Pan American sizes up Mexican silver mine

Since acquiring the former-producing La Colorada silver mine in Mexico’s Zacatecas state this past March, Pan American Silver (PAA-T) has been carrying out a reserve development program aimed at expanding production beyond a planned 600 tonnes per day.

Based on the positive results of a 12,000-metre drill program, which will be completed by month’s end, the Vancouver-based company plans to construct an 850-tonne-per-day operation.

La Colorada is in the historic Chalchihuites mining district, 130 km northwest of the capital city of Zacatecas and 143 km south of the city of Durango. The project covers 1,233 ha in a basin-and-range setting on the southeastern flank of the Sierra Madre Occidental.

La Colorada is centred on a series of narrow, high-grade silver veins and lower-grade breccia pipes hosted in Cretaceous limestones and Tertiary trachytic volcanic rocks. Historic production of an estimated 20 million oz. occurred primarily after the turn of the century. Prior to Pan American’s optioning of La Colorada, the underground mine had operated at 200 tonnes per day, but the worn-out state of the mining and milling equipment had rendered the operation unprofitable.

As part of its due diligence, Pan American completed an internal prefeasibility study aimed at upgrading and expanding the Candelaria mine complex and constructing a 600-tonne-per-day mill. The study incorporated data accumulated by Beacon Hill Consultants and Agra Earth & Environmental.

The prefeasibility study recommended that Pan American acquire La Colorada, concluding that the operation could yield modest but positive results at a silver price of US$5 per oz. The study concluded that the property could be returned to production as a primary silver mine by late 1999 at a relatively modest capital cost of US$21.5 million.

Using cut-and-fill underground mining methods, the proposed operation would produce 600 tonnes per day. At this rate, annual production is estimated at 2.9 million oz. silver over a mine life of 13 years and at a cash operating cost of US$2.83 per oz., net of byproduct credits and including a 5% net smelter return royalty.

At 850 tonnes per day, La Colorada is forecast to produce a yearly 4.5 million oz.

A measured and indicated resource, including both oxide and sulphide material, is estimated at 1.5 million tonnes averaging 608 grams silver and 3.5% combined lead and zinc. The current preliminary resource estimate in all categories totals 2.3 million tonnes.

Since March, Pan American has completed 9,759 metres of core drilling, of which 4,866 metres in 19 holes tested narrow, high-grade silver veins, 741 metres in two holes tested a breccia zone, and 4,153 metres in nine holes tested a deep zone of replacement-style silver-lead-zinc mineralization.

Recent drilling has concentrated on the main No Conocida and Recompensa vein systems. The current program has extended the No Conocida system by 500 metres for a total length of 1,200 metres. Selected highlights include:

* 1.02 metres grading 418.7 grams silver and 0.17 gram gold per tonne plus 0.99% lead and 2.19% zinc in hole 1;

* 0.52 metre grading 268 grams silver, 0.34 gram gold, 1.78% lead and 0.63% zinc in hole 2;

* 1.2 metres of 632 grams silver, 0.14 gram gold, 0.89% lead and 0.89% zinc in hole 3;

* 1.83 metres of 950.7 grams silver, 4.1 grams gold, 0.41% lead and 0.84% zinc in hole 4;

* 4.19 metres of 571.8 grams silver, 0.26% lead and 0.17% zinc in hole 5; and * 4.01 metres of 1,330.2 grams silver, 1.05 grams gold, 3.56% lead and 1.51% zinc in hole 6.

The Recompensa vein is parallel to, and about 1,200 metres northwest of, No Conocida. Significant assay results from that target include:

* 2.79 metres grading 253.8 grams silver, 0.25 gram gold, 1.92% lead and 2.69% zinc (as well as a 0.77-metre interval of 606 grams silver, 0.29 gram gold, 4.67% lead and 1.5% zinc) in hole 4;

* 2 metres of 414.2 grams silver, 0.21 gram gold, 1.13% lead and 3.1% zinc in hole 5; and

* 1.64 metres of 2,681 grams silver, 0.56 gram gold, 9.79% lead and 1.96% zinc in hole 6.

In March, Pan American discovered replacement-style mineralization below the No Conocida vein system. Hole 9, drilled vertically below the lowest mine level, cut 63 metres of 282 grams silver, 7.02% zinc and 6.17% lead. A previously reported hole, No. 16, tested the zone 60 metres northeast of the discovery hole and intersected 67 metres of skarn and replacement mineralization, with multiple narrow zones of high-grade silver-lead-zinc mineralization (0.2 metre grading 2,791 grams silver, 0.43 gram gold, 2.02% lead and 7.9% zinc) and broader zones of dominantly lead-zinc mineralization (12.9 metres grading 27.1 grams silver, 2.11% lead and 5.73% zinc).

The two holes, however, were limited by poor intersection angles. To evaluate the zone, an underground ramp was driven from the historic workings of the Campana breccia. From there, seven additional holes tested the new zone over a strike length of about 250 metres and a vertical extent of 200 metres. Two of the holes were lost as a result of drilling difficulties. Selected results include:

* 0.44 metre grading 1,515 grams silver, 0.55 gram gold, 6.29% lead and 13.15% zinc (plus 5.31 metres of 87.1 grams silver, 0.3 gram gold, 3.03% lead and 7.29% zinc) in hole 1;

* 14.84 metres averaging 55.9 grams silver, 0.23 gram gold, 2.29% lead and 6.97% zinc in hole 3;

* 8.62 metres averaging 30.6 grams silver, 0.11 gram gold, 2.61% lead and 3.49% zinc in hole 4;

* 5.28 metres averaging 97.6 grams silver, 0.17 gram gold, 3.5% lead and 9.79% zinc in hole 5; and

* 13.49 metres averaging 139.9 grams silver, 0.36% lead and 0.74% zinc (plus 4.88 metres averaging 270.8 grams silver, 0.59 gram gold, 10.18% lead and 15.5% zinc) in hole 6.

Pan American says the results to date indicate the presence of a large mineralized system but that they are are too widely spaced to generate reserves.

As the company prepares to build an 850-tonne-per-day mill in early 1999, shaft rehabilitation work is nearly complete and 3,700 metres of underground tunneling is under way. Environmental and permitting work for the proposed mine is proceeding on schedule.

For the first six months of 1998, Pan American’s 99.7%-owned Quiruvilca mine in northern Peru produced 1.4 million oz. silver, 10,583 tonnes zinc, 2,995 tonnes lead and 734 tonnes of copper at a cash cost of US$3.12 per oz. silver, net of byproduct credits. The total cost over the first half was US$5.31 per oz.

The company lost US$1.8 million (or 7 cents per share) on revenue of US$13.8 million during the first six months of this year, compared with a loss of US$924,000 (4 cents per share) on US$11 million in the first half of 1997.

Operating results were hampered by reduced production in February, March and April at the Quiruvilca mine. The shortfall was caused by severe El Nino rains combined with low zinc prices.