• Juanicipio JV

JUANICIPIO PROJECT
MUNICIPIO FRESNILLO ZACATECAS, MEXICO

MAG owns 44% of Minera Juanicipio S.A. de C.V. (“Minera Juanicipio”), an incorporated joint venture under the laws of Mexico, which owns the high-grade silver Juanicipio Project, located in the Fresnillo District, Zacatecas State, Mexico.  Fresnillo is the project operator and holds the remaining 56% of Minera Juanicipio.  Fresnillo and MAG as joint venture shareholders of Minera Juanicipio, jointly approved project mine development on April 11, 2019 and expect to commence production from the underground mine this year, with the processing facility or plant being commissioned mid-2021 (and  reaching 85% of its 4,000 tonnes per day (“tpd”) nameplate capacity by the end of 2021).  The initial production from the underground mine is expected to commence later in August 2020 and is expected to be processed in the Fresnillo plant until the Minera Juanicipio plant is completed (see Juanicipio Project Update below).  The exploration, development and construction of the Juanicipio Project are all being carried out by the project operator, Fresnillo, with MAG participating in board, project review and technical committee meetings.

The Juanicipio Project consists of high-grade silver-gold-lead-zinc epithermal vein deposits.  The principal vein, the Valdecañas Vein, has dilatant zones (bulges) at its east and west extremes and several en echelon vein splays and cross-veins– the term “Valdecañas Vein” is used to refer to this combined vein system. The Juanicipio Project underground mine development to date consists of approximately 30 kilometres (“km”) of ramps, with numerous cross-cuts across the Valdecañas vein now complete and installation of long term underground mine infrastructure well advanced.  Surface construction, focused on the installation of the processing facility (plant) and all associated support infrastructure, has begun.  The layout and earthworks are largely complete, and footings and foundations are being poured.  All of the internationally sourced process equipment is located on the joint venture ground where the 4,000 tpd plant is being constructed. In addition, exploration continues on both the Valdecañas Vein system and on other prospective targets within the joint venture property boundaries. 

On April 22, 2020, in response to the Mexican Government’s National COVID-19 order (see ‘COVID-19 – Juanicipio Project’ below), the Company announced a temporary suspension through May 30, 2020 of exploration and surface construction work, while underground operations were temporarily reduced to a minimum working level under rigid hygienic protocols. In May 2020, the Mexican Government declared Construction and Mining as essential activities, and the restart of all activities began June 1, 2020 in a phased manner. According to the operator Fresnillo, the overall development timetable for the project remains unchanged.

All joint venture programs (development and exploration) for the Juanicipio Project are designed and contracted by the Minera Juanicipio Technical Committee, which is represented by both MAG and Fresnillo, and approved by the Minera Juanicipio Board of Directors, also represented by both parties. Construction of the processing plant is under the guidance of an Engineering, Procurement and Construction Management (“EPCM”) contract entered into with an affiliate of Fresnillo to oversee the mine construction and development.  The Company’s share of project costs is funded primarily by quarterly cash calls through its 44% interest in Minera Juanicipio, and to a lesser extent, incurred directly by MAG to cover expenses related to its own commissioned technical studies and analyses, as well as direct project oversight.  Minera Juanicipio is governed by a shareholders’ agreement and corporate by-laws, pursuant to which each shareholder is to provide funding pro-rata to its ownership interest, and if either party does not fund pro-rata, their ownership interest will be diluted in accordance with the shareholders agreement.

Underground development commenced at the Juanicipio Project on October 28, 2013 and has focused to date primarily on advancing the ramp declines, ventilation raises, surface offices, surface and underground infrastructure, and preparing for expected mine production.  In 2017, MAG commissioned AMC Mining Consultants (Canada) Ltd.  to prepare a Resource Estimate and Preliminary Economic Assessment for the Juanicipio Project (collectively, the “2017 PEA”), which was completed according to the NI 43-101 Standards of Disclosure for Mineral Projects and announced by the Company on November 7, 2017 (see Press Release of said date), with the MAG Silver Juanicipio NI 43-101 Technical Report (Amended and Restated) filed on SEDAR on January 19, 2018. 

The 2017 PEA incorporates major overall project upgrades over assessments conducted prior to 2017, on the Bonanza Zone, as defined in the 2017 PEA, highlighted by the delineation and provision for mining of greatly expanded Indicated and Inferred Mineral Resources discovered in the Deep Zone, as defined in the 2017 PEA. The independent estimate of the Mineral Resources of the Juanicipio Project in the 2017 PEA were compiled using exploration data available only up to December 31, 2016 and does not include the results of drilling programs in 2017-2020 designed to further expand and infill the Deep Zone (see Exploration – Juanicipio Project below).  The volume of these new base metal-rich Deep Zone Mineral Resources identified in the 2017 PEA contributed to a significant expansion of project scope and enhancements to most aspects of the mine design. Truck haulage, shaft hoisting, and underground conveying, along with underground crushing of the mineralized rock are all projected to be utilized for delivering the mineralized rock to the surface processing plant. An underground winze (internal shaft) will be sunk within the hanging wall of the Valdecañas Vein system, to hoist mineralized rock from lower levels of the mine to the underground crusher and conveying system from the 6th year after plant start-up onward. As envisioned in the 2017 PEA, the proposed process plant has a planned production rate of 4,000 tpd, and will include a semi-autogenous grinding (“SAG”)/Ball mill comminution circuit followed by sequential flotation to produce a silver-rich lead concentrate, a zinc concentrate and a gold-rich pyrite concentrate. The plant and tailings storage facility are being built on open and flat joint venture owned land just north of the conveyor ramp portal.

Based on the 2017 PEA, MAG views the Juanicipio Project as a robust, high-grade, high-margin underground silver project exhibiting low development risks. While the results of the 2017 PEA are promising, by definition a Preliminary Economic Assessment is preliminary in nature and includes Inferred Mineral Resources that are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves.  Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability and there is no certainty that Mineral Resources will ever become Mineral Reserves.  There can therefore be no certainty that the results in the 2017 PEA will be realized. In addition, the 2017 PEA was commissioned independently by MAG, and not by Minera Juanicipio.  Fresnillo is the project operator and the actual development plan and timeline may be materially different from the scope, design and results envisaged in the 2017 PEA (see both ‘Mine Development Update – Juanicipio Project’ and ‘Risks and Uncertainties below).

Cinco de Mayo Project

A full impairment was recognized on the Cinco de Mayo property in Mexico in prior years, although the concessions are still maintained in good standing. 

HIGHLIGHTS – JUNE 30, 2020 & EVENTS SUBSEQUENT TO THE QUARTER END (expressed in thousands of US dollars except as otherwise noted)

  • Mexican Government national COVID-19 Order announced in April resulting in a temporary suspension through May 30, 2020 of surface exploration and construction work at the Juanicipio Project and reduced underground operations.
  • Phased Juanicipio Project restart commenced June 1, 2020 with the overall development timetable unchanged, according to the operator Fresnillo:
    • Underground mine production expected to commence soon ahead of schedule with anticipated processing of 16,000 tonnes per month of mineralized material through the Fresnillo plant until the Juanicipio plant is commissioned;
      • 8,858 tonnes of mineralized material successfully processed at the Fresnillo plant on a test basis in early August 2020;
    • Juanicipio plant expected to commence commissioning in mid-2021 and reach 85% of its 4,000 tpd nameplate capacity by year end 2021.
    • Production ramp-up anticipated to be sooner than previous guidance due to the de-risking of Juanicipio’s metallurgical performance by virtue of campaign processing the mineralized material through the Fresnillo plant; and,
    • Estimated initial capital of $440,000 (on a 100% basis) as of January 1, 2018, will be reduced by:
      • Development expenditures incurred since then to June 30, 2020 of approximately $172,695 (the Company therefore estimates approximately $267,305 of remaining initial capital on a 100% basis as at June 30, 2020);
      • Existing cash held in Minera Juanicipio as at June 30, 2020 ($35,337); and,
      • Expected cashflow generated from mineralized material being processed through the Fresnillo plant up until the Juanicipio plant is commissioned in mid-2021. 
  • Detailed engineering is near completion and earthmoving and foundation construction for the 4,000 tpd beneficiation plant is advancing well.
  • Underground development at Juanicipio now approaching 30 km (or 18.75 miles) and is focused on both the three sub-vertical ramps that descend alongside the mineralization and the conveyor ramp that ascends to the surface at plant site.
  • Assays from a 33,864 metre, 28-hole 2019 exploration program were released March 3, 2020 (see Press Release of same date), with the following highlights:
    • Confirms and expands the continuous wide, high-grade mineralization in the Valdecañas Deep Zone;
    • Confirms and expands the wide, high-grade zones in the Anticipada Vein;
    • Confirms and expands the Venadas vein to the south with strong silver and gold grades; and
    • Discovers the new northeast-trending Valentina and Venadas II veins through drilling and development.
  • On April 30, 2020, the Company closed a non-brokered private placement offering and issued 4,528,302 common shares at C$13.25 for gross proceeds of C$60,000,002 ($43,134) to Mr. Eric Sprott, through 2176423 Ontario Ltd., a corporation beneficially controlled by him.
  • MAG held cash and cash equivalents as at June 30, 2020 (before the below noted ATM Program) of $87,108 while Minera Juanicipio had cash on a 100% basis of $35,337 as at June 30, 2020.
  • On June 29, 2020, the Company established an at-the-market equity program (the “ATM Program”) and subsequent to June 30, 2020 and as at August 10, 2020, the Company has sold and issued 2,305,463 common shares under the ATM Program at an average price of $16.16 per share, for gross and net proceeds of $37,264 and $36,239 respectively.

 JUANICIPIO PROJECT

Total Juanicipio Project expenditures incurred and capitalized directly by Minera Juanicipio (on a 100% basis) for the three and six months ended June 30, 2020 amounted to $20,810 and $40,153 respectively (June 30, 2019: $18,788 and $28,881 respectively).  Of the total expenditures in the six months ended June 30, 2020, $38,415 (June 30, 2019: $26,479) are development expenditures and the remaining $1,738 (June 30, 2019: $2,402) are exploration expenditures. 

COVID-19 – Juanicipio Project

In response to the COVID-19 virus outbreak, in April 2020 the Mexican Government ordered a temporary suspension of all “non-essential” operations nationwide in Mexico, including mining operations, until May 30, 2020. Fresnillo, the Juanicipio Project operator, was in regular consultation with Mexican Government officials to ensure Minera Juanicipio’s compliance with the Order. Fresnillo advised the Company that while the Order was in effect, underground development continued under government mandated hygiene protocols, while surface construction work and surface-based drilling were temporarily halted. All work has since resumed with a phased restart having commenced on June 1, 2020, and according to Fresnillo, the overall development timetable remains unchanged. 

The impact of this pandemic could include significant COVID-19 specific costs, volatility in the prices for silver and other metals, further restrictions or temporary closures, additional travel restraints, other supply chain disruptions and workforce interruptions, including loss of life. Depending on the duration and extent of the impact of COVID-19, this could materially impact the Company’s financial performance, cash flows and financial position, and could result in material changes to the costs and time for the completion of development at Juanicipio.  The total amount that the Company is required to finance in order to maintain its proportionate ownership in the project may increase from these and other consequences of the COVID-19 outbreak.  See “Virus outbreaks may create instability in work markets and may affect the Company’s Business” in “Risk and Uncertainties” below.

SURFACE CONSTRUCTION AND SITE PREPARATION – Juanicipio Project

Construction plans for the 4,000 tpd processing plant commenced immediately upon the formal project approval in April 2019.  Basic engineering was completed during 2019 and, detailed engineering is now substantially complete. Development and construction of surface infrastructure facilities (power lines, access roads, auxiliary buildings, etc.) had already begun prior to the formal project approval and continued into 2020.  The majority of all major equipment for the plant, including both SAG and ball mills, flotation cells, process tanks, filters, and thickener mechanisms are now secured on site.

In the quarter ended June 30, 2020, surface construction progress at Juanicipio was limited due to COVID-19 restrictions noted above. Nonetheless, according to Fresnillo, the overall development timetable currently remains unchanged with the Juanicipio processing plant expected to be commissioned in mid-2021 as the critical path of the project was unaffected by the mandated temporary COVID shutdown. Once work resumed in June, earthmoving and foundation pouring continued for the construction of the processing plant. A large portion of the concrete works, structural steel sections and process pipe spools are being fabricated off-site in controlled workshop conditions. These are now arriving on site and are being placed directly into position.  As well, a number of specialized consulting firms have been engaged to conduct all aspects of the detailed design of the tailings dam.

Underground Development

Access to the mine is via twin underground declines that now have reached the top of mineralization in the Valdecañas Vein.  From there, the upper footwall haulage/access drift has been driven the length of the vein from which three internal spiral footwall production ramps are being extended to depth. Twinning of the original access decline was required to provide capacity for hauling additional mineralized rock and waste sufficient to facilitate processing capacity of 4,000 tpd.  The twin ramps allow for streamlined underground traffic flow and increased safety through the mine having a second egress. The three spiral ramps into the mineralized envelope are designed to provide access to stopes within the mineralized material and allow a planned mining rate of 4,000 tpd.  The first cross-cuts through the vein have been made from the easternmost footwall ramp, exposing well-mineralized vein.  Initial development indicates that the grade and width of the mineralization is in line with previous estimates.

Mineralized material from throughout the vein will be crushed underground and the crushed material conveyed directly from the underground crushing station (already excavated) to the process plant area via a third ramp to the surface - the underground conveyor ramp.  The conveyor ramp is approaching 51% completion and is being driven both from the surface and from the underground crushing chamber. This ramp will also provide access to the entire Valdecañas underground mining infrastructure and serve as a fresh air entry for the ventilation system.  As well, the sinking of the two main ventilation shafts is progressing well, with one shaft 65% complete and the other at 71% complete.

Underground development continues its focus on:

  • advancing the three internal spiral footwall ramps to be used to further access the full strike length of the Valdecañas Vein system;
  • making additional cross-cuts through the vein and establishing the initial mining stopes;
  • constructing the underground crushing chamber;
  • advancing the underground conveyor ramp to and from the planned surface processing facility from both faces; and,
  • integrating additional ventilation and other associated underground infrastructure.

Total underground development to date is now approaching 30 km (18.75 miles), including 4.4 km completed in the first half of 2020.  Mineralized material from development workings has been stockpiled during the past year and is now available for processing through the Fresnillo processing facility until the Juanicipio plant is commissioned in mid-2021. (see Mine Development Update – Juanicipio Project below). In addition to this mineralized material from development, the first production stope is expected to be ready for mining in Q3-2020.

A photo gallery of current progress on the Juanicipio development is available at https://magsilver.com/projects/photo-and-video-gallery/ .

MINE DEVELOPMENT UPDATE – Juanicipio Project

It was previously expected that the completion of the processing plant would coincide with the readiness of the underground mine late in the fourth quarter of 2020.  In the first quarter of 2020, it was announced that the underground mine is now expected to commence production ahead of schedule in mid-2020, realizing commercial and operational de-risking opportunities for the joint venture. It was also announced that the schedule for the construction of the processing plant has been adjusted to enable the most efficient use of contractor labour, and commissioning is now anticipated by mid-2021.

Starting later in August 2020 up until completion of the Juanicipio processing plant in mid-2021, mineralized material from development and initial production stopes is expected to be processed at an average rate of 16,000 tonnes per month at the Fresnillo plant which has spare capacity. In preparation for this, earlier in August 2020, 8,858 tonnes of mineralized stockpiled material was successfully processed at the Fresnillo plant on a test basis. As such, by bringing forward the start-up of the underground mine and processing the mineralized material, MAG and Fresnillo are looking to secure several positive outcomes for the Juanicipio Project:

  • generating some cash-flow from production to offset some of the cash requirements of the initial project capital;
  • de-risking the metallurgical process through a better understanding of the mineralization;
  • increased certainty around the geological block model prior to start-up of the processing plant; and,
  • allowing a quicker and more certain ramp-up to the nameplate 4,000 tonnes per day plant design.

The Juanicipio plant is now expected to reach 85% name plate capacity by the end of 2021 and 90-95% in 2022. In the 2017 PEA, ramp-up to full production was originally envisioned over 3 years after commissioning of processing plant, the equivalent of 2024.

With detailed engineering almost complete, major equipment purchases completed and delivered to site, and several significant construction contracts awarded or under review, Fresnillo and MAG also announced in the previous quarter an update to the initial capex required for the project (see Press Release dated February 24, 2020).  The capex or pre-operative capital cost on a 100% basis of $395,000 from January 1, 2018 (see Press Release dated April 11, 2019) was revised to $440,000 from January 1, 2018, to reflect additional expenditures incurred by Minera Juanicipio on the underground development and bringing forward the full construction costs for two large life-of-mine ventilation shafts, as well as some sustaining capital to facilitate the early underground mine start.  

The pre-operative initial capital already expended from January 1, 2018 to June 30, 2020 is approximately $172,695 leaving an estimated $267,305 of remaining initial capital (MAG’s 44% estimated remaining share is $117,614 as at June 30, 2020).  This funding requirement would be reduced by both: existing cash held in Minera Juanicipio as at June 30, 2020 ($35,337); and, expected cash flows generated from mineralized material sold and processed through the Fresnillo processing plant commencing later in August 2020 (see Liquidity and Capital Resources below).

EXPLORATION – Juanicipio Project

Additional Exploration Info

Since the discovery of the Deep Zone as an extension at depth of the high-grade Bonanza Zone (see Press Release April 23, 2015), the Valdecañas Vein System has emerged as a multi-stage, high-grade vein swarm comprising the Valdecañas vein, characterized by large dilatant zones (bulges) in its east and western reaches (previously interpreted as the overlapping East and West Valdecañas Veins), the hangingwall Anticipada Vein, the Pre-Anticipada Vein, several en echelon  splays and the family of northeast-trending cross veins that comprise the Venadas-Valentina Vein family.  Last year’s (2019) drill results include the deepest lateral intercepts to date on the Valdecañas Vein, with deep mineralization now traceable continuously over a strike length exceeding 2,000 metres (“m”) and up to 1,100 m vertically from the top of the Bonanza Zone. Vein widths range from approximately 2 m to over 29 m. Deep mineralization on the Valdecañas Veins remains open laterally for several hundred metres to the claim boundaries on both ends; to the east claim boundary for Anticipada; and Pre-Anticipada and to depth across all veins (see diagrams with Press Release dated March 4, 2019 at https://magsilver.com/news/valdecanas-deep-zone-expanded-and-significant-new-hangingwall-vein-discovered/ ).

Assays from 48 holes (46,060 m) designed to both convert the Inferred Mineral Resources included in the Deep Zone into Indicated Mineral Resources and further trace the Deep Zone laterally and to depth, were reported in 2019 (see Press Release dated March 4, 2019), and earlier this year in the quarter ended March 31, 2020, additional results from the 2019 28-hole (33,864 m) diamond drill program were announced (see Press Release dated March 3, 2020).

2017 PEA Summary

The 2017 PEA incorporates major project upgrades from the previously envisioned project parameters, highlighted by the delineation and provision for mining of a greatly expanded Indicated and Inferred Mineral Resource in the recently discovered (2015) "Deep Zone." The volume of these new base metal-rich Deep Zone Resources contributed to a significant expansion of project scope and enhancements to most aspects of the mine design.

2017 PEA BASE CASE (1) HIGHLIGHTS - reported on a 100% project basis:

  • 4,000 tonnes per day ("tpd") production rate with an initial 19 years of mine life;
  • Enhanced project engineering, including: new plant and tailings location on flat, open ground; underground crusher and ore conveyor system; ramp expansions and internal shaft (winze);
  • Low AISC(2) of $5.02 per oz of silver;
  • $360 million ("M") initial capital cost from January 1, 2018 to projected production start-up in H1, 2020;
  • Payback in less than two years after plant start-up;
  • Pre-tax Net Present Value ("NPV") at a 5% discount rate of $1.86 billion and an IRR of 64.5%, and;
  • After-tax NPV at a 5% discount rate of $1.14 billion and IRR of 44.5%.

1 The 2017 PEA Base Case uses a 5% discount rate and metal prices of $17.90 per oz of silver, $1,250/oz of Gold, $0.95 per pound ("lb") of Lead and $1.00/lb of Zinc.

2 "AISC" means All-in sustaining costs. The projected AISC was calculated by the authors of the 2017 PEA at a cost of $5.02/Ag by summing life of mine offsite and operating costs, taxes, duties and royalties and sustaining capital, all net of by-product revenues, and dividing the resulting total by the total payable ounces of silver projected to be produced over the life of mine. AISC is not a recognized measure under IFRS and this projected financial measure may not be comparable to AISC metrics presented by other silver producers.

Table 1: Metal Price Sensitivity Analysis:

Discount Rate (5%)

 

Base Case

  

 

 

Metal Prices:

       

Silver ($/oz)

14.50

17.90

19.50

23.00

 

 

Gold ($/oz)

1,000

1,250

1,300

1,450

 

 

Lead ($/lb)

0.75

0.95

0.95

1.15

 

 

Zinc ($/lb)

0.75

1.00

1.05

1.20

 

 

Copper ($/lb)

N/A -- Copper excluded for purposes of 2017 PEA (2)

   

Economics:

 

 

   

2017

 

Pre-Tax NPV (M)

$1,080

$1,860

$2,104

$2,776

 

$2,427

 

After-Tax NPV (M)

$ 635

$1,138

$1,295

$1,729

 

$1,503

 

Pre-Tax IRR

45%

64%

71%

86%

 

83%

 

After-Tax IRR

30%

44%

49%

61%

 

58%

 

Undiscounted life of mine ("LOM") after tax cash flow (M)

$1,170

$1,995

$2,243

$2,945

 

$2,542

 

Cash cost(4) $/oz Ag (net of credits)

(0.35)

(3.94)

(4.45)

(6.90)

 

(3.11)

 

Total Cash cost(5) $/oz Ag

3.50

2.39

2.63

2.29

 

4.89

 

AISC(6) $/oz Ag

6.13

5.02

5.25

4.92

 

7.51

 

Payback (Years) From Plant Start up (based on after tax cash-flows)

2.6

1.8

1.6

1.2

 

1.2

 

Notes:

2) Although the 2017 resource for the Deep Zone now includes copper (see below), no copper circuit has been included in the 2017 PEA as no metallurgical testing and recovery assessment for copper has yet been completed.

4) Cash costs include all operating costs, smelter, refining and transportation charges, net of by-product (gold, lead and zinc) revenues.

5) Total cash costs include cash costs and all corporate taxes, special mining duty, and precious metals royalty.

6) The projected AISC was calculated by the authors of the 2017 PEA at a cost of $5.02/Ag by summing life of mine offsite and operating costs, taxes, duties and royalties and sustaining capital, all net of by-product revenues, and dividing the resulting total by the total payable ounces of silver projected to be produced over the life of mine. AISC is not a recognized measure under IFRS and this projected financial measure may not be comparable to AISC metrics presented by other silver producers.

While the results of the 2017 PEA are promising, by definition a Preliminary Economic Assessment is preliminary in nature and includes Inferred Mineral Resources that are considered too speculative geologically to have the economic considerations applied to them that would enable them to be categorized as Mineral Reserves. There can therefore be no certainty that the results in the 2017 PEA will be realized. The 2017 PEA is based on MAG's understanding of how the project is being developed; however, Fresnillo is the project operator and the actual development plan and timeline may be materially different (see 'Risks and Uncertainties' below). It is also important to note that Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability and there is no certainty that Mineral Resources will ever become Mineral Reserves.

2017 MINERAL RESOURCE HIGHLIGHTS - reported on a 100% project basis:

  • High grade silver-rich Bonanza Zone (basis for development to date) containing:
    - 8.2 M Indicated Resource tonnes at 550 grams per tonne ("g/t") silver; and,
    - 2.0 M Inferred Resource tonnes at 648 g/t silver.
  • Significantly expanded Mineral Resource for the base metal-rich Deep Zone, containing:
    - 4.7 M Indicated Resource tonnes with 209 g/t silver, 2.96% lead, 4.73% zinc, and 0.23% copper; and,
    - 10.1 M Inferred Resource tonnes with 151 g/t silver, 2.69% lead, 5.05% zinc, and 0.31% copper.
  • Consistent gold across both zones, containing:
    - 12.8 M Indicated Resource tonnes at 2.10 g/t gold; and,
    - 12.1 M Inferred Resource tonnes at 1.44 g/t gold.

The updated independent Mineral Resource estimate was generated using a cut-off Net Smelter Return ("NSR") value of $55/t and drilling data available up to December 31, 2016. This estimate has an effective date of October 21, 2017 (see Table 3) and reflects the results of both infill and exploration holes drilled in 2014 through 2016, with the greatest increase shown within the Deep Zone discovered in 2015. The Valdecañas Vein displays well the vertical mineralization gradations from upper silver-rich zones to deep base metal-dominant areas that are typical of Fresnillo District veins and epithermal silver veins in general. Because of this vertical compositional zonation, and significant dimensional increases with depth, the Mineral Resource estimate has been manually divided into the Bonanza Zone and the Deep Zone to highlight the definition of each zone.

Table 3: Juanicipio Project Mineral Resource estimate by zone (October 21, 2017):

Zone

Resource Category

Tonnes (Mt)

Ag (g/t)

Au (g/t)

Pb

(%)

Zn (%)

Cu (%)

Ag (Moz)

Au (Koz)

Pb (Mlb)

Zn (Mlb)

Cu
(Mlb)

Bonanza Zone

Indicated

8.17

550

1.94

1.63

3.08

0.08

145

509

294

554

14

Inferred

1.98

648

0.81

1.32

2.80

0.06

41

52

58

123

3

Deep Zone

Indicated

4.66

209

2.39

2.96

4.73

0.23

31

359

304

486

24

Inferred

10.14

151

1.57

2.69

5.05

0.31

49

510

601

1,129

69

Notes

1) 2014 CIM Definition Standards were used for reporting the Mineral Resources.

2) The Qualified Person is Dr. Adrienne Ross, P.Geo. of AMC Mining Consultants (Canada) Ltd.

3) Mineral Resources are reported at a resource NSR cut-off value of $55/t.

4) The Mineral Resource estimate uses drill hole data available as of December 31, 2016.

5) Resource NSR values are calculated in US$ using factors of $0.61 per g/t Ag, $34.27 per g/t Au, $19.48 per % Pb, and $19.84 per % Zn. These factors are based on metal prices of $20/oz Ag, $1,300/oz Au $0.95/lb Pb, and $1.00/lb Zn and estimated recoveries of 82% Au, 95% Ag, 93% Pb, 90% Zn. The Mineral Resource NSR does not include offsite costs.

6) Mineral Resources are not Mineral Reserves and do not have demonstrated economic viability.

7) Totals may not add correctly due to rounding

The Bonanza Zone resource veins have a similar footprint as previous resource estimates (see Press Release dated, May 27, 2014), with approximately 78% of the total silver ounces in the Bonanza Zone now classified as Indicated. The newly updated Resource Estimate significantly expands the Inferred and Indicated resources in the base metal-rich Deep Zone, which includes a maiden copper resource.

Combining the Bonanza Zone and the base metal-rich Deep Zone into a total global resource by Mineral Resource classification, results in a lower overall silver grade reflecting the blending of high and lower grade materials (see Table 4).

Table 4: Juanicipio Project Global Mineral Resource estimate and summary by vein (October 21, 2017):

Resource Category

Vein

Tonnes (Mt)

Ag (g/t)

Au (g/t)

Pb (%)

Zn (%)

Cu (%)

Metal Contained in Mineral Resource

Ag (Moz)

Au (Koz)

Pb (Mlbs)

Zn (Mlbs)

Cu

(Mlbs)

Indicated

V1E

6.35

528

1.86

1.89

3.81

0.09

108

379

264

533

12

V1W

6.48

327

2.35

2.34

3.55

0.18

68

488

334

507

26

Total Indicated

12.83

427

2.10

2.11

3.68

0.13

176

867

598

1,041

38

Inferred

V1E

3.18

121

0.95

2.14

3.60

0.54

12

97

150

253

38

V1W

3.74

155

1.88

3.18

5.97

0.26

19

226

262

492

21

HW

0.25

529

0.59

0.52

0.89

0.03

4

5

3

5

0

Vant

2.06

111

1.39

3.50

7.41

0.18

7

92

159

337

8

V2W (a)

0.61

330

1.37

2.44

3.41

0.14

7

27

33

46

2

V2W (b)

1.01

659

0.64

1.23

2.72

0.05

21

21

27

60

1

JV1

0.58

260

3.74

0.35

0.82

0.03

5

70

5

11

0

JV2

0.70

678

1.07

1.29

3.18

0.04

15

24

20

49

1

Total Inferred

12.13

232

1.44

2.46

4.68

0.27

91

562

658

1,252

71

Notes

1) Mineral Resources are not Mineral Reserves and do not have demonstrated economic viabilit

2) Valdecañas Vein System: V1W=Valdecañas West, V1E= Valdecañas East, V2W= footwall splay off V1W, VANT= Anticipada Vein, HW1=Hangingwall Vein; Juanicipio Vein System: JV1/2

3) Additional Notes -- see Notes to Table 3 above.

Mine Design and Process Plant

The principal mining method proposed in the 2017 PEA is longhole stoping with waste rock back-fill at a production rate of 4,000 tpd using modern mining equipment.

From the results of a series of trade-off studies previously commissioned by Minera Juanicipio, truck hauling, shaft hoisting, and conveying, along with underground crushing of the mineralized rock are all projected to be utilized for delivering the mineralized rock to the surface processing plant. An underground winze (internal shaft) is planned to be sunk within the hanging wall of the Valdecañas Vein System, to hoist mineralized rock from lower levels of the mine to the underground crusher and conveying system from the 6th year after plant start-up (projected as 2025), onward.

As envisioned in the 2017 PEA, the process plant is expected to ramp up operations over a three-year period to a steady state throughput rate of 1.4 million tonnes/year (4,000 tpd), and mill recoveries are estimated as:

  • 95% for Silver
  • 82% for Gold
  • 93% for Lead
  • 90% for Zinc

The proposed process plant and tailings storage facility will be located in newly acquired open, flat ground. It will include a SAG/Ball mill comminution circuit followed by sequential flotation to produce a silver-rich lead concentrate, a zinc concentrate and a gold-rich pyrite concentrate.

Additional Opportunities

The Mineral Resource used for the 2017 PEA mine design does not include any of the Juanicipio Vein resource which is included in the Mineral Resources above (Table 4). Further analysis is required to arrive at a potential extraction strategy, with the possibility that these resources may ultimately be brought into a future mining plan.

No copper circuit has been included in the 2017 PEA as no metallurgical testing and recovery assessment for copper has yet been completed.

LOM Payable Metal

Payable production for each metal is based on processing recoveries less smelter deductions and losses during third party treatment of the lead, zinc and pyrite concentrates, and is summarized in Table 5.

Table 5:Estimated LOM payable production by metal and by Silver equivalent ounces (Eq.oz.):

Metals from Concentrates (1)

Total Payable Metal Production

LOM

Average 1st

6 years

(2020-2025)

LOM Annual

Average

Peak Annual Production (Year)

Silver M oz.

183

16.5

9.6

20.1 (2021)

Gold K oz.

747

43.8

39.3

50.6 (2025)

Lead M lbs.

812

30.6

42.7

63.0 (2031)

Zinc M lbs.

1,327

54.3

69.8

95.9 (2031)

Silver Eq. (2) oz Payable (M )

352

24.2

18.5

26.5 (2023)

Footnotes:

1) Lead, Zinc, and Pyrite concentrates produced.
2) Silver Equivalent calculated using the Base Case metal recoveries and Base Case metal prices of $17.90/oz for silver; $1250/oz for gold; $0.95/lb for lead and $1.00/lb for zinc.

Cash Cost, Total Cash Costs and AISC per Ounce of Silver

The LOM Cash Cost (on-site and off-site, less by-product credits) is negative ($3.94)/oz of silver;

Total Cash Costs (including taxes) is $2.39/oz of silver;

AISC (Total Cash Costs plus sustaining capital) total $5.02/oz of silver (see Table 6 below).

Table 6: Cash Costs, Total Cash Costs and AISC per oz of Silver (Base Case)

 

Cost/t of Mill Feed

Total $M

Cost Per Oz of Silver (1)

Operating costs

58.67

1,357

 

Offsite costs

41.32

956

Less: By Product Credits (2)

N/A

(3,033)

Cash Cost

 

(720)

$ (3.94)

Corporate tax (30%)

N/A

837

 

Special Mining Duty (7.5%)

N/A

299

Gold and Silver Gross Revenue Duty (0.5%)

N/A

21

Total Cash Cost

 

437

$ 2.39

Sustaining capital

N/A

480

 

AISC

 

917

$ 5.02

Footnotes

1) Based on 183 million ounces of payable silver production.

2) By-product revenue credits (Base Case): gold $934 million, lead $771 million, zinc $1.327 billion

Taxes

Income and other taxes (see Table 6 above) presented in the 2017 PEA are based on Mexican legislated tax rates and do not reflect any tax planning opportunities.

Qualified Person:

All scientific or technical information on this Website, including assay results and reserve estimates, if applicable, is based upon information prepared by or under the supervision of, or has been approved by, Dr. Peter Megaw, Ph.D., C.P.G., a certified professional geologist who is a "Qualified Person" for purposes of National Instrument 43-101, Standards of Disclosure for Mineral Projects ("National Instrument 43-101" or "NI 43-101"). Dr. Megaw is not independent as he is an officer and a paid consultant of the Company.

Cautionary Note Regarding Forward-Looking Statements

Certain information contained on this website, including any information relating to the Company's future oriented financial information are forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of 1995 and applicable Canadian securities laws (collectively "forward-looking statements"). All statements on this Website, other than statements of historical facts are forward-looking statements, including statements regarding the anticipated time and capital schedule to production; estimated project economics, including but not limited to, mill recoveries, payable metals produced, production rates, payback time, capital and operating and other costs, Internal Rate of Return ("IRR"), anticipated life of mine, and mine plan; expected upside from additional exploration; expected capital requirements; and other future events or developments. Forward-looking statements are often, but not always, identified by the use of words such as "seek", "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe" and similar expressions. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from results projected in such forward-looking statements. Although MAG believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward-looking statements including, but not limited to, commodities prices; changes in expected mineral production performance; unexpected increases in capital costs; exploitation and exploration results; continued availability of capital and financing; differing results and recommendations in the feasibility study commissioned by Minera Juanicipio; the lack of a formal production decision by Minera Juanicipio; risks related to holding a minority investment intertest in the Juanicipio Property; and general economic, market or business conditions. In addition, forward-looking statements are subject to various risks, including but not limited to operational risk; environmental risk, political risk; currency risk; capital cost inflation risk; that data is incomplete or inaccurate; the limitations and assumptions within drilling, engineering and socio-economic studies relied upon in preparing the 2017 PEA (as defined herein); and market risks. The reader is referred to the Company's filings with the SEC and Canadian securities regulators for disclosure regarding these and other risk factors. There is no certainty that any forward-looking statement will come to pass and investors should not place undue reliance upon forward-looking statements. The Company does not undertake to provide updates to any of the forward-looking statements on this Website, except as required by law.

Assumptions have been made including, but not limited to, the Company's ability to carry on its various exploration and development activities including project development timelines, the timely receipt of required approvals and permits, the price of the minerals the Company produces, the costs of operating, exploration and development expenditures, the impact on operations of the Mexican Tax Regime, and the Company's ability to obtain adequate financing. The Company cannot assure you that actual events, performance or results will be consistent with these forward-looking statements, and management's assumptions may prove to be incorrect. The forward-looking statements on this Website speak only as of the date hereof and we do not assume any obligation to update forward-looking statements if circumstances or management's beliefs, expectations or opinions should change other than as required by applicable law. There is no certainty that any forward-looking statement will come to pass and investors should not place undue reliance upon forward-looking statements.

Note Regarding Non-GAAP Measures

This Website presents certain financial performance measures, including all in sustaining costs ("AISC"), cash cost and total cash cost that are not recognized measures under International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS"). This data may not be comparable to data presented by other silver producers. The Company believes that these generally accepted industry measures are realistic indicators of potential operating performance and are useful in allowing comparisons with other silver producers. Non-GAAP financial performance measures should be considered together with other data prepared in accordance with IFRS. This Website contains non-GAAP financial performance measure information for a project under development incorporating information that will vary over time as the project is developed and mined. It is therefore not practicable to reconcile these forward-looking non-GAAP financial performance measures.

Cautionary Note to Investors Concerning Estimates of Indicated and Inferred Mineral Resources

This Website uses the terms "Indicated Mineral Resources" and "Inferred Mineral Resources". MAG advises investors that although these terms are recognized and required by Canadian regulations (under National Instrument 43-101 Standards of Disclosure for Mineral Projects), the U.S. Securities and Exchange Commission does not recognize these terms. Investors are cautioned not to assume that any part or all of the mineral deposits in these categories will ever be converted into reserves. In addition, "Inferred Mineral Resources" have a great amount of uncertainty as to their existence. It cannot be assumed that all or any part of an Inferred Mineral Resource will ever be upgraded to a higher category. Under Canadian rules, estimates of Inferred Mineral Resources are considered too speculative geologically to have the economic considerations applied to them to enable them to be categorized as mineral reserves and, accordingly, Inferred Mineral Resources may not form the basis of feasibility or pre-feasibility studies, or economic studies except for a "Preliminary Economic Assessment" as defined under NI 43-101. Investors are cautioned not to assume that part or all of an Inferred Resource exists or is economically or legally mineable.

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