Sector Spotlight
PAN AMeRICA GOLDfIeLDS LTD
Neil Maedel is Chairman of Pan American Goldfields. Based in South East Asia he has worked more than three decades analyzing and financing resource projects. In 2010, Neil led a group of executives to take over Pan American Goldfields (then called Mexoro Minerals). The attraction to the company was its established gold and silver resource which he felt could be put into production to produce annual cash flow, if fully developed, of more than $80 million per year compared to the company’s market capitalization of around $15 million. The focus was to start pilot gold and silver production and then expand the mine to a commercial level of 100,000 ounces per year. Pilot production is underway.
Since August, 2011 it has averaged more than 500 tons per day, producing more than 400 ounces of gold and 35,000 ounces of silver per month. The revenue from the pilot production is expected to finance the feasibility study for the planned larger mine while funding several exploration projects under development in Argentina and Mongolia.
Can you tell us about the Cieneguita silver and gold project and the Cerro Delta gold project?
Q
The Cieneguita Mine is in Mexico’s Sierra Madre Mountains about 12 miles from Goldcorp’s El Sauzal Mine. It contains a resource that complies with Canada’s National Instrument 43-101, consisting of a measured and indicated 20 million tons grading 0.7 grams per ton gold and 51.8 grams per ton silver. This equals 1.1 million ounces gold equivalent. We expect this to increase with development of the deposit. Current production exceeds 500 tons per day and at its current run rate should provide cash flow net to Pan American of about $1,000,000 per quarter in 2013. Work is being done to increase this rate of production and increase pilot production cash flows. In the meantime a Preliminary Economic Assessment (PEA) is being conducted by M3 Engineering of Tucson, which is expected to be completed this November. M3 has provided the engineering for more than half the new mine developments in Mexico over the past two decades, so its conclusions will be highly relevant. The PEA is hoped to support our original concept of a 100,000 ounce per year operation with a cash cost of approximately $500 per ounce of gold equivalent producing cash flow at today’s metals prices of more than $80 million per year.
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Pan American Goldfield's Cerro Delta project covers 50,622 acres in La Rioja Province, Argentina. It is at the southeast end of the Maricunga Gold Belt, 12 miles east of the 23 million oz. gold, Cerro Casale deposit and 19 miles South-east of the 19 million oz. gold Caspiche deposit. The Cerro Delta properties contain a large gold and coincident geophysical anomaly, and are on the same geological structure as the Cerro Casale. Unlike Casale however, where the upper two thirds of the original porphyry system has been eroded away, the entire porphyry system remains intact at the Cerro Delta. As a consequence it has the potential for a very large but low grade porphyry gold-copper discovery in addition to the potential for a smaller, lower capital cost, higher grade gold discovery in the upper high-sulfidation epithermal part of the porphyry. Analogous deposits include the Coipa and the 6 million oz. gold reserves Lobo-Marte deposit in Northern Chile. Drilling at the Cerro Delta is expected to commence in December 2012.
Q
Mining is a popular destination for investment. Why do you think this is?
I think that mining was a popular destination for investment prior to the Global Financial Crisis and for a brief period between the fall of 2009 and winter of 2010 but now there has been a stampede out of mining stocks especially exploration companies. One estimate pegged the total mining equity financings in 2010 in Canada to have exceeded $18 billion. People buy stocks to sell them at higher prices, so I think the correct assumption is that sometime in the following year or two many of these investors will be looking to sell their shares. This is basically what we have
seen happen. But unfortunately, unlike the 1990s, there have been very few major discoveries or takeovers which would have provided buyers for these shares. Investors have been selling into a vacuum and most junior exploration companies are cash poor and looking to finance at very low highly dilutive share prices. So I would argue that the opposite is true - that mining is deeply out of favour, share prices are extremely washed out and that from a contrarian perspective the timing is very good to selectively accumulate mining company shares. The key reason is that the growth of the consumer class in Asia and the Americas has led, especially in China and India’s case, to a huge increase in metals consumption and there remains considerable room for growth in consumption over the next decade. At the same time resource nationalism, and a dramatic decrease in the metals production pipeline has, for most metals led to very low supply growth. This is especially pronounced in the gold sector where the average reserve grade has dropped by two thirds since the 1970s and where, there have been no giant discoveries to offset depleting reserves. The constrained supply growth and increasing demand has led to a long-term rise in metals prices. The amount of under-explored areas that could be considered friendly to mining has also shrunk while an implosion of risk capital to finance exploration companies is causing the pipeline of discoveries and new production to shrink even further. So knowing the current environment, the critical factors for a junior exploration company have become access to funding, access to one of the areas that remain and expertise in that specific area. Very few will have all these. We do.
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