Pan Am buys Huaron royalty

Pan American Silver (PAA-T) has bought back a 3% net smelter royalty on its Huaron silver mine in Peru from a group of Peruvian companies for US$2.5 million.

Pan Am’s chief executive Ross Beaty said in a prepared statement, “The buy-back of the Huaron royalty is timely and sensible. It will increase Huaron’s already robust cash flow, decrease the mine’s total cash costs and have a positive impact on our earnings over the mine’s operating life. This result will be enhanced if we expand the mine next year, as I fully expect we will. Huaron is an excellent asset and its future growth is now unencumbered.”

In late September, at the annual Denver Gold Show, Pan Am reported that silver production at Huaron for the year so far was 3 million oz. at a cash cost of US$3.98 per oz. The mine averages about 4.6 million oz. each year at cash cost of US$3.65 per oz. The operation has a projected mine life of more than 10 years.

In September, Pan Am launched a US$1 million drill program as part of a study considering the feasibility of expanding the mine’s production rate to 6 million oz. of silver per year. The drilling aims to upgrade the mine’s resources and increase proven and probable reserves.

If the expansion goes ahead, the recent royalty buy-back would generate operating cost savings of more than US$1 million per year. The feasibility study is expected to wrap up in 2004.

The expansion at Huaron is aimed at offsetting lost production at Quiruvilca, which may close in 2004. Second-quarter silver production at Quiruvilca was steady at 614,274 oz. The mine continued to struggle with high cash costs of US$5.56 per oz., and declining ore grades.

Shares in Pan Am were off 27 at $13.83 in late afternoon trading in Toronto following the news on Oct. 23.

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