Commodities & Metals

Silver Miner's Good News from South America (PAAS, CDE, HL, SLW, SLV)

Canadian-based silver miner Pan American Silver Corp. (NASDAQ: PAAS) has released a report on its Navidad project in Argentina, providing details on a preliminary assessment of the project’s viability. The company primarily mines silver, but won’t turn its back on gold, lead, or other incidental minerals.  The company’s share price has risen about 40% in the past year, significantly higher than Coeur d’Alene Mines Corp. (NYSE: CDE) and a bit more than Hecla Mining Co. (NYSE: HL). It trails far behind silver mining darling Silver Wheaton Corp. (NYSE: SLW), which has seen its share price more than double on the back of the strong interest in silver. The iShares Silver Trust ETF (NYSE: SLV) has also seen its share price rise some 40% in the past year.

Pan American’s Navidad project has been estimated to contain 632 million ounces of silver with another 119 million ounces possible. The deposit also contains more than 3 billion pounds of lead.

The company estimates that annual production will average about 19.8 million ounces of silver at a cash cost of $6.03/ounce during the first five years of mining. The production life of the mine is estimated to be 17 years, and total estimated production totals 275.5 million ounces at an average cost per ounce of $6.96 over the full live of the mine.

The production figures are considerably better than 2009 estimates before Pan American bought Aquiline Resources, the project’s former owner.

Pan American estimates that pre-production construction costs will total about $760 million, and that sustaining capital costs will total about $161 million over the mine’s 17-year life.

The company also expects to deliver 1 million ounces of silver to Silver Wheaton as the result of an agreement entered into by previous owners. This so-called “silver stream” means that Silver Wheaton buys the silver before it is mined, reducing mining costs — in Silver Wheaton’s case to a negative production cost — and allowing the buyer to move more volume than the actual mining company.

Pan American shares are up a little more than  1% in early trading this morning, as are Silver Wheaton shares. The iShares Silver Trust ETF is up a bit less than 1%.

Paul Ausick

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