Pan American Silver struggles with security at Dolores

Pan American Silver (TSX: PAAS; NASDAQ: PAAS) said it could not confirm or deny a report by Mark Turner, a blogger on the mining industry based in Peru, that a “decapitated body was left at the mine gates” of the silver producer’s Dolores mine in the Mexican state of Chihuahua.

Turner noted in his May 25 blog entry that the mine was also “overrun” by a narco gang on the night of May 24, and that “narcos are threatening to down anything flying out of the mine with surface-to-air missile systems.”

“We cannot confirm incidents that occurred outside of our mine site,” Siren Fisekci, Pan American Silver’s vice-president of investor relations and corporate communications, said in an email response to The Northern Miner’s request for comment on Turner’s post on his IKN website.

The company issued a press release on May 28 saying that it had taken steps to lower certain activities at Dolores “following recent security incidents along the access roads being used to transport personnel and materials to and from the Dolores mine.” It also said that it is “working with state and federal authorities to provide safe access to the mine.”

Pan American Silver confirmed that the mine site “remains secure” and that “ore stacking to the leach pads and the processing plant are currently operating at normal rates.”

Michael Steinmann, the company’s president and CEO, said that Pan American Silver’s priority is the safety and security of its personnel.

“We have been monitoring the situation, and with the recent incidents that have occurred along the access roads, we have determined the prudent course of action is to suspend personnel movements to and from the mine until the roads are safe for our employees.”

On June 4, Pan American issued an update on Dolores, stating that the security situation on the access roads to the mine had “improved following increased patrol and enforcement by the Mexican authorities.”

As a result, the company resumed road transport of diesel fuel, cement and other supplies to the mine. It also noted that it will “increase the use of its private, secured airstrip to transport people to and from the mine site until the situation normalizes.”

Pan American Silver’s Dolores silver-gold mine in northern Mexico. Credit: Pan American Silver.

In addition, Pan American elaborated on what activities have been curtailed at the mine since late May, which include underground and open-pit mining and leach-pad expansion. But it said production of silver and gold continues “at normal rates due to the large reserve of high-grade ore stockpiles, which are feeding the pulp agglomeration plant and partial operation of the crushing plant.” Heap leaching and Merrill–Crowe circuits continue to operate normally, it added, and the company said it does not expect a material impact to its 2018 production guidance.

Scott Stewart, an expert on Mexican cartels and vice-president of technical analysis at Stratfor, a geopolitical intelligence firm, confirmed there was a body found on the access road but said it wasn’t near the mine and that as far as he knew, “the mine wasn’t targeted at all … they just have problems getting supplies and local workers in and out on the roads.”

Stewart noted that Dolores happens to be in a remote and mountainous area that is caught in the crossfire of two rival cartels battling it out for supremacy. The two groups, named Salazar and La Linea/CJNG, are factions of the larger Sinaloa and Juarez cartels that are fighting over smuggling routes to Chihuahua, as well as areas in the state for growing marijuana and opium poppies.

He also pointed out that over the last 10 or 15 years, Mexico has seen fragmentation of the large cartels and the proliferation of smaller cartels, and a corresponding uptick in violence that has driven up the number of murders in Mexico to a record 29,168 in 2017, surpassing the previous record in 2011 of 27,213.

“As these traditional cartels have broken down into smaller pieces we’ve seen that they are no longer just drug organizations — the smaller groups don’t have the capacity to traffic cocaine all the way from Colombia — they are smaller and control more localized parts of the supply chain,” he said in an interview. “While we call them drug cartels they are involved in a whole host of crimes: cargo theft, extortion, kidnapping, armed robbery, human trafficking … and as the larger cartels have fragmented, it has created a lot more friction points.”

Many organizations that were previously part of one cartel or another have balkanized and are fighting for dominance, he continued. “These small groups are scrapping to take control, and it’s becoming more bloody,” he said. “It’s like a wolf pack. Once the alpha male is taken down, they all fight each other.”

The cartel violence in Mexico is a challenge for extractive industries like mining and petroleum, Stewart said, but he argues they are aware of the problem and have put security measures in place.

“They understand the risks and they keep operating there because the profits outweigh the costs of those risks, and the extra security they entail,” he said, adding that in 2010, the city of Juarez in Chihuahua state was the most violent place in Mexico.

“Anybody that got into business in Chihuahua after 2009 or 2010 definitely knew what they were getting into, and apparently they made the calculation and a business decision that the rewards were worth the risks they were running, and the additional security that would be required to operate there successfully.”

Pan American Silver acquired Dolores in 2012 when it acquired Minefinders Corporation.

The company owns 100% of the mine, which uses conventional heap-leaching technology to produce a silver and gold doré. In 2015, the company approved a $132-million investment to develop an underground mine to supplement the open-pit operation. It also approved a 5,600-tonne-per-day pulp agglomeration plant and a power line. The pulp agglomeration plant started up in 2017.

Elsewhere in Mexico, Pan American Silver owns 100% of the La Colorada mine, an underground, polymetallic silver mine in Zacatecas, which it acquired in 1998. La Colorada produces a silver and gold doré, as well as silver-rich lead and zinc concentrates. It also owns the exploration-staged La Bolsa silver-gold property in Sonara, which is on care and maintenance.

Pan American Silver owns and operates six mines in Mexico, Peru, Argentina and Bolivia.

It is the world’s second-largest primary silver producer.