Under a revised deal, each Corner Bay share will be converted to 0.385 of a Pan Am share and 0.1925 of a share purchase warrant. The warrants expire five years after the merger, giving holders until then to exercise them at $12 apiece.
Corner Bay shareholders had agreed to the new terms on Sept. 4, leaving the securing of water rights at the Alamo Dorado project as the final obstacle. The deposit, which is Corner Bay’s key asset, is located in Mexico’s Sonora state.
Corner Bay has asked local users of the Miguel Hidalgo water reservoir if it can tap their unused credits, having been turned down by the Mexican federal agency CAN. The agency owns the reservoir, and has refused a request to directly withdraw 2.5 million cubic metres.
The Alamo Dorado deposit, which Corner Bay discovered in 1997, contains proven and probable reserves of 35.5 million tonnes grading 68 grams silver and 0.26 gram gold per tonne. The estimate is based on an open-pit model having a stripping ratio of 1.08-to-1 and metal prices of US$4.60 per oz. silver and US$300 per oz. gold.
In July 2002, AMEC E&C Services tabled a bankable feasibility that concluded a 12,500-tonne-per-day (4.5-million-tonne-per-year) crushing and heap-leach operation could yield 6 million oz. silver and 29,000 oz. gold annually. At that rate, the current reserves would last more than eight years.
Direct cash operating costs are projected at US$3.25 per oz. silver-equivalent and total costs at US$4.13 per oz. Capital costs are pegged at US$45.1 million.
A base-case scenario generates an after-tax internal rate of return of 17%, with payback in 2.8 years. This assumes that the project is financed through equity and that metal prices average US$5 per oz. in the case of silver and US$325 per oz. in the case of gold.
Corner Bay hopes to have the water rights issue and merger deal wrapped up by mid-November.
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