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Morococha

OVERVIEW

Morococha is an underground polymetallic silver mine located in the district of Yauli, in the central Andes of Peru. Pan American entered into an agreement in 2004 to purchase the mine and currently has a total ownership interest of approximately 92.3%. Silver, zinc, lead, and copper mineralization is present as a complex system of epithermal veins, mantos, and limestone replacements. The mining method is overhand cut and fill, shrinkage, and mechanized room and pillar.

Ore is treated by crushing, ball mill grinding, and concentrated in selective flotation facilities to produce silver in zinc, lead, and copper concentrates. The nominal mill capacity is 2,000 tonnes per day . In2013 the mine milled 0.6 million tonnes of ore producing 2.6 million ounces of silver, 16,400 tonnes of zinc, 4,100 tonnes of lead, and 2,200 tonnes of copper.

OPERATING UPDATE

In 2013, Pan American’s 92.3% share of Morococha’s production was 2.4 million ounces of silver, 15% more than in 2012 on account of higher grades, higher tonnage processed and better metallurgical recoveries.  In addition, the mine contributed 2,700 ounces of gold, 15,200 tonnes of zinc, 3,800 tonnes of lead and 2,000 tonnes of copper to the Company’s consolidated production.

Morococha’s cash costs during 2013 were $17.56 per ounce of silver, net of by-product credits, 25% lower than in 2012 due to a combination of higher by-product credits, higher silver production and steady operating costs as reduced direct operating costs were off-set by higher treatment and refining costs.

In 2013, sustaining capital expenditures at Morococha totaled $18.7 million and were invested for the most part in mine development, including ramp advances and ventilation system expansions, equipment overhaul and replacements  and mine-site exploration.

2014 FORECAST

In 2014, we anticipate that the Company’s 92.3% share of Morococha’s production will be 2.50 to 2.60 million ounces of silver at cash costs of $15.00 to $16.50 per ounce of silver, net of by-product credits.  In addition, Morococha is expected to contribute 1,800 to 2,000 ounces of gold, 14,000 to 15,500 tonnes of zinc, 3,800 to 4,000 tonnes of lead and 1,780 to 2,080 tonnes of copper to our consolidated by-product metals production.

In 2014, we expect Morococha’s sustaining capital spending to decline from 2013’s level to a total of approximately $9.0 million, as the intensive multi-year mine mechanization efforts are largely completed. The majority of the expenditures in 2014 are planned for sustaining the mine, including ramp extensions and ventilation raises, additional reserve definition drilling and equipment overhauls. The remaining expenditures will go towards advancing a mine deepening project for $0.8 million and metallurgical testing to refine future plant flow sheets for $0.5 million.

We also expect to invest approximately $1.6 million to complete an estimate 16,000 metres of underground infill diamond drilling aimed at expanding and upgrading the confidence categories of our mineral reserve estimates. We also expect to invest a further $1.4 million to complete approximately 8,400 metres of greenfield exploration on the property’s concessions.

Mineral Reserves and Resources

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

Morococha Mineral Reserves 1, 2, 3

Reserve Category Tonnes (Mt) Grams of Silver per tonne Contained Ag (Moz) % Zinc % Lead % Copper
Proven 2.7 188 16.3 4.32 1.32 0.47
Probable 2.7 206 18.1 4.06 1.31 0.69
TOTAL 5.4 197 34.4 4.19 1.32 0.58

Notes:

1. Estimated using a price of $22 per ounce of silver, $1,850 per tonne of zinc, $1,950 per tonne of lead and $6,800 per tonne of copper.

2 .Mineral Reserve estimates for Morococha 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. Tonnes are shown for 92.2% of the Morococha property. Through our subsidiary, Pan American Peru, we have a 92.2% interest in the Morococha property.

Management estimates that the mineral resources at the Morococha mine, as at December 31, 2013, are as follows:

Morococha Mineral Resources 1, 2, 3

Resource Category Tonnes (Mt) Grams of Silver per tonne Contained Ag (Moz) % Zinc % Lead % Copper
Measured 0.8 150 3.9 3.57 1.31 0.41
Indicated 1.1 202 7.4 3.37 1.45 0.54
Inferred 8.0 209 53.9 5.11 1.45 0.43

Notes:

1. These mineral resources are in addition to mineral reserves. Estimated using a price of $22 per ounce of silver, $1,850 per tonne of zinc, $1,950 per tonne of lead and $6,800 per tonne of copper.

2. Mineral resource estimates for the Morococha mine 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. Tonnes are shown for 92.2% of the Morococha property. Through our subsidiary Pan American Peru, we have a 92.2% voting interest in the Morococha property.

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.

Technical Report
HIGHLIGHTS
Name Morococha
Location Yauli Province, Peru
Mine Type Underground
Ownership 92.3%
Products Silver rich zinc, lead, and copper concentrates
Capacity 2,000 tpd
Deposit Type Epithermal veins, mantos, and replacements
Location
MorocochaMap