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Manantial Espejo

OVERVIEW

Manantial Espejo is an open pit and underground silver-gold mine in the province of Santa Cruz, Argentina and is 100% owned by Pan American. Silver and gold mineralization is present as epithermal veins, vein breccias, sheeted and stockwork veining, and minor disseminations. Ore is mined at Manantial Espejo using a combination of conventional open pit and underground mining methods. The open pit operations use trucks and front end loaders, as well as track shovel loading equipment. The underground mining operations use either long hole, cut and fill, or shrinkage mining methods, depending on the geometry of the mineralized zones.

Ore is treated by primary crushing, semi-autogenous and ball mill grinding, agitation leaching, thickening, cyanide leaching thickening, and precipitation of silver and gold in solution in the Merrill-Crowe circuit to produce silver and gold doré from melting of the precipitate. The nominal treatment rate at design capacity is 2,000 tonnes per day.

OPERATING UPDATE

In 2014, Manantial Espejo produced 3.7 million ounces of silver, 18% more than in 2013. 2014’s production rose as a result of an 11% increase in throughput rates, 5% higher silver grades, and 1% higher silver recoveries largely achieved through successful plant optimization.

2014 gold production of 70,500 ounces was 16% more than 2013 production of 60,800 ounces. The improvement was achieved primarily through record mill throughput as gold grades and recoveries were consistent with those in 2013.

In 2014, cash costs at Manantial Espejo increased to $10.12 per ounce of silver, 18% higher than 2013 cash costs. The main drivers of the increased cash costs were a large swing in inventory variations moving from stockpile building in 2013 to stockpile draw-downs in 2014, partially offset by reduced non-capitalized waste mining rates. In addition, lower realized gold prices more than offset the benefit of increased gold production.

Manantial Espejo’s 2014 all-in sustaining costs per silver ounce sold (“AISCSOS”) of $16.84 were 6% higher than 2013 AISCSOS of $16.84 due largely to a $14.7 million increase in sustaining capital, and a $4.7 million increase in production costs from 2014 Net Realizable Value adjustments. These increases in sustaining capital and production costs were partially offset by an 18% increase in payable silver ounces sold, and a $13.9 million increase in by-product credits.

2015 FORECAST

In 2015, our objective is to maintain Manantial Espejo’s silver production consistent with 2014 levels at between 3.65 million ounces and 3.80 million ounces. We anticipate a slight decline in silver grades to be offset by modestly higher throughput rates. We also expect to produce between 69,000 and 72,000 ounces of gold as gold grades, recoveries, and production in 2015 are expected to be consistent with 2014 levels.

We assume that in 2015, the devaluation of the Argentine peso will keep pace with local inflation rates. 2015 production costs are expected to increase primarily from increased waste mining rates and a swing in inventory variations from last year’s inventory build-up to an expected reduction of inventory. Combined with lower gold credits due to lower gold prices as compared to 2014, we expect cash costs to increase from $10.12 per ounce in 2014 to between $10.50 and $11.75 per ounce in 2015.

Sustaining capital expenditure in 2015 is expected to be between $12.0 million and $14.0 million, a significant decrease from the $26.7 million spent in 2014. The majority of the 2015 capital budget is related to Maria open pit pre-stripping activities. The other major element of the 2015 sustaining capital budget is $2.5 million to be spent in brownfield exploration, which will be incurred mostly during the first half of 2015.

AISCSOS at Manantial Espejo for 2015 is expected to be between $13.80 and $15.05 per ounce, a significant decrease from the $17.93 per ounce reported in 2014, due mainly to lower sustaining capital and lower net realizable value adjustments than in 2014.

Mineral Reserves and Resources

Pan American’s management estimates the mineral reserves at Manantial Espejo, as at December 31, 2014, are as follows:

Manantial Espejo Mineral Reserves 1, 2

Reserve Category Tonnes (Mt) Grams of Silver per tonne Grams of Gold per tonne
Proven 2.4 123 1.82
Probable 0.4 193 3.08
TOTAL 2.8 132 1.98

Notes:

1. Estimated using prices of $18.50 per ounce of silver and $1,250 per ounce of gold.

2. Mineral Reserve estimates for Manantial Espejo were prepared under the supervision of, or were reviewed by Martin G. Wafforn, P.Eng., who is a Qualified Person as that term is defined in NI 43-101.

Pan American’s management estimates that mineral resources at Manantial Espejo, as at December 31, 2014, are as follows:

Manantial Espejo Mineral Resources 1, 2

Resource Category Tonnes (Mt) Grams of Silver per tonne Grams of Gold per tonne
Measured 2.8 66 0.79
Indicated 2.0 113 1.50
Inferred 0.3 129 1.98

Notes:

1. These mineral resources are in addition to Manantial Espejo mineral reserves using prices of $30 per ounce of silver and $1,800 per ounce of gold.

2. Mineral resource estimates for Manantial Espejo were prepared under the supervision of, or were reviewed by, Michael Steinmann, P.Geo., who is a Qualified Person as that term is defined in NI 43 101.

Mineral reserve estimates are based on a number of assumptions that include metallurgical, taxation and economic parameters. Increasing costs or increasing taxation could have a negative impact on the estimation of mineral reserves. There are currently no known factors that may have a material negative impact on the estimate of mineral reserves or mineral resources at Manantial Espejo.

Technical Report
HIGHLIGHTS
Name Manantial Espejo
Location Santa-Cruz, Argentina
Mine Type Open Pit/Underground
Ownership 100%
Products Silver and gold doré
Capacity 2,000 tpd
Deposit Type Epithermal veins, breccias, and stockworks
Location
ManantialEspejoMap