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Operations / Mexico / Dolores

Dolores (100% Ownership)

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Project Description and Location

The Dolores open pit silver-gold mine is located in the Sierra Madre Occidental mountain range in the state of Chihuahua, in the municipality of Madera, approximately 250 kilometres west of the city of Chihuahua. The area of the concessions is 27,700 hectares.

History

Placer mining began in the region of the Dolores mine in the 1860s and was followed by lode mining in 1898. A power line was installed from the town of Madera by 1915, and a 25 tonne per day stamp mill began treating the Dolores ore. The stamp mill operated until early 1929 when it was destroyed by fire. Only sporadic production occurred from 1929 to 1931, and there are no records of any historical production after 1931. Incomplete mining records from between 1922 and 1931 indicate that on the order of 372,000 tonnes of ore containing over 116,000 ounces of gold and six million ounces of silver were mined from several underground mine operations, including Dolores.

The property lay idle until 1993 when Minefinders Ltd. began acquiring a land position in the district. Minefinders began a full exploration programme in November 1995 and drilling started in September 1996, using both diamond and reverse circulation drilling methods. In July 1996 Minefinders granted Echo Bay Mines (“Echo Bay”) an option in the property. Echo Bay completed drilling, sampling, environmental data collection, and metallurgical testing. Minefinders bought out the Echo Bay interest, including the technical information collected by Echo Bay, in October 1997.

Minefinders completed a feasibility study for the project in June 2005, based upon the results of earlier studies, and completed a separate feasibility study in March of 2006 which formed the basis for Minefinders mine development. Following construction, Minefinders commenced mining in 2008. During the years 2008 and 2011, Minefinders produced 25.5 million tonnes and stacked 18.3 million tonnes on the leach pads, producing 210,660 ounces of gold and 6.2 million ounces of silver.

In 2012, Pan American acquired all of the issued and outstanding shares of Minefinders by way of a plan of arrangement. Upon completion, Pan American owned 100% of Minefinders and its subsidiaries, including Minefinders’ wholly owned Mexican subsidiary, Compañía Minera Dolores, S.A. de C. V. (“CMD”), which directly owns 100% of the Dolores, Silvia and Unificacion Real Cananea concessions which comprise the Dolores mine.

Geology and Mineralization

The Dolores mine is located in the Sierra Madre Occidental mountain range, which comprises a long northwest trending volcanic plateau. The region is dominated by rhyolitic ash flow tuffs of Oligocene age known as the Upper Volcanic Series. The Upper Volcanic Series unconformably overlies rocks of the slightly older Lower Volcanic Series which are comprised primarily of andesites with interlayered felsic ash flow tuff deposits of Eocene age. The deposition of the Lower Volcanic Series was accompanied by the emplacement of quartz diorite and granodiorite batholiths and small intrusive bodies. The majority of the epithermal and porphyry related precious metals deposits in the Sierra Madre are hosted in the Lower Volcanic Series. The oldest structural episode is related to the Laramide orogeny, which produced east striking, steeply dipping strike slip faults. Later extensional forces resulted in the regional development of north-south to northwest-southeast striking sub-vertical normal faults. The structures hosting mineralization in the Dolores area are believed to have controlled emplacement of a series of north-northwest trending andesite to latite intrusions. Zones of permeability associated with these faults and intrusive contacts formed conduits for the ascending mineralizing hydrothermal fluids.

The Dolores project is underlain by the Lower and Upper Volcanic Series. At the mine site the Lower Volcanic Series consists of gently tilted lavas, flow breccias, and tuffaceous rocks with a minimum thickness of 700 metres. It is conformably overlain by 100 to 200 metres of felsic latite volcaniclastic breccia. These units are overlain by the Upper Volcanic Series, which comprise a volcaniclastic assemblage of mostly felsic ignimbrites and tuffs. The Upper and Lower Volcanic Series are separated by a distinctive erosional rubble zone unconformity that formed after development of north-northwest trending anticlinal uplift. Subsequent erosion has exposed mineralized rocks of the Lower Volcanic Series in the Dolores district.

Gold and silver mineralization at Dolores is present as low to medium sulphidation, epithermal gold-silver bearing veins, silica stock works, breccias, and replacements. The system is mostly structurally controlled within a north-northwest striking extensional fault system. Gold and silver mineralization identified on the surface at Dolores lies over an area 4,000 metres long and up to 1,000 metres wide, at elevations ranging between 1,100 metres to 1,700 metres above sea level. The extent of mineralization at depth and along strike has not been fully defined.

Relatively deep mineralization tends to be located in high grade veins typically of five to ten metres wide, while at higher elevations these feeder veins grade into wider, lower grade stock works, veinlets, and disseminations toward the less competent and more permeable overlying latite flows and tuffs of the Lower Volcanic Series. These wider areas are on the order of a few hundred metres. Near the surface, mineralization shows a strong structural control, but widens out owing to development of breccia and fractures adjacent to the main mineralizing conduits. The main mineralization occurs as a series of parallel structures trending to the north-northwest and dipping steeply to the west.

Mineralization is generally associated with quartz and may be composed primarily of iron-oxides, silver sulfosalts, electrum, and native gold in the oxidized zone and with pyrite, silver sulphides, native silver, visible gold, galena, and sphalerite deeper in the sulphide zone.

Mineral Resource and Mineral Reserves

Management estimates that the Proven and Probable mineral reserves for the Dolores mine, as at December 31, 2012, are as follows:

Dolores Mineral Reserves 1, 2

Reserve Category Tonnes (Mt) Grams of Silver per tonne Grams of Gold per tonne
Proven 49.4 29 0.59
Probable 38.4 25 0.55
TOTAL 87.8 27 0.57

Notes:

1. Estimated using a price of $25 per ounce of silver and $1,350 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, 2012, are as follows:

Dolores Mineral Resources 1, 2

Resource Category Tonnes (Mt) Grams of Silver per tonne Grams of Gold per tonne
Measured 6.1 23 0.46
Indicated 31.2 22 0.53
Inferred 6.3 17 0.58

Notes:

1. These mineral resources are in addition to Dolores mineral reserves. Estimated using a price of $40 per ounce of silver and $2,000 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.

Mining and Processing Operations

Mining at Dolores is by standard open pit methods using shovels, loaders, and haul trucks. Each bench is 7.5 metres high. Ore control is carried out using angled reverse circulation drilling to provide closer spaced sample data for marking the ore/waste mining boundaries.

The mine uses conventional cyanide heap leaching technology to produce gold and silver doré. Broken ore is trucked from the open pit to the crushing plant, where it is crushed, conveyed to the leach pads, and placed on the pads using grasshoppers and a radial stacking system. A combination of drip and sprayer systems is used to distribute cyanide solution on the heaps. Metal recoveries are a function of solution flow rates, cyanide concentration, and time. The leaching period can cover years, and continues as subsequent lifts are placed on the pads. The pregnant solution is collected in a pond, clarified, and processed through a Merrill-Crowe circuit to precipitate gold and silver from solution onto zinc dust. The solution is pumped to filter presses, where the resulting material containing zinc, gold, and silver is dried. The dried material is then melted in a furnace to form doré bars. Metallurgical recoveries over the long term are estimated to average 55% for silver and 72% for gold.

Low to medium grade material may be placed on stockpiles allowing for the preferential crushing and stacking of higher grade material. During the last nine months of 2012, we placed 1.7 million tonnes of broken low to medium grade material on stockpiles to await crushing and stacking on the leach pad later in the mine life.

We stacked 4.3 million tonnes on the leach pads and produced 2.7 million ounces of silver and approximately 43,500 ounces of gold in the last nine months of 2012.

In 2012, total capital expenditures at Dolores under Pan American’s stewardship were approximately $59 million, primarily for ongoing leach pad construction, capitalized stripping to develop access to ore that is to be mined in future periods, near-mine exploration drilling, mine equipment refurbishments, and camp expansions.

 

Activities in 2013

In 2013, we anticipate producing between 3.25 and 3.45 million ounces of silver and between 63,500 and 68,000 ounces of gold.

We currently expect capital spending of approximately $68 million at Dolores in 2013, including both development project spending and sustaining capital. $26 million of the capital spending is related to the heap leach pads and $5 million for initiation of a new power line to reduce our power expenses in the future. Sustaining capital spending is expected to consist mainly of mine operation activities, such as $18 million on pre-stripping and approximately $15 million on truck rehabilitation, equipment purchases and infrastructure spending.

In the last nine months of 2012, we spent approximately $2.6 million on around 17,000 metres of diamond drilling. In 2013, we anticipate expending $4 million on 20,000 metres of drilling, focussed mainly on deeper targets to the south of the known mineralization and on infill drilling of the East Dike, located to the east of the main mineralized zone.

Environmental

Permit applications for construction and operation of Dolores, including EIS, Technical Justification Study for Change of Land-Use, and Risk Study were approved by SEMARNAT in April 2006. An additional modification to the mine permit was made to allow the construction of an underground exploration ramp in 2012.

Problems related to the stability of Heap Leach Pad 1 developed in 2010 and significant leakage was detected through the pad liner that was unable to be contained by the leak collection system. This issue resulted in cessation of stacking and irrigation on the Pad and the relocation of approximately 2 million tons of ore to heap leach Pad 2 which is currently in operation. Soil and water sampling below Pad 1 in 2012 confirmed that no residual cyanide is present, however full remediation of the liner system would be required if Pad 1 was ever to be used for production again.

Dolores has voluntarily participated in the PROFEPA “Clean Industry” Program which involves independent verification of compliance with all environmental permits and the implementation of good practice environmental management procedures and practices. The mine obtained its first certification in 2010 and was re-certified again on June 8, 2012.

A closure cost estimate for Dolores was prepared according to State of Nevada approved SRCE methodology in 2012 and will be updated every year. We have estimated the present value of reclamation costs for the Dolores property at December 31, 2012 to be approximately $5.2 million.

Health and Safety

A safety audit was conducted at Dolores in 2012, and during the year, personnel employed at Dolores attended approximately 11,700 hours of safety related training. The mine operated with two LTIs in 2012.

Operating highlights

Nine months ended 2012 2011 2010
Tonnes milled (millions) 4.3 - -
Silver million ounces 2.7 - -
Gold ounces 43,476 - -
Cash cost per ounce 1 $4.05 - -

1. 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: Au $1,600/oz.

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