New Chubut law could pave way for Pan American’s Navidad project after a decade

Argentina’s Chubut province approved a legislative bill this week that could potentially modify a 19-year-old law against open pit mining and allow Pan American Silver (TSX: PAAS; NASDAQ: PAAS) to advance its US$1 billion Navidad silver project, which it acquired in 2010. 

On December 15, the province passed a bill that would allow open pit mining in certain zones of the departments of Gastre and Telsen in the province’s north, where the Navidad project is located. The bill requires executive approval and official publication before it becomes a law, a Pan American press release stated on December 16.     

“Any mining project, including Navidad, would be required to undergo applicable review processes and apply for permitting under provincial laws,” the press release stated.  

It also said the company would continue to evaluate Navidad’s potential development, which includes assessing the permitting requirements, timelines and capital investment. 

Set on the vast plains between the Atlantic Ocean and the Andes Mountains in southern Argentina, Chubut passed a law in 2003 that prohibits open pit mining in the province.  

Analysts believe that if the latest bill receives the required executive approval, it could attract global mining companies to the province, which is believed to contain some of the world’s largest undeveloped silver deposits. 

In a Bloomberg interview published on December 16, Ricardo Zarandon, Pan American Silver’s executive director in Argentina, described the passing of the bill as a “first step” to begin their project after a long wait. He expects Chubut to enact the law and within 90 days of that, publish the specific rules needed to put the law into practice.  

“We will then have the legal instruments to evaluate the project, finish the environmental impact study and request our permits,” Zarandon told Bloomberg.   

Protests took place in the province’s capital of Rawson, after news of the passing of the bill spread, according to Argentina’s daily newspaper, the Buenos Aires Times.  

The Times reported clashes outside the provincial legislature and a building housing the provincial Education Ministry, with a number of people admitted to hospital due to injuries caused by rubber bullets.  

https://www.batimes.com.ar/news/economy/clashes-in-rawson-after-chubut-legislature-approves-mega-mining-project.phtml

BMO metals analyst Ryan Thompson, who follows Pan American, in a research note said the modification of the provincial mining law was a positive development for the company and saw the potential for the market to give the project more value if the company can demonstrate a “clear path forward.”  

There remains plenty of unanswered questions, however, Thompson said. “What is the permitting and construction timeline? What is the updated initial capex figure? Where does Navidad rank in terms of capital allocation priorities compared with La Colorada Skarn? What assurances would the company need from the country of Argentina to gain comfort in investing a large amount of capital?” 

“At $18 per oz. silver, $0.88 per lb. lead, and $2.95 per lb. copper … the project has an NPV [net present value] of $524M with an IRR [internal rate of return] of 14.2%,” he said. “The daily ore production rate is estimated at 15,000 tpd [tonnes per day] and the ore is scheduled to be produced from eight deposits.”  

At presstime in Toronto, Pan American was trading at $30.46 per share, up from $29.86 within a 52-week trading range of $50.70 and $27.65