TORONTO (miningweeklly.com) – TSX-listed Scorpio Mining this week outlined its plans for its two development projects in the Cosalá Norte district of Mexico, saying that it was mulling moving construction of its San Rafael project forward to provide additional ore, as soon as its fully permitted El Cajón mine started ramping up output later this year.

Both projects are located within trucking distance from Scorpio’s operating Nuestra Señora silver processing plant.

The company reported that underground development work at El Cajón was progressing on schedule and, as at the end of May, the portal had been secured, with 167 m of ramp having been driven, along with 42 m of lateral crosscut to establish a powder magazine.

Scorpio said a prefeasibility study for the project would possibly be delayed to the 2015 first quarter, owing to delays in surveying the project’s boundaries.

According to a September 2012 National Instrument 43-101-compliant technical report for San Rafael, comprising the zinc/lead/silver Main zone and the silver/copper 120 zone, both deposits hold a total of more than 90-million silver equivalent ounces in the measured and indicated (M&I) resource categories.

Scorpio said it was now considering coupling the potential development of the San Rafael project with finalising the proposed Nuestra Señora processing plant expansion from nameplate capacity of 1 600 t/d to 2 750 t/d.

To do this, the company needed to obtain full permitting to undertake surface exploration drilling at San Rafael, which it had filed an application for in the first quarter and received a request for additional information early this month.

As soon as it received the permit, it would start an infill-drilling programme at San Rafael that would target the tabular, near-surface, Main zone and the upper portion of the near-vertical 120 zone. This 2 300 m programme was expected to take place during the second half of 2014, with a revised resource estimate being finalised in the second quarter of 2015.

A preliminary economic assessment (PEA) published on May 22, 2013, envisioned mining the San Rafael deposit as an openpit operation, progressing to an underground operation to mine the 120 zone later in the mine’s life.

The PEA also contemplated the residual M&I resources at Nuestra Señora and expected El Cajón to be operational by the first quarter this year.

However, with last year's El Cajón permitting delays, coupled with the uncertain long-term steady-state mining rate achievable from the remaining resources at Nuestra Señora, the company elected not to proceed with the plant expansion, which was slated to start early in 2014.

Nevertheless, the eventual availability of high-quality resources at San Rafael, as enhanced through the definition drilling programme later this year, could create a set of conditions under which such an expansion would be justified, subject to metal pricing and financing, the company said.

Scorpio said it might be more advantageous to proceed directly with an underground mine at San Rafael instead of an openpit operation, as suggested in the PEA. 

The company argued that it would help it achieve a faster timeline to production from San Rafael, as the permitting process and prestripping requirements to establish an openpit would take more time than the residual permitting needed for the underground mine to access either the upper portion of the 120 zone, or in the Main zone.

The company already holds the approved environmental-impact statement to proceed with an underground operation, lacking only the change of use of land permit.  The company intended to file this application in the fourth quarter.

It also does not expect mining costs for an openpit operation to provide a competitive advantage over underground mining costs, owing to a high strip ratio.

The underground operation also pointed to similar upfront capital spending required when compared with the openpit.

An underground operation would also provide the company with increased flexibility to, with minimal additional development cost, either access the 120 zone or the Main zone, depending on metal prices, and add the possibility of mining both zones simultaneously in the future, after the higher value ore from the El Cajón orebody had been mined out.

Scorpio said it expected top make a development decision on San Rafael and the processing plant expansion in the first half of next year.

This would allow for an increased yearly output toward three-million silver-equivalent ounces and reduced cash and total production costs, to be realised during the first half of 2016.

An upper range on a preliminary estimate for the San Rafael initial underground development and plant expansion cost was put at $25-million to $30-million.

Scorpio currently has $17.2-million in the bank as at the end of the first quarter, which would be supplemented by a declining cash flow from the ailing Nuestra Señora mine. The company said it would need more cash should it continue with its plans, and had, to that end, been in discussions with third parties that would be interested in extending such financing, likely including an offtake agreement to buy concentrate output from the Cosalá district operations.