Pan Am breaks ground in Mexico (February 25, 2005)

Pan American Silver (PAA-T) expects to be producing more than 21 million ounces of silver by 2006, thanks in part to a recent positive production decision at the Alamo Dorado silver project, 320 km south of Hermosillo, Mexico.

Construction of the US$76.6-million open-pit mine will begin in the second quarter, with the first silver pour slated for late 2006. The mine is expected to produce around 5 million oz. of silver at cash costs less than US$3.25 per oz., during each of its 8 years of operation. Recovery rates for both silver and gold are expected to exceed 90%.

At the end of 2004, the project’s proven and probable reserves stood at 11.6 million tonnes grading 118 grams silver and 0.34 gram gold per tonne, for 44 million oz. of contained silver. Some 39.5 million of those ounces are classified as probable reserves. Another 3.9 million tonnes running 72 grams silver and 0.27 gram gold are contained in the measured and indicated category, with 93% of the ounces tagged as indicated. The inferred category is home to a further 518,000 tonnes averaging 79 grams silver and 0.34 gram gold.

The 15-18-month construction period will see the erection of a primary crushing circuit, semi-autogenous grinding mill, ball-mill grinding circuit, conventional cyanide leaching circuit and a dry, stackable tailings system. The operation will also include a tailings treatment facility that will recover nearly all of the sodium cyanide used to process the ore.

During 2004, Pan Am produced a record 11.2 million oz. of silver; that’s up 30% from 2003, and represents the tenth consecutive year of silver production growth. Fourth-quarter production grew by 48% to 3.1 million oz. During the year, total cash costs rose by 4% to US$4.25 per oz.; cash cost for the fourth quarter jumped 17% to US$4.70 per oz.

The company ended the year with net earnings of US$19.9 million, including a US$20.1-million gain on the sale of its 20% stake in the Dukat silver-gold mine near Magadan in far-eastern Russia, and a US$1.8-million writeoff of some mining equipment. Revenue more than doubled to a record US$92.9 million on improved production and metal prices.

Fourth-quarter earnings came to US$15.7 million on revenue of US$29.4 million, compared with a year-ago loss of US$2.8 million on US$12.9 million.

At the end of 20004, Pan Am had US$98 million in cash and short-term investments; the company is debt-free.