• 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 plc (“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 in mid-2020, with the processing facility or plant being commissioned mid-2021 (and  reaching 85% of its 4,000 tonnes per day (“tpd”) nameplate capacity in Q4-2021). The initial production from the underground mine commencing in mid-2020 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 27 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 is focused on the installation of the processing facility (plant) and all associated support infrastructure.  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.  Further, underground operations have been temporarily reduced to a minimum working level under rigid hygienic protocols. 

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 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 mid-2020. MAG commissioned AMC Mining Consultants (Canada) Ltd. (“AMC”) 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 2017-2019 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) 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 onward. As envisioned in the 2017 PEA, the proposed process plant has a planned production rate of 4,000 tpd, and the plant and tailings storage facility will be located in joint venture owned 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.

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.

2.    HIGHLIGHTS – MARCH 31, 2020 & SUBSEQUENT TO THE QUARTER END      

  • Joint Juanicipio Project update issued during the quarter (see Press Release dated February 24, 2020):
    • announced that production from the underground mine was expected to commence ahead of schedule in mid-2020:
      • Mineralized material from the underground mine expected to be processed in the Fresnillo plant until the Juanicipio plant is commissioned;
      • Juanicipio plant expected to commence commissioning in mid-2021 and is expected to reach 85% of its 4,000 tonnes per day (“tpd”) nameplate capacity in Q4-2021; 
      • Significantly faster ramp up expected than previously guided due to the de-risking of Juanicipio’s metallurgical performance by virtue of campaign processing the mineralized material through the Fresnillo plant;
    • Estimated pre-operative initial capital now estimated at $440,000 (100% basis) as of January 1, 2018;
      • Less development expenditures incurred since then to March 31, 2020 of approximately $153,416 (Company therefore estimates approximately $286,584 of remaining initial capital on a 100% basis as at March 31, 2020); and,
      • Initial capital requirements to be reduced by both existing cash and other working capital held in Minera Juanicipio as at March 31, 2020 ($6,815 and $13,234 respectively), and by expected cashflow generated from mineralized material being processed through the Fresnillo plant commencing in mid-2020.  
  • Detailed engineering is near completion and earthmoving and foundation preparation is well advanced for the construction of the 4,000 tpd beneficiation plant.
  • SAG and Ball mills, flotation cells, all associated vessels, thickeners and ancillary process equipment are now secured on site.
  • Progress made with the construction of the flotation plant and infrastructure.
  • Underground development at Juanicipio has now approached 27 km (or 16.9 miles) and is focused on three sub-vertical ramps that descend alongside the mineralization and alongside the conveyor ramp to surface at plant site. 
  •  Assays from a 33,864 metre, 28-hole 2019 exploration program released March 3, 2020, 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.
  • Appointed Selma Lussenburg a Director of the Company on February 1, 2020. Ms. Lussenburg is a business executive, former general counsel, corporate secretary and current board director with over 35 years of business experience. She has held various senior level positions encompassing a broad range of legal, governance, compliance, pension, safety & security and operational responsibilities. 
  • MAG held cash and cash equivalents as at March 31, 2020 (before the below noted private placement) of $70,327 while Minera Juanicipio had working capital on a 100% basis of $20,043 as at March 31, 2020. 
  • Subsequent to the quarter end, the Company announced that in response to a Mexican national COVID-19 order, surface construction work has been temporarily suspended, and the underground operation has been temporarily reduced to a minimum working level under rigid hygienic protocols:  
    • Temporary order is in effect until May 30, 2020; and,
    • Fresnillo, the operator, has indicated there is no expected change to the overall development timetable.
  • Subsequent to the quarter end, the Company announced a non-brokered private placement of 4,528,302 common shares of MAG to Mr. Eric Sprott, through 2176423 Ontario Ltd., a corporation beneficially controlled by him, at a price of C$13.25 per Common Share for gross proceeds of C$60,000,002 ($42,974).

3.    JUANICIPIO PROJECT

Total Juanicipio Project expenditures incurred and capitalized directly by Minera Juanicipio (on a 100% basis) for the three months ended March 31, 2020 amounted to $19,343 (March 31, 2019: $10,093) of which $18,416 (March 31, 2019: $9,544) are development expenditures and the remaining $927 (March 31, 2019: $549) are exploration expenditures.  

COVID-19 – Juanicipio Project

Subsequent to the quarter end, in response to the COVID-19 virus outbreak, the Mexican Government ordered a temporary suspension of all “non-essential” operations nationwide in Mexico, including mining operations, until May 30, 2020. The Company understands that Fresnillo, the operator of Juanicipio, has been in regular consultation with Mexican Government officials to determine the most appropriate compliance approach while attempting to minimize the overall impact on project development.  Fresnillo has advised the Company that to date, surface exploration and construction work at Juanicipio has been temporarily stopped, and the underground operation has been temporarily reduced to a minimum working level under rigid hygienic protocols. The impact of these changes to the costs and time for the completion of development at Juanicipio is currently undeterminable, and could have a material adverse effect on MAG, its business, results from operations and financial condition.

Although Fresnillo stated on April 29, 2020 that it does not expect a change to the overall Juanicipio development timetable, the COVID-19 virus outbreak and current stoppages on surface exploration and construction work and current restrictions on underground development at Juanicipio could result in additional medical and other costs, project delays, cost overruns, and operational restart costs. 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.

The Juanicipio Project update discussed below reflects the ongoing activities on site through the quarter ended March 31, 2020 and prior to any temporary impact of the COVID-19 virus outbreak.

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 as of the first quarter of 2020, detailed engineering is 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 is now secured on site. Flotation cells, processing tanks and other process equipment has also arrived and thickener tanks and drive and rakes fabrication are well advanced. 

In the quarter ended March 31, 2020, further progress was made with construction of the flotation plant and other infrastructure. Earthmoving and foundation preparation continued for the construction of the processing plant and is now well advanced, as well as the completion of the haul road and main power supply transmission line. A large portion of the concrete works, structural steel sections and process pipe spools are being fabricated off-site in controlled workshop conditions. These will start arriving soon and be placed directly into position. As well, during the first quarter, a consulting firm was engaged to conceptually design the tailings dam.

UNDERGROUND DEVELOPMENT – Juanicipio Project

Access to the mine will be 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 will extend 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 were also required to facilitate the increase in planned mining rate to 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, the underground conveyor ramp.  The conveyor ramp is approaching 50% completion and is being driven both from the surface and from the 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 at 20% completed and the other at 36% complete.

Underground development in the first quarter 2020 continued 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 the first cross-cuts through the vein as the footwall ramps advance;
  • constructing the underground crushing chamber;
  • advancing the underground conveyor ramp to and from the planned surface processing facility from both faces;
  • integrating additional ventilation and other associated underground infrastructure; and,
  • sinking of the internal shaft – the head chamber for the shaft has been excavated, the shaft has been collared and winding equipment ordered. 

Total underground development to date is now approximately at 27 km, including 2.1 km completed in the first quarter of 2020. A fourth underground contractor was appointed late in 2019 and was active in the quarter contributing to accelerated development rates. Mineralized material from development began being stockpiled during the quarter and is expected to be available for processing through the Fresnillo processing facility by mid-2020 (see Mine Development Update – Juanicipio Project below). In addition to the 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 http://www.magsilver.com/s/PhotoGallery.asp .

MINE DEVELOPMENT UPDATE– Juanicipio Project

During the quarter on February 24, 2020, the joint venture shareholders jointly announced a project update. 

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 project update, it was announced that the underground mine is expected to commence production ahead of schedule in mid-2020, realizing commercial and operational de-risking opportunities for the joint venture.  Meanwhile, 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.

From mid-2020 until completion of the Juanicipio processing plant, mineralized material from development and initial production stopes is expected to be processed at the Fresnillo plant which has spare capacity.  By bringing forward the start-up of the underground mine to mid-2020, the joint venture shareholders are looking to secure several positive outcomes for the 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 in Q4-2021 and 90-95% in 2022. In the 2017 PEA, ramp-up to full production was envisioned over 3 years after commissioning of processing plant.

With detailed engineering almost complete, major equipment purchases completed, and several significant construction contracts awarded or under review, the joint venture shareholders also announced an update to the capex required for the project.  The pre-operative capital cost on a 100% basis of $395,000 from January 1, 2018 (see Press Release dated April 11, 2019) has been 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 March 31, 2020 is approximately $153,416 leaving an estimated $286,584 of remaining initial capital (MAG’s 44% estimated remaining share is $126,097 as at March 31, 2020).  This funding requirement would be reduced by both: existing cash and other working capital held in Minera Juanicipio as at March 31, 2020 ($6,815 and $13,234 respectively); and, expected cash flows generated from mineralized rock sold and processed through the Fresnillo processing plant commencing in mid-2020 (see Liquidity and Capital Resources below). 

SURFACE CONSTRUCTION AND SITE PREPARATION – Juanicipio Project

Upon project approval in April 2019, construction plans for the 4,000 tpd processing plant commenced immediately.  Basic engineering was completed during 2019 and detail engineering is substantially now complete. Development of surface infrastructure facilities (power lines, access roads, auxiliary buildings, etc.) had already previously begun and continued throughout 2019.  Orders had been placed well in advance for the long lead items for the process plant and the majority of all major equipment for the mill including both SAG and ball mills is now secured on site. Flotation cells, processing tanks and other process equipment has also arrived and thickener tanks and drive and rakes fabrication are well advanced. 

In the quarter ended December 31, 2019, earthmoving and foundation preparation commenced for the construction of the processing plant and is now well advanced, as well as the completion of the haul road and main power supply transmission line. A large portion of the concrete works, structural steel sections and process pipe spools are being fabricated off-site in controlled workshop conditions. These will start arriving soon and be placed directly into position.  

Subsequent to the year end, a consulting firm was engaged to conceptually design the tailings dam.

UNDERGROUND DEVELOPMENT – Juanicipio Project

Access to the mine will be 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 will extend 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 were also required to facilitate the increase in planned mining rate to 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 which is being driven both from the surface and from the 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.

Underground development in 2019 was actively focused on:

  • advancing the three internal spiral footwall ramps to be used to further access the full strike length of the Valdecañas Vein system;
  • making the first cross-cuts through the vein as the footwall ramps advance;
  • constructing the underground crushing chamber;
  • advancing the underground conveyor ramp to and from the planned surface processing facility from both faces;
  • integrating additional ventilation and other associated underground infrastructure; and,
  • sinking of the internal shaft – the head chamber for the shaft has been excavated, the shaft has been collared and winding equipment ordered. 

With total underground development to date having now exceeded 26 km, including 7.0 km in 2019 (6.6k – 2018), an additional contractor was appointed late in the year to further accelerate development rates. It is expected that mineralized material from development will become available by mid-2020 and the first production stope will be ready for mining in Q3-2020 (see ‘Mine Development Update’ below).

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

Underground Development

Click to View

Underground development commenced at the Juanicipio Property on October 28, 2013, with development to date focused primarily on advancing the ramp decline to the main Valdecañas Vein on the property. Ramp-related surface installations, offices and associated infrastructure have been completed, and construction of additional ventilation raises is on-going.

A new Technical Report entitled 'MAG Silver Juanicipio NI 43-101 Technical Report (Amended and Restated)' with the effective date of 21 October 2017 has been filed on SEDAR, and documents the current Mineral Resource Estimate and a Preliminary Economic Assessment (collectively the "2017 PEA").

MINE DEVELOPMENT UPDATE – Juanicipio Project

Subsequent to the year end, on February 24, 2020, the joint venture shareholders jointly announced a project update. 

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 project update, it was announced that the underground mine will commence production ahead of schedule in mid-2020, realizing commercial and operational de-risking opportunities for the joint venture.  Meanwhile, 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.

From mid-2020 until completion of the Juanicipio processing plant, mineralized material from development and initial production stopes will now be processed at the Fresnillo processing plant which is expected to have spare capacity.  By bringing forward the start-up of the underground mine to mid-2020, the joint venture shareholders are looking to secure several positive outcomes for the project:

•    generating some cash flow from production to offset some of the project capital requirements; 
•    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 mill design.

The Juanicipio mill is now expected to reach 85% name plate capacity in Q4-2021 and 90-95% in 2022. In the 2017 PEA, ramp-up to full production was envisioned over 3 years after commissioning of processing plant.

With detailed engineering almost complete, major equipment purchases completed, and several significant construction contracts awarded or under review, the joint venture shareholders also announced an update to the capex required for the project.  The pre-operative capital cost on a 100% basis of $395,000 from January 1, 2018 (see Press Release dated April 11, 2019) has been 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 approximate pre-operative initial capital already expended from January 1, 2018 to December 31, 2019 is approximately $135,000 leaving an estimated $305,000 of remaining initial capital (MAG’s 44% remaining share estimated $134,200 as at December 31, 2019).  This funding requirement would be reduced by both: existing cash and other working capital held in Minera Juanicipio as at December 31, 2019 ($29,601 and $13,655 respectively); and, expected cash flows generated from mineralized rock sold and processed through the Fresnillo processing plant commencing in mid-2020 

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


Based on the 2017 PEA, the Company views Juanicipio as an economically robust, high-grade underground silver project exhibiting minimal financial or development risks that is expected to produce an annual average of 16.5 million payable ounces of silver over the first full six years of commercial production and 9.6 million payable ounces per year over a 19 year total mine life.

The economic analysis in the 2017 PEA is preliminary in nature and is based, in part, on 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 is no certainty that a Preliminary Economic Assessment will be realized.

Exploration on the Juanicipio Project

Drilling of the Deep Zone is ongoing, and the Deep Zone effectively remains open to depth and laterally along its entire strike length to the Joint Venture boundary in both directions. Drilling of the Deep Zone to date has:

  • confirmed that continuous mineralization extends below the Valdecañas Bonanza Zone in both the East and West Veins;
  • revealed a substantial widening of this deeper mineralization into a well-defined dilatant zone under both veins;
  • improved definition of the new "Anticipada" or "Vant" Vein, within the vein system; and
  • combined to indicate that a major ore-fluid input point underlies the Overlap Zone between the East and West veins

A significantly expanded Mineral Resource estimate for the base metal-rich Deep Zone was included in the 2017 PEA (see 2017 PEA Summary below), and various other targets within the Juanicipio property boundaries are expected to be tested in 2018.

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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