Our operations

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.

OPERATING UPDATE

Morococha produced 2.37 million ounces of silver in 2014, 1% less than in 2013 due to slightly lower throughput rates. Mine sequencing into higher-grade lead and copper ores resulted in a 26% increase in lead production to 4,700 tonnes, a 52% increase in copper production to a record 3,100 tonnes, and a 4% increase in zinc production to 15,800 tonnes in comparison to 2013.

In 2014, cash costs decreased 27% from the previous year to $13.22 per silver ounce due mainly to cost reductions as well as from substantially higher by-product production, partially offset by lower copper and lead prices.

Morococha’s 2014 all-in sustaining costs per silver ounce sold (“AISCSOS”) was $19.39, a 37% decrease from $30.80 in 2013. Despite 3% less payable silver ounces sold in 2014, AISCSOS decreased as a result of an $8.7 million reduction in direct operating costs and an $8.8 million increase in by-product credits.

2015 FORECAST

Morococha’s 2015 silver production is expected to be relatively consistent with 2014 levels due to similar throughput, silver grades and recoveries as compared to 2014. 2015 copper production is expected to increase due to better copper grades and recoveries from mine sequencing, while zinc and lead production should remain stable with 2014 levels.

Cash costs are anticipated to remain between $12.75 and $14.25 per ounce in 2015, comparable to 2014 cash costs of $13.22 per ounce. Cash costs at Morococha in 2015 are expected to benefit from an increase in copper by-product credits, offset by an increase in concentrate treatment costs and lower lead production.

Morococha’s sustaining capital for 2015 is expected to be between $6.0 million and $8.0 million, substantially lower than the $10.2 million spent in 2014. The majority of the capital will be spent as follows: $1.5 million in near-mine diamond drilling, $1.3 million in mining equipment, and $1.0 million on studies for deepening the Manuelita mine area beneath the primary drainage tunnel.

AISCSOS at Morococha for 2015 is expected to decline to between $16.00 and $17.50 per ounce from $19.39 per ounce in 2014, primarily due to lower sustaining capital.

Mineral Reserves and Resources

Management estimates that the Proven and Probable mineral reserves for the Morococha mine, as at December 31, 2014, are as follows:

Morococha Mineral Reserves 1, 2, 3

Reserve Category Tonnes (Mt) Grams of Silver per tonne % Zinc % Lead % Copper
Proven 2.4 181 3.32 1.18 1.15
Probable 2.7 202 3.90 1.36 0.67
TOTAL 5.1 192 3.63 1.27 0.90

Notes:

1. Estimated using a price of $18.50 per ounce of silver, $2,000 per tonne of zinc, $2,000 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 92.3% of the Morococha property. Through our subsidiary, Pan American Peru, we have a 92.3% interest in the Morococha property.

Management estimates that the mineral resources at the Morococha mine, as at December 31, 2014, are as follows:

Morococha Mineral Resources 1, 2, 3

Resource Category Tonnes (Mt) Grams of Silver per tonne % Zinc % Lead % Copper
Measured 0.5 125 3.32 1.16 0.33
Indicated 1.0 163 4.05 1.34 0.53
Inferred 6.5 247 3.27 1.31 0.44

Notes:

1. These mineral resources are in addition to mineral reserves. Estimated using a price of $18.50 per ounce of silver, $2,000 per tonne of zinc, $2,000 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 92.3% of 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