment factor for dilution and ore loss results in the grades from scheduled production of Proven and Probable reserves better reflecting the grades from recent mine-to-mill reconciliation. As such, MDA considers the 35% adjustment to be reasonable for the definition of reserves.
The relatively low conversion rate of estimated resources (as of June 22, 2012) to estimated reserves (as of December 31, 2012) is a result of the following:
- Reduction due to depletion from July through December mining;
- Reduction due to the application of a more stringent $60/t NSR value cutoff, which includes metallurgical and smelter recoveries (versus the 60g/t Ag eq cutoff exclusive of recoveries applied for the reported resource);
- Reduction due to sterilization of blocks against or near mined out areas;
- Reduction of portions of the resource that were too distant and not continuous to be economic;
- Addition of both internal and external dilution; and
- Reduction due to ore loss.
A NI 43-101 compliant technical report dated April 12, 2013 supporting the disclosure of the Mineral Reserve estimate was prepared by MDA was prepared by MDA and filed on SEDAR on May 22, 2013, and is also available here (PDF 7.2 Mb) .
| ||The Nuestra Señora Deposits|
| ||Mineralization in the vicinity of the Nuestra Señora Mine is hosted within four known deposits: Nuestra Señora, Candelaria, Santa Teresa and Santo Domingo. It occurs as carbonate replacement-style (CRD) mantos, veins, chimneys, chimney breccias, and mineralized exo- and endo-skarn within limestone host rocks and granodiorite intrusive. The extent and character of the mineralization on the Nuestra Señora property suggest a large mineralizing system, the potential of which remains underexplored.|
Nuestra Señora Property Geology
Satellite View Looking Southwest
Nuestra Señora Deposit
In early 2005, the Company focused its efforts on underground development and definition drilling of the Nuestra Señora deposit. The program was highly successful, resulting in the discovery of two large mineralized zones (Hoag and Sept 9) adjacent to the main Nuestra Señora zone, and other high-grade lenses peripheral to its extensions.
The Hoag and Sept 9 zones do not outcrop at surface but are situated between the Nuestra Señora deposit and the Santo Domingo and Santa Teresa deposits, all of which have surface expressions. There is excellent potential to find other such "blind" (unexposed) mineralized bodies within the immediate area.
The following 3-D view shows the location of the Hoag and Sept 9 zones relative to the Nuestra Señora deposit and underground workings.
3-D View of Nuestra Main Zone & Satellite Deposits
The current understanding of the mineralized zones and their relation to other deposits in the area is that a series of stacked thrust faults provided the main conduit for mineralizing fluids. Subsequent deformation along the thrust faults created dilational zones, which provided wider structural traps for the emplacement of mineralization.
Local Control on Ore Shoots
Stacked Thrust Faults
Santa Teresa Deposit & Santa Teresa Extension Zone
The surface expression of the Santa Teresa deposit is located 150 m northeast of the Santo Domingo adit and 250 m east of the Nuestra Señora mine. The Santa Teresa Extension zone is parallel to, and southeast of, the Hoag zone. The two zones are linked by the Sept 9 zone, which has been determined to be a mineralized feeder conduit for the emplacement of mineralization into the Hoag and Santa Teresa zones.
The Candelaria deposit is situated above the Nuestra Señora mineralization and is connected to the Nuestra Señora mine via an existing haulage ramp. The high-grade nature of the deposit was verified in 2004-2005, where results from 53 underground drill holes returned >300 g/t silver and >1,000 g/t silver in 56% and 22% of sampled intersections respectively (average sampled core length was 2.2 m). The mineralization is variably enriched in other metals, returning best assays of 7.69% copper, 23.51% zinc, 15.21% lead and 13.55 g/t gold.
The Company is currently developing Candelaria on three levels, and in Q3 2011 excavated 8,500 tonnes of ore grading 202 g/t silver, 2.89% zinc, 1.38% lead and 0.67% copper. Open stope mining will be tested to assess the impact of dilution that results from that bulk mining method.
Although the Candelaria mineralization has not been classified in terms of NI 43-101 compliant resources, historical mining by ASARCO in that zone produced 150,000 tonnes of high-grade ore averaging 22 oz/tonne silver, 6.5% zinc, 3.5% lead and 2.8% copper. The irregular geometry of the mineralization impedes delineation of the zone to meet CIM Standard Definitions; as such the estimation of NI 43-101 compliant resources is not currently targeted. The present goal is to establish the Candelaria mineralization as a small-scale production area utilizing mechanized mining techniques. Should mechanized mining result in unacceptable dilution, air-leg mining techniques will be introduced.
Santo Domingo Deposit
Mineralization within the Santo Domingo deposit is exposed at river level approximately 150 m southwest of the Santa Teresa occurrence. No previous drilling of the deposit has been recorded. Scorpio's initial four surface holes into the deposit returned positive results as reported in the Company's July 10, 2007 press release. Future underground drilling of the Santo Domingo will be conducted from the 6th level workings of the Nuestra Señora mine.
| ||Technical Reports|