(All amounts in US$ except unless otherwise
indicated)
VANCOUVER, May 11, 2015 /PRNewswire/ - Pan American
Silver Corp. (NASDAQ: PAAS; TSX: PAA) ("Pan American", or the
"Company") today announced that its Board of Directors has
approved the investment of $112.4
million required to expand its Dolores mine in Chihuahua, Mexico, by adding a milling and
pulp agglomeration circuit to improve silver and gold recoveries,
as well as by developing an underground mine to extract mineral
resources that exist beneath and to the south of the ultimate open
pit (the "Project").
Commenting on the Project, Geoff
Burns, CEO of Pan American said, "I am very pleased that our
Board of Directors has approved the investment required to expand
our Dolores mine. The Project is a low risk, modest cost, organic
growth opportunity at a property that we know very well and where
we already have a proven and capable operating team. Furthermore,
it should yield excellent returns at both our reserve prices and at
current prices for silver and gold."
In its news release dated June 23,
2014, Pan American announced positive results of a
preliminary economic assessment ("PEA"), which indicated that the
Project had the potential to generate excellent after-tax economic
returns at metal prices of $22 per
silver ounce and $1,300 per gold
ounce. A decision on whether or not to proceed with the
Project was deferred at that time, in order to further de-risk the
project. Over the last 10 months the Company has refined the
metallurgical, capital and operating cost estimates, and gained
further confidence in the performance of the mine's mineral
resource model.
The economic model for the Project has been updated to recognize
current economic conditions, including lower costs for reagents and
diesel and favorable movements in the Mexican Peso vs US Dollar
exchange rate, partially offset by modestly increased capital cost
estimates for the construction of the pulp agglomeration plant, the
underground mine and additional leach pad capacity.
Highlights
- 40% increase in the
average annual silver production during the first five years from
4.5 million to 6.3 million ounces of silver
- 52% increase in the
estimated annual gold production during the same period from
135,100 to 205,700 ounces
- Increased life of
mine metal production to 50 million ounces of silver and 1.5
million ounces of gold, from 41 million ounces of silver and 1.3
million ounces of gold
- Construction of a
5,600 tonnes per day pulp agglomeration plant to treat the high
grade portion of the mine production, increasing the overall
processing rate to 20,000 tonnes per day from the current 16,500
tonnes per day
- 18% increase in
estimated silver recovery and a 13% increase in estimated gold
recovery for the high grade ore processed through the pulp
agglomeration plant
- Development of a
1,500 tonnes per day mechanized underground mine beneath and to the
south of the ultimate open pit to provide supplemental high grade
feed to the pulp agglomeration plant
- Incremental initial
capital has been estimated at $112.4 million, comprised of $73.0
million for the pulp agglomeration plant and $39.4 million for the
underground mine
- Estimated after-tax
net present value (NPV)(2) of the incremental cash flow
at an 8% discount of $46 million, with an internal rate of return
of 35% and a capital payback period of 23 months, using current
reserve metal prices of $18.50 per ounce of silver and $1,250 per
ounce of gold
- At long term metal
prices of $20 per ounce of silver and $1,350 per ounce of gold, the
estimated NPV at an 8% discount is $65 million, while the estimated
internal rate of return is 43%
- Cash cost per ounce
of silver, net of by-product credits(3), is estimated to
average a negative ($11.28) over the first five years and a
negative ($8.46) over the life of mine
|
(1) The net present value ("NPV") is calculated based
on the differential cash flow from expanding the mine versus status
quo.
(2) Cash costs per ounce of silver, net of by-product
credits, is a non-GAAP measure. Cash costs per ounce does not have
a standardized meaning prescribed by IFRS as an indicator of
performance. Investors are cautioned that cash costs per ounce
should not be construed as an alternative to production costs,
depreciation, and amortization, and royalties determined in
accordance with IFRS as an indicator of performance. The Company's
method of calculating cash costs per ounce may differ from the
methods used by other entities, and accordingly, the Company's cash
costs per ounce may not be comparable to similarly titled measures
used by other entities. Please refer to the section "Alternative
Performance (non-GAAP) Measures" in the Company's Managements
Discussion & Analysis for the quarter ended March 31, 2015, for a detailed description of the
cash cost calculation, details of the Company's by-product credits
and a reconciliation of this measure to the unaudited condensed
interim consolidated financial statements for the three months
ended March 31, 2015 and 2014.
Burns added, "The Dolores Expansion Project, coupled with our
La Colorada expansion that is well
underway, should allow us to maintain and even increase our
consolidated production profile for silver and gold even as the
final reserves are exhausted at our highly successful Alamo Dorado
mine over the next couple of years."
The results of the PEA are preliminary in nature in that they
include inferred mineral resources that are considered too
geologically speculative to have the economic considerations
applied to them that would enable them to be categorized as mineral
reserves, and there is no certainty that the PEA will be realized.
Mineral resources that are not mineral reserves have no
demonstrated economic viability.
Expansion Project - Scope
The scope of the Project remains virtually unchanged from the
PEA dated effective May 31, 2014,
with construction of a 5,600 tpd pulp agglomeration plant estimated
over a period of approximately 18 months and development of a 1,500
tpd underground mine over the next 24 months. Upon Project
completion, Dolores' total heap ore placement rate will increase
from today's 16,500 tpd to approximately 20,000 tpd, in time to
capitalize and improve overall recovery rates from the higher grade
material that exists deeper in the deposit and which we have
scheduled to be mined starting in 2017 as pre-stripping waste
mining continues to advance at a satisfactory pace. The higher
grade material from the open pit and underground will be ground and
cement agglomerated with the crushed lower grade portion of the
open pit mined material and together conveyed to the heap leach pad
for leaching. The Project contemplates commissioning the pulp
agglomeration plant at the beginning of 2017.
Underground development of the mine access ramp has already
started and will continue through 2017 to access the high grade
material, with underground production expected to reach capacity of
1,500 tpd in 2018. A mechanized and highly-efficient open stoping
mining method is planned in order to take advantage of the
anticipated good ground conditions, based on the geotechnical
studies conducted on our available drill core in the area of the
mineralized zones.
The pulp agglomeration plant will allow the Company to harvest
increased silver and gold recoveries of 18% and 13%, respectively
for the high-grade material fed to the pulp agglomeration plant. In
addition the time required for ultimate silver recovery will be
reduced from 6 years to 2 years and the time for ultimate gold
recovery will be reduced from 3 years to 1 year for all material
processed through the pulp agglomeration plant.
After Project completion, annual silver production will increase
approximately 40% to 6.3 million ounces and gold production will
rise approximately 52% to 205,700 ounces for the first five years.
Life of mine, the Project will boost silver production by
approximately 8.9 million ounces and gold production by 257,400
ounces.
Updated Operating and Capital Costs
Cost savings currently being realized and the increased
production rates from the addition of the pulp agglomeration plant
and underground mine will significantly reduce operating unit
costs. These unit cost savings will drive cash costs per ounce down
63% to a negative $(11.28) per silver
ounce, net of by-product gold credits for the first five years of
operation, and 13% to a negative $(8.46) over the life of the project when
compared to continuing with the existing open pit and heap leach
circuit.
The new initial capital investment has been estimated at
$112.4 million, $7.9 million higher than the original estimate
disclosed in the PEA, primarily due to some necessary scope
additions. The pulp agglomeration plant will require an investment
of $73 million, while underground
mine development and construction is estimated to be $39.4 million.
Sustaining capital costs over life-of-mine are estimated at
$173.9 million, $3.6 million higher than the original estimate
disclosed in the PEA, primarily due to anticipated increases in
heap leach pad construction cost estimates, offset by reduced
underground tonnages (due to lower metal prices and a deeper
ultimate pit design). The differential sustaining capital over the
life of the mine is now $42.5 million
versus the differential capital in the PEA of $51.5 million.
Economic Evaluation
The Project's estimated life-of-mine internal rate of return
("IRR"), NPV and payback period at the different price scenarios
used is detailed in the following table:
Scenario
|
IRR
|
NPV @
8%
|
Payback
Period
|
Low Case (Ag
$17.00/oz, Au $1,150/oz)
|
26%
|
$28
million
|
26 months
|
Base Case (Ag
$18.50/oz, Au $1,250/oz)
|
35%
|
$46
million
|
23 months
|
High Case (Ag
$20.00/oz, Au $1,350/oz
|
43%
|
$65
million
|
21 months
|
The Company believes that Dolores' expansion provides a healthy
IRR at the Company's current long-term reserve prices and can be
entirely financed using its current balance sheet. The Project is
considered relatively low-risk given it is an organic growth
project of a stable operating asset in Mexico, at a time when industry costs are
trending downward, particularly in engineering, equipment
procurement and construction contracting for the execution of the
Project.
Technical information contained in this news release with
respect to Pan American has been reviewed and approved by
Michael Steinmann, P.Geo.,
President, Martin Wafforn, P.Eng.,
VP Technical Services, and Americo
Delgado, P.Eng., Director Metallurgy, who are Qualified
Persons for the purposes of National Instrument 43-101 -
Standards of Disclosure for Mineral Projects (''NI
43-101''). For further technical information relating to the
Project, please refer the NI 43-101 technical report entitled
"Technical Report for the Dolores Property, Chihuahua, Mexico - Preliminary Economic
Assessment of a Pulp Agglomeration Treatment and Underground
Option" with an effective date of May 31,
2014, filed on SEDAR at www.sedar.com.
NOTE ON FORWARD-LOOKING STATEMENTS AND
INFORMATION
CERTAIN OF THE STATEMENTS AND INFORMATION IN THIS NEWS
RELEASE CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF THE UNITED STATES PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995 AND "FORWARD-LOOKING
INFORMATION" WITHIN THE MEANING OF APPLICABLE CANADIAN SECURITIES
LAWS. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL
FACT, ARE FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS NEWS
RELEASE THE WORDS, "ESTIMATES", "EXPECTS", "PROJECTS", "PLANS",
"CONTEMPLATES", "CALCULATES", "OBJECTIVE", "POTENTIAL" "WILL" AND
OTHER SIMILAR WORDS AND EXPRESSIONS IDENTIFY FORWARD-LOOKING
STATEMENTS OR INFORMATION. THESE FORWARD-LOOKING STATEMENTS OR
INFORMATION RELATE TO, AMONG OTHER THINGS: THE SUCCESSFUL EXPANSION
OF THE DOLORES MINE; THE RESULTS OF THE PEA, INCLUDING FORECASTS OF
IRR, CAPITAL, SUSTAINING AND OPERATING COSTS, AND PAYBACK
PERIOD; FUTURE PRODUCTION OF SILVER AND GOLD AND THE TIMING AND
RATES FOR SUCH PRODUCTION; MINE-LIFE OF THE DOLORES MINE; EXPECTED
MINING AND PROCESSING RATES; FUTURE CASH COSTS PER OUNCE OF SILVER;
THE PRICE OF SILVER AND GOLD; THE SUFFICIENCY OF PAN AMERICAN'S
CURRENT WORKING CAPITAL, ANTICIPATED OPERATING CASH FLOW OR ITS
ABILITY TO RAISE NECESSARY FUNDS; THE CAPITAL NECESSARY TO EXPAND
THE DOLORES MINE AND THE TIME-LINE FOR ANY SUCH EXPANSION WORK; THE
ACCURACY OF MINERAL RESOURCE AND RESERVE ESTIMATES; THE ESTIMATE OF
METALLURGICAL RECOVERIES FOR SILVER AND GOLD; THE ESTIMATED COST OF
SUSTAINING CAPITAL; AND ONGOING OR FUTURE DEVELOPMENT PLANS AND
CAPITAL REPLACEMENT, IMPROVEMENT OR REMEDIATION PROGRAMS.
THESE STATEMENTS REFLECT CURRENT VIEWS WITH RESPECT TO FUTURE
EVENTS AND ARE NECESSARILY BASED UPON A NUMBER OF ASSUMPTIONS AND
ESTIMATES THAT, WHILE CONSIDERED REASONABLE, ARE INHERENTLY SUBJECT
TO SIGNIFICANT BUSINESS, ECONOMIC, COMPETITIVE, POLITICAL AND
SOCIAL UNCERTAINTIES AND CONTINGENCIES. MANY FACTORS, BOTH
KNOWN AND UNKNOWN, COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR
ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM THE RESULTS,
PERFORMANCE OR ACHIEVEMENTS THAT ARE OR MAY BE EXPRESSED OR IMPLIED
BY SUCH FORWARD-LOOKING STATEMENTS CONTAINED IN THIS NEWS RELEASE
AND ASSUMPTIONS AND ESTIMATES HAVE BEEN MADE BASED ON OR RELATED TO
MANY OF THESE FACTORS. SUCH FACTORS INCLUDE, WITHOUT
LIMITATION: FLUCTUATIONS IN PRICES FOR SILVER, GOLD, BASE METALS
AND CERTAIN OTHER COMMODITIES AND INPUTS (SUCH AS NATURAL GAS, FUEL
OIL AND ELECTRICITY); THE SPECULATIVE NATURE OF MINERAL EXPLORATION
AND DEVELOPMENT, INCLUDING THE RISKS OF OBTAINING NECESSARY
LICENSES AND PERMITS; AND THOSE FACTORS IDENTIFIED UNDER THE
CAPTION "RISKS RELATED TO PAN AMERICAN'S BUSINESS" IN PAN
AMERICAN'S MOST RECENT FORM 40F AND ANNUAL INFORMATION FORM FILED
WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION AND CANADIAN SECURITIES REGULATORY
AUTHORITIES. INVESTORS ARE CAUTIONED AGAINST ATTRIBUTING UNDUE
CERTAINTY OR RELIANCE ON FORWARD-LOOKING STATEMENTS. ALTHOUGH
PAN AMERICAN HAS ATTEMPTED TO IDENTIFY IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, THERE MAY BE OTHER
FACTORS THAT CAUSE RESULTS NOT TO BE AS ANTICIPATED, ESTIMATED,
DESCRIBED OR INTENDED. THE COMPANY DOES NOT INTEND, AND DOES
NOT ASSUME ANY OBLIGATION, TO UPDATE THESE FORWARD-LOOKING
STATEMENTS OR INFORMATION TO REFLECT CHANGES IN ASSUMPTIONS OR
CHANGES IN CIRCUMSTANCES OR ANY OTHER EVENTS AFFECTING SUCH
STATEMENTS OR INFORMATION, OTHER THAN AS REQUIRED BY APPLICABLE
LAW.
NOTE FOR US INVESTORS
THIS NEWS RELEASE HAS BEEN PREPARED IN ACCORDANCE WITH THE
REQUIREMENTS OF CANADIAN SECURITIES LAWS, WHICH DIFFER FROM THE
REQUIREMENTS OF U.S. SECURITIES LAWS. UNLESS OTHERWISE
INDICATED, ALL ESTIMATES INCLUDED IN THIS NEWS RELEASE HAVE BEEN
BASED UPON MINERAL RESOURCE ESTIMATES PREPARED IN ACCORDANCE WITH
CANADIAN NI 43-101 AND THE CANADIAN INSTITUTE OF MINING, METALLURGY
AND PETROLEUM CLASSIFICATION SYSTEM. NI 43-101 IS A RULE
DEVELOPED BY THE CANADIAN SECURITIES ADMINISTRATORS THAT
ESTABLISHES STANDARDS FOR ALL PUBLIC DISCLOSURE AN ISSUER MAKES OF
SCIENTIFIC AND TECHNICAL INFORMATION CONCERNING MINERAL
PROJECTS.
CANADIAN STANDARDS, INCLUDING NI 43-101, DIFFER SIGNIFICANTLY
FROM THE REQUIREMENTS OF THE UNITED
STATES SECURITIES AND EXCHANGE COMMISSION (THE "SEC"), AND
INFORMATION CONCERNING MINERALIZATION, DEPOSITS, AND MINERAL
RESOURCE INFORMATION CONTAINED OR REFERRED TO HEREIN MAY NOT BE
COMPARABLE TO SIMILAR INFORMATION DISCLOSED BY U.S. COMPANIES. IN
PARTICULAR, AND WITHOUT LIMITING THE GENERALITY OF THE FOREGOING,
ESTIMATES INCLUDED IN THIS NEWS RELEASE HAVE BEEN BASED UPON
''INDICATED RESOURCES'' AND ''INFERRED RESOURCES''. U.S.
INVESTORS ARE ADVISED THAT, WHILE SUCH TERMS ARE RECOGNIZED AND
REQUIRED BY CANADIAN SECURITIES LAWS, THE SEC DOES NOT RECOGNIZE
THEM. UNDER U.S. STANDARDS, MINERALIZATION MAY NOT BE
CLASSIFIED AS A ''RESERVE'' UNLESS THE DETERMINATION HAS BEEN MADE
THAT THE MINERALIZATION COULD BE ECONOMICALLY AND LEGALLY PRODUCED
OR EXTRACTED AT THE TIME THE RESERVE DETERMINATION IS
MADE. U.S. INVESTORS ARE CAUTIONED NOT TO ASSUME THAT ANY PART
OF AN "INDICATED RESOURCE" WILL EVER BE CONVERTED INTO A
"RESERVE". U.S. INVESTORS SHOULD ALSO UNDERSTAND THAT
"INFERRED RESOURCES" HAVE A GREAT AMOUNT OF UNCERTAINTY AS TO THEIR
EXISTENCE AND GREAT UNCERTAINTY AS TO THEIR ECONOMIC AND LEGAL
FEASIBILITY. IT CANNOT BE ASSUMED THAT ALL OR ANY PART OF
"INFERRED RESOURCES" EXIST, ARE ECONOMICALLY OR LEGALLY MINEABLE OR
WILL EVER BE UPGRADED TO A HIGHER CATEGORY. UNDER CANADIAN
SECURITIES LAWS, ESTIMATED "INFERRED RESOURCES" MAY NOT FORM THE
BASIS OF FEASIBILITY OR PRE-FEASIBILITY STUDIES EXCEPT IN RARE
CASES. DISCLOSURE OF "CONTAINED OUNCES" IN A MINERAL RESOURCE
IS PERMITTED DISCLOSURE UNDER CANADIAN SECURITIES
LAWS. HOWEVER, THE SEC NORMALLY ONLY PERMITS ISSUERS TO REPORT
MINERALIZATION THAT DOES NOT CONSTITUTE "RESERVES" BY SEC STANDARDS
AS IN PLACE TONNAGE AND GRADE, WITHOUT REFERENCE TO UNIT MEASURES.
ACCORDINGLY, INFORMATION CONCERNING MINERAL DEPOSITS SET FORTH
HEREIN MAY NOT BE COMPARABLE WITH INFORMATION MADE PUBLIC BY
COMPANIES THAT REPORT IN ACCORDANCE WITH U.S. STANDARDS.
SOURCE Pan American Silver Corp.