Great Panther defies low silver prices and eyes growth

VANCOUVER — Despite a rough three-year run in precious metal prices, Great Panther Silver (TSX: GPR; NYSE-MKT: GPL) is flying high on the back of a stellar first quarter and a pair of acquisitions that appear to cement a promising project pipeline. The company has ridden higher grades at its Mexican narrow-vein silver mines to record production levels, and hopes sustainable cash flow will help it internally fund its organic expansion plans.

Great Panther operates several mines based around two main hubs, namely: the historic Guanajuato mine complex in Guanajuato state; and the Topia mine in Durango state. The company cranked out 987,900 equivalent oz. silver during the first quarter, which marks a 48% increase compared to the same period last year.

Quarterly all-in sustaining costs dropped 39% year-on-year to US$14.47 per equivalent oz. silver. Not surprisingly, financial results followed suite, as revenues jumped 57% to US$20.3 million. The company reported adjusted earnings of US$3.7 million and US$4.8 million in operational cash flow.

Much of the improvement is owed to the performance of the San Ignacio satellite operation at Guanajuato. Great Panther expedited development of the deposit after making an initial discovery in 2013, and hit commercial production at the site a year ago. San Ignacio accounted for 30% of the metal production at Guanajuato in the first quarter, which represents a 64% increase, compared to the fourth quarter of 2014.

“Being able to make money at these commodity prices is something not many companies are doing right now. A lot of that success is thanks to San Ignacio, and how we were able to take it from discovery to production in three years,” president and CEO Robert Archer said in an interview.

“One of the driving forces for us was to get our plant running up to capacity. So essentially our costs are spread over more ounces. We also subsequently discovered zones at San Ignacio that are wider and higher grade. It’s a bit more gold rich, and that’s been a big driver in terms of getting our costs down, because higher gold grades make a bigger contribution to the by-product credits,” he explained.

Great Panther’s drilling paved the way for an updated resource estimate at San Ignacio, released in mid-February. The deposit holds 180,300 tonnes grading 406 grams silver equivalent per tonne for 2.4 million contained oz. Inferred resources total 788,000 tonnes of 391 grams silver equivalent for nearly 10 million contained oz.

Archer acknowledged that Great Panther will most likely look to adjust its annual guidance figures if the success continues into the second quarter. The company estimates it will produce between 3.5 million and 3.6 million equivalent oz. silver this year, with all-in sustaining costs ranging from US$18.50 to US$19.85 per oz.

“Our sustaining costs to start the year are substantially lower than expected, though a single quarter doesn’t necessarily make a trend. We’re also on track to produce significantly more ounces, and so far the second quarter is holding together,” Archer added.

With Guanajuato and Topia more established, Great Panther looks to expand its production portfolio, and its next endeavour will likely take it out of Mexico to a new jurisdiction: Peru.

In May the company signed a two-year option agreement with Switzerland-based Nyrstar (US-OTC: NYRSF) to acquire a 100% interest in the Coricancha mine complex, 90 km due east of Lima.

Great Panther made initial cash payments of US$1.5 million, while a second option payment of US$1.5 million is due on the first anniversary of signing.

Assuming the company exercises the option, it would then make another US$5-million payment, though there is a further contingent payment of US$4 million due “under certain conditions.” In addition to the cash payments, the option agreement calls for exploration expenditures of US$2 million in the first year and US$3 million in the second year.

Nyrstar placed Coricancha on care and maintenance around two years ago. The complex features fully permitted, 600-tonne-per-day flotation and bio-leach plants, along with supporting mining infrastructure. The property covers over 37 sq. km in Peru’s prolific central polymetallic belt, and production at the mine dates back to 1906. Gold-silver-lead-zinc-copper mineralization occurs as massive-sulphide veins, mined underground by cut-and fill-methods.

“We’ve actually been looking for an opportunity to pick up an asset in Peru for around five years,” Archer said. “We’re familiar with the district and I’ve never been shy about advertising the fact we were looking for an acquisition, so when the Nyrstar guys approached us, we jumped on the opportunity. They approached me at the Prospectors & Developers Association of Canada conference last year and said: ‘We’re selling our non-core assets.’ I think they were motivated, and that worked in our favour.”

Coricancha hosts historic proven and probable reserves of 640,000 tonnes grading 4.35 grams gold, 149 grams silver, 0.3% copper, 1.8% lead and 2.6% zinc. The project’s measured and indicated resources total 890,000 tonnes of 5.04 grams gold, 174.62 grams silver, 0.4% copper, 1.97% lead and 3.1% zinc; while inferred resources total 4.9 million tonnes of 4.91 grams gold, 224.54 grams silver, 0.5% copper, 1.6% lead and 2.98% zinc.

In terms of in-situ metals, Coricancha holds 13.5 million proven and probable equivalent oz. silver, 22 million measured and indicated oz. and 125 million inferred oz.

Great Panther figures the project could be in production as early as 2017, and provide 2.5 million equivalent oz. silver annually to its production profile. The company will start out by drilling off veins in hopes of nailing down high-grade areas to kick-start operations, with a focus on the large inferred resource base.

“There are actually a couple opportunities we’ll be exploring at Coricancha. Despite the fact the grades are good, it’s still a narrow-vein type deposit, not unlike what we’re mining in Mexico,” Archer commented.

“So we have experience in the type of operation, and we think we can get the costs down from where they were before the closure. The other side is that, despite the resource grades being relatively strong, there are some veins that are higher grade than others. We’ll focus on that material, and see if we can start the operation on strong footing,” he added.

Great Panther’s second deal to start the year could be called a consolidation manoeuvre. The company announced in April that it would absorb Cangold, which was a gold-focused sister vehicle. In exchange Cangold shareholders received 0.05 of a Great Panther share. The main asset in the deal is the 60 sq. km Guadalupe de los Reyes gold-silver project in the Sierra Madre range in Sinaloa, Mexico.

Around 14 months ago, Cangold — which was also helmed by Archer — signed an option agreement with Vista Gold (TSX: VGZ; NYSE-MKT: VGZ) that allows it to acquire a 70% interest in Guadalupe by paying US$5 million over three years. The company can pick up the remaining 30% by making a production decision and paying Vista another US$3 million.

Historic workings at Guadalupe occur in a low-sulphidation vein system that extends over 1 km in strike length and at least 400 metres down-dip, with open mineralization and higher gold and silver grades possible at depth.

According to a resource estimate released in 2013, Guadalupe hosts 6.8 million indicated tonnes grading 1.73 gram
s gold and 28.7 grams silver, and 3.2 million tonnes of 1.49 grams gold and 34.9 grams silver in the inferred category.

“It’s definitely a gold asset — and we initially tried to keep that commodity split — but it’s simply easier to get capital for development at higher share prices, and with cash flow,” Archer said.

“Guadalupe isn’t the first gold asset we’ve looked at, and I think you’ve seen other primary silver producers moving in that direction. Previous operators had looked at several open pits, but these vein deposits are similar to San Ignacio and Guanajuato. It’s definitely better suited to underground mining.”

Great Panther has traded within a 52-week window of 52¢ to $1.60, and closed at 56¢ per share at press time. The company reported cash and equivalents of $19 million at the end of March, and has 140 million shares outstanding for a $78.2-million market capitalization.