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Alamo Dorado

OVERVIEW

Alamo Dorado is an open pit silver-gold mine located in the Sierra Madre mountain range in Sonora, Mexico, and was acquired by Pan American in 2003 (upon completion of the acquisition of Minera Corner Bay). Silver and gold mineralization is present as structurally controlled, low sulphidation epithermal quartz veins and stockworks. Mining is a conventional truck and shovel open pit.

Ore is treated by crushing, semi-autogenous and ball mill grinding, followed by thickening, agitated cyanide leaching, leach residue filtration, direct electrowinning to produce a cathode sludge, AVR (acidify, volatilize, and re-neutralize) cyanide recovery and recirculation, and leach residue washing with AVR product solutions to produce silver and gold doré from melting of the cathode sludge. A minor amount of silver and gold is also obtained from copper concentrates in the AVR circuit. The plant’s nominal design treatment rate is 4,000 tonnes per day and in 2013 the mine milled 1.8 million tonnes of ore, producing 5.1 million ounces of silver and 17,600 ounces of gold.

OPERATING UPDATE

Our Alamo Dorado mine has entered the final stages of mining operations. As expected, in 2014, the mine’s silver production declined from 5.08 million ounces to 3.47 million ounces due to the planned processing of lower silver grade ores, combined with lower silver recoveries. Increased throughput rates helped to partially offset lower silver grades. 2014 gold production of 17,560 ounces was similar to 2013 production due to higher average gold grades.

Alamo Dorado’s 2014 cash costs of $12.89 per silver ounce, net of by-product credits, increased significantly from 2013 cash costs of $7.45 per silver ounce as a result of increased waste mining and processing lower grade ores, partially offset by better by-product credits from gold.

Alamo Dorado’s 2014 all-in sustaining costs per silver ounce sold (“AISCSOS”) increased to $13.05 from $8.58 in 2013. Although year over year direct production costs remained relatively consistent, the AISCSOS increase was driven by lower silver production, which along with a $1.9 million net realizable value (“NRV”) adjustment drove the increase in 2014.

In 2014, sustaining capital expenditures at Alamo Dorado decreased significantly to $0.8 million as the mine prepares for the end of mining operations.

2015 FORECAST

As anticipated, Alamo Dorado will continue along a declining production profile as it enters the final year of open pit mining. Although anticipated throughput of 1.7 million tonnes is expected to remain relatively consistent with 2014 levels, a larger percent of ore processed will be sourced from the lower-grade ores and stockpiles.

2015 silver production is expected to be between 2.95 million and 3.20 million ounces, a decline of at least 8% from 2014 production. Similarly, 2015 gold production is also anticipated to decrease from 2014 levels to between 15,500 and 16,600 ounces as a result of expected lower grades.

Despite lower operating costs in 2015, cash costs per ounce are expected to increase from $12.89 in 2014 to between $14.00 and $14.50 per ounce in 2015 due to the lower silver and gold production as well as lower gold prices and by-product credits.

Given that Alamo Dorado is in its final years, no sustaining capital expenditure has been planned for 2015.

AISCSOS at Alamo Dorado for 2015 is expected to be between $14.30 and $14.80 per ounce, due to the anticipated decrease in silver sales from processing lower grade mined ores and stockpiles.

Mineral Reserves and Resources

Management estimates that the Proven and Probable mineral reserves for the Alamo Dorado mine, as at December 31, 2014, are as follows:

Alamo Dorado Mineral Reserves 1, 2

Reserve Category Tonnes (Mt) Grams of Silver per tonne Grams of Gold per tonne
Proven 2.8 60 0.25
Probable 0.6 84 0.61
TOTAL 3.4 64 0.31

Notes:

1. Estimated using a price of $17 per ounce of silver and $1,200 per ounce of gold.

2. Mineral Reserve estimates for Alamo Dorado 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.

Management estimates that mineral resources at Alamo Dorado, as at December 31, 2013, are as follows:

Alamo Dorado Mineral Resources 1, 2

Resource Category Tonnes (Mt) Grams of Silver per tonne Grams of Gold per tonne
Measured 1.2 50 0.23
Indicated 1.0 79 0.39
Inferred 0.0 41 0.65

Notes:

1. These mineral resources are in addition to Alamo Dorado mineral reserves. Mineral resources were constrained within a pit shell using a price of $30 per ounce of silver and $1,400 per ounce of gold.

2. Mineral resource estimates for Alamo Dorado 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.

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 Alamo Dorado.

Technical Report
HIGHLIGHTS
Name Alamo Dorado
Location Sonora State, Mexico
Mine Type Open Pit
Ownership 100%
Products Silver and gold doré
Capacity 4,000 tpd
Deposit Type Epithermal quartz vein stockworks
Location