PAASF in Russia:
Hi Ray! Do you think they will go through with this?? I'd hate to see them raise all that money just to loose in the Russian casino.......any comments?
THC
Pan American Silver Corp. -- Dukat Deposit,
Russia Feasibility Study Results and
Supplemental Feasibility Study
VANCOUVER, British Columbia, Sept. 10 /PRNewswire/ -- Pan American Silver Corp. (TSE: PAA. - news; Nasdaq:
PAASF - news) has received the bankable feasibility study (the ''Feasibility Study'') for the Dukat silver project,
far eastern Russia. The report was prepared for ZAO Serebro Dukat, Pan American's 70% Russian subsidiary, by
Kvaerner Davy GOT Engineering. Although the Feasibility Study is positive, the Company has commissioned a
supplemental feasibility study (the ''Supplemental Feasibility Study'') to examine an alternative operating plan
which would significantly reduce capital costs, increase the project's rate of return and permit earlier
commencement of silver production. All monetary amounts discussed are in U.S. dollars.
The Feasibility Study models a 2500 tonne per day underground mine and new mill producing annually over 16.8
million ounces of silver and 34,000 ounces of gold as dore at an average operating cost per ounce of $2.13 and
average total cost per ounce of $4.60 (including DD&A, royalties, taxes and administration costs). Total capital
costs for development of the mine and construction of a new mill are $212.2 million, including $22 million for VAT
tax and customs duties, $8.5 million for working capital, $9.7 million for pre-production interest, $3.5 million for
political risk insurance, and $18.8 million in contingency allowances. Production would begin in late 2000.
Measured and indicated ore reserves used in the Feasibility Study are 14.3 million tonnes grading 665 grams per
tonne silver and 1.39 grams per tonne gold (305 million ounces of silver and 640,000 ounces of gold), of which
10.3 million tonnes grading 677 grams per tonne silver and 1.40 grams per tonne gold are diluted, recoverable
mining reserves (224 million ounces of silver and 464,000 ounces of gold). At a mining rate of 850,000 tonnes per
year the mine life will be 12 years. Considerable additional silver resources exist at Dukat, but require further
drilling or tunneling to be recognized as reserves. Official Russian resources in the measured, indicated and
inferred categories at a 50g/t cut-off grade are 31.4 million tonnes grading 473g/t silver and 0.98g/t gold (477
million ounces of silver and one million ounces of gold).
At current metal prices, the financial model derived from results of the Feasibility Study indicates a rate of return
of 10.7% after allowing for all taxes and royalties. The after-tax value at a zero discount rate is $221 million. If
Russian tax authorities are successful in implementing proposed tax reforms which reduce gross royalties from
13.8% to 3.56% and income taxes from 35% to 30%, the project's rate of return would improve accordingly.
The Supplemental Feasibility Study will evaluate a different mining plan and be based on use of the existing
flotation mill which operated continuously from 1978 until 1994, when Dukat was the Soviet Union's largest silver
mine, and intermittently from 1994 until today. The mill would initially produce concentrate for export and after 2-3
years would have a circuit enabling production of dore. Silver production would be about 16.0 million ounces a
year. The Company's preliminary examination of this option indicates many potential advantages, including:
a significant reduction in total capital costs to approximately $100 million;
a significant increase in after tax rate of return;
possible commencement of production in mid-1999, about 18 months earlier than the original plan.
The Supplemental Feasibility Study will include additional metallurgical testwork, environmental studies and
examination of mill costs and recoveries. It is expected to be completed by December 1998. Concurrently, the
project will be reviewed by Russian authorities for their approval and with potential lenders to the project. Recent
discussions with sources of project finance have been encouraging despite the present financial crisis in Russia.
ZAO Serebro Dukat will commence underground development in late October to prepare the mine for renewed
operation and to enable project financing and a production decision in early 1999. All future expenditures on
Dukat are discretionary and no significant expenditures will be made until acceptable project financing is secured.
To date Pan American has spent $9 million on the Dukat project and political risk insurance has been arranged for
this amount.
Under either scenario the mine would become the third largest primary silver mine globally and would increase
Pan American's attributable silver production to over 18 million ounces, making Pan American one of the world's
leading silver producers. Mr. Ross Beaty, Pan American's Chairman and CEO stated: ''Dukat is one of the world's
great silver orebodies. Russia is experiencing very difficult political and financial conditions today but I am
optimistic that conditions will improve by the time Dukat is in operation. I believe the Supplemental Feasibility
Study will demonstrate a bankable project with a rate of return commensurate with the risks in Russia, and that
our financial exposure will be reduced with bank financing, political risk insurance, and significantly lower equity
investment in the new operating plan.''
Pan American is a primary silver mining company. The Company produces 3 million ounces of silver annually and
controls over 650 million ounces of silver in reserves and resources. Production is slated to increase to over 18
million ounces per year with development of Dukat and the La Colorada mine, Mexico. The Company has $29
million in working capital including $20 million in cash, and no debt. Further information on the Company can be
accessed at: panamericansilver.com. |
