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Site visit report - Discovery Silver's massive Cordero project

Commentaries & Views

In August 2019, Discovery Silver (DSVSF, DSV.V) , then known as Discovery Metals, announced the acquisition of Levon Resources and became the 100% owner of the Cordero Project. Cordero is located on private land in one of Mexico’s premier porphyry and carbonate replacement deposit (CRD) districts in Chihuahua State, Mexico.  

This massive project is contained inside of a 394 sq. km land package and is one of the largest Ag-Zn-Pb metal endowments in the world with expansion potential for open-pit mining. Discovery deemed the project being ripe for near-term, high-grade discoveries and re-scoping.

After Levon published a low-grade Preliminary Economic Assessment (PEA) on the Cordero Project in April 2018, Discovery's serially successful management team recognized an opportunity to remodel the resource and re-scale the project to improve the Investment Rate of Return (IRR).

In November 2021, Discovery announced a vastly improved Cordero PEA, boasting a Tier 1 caliber 16-year mine life with average annual production of 26 Moz AgEq at an AISC of $12.35/oz AgEq, with an operating margin of +60%. The PEA has a Base Case after-tax NPV5% of $1.2 B (C$1.5 B) and IRR of 38% (Ag - $22.00/oz, Au - $1,600/oz, Pb - $1.00/lb and Zn - $1.20/lb). Payback would occur after two years. The resource is well defined, with 99% of tonnes in the PEA mine plan being in the Measured & Indicated category.

The project also has excellent metallurgy, with sulphide recoveries of 85-95% for Ag/Pb/Zn at a coarse grind to produce a clean, saleable concentrate. To reduce upfront capex and eliminate the use of cyanide, recent metallurgical test work demonstrated that oxide mineralization could be co-processed with sulphide mineralization, allowing for the exclusion of a previously proposed heap leach circuit.

To date, Cordero has seen 293,000 meters of drilling, including 78,000 meters post the 2021 resource and PEA, as Discovery recently completed hole #689. An updated mineral resource estimate (MRE) is to be released in Q1/2023 in conjunction with a Pre-Feasibility Study (PFS).

The upcoming PFS will include 288,000 meters of resource drilling, along with 4,900 meters of engineering drilling. Recent drilling has demonstrated potential for the open pit in the PFS to become larger. The company will likely use a Base Case of $20 silver for the study, while the expected inflation adjusted initial capex will be roughly US$500 million. Much of the increased capex reflects a mill throughput rate that is 25% higher than what was previously assumed in the PEA.

The road from the city of Chihuahua to the Cordero site is a smooth 2-hour drive on a paved highway, then 12km on a company-maintained gravel road. Once we were guided to the first lookout at the top of a hill, located on the edge of the proposed pit, Discovery’s exploration team had marked with red flags the edges of the pit shell, along with its higher-grade core to be mined at an industry low strip ratio of 2.2-1.

The project is located 40 miles from the town of Parral (pop 120,000), which contains a large, skilled work force. The Parral area has undergone sporadic periods of mining since the colonial era with multiple mines operated by various entities over time. Open pit silver producing mines Dolores, and Pinos Altos are nearby.

The company is also in the process of completing the power study, with two existing power lines running though the property. The first is a low-capacity power line that runs parallel with the access road to the property and used by the few local ranchers in the area.

A second high-capacity power line we were shown was in the distance from a second lookout and feeds the town of Parral. The feedback received so far has the firm expecting there being sufficient capacity in the main sub-station that feeds this line, however, there is insufficient capacity in that Discovery would need to construct a parallel power line. 

Management is in the process of negotiating surface rights for the 3,200- hectare project with property owners, expected to be secured by Q1/2023. To provide sufficient water for Cordero via aquifer, Discovery has recently drilled six holes which have shown positive results. The firm is in the process of obtaining water rights for the area, and will sign a Letter of Intent (LOI) in late October. The water rights are expected to be secured in Q1/2023 as well.

The only threatened species on site is the small Texas Rainbow Cactus, which is being marked and labeled for re-location by authorities whenever spotted by Discovery’s exploration team. The company has initiated Environmental Impact Assessment (EIA) studies and will be submitting the application for a permit by year-end. An updated Environmental, Social and Governance (ESG) report is scheduled to be released in mid-2023.

Including the cost of a current third phase of drilling with two core rigs that will be included in the upcoming feasibility study, the company’s burn rate is C$1.5-$2 million per month with AISC being C$250 per meter. There is an ALS prep lab located nearby in Chihuahua, with a short turnaround time for assay results of just 4-5 weeks.

Discovery is well-funded, with C$55 million in cash and expects to have C$25-$30 million in the treasury after the Feasibility Study is released in Q1/2024, when the company will make a construction decision. The construction permit is expected by H1/2024. Here is a link to the Discovery Site-Visit presentation. A Site Visit Report for Vizsla Silver’s earlier-stage Panuco project, which was also seen on my recent trip to Mexico, will be shared in this space next week.

Full disclosure: I have recently purchased shares of Discovery Silver stock in the open market and cover the company in the Junior Miner Junky (JMJ) newsletter.

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