SilverCrest Mines readies for commercial production, initiates expansion plan

SilverCrest Mines readies for commercial production

, initiates expansion plan

Booth # 3150 silvercrestmines.com 604.694.1730

N. Eric Fier, CPG, P.Eng.

Chief Operating Officer

SilverCrest Mines (TSXV: SVL) continues to set the standard for junior exploration companies. On its journey toward mid-tier producer status, SilverCrest has achieved ramp up production on its Santa Elena Mine in Sonora, Mexico and now is moving aggressively toward an expansion plan that could double reserves at the mine. Elsewhere, the company has commenced drilling on its new La Joya silver/copper/gold project in Durango, where initial results are promising.

Resource Intelligence: SilverCrest Mines is now in production ramp up on your Santa Elena project. Your share price has doubled twice in the last two years, so you're getting a lot of respect from investors. Why is that?

Eric Fier: Usually the trend is: You do your project exploration, then you are in pre-feasibility or feasibility, you go into construction and you're pretty much in a lull with your share price until you're in production and you've proven to the general public that you can produce. So then your share price should go up to compensate for the value. That's what happened with SilverCrest.

RI: You've proven your ability.

EF: Yes. We've proven our ability. We came in under budget and on schedule for construction, which is an accomplishment we're all very proud of. Not many other companies can say they've ever achieved that.

RI: What does it take to accomplish what you've accomplished at Santa Elena?

EF: It takes a dedicated team to do this. Everything from looking at the early exploration grassroots drilling to permitting to going into construction. And it takes the right network of people to do this job.

RI: What's the value of Santa Elena today now that gold has doubled in price since you completed your prefeasibility study?

EF: Initially we were at a net present value of anywhere from $90 million to $100 million and that was a few years ago. If you double that, realistically you could throw out numbers and say we've doubled the NPV. Right now we're doing a reserve update as well as a preliminary assessment for the expansion plan and that technical report is coming out within the next month.

RI: That's essential to an investor looking at your project because your initial study was based on only Phase I. You've got three other phases of expansion in the works. How long is it going to take to do that and can you give us an estimated value of those additional phases?

EF: Probably in the market right now we're fairly valued for our market cap based on our Phase I. That is the open pit, heap leach reserve part of the deposit. There are three more phases after this that we're working on, which we call the Santa Elena Expansion Plan.

The expansion plan has three phases excluding the current operating plan. Those include going underground. We currently have a fairly large resource underground. We'll also potentially truck over ore from Cruz de Mayo, which is a satellite deposit 35 km from Santa Elena. Another phase in the plan involves retreating the heap leach pad. We're also drilling at Santa Elena Norte, which is a similar type of mineralization as Santa Elena.

In value at today's metal prices there is about $100 million to $150 million that we can get back from re-treating the heap leach, mostly in silver value. There's a lot of opportunity here and I don't want to get into the details of this because we're just putting this out to the public over the next month. All this information is going to be out on a new reserve, resources and new economics from a preliminary economic assessment standpoint.

SilverCrest Mines announced first pour in September 2010

RI: When will SilverCrest be cash flow positive?

EF: Right now we're making money. So if you want to call that cash flow positive, in 2010 we produced just over 2,100 ounces of gold and 55,000 ounces of silver during part of our ramp-up period. We're looking at a few more months in ramp-up before we're into commercial production. We're seeing cash flows that are matching operating costs or better right now.

RI: What is the payback period on your existing debt?

EF: Our payback period right now is about 12 months on the Macquarie debt, which is about $12 million. We are currently starting to do those payments as part of our hedge we have 55,000 ounces hedged at $926 per ounce. So by next year we should be debt free.

RI: What has SilverCrest got in the bank right now?

EF: We currently have, as of January 2011, approximately $9 million US.

RI: What do you expect to generate in cash flows this year?

EF: This year we're not going to get in a full year's production, so it's going to be anywhere from $5-$10 million US, net of everything from Mexican taxes, payment back to Macquarie, Sandstorm and everything else.

RI: So you're looking healthy financially. You've got expansion plans as well. What will the expansion plan cost?

EF: We're looking at somewhere around $2.5 million for the expansion plan including the fieldwork and prefeasibility study in 2011. We need to drill out Cruz de Mayo, as well, most of which is currently inferred resources.

RI: Will you need to do another financing down the road?

EF: After this 43-101 report comes out on the expansion plan, we are looking at a financing to accelerate that plan. We want to get value to the shareholders quicker and I think we're very good at that. We've been very aggressive on Santa Elena Phase I. Now that we've got momentum and a great team, we want to continue to be aggressive and go for another home run.

SilverCrest completed construction on time and under budget in 2010

RI: Investors have been excited to see your seamless transition to production at Santa Elena, but surely some of the upside in your stock price has been your La Joya acquisition.

EF: It shows that we're not just a one-stop shop here. We're out there and we're looking for mergers and acquisitions. This is an acquisition on our part from a local family in Durango and it has tremendous potential for SilverCrest.

RI: How big is the project in terms of size potential?

EF: Our initial target is about 50,000,000 ounces of silver and anywhere from 0.5 to 1% copper. That's about a 100,000,000 ounce silver equivalent in today's metal prices.

RI: What kind of work has the project already seen?

EF: Several junior to major companies looked at it between 1980 and 2006. Luismin was one of them, which is now Goldcorp. They drilled quite a few holes trying to prove up a model that they didn't prove up and walked away. We came in and re-looked at it and we're seeing a different type of model, and that's what we're testing right now.

RI: What kind of system are you looking at?

EF: La Joya is a classic copper skarn system. It has excellent silver and some gold grades, which help quite a bit in the value of the project. It's also associated with and this is another part of the exciting story a porphyry system. So that's when you start talking monster deposits.

RI: What do you have to do to find out if your theory is correct?

EF: Drill it. Right now we're in Phase I drilling. We're twelve holes into the program and there are 16 to 20 holes in total. We'll be announcing the results in the next few weeks, but so far it looks positive.

RI: Moving ahead on this project, take us through the next three years and what you hope to accomplish.

EF: We have the experience and the team now to carry this into production if we find something economical. The emphasis is going to be the same type of business model as Santa Elena which we went from discovery to production in about 4 years: An aggressive team with systematic exploration. So, to go back to your question of what the next three years would look like at La Joya, what you would see there is systematic exploration and a 43-101 resource estimation in 2011. With success we'll complete a preliminary economic assessment and prefeasibility study to move it forward. The target is an open pit with some underground potential and a "goalpost" monster deposit if we have a lot of luck.

Investor Highlights:

Stage: Production, expansion

Market cap: $117,471,243

Share price: $1.93 as of February 21, 2011

Commodity: Silver, Gold, Copper

Mine life: 8+ years

Highlights:

2010 completion of construction on time and under budget

First pour September 2010

Cash flows matched operating costs during ramp-up period (Jan-Feb 2011)

Projected life of mine cash cost of less than US$375/oz AuEq

Target annual production for Phase I Open Pit Heap Leach: 35,000 oz Au and 600,000 oz Ag per year

Phased expansion plan PEA imminent

Additional shareholder value from La Joya high grade Ag, Cu, Au property in Durango

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