Discovery Reports Preliminary Feasibility Study on Cordero with After-Tax NPV of US$1.2 Billion and 28% IRR
Discovery Reports Preliminary Feasibility Study on Cordero with After-Tax
NPV of US$1.2 Billion and 28% IRR
January 24, 202 3, Toronto, Ontario - Discovery Silver Corp. (TSX-V: DSV, OTCQX: DSV SF)
(“Discovery” or the “Company”) is pleased to announce results from its Preliminary Feasibility Study
(“PFS” or “the Study”) on its 100%-owned Cordero silver project (“Cordero” or “the Project”) located in
Chihuahua State, Mexico. The PFS project team was led by Ausenco Engineering Canada Inc.
(“Ausenco”), with support from AGP Mining Consultants Inc. (“AGP”) and Knight Piésold Ltd. (“Knight
Piésold”). Highlights include (all figures are in US$ unless otherwise noted):
• Excellent project economics: Base Case after-tax NPV5% of $1.2 Billion (C$1.5 Billion) and IRR
of 28% (Ag - $22.00/oz, Au - $1,600/oz, Pb - $1.00/lb and Zn - $1.20/lb).
• Extended mine life & higher production : 18-year mine life with average annual production of 33
Moz AgEq representing an increase of ~40% in total AgEq ounces produced over the life of the
Project compared to the 2021 Preliminary Economic Assessment (“PEA”).
• High margins & low capital intensity maintained: average AISC of $12.80/oz AgEq in Years 1 to
12 with an initial development capex of $455 M resulting in an attractive NPV-to-capex ratio of 2.5x.
• Significantly de-risked Reserve base: new Reserves declared of Ag - 266 Moz, Au - 790 koz, Pb
- 2,970 Mlb and Zn – 4,650 Mlb; more than 70% of mill feed in Years 1 to 5 classified as Proven.
• Exceptional silver price leverage : PFS mine plan assumes only 42% of Measured & Indicated
Resource tonnes are processed; clear potential to significantly extend mine life at higher silver
prices.
• ESG/economic contribution: total estimated taxes payable of $1.2 B illion, a peak estimated local
workforce of over 1,000 employees and over $4 Billion of expected goods and services purchased
locally within Mexico over the life of the mine.
Tony Makuch, CEO, states: “We are extremely pleased with the results from our Pre- Feasibility Study.
The PFS positions Cordero uniquely in the silver developer space with a long mine life of 18 years and
production averaging over 35 Moz AgEq in the first 12 years of the mine life. This represents an
approximate 40% increase in total ounces produced compared to our 2021 PEA. Despite significant
industry-wide cost escalation over the last year , cost savings from a streamlined process design and
improved metallurgical performance have resulted in a highly capital efficient project with excellent
margins.
“The Study also outlines the significant economic contribution the Project will have through
employment, taxes and the purchases of local goods and services in the Municipality of Parral, in
Chihuahua State and in Mexico. We now look forward to advancing the Project toward a Feasibility
Study and surfacing additional value through numerous optimization opportunities we have already
identified.”
NEWS RELEASE
The Company will be hosting a Conference Call to present the PFS results on Tuesday January 24,
2023, at 11:00am ET. A presentation by management will be followed by Q&A.
Webcast Details: https://www.c-meeting.com/web3/joinTo/3VP4ZPTDAK29QC/G_IL_k7v36d-fwfTnE5iaw
PRE-FEASIBILITY STUDY SUMMARY
Project Economics
The economics for the PFS were based on the following metal prices: Ag - $22.00/oz, Au - $1,600/oz,
Pb - $1.00/lb and Zn - $1.20/lb. Sensitivity of the Project’s expected after-tax NPV, IRR and payback at
different commodity price assumptions is outlined in the table below:
Units Base Case Spot Price Base Case
+15%
Base Case
-15%
After-Tax NPV (5% discount rate) (US$ M) $1,153 $1,723 $1,797 $508
Internal Rate of Return (%) 28.0% 35.9% 37.5% 16.9%
Payback (yrs) 4.2 3.4 3.2 6.0
• Spot Price assumptions (as at close on January 20, 2023): Ag = $23.87/oz, Au = $1,925/oz, Pb = $0.97/lb, Zn = $1.54/lb
Production & Costs
Annual production over the life-of-mine (“ LOM”) is expected to average 33 Moz AgEq. In Years 5 –
Year 12 production averages 40 Moz AgEq with peak production in Year 11 of 52 Moz AgEq. These
production levels position Cordero as one of the largest primary silver mines globally.
All-In Sustaining Costs (“AISC”) average $12.80/oz AgEq in Year 1 – Year 12 and $13.62/oz AgEq over
the LOM. This represents an approximate increase of 10% versus the PEA. This increase is primarily
due to higher treatment and refining charges and industry wide cost escalation including higher
assumed prices for consumables, diesel ($1.10/L vs $1.00/L in PEA) and power ($0.068/kWh vs
$0.062/kWh). These increases were offset to a large extent by cost reductions from lower reagent
consumptions and unit cost reductions attributable to higher throughput rates in the PFS compared to
the PEA.
A summary of AgEq production and AISC is provided in the table below. A breakdown of the production
proportions of each individual metal and AISC over the LOM is provided in the graph below the table.
Units Year 1 – 4 Year 5 - 12 Year 13 -18 LOM
AgEq Produced – Average/yr (Moz) 30 40 25 33
AgEq Payable – Average/yr (Moz) 25 34 21 27
AgEq Produced - Total (Moz) 118 322 151 591
AgEq Payable - Total (Moz) 102 268 124 494
All-In Sustaining Cost (AISC) (US$/AgEq oz) $12.29 $12.99 $16.05 $13.62
Note – AgEq Produced is metal recovered in concentrate. AgEq Payable is metal payable from concentrate and incorporates metal payment
terms outlined in the Concentrate Terms section below. AgEq is calculated as Ag + (Au x 72.7) + (Pb x 45.5) + (Zn x 54.6); these factors are
based on metal prices of Ag - $22/oz, Au - $1,600/oz, Pb - $1.00/lb and Zn - $1.20/lb. AISC is a non-GAAP measure; refer to the Non-GAAP
Measures section of the release for further information on this measure. See Technical Disclosure section for AISC calculation methodology.
LOM Production & AISC
Note – Au/Pb/Zn production is shown on an AgEq basis based on: Ag = $22/oz, Au = $1,600/oz, Pb = $1.00/lb and Zn = $1.20/lb
2023 PFS vs 2021 PEA Summary
The PFS incorporates numerous significant positive developments in comparison to the PEA. Based on
drilling success at depth and in the northeast of the deposit the size of the open pit has increased by
over 30% and the strip ratio has improved to 2.1:1. This additional drilling has also significantly
increased the confidence level of the underlying resource with the PFS supported by Reserves of which
54% are in the Proven category.
The PFS incorporates throughput rates of 25,500 tpd in Phase 1 and 51,000 tpd in Phase 2, ~25%
higher than the PEA. This has resulted in average annual production increasing by 27% over an
extended mine life of 18 years. The process design has been streamlined based on the excellent
results from the 2022 metallurgical testwork program with the co-processing of oxides and sulphides via
flotation allowing for the elimination of the heap leach circuit.
The payback period has increased to 4.2 years. This is due to the delay in processing oxide material
from eliminating the heap leach and given the mill e xpansion occurs in Year 3 of the mine life (deferral
of the expansion would reduce the payback period to 3.0 years). The payback period has been
significantly de-risked with more than 70% of the mill feed in Years 1 to Year 5 in the Proven category
and the removal of the elevated risk typically associated with heap leach ramp ups.
Initial capital increased by 24% to $455 M. This was primarily due to the 25% increase in the initial size
of the plant, a switch to owner-operated mining (assuming lease finance of mine equipment) driven by
the growth in size of the open pit (the PEA assumed contractor mining) and cost inflation.
$0.00
$5.00
$10.00
$15.00
$20.00
$25.00
0
10
20
30
40
50
Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Y16 Y17 Y18
AISC ($/oz AgEq)
AgEq Produced (Moz)
Ag Au Pb Zn AISC
PARAMETER UNITS 2023 PFS 2021 PEA
SUMMARY
After-Tax NPV (5% discount rate) (US$ M) $1,153 $1,160
Internal Rate of Return (%) 28.0% 38.2%
Mine Life (yrs) 18 16
Initial Capital (US$ M) $455 $368
Payback (yrs) 4.2 2.0
OPERATIONS
Tonnes Processed (LOM – Total) (Mt) 302 228
Strip ratio (LOM) (w:o) 2.1 2.2
PRODUCTION & COSTS
AgEq Produced (LOM – Annual Average) (Moz) 33 26
AgEq Produced (LOM – Total) (Moz) 591 426
All-In Sustaining Cost (Y1 – Y12) (US$/AgEq oz) $12.82 $11.73
All-In Sustaining Cost (LOM) (US$/AgEq oz) $13.62 $12.35
Project Economics are based on Ag = $22.00/oz, Au = $1,600/oz, Pb = $1.00/lb, Zn = $1.20/lb. See Technical Disclosure section for AgEq
and AISC calculation methodology.
Feasibility Study Opportunities
The Feasibility Study (“FS”) is already being advanced and is expected to be completed in 1Q 2024.
Key areas for optimization in the FS include:
• Metallurgical performance: further testwork to improve recoveries and optimize the mine schedule
through modifying the blending of rock types and oxides/sulphides.
• Mining costs: an evaluation of optimal bench height and mine equipment sizing to potentially
increase the size of mining equipment and reduce unit mining costs.
• Processing costs: additional comminution testwork targeting reduced power and grinding media
consumption and further flotation testwork targeting lower reagent consumption and reagent
substitutions.
• Timing of mill expansion: evaluation of deferral of the mill expansion to accelerate the payback
period
• Tailings Storage facility (TSF): optimization of the tailing storage design as well as the water
efficiency and recirculation within the TSF. Further work will be completed on the option to use
filtered (dry stacked) tailings (the PFS assumed high-density thickened tailings).
• Mine life extension: the FS will incorporate an additional ~30,000 m of drilling in and around the pit
focused on upgrading the resource classification within the pit and expanding and upgrading
resource blocks between the open pit and the Resource constraining pit shell. There is also over
270 Mt of Measured & Indicated Resource that sit s outside the PFS design pit but within the
Resource pit shell that could significantly extend the mine life at higher metal prices.
Resource Update
In conjunction with the PFS, the Mineral Resource Estimate for Cordero has been updated to
incorporate an additional 67,800 m of drilling (total drilling of 287,4 00 m in 706 drill holes) . The
Measured & Indicated Resource has grown by 35% to 1,132 Moz AgEq and the Inferred Resource has
grown by 40% to 119 Moz AgEq as summarized below. This resource expansion has largely been
driven by exploration success at depth and in the northeast part of the deposit.
• Measured & Indicated Resource of 1,132 Moz AgEq at an average grade of 49 g/t AgEq (716
Mt grading 20 g/t Ag, 0.06 g/t Au, 0.29% Pb and 0.54% Zn)
• Inferred Resource of 167 Moz AgEq at an average grade of 35 g/t AgEq (145 Mt grading 14 g/t
Ag, 0.02 g/t Au, 0.23% Pb and 0.38% Zn)
Mineral resources that are not mineral reserves do not have demonstrated economic viability. Further
details on the Resource including all supporting technical disclosure is outlined in Appendix A.
CAPITAL EXPENDITURES
Cordero is a highly capital-efficient project due to numerous underlying advantages:
• Deposit comes to surface resulting in minimal early mine development and pre-stripping
• Minimal earthworks due to gentle topography, the location of bedrock near-surface and
favourable geotechnical characteristics of the bedrock
• Conventional process design based on excellent metal liberation at a very coarse grind size
• Phased approach to the expansion of the process plant
• Close proximity to existing infrastructure including nearby highway and adjacent powerline
• Favourable mining jurisdiction with access to a highly skilled local workforce and no need for a
camp given the close proximity of the town of Parral
Initial Capital (to achieve plant throughput of 9.3 Mt/a)
Initial capital to build Cordero Phase 1 is estimated to total $455 million and will be incurred over a two-
year construction period. This capital estimate includes the construction of on- site infrastructure, power
transmission line, Phase 1 of the process plant with nameplate capacity of 9.3 Mt /a (25,500 tpd), all
pre-stripping activities and construction of the TS F including the initial starter dam embankment
providing 2 years of tailings storage.
Contingency for the initial capital estimate typically ranges from 15% to 20% (depending on cost ty pe)
and is applied to direct and indirect costs . Owners costs represent 5 % of direct costs. Indirect costs
represent 23 % of direct costs. These proportions are in- line with typical industry averages and are
consistent with a cost base for a project build in Mexico and commensurate with the level of complexity
of the project build.
Expansion Capital (to expand plant to 18.6 Mt/a)
The processing facility will be expanded to a nameplate capacity of 18.6 Mtpa (51,000 tpd) in Year 3
and Year 4 at an estimated cost of $ 290 million. This expansion includes the addition of parallel
grinding and flotation circuits, additional on -site infra structure and a major tailings dam lift that is
concurrent with plant expansion.
An expansion of the flotation circuit is planned for Year 9 at a cost of $ 31 million. This includes the
addition of cleaner flotation cells, a filter and a thickener to accommodate the higher zinc grades in
Year 10 and Year 11.
Sustaining Capital
Sustaining capital over the LOM totals $2 28 million (includes closure costs net of salvage). This
includes $106 million to be spent on tailings management facility expansions, with the remainder to be
spent on mine equipment, the process plant , mobile equipment and replacements/refurbishments of
infrastructure assets. Sustaining capex for the process plant has been classified as operating costs
under the maintenance category. Sustaining capex for mining only includes down payments on
replacement equipment with the remaining lease costs classified as mine operating costs.
DESCRIPTION (all in US$ millions) INITIAL CAPITAL EXPANSION CAPITAL SUSTAINING
LOM CAPEX
TOTAL
LOM CAPEX Year -2 Year -1 Year 3/4 Year 9
CAPITAL EXPENDITURES
Mining $18 $52 $3 - $67 $140
Infrastructure $8 $23 $12 - $22 $65
Processing Plant $39 $117 $114 $14 - $284
Tailings Facility (TSF) $11 $34 $40 - $106 $191
Offsite Infrastructure $5 $15 $35 - - $55
Indirects $15 $44 $39 $11 - $109
Owners Costs $3 $10 $3 $1 - $17
Closure (net of Salvage Value) - - - - $24 $24
Contingency $15 $46 $43 $5 $9 $118
Capital Expenditures - Subtotals $114 $341 $289 $31 $228 $1,003 $455
OPERATIONS
Mining
The mine plan incorporates accelerated stripping as well as stockpiling of low-grade material in order to
optimize the grade profile over the LOM.
• The mine plan was completed by AGP and is based on a detailed mine design that incorporates
mining dilution, safety berms and haul roads.
• Following a steady ramp up period m ining rates over the life of the mine are relatively consistent at
60 to 70 Mt/a.
• T he ultimate pit contains 942 Mt in total consisting of 302 Mt of ore and 640 Mt of waste for an
average strip ratio of 2.1:1. The strip ratio is relatively even over the LOM.
• Pit slope designs were based on an assessment by Knight Piésold that was supported by five
geotechnical core holes and logging of core from 102 exploration core holes.
Processing
Processing was broken into two main phases to optimize the capital efficiency of the project . Oxides
and sulphides are co-processed up to a maximum oxide tonne proportion of 10% of total mill feed.
• Phase 1 throughput (Year 1 to Y ear 4): Year 1 is a ramp up year with throughput at 80% of
nameplate capacity of 9.3 Mt/a (25,500 tpd) . Year 4 is a transition year to Phase 2 throughput
levels.
• P hase 2 throughput (Year 5+): Nameplate capacity of 18.6 Mt/a (51,000 tpd)
• Process design
− Phase 1: primary crushing, grinding (SAG and ball milling to a targeted grind size of 200 micron)
and two-stage flotation to produce Pb and Zn concentrates.
− Phase 2: addition of parallel grinding and flotation circuits to produce Pb and Zn concentrates.
Head grades
The mine plan focuses on feeding higher grades to the mill earlier in the mine life:
• Year 1 – 4: processing of higher -grade sulphide material predominantly from the Pozo de Plata
zone
• Year 5 – 12: processing of higher-grade sulphides from the NE Extension and the South Corridor
• Year 13 – 18: processing of mostly lower-grade material stockpiled during Year 1 to Year 12
TONNES PROCESSED / HEAD
GRADES UNIT PHASE 1 PHASE 2 LOM Year 1 – 4 Year 5 – 12 Year 13 – 18
Oxide tonnes processed (Mt) 1 7 11 19
Sulphide tonnes processed (Mt) 42 142 100 283
Tonnes processed (Mt) 43 149 111 302
Head Grades
Ag (g/t) 46 29 19 27
Au (g/t) 0.20 0.07 0.05 0.08
Pb (%) 0.65% 0.48% 0.31% 0.44
Zn (%) 0.78% 0.75% 0.66% 0.70
AgEq (g/t) 110 79 52 73
Recoveries
• Oxides: recoveries were based on five locked-cycle tests of oxide-sulphide blends completed in
2022. Oxide-only recoveries over the LOM average ~60% for Ag, ~35% for Pb and ~85% for Zn.
• Sulphides: recoveries were based on the 2021 and 2022 metallurgical test programs that included
19 locked-cycle tests and over 200 batch tests. Recoveries were estimated based on the grade-
recovery relationship established from this test work. Sulphide-only recoveries over the LOM
average ~89% for Ag, ~88% for Pb and ~85% for Zn.
Metal recoveries to the two concentrates based on the projected oxide- sulphide blends from the mine
plan are summarized below:
METALLURGICAL RECOVERIES
(weighted average)
PHASE 1 PHASE 2 LOM Year 1 – 4 Year 5 – 12 Year 13 – 18
Ag 90% 87% 82% 87%
Au 22% 22% 22% 22%
Pb 89% 87% 83% 86%
Zn 86% 86% 84% 85%
Tailings Storage Facility (TSF)
• The TS F design was completed by Knight Piésol d and is based on deposition of high-density
thickened tailings into a tailings storage facility that utilizes the ‘downstream expansion’
embankment construction method.
• The TSF is located directly eas t of the open pit . The design incorporates a total of five dam stages
over the LOM (starter dam and four downstream expansions).
• Total capacity of the TS F is greater than the estimated volume requirement of 302 Mt generated by
the PFS mine plan and additional downstream expansion can be incorporated to store additional
tailings if required.
• An evaluation of using a filtered (dry stack) tailings facility will be completed as part of the FS.
OPERATING COST
Operating costs are summarized in the table below.
PARAMETER UNITS PFS COST PEA COST
OPERATING COSTS
Mining $/t mined $2.45 $2.23
Mining $/t milled $7.56 $7.03
Processing – Milling (Phase 1) $/t milled $6.46 $7.01
Processing – Milling (Phase 2) $/t milled $6.36 $6.57
Site G&A (Phase 2) $/t milled $0.57 $0.86
Mining
• Mining is assumed to be owner -operated with lease financing. E stimated mining costs were built
from first principles by AGP. The cost of diesel was assumed to be $1.10/L compared to $1.00/L in
the PEA.
• The lease financing structure assumes a 20% initial deposit, a term of five years and an annual
lease financing cost of 6%.