The San Vicente underground silver-zinc mine is located in the south of Bolivia in the Province of Sud-Chichas, Department of Potosí, and covers an area of 8,159 hectares and consists of 15 concessions. San Vicente is located 460 kilometres south of the city of Oruro and 300 kilometres west of the city of Tarija.
Mining in the area of San Vicente has occurred sporadically since colonial times when the initial exploitation was from veins exposed at the surface. The first written records of mining activity are from 1820, when the area was named the Guernica Mine. Several different owners operated the mine from 1911 through 1950. From 1950 until 1952, the mine was operated by the Aramayo Mining Company. In 1952, the Bolivian government nationalized the mine and placed it under the control of Corporación Minera de Bolivia (“COMIBOL”).
Following the discovery of new silver and zinc veins in the late sixties, COMIBOL constructed the Vetillas concentrating plant in 1972 with a capacity of 400 tonnes per day. Only one product, a zinc concentrate rich in silver, was produced. Mine infrastructure at the site included an underground mine, the Vetillas flotation mill, power and water supplies, and worker housing.
The mine was operated by COMIBOL until 1993, at which time mining was suspended pending the privatization of mining in Bolivia. In 1995, the San Vicente mine was offered as part of a joint-venture contract by COMIBOL. On June 21, 1999, Pan American Silver Bolivia (“PASB”) signed a joint-venture agreement (Contrato de Riesgo Compartido) with COMIBOL. At that time, PASB was a 100% subsidiary of Pan American. The mine was maintained by COMIBOL until the joint venture contract was signed.
Between late 2001 and early 2009, PASB and COMIBOL entered into a number of toll mining agreements with Empresa Minera Unificada S.A. (“EMUSA”) to process San Vicente’s ore at EMUSA’s nearby Chilcobija mill. In 2003, PASB entered into a share purchase agreement with EMUSA, whereby EMUSA could acquire up to 49% of the outstanding shares of PASB. This agreement required EMUSA to fund feasibility and development related expenses to an aggregate of $2.5 million by May 1, 2005. By year end 2004, EMUSA had invested $2.34 million of the $2.5 million required to vest as a 49% owner of PASB, and EMUSA indicated it intended to proceed with the remaining investment to acquire a 49% interest.
In the fourth quarter of 2005, Pan American negotiated a shareholders’ agreement with EMUSA and Trafigura (a minority stakeholder of EMUSA), which agreement contemplated an increase in our shareholding in PASB from 50% to 55%. Pursuant to this shareholders’ agreement, which was signed in January 2006, EMUSA would hold 40% of the shares of PASB and Trafigura would hold the remaining 5%.
In July 2006, PASB and COMIBOL renegotiated the terms of the main joint venture contract, changing COMIBOL’s participation fee to a fixed percentage participation fee of 37.5% of the operating cash flow subject to certain deductions in respect of development costs. The contract has a 30 year term. The original contract stated that for PASB to maintain its participation in the contract it should invest a minimum of $20 million dollars in the San Vicente project. Pursuant to an amendment to the contract signed in June 2006, PASB committed to build a new mill, tailings dam and other civil works at San Vicente during an 18 month time period with a minimum additional investment of $23 million. The 18 month construction period commenced on June 10, 2007.
In 2007, Pan American purchased EMUSA’s 40% interest in the project, increasing Pan American’s share ownership from 55% to the current 95%, and Trafigura continued to hold its 5% interest in PASB.
Between 2008 and 2009, Pan American completed construction of a new 750 tonnes per day capacity selective flotation plant and infrastructure as well as continued mining and
toll treating ores under an agreement with COMIBOL. Commercial production commenced at the end of the first quarter of 2009.
San Vicente is located 2.5 kilometres west of the prominent north-south striking San Vicente thrust fault, which forms the eastern limit of the intermountain Bolivian Altiplano basin. Mineralization at the mine site is hosted by conglomerates of Late Oligocene age. The clastic sediments are over-thrusted by a turbidite sequence of Ordovician age which outcrop on the east side of the mine. Igneous activity at the site is represented by volcanism in the mid-Miocene.
The regional sedimentary sequence consists of a basement of Palaeozoic marine siliciclastic sediments. This sequence was folded and later unconformably overlain by non-continuous Cretaceous aged continental sediments and a thick sequence of Tertiary aged continental clastic sediments (the Potoco and San Vicente formations). Sedimentation in the Tertiary aged basin was controlled by thrust faults to the east and west and contains various thin volcanic flows. A sequence of felsic volcanics forms the top of the Tertiary basin in the southern part.
An important lithology in the project area is the fanglomerates of the San Vicente formation which are in contact with Ordovician aged shales along the strike of the San Vicente fault. The fanglomerate consists of poorly sorted conglomerate with fragments of Palaeozoic sediments cross cut by younger quartz veins. The matrix is red in colour and consists of iron-bearing sandstone.
The structural environment of the mine area consists of a series of pre-mineral faults dipping 50° to 80° and striking west-northwest.
San Vicente is a polymetallic vein deposit formed by hydrothermal systems associated with repeated calc-alkaline intrusions and their extrusive products forming vein type and disseminated polymetallic deposits. Mineralization in the district is known to cover an area of three by four kilometres to a depth of 300 metres. It consists of replacement veins filling pre-existing faults, replacements in brecciated conglomerates in the San Vicente fault, and mineralization in dacitic dykes.
The minerals of economic importance are sphalerite, tetrahedrite, chalcopyrite, and galena. Cassiterite, covellite, and bornite are found in some veins. The primary gangue minerals are quartz, pyrite, marcasite, and barite.
Management estimates that Proven and Probable mineral reserves at the San Vicente mine, as at December 31, 2013, are as follows:
San Vicente Mineral Reserves 1, 2, 3
|Reserve Category||Tonnes (Mt)||Grams of Silver per tonne||Contained Ag (Moz)||% Zinc||% Lead|
1. Estimated using a price of $22 per ounce of silver, $1,850 per tonne of zinc and $1,950 per tonne of lead.
2. Mineral Reserve estimates for the San Vicente mine were prepared under the supervision of, or were reviewed by, Michael Steinmann, P.Geo., and Martin G. Wafforn, P.Eng., as Qualified Persons as that term is defined in NI 43-101.
3. Tonnes are shown for 100% of the San Vicente property. Pan American has a 95% interest in PASB.
Management estimates that the Measured and Indicated mineral resources at the San Vicente mine, as at December 31, 2013, are as follows:
San Vicente Mineral Resources 1, 2, 3, 4
|Resource Category||Tonnes (Mt)||Grams of Silver per tonne||Contained Ag (Moz)||% Zinc||% Lead|
1. These mineral resources are in addition to San Vicente mineral reserves.
2. Estimated using a price of $22 per ounce of silver, $1,850 per tonne of zinc and $1,950 per tonne of lead.
3. Mineral resource estimates for San Vicente 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.
4. Tonnes are shown for 100% of the San Vicente property. Pan American has a 95% interest in PASB.
In early 2009, a new constitution was enacted in Bolivia that further entrenches the government’s ability to amend or enact certain laws, including those that may affect mining. On May 1, 2011 Bolivian President Evo Morales announced the formation of a multi-disciplinary committee to re-evaluate several pieces of legislation, including the mining law and this has caused some concerns amongst foreign companies doing business in Bolivia due to the government’s policy objective of nationalizing parts of the resource sector. However, Mr. Morales made no reference to reviewing or terminating agreements with private mining companies. Operations at San Vicente have continued to run normally under Pan American’s administration and it is expected that normal operations will continue status quo. Pan American will take every measure available to enforce our rights under our agreement with COMIBOL, but there is no guarantee that governmental actions will not impact the San Vicente operation and its profitability. Risks of doing business in Bolivia include being subject to new higher taxes and mining royalties (some of which have already been proposed or threatened), revision of contracts, and threatened expropriation of assets, all of which could have a material adverse impact on our operations or profitability.
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 San Vicente.
Ore is extracted at the San Vicente underground mine using conventional shrinkage stoping in areas where the veins are narrow and long hole mining in areas where the veins are wider. 20 tonne capacity low profile haul trucks, scoop trams, and long hole jumbo drills are used for the long hole mining. Access to the mine for workers and equipment is provided by ramps leading to adits at the surface while waste and ore material is hoisted to the surface using both haul trucks on the ramp and hoisting at the Pelayo shaft. Locomotives are used to move broken ore and waste on the levels. Mine life based on current mineral reserves and processing rate is estimated to be 8 years.
Prior to the construction of a new processing plant at the mine, PASB conducted several small scale mining programs with ore being treated under toll milling arrangements at the Chilcobija mill. The new mill was commissioned in March 2009 and comprises a standard flotation process producing a zinc-silver concentrate and a copper-silver concentrate. The plant has a 750 tonnes per day capacity and produces approximately 40 tonnes of zinc concentrate and 10 tonnes of copper concentrate daily. The majority of the silver is present in the copper concentrate.
Ore from the mine passes through a jaw crusher at the plant, and then is fed into a semi-autogenous mill/ ball mill grinding circuit. Following the concentration process in the flotation circuit, the concentrates are thickened and dewatered in filter presses prior to shipping.
Water is recycled from both the tailings thickener overflow and the tailings area. In order to supply the make-up water needs for the plant, as well as for the San Vicente community and the camp, a new water line has been installed from the Angosta Mica water source, located approximately 18 kilometres from the plant site. The water pumps required to make this operative were installed in early 2009. A tailings impoundment area was constructed in 2008 approximately 1.5 kilometres from the concentrator. The initial dam height was sufficient for approximately two full years of operation, and subsequent dam lifts are undertaken as capacity requirements increase with ongoing mining.
During 2013, San Vicente processed 319,433 tonnes of ore, producing about 4.0 million ounces of silver, 6,200 tonnes of zinc and 600 tonnes of lead, with metallurgical recoveries of 94% for silver, 78% for zinc and 82% for lead.
In 2013, sustaining capital expenditures at San Vicente totalled $8.2 million.
Activities in 2014
In 2014, we expect to produce between 3.9 and 4.0 million ounces of silver, between 5,500 and 6,000 tonnes of zinc and between 450 and 500 tonnes of lead.
With the tailings dam raise completed in 2013, the capital expenditure budget in 2014 of $6.0 million is reduced from 2013’s spending. The main sustaining capital investment in 2014 includes equipment repair and replacements, mine-site exploration and other equipment enhancements, optimizations and upgrades. Additionally, there is $0.9 million forecasted for projects underway at the end of 2013 primarily associated with a shaft and hoist upgrade project.
In compliance with the Environmental Regulation for Mining Activities, PASB commissioned MINCO SRL, a Bolivian consulting firm, to conduct a base line environmental audit (“ALBA”) of the San Vicente mine, as well as other environmental studies in satisfaction of Bolivian laws and regulations. The ALBA sets out the present situation of the environment at the project and identifies environmental liabilities regarding pre-existing waste rock dumps and the environmental impact on soil, water, vegetation and solid residues caused by previous mining activities conducted on the property.
Construction of the new processing plant, tailings facility and ancillary facilities at San Vicente required another update to the environmental licence that was originally issued in 2002. To this end, PASB presented the application in 2007 and was advised by the Bolivian authorities that a comprehensive EIA would be required for the proposed projects due to the scope and nature of the proposed changes to the operations. After a public consultation period, PASB submitted a comprehensive EIA in December 2007. Review of the EIA was initiated by the Bolivian authorities and the environmental license was granted for the San Vicente mine in May 2008.
The most significant environmental issues currently associated with the San Vicente mine are related to the waste dumps, the need to pump low pH water from the mine, the permanent drainage from the Pelayo waste rock dump that runs into the San Vicente River and water discharge from the San Juan and San Francisco adits. PASB constructed and operates an active chemical treatment system to improve the water quality and comply with its environmental permits.
In order to remediate environmental hazards or concerns caused by previous owners of the San Vicente mine, PASB has focused on the recommendations outlined in the EIA, together with the complementary studies of Health and Industrial Safety, the Handling of Solid Residues procedures, the Closure and Rehabilitation Plan and the Contingency Plan. As per the joint venture agreement between COMIBOL and PASB, the equipment, facilities and infrastructure become the property and responsibility of COMIBOL upon the cessation of operations.
A closure cost estimate for San Vicente was prepared according to State of Nevada approved Standardized Reclamation Cost Estimator (“SRCE”) methodology in 2011 and is updated every year. We have estimated the present value of reclamation costs for the San Vicente property to be approximately $3.2 million at December 31, 2012. Pan American has not accrued any amounts for any prior existing environmental liabilities.
Formal safety audits were conducted in October 2009 and January 2011 at the San Vicente mine by Pan American’s Director of Health and Safety and safety managers from some of Pan American’s other mines. During 2013, personnel employed at the mine attended approximately 9,900 hours of safety training.
|Silver million ounces||4.0||3.7||3.1|
|Cash cost per ounce2||$15.51||$18.92||$13.48|
1. Production and cost figures are for Pan American’s 95.0% share only.
2. Net of by-product credits. For purposes of calculating 2013′s cash costs, the Company used the following price levels for its by-product production: Zn $ 1,850/tonne, Pb $2,100/tonne. A change in the commercial strategy at San Vicente resulted in our silver concentrates being marketed to lead smelters instead of copper smelters, which means that we are now paid for the lead content of the concentrates and not for the contained copper. As a consequence, from 2012 on we report lead production instead of copper production.