The Huaron mine is an underground silver mine located 320 kilometres northeast of Lima in the Central Highlands of Peru. It sits in the heart of the Cerro de Pasco district, one of Peru’s most important mining regions. The area of the concessions spans over 63,822.2 hectares.
Pan American has owned and operated the Huaron mine since January 2006. The mine, mill, and supporting villages were originally built in 1912 by a subsidiary of the French Penarroya Company and operated until 1987. In 1987 the mine was sold to Mauricio Hochschild and Cia Ltda (“Hochschild”).
In April, 1998, a portion of the lakebed of the nearby Lake Naticocha collapsed, and water from the lake flowed into the adjacent Animon Mine operated by an unrelated company. Through interconnected tunnels, the water entered and flooded the Huaron Mine, causing its closure.
After the April 1998 flooding, the Huaron mine operations were shut down, the labour force was terminated, the village closed, and work was undertaken to clean up the flood damage, drain the workings and prepare for an eventual mine re-opening. The water level in the lake, which provided the source of floodwater, is currently maintained well below the level where it flooded into the old workings and we do not expect further flooding. The Animon mine, in accordance with a settlement agreement reached with Cía. Minera Huaron S.A., in September 2000, constructed a channel to route water around the lake to provide water for the Huaron mine operation and to reduce the water in upstream lakes to prevent agricultural flooding which had created local social pressures.
Pan American acquired a majority interest in the Huaron mine from Hochschild in 2000 and fast-tracked the re-opening project through feasibility, financing and construction to begin full-scale operations in 2001. We subsequently acquired the remaining interest and now holds 100% of the property. Annual production varies, but over the past several years Pan American’s processing plant has processed between 600,000 to 700,000 tonnes of ore annually, producing copper, lead, and zinc concentrates containing around 4 million silver ounces, 2 million tonnes of copper, 5 million tonnes of lead, and 12 million tonnes of zinc.
Prior to Pan American’s acquisition of the mine, approximately 22 million tonnes of silver-rich base metals sulphide ore were produced at the property. Silver made up about 49% of historic sales value, with zinc, lead, and copper contributing 33%, 15%, and 3% of the remaining portion. Ore from the mine was processed on site by crushing, grinding, and flotation to produce copper, lead, and zinc concentrates, as it is today.
The Huaron property is located within the Western Cordillera of the Andes Mountains and the regional geology is dominated by Cretaceous aged Machay Group limestones and Tertiary aged Pocobamba continental sedimentary rocks, which are referred to as the Casapalca Red Beds. These groups have been deformed by the Huaron anticline, the dominant structural feature of the area. The limestones and sedimentary rocks are strongly folded and intruded by quartz monzonites and quartz monzonite dikes and associated fracturing. This fracturing was followed by alteration and mineral deposition by hydrothermal fluids. Following the intrusion of the dikes, the sedimentary rocks were further compressed and fractured, and the fractures were subsequently mineralized by hydrothermal fluids.
The main lithology in the area of the Huaron mine is a sequence of continental redbeds which unconformably overlay massive marine limestones. To the west of the mine, a series of andesites and dacites outcrop. A series of sub-vertical porphyritic quartz monzonite dykes, generally strike north-south and cut across the mine stratigraphy.
The rocks in the central part of the mine and at lower elevations are principally thinly bedded marls and sandstones known as the lower redbeds. In the eastern side of the mine the upper redbeds occur consisting of a calcareous chert that overlies sandstones and marls. The bottom of this sequence consists of the Barnabe quartzite conglomerate. On the western side of the mine, the stratigraphy consists of a series of interbedded conglomerates and sandstones.
The Huaron mine is located within an anticline formed by east-west compressional forces. The axis of the anticline is approximately north-south striking and plunges gently to the north. There are two main fault systems. One system comprises north-south striking thrust faults, parallel to the axis of the anticline and the other comprises east-west striking tensional faults.
The Huaron mine is a hydrothermal polymetallic deposit (hosting silver, lead, zinc, and copper) consisting of mineralized structures probably related to Miocene aged monzonite dykes principally within, but not confined to the Huaron anticline. Mineralization is encountered in veins parallel to the main fault systems, in replacement bodies associated with the calcareous sections of the conglomerates and other favourable stratigraphic horizons, and as dissemination in the monzonitic intrusions at vein intersections.
Mineralization occurs mainly in veins but also in “mantos” (stratiform deposits) and replacement deposits. Mineralized veins vary from a few centimetres to up to 10 metres wide, and may extend along strike for up to 1,800 metres. Most of the structures show open mineralization at depth and have excellent exploration potential.
The first pulse of mineralization was associated with the emplacement of intrusive bodies and the subsequent opening of structures, during which zinc, iron, tin, and tungsten minerals were deposited. This was followed by a copper, lead, and silver rich stage, and finally by an antimony/silver phase associated with quartz.
More than 95 minerals have been identified at Huaron with the most important economic minerals being tennantite-tetrahedrite (containing most of the silver), sphalerite, and galena. The principal gangue minerals are pyrite, quartz, calcite and rhodochrosite. Enargite and pyrrhotite are common in the central copper core of the mine and zinc oxides and silicates are encountered in structures with deep weathering. Silver is also found in pyrargyrite, proustite, polybasite and pearceite.
There is a definite mineral zoning at Huaron and the mine has been divided into seven separate zones. There is a central copper core (Zone 5) where the principal economic mineral is enargite and the structures contain copper with pyrite and quartz. This area was extensively mined by previous operators but, because of the high arsenic and antimony content and poor metal recoveries, further mining in this area could be problematic. To the east and west of the central core are Zones 2, 3, and 4 where silver, lead, and zinc are found principally in calcite and rhodochrosite. Zone 1 to the north of the central core contains silver, lead, and zinc associated with pyrite. Zone 6 is located along the west side of the axis of the anticline and south of Zone 2 and is principally lead and zinc with lower silver values within carbonates. Zone 7 is a narrow band running north-south along the general axis of the anticline and to the south of Zone 3 and contains principally sphalerite and sulfosalts with rhodochrosite.
The central core of the district has adularia-sericite alteration overprinted by strong silicification and epidote-pyrite. This core is surrounded by a zone containing epidote-pyrite-quartz that grades outwardly to a zone containing chlorite and magnetite. The mineralized structures are concentrated in the central core of the district but important structures continue into the outer zones.
Management estimates that the Proven and Probable mineral reserves at the Huaron mine, as at December 31, 2012, are as follows:
Huaron Mineral Reserves 1, 2, 3
|Reserve Category||Tonnes (Mt)||Grams of Silver per tonne||% Zinc||% Lead||% Copper|
1. Estimated using a price of $25 per ounce of silver, $1,750 per tonne of zinc, $1,850 per tonne of lead and $6,500 per tonne of copper.
2. Mineral Reserve estimates for Huaron 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.
3. Numbers may not add due to rounding.
Management estimates that mineral resources at Huaron, as at December 31, 2012, are as follows:
Huaron Mineral Resources 1, 2
|Resource Category||Tonnes (Mt)||Grams of Silver per tonne||% Zinc||% Lead||% Copper|
1. These mineral resources are in addition to Huaron mineral reserves. Estimated using a price of $25 per ounce of silver, $1,750 per tonne of zinc, $1,850 per tonne of lead and $6,500 per tonne of copper.
2. Mineral resource estimates for Huaron 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.
Mining is undertaken using a combination of conventional cut and fill, mechanised cut and fill and mechanized sub-level long hole stoping methods. The selection of the mining method depends on the location, width, and orientation of the vein to be mined. Conventional cut and fill stoping is typically used in the narrowest veins, where blast holes are drilled using hand held jackleg drills and slushers are used to remove the blasted ore. Mechanised cut and fill is often used in areas where there are sufficiently wide and economic veins to justify developing an access ramp. Drilling is with jacklegs or electric hydraulic jumbo drill and broken ore is removed using scoop trams. Cycloned mill tailings are piped into the cut and fill stopes as backfill.
In 2012 the Huaron mine increased the use of sub level long hole stoping using electric hydraulic long hole drills and scoop trams. Development waste is utilized for backfill. Currently more than 50% of the ore is being extracted using the long hole stoping method. A combination of haul trucks and electric locomotives are in place for haulage from the upper parts of the mine. Ore (and waste that is not utilized as backfill) from below the 500 level is hauled to the surface crusher using a combination of diesel haul trucks and a refurbished mine shaft. Employee and material movement in and out of the mine is via three mine portals driven into the side of the mountain. Access is also possible via ladders in escape ways and ventilation raises to the surface as well as via a drainage tunnel. The mine life is currently expected to be in excess of 15 years based on the current proven and probable mineral reserves only, and will likely be extended by continued exploration drilling.
The Huaron mine operates an 840,000 tonne per year capacity mill using froth induced flotation technology to produce silver in copper, lead, and zinc concentrates. The mill flowsheet consists of three-stage crushing, ball mill grinding, and selective flotation of the ore to concentrates, followed by thickening and filtering of the concentrates. Tailings from the processing plant are either returned underground to act as backfill material in the cut and fill mining areas or else to a tailing impoundment area via a pipeline. The tailing impoundment area is constructed primarily of waste rock from the mine. The dams are continually reviewed and expanded as required, and designed to protect them from potential erosion and to ensure constant stability and integrity. Monitoring instrumentation is in place to confirm that the performance of the dams is within design limits. During 2012, work began on the expansion of tailings dam number five to accommodate another 12 years of production and completion is expected in early 2013.
In 2012, the mill processed around 683,000 tonnes of ore with metallurgical recoveries averaging 82% for silver, 68% for zinc, 70% for lead, and 75% for copper. Metal production during the year was approximately 2.9 million ounces of silver, 11,800 tonnes of zinc, 4,700 tonnes of lead, and 2,300 tonnes of copper.
Since the mine is in operation, any sustaining capital expenditures are justified on an on-going basis. In 2012 we incurred capital expenditures of $22.9 million, mainly invested in mine development, equipment, a tailings dam expansion, site infrastructure upgrades and exploration.
Activities in 2013
In 2013, Huaron is forecast to produce between approximately 2.85 and 2.95 million ounces of silver and between 500 and 1,000 ounces of gold. We plan to increase mining and milling rates by approximately 6% from the 2012 rates by accessing additional long hole stoping areas in the mine. The increased throughput is expected to be offset by modestly lower silver grades and recoveries. Base metal production is expected to be between 11,000 and 11,700 tonnes of zinc, between 4,200 and 4,500 tonnes of lead, and between 1,750 and 2,100 tonnes of copper.
Capital spending plans at Huaron in 2013 are expected to reach $20 million to allow us to continue our long term mine developments. A large portion of the budget is allocated to a tailings dam expansion, the purchase and overhaul of mobile mine equipment, as well as near-mine exploration.
In 2013, Pan American expects to invest $2 million in approximately 18,500 metres of underground infill diamond drilling to upgrade the confidence categories of mineral resource and mineral reserve estimates. A further $1 million is anticipated to be spent on greenfield exploration on Huaron’s property concessions.
In October 2003, the Peruvian government passed legislation requiring active mining operations to file closure plans within six months of the date of passage of the legislation. Administrative rules associated with this legislation which laid out detailed closure requirements, including bonding and tax deductibility of reclamation and rehabilitation expenses, were promulgated in October 2005. These rules require that detailed closure plans and cost estimates be compiled by a certified third party consultant by October 2006. The original closure plan for the Huaron mine was filed by mid-year 2004.
In August of 2006, Pan American submitted a comprehensive closure plan for the Huaron mine to the Ministry of Energy and Mines (“MEM”) in accordance with that ministry’s regulations. The closure plan was prepared by third party consultants registered with the Peruvian authorities as qualified to present closure plans to the MEM. The closure plan includes a summary of the proposed closure scheme for each of the major areas of impact such as mine water, tailings areas, waste rock dumps, plant site infrastructure, and underground mine. A detailed cost estimate was prepared based on Pan American’s and the consultant’s shared experience with closure works and experience with other projects in Peru. As required by the MEM, the costs were summarized in three phases: concurrent closure, final closure and post closure. Updated closure plans are filed as required, with the most recent closure plan modification being approved on 24 October 2012.
The most significant environmental issue currently associated with the mine is relatively high metal concentrations in the waters discharged from the mine and localized areas of acid rock drainage from the mine’s tailings deposit areas. All waters are captured and treated in a treatment plant near the exit of the Paul Nevejans drainage tunnel to achieve compliance with discharge limits. Peruvian legislation sets out the progressive implementation of new, stricter water quality limits both for discharges and receiving waters by the end of 2015. An “Adaptation Plan” which sets out a program of baseline monitoring and data collection to evaluate future compliance of Huaron with the new limits was presented to the MEM on September 3, 2012. The MEM approved the economic section of the updated Huaron closure plan, fixing the closure cost at $16 million.
A closure cost estimate for Huaron was prepared according to State of Nevada approved Standard Reclamation Cost Estimator (“SRCE”) methodology in 2011 and is updated every year. The current present value of closure expenditures at Huaron as at December 31, 2012 is estimated at $11.5 million.
In May 2007, June 2009, June 2010 and again in June 2011, formal safety audits were conducted by Pan American’s Director of Health and Safety and safety managers from our other operations at the Huaron mine. All Huaron mine employees are required to undergo safety and environmental training and all new underground employees are required to undergo task specific training prior to being assigned to their first position. In addition, some of the supervisors attended the Centromin Peru (“Centromin”) “Basic Mining Concepts and Safety” training in Lima, Peru. During 2012, personnel at the Huaron mine attended a total of approximately 200,000 hours of training.
|Silver million ounces||2.9||2.8||2.9|
|Cash cost per ounce1||$17.51||$14.03||$12.36|
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: Zn $ 1,900/tonne; Pb $2,000/tonne; Cu $7,300/tonne; Au $1,600/oz.