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Kuya Silver (CSE: KUYA) has released results of a preliminary economic assessment (PEA) on its Bethania project in central Peru. Bethania is the site of a former mine that produced silver-lead and zinc concentrates from run-of-mine material until 2016.

The PEA envisages a 350-tonne-per-day conventional cut and fill underground mine at Bethania, feeding a concentration plant that would process mineralized material at the same rate (126,000 tonnes per year) over a mine life of 6.5 years. The study recognizes the potential to toll-mill mineralized material during the final six months of the plant construction and modelled this as the base case in the PEA.

Payable silver (and equivalent metals) production is estimated at 8.68 million oz. over the life of mine, including 1.37 million oz. in first year. As shown in the PEA, the Bethania project boasts 404,000 tonnes of indicated resources (grading 10.7 g/t silver, 2.63% lead, 1.95% zinc, 0.26 g/t gold and 0.16% copper), plus 700,000 tonnes inferred (grading 8.0 g/t silver, 2.51% lead, 1.58% zinc, 0.24 g/t gold and 0.12% copper).

According to the report, the Bethania project has an after-tax net present value of $54.7 million and internal rate of return of 188%, under a base case scenario ($25.40/oz. silver price, $1,850/oz. gold price, $1.21/lb. zinc price, $0.90/lb. lead price and $3.62/lb. copper price).

Over the 6.5-year mine life, Bethania would generate after-tax free cash flow of $65.3 million, including $18.04 million in the first full year of production. Its initial capital cost is estimated at $14.2 million, plus a 25% contingency of $3.6 million.

A pre-production toll milling option could generate gross margin of $9.5 million during construction at base case and accelerate after-tax payback period to just half a year, though the company still needs to investigate this strategy further.

Commenting on the PEA results, Kuya’s president and CEO David Stein said: “We are extremely pleased with the results of the independent PEA, confirming our vision that the Bethania silver project can and should be a low-cost silver producer in the future. We are pleasantly surprised by the low production cost profile, manageable capex and quick payback of the project.”

“Although the PEA gives us an excellent roadmap to pursue development of the project, Kuya already sees opportunities to further optimize the project and will pursue these ideas as we continue to develop the project,” he added.

The company currently approval from the regional government of Huancavelica for the semi-detailed environment impact study (EIA) of the Bethania processing plant. Kuya plans to implement an expansion and construct a concentrate plant at site before restarting operations.