Pan American gets political push

With an election looming, the governor of the Magadan district of eastern Russia has sent a letter to Pan American Silver (PAA-T) urging the company to start development of the large Dukat silver mine by June.

“The governor would naturally like us to begin development immediately,” says Ross Beaty, Pan American’s chairman. “But we cannot guarantee anything [as] we are currently considering various options, pursuing court actions and talking to potential Russian joint venture partners.”

According to Beaty, the letter is best described as a nudge to try to get the project moving. It is not, he says, an ultimatum and does not threaten Pan American’s mining licence.

Development of Dukat, the world’s third-largest silver deposit, has been on hold since November 1999, when the Moscow-based Kaskol Group won title at auction to the old mill property near the mine site. Pan American subsequently fell into an ownership conflict with Kaskol, delaying the development of the promising project.

The 20-year licence to mine the property belongs to Serebro Dukat, ownership of which is split 70-30 between Pan American and Western Pinnacle Resources (WPN-V). The Russian subsidiary of Pan American also holds a lease on the old Dukat mine assets; the lease allows it to use the assets indefinitely by paying US$100,000 monthly.

Pan American has challenged the legality of the auction in a Russian court and studied the economic potential of building a mill, which would cost an additional US$25 million. The Russian court upheld the auction, and Pan American is appealing.

Under the mining licence, the Dukat mine is required to be in production by the end of 2001, though the licence contains a clause allowing for delays.

So far, the company has spent US$30 million in its effort to return Dukat to production, including a payment of US$5 million for the mining licence. Another US$75 million is budgeted to finish the project.

The project has already met most of Russia’s regulatory conditions, including a 4-year permit to export concentrate.

Dukat has reserves of 10.6 million tonnes grading 755 grams silver and 1.5 grams gold per tonne. Pan American envisages annual production of concentrates containing 15.8 million oz. silver and 30,500 oz. gold.