Mining, Developing & Exploring
The Navidad property is an advanced exploration-stage development project involving drilling activities. Pan American Silver, through is wholly-owned Argentine subsidiary, Minera Argenta, S.A. (MASA) - headquartered in Buenos Aires, Argentina - controls 100% interest in the Navidad Project.
The Navidad deposit is located in the department of Gastre, in the Province of Chubut, southern Argentina. The property is flanked by the communities of Gastre, 35 km to the northwest, Gan Gan, 47 km to the east, and Blancuntre and Lagunita Salada to the southwest. Blancuntre is the closest recognized indigenous community to the Navidad property. Gastre and Gan Gan have a population of approximately 800 and 900 inhabitants respectively. Both communities are located on Provincial Highway #4, a gravel highway that passes just north of the property and provides year-round access to the project.
Daily flights are available from Buenos Aires to Trelew, located about 370 km southeast, near the Atlantic coast. The nearest airport, which also has regularly scheduled flights, is located in Esquel, about four hours' drive to the southwest by gravel road. The provincial capital of Rawson is located 20 km east of Trelew. Pan American currently has offices in Buenos Aires, Trelew, Gan Gan and Gastre to service the Navidad Project.
The first known exploration program at Navidad consisted of a preliminary regional geochemical sampling program conducted by Normandy Argentina in mid-2000 to locate additional deposits to supplement those known at its Calcatreu Property, a gold and silver deposit located approximately 80 km from Navidad. The program consisted of 1,200 bulk leach extractable gold (BLEG) stream sediment samples taken from drainage systems overlying Jurassic volcanic rocks in Chubut in the general vicinity of Calcatreu, Mina Angela, Gastre, Lagunita Salada, Gan Gan, and other areas. This program resulted in the identification of various anomalies, including the Flamingo Prospect and Sacanana, which is today known as Navidad. The data collected during this campaign is known as BLEG A data.
In early 2002, Newmont Mining purchased Normandy's interests but later that year, it decided to sell all of its interests in Argentina. In September 2002, IMA Exploration Inc. signed a confidentiality agreement and obtained technical data related to Newmont's Argentinean interests, including the Calcatreu Project. In December 2002, IMA obtained exploration concessions (cateos) and began undertaking a regional exploration program over the Navidad area, including regional mapping and sampling. From December 2002 to July 2006, IMA conducted diamond drilling, geochemical sampling, geophysical exploration, and Mineral Resource estimates at Navidad.
In early 2003 Aquiline Resources Inc. entered into an agreement to purchase Normandy and Newmont's 100% interest in Calcatreu. The transaction, was completed in July of that year. In May 2003, upon review of the BLEG A data, Aquiline found that the ground it covered had already been claimed by IMA. Aquiline filed a suit against IMA in March 2004 and after a court case where IMA was found to have breached the Confidentiality Agreement, the Supreme Court of British Columbia awarded ownership of the Navidad property to Aquiline on 14 July 2006.
The case went all the way to the Supreme Court of Canada, which granted sole ownership rights to Aquiline on 20 December 2007, subject to Aquiline reimbursing IMA for its accrued exploration expenditures up to the July 2006 court decision. Aquiline's final payment to IMA was made in February 2008, giving Aquiline full ownership of the Navidad property.
From October 2006, Aquiline undertook diamond drilling, geophysical and geochemical exploration, metallurgical test work, resource estimates, and a preliminary assessment for the Loma de La Plata deposit, one of the eight separate deposits that comprise the Navidad property.
On 14 October 2009, Pan American announced a friendly offer to acquire Aquiline. On 7 December 2009, Pan American acquired approximately 85% of the issued and outstanding shares of Aquiline and extended its bid to 22 December 2009, and on that later date, Pan American took up approximately an additional 7% of the issued and outstanding shares in the capital of Aquiline.
Since the offer to acquire the Aquiline shares was accepted by holders of more than 90% of the Aquiline shares, on 23 December 2009, Pan American provided notice to the remaining shareholders of its intention to exercise its right to acquire the remaining issued and outstanding Aquiline shares pursuant to the compulsory acquisition provisions of the Business Corporation Act (Ontario). Pursuant to the compulsory acquisition, Pan American acquired the balance of the Aquiline shares not already owned by it on or about 22 January 2010.
Pan American took possession of the Navidad property in early 2010. The Company continued with a rigorous drilling campaign, metallurgical testing, hydrologic analysis, environmental studies, and several other works on the project and completed a preliminary assessment of the property in December 2010. Mineral Resource estimates based on the results of the 2010 drilling and updated geological models are currently under way.
Navidad is located on the southwest edge of the Northern Patagonia Massif in southern Argentina. The massif's boundary coincides with the "Gastre Fault System", a mega-structural feature believed to be the result of continental-scale northeast to southwest extension that produced through down-faulting a series of northwest to southeast trending half grabens and tectonic basins.
The older, granitoid rocks of the basement in northern Chubut Province belong to the Palaeozoic age Mamil Choique and Lipetren formations. Locally these rocks are exposed at surface in windows through the overlying Mesozoic age volcanic and sedimentary rocks. At Navidad the Mesozoic sequence consists of the Lonco Trapial Formation and overlying Cañadón Asfalto Formation. The latter of these formations hosts the Navidad mineralization.
The Mamil Choique Formation crop sout along the west side of the area. They comprise red and grey granitoids, cut by aplite dykes and quartz-rich pegmatites. These crystalline basement rocks are overlain by a Jurassic sequence of volcanic rocks (the Lonco Trapial Formation), and sedimentary rocks (the Cañadón Asfalto Formation). These are the host for silver mineralisation at Navidad. The contact between the Mamil Choique and Lonco Trapial formations lies about 6.5 km southwest of Navidad.
This is overlain by acid pyroclastics (ignimbrites), volcanic agglomerates, and lavas of the Lonco Trapial Formation. These rocks crop out on the southwest side of a complex, faulted sedimentary basin filled by sandstones, mudstones and limestones of the Cañadón Asfalto Formation. Lonco Trapial ignimbrites also occur on the northeast side of the basin. The basin includes, and is defined by, three northwest-striking major fault zones, generally referred to as 'trends'.
Several deposits of silver, lead, zinc and copper minerals have been identified along three northwest striking parallel mineral trends, known as the Navidad, Esperanza, and Argenta trends, all within a 5 km by 4 km rectangle. Mineral Resource estimates have been completed for eight of these deposits, including Calcite NW, Calcite Hill, Navidad Hill, Connector Zone, Galena Hill, Barite Hill, Loma de La Plata, and Valle Esperanza.
The Navidad Trend, which includes the bulk of the silver mineralization, occurs in the immediate hanging wall of a major northeast-striking fault (Sauzal Fault). Most of the economic mineralization is hosted by the upper of two trachytic andesite lava flows (referred to as 'latite' in the literature). The latites overlie an extensive andesite flow.
In January 2011, Pan American filed a 43-101-compliant Preliminary Assessment (PA) based on Mineral Resources at Navidad's seven adjacent deposits as well as the Loma de La Plata deposit. Pan American is currently working on the preparation of an Environmental Impact Study (EIA) and ultimately a Feasibility Study.
The Preliminary Assessment outlines a 15,000 tonnes-per-day operation and an average life-of mine strip ratio of 4.8 to 1, with a life of mine of 17 years. Ore from the eight deposits will be transported by 150-tonne trucks to a conventional floatation plant, equipped with a 54-inch gyratory crusher, a stockpile and a 15,000 tpd semiautogenous (SAG) mill/ball mill/flotation/filtration facility. The process plant will be capable of treating two basic ore types from the Navidad deposits: copper-silver ore and lead-silver ore, using the same circuit on a campaign treatment basis.
Average silver production in the first five years of operation is estimated at almost 20 million ounces per year. The Preliminary Assessment contemplates a Base Case Scenario, where the price of silver is $18.00 per ounce and an Upside Case where the price of silver is $25.00 per ounce. The table below outlines the Economic Highlights of Navidad's Preliminary Assessment in both scenarios:
Two different concentrates will be produced at Navidad: copper-silver and lead-silver. The copper-silver concentrates will be bagged and placed in containers and likely trucked 320 km east to Puerto Madryn in the Province of Chubut, on the Atlantic. The lead-silver bulk concentrate will be trucked in enclosed bulk transport or container trailers to ports in Argentina or Chile. The concentrates will be exported for treatment and recovery of contained metal, as adequate smelter and refinery facilities do not exist in Argentina.
Electric power will be provided from existing twin 330 kV power lines presently located 80 km to the south of the Project. SPT SRL Electrical Power Consultants (SPT), an Argentine power line consultant, has produced a preliminary report for the supply of power that has been incorporated into the Preliminary Assessment. Mine dewatering is expected to be the principal source of water makeup for processing. The Project is designed to minimize fresh water make-up by optimizing water recycle and using water conservation technology. A local well field will supply additional water if required.
The table below outlines the Capital Costs Estimates considered in the Preliminary Assessment:
These estimates include a 25% contingency on contracted and commissioning costs and a 15% contingency on mine equipment, pre-production, tailings dam construction and owner's costs. The estimates exclude US$ 133 million in recoverable Value Added Tax.
To date, the Navidad Project comprises eight individual mineral deposits in three separate mineralized trends (Navidad, Esperanza and Argenta trends). The six deposits of the Navidad Trend occur along strike over a distance of about 5.8 km and are essentially continuous. They comprise, from northwest to southeast: Calcite NW, Calcite Hill, Navidad Hill, Connector Zone, Galena Hill, and Barite Hill. The Valle Esperanza deposit occurs on the east flank of the Esperanza Trend and is found approximately 400 m south-southwest of Galena Hill. The Loma de La Plata deposit occurs in the north part of the Argenta Trend, approximately 2.2 km southwest from Calcite Hill.
Map of the eight deposits.
Pan American's management estimates that the Mineral Resources at the Navidad Property, as at April 2009, are as follows:
1 Estimated and reported above a 50 g/t AgEQ using a silver equivalence formula of AgEQ = Ag + (Pb × 10,000/365) and a price of $12.52 per ounce of silver and $1,102 per tonne of lead. The most likely cut-off grade for these deposits is not known at this time and must be confirmed by the appropriate economic studies. The estimated metal content does not include any consideration of mining, mineral processing, or metallurgical recoveries. See also information in Pan American's Annual Information Form dated December 31, 2010, under the heading "Mineral Reserve and Mineral Resource Estimate Information".
2 Mineral Resource estimates for Navidad were prepared by Pamela De Mark, P. Geo., as a Qualified Person as that term is defined in NI 43-101.
Pan American spent approximately $37.5 million on the Navidad property in 2010 to continue exploration drilling on sev-eral open or new targets along the mineralized trends. In addition, infill drilling was done for the Loma de La Plata, Valle Esperanza, Barite Hill, Calcite Hill, Calcite NW, the Connector Zone, and Galena Hill deposits. These infill drillholes also provided new samples for metallurgical analysis. Condemnation and geotechnical drilling was also conducted in the various planned facility areas during 2010. Updates to the resource estimates based on the 2010 drilling results and updated geological interpretations are currently underway.
In 2011, Pan American expects to invest $3 million to complete 30,000 meters of diamond drilling at Navidad. The Company will continue exploration drilling on several open or new targets along the mineralized trends; infill drilling is planned for Loma de la Plata, Valle Esperanza, Barite Hill, and Galena Hill. New samples will also be used for metallurgical analysis. Additional condemnation and geotechnical drilling is planned for potential future infrastructure sites. The results of the 2010 and 2011 drilling campaign will be incorporated into a Feasibility Report, which is on track for completion at year-end 2011.
In 2003, after an unsuccessful attempt to permit the Esquel gold project in the namesake ski-resort town, the Province of Chubut passed a piece of legislation (Law 5001) that prohibits open cut mining and the use of cyanide in mineral processing in the entire province. Law 5001 states that the Provincial Environment Committee (COPRAM) will determine a zoning of the Province for Mineral Resource exploitation with production methods authorized in each case and it also requires that COPRAM's proposed zoning be passed as a law. To date COPRAM has not made a rezoning proposal.
Pan American remains confident that by operating in good faith and by maintaining an open and transparent dialogue with the local communities and the Provincial government in Chubut, it will be successful in communicating the benefits that the responsible development of Navidad will bring to the project's immediate area of influence, the Province and Argentina.
In 2011, Pan American plans to invest approximately $45 million at Navidad, including $16 million for continued diamond drilling. The remainder will be directed towards preparation of the EIA, tailings site and geotechnical evaluation, metallurgical studies, basic engineering designs, the feasibility study and a comprehensive community and government relations campaign. The Company expects to complete a Feasibility Report at year-end 2011
Pan American remains confident that an open and informed dialogue regarding open cut mining in the Central Meseta of Chubut will ultimately be resolved favourably and lead to the responsible development of Navidad. Navidad currently provides direct employment to approximately 119 individuals at Navidad, including employees and contractors, mostly from the local communities surrounding the project. The Company intends to continue working with the local communities and provincial government to transform Navidad into a world-class silver mine.
For more information on the Navidad development project, please refer to the Annual Information Form dated December 31, 2010, which was filed with the applicable Securities Authorities on March 31, 2011 and can be found on SEDAR at www.sedar.com.