Mining, Developing & Exploring
Alamo Dorado, Pan American Silver's first open-pit mine, is located in northern Mexico in the state of Sonora, approximately 200 miles from the state capital of Hermosillo. The mine is 40 kilometers south-east of the town of Alamos and is accessed primarily via a dirt road which was upgraded by Minera Corner Bay, the operator of the mine.
In 1997 Corner Bay Silver, a Toronto-listed exploration company, began grassroots and a systematic surface sampling program in the area. Confirmation drilling campaigns followed between 1998 and 2000, which lead to the first preliminary resource in 2002 by Mintec. Pan American Silver acquired Corner Bay and the Alamo Dorado project in February 2003.
In 2004 Pan American conducted an infill drilling program and subsequently revised the geological model of the deposit and initiated an alternative development plan for the property. In February 2005 the Company announced that the Company's board of directors had approved a $76.6 million project to construct the Alamo Dorado mine based on its strong economics at then current silver prices and their positive long-term outlook.
Construction activities began in April 2005 and construction of the open pit mine and processing facility was completed in the fourth quarter of 2006. Commercial production began in April 2007. The total construction costs for the project amounted to approximately $81.5 million. In addition, costs to build the initial ore stockpile and in-circuit silver inventories, which totalled approximately $2.3 million, were recorded as current working capital. Silver production began in the first quarter of 2007 and the mine has become Pan American's largest silver producing mine, sustaining normal operations since reaching design capacity in late 2007.
The Alamo Dorado project is located in the Sierra Madre Occidental Range, a late Cretaceous to Tertiary age volcanic province that extends for hundreds of kilometres through northwestern Mexico. The host rocks at the Alamo Dorado mine consist of a sequence of ductile deformed, steeply dipping, Mesozoic epiclastic marine rocks that contain minor intercalated siliceous exhalite and pillow basalt.
Mineralization and alteration at Alamo Dorado is controlled by an early cryptic structural zone that has since been transposed and kink folded by the regional ductile deformation events. The current shape of the orebody is controlled by a combination of the post-mineral ductile deformation events and the relatively late, north-west trending block faults, which compartmentalize different portions of the deposit. Silver and gold mineralization may have been associated with the emplacement of the diorite feldspar porphyry dyke and/or first phase granodiorite stock, both of which display hydrothermal alternation and contain silver mineralization.
Alamo Dorado is a conventional surface mine that utilizes a 7.5 cubic metre hydraulic shovel, a 6.5 cubic metre front end loader and six 53-tonne mechanical rock trucks for principal earthmoving. The mine is designed to deliver 4,000 tonnes of ore per day to the plant and remove waste rock to the waste dumps.
The mine is being developed in two phases. The first phase, which was completed in 2010, developed the mine downward into deeper, higher grade reserves. A second development phase balancing the material movements with the first phase will expand the pit to its final high-wall and depth and is expected to be finished in 2013.
Silver production is projected to decline to 4.8 - 5.1 million ounces in 2011 from the 6.7 million ounces produced in 2010. This is a result of the majority of the mining in 2011 coming from the lower grade portion of the second phase located higher in the pit. Mining is currently expected to be completed in 2013 with processing completed in 2016. The Company is currently considering a reserve increase with a Phase 3 mine layback.
Ore from the Alamo Dorado deposit is treated by conventional crushing and SAG/ball mill grinding to –74 µm , followed by thickening, agitated cyanide leaching, leach residue filtration, direct electrowinning to produce a cathode sludge, AVR cyanide recovery and recirculation, leach residue washing with AVR product solutions, dry stack tailings and conventional silver and gold doré bar production from melting of the cathode sludge. The nominal design treatment rate is 4,000 tonnes per day of ore on a 24-hour per day schedule.
The mine also employs a tailings treatment process called AVR that neutralizes mine waste, thus reducing the mine's environmental impact and future reclamation costs. The mine's tailings treatment process recovers approximately 97.5% of the sodium cyanide.
The mine stockpiles low grade and mineralized waste category material. The high grade cut-over was selected to maximize return on investment while not compromising ore block integrity. The low grade material is above the incremental break even cut-off and the mineralized waste is stockpiled at mineral prices 10% above the current Mineral Reserve. After the completion of mining, processing of the low grade stockpiles will commence.
Alamo Dorado is expected to generate approximately 75 percent of its revenue from production of silver and the remainder from gold, further strengthening Pan American Silver's status as one of the world's premier primary silver producers.
*Net of by-product credits
For purposes of estimating 2012's cash costs, the Company assumed the following price levels for its by-product.
production: Zn $ 1,900/tonne; Pb $2,000/tonne; Cu $7,300/tonne; Au $1,600/oz.
The Alamo Dorado project has been evaluated in different drilling campaigns since 1997 using reverse circulation (RC) and diamond drill coring methods. In 2004, Pan American conducted infill drilling for confirmation of the new resource model, and for samples needed for milling, leaching and pilot plant testing.
In 2008, exploration drilling resumed with a total of 1,736 metres of drilling at the north end of the open pit. Exploration continued in 2009 with of 6,301 metres as a combination of diamond and RC drilling targeting zones in the south, southeast and north part of the pit. Standard logging and sampling conventions were used to capture information from the cuttings and drill core. Inspection of the model and drill-hole data in plans and sections, together with the spatial statistical work, showed reasonable geologic and grade continuity in the main area of mineralization.
There was no drilling at Alamo Dorado in 2010. In 2011, Pan American plans to invest approximately $0.8 million to complete approximately 4,500 meters of diamond drilling.
1 Prices used to calculate Mineral Reserves for 2012 were Ag $25.00 per ounce, Au $1,350 per ounce,Pb $1,850 per tonne, Zn $1,750 per tonne and Cu $8,500
1 Mineral Reserves and Resources are as defined by Canadian Institute of Mining Guidelines.
2 Mineral Resources do not have demonstrated economic viability.
3 This table illustrates Pan American Silver Corp's share of Mneral Reserves and Resources Propertiies in which Pan American Silver has less than 100% interes are noted next to the property name.