• Juanicipio JV

JUANICIPIO PROJECT
Municipio Fresnillo Zacatecas, Mexico

MAG is an advanced stage development and exploration company, that is focused on the acquisition, development and exploration of high-grade, high-margin, district-scale projects located in the Americas.  MAG’s principal asset is a 44% interest in the Juanicipio project (the “Juanicipio Project”) located in Zacatecas state, Mexico, with Fresnillo plc (“Fresnillo”) owning the remaining 56% and the project Operator.  A processing facility is being constructed at the Juanicipio Project that is expected to commence commissioning in late Q4-2021, and the project is currently processing development material from the underground mine at an average nominal rate of 16,000 tonnes per month at a nearby processing plant (see Underground Mine Production - Juanicipio Project below).  MAG also has the right to earn a 100% interest in the Deer Trail Carbonate Replacement-Porphyry Project in central Utah, USA.

Juanicipio Project

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. The geology of 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. As shareholders of Minera Juanicipio, Fresnillo and MAG jointly approved project mine development on April 11, 2019, and project construction commenced immediately thereafter. In addition, exploration continues on both the Valdecañas Vein system and on other prospective targets within the joint venture property (see 'Juanicipio Project' below for a current project update).

The exploration and development of the Juanicipio Project are all being carried out by the project Operator, Fresnillo, with MAG participating in all board and technical committee meetings as well as ad-hoc meetings as required.  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. 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.

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 prior assessments, 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 estimates of the Mineral Resources of the Juanicipio Project in the 2017 PEA were compiled using exploration data available up to December 31, 2016 and do not include the results of drilling programs undertaken since then (2017-2021) 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 material to the surface processing plant. 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 the associated tailings storage facilities 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 Juanicipio Project and Risks and Uncertainties below).

HIGHLIGHTS – JUNE 30, 2021 & SUBSEQUENT TO THE QUARTER END

(expressed in thousands of US dollars except as otherwise noted)

OPERATIONAL

  • Positive progress was achieved during the quarter ended June 30, 2021 on the construction of the 4,000 tpd Juanicipio processing plant and civil works:
    • Mechanical installation of the flotation cells and filters was completed during the Q2 2021; 
    • The SAG and ball mills were installed during Q2 2021; and,
    • Underground development has reached approximately 40 km (25 miles), and the first cut and fill stope has been opened and a trial longhole stope is being tested.
  • As reported by the operator Fresnillo, the Juanicipio plant is expected to come in on budget and as scheduled to commence commissioning in Q4 2021, reaching 40 to 50% of its 4,000 tpd nameplate capacity by the end of 2021 and reaching 90 to 95% of its nameplate capacity in 2022.
  • Batch processing of mineralized material from development headings continues through the nearby Fresnillo plant at a targeted two days per month of continuous processing for a nominal expected rate of 16,000 tonnes per month. 
  • For the three months ended June 30, 2021, on a 100% basis:
    • 44,435 tonnes of mineralized material were processed through the Fresnillo plant, with 404,518 payable silver ounces, 709 payable gold ounces, 133 tonnes of lead and 209 tonnes of zinc produced and sold; and,
    • Pre-commercial production sales totaled $11,256 for the quarter (net of treatment and processing costs), less $2,373 in mining and transportation costs, netting $8,883 recorded as gross profit by Minera Juanicipio in the quarter. 
       
  • For the six months ended June 30, 2021, on a 100% basis:
    • 80,830 tonnes of mineralized material were processed through the Fresnillo plant, with 835,706 payable silver ounces, 1,340 payable gold ounces, 270 tonnes of lead and 408 tonnes of zinc produced and sold;
    • Average silver head grade of 405 grams per tonne (“g/t”) of the material processed; and
    • Pre-commercial production sales of $21,341 for the six month period (net of treatment and processing costs) less $4,259 in mining and transportation costs, netting $17,082 recorded as year to date gross profit by Minera Juanicipio. 
       
  • Since August 2020, 152,689 tonnes of mineralized development material have been processed through the Fresnillo plant, which is expected to:
    • contribute cash-flow to offset some of the initial project capital; and
    • significantly speed up project ramp-up due to the de-risking of Juanicipio’s metallurgical performance.
  • Juanicipio capex is estimated at $440,000 (100% basis) as of January 1, 2018, less approximately $313,400 in development expenditures incurred from then to June 30, 2021 leaving approximately $126,600 of remaining initial capital on a 100% basis (MAG’s 44% estimated at $55,704) as at June 30, 2021. The cash required will be reduced by:
    • Existing cash held in Minera Juanicipio as at June 30, 2021 ($15,107 on a 100% basis); and,
    • Expected cashflow generated from mineralized material being processed through the Fresnillo plant up until the Juanicipio plant commences commissioning in Q4 2021.
  • A further 14,207 tonnes of development material were processed in July 2021.

EXPLORATION

  • In spite of temporary COVID-19 restrictions established by the Mexican Government in 2020, the full Juanicipio 2020 exploration program was completed as planned with 33 surface holes (27,900 metres (“m”)) and 77 underground definition holes (11,800 m) completed.  Assays were reported subsequent to the quarter end (see Press Release dated August 5, 2021), and the program successfully:
    • Confirms, and allows modeling with greater detail and confidence of the high-grade silver resource within the upper parts of the Valdecañas Bonanza Zone (as defined in the 2017 PEA) where the first several years of mining will occur;
    • Confirms, expands, and allows improved modeling of the continuous wide mineralization of the Valdecañas Deep Zone (as defined in the 2017 PEA); and,
    • Confirms, expands, and allows improved modeling of the ever-growing Anticipada Vein.
  • The 2021 Juanicipio Exploration program is budgeted at $6 million on a 100% basis, and is to be evenly allocated between continued step-out and infill drilling of the Valdecañas Vein System (including independent targeting of the Venadas Vein family and the Anticipada Vein) and three principal target areas elsewhere in the Joint Venture ground.
  • Five drill rigs are presently on surface running concurrently with continued underground definition drilling.
     

LIQUIDITY AND CAPITAL RESOURCES

  • As at June 30, 2021, MAG held cash of $66,342 while Minera Juanicipio had cash on hand on a 100% basis of $15,107.

CORPORATE

  • MAG continues to refresh its board, as Mr. Derek White did not stand for reelection at the Company’s Annual General and Special Meeting on June 21, 2021, and subsequent to the quarter end on August 3, 2021, Mr. Dale Peniuk was appointed to the board.
    • Mr. Peniuk is a Chartered Professional Accountant (CPA, CA) and corporate director. Mr. Peniuk currently serves on the board and as audit committee chair of Lundin Mining Corporation, Capstone Mining Corp. and Argonaut Gold Inc., and has been on the board and chair of the audit committee of numerous other Canadian public mining companies since 2006. Mr. Peniuk obtained his Bachelor of Commerce degree from the University of British Columbia in 1982 and his Chartered Accountant designation from the Institute of Chartered Accountants of British Columbia (now the Chartered Professional Accountants of British Columbia) in 1986, and spent more than 20 years with KPMG LLP Chartered Accountants and predecessor firms, the last 10 of which as an assurance partner with a focus on mining companies, including leading KPMG’s Vancouver office mining industry group.

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, 2021 amounted to approximately $61,081 and $112,606 respectively (Calendar year 2020: $120,757).  Of the total expenditures incurred to June 30, 2021, $109,908 (Calendar year 2020: $115,937) are development expenditures and the remaining $2,698 (Calendar year 2020: $4,820) are exploration expenditures.  Gross profit (sales less cost of sales) from underground mine production for the three and six months ended June 30, 2021 totaled $8,883 and $17,082, respectively (for the three and six months ended June 30, 2020: N/A) on a 100% basis (see ‘Underground Mine Production – Juanicipio Project’ below).

UNDERGROUND MINE PRODUCTION – Juanicipio Project

As of August 2020, mineralized material from development is being batch processed, refined and sold on commercial terms at a targeted rate of 16,000 tonnes per month at the nearby Fresnillo plant twelve kilometres away. The resulting concentrate is treated in Torreon, Coahuila.  This preproduction toll processing is expected to continue until the Juanicipio plant commences commissioning in Q4 2021 (see Processing Plant Construction and Commissioning below).  The actual amount of material processed on a monthly basis may fluctuate due to the variability of mineralization encountered in the development headings from month to month.

In the three and six months ended June 30, 2021, 44,435 and 80,830 tonnes of mineralized material respectively, were processed through the Fresnillo plant, realizing commercial and operational de-risking opportunities for the Juanicipio joint venture.  The resulting payable metals sold and processing details on a 100% basis are summarized in Tables 1 and 2 below. The sales and treatment charges for tonnes processed in Q2 2021 were recorded on a provisional basis and will be adjusted in Q3 2021 based on final assay and pricing adjustments in accordance with the offtake contracts. 

Table 1: Q2 2021 Development Material Processed at Fresnillo’s Processing Plant (100% basis)

Payable Metals Quantity Average Per Unit (1) $Amount Q2 2020 (2)
Silver 404,518 ounces $27.17 per oz $10,991 -
Gold 709 ounces $1,861.27 per oz $1,320 -
Lead 133 tonnes $0.99 per lb $ 290 -
Zinc 209 tonnes $1.34 per lb $ 619 -
 Treatment and refining charges (“TCRCs”) and other processing costs $(1,964) -
Net Sales $11,256 -
 Mining and transportation costs $(2,373) -
Gross Profit $8,883 -

(1)  Ounces (“oz”) for silver and gold; and, pounds (“lb”) for lead and zinc.
(2)  Underground mine production of development material commenced in August of 2020, so there are no comparable Q2 2020 and YTD 2020 results.

Table 2: YTD 2021 Development Material Processed at Fresnillo’s Processing Plant (100% basis)

Payable Metals Quantity Average Per Unit (1) $Amount Q2 2020 (2)
Silver 835,706 ounces $26.50 $22,148 -
Gold 1,340 ounces $1,798.26  $2,410 -
Lead 270 tonnes $0.94    $ 557 -
Zinc 408 tonnes $1.30 $ 1,174 -
 Treatment and refining charges (“TCRCs”) and other processing costs $(3,802) -
 Provisional sales adjustment related to 2020 sales (3) $(1,146) -
Net Sales $21,341 -
 Mining and transportation costs $(4,259) -
Gross Profit $17,082 -

(1)  Ounces (“oz”) for silver and gold; and, pounds (“lb”) for lead and zinc.
(2)  Underground mine production of development material commenced in August of 2020, so there are no comparable Q2 2020 and YTD 2020 results.
(3)  Provisional sales for 2020 were finalized in Q1 2021 resulting in negative adjustment to net sales revenue of $1,146.

The average silver head grade for the development material processed in the three and six months ended June 30, 2021 was 361 g/t  and 405 g/t respectively.  By bringing forward the start-up of the underground mine and processing mineralized development material at the Fresnillo plant in advance of commissioning the Juanicipio plant, MAG and Fresnillo expect to secure several positive outcomes for the Juanicipio Project:

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

PROCESSING PLANT CONSTRUCTION AND COMMISSIONING – Juanicipio Project

Construction plans for the 4,000 tpd processing plant commenced immediately after the formal project approval in April 2019.  Development and construction of surface infrastructure facilities (power lines, access roads, auxiliary buildings, etc.) had already begun prior to the formal project approval in 2019 and is ongoing.  In Q2 2021, further positive progress was achieved on the construction of the Juanicipio processing plant and civil works.  Mechanical installation of the flotation cells and filters was completed in the quarter, and the SAG and ball mills installed.  All major mechanical pieces have now been installed, and the tailings and concentrate thickeners are nearing completion.  Significant progress has occurred on the initial tailings storage facility, and on the fine ore bin and stockpile dust cover. The lead and zinc flotation cell lines have been installed and are now piped in for air, water and froth flow.

Fresnillo, as operator, reports that commissioning of the Juanicipio processing plant is expected to come in on budget and as scheduled to commence commissioning in Q4 2021.  The Juanicipio plant is expected to reach 40 to 50% of the nameplate 4,000 tpd capacity by the end of 2021 and 90-95% in 2022. In contrast, the 2017 PEA originally envisioned ramp-up to full production over 3 years after commissioning of the processing plant

A regularly updated photo gallery of construction progress at Juanicipio is available at https://magsilver.com/projects/photo-gallery/#photo-gallery

UNDERGROUND DEVELOPMENT – Juanicipio Project

Access to the mine is via twin underground declines that extend to the top of mineralization in the Valdecañas Vein.  From the top of mineralization, the upper footwall haulage/access drift has been driven the length of the vein and three internal spiral production ramps are being extended from it to depth in the footwall of the mineralized envelope (vein). The three spiral ramps are situated behind the mineralized envelope to provide access to stopes within the vein and allow a planned mining rate of 4,000 tpd.  Initial cross-cuts through the vein have been made from a number of points along the footwall ramps. Most expose well-mineralized vein and this initial development indicates that the grade and width of the mineralization is in line with previous drillcore-based estimates. As discussed above, the mineralized material encountered in these developments is being processed at the nearby Fresnillo processing plant (see Underground Mine Production above).

Mineralized material from mining of the vein will be conveyed to an underground crushing station (already excavated) and crushed underground.  The crushed material will be trucked to the flotation plant until the conveyor is completed in 2022. When the conveyor is completed, the crushed mineralized material will be conveyed directly from the underground crushing station to the process plant area via a third ramp to the surface - the underground conveyor ramp.  The conveyor ramp is approaching 75% 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 long-term mine ventilation system is nearing completion, with both main ventilation shafts completed and presently being linked up to the main ventilation level of the underground infrastructure.

Total underground development to date has now reached approximately 40 km (25 miles), including 2.7 km (1.7 miles) completed in the three months ended June 30, 2021.  Fresnillo, as operator reported that mine development fell behind over the quarter ended June 30, 2021, but with the addition of a new contractor, development is now advancing as planned.  Underground mine infrastructure is well advanced and development continues to 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 (the first cut and fill stope has been opened and a trial longhole stope is being tested).
  • finalizing construction of the underground crushing system, underground warehouse, fuel storage and pumping station;
  • 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.

PROJECT CAPITAL (“CAPEX”) – Juanicipio Project

In the first quarter of 2020, Fresnillo and MAG jointly announced an update to the initial capex required for the project (see Press Release dated February 24, 2020).  The capex or pre-operative project capital cost on a 100% basis, as estimated from January 1, 2018 was revised to $440,000 from $395,000, to reflect additional expenditures incurred by Minera Juanicipio on the underground development and bringing forward the full construction costs for the life-of-mine ventilation shafts, as well as some sustaining capital to facilitate the early underground mine start.  

The initial capital already expended from January 1, 2018 to June 30, 2021 is approximately $313,400 leaving an estimated $126,600 of remaining initial capital (MAG’s 44% estimated remaining share is $55,704 as at June 30, 2021).  This remaining funding requirement will be reduced by both: existing cash held in Minera Juanicipio as at June 30, 2021 ($15,107 on a 100% basis); and, expected cash flows generated from mineralized development material processed at a targeted average nominal rate of 16,000 tonnes per month through the Fresnillo processing plant until the Juanicipio plant is commissioned (see Underground Mine Production above and Liquidity and Capital Resources below).

EXPLORATION – Juanicipio Project

Most of the Juanicipio property remains unexplored with many untested targets still to be pursued by the joint venture.  Drilling in recent years has been primarily designed to both convert the Inferred Mineral Resources included in the Deep Zone into Indicated Mineral Resources, and to further trace the Deep Zone laterally and to depth.

2020 Exploration Program

After a temporary COVID-19 exploration halt imposed by the Mexican Government in 2020, full exploration drilling at Juanicipio resumed in May of 2020 with five surface rigs, including three dedicated to Devico directional drilling and three underground rigs.  Despite the temporary COVID-19 restriction, the full Juanicipio 2020 drilling program was completed as planned in 2020, although processing of assays was delayed and only released subsequent to the quarter ended June 30, 2021 (see Press Release dated August 5, 2021).  A total of 33 surface holes (27,900 m) and 77 underground definition holes (11,800 m) were completed with the primary objectives of: infilling and expanding the Valdecañas Deep Zone (“Deep Zone”) to optimize its planned extraction; and underground definition drilling of the upper high-grade Valdecañas Bonanza Zone (“Bonanza Zone”) where test mining has already begun and the focus for the first several years of mining lies. Many of the holes directed at the Valdecañas vein coincidentally also cut one or more of the hangingwall Anticipada and Pre-Anticipada veins and footwall veins. Fourteen of these cut the Anticipada vein with some outstanding intercepts. Owing to drillhole geometries, the Pre-Anticipada Vein was not intercepted on its east side where it appears to improve in grade and thickness.  In addition to the above, 17 holes intercepted the NE-trending Venadas Vein Family.  Only three exploration holes were drilled during the year: 2 directed at the long-suspected North Vein and 1 a deep test of the Juanicipio Vein. 

Brief summaries of results are below, with a complete set of tables by vein of the 2020 drilling results available at: https://magsilver.com/site/assets/files/5810/nr-mar3-2020-table1-sdadds.pdf along with a new 3D video displaying the entire Valdecañas Vein System, available at: https://magsilver.com/site/assets/files/5810/SSMovieHQ2_3-Mar3-2019-sdsawe.mp4 .

The 2020 drilling program successfully:

  • Confirms, and allows modeling with greater detail and confidence of the high-grade silver resource within the upper parts of the Valdecañas Bonanza Zone where the first several years of mining will occur;
  • Confirms, expands, and allows improved modeling of the continuous wide mineralization of the Valdecañas Deep Zone; and,
  • Confirms, expands, and allows improved modeling of the ever-growing Anticipada Vein. 

Valdecañas Vein Bonanza Zone:  The first major focus of 2020 was a 77 hole underground definition drilling program targeting the uppermost part of the very high-grade Bonanza Zone where mining will occur for the next few years. The top of this zone was known to be irregular, and its upper limits not well defined, so tightly spaced drilling was undertaken from underground drill stations between 50 and 200m from the vein. All intercepts show the high silver and gold grades with very low base metals, typical of the top of the Valdecañas Vein. The underground drilling results in this program help define in detail the upper limits of the mineralization and continuity of grade and thickness within the vein. Additionally, the significant boost to the geochemical database for the Bonanza Zone allows more detailed grade distribution analysis and these added geotechnical data provide crucial information on ground conditions. Stope design based on the results is underway.  

Valdecanas Vein Deep Zone: The second major focus of the 2020 program was continued infill and expansion drilling of the Deep Zone with 21 holes (14 infill and 7 expansion) drilled from surface.  All but one infill hole cut significant grade with width. Hole D1-6-1, very nicely reinforces the width and grade of the western dilatant zone.  Hole D5-3-3, at 21m true width was the highlight on the east side. The weakest hole (P34) went into the narrow “waist” between the two dilatant zones about 24m from a previous weak intercept. Seven holes were drilled outside the known mineralized envelope and extend it laterally and to depth on both ends of the vein.  Two holes were drilled very deep on the Valdecañas vein and cut 187 and 279 meters respectively of zinc mineralized skarn surrounding the vein.  These are by far the greatest mineralized skarn thicknesses drilled to date in the district and provide additional definition of the ore-fluid upwelling zone that appears to have fed the entire Valdecañas Vein System.

Anticipada: Fourteen Valdecañas-directed holes coincidentally cut and nicely infill the parallel hangingwall Anticipada Vein.  At 10.3 m true width, Hole D5-3-1 is one of the widest holes through Anticipada to date.  Several of the holes cut high gold grades and most cut significant base metals, including high copper. 

Venadas “North-East Trending” Vein Family: The combined surface and underground drilling program made 17 intercepts of members of the northeast-trending “Venadas Vein Family”. Most of the intercepts show significant silver and gold grades with very low base metals indicating a very high level of exposure analogous to the top of the Bonanza Zone of Valdecañas. 

Other Targets: Three exploration holes were drilled outside of the Valdecañas Vein System during 2020. One (101P) cut modest mineralization deep and to the west on the Juanicipio Vein, demonstrating continuity of mineralization in the structure. Two holes (P33 and P33-2) targeted the long-suspected North Vein some 400m to the north of the footwall of the Valdecañas Vein. These holes are very close to each other and both cut around 2.5m of barren “high-level looking” quartz vein at a similar elevation to the irregular top-out of the Valdecañas vein. Deeper drilling to test this vein at elevations similar to the Bonanza Zone of the Valdecañas vein is planned for 2021.

2021 Exploration Program

The 2021 approved Juanicipio exploration program is currently in progress at Juanicipio (see Outlook below).

Quality Assurance and Control: The samples (half core) are shipped directly in security-sealed bags to ALS-Chemex Laboratories preparation facility in Guadalajara, Jalisco, Mexico (Certification ISO 9001). Samples shipped also include intermittent standards and blanks. Pulp samples are subsequently shipped to ALS-Chemex Laboratories in North Vancouver, Canada for analysis. Two extra pulp samples are also prepared and are analyzed (in progress) by SGS Laboratories (Certification ISO 9001) and Inspectorate Laboratories (Certification ISO 9001) (or another recognized lab).  The remaining half core is placed back into the core boxes and is stored on site with the rest of the drill hole core in a secured core storage facility. The bulk reject is subsequently sent to the Center for Investigation and Technical Development (“CIDT”) of Peñoles in Torreon, Coahuila State, Mexico for metallurgical testing where a fourth assay for each sample is analyzed and a calculated head grade is received on the basis of a concentrate balance. The CIDT also does a full microscopic, XRF and XRD mineralogical analysis.

COVID-19 – Juanicipio Project

The Juanicipio Project operator, Fresnillo, continues to closely monitor the spread of the virus and has implemented a range of safety measures in accordance with the World Health Organization and Mexican Government guidelines. These include stringent monitoring & hygiene, temperature screening and social distancing. Testing and contact tracing have been used to identify potential cases and prevent the spread of the virus. Fresnillo maintains an open dialogue with government officials at both the Federal and local level.

As previously reported, in Q1 2021 Fresnillo as operator announced that the commissioning timetable for the Juanicipio processing plant was deferred a few months to Q4 2021 as some infrastructure contracts were delayed due to COVID-19 related restrictions as well as preventive measures implemented at site.  Further impacts of this pandemic could create or include significant COVID-19 specific costs, volatility in the prices for silver and other metals, further restrictions or temporary closures, additional travel restraints, 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 world markets and may affect the Company’s Business’ in ‘Risk and Uncertainties’ below.

OUTLOOK

MAG’s principal focus is the successful development of the Juanicipio Project and to further explore the Juanicipio property.  The Company continually looks to enhance its project portfolio by evaluating new projects and through successful exploration of its current property holdings.  However, MAG continues to execute its business plan prudently, with on-going project evaluations focusing primarily on potential high-grade, high-margin, district-scale opportunities.

Minera Juanicipio

Under the terms of an EPCM agreement, Fresnillo and its affiliates are overseeing the construction of the Juanicipio 4,000 tpd processing plant and associated surface and underground infrastructure. The Juanicipio processing plant is expected to come in on budget and as scheduled to commence commissioning in fourth quarter 2021 reaching 40 to 50% of nameplate capacity by the end of 2021 and achieving 90 to 95% of nameplate capacity in 2022.  An Operator Services agreement has been finalized which will become effective upon initiation of commercial production.  Both lead and zinc concentrate off-take agreements have been executed by Minera Juanicipio with Met-Mex Peñoles, S.A. de C.V., under which both concentrates are being treated at benchmark market terms in Torreón, Mexico.

During Q2 2021, continued progress was achieved on the construction of the Juanicipio processing plant.  The SAG and ball mills were installed during the quarter, and mechanical installation of the flotation cells and filters was completed during the Q2 2021. All major mechanical pieces have now been installed.  The tailings and concentrate thickeners are nearing completion.  Significant progress has occurred on the initial tailings storage facility, and on the fine ore bin and stockpile dust cover. The lead and zinc flotation cell lines have been installed and are now piped in for air, water and froth flow.  Underground development to date at Juanicipio is now approximately 40 km (25 miles) with access to the upper portion of the resource now achieved. Underground development priorities include continuing advance of the three internal spiral footwall production ramps designed to access the full strike length of the Valdecañas Vein system.  Initial development indicates that the grade and width of the vein are in line with previous drilling-derived estimates.

The estimated budgeted project capital cost on a 100% basis, as estimated from January 1, 2018 is $440,000 less approximately $313,400 in development expenditures incurred from then to June 30, 2021 leaving approximately $126,600 of remaining capital cost (MAG’s 44% estimated at $55,704) as at June 30, 2021.  This remaining funding requirement will be reduced by both: existing cash held in Minera Juanicipio as at June 30, 2021 ($15,107 on a 100% basis); and, expected cash flows generated from mineralized development material processed at a targeted average nominal rate of 16,000 tonnes per month through the Fresnillo processing plant until the Juanicipio plant is commissioned.

Underground mine production from Juanicipio commenced in August 2020 ahead of the original schedule. Since then to June 30, 2021, a total of 152,689 tonnes of mineralized development material have been processed at the Fresnillo processing plant, expected to contribute cash-flow to offset some of the initial project capital, and significantly speed up project ramp-up due to the de-risking of Juanicipio’s metallurgical performance (see Underground Mine Production above).  Mineralized development material from the mine is expected to be processed at a targeted two days per month of continuous processing for a nominal expected rate of 16,000 tonnes per month at the Fresnillo plant facility (100% owned by Fresnillo) until the Juanicipio plant commences commissioning in Q4 2021. The actual amount of material processed on a monthly basis may fluctuate due to the variability of mineralization encountered in the development headings from month to month.  During July 2021, a further 14,207 tonnes of development material were processed. 

According to Fresnillo, the Juanicipio development is expected to create approximately 2,750 jobs during construction and 1,720 jobs once at full production, with potential to scale-up operations in the future beyond 4,000 tpd.

The COVID-19 pandemic has had a material impact on the global economy, the scale and duration of which remain uncertain. The impact of this pandemic could include significant COVID-19 specific costs, volatility in the prices for silver and other metals, project development and mining restrictions or temporary closures, travel restraints, supply chain disruptions and workforce and contractor interruptions, including possible loss of life. These and other COVID-19 impacts could result in an increase in the total amount that the Company is required to finance in the project (see ‘Virus outbreaks may create instability in world markets and may affect the Company’s Business’ in ‘Risk and Uncertainties’ below).

On the exploration front, the Juanicipio 2021 Exploration program for Juanicipio is budgeted at $6 million, to be evenly allocated between continued step-out and infill drilling of the Valdecañas Vein System (including independent targeting of the Venadas Vein family and the Anticipada Vein) and three principal target areas elsewhere in the Joint Venture ground. Drilling of the Valdecañas Vein System began in January 2021 with four drill rigs (all assays pending), and a fifth drill rig now operating on site.  The five drill rigs on surface are running concurrently with continued underground definition drilling. Three of the drill rigs remain dedicated to Devico directional drilling.  Permit applications for drilling the outlying targets have been submitted or are in the process of being generated pending surface access arrangements. Meanwhile, detailed mapping and sampling of these targets is underway. All aspects of the exploration work continue to be done under strict COVID-19 protocols. 

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Fresnillo Annual Report 2020

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Story of Juanicipio

It all began with gas station…

Story of Juanicipio

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