• 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 – SEPTEMBER 30, 2020 & EVENTS SUBSEQUENT TO THE QUARTER END     

 

  • Juanicipio operator, Fresnillo, has implemented a range of safety measures and monitoring procedures, consistent with the World Health Organization’s and Mexican Government’s direction, in response to COVID-19, with the overall expected project development timetable unchanged.
    • Juanicipio plant expected to commence commissioning in mid-2021 and reach 85% of its 4,000 tpd nameplate capacity by year end 2021.
  • Construction of the 4,000 tpd Juanicipio plant continues to advance, with the plant foundations completed and curing, and the prefabricated steel elements now ready for installation.
  • Underground development at Juanicipio is now at 32 km (20 miles) with preparation of the first production stope concluded during the third quarter of 2020.
  • Initial mine production commenced in early August 2020 with processing of development material on commercial terms through the nearby Fresnillo plant, and is expected to continue at a rate of approximately 16,000 tonnes per month until the Juanicipio plant is commissioned.  During the quarter ended September 30, 2020, on a 100% basis:
    • 42,476 tonnes of mineralized material were processed through Fresnillo’s plant, with 394 thousand silver ounces, 610 gold ounces, 138 tonnes of lead and 174 tonnes of zinc produced and sold in the quarter. 
    • Subsequent to the quarter end, a further 15,400 tonnes were processed in October 2020.
  • Provisional sales of $9,525 on a 100% basis less $1,530 in related costs, netting $7,995 that was credited against project capital in accordance with MAG’s pre-commercial production accounting policy.
  • 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 September 30, 2020 of approximately $197,427 (the Company therefore estimates approximately $242,573 of remaining initial capital on a 100% basis as at September 30, 2020);
    • Existing cash held in Minera Juanicipio as at September 30, 2020 ($14,417); and,
    • Expected cashflow generated from material being processed through the Fresnillo plant up until the Juanicipio plant is commissioned in mid-2021 (a net of $7,995 was generated in the third quarter of 2020). 
  • After the temporary COVID-19 restrictions established by the Mexican Government in the previous quarter were lifted, drilling resumed in the current quarter and the full Juanicipio 2020 exploration program is expected to be completed as planned in 2020.
  • On June 29, 2020, the Company established an at-the-market equity program (the “ATM Program”) and in the quarter ended September 30, 2020 the Company sold and issued 3,092,783 common shares under the ATM Program at an average price of $16.17 per share, for gross and net proceeds of $50,000 and $48,625 respectively.
  • MAG held cash and cash equivalents as at September 30, 2020 of $136,045 while Minera Juanicipio had cash on hand on a 100% basis of $14,417 as at September 30, 2020.
  • Subsequent to September 30, 2020, the Company advanced $40,524 to Minera Juanicipio representing its 44% share of a $92,100 cash call to fund process plant construction and further underground development on the Juanicipio property.
  • Deer Trail Project in Utah was announced during the quarter, a silver-rich CRD target, with drilling having commenced in November, 2020.

     JUANICIPIO PROJECT

    Total Juanicipio Project expenditures incurred and capitalized directly by Minera Juanicipio (on a 100% basis) for the three and nine months ended September 30, 2020 amounted to $40,334 and $80,487 respectively (September 30, 2019: $42,023 and $70,904 respectively).  Of the total expenditures in the nine months ended September 30, 2020, $77,227 (September 30, 2019: $66,592) are development expenditures and the remaining $3,260 (September 30, 2019: $4,312) are exploration expenditures.  As noted below under “Initial Mine Production – Juanicipio Project” $7,995 in net provisional sales have been offset against the capitalized expenditures of $80,487 to September 30, 2020 (September 30, 2019: nil) in accordance with the Company’s pre-commercial production accounting policy.

    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 resumed late in the second quarter with a phased restart having commenced on June 1, 2020.

    In further response to the COVID-19, Fresnillo as operator, continues to closely monitor the spread of the virus and implement a range of safety measures following guidelines in accordance with the World Health Organization and Mexican authorities. 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.

    According to the operator Fresnillo, the overall development timetable remains unchanged.  However, the impact 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 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 have been secured on site since February 2020.

    In the previous quarter, surface construction progress at Juanicipio was limited due to COVID-19 restrictions as noted above. Construction ramped up again starting June 1, 2020 and into the quarter ended September 30, 2020, and according to Fresnillo, the overall development timetable currently remains unchanged with the Juanicipio processing plant expected to be commissioned in mid-2021. 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.

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

    Underground Development and Initial Mine Production

    Access to the mine is via twin underground declines that now have reached the top of mineralization in the Valdecañas Vein.  From top of the mineralization, 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. The three spiral ramps behind 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, and mineralized material from development was processed for the first time during the third quarter of 2020 (see Initial Mine Production below).

    Mineralized material from throughout the vein will be crushed underground and the crushed material will be trucked to the Flotation plant, until the conveyor is completed. Then, the mineralized material will be 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 63% 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 69% complete and the other at 73% complete.

    Total underground development to date is now at 32 km (20 miles), including 2,241 metres completed in the quarter ended September 30, 2020.  Underground 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 (preparation of the first production stope was concluded in the quarter ended September 30, 2020);
    • 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. 

    Initial Mine Production

    In the first quarter of 2020, it was announced that the mine would commence initial production ahead of schedule in mid-2020, realizing commercial and operational de-risking opportunities for the joint venture. It is expected that mineralized material from development will be batch processed on commercial terms at an average rate of 16,000 tonnes per month at the Fresnillo plant and continue up until completion of the Juanicipio processing plant in mid-2021. 

    Actual processing of development material commenced in early August 2020. As reported by the operator Fresnillo, a combined 42,476 tonnes were processed in August and September from both development material that had previously been stockpiled and mineralized material from current underground development.  Total initial mine production and sales, on a 100% basis, was 394 thousand silver ounces, 610 gold ounces, 138 tonnes of lead and 174 tonnes of zinc. Sales, net of processing and treatment costs totaled $9,525 on a provisional basis, and further costs incurred (including an applied mining cost and transportation costs, but excluding any depreciation) totaled $1,530. The provisional sales and treatment charges will be adjusted in the fourth quarter based on final assay and pricing adjustments in accordance with the offtake contracts.  The resulting net provisional sales of $7,995 on a 100% basis have been credited against capitalized Juanicipio costs to date, in accordance with the Company’s pre-commercial production accounting policy (please refer to Note 2 of the Company’s unaudited condensed interim consolidated financial statements as at September 30, 2020 for a description of all of the significant accounting policies).

    By bringing forward the start-up of the mine and processing mineralized material early, 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 (provisional net $7,995 was generated in the third quarter of 2020); 
    • 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 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.

    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

     

    The Valdecañas Vein System is a multi-stage, high-grade vein swarm comprising the Valdecañas vein, characterized by large dilatant zones (bulges) in its east and western reaches, the hangingwall Anticipada Vein, the Pre-Anticipada Vein, several en echelon splays and a series of subparallel northeast-trending cross veins that comprise the Venadas-Valentina Vein family.  The recent discovery of these northeast-trending veins close to the planned production areas, coupled with the expanding high-grade Anticipada and Pre-Anticipada veins, should add significantly to the growing mineral endowment of the project and, importantly, provide considerable mining flexibility throughout an extended mine life.  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.

    Exploration drilling at Juanicipio resumed in May of 2020 after a temporary COVID-19 halt imposed by the Mexican Government (see COVID-19 Juanicipio Project above).  Since then, full drilling has resumed with five rigs, including three dedicated to Devico directional drilling. Drilling is currently focused on continued step-out and infill drilling of the Valdecañas Deep Zone.  Holes are also being directed at the Anticipada Vein and NE-trending Venadas Vein family targeting them independently from the Valdecañas Vein. Despite the temporary COVID-19 restrictions noted above, the full Juanicipio 2020 drilling program is expected to be completed as planned in 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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