DSV.TO · 2021-11-30 12:00:00

Discovery Silver Reports Preliminary Economic Assessment on Cordero with After-Tax NPV of US$1.2 B, IRR of 38% and Payback of 2.0 Years

Economic Studies

Discovery Silver Reports Preliminary Economic Assessment on Cordero

with After-Tax NPV of US$1.2 B, IRR of 38% and Payback of 2.0 Years

November 30, 2021, Toronto, Ontario - Discovery Silver Corp. (TSX-V: DSV, OTCQX: DSVSF)

(“Discovery” or the “Company”) is pleased to announce results f rom its Preliminary Economic

Assessment (“PEA” or “the Study”) on its 100%-owned Cordero silver project (“Cordero” or “the Project”)

located in Chihuahua State, Mexico.

Study highlights include (all figures are in USD unless otherwise noted):

 Excellent project economics: 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).

 Exceptional silver price leverage: Upside Case after-tax NPV5% of $1.9 B (C$2.4 B) and IRR of

55% (Ag - $27.50/oz, Au - $1,880/oz, Pb - $1.10/lb and Zn - $1. 45/lb based on one-year trailing 90th

percentile prices).

 Large-scale, high-margin, long mine life asset: 16-year mine life with average annual production

of 26 Moz AgEq at an AISC of $12.35/oz AgEq.

 Low capital intensity: initial development capex of $368 M; attractive NPV-to-capex ratio of 3.2x.

 Rapid payback: post-tax payback of 2.0 years for Base Case and 1.4 years for Upside Case.

 Technically robust study: 99% of tonnes processed in the PEA mine plan are in the Measur ed &

Indicated category; process design and metallurgical recovery e stimates are based on the

Company’s comprehensive 2021 metallurgical testwork program.

 Silver-dominant revenues: silver represents +60% of the net smelter return in the first five years of

the mine life and +50% of the net smelter return over the life of mine, in-line with the senior/mid-tier

silver producer group.

Taj Singh, President and CEO, states: “With annual AgEq production averaging more than 26 Moz over

a +15-year mine life we believe this PEA clearly positions Cordero as a Tier 1 silver asset. This impressive

scale of production is achieved through modest development capex of $368 M and returns excellent

margins with AISC averaging less than $12.50/AgEq oz over the life of the mine. These costs highlight

the benefits of existing local infrastructure, excellent metallurgy, and a straight-forward open pit mine with

excellent grades and a low strip ratio.

“Importantly, the outstanding metrics demonstrated in the PEA are supported by a mine plan with more

than 99% of tonnes in the Measured and Indicated category, and a simple and conventional process

design based on our detailed metallurgical testwork program completed earlier this year. This provides

us with a huge head start as we look ahead to the delivery of a Prefeasibility Study on Cordero in 2022.”

NEWS RELEASE

PEA SUMMARY:

Study support:

 The Study is based on the updated Mineral Resource Estimate (“ Resource”) press released on

October 20, 2021 (see Appendices for Resource details), and the Company’s comprehensive

metallurgical testwork program described in our press release dated September 7, 2021.

 The PEA project team was led by Ausenco Engineering Canada Inc . (“Ausenco”), an industry leader

in cost-effective design and construction. Ausenco was supporte d by AGP Mining Consultants Inc.

(“AGP”) and Knight Piésold and Co. (USA) (“Knight Piésold”).

Project Economics:

Sensitivity of the Project’s expected after-tax NPV, IRR and pa yback at different commodity price

assumptions is outlined in the table below:

Units Base Case Upside Case Base Case

+15%

Base Case

‐15%

After‐Tax NPV (5% discount rate) (US$ M) $1,160 $1,889 $1,692 $622

Internal Rate of Return (%) 38.2% 54.6% 49.9% 25.2%

Payback (yrs) 2.0 1.4 1.6 3.5

 Base Case price assumptions: Ag = $22.00/oz, Au = $1,600/oz, Pb = $1.00/lb, Zn = $1.20/lb

 Upside Case price assumptions: Ag = $27.50/oz, Au = $1,880/oz, Pb = $1.10/lb, Zn = $1.45/lb based on one‐year trailing

90th percentile prices

After-Tax Free Cash Flow:

A chart summarizing the expected annual and cumulative after-ta x free cash flow (“FCF”) over the life-

of-mine (“LOM”) is provided below:

($500)

‐‐

$500

$1,000

$1,500

$2,000

$2,500

($200)

($100)

‐‐

$100

$200

$300

$400

Y‐2 Y‐1 Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Y16

Cumulative FCF (US$M)

Free Cash Flow (US$M)

Annual FCF Cumulative FCF

Payback

Threshold

Production & Costs:

Annual production over the LOM is expected to average 26 Moz Ag Eq with production averaging over

33 Moz AgEq when fully ramped up (Years 5 – 12); this positions Cordero as one of the largest silver

mines globally.

Units Year 1 – 4 Year 5 ‐ 12 Year 13 ‐16 LOM

AgEq Produced ‐ Average (Moz) 29 33 9 26

AgEq Payable ‐ Average (Moz) 26 29 8 23

AgEq Produced ‐ Total (Moz) 117 265 37 426

AgEq Payable ‐ Total (Moz) 104 230 32 372

All‐In Sustaining Cost (AISC) (US$/AgEq oz) $11.64 $11.77 $18.88 $12.35

Note – LOM production/payable totals include production from Year -1. AgEq Produced is metal recovered in doré/concentrate. AgEq Payable

is metal payable from doré/concentrate and incorporates metal payment terms outlined in the Concentrate Terms section below. See Technical

Disclosure section for AgEq and 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

$0.00

$5.00

$10.00

$15.00

$20.00

$25.00

Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8 Y9 Y10 Y11 Y12 Y13 Y14 Y15 Y16

AISC ($/oz AgEq)

AgEq Produced (Moz)

Ag Au Pb Zn AISC

OPERATIONS:

Mining:

The mine plan incorporates accelerated stripping as well as sto ckpiling 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.

 Mining rates over the life of the mine are relatively steady a t 60 to 70 Mtpa.

 The ultimate pit contains 719 Mt in total consisting of 228 Mt of mill feed and 491 Mt of waste for an

average strip ratio of 2.2:1. The strip ratio is relatively even over the LOM.

 Pit slope designs were based on an assessment by Knight Piésol d that was supported by two

geotechnical coreholes in the North Corridor and logging of cor e from two exploration coreholes in

the South Corridor.

Processing:

Processing was broken into two phases to optimize the capital efficiency of the project.

 Phase 1 throughput (Year -1 to Year 4)

 Oxides: mined during the preproduction period and are crushed through the Phase 1 crushing

plant and stacked on the heap leach from Year -1 to Year 3 at a throughput rate of 5 Mtpa. After

Year 3 the Phase 1 crushing plant is dedicated to processing higher-value sulphide material with

remaining oxide material processed as uncrushed ‘run-of-mine’ ( “ROM”) material via heap

leaching.

 Sulphides: crushing, grinding and flotation circuit is constru cted in Year -1 and processing occurs

at a nameplate rate of 7.2 Mtpa from Year 1 to Year 4. During t his period the mine plan focuses

on high-grade material from the Pozo de Plata zone.

 Phase 2 throughput (Year 5+)

 Sulphides: two identical crushing, grinding and flotation circ uits from Y5 onwards with total

throughput of 14.4 Mtpa

Annual Throughput (Mt/a)

PHASE 1 PHASE 2

Year ‐1 Year 1 Year 2 Year 3 Year 4 Year 5+

Oxides / Heap Leach (Crushed) 5.0 5.0 5.0 5.0 ‐ ‐

Sulphides / Milling ‐ 5.8 7.2 7.2 10.8 14.4

Total Tonnes 5.0 10.8 12.2 12.2 10.8 14.4

 Process design

 Oxides: three-stage crushing (targeted crush size of 8 mm), ag glomeration, heap leaching and

refining in Year -1 to Year 3 and ROM dump leaching and refining in Year 4 to Year 6 to produce

Ag-Au doré bars

 Sulphides: three-stage crushing, grinding (targeted grind size of 200 micron) and flotation 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 oxide material from the South Corridor and 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 – 16: processing of lower-grade material stockpiled during Year 1 to Year 12

HEAD GRADES UNIT PHASE 1 PHASE 2 LOM Year 1 – 4 Year 5 – 12 Year 13 – 16

Oxides

Tonnes processed (Mt) 25 4 ‐ 29

Ag (g/t) 37 29 ‐ 36

Au (g/t) 0.08 0.05 ‐ 0.08

AgEq (g/t) 43 33 ‐ 42

Sulphides

Tonnes processed (Mt) 31 115 52 199

Ag (g/t) 57 32 13 31

Au (g/t) 0.26 0.07 0.04 0.09

Pb (%) 0.80 0.50 0.17 0.46

Zn (%) 0.80 0.92 0.34 0.75

AgEq (g/t) 118 88 34 80

Note – Phase 1 and LOM Oxide tonnes/grades include tonnes processed on the heap leach in Year -1

Recoveries:

 Oxides: recoveries were based on coarse bottle roll tests and preliminary results from column leach

tests completed in 2021. Recoveries average 56% for Ag and 63% for Au for crushed feed and 36%

for Ag and 35% for Au for uncrushed ROM feed.

 Sulphides: recoveries were based on the 2021 metallurgical test program which included lock-cycle

tests and examined metal recoveries to the silver-lead concentrate and the silver-zinc concentrate at

varying head grades for each of the major geological rock types at Cordero. Metal recoveries to the

two concentrates are summarized below:

SULPHIDE RECOVERIES (weighted average) PHASE 1 PHASE 2 LOM Year 1 – 4 Year 5 – 12 Year 13 – 16

Ag 92% 83% 67% 84%

Au 19% 19% 19% 19%

Pb 90% 86% 69% 86%

Zn 85% 86% 74% 85%

Tailings Management Facility (TMF):

 The TMF design was completed by Knight Piésold and is based on a conventional thickened tailings

dam facility of downstream construction type.

 The TMF is located directly west of the open pit. The design i ncorporates five dam lifts over the LOM.

 Total capacity of the TMF is 179M m 3 (252 Mt); this is significantly greater than the estimated volume

requirement of 142M m3 based on the PEA mine plan.

 An evaluation of using a dry-stacked tailings facility will be completed as part of pre-feasibility work.

CONCENTRATE TERMS:

Metal Payable:

 Cordero is expected to produce clean, highly saleable concentr ates with minimal penalty elements

as established in the 2021 metallurgical test program.

 Industry standard payables and deductions were applied to the Pb and Zn concentrates as per the

table below. A metallurgical balance summary is included in the Appendices.

 Approximately 85% of the Ag reports to the Pb concentrate wher e higher payabilities are received.

Ag Au Pb Zn

Pb Concentrate

Average concentrate grade LOM 2,900 g/t 1.6 g/t 52% ‐

Payable metal 95% 95% 95% ‐

Minimum deduction 50 g/t 1 g/t 3 units ‐

Zn Concentrate

Average concentrate grade LOM 300 g/t 0.5 g/t ‐ 51%

Payable metal 70% 70% ‐ 85%

Deduction 3 oz/t 1 g/t ‐ ‐

Treatment/Refining Charges:

 Treatment and refining charges were based on a review of spot and recent benchmark pricing and

are summarized as follows:

PARAMETER UNITS PEA COST SPOT 2021

BENCHMARK

TREATMENT/REFINING CHARGES

Treatment charge – Pb con $/dmt $100 ~$60 $140

Treatment charge – Zn con $/dmt $200 ~$80 $160

Ag refining charge – Pb con $/oz $1.00 ~$0.75 $1.50

Concentrate Transportation:

 Transportation costs assume trucking of the concentrate via co ntainers to the international port at

Guaymas, Sonora, and then shipping via ocean freight to Asia.

 Estimated transportation costs (trucking, port handling and oc ean freight) are $128/wmt for Pb

concentrate and $116/wmt for Zn concentrate.

CAPITAL EXPENDITURES:

Initial Capital (for parallel processing of crushed oxides and sulphides)

 Year -2: construction of on-site infrastructure, power line and the hea p leach circuit with capacity of

5 Mtpa to process oxide/transition material (includes a three-stage oxide crushing circuit, heap leach

pad/ponds and Merrill Crowe plant).

 Year -1: first sulphide circuit with a capacity of 7.2 Mtpa (includes s ulphide crushing circuit, ball mill

and flotation plant) and construction of the TMF including the initial dam lift.

Expansion Capital (to expand plant to 14.4 Mtpa sulphides only)

 Year 3: addition of second sulphide circuit to expand processing rate to 14.4 Mtpa by the addition of

a ball mill and flotation circuit creating two parallel sulphid e circuits. The crushing circuit previously

used for oxides will be dedicated to sulphides from Year 4 onwards and will not require repurposing.

 Year 8: expand flotation circuit with additional flotation cells, cycl ones, filters and thickeners to

accommodate the higher zinc grades from Year 9 to Year 11.

Sustaining Capital

 TMF: the tailings dam will be completed in five lifts over the LOM a t a total capital cost of $110 M

($15 M initial capex plus $95 M of sustaining capex).

 Other: additional sustaining capex totals $113 M over the LOM and inc ludes sustaining capital for

the process plant and mobile equipment and replacements/refurbishments of infrastructure assets.

DESCRIPTION (all in US$ millions) INITIAL CAPITAL EXPANSION

CAPITAL SUSTAINING

LOM CAPEX

TOTAL

LOM CAPEX Year ‐2 Year ‐1 Year 3 Year 8

CAPITAL EXPENDITURES

Mining $26 $1 $7 $33

Infrastructure $34 $9 $10 $16 $69

Heap Leach + Oxide Plant $71 $1 $4 $76

Sulphide Processing Plant $95 $51 $23 $30 $199

Tailings Facility (TMF) $15 $95 $110

Indirects $22 $30 $17 $6 $4 $78

Owners Costs $6 $6

Closure (net of Salvage Value) $22 $22

Contingency $28 $30 $16 $6 $29 $110

Capital Expenditures ‐ Subtotals $187 $181 $94 $35 $208 $704 $368

PRE‐SULPHIDE OPERATIONS

Revenue $121

Mining Costs ($110)

Process + G&A Costs ($27)

Operating Cash Flow for Year ‐1 ($16)

NET FUNDING REQUIREMENT $384

OPERATING COST ASSUMPTIONS:

Mining:

 Mining is assumed to be completed by contract mining; estimate d mining costs were based on

contractor quotes for Cordero received by AGP

Processing and G&A Costs:

 Processing costs for the heap leach and mill/flotation, and G& A costs were developed by Ausenco

from first principles.

 Sulphide processing costs benefit from a conventional flotatio n process design and low power costs.

The targeted coarse grind size of 200 micron alleviates the need for a SAG mill.

 G&A costs estimates are based on a small camp and administrati on office at site. The majority of the

work force will be Mexican nationals commuting daily from the l ocal town of Parral. Parral is 25 km

south of Cordero and has a population of approximately 100,000. It is the regional government centre

in the southern part of Chihuahua State and has a well-establis hed service industry that supports

numerous local mining operations.

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