Dolores

Dolores

Dolores is an open pit silver-gold mine located in Chihuahua, Mexico, and was acquired in 2012 as part of Pan American’s acquisition of Minefinders Corporation Ltd.

Highlights

  • Location: Chihuahua, Mexico
  • Mine Type: Open Pit
  • Ownership: 100%
  • Products: Silver and gold doré
  • Capacity: 16,200 tpd
  • Deposit Type: Epitermal veins, stockworks, breccias, and replacements
Dolores Map

Silver and gold mineralization is present as structurally controlled, low to medium sulphidation epithermal veins, silica stock works, breccias, and replacements.

Mining at Dolores is currently by standard open pit methods using shovels, loaders, and haul trucks.

The mine currently uses conventional cyanide heap leaching technology to produce gold and silver doré.

Operating Update

In 2015 we stacked 6.1 million tonnes on the leach pads and produced 4.3 million ounces of silver and approximately 79,100 ounces of gold.

In 2015, we produced 7% more silver than the 3.98 million ounces produced in 2014, as a result of record throughput and higher grades. Gold production in 2015 was 18% higher than the 66,800 ounces produced in 2014, and primarily a result of a 30% improvement to grades.

Despite lower gold prices, cash costs per payable ounce of silver at the mine declined 28% due to higher gold by-product production, favourable currency exchange rate movements, and lower costs for certain consumables, particularly diesel fuel.

2015 all in sustaining costs per silver ounce sold (“AISCSOS”) of $12.67 decreased 53% from $27.02. The decrease was primarily due to net realizable value adjustments, which reduced production costs by $11.4 million in 2015 and increased 2014 production costs by $23.3 million, representing a $34.7 million favorable year over year impact to 2015 AISCSOS. Other significant positive impacts to 2015 AISCSOS included a $14.7 million increase in by-product credits, with increased gold production more than offsetting lower gold prices; a $2.5 million decrease in sustaining capital expenditures; and a 14% increase in the amount of silver sold.

For a more detailed discussion of cash costs and AISCSOS and their calculations, readers should refer to the “Alternative Performance (non-GAAP) Measures”, section of the Company’s Management’s Discussion & Analysis for the year ended December 31, 2015.

Expansion Project

In May, 2015 the Board of Directors approved an expansion project that, when completed, will include the construction of a pulp agglomeration treatment plant and an underground mine. Underground mining is expected to occur concurrently with open pit mining, and will be developed to commence production using open stoping mining methods at approximately the same time as the pulp agglomeration plant installation is completed. A preliminary underground schedule based on the underground mine plan targets a production rate of approximately 1,500 tpd to feed the pulp agglomeration circuit in tandem with the high grade portion of the material from the open pit mine. The planned schedule indicates underground development commencing in 2015 with full production achieved in 2018 and a mine life of approximately 12 years, including construction time. The projected mine life of the expanded operation may increase if additional mineral resources are defined and can be converted to mineral reserves.

The expansion project involves increasing the overall processing rate from 16,200 tpd to 20,000 tpd by processing the high grade portion of the mined material through a pulp agglomeration treatment plant and conveying the agglomerated material with the crushed lower grade portion of the mined material to the heap leach pads for leaching. The pulp agglomeration plant will be comprised of crushing, grinding, particle size classification, thickening, filtration, agglomeration, and reagent facilities. The pulp agglomeration process of liberating metals by grinding has the advantage of improved leaching kinetics and ultimate recovery of precious metals in the high grade ore relative to the current heap leach method. The improvement in recovery of the high grade fraction due to pulp agglomeration is estimated at around 19% for silver and 13% for gold. This results in an overall improvement in metal recovery of around 7% for both silver and gold for the entire mineral inventory.

The Company anticipates meeting a scheduled start-up of the pulp agglomeration plant by mid-2017, while ramping-up underground operations to the full 1,500 tpd design capacity by the end of 2017. Apart from the expansion project, the projects team has also initiated the next phase of the leach pad sustaining capital expansion at Dolores, which is scheduled for completion by mid-year 2016, and will provide an additional 18 million tonnes of ore stacking capacity.

The Dolores expansion project is anticipated to require total incremental capital of approximately $112.4 million and sustaining capital over the life of the mine of approximately $173.9 million. At metal prices of $16 per ounces of silver and $1,100 per ounce of gold, the incremental after tax net present value is estimated at $38.8 million at a 10% discount rate, with an internal rate of return of 19.9%, and a payback period of 3.1 years. At metal prices of $19 per ounce of silver and $1,200 per ounce of gold, the incremental after tax net present value is estimated at $65.6 million at a 10% discount rate, with an internal rate of return of 27.4% and a payback period of 1.7 years.

The Dolores Technical Report, on which the foregoing is based, is a preliminary economic assessment. The results of this preliminary economic assessment are preliminary in nature, in that it includes inferred mineral resources that are considered too geologically speculative to have the economic considerations applied to them that would enable them to be categorized as mineral reserves, and there is no certainty that the assessment will be realized. Mineral resources that are not mineral reserves have no demonstrated economic viability.

Cautionary Note Regarding Forward Looking Statements

2016 Forecast

In 2016, the Company expects to stack an average of 16,200 tpd onto leach pads at Dolores, approximately a 3% reduction from 2015 stacking due to extensive crushing plant rebuilds planned for 2016. The ore processed at Dolores in 2016 is expected to have higher gold and lower silver grades compared to 2015 according to the mine sequencing. In 2016, silver production at Dolores is expected to be between 3.40 million and 3.60 million ounces or 15% to 20% lower than the 4.25 million ounces produced in 2015; and gold production is expected to increase to 97.0 to 102.0 million ounces from the 79.1 million ounces produced in 2015.

2016 cash costs per payable ounce of silver are expected to be $5.00 to $6.50, a $2.78 to $4.28 per ounce decrease from 2015 cash costs of $9.28 per ounce. Despite relatively consistent operating costs per tonne expected in 2016, cash costs are expected to decrease as a result of higher gold credits, partially offset by lower silver production and lower gold prices compared to 2015.

Sustaining capital expenditures at Dolores during 2016 are expected to be between $39.0 million and $42.0 million, a 55% to 67% increase from the $25.2 million spent in 2015. The increase is largely due to approximately $12.5 million of sustaining capital required for a leach pad extension. The other major components of 2016 anticipated sustaining capital investment at Dolores include approximately $17.0 million for open pit mine pre-stripping, approximately $9.0 million in mining and drilling equipment rehabilitations, and approximately $1.5 million in various plant equipment rehabilitations and replacements.

AISCSOS at Dolores for 2016 is expected to be between $17.00 and $18.90, higher than the $12.67 AISCSOS reported in 2015, due primarily to the increased sustaining capital investments described above and decreased silver production, which is expected to be partially offset by the positive impact of increased gold production.

In addition, capital expenditures relating to Dolores expansion projects are expected to require $71.0 million to $73.5 million in 2016.

For a more detailed discussion of cash costs and AISCSOS and their calculations, readers should refer to the “Alternative Performance (non-GAAP) Measures”, section of the Company’s Management’s Discussion & Analysis for the year ended December 31, 2015.

Cautionary Note Regarding Forward Looking Statements

Mineral Reserves & Resources

Management estimates that mineral reserves at the Dolores mine, as at December 31, 2015, are as follows:

Dolores Mineral Reserves1,2

Reserve Category Tonnes (Mt) Grams of Silver per tonne Grams of Gold per tonne
Proven 23.0 28 0.96
Probable 29.2 34 0.92
TOTAL 52.2 32 0.94

Notes:

  1. Estimated using a price of $17.00 per ounce of silver and $1,180 per ounce of gold.
  2. Mineral reserve estimates for Dolores were prepared under the supervision of, or were reviewed by, Martin Dupuis, P.Geo., and Martin G. Wafforn, P.Eng., who are Qualified Persons as that term is defined in NI 43-101.

Management estimates that mineral resources at the Dolores mine, as at December 31, 2015, are as follows:

Dolores Mineral Resources1,2

Resource Category Tonnes (Mt) Grams of Silver per tonne Grams of Gold per tonne
Measured 11.8 17 0.29
Indicated 20.2 25 0.62
Inferred 4.1 30 1.17

Notes:

  1. These mineral resources are in addition to mineral reserves. Estimated mineral resources are constrained within an optimized open pit shell and mineable underground shapes using metal prices of $25 per ounce of silver and $1,400 per ounce gold.
  2. Mineral resource estimates for Dolores were prepared under the supervision of, or were reviewed by, Martin Dupuis, P.Geo., and Martin G. Wafforn, P.Eng., who are 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.

Click here to see Pan American’s full mineral reserves and resources at December 31, 2015
Mineral reserves and resources are as defined by the Canadian Institute of Mining, Metallurgy and Petroleum.
Mineral resources that are not mineral reserves have no demonstrated economic viability.
Cautionary Note to US Investors

Technical Report

Dolores Technical Report