Orko Silver, Pan American report 24% IRR for La Preciosa, $315m NPV

Explorer Orko Silver (CVE:OK) and Pan American Silver Corp. (TSE:PAA)(NASDAQ:PAAS) announced Thursday results from a preliminary economic study on their joint venture La Preciosa project in Durango, Mexico, reporting an over 24% internal rate of return and a payback period of 3.3 years.
The project, in which Pan American can earn a 55% direct interest by bringing it into production, showed estimated production of 6.8 million ounces of silver per year, and 11,800 ounces of gold, over a mine life of 12 years.
Cash cost per ounce of payable silver, a measure used to assess a company's ability to generate cash flow, was calculated at $11.84, net of gold by-product credits, Pan American and Orko said.
The preliminary economic assessment, which accounts for the construction of a 5,000 tonne-per-day conventional leaching operation, noted an after-tax net present value of $315 million for La Preciosa, at a 5% discount rate, assuming a conservative price of $25.00 per ounce of silver and $1,250 per ounce of gold.
Pre-production capital and development costs were estimated at roughly $270 million.
"As we get closer to the Feasibility Study due by April 2012, we expect that the conservative estimates in the Preliminary Economic Assessment will demonstrate significant upside potential as questions and answers relating to mining methods and resources are refined," said president and CEO of Orko, Gary Cope.
"I am confident about the success of the project, which at metal prices of $38.00/oz silver and $1,600/oz gold has a net present value of over $900 million and generates an internal rate of return of 52.7% with a payback period of less than 2 years."
The optimum mine plan includes three open pits producing a nominal 2,000 tonnes of ore per day at an average strip ratio of 15:1, and an underground mine producing a nominal 3,000 tonnes of ore per day. As mining progresses, the companies can expect reduced mine dilution, costs and possible improvements in mining recoveries, they said.
Currently, life-of-mine average silver and gold recoveries are estimated at 86% and 78%, respectively.
The preliminary report was based on an updated mineral resource estimate from the last in 2009, based on the results of 667 drill holes available at the end of October last year. The project now contains 113 million ounces of silver in the indicated category, and a further 46 million ounces in the inferred category.
In addition, the deposit contains over 222,000 and 83,000 ounces of indicated and inferred gold, respectively.
Pan American, which has operations in Mexico, Peru, Argentina and Bolivia, said in a statement that it believes necessary permits can be obtained to allow for the start of construction of the project in the second half of 2012.