VANCOUVER –Despite cutting its workforce by about 500 employees, reining in spending on exploration and mine development and announcing the imminent closure of its Quiruvilca mine in Peru, Pan American Silver (PAA-T, PAAS-Q) still forecasts a 15% increase in silver production during 2009 to about 22 million oz. silver.
Much of the added production will come from the Manantial Espejo mine, about 150 km west of Comodoro Rivadavia in Argentina, which Pan American expects to commission during the first quarter of 2009. Pan American hopes the mine will become its lowest-cost source of silver, producing about 4 million oz. of silver and 60,000 oz. of gold per year at a cash cost of US2¢ per oz. silver (net of gold credits).
It last pegged Manantial Espejo’s reserves at 3.5 million proven tonnes grading 151 grams silver per tonne and 2.05 grams gold and 3.7 million probable tonnes grading 181 grams silver and 2.66 grams gold.
The company says bringing Manantial Espejo on-stream will also help reduce cash costs that spiked upwards to between US$7.75 and US$8.25 per oz. silver net of byproducts in the fourth quarter of 2008. It should also double the company’s yearly gold production to around 120,000 oz.
It says cash costs should come down to between US$6 and US$6.50 per oz. this year. They averaged between US$5.75 and US$6.10 through 2008.
Manantial Espejo will come online as Pan American Silver puts its Quiruvilca mine on care and maintenance. The mine, which is primarily a source of copper, lead and zinc, has become uneconomic as commodity prices tumbled during the latter half of 2008.
The update, however, also warns of five negative charges the company anticipates incurring in its fourth-quarter financial results due out mid-February: a US$12.4- million writedown from the closure of Quiruvilca, a US$8.8-million negative pricing adjustment from third-quarter concentrate sales, US$8.6 million in foreign currency loss, a US$12.1-million mark-to-market and realized loss partially offset by a US$6.4-million realized gain on forward sales of zinc and lead, and a US$1.1-million charge related to layoffs.
But Pan American notes that “after absorbing these anticipated expenses, the company’s balance sheet remains solid.” It says it will end 2008 with an unused US$70- million credit line, US$115 million in working capital, US$34 million in short-term investments and no debt.
On news of the forecast, Pan American’s share price gained 19¢ to close at $21.13. It has nearly 81 million shares outstanding.
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