Vancouver-based
The company recorded a loss of US$1.5 million (or 4 per share) on revenue of US$4.5 million for the three months ended March 31, compared with a US$700,000 (2-per-share) loss on US$7.3 million in revenue for the corresponding period of 2000.
Production at the Quiruvilca mine in northern Peru was off 3% from a year ago, at 886,183 oz. silver, as a result of lower-grades. Byproduct metal production was down slightly at 5,659 tonnes zinc, 2,225 tonnes lead and 306 tonnes copper. Cash costs for silver (net of byproduct credits) rose 25 to US$3.66 per oz., while total production costs were up 37 at US$4.58 per oz.
The higher costs reflect lower zinc revenue, which resulted in lower byproduct credits.
Pan American has operated the Quiruvilca mine since late 1995, when it acquired a 99.7% interest from Asarco. Last year, it bought a 20% outstanding royalty on net income in order to retain 100% of future mine profits.
Quiruvilca is perched at an elevation of 3,800 metres above sea level, in the Andes Mountains, 130 km inland from the coastal city of Trujillo. The mine produced a record 3.6 million oz. silver in 2000. Byproducts totalled 24,462 tonnes zinc, 8,470 tonnes lead and 1,215 tonnes copper. Total cash and production costs for the year were US$3.20 and US$4.02 per oz. silver, respectively.
Mineralization is hosted in widespread vein systems. The underground workings cover an area more than 4 km long by 3 km wide and extend to a depth of 400 metres. The mine is labour-intensive, with more than 100 active working faces and an average mining width of 0.7 metre.
Proven and probable reserves at the end of 2000 were estimated at 3.4 million tonnes grading 189 grams silver per tonne, 4.6% zinc, 1.7% lead and 0.5% copper, equal to 20.6 million oz. contained silver. The reserves are based on metal prices of US$5 per oz. silver and US52.2 per lb. zinc. Additional resources stand at 4.1 million tonnes grading 178 grams silver and 4.67% zinc.
Production for 2001 is forecast at 3.4 million oz. silver and 26,000 tonnes zinc, plus byproduct lead and copper.
The big story of the year for Pan American is the startup of the Huaron silver-zinc mine in central Peru, which is expected to more than double the company’s annual silver output to almost 8 million oz. Pan American acquired a 72.6% interest in the former producer in March 2000 for 1.8 million shares and 700,000 stock options exercisable at $4 over 10 years. In addition, a 2.16% net smelter return royalty will become payable to the vendor after 4.3 million tonnes of ore have been mined, which should be in about the seventh year of operations.
Huaron sits 300 km northeast of Lima in the heart of the Cerro de Pasco mining district. The mine has produced more than 220 million oz. silver from some 70 known veins since operations began in 1912. The mine was closed in April 1998 after an accident at the neighbouring Chungar zinc mine flooded Huaron’s underground workings. Pan American began renovations on the mine’s existing infrastructure last September after arranging a US$12-million production loan facility with Standard Bank London. The company expects to pay back the loan within the first two years of operation.
Construction was completed at a cost of US$11 million. The mill began operating in mid-April, and the first concentrate was shipped only days later. Huaron is expected to reach full production of 50,000 tonnes per month (or 600,000 tonnes per year) by mid-year, yielding an average annual output of 4.3 million oz. silver and 18,000 tonnes zinc in concentrate form. The mine is forecast to produce 3.5 million oz. silver and 10,500 tonnes zinc this year.
High recoveries
Based on historic production, metal recoveries to concentrates were assumed to be 86% for silver and 75% for zinc. Huaron is achieving even better recoveries. Net of byproduct credits, cash costs were forecast at US$3.50 per oz. silver; production costs, at US$3.90 per oz. However, at current zinc prices, cash costs are expected to be in the order of US$3.80 per oz., whereas production costs are pegged at US$4.20 per oz.
“We expect Huaron will be a great mine for us,” says Pan American Chairman Ross Beaty. “It has long-life reserves and outstanding exploration potential to increase these reserves. It is a much lower-cost mine than Quiruvilca because its veins are wider, its concentrates are cleaner, and we can operate it with a much smaller workforce.”
Proven and probable reserves stand at 6 million tonnes grading 258 grams silver, 4.26% zinc, 2.26% lead and 0.49% copper, equivalent to 49.8 million oz. silver. In addition, there are measured and indicated resources of 2.8 million tonnes grading 213 grams silver, 4.3% zinc, 2.6% lead and 0.2% copper, plus inferred resources totalling 4.9 million tonnes at 251 grams silver, 3.7% zinc, 2.2% lead and 0.4% copper.
“I would like to emphasize that we have experienced no negative impact from Peru’s political events this year, and we look forward to the stability of having a new president elected within the next month,” says Beaty. “We believe either of the two candidates will have to support the country’s mining sector since it is such an important engine in the economic growth in Peru.” Pan American provides employment for nearly 1,900 Peruvians.
La Colorada
Farther north, at the wholly owned La Colorada mine in Mexico, Pan American began limited production in January and is waiting for silver prices to improve before starting construction of a full-scale, 4.2-million-oz.-per-year mine and mill. The former producer lies midway between the cities of Zacatecas and Durango in the west-central part of the country. Pan American is operating La Colorada at the daily rate of 130 tonnes, resulting in monthly production of 60,000-70,000 oz. silver per month. The cash flow thereby generated will more than offset the US$100,000 monthly care-and-maintenance costs.
Pan American had arranged a US$29-million debt financing with International Finance Corp., a member of the World Bank Group, to construct a new mine at La Colorada. Unfortunately, the loan package came with “erroneous hedging requirements,” says Beaty. “Due to the profound decline in silver prices since late 2000, we cannot today justify concluding the financing,” he explains. “Our plan is to continue producing indefinitely at La Colorada until we can conclude the large mine financing. To do this, we need a silver price of about US$5 per oz.” In the meantime, the company is reviewing alternatives, such as opening a mid-size mine at La Colorada for significantly reduced capital costs.
At March 31, Pan American had US$3.5 million in cash. The company recently announced it had retained National Bank Financial to act as lead agent in a 3-million-share offering priced at US$3 per share. The financing is expected to close in late May or early June. Pan American has 34.4 million shares outstanding.
In terms of exploration, Pan American has completed an in-house scoping study on the past-producing San Vicente silver-zinc mine in Bolivia, where mineral resources total 4.1 million tonnes grading 369 grams silver and 4.77% zinc. Further exploration is on hold, while the Bolivian government evaluates the study.
Los Angeles
Last year, Pan American optioned a parcel of land on the edge of its Quiruvilca property to
Also in Peru, Pan American has optioned 290 sq. km, held by its Huaron subsidiary, to an unnamed major international mining company, which can earn a 51% interest by spending US$3 million over four years. Their target is large zinc-copper-lead deposits.
In Mexico, the c
ompany has acquired an option (subject to the consent of a third party) on a small, mom-and-pop operation in Oaxaca state, where limited-scale mining has been carried out on high-grade silver-gold veins. The property has never been drilled. Pan American can earn a 100% interest by spending US$3 million over four years.
“Our geologists say it is the best Mexican silver project that they have looked at since we acquired La Colorada in 1998,” Beaty says. “We have high expectations for this project.”
During the first quarter, Pan American signed a final agreement with Polymetal regarding settlement of the Dukat silver project in the Magadan region of far-eastern Russia. Pan American retains a 20% carried interest in the new company. Pan American was blindsided by Polymetal in December 1999, when it won an auction for some key assets of Dukat and blocked further development of the project. “We will watch with interest how Polymetal develops this great silver orebody in the future,” says Beaty.
Polymetal intends to place Dukat into production in mid-2002.
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