A worker on the Cordero silver project site. Credit: Discovery Mining.
Discovery Mining (TSX: DSV, US-OTC: DSVSF) said it received two key environmental and land-use permits from the Mexican government, allowing the Canadian miner to advance its Cordero silver project toward development.
Mexico’s environmental department, SEMARNAT, approved Cordero’s environmental impact assessment and Change of Land Use permit, completing the project’s federal environmental approval process, Discovery said Monday in a statement. Discovery still needs to complete development planning and financing before construction can begin.
Toronto-based Discovery has been updating Cordero’s February 2024 feasibility study to reflect current capital and operating costs. It’s also evaluating whether natural gas or grid power should be the main source of electricity, in addition to working with water-treatment plant operators on an upgrade to the local facility.
Receipt of federal permits “is a major milestone, and while Cordero is not yet fully construction ready, it should now earn a higher multiple and lower jurisdictional discount,” National Bank Financial mining analyst Rabi Nizami said Tuesday in a note.
“The longer-term path to realize full value from Cordero can now be better evaluated, as the project becomes more financeable and strategically valuable for Discovery, with greater optionality for a joint venture, strategic investment, outright sale or asset-level financing arrangement if the company elects to build.”
Permits expected
Other analysts were similarly positive, though SCP Resource Finance noted the approval had become increasingly expected as Mexico began moving more mining permits through the system.
Cordero’s approval was significant because of the project’s scale and showed that large greenfield open-pit projects with existing concessions can still advance under the current administration, SCP said. The firm raised its Discovery price target by $1.20 to C$13.80 after increasing the multiple it applies to Cordero.
BMO Capital Markets analyst Kevin O’Halloran called the permits the final major hurdle for Cordero and said no further major approvals are required before development. BMO models first production in the second half of 2029 and values Cordero at $2.73 billion using a long-term silver price of $47 per oz. It rates Discovery outperform with a C$16 target.
Scotiabank, which carries Cordero at about C$3.4 billion, or 32% of its asset value estimate, said an updated feasibility study using current metals prices could show “meaningful upside” to the project’s economics.
Large reserves
Discovery acquired Cordero in 2019 and has since invested more than $100 million (C$140 million) in exploration and technical work on the project. The 2024 feasibility study outlined a 19-year mine producing an average of 37 million oz. of silver equivalent annually during its first 12 years. It estimated average all-in sustaining costs below $12.50 per silver-equivalent oz. during the first eight years.
Located in the northern part of Mexico’s Central Mexican Silver Belt, a prolific mining region in Chihuahua state, Cordero ranks among the world’s largest undeveloped silver reserves.
It holds 327 million proven and probable tonnes grading 29 grams silver per tonne, 0.08 gram gold, 0.41% lead and 0.72% zinc for contained metal of 302 million oz. silver, 840,000 oz. gold, 3 billion lb. lead and 5.2 billion lb. zinc, according to a February 2024 resource.
About 240 million tonnes of measured and indicated resources lie outside the pit used in the feasibility study, providing potential for future mine-life expansion, Discovery says.
Using a silver price of $22 per oz., Discovery estimated initial capital costs of $606 million and an after-tax net present value of $1.2 billion.
Discovery shares fell 2.3% to C$11.92 in Tuesday morning in Toronto as investors took profits following the widely anticipated permit approvals. The stock has nearly tripled over the past year and recently traded as high as C$13.43. The company has a market capitalization of C$9.7 billion ($6.8 billion).