Pan American Silver Corp.

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Bolivia - San Vicente

Click here for map of San Vicente

The San Vicente silver-zinc underground mine is Pan American Silver Corp.’s only mining interest in Bolivia. More than 20 bonanza type silver-zinc veins are known to occur over an area of 1.5 kilometres on surface and extend to at least 200 metres in depth. The project consists of 15 mining concessions totaling 8,159 hectares.

History

There has been sporadic mining activity at San Vicente since colonial times. The current property was operated by COMIBOL, the Bolivian state mining company, from 1972 until 1993 when mining was suspended, pending privatization. Pan American Silver optioned the San Vicente project from COMIBOL in 1999 and became operator, advancing the project through drilling, underground sampling and metallurgical test work.

In late 2001 Pan American Silver and COMIBOL entered into a two-year toll milling agreement with EMUSA, a well-established Bolivian mining company, to process up to 250 tonnes per day of San Vicente's ore at EMUSA's nearby Chilcobija mill. This arrangement generated sufficient revenue to offset the property's holding costs and generated valuable information on the mining and milling characteristics of San Vicente's ore. In early 2006 Pan American Silver signed a joint-venture agreement that granted EMUSA a 40% interest in the project. In mid-2006, Pan American Silver entered into another toll milling arrangement with EMUSA to continue processing at its mill.

In 2007, Pan American Silver acquired EMUSA’s 40% interest, increasing ownership of San Vicente from 55% to 95%.

Geology

San Vicente is a polymetallic vein deposit, located 2.5 kilometres west of a prominent thrust fault. This north-south striking San Vicente fault forms the eastern limit of the intermountain Bolivian Altiplano Basin.

The lithology of the Project area includes the fanglomerate facies of the San Vicente formation, which are in contact with Ordovician shales along the San Vicente fault. The fanglomerate consists of poorly sorted conglomerate with clastic sub angular fragments of Palaeozoic sediments cross cut by quartz veins. The matrix is red in colour and consists of iron bearing sandstone.

Mineralization in the district is known to cover an area of 3 by 4 kilometres to a depth of 300 metres. It consists of vein mineralization in pre-existing faults, dissemination in brecciated conglomerates in the San Vicente fault and mineralization in dacitic dykes.

Mining

Mine infrastructure at San Vicente includes a flotation mill, tailings facility, power and water supplies and worker housing. The existing mine was designed and built to extract from steeply dipping narrow veins using conventional shrinkage stoping. The vertical Pelayo shaft extends from the surface above the 0 level down to the -110 level, which is currently the deepest level in the mine. The inclined Rampa shaft also extends down to the -110 level.

The discovery of the Litoral Ramal Dos vein has provided a wide and high-grade addition to the mine resource base. This vein is amenable to longhole mining, which may allow a reduction in mine operating costs and will permit a higher mining recovery of the wider ore zones than could be achieved through shrinkage mining.

An ambitious growth initiative, called the San Vicente Mine Expansion Project was announced in 2007. It included the construction of a new 750 tonne-per-day flotation process plant at the mine site. Implementation of the project required an increase in the mine’s production capacity to match the production rate of the new mill. The mine intends to continue using shrinkage stoping in the narrow vein stopes and increase the conventional mining capacity by improving the Pelayo shaft and the haulage equipment. The remainder of the production will be extracted by longhole mining using mechanized equipment and will require the development of a new decline from surface for equipment access and for ore haulage using mine trucks.

Construction of the new processing facility were essentially complete at the end of 2008 and San Vicente began producing its first concentrates on March 25, 2009. San Vicente reached its expanded production capacity during the third quarter of 2009.

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Operating Highlights

	2009	2008	2007
Tonnes Milled	167,006	93,591	82,855
Silver ounces	2,626,774	875,000	619,000
Zinc tonnes	2,803	1,989	1,701
Copper tonnes	401	152	99
Cash cost per ounce	$7.07	$7.57	$5.41

Exploration

Exploration of San Vicente began in earnest in 1999 when Pan American Silver entered into the joint venture with COMIBOL. Since then a total of 109 diamond core holes have been drilled, with 2,575 vein intercepts sampled with lengths ranging from 0.2 metres to 7.14 metres. In addition to the diamond drilling, a sampling program executed jointly by Pan American Silver and COMIBOL has produced some 6,594 channel samples.

The data generated by these activities aim to broaden mineable reserves so that the scale of mining will increase to a level sufficient to feed the new processing facilities provided for under the San Vicente Mine Expansion Project.

Mineral Reserves^1,2,3

Reserve Category	Tonnes (000's)	Grams of Silver per Tonne	Cu (%)	Zn (%)
Proven	1,548	423	0.10	2.35
Probable	706	323	0.18	2.13
TOTAL	2,254	392	0.13	2.28

1 Calculated as at December 31, 2009 using a price of $13.00 per ounce of silver and $1,600 per tonne of zinc and $5,000 per tonne of copper. See also information in the Annual Information Form under the heading “Mineral Reserve and Mineral Resource Estimate Information”.

2 Mineral reserve estimates for San Vicente were prepared under the supervision of, or were reviewed by, Michael Steinmann, P.Geo., Executive Vice President Geology & Exploration, who is a Qualified Persons as that term is defined in NI 43-101.

3 Tonnes are shown for Pan American's 95% interest in the San Vicente property.

Mineral Resources^1,2,3,4

Class Reserve Category	Tonnes	Grams of Silver per Tonne	Cu (%)	Zn (%)
Measured	1,048	156	0.13	2.25
Indicated	569	187	0.22	1.81
Inferred	513	302	0.10	3.61

1 These resources are in addition to San Vicente mineral reserves.

2 Calculated as at December 31, 2009 using a price of $13.00 per ounce of silver and $1,600 per tonne of zinc and $5,000 per tonne of copper. See also information in the Annual Information Form under the heading “Mineral Reserve and Mineral Resource Estimate Information”.

3 Mineral resource estimates for San Vicente were prepared under the supervision of, or were reviewed by, Michael Steinmann, P.Geo., Executive Vice President Geology & Exploration, who is a Qualified Person as that term is defined in NI 43-101.

4 Tonnes are shown for Pan American's 95% interest in the San Vicente property.