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Dolores

OVERVIEW

Dolores is an open pit silver-gold mine located in the Sierra Madre mountain range in Chihuahua, Mexico, and was acquired in 2012 as part of Pan American’s acquisition of Minefinders Corporation Ltd. Silver and gold mineralization is present as structurally controlled, low to medium sulphidation epithermal veins, silica stock works, breccias, and replacements. Mining is a conventional truck and shovel open pit. Ore is treated by crushing, cyanide heap leaching, and precipitation of gold and silver from the cyanide solution in a Merrill-Crowe circuit to produce silver and gold doré from melting of the precipitate.

The crushing plant has a nominal capacity of 16,200 tonnes per day and in 2013 the mine stacked 5.4 million tonnes of ore on the leach pad, producing 3.5 million ounces of silver and 65,200 ounces of gold.

In 2014, Pan American released the results of a preliminary economic assessment (1) of expanding the Dolores mine to include a pulp agglomeration treatment plant and an underground mine to extract ore from beneath the current pit limits. The expansion project would involve increasing the current treatment rate to 20,000 tonnes per day by processing the high-grade portion of the mined material through a pulp agglomeration treatment plant and conveying the agglomerated material with the crushed lower grade portion of the mined material to the heap leach pads for leaching.
The pulp agglomeration plant would include crushing, grinding, filtration and agglomeration and would both improve the recovery of precious metal from the ore processed and reduce the amount of time required to recover the silver and gold.

The overall improvement in metal recovery is estimated at 7% for both silver and gold for the entire mineral inventory, while the improvement for the high-grade fraction of the mineral inventory is estimated at around 19% for silver and 13% for gold. The proposed underground mine would produce approximately 1,500 tonnes of material per day by open stoping mining methods.

Underground mining would occur concurrently with open pit mining and would be developed to commence production at approximately the same time as the pulp agglomeration plant installation is completed.

 

(1) The results of this PEA are preliminary in nature, in that it includes inferred mineral resources that are considered too geologically speculative to have the economic considerations applied to them that would enable them to be catagorized as mineral reserves, and there is no certainty that the Assessment will be realized. Mineral resources that are not mineral reserves have no demonstrated economic viability.

OPERATING UPDATE

2013 was Dolores’ first full year of operation under Pan American’s stewardship after the Company completed the acquisition of Minefinders in March 2012.  In 2013, the mine produced 3.5 million ounces of silver and 65,200 ounces of gold, this was a similar average monthly production rate compared to the mine’s full year of 2012.

Dolores’ average cash costs for the year 2013 were $7.47 per ounce of silver, net of by-product credits, this was an increase of 84% from 2012 and was due to a combination of higher operating costs and less gold by-product credits on lower gold prices.

Dolores’ 2013 production was hindered by inefficient ore loading and leaching constraints caused from limited heap capacities while efforts focused on expanding leach pad 2 and constructing leach pad 3.  Construction of the first phase of leach pad 3 was completed in October 2013 and the new leach pad has since allowed for unhindered stacking and leaching operations.

In 2013, Dolores’ total sustaining capital expenditures were $36.2 million, excluding the leach pad expansion projects and mine operations projects. This was in line with management’s expectations and was mainly spent on open pit mine pre-stripping activities, overhauls and enhancements to the mining fleet, mine-site exploration and other sustaining infrastructure upgrades. In addition, in 2013 we invested $50.5 at Dolores for the leach pad construction efforts as well as other expansion project studies.

2014 FORECAST

In 2014, Dolores is expected to produce 3.60 to 3.85 million ounces of silver and 64,000 to 68,000 ounces of gold at cash costs of $12.25 to $14.25 per ounce of silver, net of by-product credits.

This year, we expect sustaining capital expenditures at Dolores of approximately $32.5 million, which include open pit pre-stripping for $18.2 million, mine equipment overhauls and replacements of $7.8 million, access road improvements of $0.8 million, support infrastructure upgrades of $1.9 million and $3.6 million for mine-site exploration. In addition, we expect to invest $35 million in work to continue expansion of the heap leach pad 3, construction of a new power line and process plant optimization studies.

On June 23, 2014, Pan American announced positive results for a Preliminary Economic Assessment for Dolores, which outlined the positive economic viability of adding a milling and pulp agglomeration circuit to the mine’s existing processing facilities to enhance silver and gold recoveries for the high-grade portion of the deposit. The preliminary results indicate that the project has the potential to generate excellent after tax returns at 2014 reserve metal prices of $22/oz Ag and $1,300/oz Au. The project is also robust at lower long-term metal price assumptions of $19/oz Ag and $1,200/oz Au.

If the project goes ahead, it will demand an estimated incremental capital of $105 million for the expansion and once completed it will increase average annual production from 3.65 million ounces to 5.04 million ounces of silver.  Gold production would also increase to an estimated 110,000 to 148,000 ounces per year.

Pan American has deferred a construction decision for the next 9 to 12 months pending additional Project de-risking through additional studies, Project analysis and further delineation  of the underground accessible mineralization. The complete PEA was filed on SEDAR and EDGAR at the beginning of August 2014.

Mineral Reserves and Resources

Management estimates that the Proven and Probable mineral reserves for the Dolores mine, as at December 31, 2013, are as follows:

Dolores Mineral Reserves 1, 2

Reserve Category Tonnes (Mt) Grams of Silver per tonne Contained Ag (Moz) Grams of Gold per tonne Contained Au (Koz)
Proven 39.4 31 39.9 0.75 949.5
Probable 29.2 35 32.7 0.85 802.3
TOTAL 68.6 33 72.6 0.79 1751.8

Notes:

1. Estimated using a price of $22 per ounce of silver and $1,300 per ounce of gold.

2. Mineral Reserve estimates for Dolores 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 Dolores, as at December 31, 2013, are as follows:

Dolores Mineral Resources 1, 2

Resource Category Tonnes (Mt) Grams of Silver per tonne Contained Ag (Moz) Grams of Gold per tonne Contained Au (Koz)
Measured 2.4 31 2.5 0.51 40.4
Indicated 9.0 32 9.2 0.96 279.0
Inferred 10.7 39 13.3 0.97 334.5

Notes:

1. These mineral resources are in addition to Dolores mineral reserves. Estimated using a price of $35 per ounce of silver and $1,400 per ounce gold.

2. Mineral resource estimates for Dolores 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 Dolores.

Technical Report
HIGHLIGHTS
Name Dolores
Location Chihuahua State, Mexico
Mine Type Open Pit
Ownership 100%
Products Silver and gold doré
Capacity 16,200 tpd
Deposit Type Epithermal veins, stockworks, breccias, and replacements
Location
DoloresMap