VANCOUVER — Silver miner Great Panther Silver (TSX: GPR; NYSE-MKT: GPL) has struck a deal with Nyrstar to acquire the European smelting giant’s shuttered Coricancha polymetallic mine complex, 90 km by road east of Lima, Peru. Great Panther wants to bring the 600-tonne-per-day underground operation — which has been under care and maintenance since August 2013 — back into production by the second half of 2018.
Coricancha could increase the company’s annual silver-equivalent production by 75%, Great Panther president and CEO Robert Archer tells The Northern Miner during a phone interview.
“Once the mine reaches full production it could crank out 3 million equivalent oz. silver annually, and that’s a substantial bump in production for us,” Archer says. “After the deal closes, we’ll hit the ground running, starting with mine rehabilitation and underground drilling.”
Nyrstar’s past-producing Coricancha polymetallic project in Peru, which it is selling to Great Panther Silver. Credit: Great Panther Silver.
The company expects to complete a preliminary economic study at Coricancha by this year’s second half, and while Archer wouldn’t discuss any numbers, he estimates that it could cost US$25 million to restart the mine.
He adds that Great Panther has $54 million cash-in-hand, with revenue generated from its Guanajuato and San Ignacio silver-gold mines, and its Topia silver-lead-zinc mine, which are all in Mexico.
“You could say that Coricancha is a turn-key operation, with most of the key permits still in place,” he says. “The plant needs a bit of work and new equipment will be purchased, but we’re fully funded to bring it online, and we don’t have to go back to the market.”
Under the agreement, Great Panther is buying Nyrstar Coricancha — Nyrstar’s Peruvian subsidiary — for US$100,000 and 15% of the mine’s free cash flow, up to a maximum US$10 million over five years.
Archer says the deal is structured to ensure that Great Panther won’t suffer much financial loss if commodity prices fall short of company expectations.
“The nice thing about the deal is that we pay very little upfront costs,” he says. “We don’t pay anything more until we recoup all of our capital investment and prove the mine is profitable … it’s a risk-sharing model.”
While mining in the area dates back two centuries, Coricancha saw most of its development between 1955 and 2000, before ramping up to current levels in the early 2000s.
The mine came under the public eye in 2008, when a landslide above the mine’s tailings dam washed tailings into a nearby river, and the operation was suspended by the Peruvian government pending clean-up.
Nyrstar acquired the mine the next year, restarted the operation and produced — according to InfoMine’s IntelligenceMine data — 33,200 oz. gold, 1.4 million oz. silver, 2,100 tonnes copper, 3,100 tonnes lead and 5,600 tonnes zinc, before closing the operation in 2014 because of declining metal prices.
“You could say Nyrstar was a motivated seller,” Archer says. “At the time, they were mandated by senior management to get out of mining, sell off their mining assets and focus on their core business, which is smelting and trading.”
He adds that Nyrstar is also responsible for the relocation and reclamation of legacy tailings associated with the project, or any fines or sanctions that arise because of them.
“The deal would’ve been a non-starter if they never agreed to those terms,” Archer says. “There are maximums on both of those, but we feel they should be able to do all the necessary work without costing us anything.”
Negotiations for buying Coricancha began in May 2015, when Great Panther signed a two-year option agreement with Nyrstar to earn a 100% interest in the property.
Great Panther paid Nyrstar US$1.5 million upon signing, and committed US$2 million towards exploring the deposit and its surroundings.
Historical resources at Coricancha stand at 890,000 measured and indicated tonnes of 5.04 grams gold per tonne, 174.62 grams silver per tonne, 0.42% copper, 1.97% lead and 3.11% zinc, plus 4.9 million inferred tonnes of 4.91 grams gold, 224.54 grams silver, 0.48% copper, 1.57% lead and 2.98% zinc.
“The resource estimate is historical, but it’s fairly substantial and the grades are high. The drilling certainly confirmed that, and we added resource ounces … and demonstrated there’s a lot of potential to increase the resource.”
Great Panther withdrew from the option agreement in May last year — a move that was well-calculated, Archer says.
“We just needed a couple more months of desktop work to complete our evaluation,” he says. “If we had hung on, we would’ve had to commit to another US$3 million in exploration and made another US$1.5-million cash payment, as opposed to the approach we’ve taken now.”
For the third quarter, Great Panther produced 953,632 equivalent oz. silver, down 12% from the comparable period in 2015, due to lower grades at Guanajuato and two temporary shutdowns at Topia. The company made US$15 million in revenue and recorded a US$2.1-million net income, up 22% and 183% from the year-ago period.
Archer says the company has lowered its annual production guidance to 3.9 million equivalent oz. silver from 4.2 million equivalent oz. silver, due to another temporary shutdown at Topia for plant maintenance, and to upgrade its tailings facility to dry-stacked tailings.
The company’s shares have traded in a 52-week range of 54¢ to $2.82 per share, and closed at $2.32 at press time. The company has 166.4 million shares outstanding for a $366-million market capitalization.
Smart move. Everybody wins and there is no downside for GPL, only upside.