Great Panther roars in Mexico (June 05, 2008)

Guanajuato, Mexico — Great Panther Resources (GPR-T, GPRLF-O) has reopened the historic Guanajuato silver mine, which the company believes has produced more that 1 billion oz. of silver since it opened no less than 400 years ago.

A 432-km drive northwest of Mexico City, the mine was once owned by a Spanish count who paid royalties to the king of Spain.

When Great Panther came onto the scene in 2005, the mine was owned by a co-operative and near bankruptcy, operating with minimum grade control and with dilapidated plant and equipment. Management bought the mine, paid the creditors, and after a substantial investment, brought it back to production with modern mining practices.

Despite the mine’s prolific history, management believes that the deposit has many more years of production left. Great Panther is so confident in Guanajuato that it’s proceeding with production in the absence of a feasibility study, or even a resource estimate.

Instead, management’s focus has been on bringing the mine to production speedily and profitably, and their current priority is increasing throughput at the mill, to get it up to capacity. Therefore, compiling a resource estimate has been placed on the back burner.

A part of the mine lies beneath the city of Guanajuato (population 154,000), so this can be considered an urban mine. This is a gorgeous city, with a downtown of narrow streets paved with cobblestones and lined with ornate churches, theatres and public buildings spanning several centuries. The topography is hilly, and a number of tunnels connect the various suburbs. With this kind of history, landscape and architectural beauty, no wonder Guanajuato has been designated a UNESCO world heritage city. Tourism is the leading economic sector.

The local university has a geology school, and several of the company’s geologists have graduated here. A mining museum chronicles the history of the mines since 1600.

In a ceremony to celebrate the reopening of Guanajuato in May, management, staff, dignitaries and guests converged at the mine and enjoyed a sumptuous meal to the sounds of a Mariarchi band. Speeches by CEO Robert Archer and vice-president of business development Francisco Ramos emphasized the hard work that was required of all staff to make the project a success, and the many obstacles that they overcame along the way.

Representing the government were Norberto Roque Diaz de Leon, co-ordinator general of mining for the federal government, and Ramon Alfaro Gomez, an official with the Guanajuato state government. Their speeches indicated that authorities view mining development favourably and value the economic growth that it generates. Clearly, management has done its homework building good working relations with both governments.

A primary silver mine, Guanajuato is 4.2 km long, and has seven mineralized veins, the most important of which is the Veta Madre, currently being mined. There are three shafts: Cata, Rayas and Valenciana, and three ramps: Guanajuatito, Promontorio and San Vicente. Currently, five areas are being mined. According to Charles Brown, chief operating officer, daily throughput is 600 tonnes, about one third of which comes from Guanajuatito, one quarter from Cata, one quarter from Rayas, and the rest (about 17%) from Promontorio and San Vicente. The Valenciana shaft is inactive at present.

According to Bill Vanderwall, exploration manager, silver mineralization in the Veta Madre vein occurs chiefly in polybasite, followed by acanthite, agilarite and argentite, and occasionally in proustite.

Mill capacity is 1,100-1,200 tonnes per day, double the current throughput. The main emphasis is on good grade control, an important consideration in any precious metals mine. Therefore it will be necessary to identify suitable high-grade zones before increasing tonnage. This will take time, and although management has not committed itself to a firm timetable, it can be estimated that an exploration program and an associated production program to double throughput will take 18-24 months to complete. The 2008 exploration budget on all of the company’s three sites is $7.4 million. The purchase of a larger drill to accelerate exploration is possible, but no decision has been made. Recent drill holes have intersected high grades of silver in hole 15, and base metal mineralization in hole 16 (T.N.M., May 26-June 1/08).

Visitors were taken down the Guanajuatito ramp to view drilling on the Veta Madre vein in preparation for blasting. They were also taken down the Cata shaft to view both production drilling at the 430-level (done to a typical depth of 20-30 metres to identify high-grade zones for production), and exploration drilling at the 345-level (done to a maximum depth of 250 metres — equivalent to about 600 metres relative to the top of the Cata shaft). At Cata, ore is moved on the 345-level, so an incline shaft from the 345-level to the 430-level is used to hoist ore to the location. Miners use a ramp to move between the two levels. Ventilation at the 345-level is natural, but forced ventilation is used at the 430-level.

Assays for production drilling have higher priority, so they are analyzed on-site and typically have a next-morning turnaround to help geologists identify high-grade zones to mine. Therefore exploration drill core often has to be sent off site for assay, with a three- to four-week turnaround. The company has invested in a new on-site assay laboratory, which is operated by an external organization, so assays are conducted and certified by an independent third party.

The mill consists of a three-stage crushing circuit followed by ball mills and screw classifiers operating in a closed-circuit with the ball mills. Fine material from the screw classifiers is fed to the flotation circuit, which is followed by a thickener and a dewatering filter. The concentrate typically grades 8 to 15 kg silver per tonne depending on head grade. It is shipped to an Industrias Penoles (IPOAF-O, PENOLES-M) smelter in Torreon, and Penoles pays according to the silver and gold content in the concentrate, less smelter charges. At present, production is not sold forward, which is beneficial, due to a high silver price in the spot market.

Head grades of 188 grams silver and 1.4 gram gold per tonne are typical. Cash costs of $10.50 per oz. silver or $60-65 per tonne are also typical, with a target of $50 per tonne. Silver recovery in the order of 84-85% is achieved, while metallurgical tests have indicated that this could be improved somewhat. A metallurgist is employed, whose job is to optimize the process. The plant is self-sufficient in water, using water from mine dewatering, plus water recycled from the tailings dam.

Great Panther owns 100% of the mine through a Mexican subsidiary. The income tax rate is 28%, but rates are likely to rise after a tax reform is completed.The company also owns other projects in Mexico, including a smaller silver-zinc-lead mine in Durango state, called Topia. The two mines together have 600 workers, of which about 400 work at Guanajuato. Of the total labour force, 43 are employees and the rest, mining contractors.

Great Panther’s Mapimi project is potentially a low-grade deposit, and is subject to a 3% net smelter return royalty. An exploration program and a scoping study are under way, and molybdenum mineralization has recently been discovered there. The Topia mine and Mapimi project have a combined 33.6 million oz. silver equivalent, about two-thirds of which in the indicated category, followed by resources in the inferred category, with some measured resources. The numbers are compliant with National Instrument 43-101. A fourth property, the San Antonio exploration project, is considered non-core, so a 70% interest in the property has been optioned to another company for $1 million in exploration expenses.

Management says that both the Guanajuato and Topia mines are profitable. Highlights from financial statements for the first quarter of 2008 include revenues of $6.5 million and earnings of $1.9 million. Combined production from the
two mines for the first quarter came to 285,000 oz. silver, 1,600 oz. gold, 1.9 million lbs. zinc and 480,000 lbs. lead. Expressed in terms of silver, this is equivalent to 432,000 oz. silver for the quarter.

Currently, the treasury has $5 million. As of March 31, the balance sheet carried long-term debt as convertible notes in the amount of $4.2 million. In April, the company re-priced out-of-the-money warrants and options.

Management can take credit for having the vision to identify an opportunity in a near-bankrupt mine, investing in it and bringing it back to production. A surging silver price helped, but success was by no means assured when the project started. The mine has been revitalized and a real business created, with revenues and profits. If plans to increase production are successful, the business — and Great Panther — could continue to grow.