Pan American Silver Corp. (PAAS) released a revised Preliminary Economic Assessment of the La Colorada Skarn deposit, transforming the huge project to a smaller but lower-risk project with lower capex and higher leverage to silver, observes Adrian Day, editor of Global Analyst.
Using byproduct credit accounting, costs for the silver would be negative. Significantly, the revised plans will not use block caving (a positive since few companies have expertise in that mining method). It also does not require a partner.
The company had been in discussions with several companies for a partnership to share the capital, with Pan Am aiming to retain the silver exposure. It can now internally fund the entire capex of $1.9 billion.
Pan American Silver Corp. (PAAS)
CEO Michael Steinmann emphasized that the decision to go to a smaller project was not for lack of potential partner interest, but rather to build a lower-risk project that still delivered silver to the company. Typically, with deposits in Mexico’s silver belt, there is higher-grade silver and some gold nearer the service, with more lead and zinc as the deposit goes deeper. Importantly, the new plan retains the option to expand the project, use block caving, and bring in a partner.
Pan American estimates average silver production from the Skarn of almost 16 million ounces for the first five years, adding to the 3.3 million from the existing La Colorada mine, with a 37-year mine life. It would be operated in conjunction with the existing mine, transforming the combined La Colorada mine into one of the largest and lowest-cost silver mines in the world.
After the first five years, production for the combined mine drops to an average of 11 million annual ounces for the next 10 years, before declining for the rest of the mine life. Pan American has not yet targeted a date for production from the Skarn, but Steinmann said it will likely be “in or after 2027.” The revised project represents about 5% of Pan American’s NAV.
