10 (October 10, 1994)

Consistent with its objective of becoming a pure silver company, Pan American Minerals (TSE) is acquiring two undeveloped silver properties in the U.S. from Asarco (NYSE).

The principal property is the Waterloo, which occupies private land near Barstow, Calif. The project contains a potentially open-pit resource (proven and probable) of 37.3 million tons grading 2.71 oz. silver per ton. The stripping ratio is about 0.27-to-1.

If shareholders approve the acquisition, Pan American must pay US$4 million, consisting of US$1 million in cash and 1 million common shares. Pan American will make further cash payments over six years if the market value of the shares does not exceed US$3 million during the period. Chairman Ross Beaty says the project is prably the largest undeveloped silver resource in North America.

The project is within a few miles of Interstate 15, the main link between Los Angeles and Las Vegas. There is also a fair amount of industrial and military land use in the vicinity.

The second property, also on private land, is near Harshaw, Ariz. Dubbed the Hardshell, the project hosts a potentially open-pit resource of 20 million tons grading 3.33 oz. with a 2-to-1 stripping ratio, plus an underground resource of about 4 million tons grading 10.4 oz. using an 8-oz. cutoff. Pan American holds a 4-year option to buy a 100% interest for US$8 million plus a 2% net smelter return royalty.

Beaty concedes that an open-pit mine at Hardshell will likely be harder to permit than the Waterloo, as the former is in a more scenic area. On the other hand, both projects are to remain on the shelf until silver prices move higher. Beaty would like to see silver at US$7.50-8 per oz. before the company considers bringing the projects into production. Pan American recently acquired two other prospective open-pit silver projects from Hecla Mining: Hog Heaven in Montana and Pedernalillo in Zacatecas, Mexico.

Hog Heaven was acquired for an undisclosed price plus a 5% net profits royalty. It contains about 11 million tons grading 4.23 oz. silver and 0.022 oz. gold.

Pan American can acquire Pedernalillo contingent on the completion of a feasibility study. Previous work outlined a resource of 10 million tons grading 2.97 oz. silver.

Preliminary work suggests the project could be brought into production at an annual rate of 2 million oz., with capital and operating costs estimated at US$8.7 million and US$2.45 per oz., respectively.

While feasibility work continues at Pedernalillo, Pan American is keeping the other projects on ice while it waits for higher silver prices. Pan American’s attraction to silver bulls is evident in the issue’s market performance. Dead in the water at about 17 cents at the beginning of the year, Pan American now trades at the $4.50 level, giving it a market capitalization of about $70 million on a fully diluted basis. The company has about $8 million in working capital.