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La Colorada

OVERVIEW

La Colorada is an underground polymetallic silver mine located in the Sierra Madre mountain range in Zacatecas, Mexico, and was acquired by Pan American in 1998. Silver, gold, zinc, and lead mineralization is present as epithermal veins, breccia pipes, mantos, and lime stone replacements in three main zones known as Candelaria, Estrella, and Recompensa. The mining method used throughout is cut and fill stoping.

Oxide and sulphide ore is treated in separate oxide and sulphide plants. The oxide plant comprises a conventional cyanide leach plant consisting of crushing, ball mill grinding, leaching, Merrill-Crowe zinc precipitation, and on-site refining to produce silver and gold doré. The sulphide plant is a conventional flotation plant comprised of crushing, ball mill grinding, and selective lead and zinc froth flotation circuits to recover silver, gold, zinc, and lead into separate lead and zinc concentrates. The daily processing capacity of the oxide plant is 650 tonnes and the capacity of the sulphide plant is 750 tonnes.

An expansion project was approved in December 2013 to increase the overall production rate of the operation to 1,800 tpd by the end of 2017. The expansion project will involve the construction of new mining infrastructure, including a new 600 meter deep extraction shaft with a capacity for hoisting ore and waste of 2,300 tpd as well as serving as the main access to working areas for mine personnel and  additional underground development to extend the operation to deeper levels. The sulphide ore processing plant will be expanded to 1,500 tpd from the current  capacity of 750 tonnes per day The expansion plan also includes the installation of a new 115 kV power line connected to the national electricity grid.

In 2013 the mine processed 0.4 million tonnes of ore, producing 4.6 million ounces of silver, 2,600 ounces of gold, 6,800 tonnes of zinc, and 3,300 tonnes of lead.

OPERATING UPDATE

During 2013 La Colorada produced 4.6 million ounces of silver, a 3% increase from 2012 on account of higher throughput rates and increased recoveries partially offset by a decline in silver grades. 

Cash costs during 2013 were $9.43 per ounce of silver, net of by-product credits. This was a 9% increase from 2012 and was due to higher operating costs from the negative effect of lower gold production and lower realized prices on increased base metals production.  Production of lead and zinc benefited from higher throughput; however, gold production decreased due to lower grades.

Metallurgical recoveries at La Colorada have been relatively constant over the past 6 years, with an average silver recovery of approximately 90% in 2013. 

Capital expenditures at La Colorada in 2013 totaled $13.6 million and were spent mainly on mine development and equipment purchases for the Estrella and Candelaria mines, an expansion of the Estrella mine driving the higher throughputs and a continuation of the highly successful mine-site exploration drilling program.

2014 FORECAST

La Colorada is expected to produce 4.85 to 4.95 million ounces of silver in 2014 at cash costs of $9.00 to $9.50 per ounce of silver, net of by-product credits.  By-product production is expected to be 2,600 to 2,800 ounces of gold, 6,500 to 7,000 tonnes of zinc and 3,100 to 3,500 tonnes of lead.

The La Colorada expansion project commenced in January 2014 and will increase the mine’s annual silver production by approximately 67% to approximately 7.7 million ounces by 2018. The project’s main components include a new 600-metre deep shaft and hoisting system, the development of new mining zones, the expansion of the mining fleet, the expansion of the sulphide treatment plant to approximately 1,500 tonnes per day, the expansion and upgrade to the mine’s dewatering and ventilation systems, the expansion of the tailings storage facilities and the construction of a new power line.

In 2014, our project team will focus on detailed engineering, mine development and on preparations to start constructing the new shaft and plant expansion in 2015.

Capital expenditures at La Colorada are expected to increase significantly during 2014 on account of the approved expansion Project.  We anticipate spending a total of $40.0 million for capital expenditures, inclusive of $32.0 million related to the expansion project. The remaining $8.0 million is for sustaining the existing operation including equipment overhauls, replacements and upgrades, underground ventilation systems and additional mine-site exploration.

Mineral Reserves and Resources

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

La Colorada Mineral Reserves 1, 2, 3

Reserve Category Tonnes (Mt) Grams of Silver per tonne Contained Ag (Moz) Grams of Gold per tonne Contained Au (Koz) % Zinc % Lead
Proven 2.4 406 31.2 0.31 23.5 2.47 1.35
Probable 4.1 378 50.2 0.39 51.9 2.35 1.30
TOTAL 6.5 388 81.4 0.36 75.4 2.39 1.32

Notes:

1. Estimated using a price of $22 per ounce of silver, $1,300 per ounce gold, $1,850 per tonne of zinc and $1,950 per tonne of lead.

2. Mineral Reserves for La Colorada have been prepared under the supervision or were reviewed by, Michael Steinmann, P. Geo., and Martin Wafforn, P. Eng., as Qualified Persons as that term is defined in NI 43-101.

3. Lead and zinc grades shown are the average for the deposit. However, the base metals are only payable in the concentrates produced from the sulphide ores and not in the doré produced from the oxide ores.

Management estimates that mineral resources at La Colorada, as at December 31, 2013, are as follows:

La Colorada Mineral Resources 1, 2, 3

Resource Category Tonnes (Mt) Grams of Silver per tonne Contained Ag (Moz) Grams of Gold per tonne Contained Au (Koz) % Zinc % Lead
Measured 0.4 164 2.2 0.15 2.1 0.65 0.40
Indicated 1.7 255 13.8 0.29 15.7 0.83 0.51
Inferred 2.9 265 24.5 0.42 38.8 2.17 1.34

Notes:

1. These mineral resources are in addition to mineral reserves. Estimated using a price of $22 per ounce of silver, $1,300 per ounce gold, $1,850 per tonne of zinc and $1,950 per tonne of lead.

2. Mineral resource estimates for La Colorada have been prepared under the supervision, or were reviewed by, Michael Steinmann, P. Geo., and Martin Wafforn, P. Eng., as Qualified Persons, as that term is defined in NI 43-101.

3. Lead and zinc grades shown are the average for the deposit. However, the base metals are only payable in the concentrates produced from the sulphide ores and not in the doré produced from the oxide ores.

 

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 La Colorada.

Technical Report
HIGHLIGHTS
Name La Colorada
Location Zacatecas State, Mexico
Mine Type Underground
Ownership 100%
Products Silver and gold doré, silver rich lead and zinc concentrates
Capacity 1,250 tpd
Deposit Type Epithermal veins, breccia pipes, mantos, and replacements
Location