A recent financing paves the way for
International Finance Corp. (IFC), a private-sector lending arm of the World Bank, has arranged to purchase, by way of a private placement, approximately 1.7 million shares of Pan American at US$5.27 per share (or about $7.75 per share in Canadian dollars). The transaction is expected to raise proceeds of US$9 million.
The private placement will be issued in conjunction with, and subject to, the closing of a US$60-million debt financing being arranged by the IFC for the development of Dukat.
The IFC is also negotiating to buy a 10% direct interest in ZAO Serebro Dukat, the Russian company that holds the Dukat mining licence. ZAO Serebro Dukat is currently owned 70% by Pan American and 30% by Geometall Plus, a Magadan-based gold mining company that also has a 25% stake in that region’s Kubaka gold mine. Geometall Plus is a 74.4%-owned subsidiary of
“IFC always takes a direct stake in the projects that they finance,” says Rosie Moore, vice-president of corporate relations for Pan American. “It’s a flattering thing for Pan American that IFC wants to buy an equity position in Pan American Silver, because they have been there doing due diligence on the company and its projects. It’s a good vote of confidence.”
While the private placement came at about a 13% discount to market, Moore says having IFC as shareholder of Pan American is “a pretty nice move.”
The Dukat mine is 580 km northeast of the port city of Magadan and 36 km west of the town of Omsukchan. The Kubaka gold mine, in which
The Dukat deposit was discovered in the mid-1960s, explored and defined in the 1970s, and operated from 1979 to 1995, with total production estimated at 90 million oz. silver. In addition to being mined by open-pit methods, the deposit has been explored and defined by more than 140 km of underground tunneling.
Ore was concentrated at a mill in Omsukchan and transported to a smelter in Kazakstan, more than 10,000 km away. The breakup of the Soviet Union triggered the mine’s insolvency by 1995, though sporadic production continued until 1998.
In excess of 60 veins and mineralized structures have been identified in the deposit. The veins extend over a 2.5-by-3.5-km area and range in width from centimetres to tens of metres, for an average of 4 metres.
The geological resource, as published by Russian state agencies, totals 31.4 million tonnes grading 473 grams silver and 0.98 gram gold per tonne, equivalent to a contained resource of 477 million oz. silver and 1 million oz. gold.
In August 1998, a bankable feasibility study by Kvaerner-Davy and GOT Engineering called for the development of a new mine, mill and processing facility that would produce silver dor on site. However, the higher-than-anticipated capital costs of US$212 million rendered this plan only marginally economic.
A supplementary feasibility study, completed in December 1998 by Kilborn Engineering Pacific, was based on a revised development plan that focused on refurbishing the existing mine and mill facilities to produce silver concentrates. Total capital costs were lowered to US$89 million, including US$9 million for working capital and US$9.9 million in contingency allowances. An additional US$43 million in sustaining capital is budgeted for the planned 15-year mine life.
Diluted, proven and probable minable reserves stand at 10.5 million tonnes grading 755 grams silver and 1.54 grams gold, equivalent to 256 million oz. silver and 522,000 oz. gold.
Ore will be processed at the existing mill in Omsukchan at the annual rate of 380,000 tonnes, increasing to 750,000 tonnes by the end of the second year. Metal production, in the form of silver concentrate for export to overseas smelters, would average 15.8 million oz. silver and 30,500 oz. gold per year. The cash operating costs over the life of the mine are estimated at US$1.51 per oz. silver (net of gold byproduct credits), with total production costs, including all taxes and royalties, pegged at US$3.54 per oz.
The updated study projects an internal rate-of-return of 22.5%, based on a silver price of US$5 per oz. and a gold price of US$300 per oz.
Despite the political and financial instability that has plagued Russia, especially over the past year, Pan American has shown it is determined to develop the Dukat project, and in its 1998 annual report, the company offers several reasons for its perseverance:
“First, the Dukat deposit is a great orebody — high grade, large tonnage, metallurgically simple (recoveries of 93% for silver and 92% for gold), and with no environmental problems. Second, we believe Pan American’s financial risk will be reduced due to our proposed affiliation with the World Bank, our access to political risk insurance, our experienced Russian partner, and our accelerated production schedule, which takes advantage of the existing infrastructure at Dukat. Third, our reward for succeeding at Dukat is profound in that it will contribute to making Pan American one of the world’s largest, lowest-cost, best-leveraged silver producers. Finally, we have good contribution from Russian authorities at all levels, because Dukat will provide many benefits to the Russian economy.”
Mine development is on schedule, with construction slated to begin in July. Subject to the completion of financing, Dukat is expected to enter production by mid-2000.
In the meantime, Pan American continues to advance the La Colorada mine project in Mexico’s Zacatecas state. La Colorada is being developed as an 850-tonne-per-day underground operation capable of producing 4.5 million oz. silver annually starting in the second quarter of 2000.
Cash costs are expected to be US$2.30 per oz. silver (net of lead and zinc byproduct credits), whereas the total production cost is estimated at US$3.87 per oz. Studies indicate a total capital cost of US$28 million and an internal rate-of-return of 24%, based on US$5 per oz. silver and US45 cents per lb. zinc.
Development to date includes: rehabilitation of the production shaft; completion of 1,900 metres of a 7,974-metre stope development program; engineering design of the mill and tailings dam (mill construction is to begin in September); and submission of an environmental impact study. In the first quarter, Pan American’s development costs at La Colorada totalled $1.4 million.
Mineralization is hosted in epithermal silver-lead-zinc veins typical of the region, in central Mexico. Other styles of mineralization include transitional, replacement and breccia. The vein systems host a measured and indicated reserve of 1.6 million tonnes grading 530 grams silver and 3% combined lead and zinc. An additional resource is estimated at 1.6 million tonnes grading 646 grams silver and 4.8% combined lead and zinc.
In addition, an inferred resource of 1.1 million tonnes grading 236 grams silver, 6.3% zinc and 3.25% lead has been outlined from nine holes in a deep, high-grade replacement zone.
Exploration drilling has begun testing extensions of the vein and replacement-style mineralization at depth, as well as breccia pipes. A 1996 study by Watts Griffis & McOuat concluded that the breccias contain a resource of 12.7 million tonnes grading 95 grams silver per tonne, plus 2% lead and 1% zinc.
The first two holes of the underground program intersected several high-grade veins in the footwall, below and parallel to the northeastern portion of the main No Conocida vein system.
Partial results of the better intercepts included:
- 1.22 metres of 1,953 grams silver, 1.1 grams gold, 8.37% lead and 13.5% zinc;
- 2.74 metres of 714 grams silver and 0.47 gram gold;
- 2.36 metres of 3,705 grams silver, 2.89 grams gold, 8.9% lead and 19.1% zinc;
- 4.63 metres of 434 grams silver and 0.3 gram gold; and
- 0.9 metre of 1,326 grams silver and 1.1 grams gold.
To
date, four holes have tested the breccia-style mineralization. The first hole intersected two new silver veins adjacent to the breccia, grading 621 grams over 2.4 metres and 264 grams over 4.5 metres. Assay results are pending for the remaining holes.
Be the first to comment on "PRECIOUS METALS — IFC financing puts Dukat project on fast track — Pan American Silver says move is a clear vote of confidence"