Pan Am buys royalty

Pan American Silver (PAA-T) has bought back a 3% net smelter return royalty on its Huaron silver mine in Peru from a group of Peruvian companies for US$2.5 million. The buy-back will increase Huaron’s cash flow, decrease the mine’s total cash costs, and contribute to earnings, Pan Am CEO Ross Beaty says, adding that the mine will likely be expanded next year.

From January to late September, Huaron produced about 3 million oz. silver at a cash cost of US$3.98 per oz. The mine averages 4.6 million oz. per year at a cash cost of US$3.65 per oz., and its projected life exceeds 10 years.

In September, Pan Am launched a US$1-million drill program as part of a study to determine the feasibility of expanding the annual production rate to 6 million oz. The drilling is designed to upgrade the mine’s resources and increase proven and probable reserves.

If the expansion goes ahead, the royalty buy-back would generate operating cost savings of more than US$1 million per year. The feasibility study is expected to wrap up in 2004.

The expansion at Huaron is aimed at offsetting lost production at the Quiruvilca mine, also in Peru, which may close in 2004. Second-quarter silver production there was steady at 614,274 oz. The mine continues to struggle with high cash costs of US$5.56 per oz. and declining ore grades.