Pan American Silver boosts output

Vancouver — Pan American Silver (PAA-T) increased its production levels in 2001 as a result of opening two mines in Latin America.

The company now has a total of three operations in Peru and Mexico, and these produced 6.9 million oz. silver last year, up 90% from 2000. Zinc production increased 26% to 7,191 tonnes, while copper production rose 97% to 2,161 tonnes.

In January 2001, the La Colorada mine in Mexico started small-scale production. The mine hosts 6.72 million tonnes grading 419 grams silver per tonne and is expected to produce 3.8 million oz. silver per year.

In April, the company opened the Huaron mine in Peru, which is now operating at the commercial rate of 4.3 million oz. silver and 18,000 tonnes zinc per year. Proven and probable reserves total 6.2 million tonnes grading 252 grams silver per tonne, plus 3.59% zinc, 2.44% lead and 0.43% copper. Total resources are 13 million tonnes grading 239 grams silver, 4% zinc, 2.2% lead and 0.5% copper. The resource is based on a silver price of US$5 per oz. and a zinc price of US50 per lb.

Pan American Chairman Ross Beaty says the planned addition of a leach circuit to existing concentrate production “will give us a good return even at today’s depressed silver price.”

Pan American recently updated its bankable feasibility study on production from La Colorada. The study is based on the original mineral reserves minus the 47,317 tonnes mined last year at a grade of 598 grams per tonne silver. The original study called for capital costs of US$27.6 million for a 1,000-tonne-per-day operation capable of producing 4.2 million oz. of silver per year. The new study pegs capital costs at US$18.2 million for an 800-tonne-per-day operation producing 3.8 million oz. silver per year over a mine life of at least 10 years. The company used a silver price of US$4.50 per oz. and 100% equity financing. The revised study estimates a 22% rate of return.

Construction of the expanded operation will take about 10 months once financing is in place. Pan American reports that any new construction will not interfere with the current operation, which is operating at a rate of 1.2 million oz. silver annually. The company can buy the entire 5% net smelter return royalty for the La Colorada project in return for US$3 million, payable in cash or shares, by March 23, 2003.

Pan American expects to produce 9.2 million oz. silver this year.