Business Context and Reporting Period
This Form 6-K, filed on December 11, 2007, by Silver Wheaton Corp. (a 64% owned subsidiary of Wheaton River Minerals Ltd.), includes a technical report dated March 15, 2007. The report details an independent audit by Watts, Griffis and McOuat Limited (WGM) of the mineral reserves and resources for three operating gold and silver mines in the San Dimas District, Mexico: Tayoltita, Santa Rita, and San Antonio (now part of the Central Block). These mines are operated by Luismin S.A. de C.V., a wholly-owned subsidiary of Wheaton River. Silver Wheaton holds a 25-year stream agreement (2005-2029) to purchase all silver produced by these operations.
Key Financial and Operational Metrics
Production (2006):
- Gold: 162,669 ounces (average grade 7.76 g/t)
- Silver: 8,695,953 ounces (average grade 438 g/t)
- Tonnage Mined: 688,942 tonnes
- Recoveries: 95.6% for gold; 90.2% for silver
Mineral Reserves (as of Dec 31, 2006):
- Total Proven & Probable: 4.31 million tonnes
- Average Grade: 388 g Ag/t and 5.73 g Au/t
- Contained Metal: ~53.8 million oz Ag and ~795,000 oz Au
Mineral Resources (Inferred):
- Total Inferred: ~7.99 million tonnes
- Average Grade: 321 g Ag/t and 2.9 g Au/t
Costs and Capital:
- 2006 Operating Cost: US$64.31 per tonne (excluding G&A)
- Cutoff Grade: US$64.31 per tonne
- Capital Budget (2007-2011): Estimated at US$175.9 million to sustain operations, expand capacity, and remediate tailings.
Material Changes and Operational Updates
Production Growth: Over the four-year period from 2003 to 2006, gold production increased by 139% and silver production by 59%. In 2006 alone, production reached record highs for the district.
Mill Consolidation and Expansion: The San Antonio mill was shut down in November 2003 due to tailings capacity depletion. All ore is now processed at the Tayoltita mill. The Tayoltita mill capacity was increased from 1,500 tpd to 2,100 tpd and is currently undergoing expansion to 3,200 tpd, with completion expected in late 2008 or 2009.
Reserve Reclassification: Following the mill consolidation, the San Antonio mine operations were reclassified as the "Central Block" mining unit. The Central Block now represents the largest portion of proven reserves (1.0 million tonnes).
Outlook, Risks, and Management Commentary
Outlook: WGM concludes that profitable operations are sustainable for at least the next 15 years, with a high probability of extension beyond that due to the potential for converting Inferred Resources into Reserves. Historically, Luismin has converted approximately 90% of Inferred Resources into Reserves.
Environmental Risks and Remediation: Significant capital is being allocated to upgrade tailings management to meet international guidelines. Key risks include the stability of the Tayoltita and San Antonio tailings dams. Remediation efforts include constructing reinforcing berms, installing spill protection, and transitioning to dry tailings stacking. US$6 million was spent on environmental capital in 2005 and 2006.
Operational Risks: The remote location and rugged terrain contribute to a higher cost structure. The "add-on" style of past expansions has resulted in varied equipment sizes, potentially reducing some efficiencies, though longer-term planning is expected to mitigate this.
Market Contracts: 70% of doré is refined by Peñoles in Mexico and 30% by Johnson Matthey in Utah. No hedging positions were in place at the time of the report.
Investor Verification Checklist
- Reserve Conversion Rate: Verify the historical 90% conversion rate of Inferred Resources to Reserves to assess the reliability of future production guidance.
- Tailings Dam Safety: Monitor the progress and cost of the US$175.9 million capital plan, specifically the completion of the Tayoltita dam reinforcement and the San Antonio dam reclamation.
- Mill Expansion Timeline: Confirm the completion date of the 3,200 tpd mill expansion to ensure it aligns with the projected production increase and cost reduction targets.
- Operating Cost Trends: Track the impact of the mill expansion on the US$64.31/tonne operating cost, as higher throughput is expected to lower unit costs.
- Commodity Price Sensitivity: Assess the impact of silver and gold price fluctuations on the US$64.31/tonne cutoff grade and overall profitability.