Table of Contents

 

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

 

For the month of, September 2011

Commission File Number 000-13727

 

Pan American Silver Corp

(Translation of registrant’s name into English)

 

1500-625 Howe Street, Vancouver BC Canada V6C 2T6

(Address of principal executive offices)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40F:

 

Form 20-F  o

Form 40-F  x

 

 

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes  o

No  x

 

 

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  82-                      

 

 

 



Table of Contents

 

DOCUMENTS INCLUDED AS PART OF THIS REPORT

 

Document

 

 

 

 

 

1

 

Pan American Silver Corp. and Orko Silver Corp., La Preciosa Silver Property, Durango, México, Preliminary Economic Assessment — Technical Report.

 

2



Table of Contents

 

Document 1

 

Prepared by Anthony Finch B.Eng. (Mining), B.Econ., P.Eng., M.AusIMM Divisional Manager, Mining, Snowden Mining Industry Consultants Inc. Michael Stewart M.Sc., CFSG, M.AIG Principal Consultant, Quantitative Geoscience Pty. Ltd. Joshua Snider B.Sc., P.E. Engineer, M3 Engineering & Technology Corp. Thomas L. Drielick B.Sc., MBA, P.E. Senior Vice President , M3 Engineering & Technology Corp. Gary Hawthorn B.Sc., P.Eng. President, Westcoast Mineral Testing, Inc. Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México Preliminary Economic Assessment – Technical Report Effective date: 30 June 2011

 

 


Table of Contents

 

Office Locations

 

Perth

87 Colin Street

West Perth WA 6005

 

PO Box 77

West Perth WA 6872

AUSTRALIA

 

Tel:    +61 8 9213 9213

Fax:    +61 8 9322 2576

ABN 99 085 319 562

perth@snowdengroup.com

 

Brisbane

Level 15, 300 Adelaide Street

Brisbane QLD 4000

 

PO Box 2207

Brisbane QLD 4001

AUSTRALIA

 

Tel:    +61 7 3231 3800

Fax:    +61 7 3211 9815

ABN 99 085 319 562

brisbane@snowdengroup.com

 

Vancouver

Suite 600

1090 West Pender Street

Vancouver BC V6E 2N7

CANADA

 

Tel:    +1 604 683 7645

Fax:    +1 604 683 7929

Reg No. 557150

vancouver@snowdengroup.com

 

Johannesburg

Technology House

Greenacres Office Park

Cnr. Victory and Rustenburg Roads

Victory Park

Johannesburg 2195

SOUTH AFRICA

 

PO Box 2613

Parklands 2121

SOUTH AFRICA

 

Tel:    + 27 11 782 2379

Fax:    + 27 11 782 2396

Reg No. 1998/023556/07

johannesburg@snowdengroup.com

 

London

Abbey House

Wellington Way

Weybridge

Surrey KT13 0TT, UK

 

Tel:    + 44 (0) 1932 268 701

Fax:    + 44 (0) 1932 268 702

london@snowdengroup.com

 

Belo Horizonte

Av. Afonso Pena 4121 / 302

Mangabeiras, 30130-009

Belo Horizonte MG Brazil

 

Tel:    +55 (31) 3222-6286

Fax:    +55 (31) 3222-6286

belohorizonte@snowdengroup.com

 

Website

www.snowdengroup.com

 

IMPORTANT NOTICE

 

This report was prepared in accordance with Form 43-101F1 Technical Report for Pan American Silver Corp. and Orko Silver Corp. This report is intended to be used by Pan American Silver Corp. and Orko Silver Corp. subject to the terms and conditions of Pan American Silver Corp’s contract with Snowden Mining Industry Consultants Inc. That contract permits Pan American Silver Corp. and Orko Silver Corp. to file this report as a Technical Report with Canadian securities regulatory authorities pursuant to provincial securities legislation. Except for the purposes legislated under provincial securities law, any other use of this report by any third party is at that party’s sole risk.

 

Issued by: Vancouver Office

Doc Ref: 20110916 FINAL La Preciosa Technical Report.docx

 



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

1

Summary

14

 

1.1

Property description and ownership

14

 

1.2

Geology and mineralisation

14

 

1.3

Status of exploration, development, and operations

15

 

1.4

Mineral resource estimate

15

 

1.5

Mining methods and Project infrastructure

16

 

1.6

Capital and operating costs and economic analyses

17

 

1.7

Mineral processing, metallurgical testing, and recovery methods

19

 

1.8

Environmental studies, permitting, and social and community impact

19

 

1.9

Conclusions and recommendations

20

 

1.10

Cautionary note regarding forward-looking information and statements

21

 

 

 

 

2

Introduction

23

 

 

 

 

3

Reliance on other experts

26

 

 

 

 

4

Property description and location

27

 

4.1

Location, mineral tenure, and surface rights

27

 

4.2

Issuer’s interest

31

 

4.3

Royalties, back-in rights, payments, agreements, and encumbrances

31

 

4.4

Environmental liabilities

32

 

4.5

Permits

32

 

4.6

Significant factors and risks

32

 

 

 

 

5

Accessibility, climate, local resources, infrastructure and physiography

33

 

5.1

Access

33

 

5.2

Climate and length of operating season

34

 

5.3

Proximity to population centre and transport

34

 

5.4

Surface rights, land availability, infrastructure, and local resources

34

 

 

5.4.1

Surface rights, land availability, and mining areas

34

 

 

5.4.2

Power, infrastructure, and water

36

 

 

5.4.3

Local resources and mining personnel

37

 

5.5

Topography, elevation, and vegetation

39

 

 

 

 

6

History

40

 

6.1

Prior ownership, exploration, and development work

40

 

 

6.1.1

Late 19th century work

40

 

 

6.1.2

Work by Luismin from 1981 to 1982 and 1994

40

 

 

6.1.3

Work by Orko from 2003 to 2008

41

 

 

 

 

 

7

Geological setting and mineralisation

43

 

7.1

Regional geology

43

 

September 2011

 

3



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

7.2

Local geology

45

 

7.3

Property geology

47

 

7.4

Mineralisation

49

 

 

 

 

8

Deposit types

52

 

 

 

9

Exploration

53

 

9.1

Exploration by Luismin from 1981 to 1982 and 1994

53

 

9.2

Exploration by Orko from 2004 to 2008

53

 

9.3

Exploration by Pan American from 2009 to 2010

54

 

 

 

 

10

Drilling

55

 

10.1

Drilling summary and database

55

 

10.2

Drilling by Luismin from 1981 to 1982 and 1994

58

 

10.3

Drilling by Orko from 2005 to 2008

58

 

10.4

Drilling by Pan American from 2009 to 2010

58

 

10.5

Exploration targets

59

 

10.6

Material impact on accuracy and reliability of drilling results

61

 

10.7

Conclusions and recommendations

62

 

 

 

 

11

Sample preparation, analyses, and security

63

 

11.1

Sampling by Luismin from 1981 to 1982 and 1994

63

 

11.2

Sampling by Orko from 2005 to 2008

63

 

 

11.2.1

Sample preparation and security

63

 

 

11.2.2

Analytical methods

64

 

 

11.2.3

QAQC

65

 

11.3

Sampling by Pan American from 2009 to 2010

76

 

 

11.3.1

Sample preparation and security

76

 

 

11.3.2

Analytical methods

77

 

 

11.3.3

QAQC

77

 

11.4

Density measurements

82

 

11.5

Conclusions and recommendations

83

 

 

 

 

12

Data verification

85

 

12.1

Data verification by MDA and Pan American

85

 

12.2

Data verification by the current qualified persons

85

 

 

12.2.1

Site visit

85

 

 

12.2.2

Data reviews

86

 

12.3

Data adequacy

87

 

 

 

 

13

Mineral processing and metallurgical testing

88

 

13.1

Historical testing

88

 

13.2

Testing from 2007 and 2009

88

 

September 2011

 

4



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

 

13.2.1

Stage 1 — flotation and agitation cyanidation tests

88

 

 

13.2.2

Stage 2 — bottle roll leaching tests

92

 

 

13.2.3

Stage 3 — cyanidation and flotation tests

96

 

 

13.2.4

Mineralogical considerations

101

 

 

13.2.5

Cyanidation

102

 

 

13.2.6

Cyanide consumption

102

 

13.3

Testing from 2009 to 2010

102

 

 

13.3.1

SGS test 18-09

103

 

 

13.3.2

SGS test 18-10

108

 

 

13.3.3

SGS test 40-10

113

 

 

13.3.4

SGS test 60-10

116

 

 

13.3.5

Summary of SGS test work

118

 

13.4

Sample representativity

119

 

13.5

Material issues and deleterious elements

121

 

13.6

Conclusions

121

 

 

13.6.1

Metallurgical composites

121

 

 

13.6.2

Gold and silver metallurgy

122

 

 

13.6.3

Processing parameters

124

 

 

13.6.4

Cyanide consumption

124

 

 

13.6.5

Lime addition point

125

 

13.7

Recommendations

125

 

 

13.7.1

Laboratory testing

125

 

 

13.7.2

Sulphur data

126

 

 

 

 

 

14

Mineral resource estimates

127

 

14.1

Disclosure

127

 

14.2

Assumptions, methods and parameters — 2010 mineral resource estimates

127

 

14.3

Supplied data, data preparation, data transformations, and data validation

128

 

 

14.3.1

Supplied data

128

 

 

14.3.2

Data preparation

128

 

 

14.3.3

Data transformations

129

 

 

14.3.4

Data validation

130

 

14.4

Geological interpretation, modeling, and domaining

130

 

 

14.4.1

Geological interpretation and modelling

130

 

 

14.4.2

Definition of grade estimation domains

133

 

14.5

Sample statistics

133

 

 

14.5.1

Summary statistics

133

 

 

14.5.2

Compositing of sample assay intervals

135

 

 

14.5.3

Extreme grade value treatment

137

 

September 2011

 

5



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

14.6

Variogram analysis and variogram modelling

139

 

 

14.6.1

Variography of veins

139

 

 

14.6.2

Variography of host rock

141

 

14.7

Estimation parameters

144

 

 

14.7.1

Block size selection

144

 

 

14.7.2

Estimation and sample search parameters

144

 

 

14.7.3

Grade interpolation and boundary conditions

149

 

14.8

Density

150

 

14.9

Estimation validation

151

 

14.10

Estimation post-processing

153

 

14.11

Comparison with previous estimates

154

 

14.12

Depletion for historical mining

154

 

14.13

Mineral resource classification

155

 

14.14

Mineral resource tabulation

155

 

14.15

Recommendations

158

 

 

 

 

15

Mineral reserve estimates

160

 

 

 

16

Mining methods

161

 

16.1

Geotechnical parameters

161

 

 

16.1.1

Data collection

161

 

 

16.1.2

Open pit mining parameters

162

 

 

16.1.3

Underground mining parameters

162

 

16.2

Dilution modelling and factors

163

 

16.3

Open pit mining

165

 

 

16.3.1

Pit optimisation

165

 

 

16.3.2

Pit design

168

 

16.4

Underground mining

170

 

 

16.4.1

Underground mining methods

170

 

 

16.4.2

Identification of production areas

172

 

 

16.4.3

Development and accesses

173

 

16.5

Mining schedule

175

 

 

16.5.1

Targets and methodology

175

 

 

16.5.2

Limits

175

 

 

16.5.3

Schedule

176

 

16.6

Waste rock dumps

181

 

16.7

Mining fleet

182

 

16.8

Workforce

182

 

16.9

Alternative mine concept

182

 

 

 

 

17

Recovery methods

184

 

September 2011

 

6



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

18

Project infrastructure

189

 

18.1

Facility layout

189

 

18.2

Tailings facility

189

 

18.3

Transportation

190

 

18.4

Power

191

 

18.5

Water

192

 

 

 

 

19

Market studies and contracts

194

 

19.1

Marketing

194

 

 

19.1.1

Product specification and selling costs

194

 

 

19.1.2

Metal prices

194

 

 

19.1.3

Assumptions

194

 

19.2

Contracts

195

 

 

 

 

20

Environmental studies, permitting, and social or community impact

196

 

20.1

Environmental summary

196

 

20.2

Expected material environmental issues

197

 

20.3

Waste and tailings disposal

197

 

20.4

Site monitoring

197

 

20.5

Water management

198

 

20.6

Permitting

198

 

 

20.6.1

Applicable federal laws and regulations

198

 

 

20.6.2

Applicable state laws and regulations

199

 

 

20.6.3

Generally applicable Mexican standards

199

 

20.7

Social and community requirements

199

 

20.8

Project closure

200

 

 

 

 

21

Capital and operating costs

201

 

21.1

Capital costs

201

 

 

21.1.1

Mining

201

 

 

21.1.2

Processing and infrastructure

201

 

 

21.1.3

Other initial capital

202

 

 

21.1.4

Sustaining capital

203

 

21.2

Operating costs

204

 

 

21.2.1

Mining

205

 

 

21.2.2

Processing and general and administrative costs

205

 

 

 

 

 

22

Economic analysis

207

 

22.1

General

207

 

22.2

Taxes, royalties, levies, and interests

208

 

 

22.2.1

Taxation

208

 

 

22.2.2

Royalties

208

 

September 2011

 

7



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

22.3

Economic model

208

 

22.4

Sensitivity analysis

211

 

 

 

 

23

Adjacent properties

213

 

 

 

24

Other relevant data and information

214

 

 

 

25

Interpretation and conclusions

215

 

25.1

Mineral resources

215

 

25.2

Mineral processing, metallurgical testing, and recovery methods

216

 

25.3

Mining and financial

216

 

25.4

Environmental and community

217

 

 

 

 

26

Recommendations

218

 

26.1

Project advancement

218

 

26.2

Mineral resources

219

 

26.3

Mineral processing, metallurgical testing, and recovery methods

219

 

26.4

Mining and financial

220

 

26.5

Environmental and community

220

 

 

 

 

27

References

222

 

 

 

28

Date, signatures, and certificates

223

 

Tables

 

 

Table 1.1

La Preciosa Project mineral resource estimate –– effective 30 June 2011

16

 

Table 1.2

La Preciosa Project preliminary capital cost estimates

17

 

Table 1.3

La Preciosa Project preliminary operating cost estimates

18

 

Table 1.4

La Preciosa Project preliminary financial metric estimates(1)

18

 

Table 2.1

Responsibilities of each qualified person

24

 

Table 4.1

La Preciosa Property concession details

30

 

Table 5.1

Land owners in the area of proposed mine and plant facilities

35

 

Table 5.2

La Preciosa Project work force availability

38

 

Table 7.1

Vein volumes and orientations

51

 

Table 10.1

La Preciosa Property drillhole and channel database

55

 

Table 10.2

Downhole intersection results from exploration targets

60

 

Table 11.1

Summary of analytical techniques used to assay Orko’s samples

64

 

Table 11.2

Details of the standards used by Orko

66

 

Table 11.3

Details of duplicate analyses of Orko drill core samples

73

 

Table 11.4

Details of the analytical techniques used to assay Pan American’s samples

77

 

September 2011

 

8



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

Table 11.5

Details of the standards used by Pan American

79

 

Table 13.1

Metallurgy test results by Comision de Fomento Minero

88

 

Table 13.2

Details of the five 10 kg Orko metallurgical composites

89

 

Table 13.3

Rougher only flotation test results

90

 

Table 13.4

Rougher tailing screen assay data

90

 

Table 13.5

Orko cyanidation tests C1 to C3 results

91

 

Table 13.6

Screen assays of Orko test C3 leached residue

92

 

Table 13.7

Stage 2 agitation leaching composite summary data

94

 

Table 13.8

Stage 2 agitation leaching testwork results

95

 

Table 13.9

Details of composites used in PRA cyanidation tests C37 to C47

97

 

Table 13.10

PRA cyanidation test C37 to C42 results

97

 

Table 13.11

WMT flotation test W-09-02 results

99

 

Table 13.12

Rougher tailing screen assay data

99

 

Table 13.13

PRA cyanidation test C43 to C47 results

100

 

Table 13.14

Details of master composite used in SGS test 18-09

103

 

Table 13.15

Cyanidation tailing screen assay results

105

 

Table 13.16

Work Index and Abrasion Index results

108

 

Table 13.17

Grade of composite used in SGS-18-10 testwork

108

 

Table 13.18

Details of the variability composites used in tests SGS-40-10 and SGS-60-10

113

 

Table 13.19

Representative element concentrations

121

 

Table 13.20

Typical NaCN consumption, silver extraction, and cyanide concentrations

125

 

Table 14.1

Vein volumes and orientations

132

 

Table 14.2

Summary vein statistics

134

 

Table 14.3

Summary of thickness and accumulation by vein

136

 

Table 14.4

Grade and distance thresholds applied to extreme grade values

138

 

Table 14.5

Assignment of variogram models

140

 

Table 14.6

Variogram parameters applied to vein estimates

140

 

Table 14.7

Variogram parameters applied to host rock estimates

142

 

Table 14.8

Vein search parameters

146

 

Table 14.9

Host rock search parameters

147

 

Table 14.10

Specific gravity variogram parameters

151

 

Table 14.11

Specific gravity search parameters

151

 

Table 14.12

Comparison of estimated and input values

152

 

Table 14.13

La Preciosa Project mineral resource estimate — effective 30 June 2011

156

 

Table 16.1

Open pit bench parameters

162

 

September 2011

 

9



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

Table 16.2

Mining dilution and minimum widths

163

 

Table 16.3

Dilutant grades

164

 

Table 16.4

Undiluted and diluted inventory above a 100 ppm Ag cut-off grade

164

 

Table 16.5

Pit optimisation parameters

165

 

Table 16.6

Mining costs used for pit optimisation

166

 

Table 16.7

Pit optimisation results

166

 

Table 16.8

Pit design parameters

168

 

Table 16.9

Summary of pit physicals

169

 

Table 16.10

Underground mining methods

171

 

Table 16.11

Underground feed mass and grade by panel dip

171

 

Table 16.12

Underground panel mass and grade

172

 

Table 16.13

Open pit mining capacity limits

175

 

Table 16.14

Underground mining capacity limits

175

 

Table 16.15

Mining schedule summary

177

 

Table 16.16

Potential mill feed breakdown by mineral resource classification

181

 

Table 16.17

Waste rock dump storage volumes

181

 

Table 16.18

Fleet requirements for major mining equipment

182

 

Table 17.1

Process consumables

185

 

Table 17.2

Process design criteria

185

 

Table 19.1

Marketing parameters

194

 

Table 21.1

La Preciosa Project preliminary initial capital cost estimates

201

 

Table 21.2

La Preciosa Project preliminary mining capital cost estimates

201

 

Table 21.3

La Preciosa preliminary processing and infrastructure capital cost estimates

202

 

Table 21.4

Other initial capital cost estimates

203

 

Table 21.5

Sustaining capital schedule

204

 

Table 21.6

Summary of La Preciosa Project preliminary operating cost estimates

204

 

Table 21.7

La Preciosa Project preliminary open pit operating cost estimates

205

 

Table 21.8

La Preciosa Project preliminary underground operating cost estimates

205

 

Table 21.9

La Preciosa Project preliminary processing and G&A cost estimates

206

 

Table 22.1

La Preciosa Project preliminary financial metric estimates

209

 

Table 22.2

La Preciosa Project preliminary economic summary (figures shown in $M)

210

 

Table 22.3

Sensitivity analyses

211

 

September 2011

 

10



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

Table 25.1

La Preciosa Project mineral resource estimate — effective 30 June 2011

215

 

Table 26.1

La Preciosa Project preliminary financial metric estimates(1)

218

 

 

 

 

Figures

 

 

Figure 4.1

La Preciosa Property land position location map

28

 

Figure 5.1

La Preciosa Property location and access map

33

 

Figure 5.2

Plan of proposed pits, dumps, tailings dam, plant, and infrastructure

35

 

Figure 5.3

Plan of land owner boundaries in the area of the proposed mine and plant facilities

36

 

Figure 7.1

Regional geological setting map

44

 

Figure 7.2

Example cross section of drillholes and lithology at 2701780 mN

45

 

Figure 7.3

Local geology plan

46

 

Figure 7.4

La Preciosa cross section at 2701780 mN showing drillhole traces, veins, and lithology

48

 

Figure 10.1

Location map of drillholes relative to mineral resource area

56

 

Figure 10.2

Cross section at 2701980 showing drillhole orientation relative to vein orientations

57

 

Figure 10.3

Plan of exploration targets

60

 

Figure 11.1

Graphs of all Orko standards for silver and gold

67

 

Figure 11.2

Graphs of the Orko-1 standard results for silver and gold

68

 

Figure 11.3

Graphs of the Orko-3 standard results for silver and gold by Inspectorate

69

 

Figure 11.4

Graphs of the Orko-3 standard results for silver and gold by SGS

69

 

Figure 11.5

Graphs of the Orko-6 standard results for silver and gold

70

 

Figure 11.6

Graphs of the Orko-8 standard results for silver and gold

71

 

Figure 11.7

Q-Q plots comparing silver and gold assays of pulp duplicates from Inspectorate and ALS Chemex

74

 

Figure 11.8

Scatterplots of blank assay silver and gold results

78

 

Figure 11.9

Graphs of the GBM908-13 and G308-7 standard results for silver and gold

80

 

Figure 11.10

Q-Q plot comparing silver and gold assays of pulp duplicates from SGS and Inspectorate

81

 

Figure 13.1

Silver and gold leaching kinetic curves

98

 

Figure 13.2

Cyanide consumption and silver extraction graphs

101

 

Figure 13.3

P80 grind size versus silver tailing grade

105

 

Figure 13.4

Grind % passing 200 mesh size versus silver tailing grades

106

 

Figure 13.5

Kinetic leaching time of silver extractions

106

 

September 2011

 

11



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

Figure 13.6

Kinetic leaching time of silver extraction at P80 = 74 microns

107

 

Figure 13.7

Cyanide concentration and consumption with silver tailing grade

109

 

Figure 13.8

Kinetic silver leaching time at 40% solids

110

 

Figure 13.9

Cyanide concentration versus leached tailing silver grade at 40% solids

111

 

Figure 13.10

Grind versus silver tailing grade from tests SGS-18-09 and SGS-18-10

111

 

Figure 13.11

Cyanide concentration versus cyanide consumption

112

 

Figure 13.12

Silver extraction with and without lead nitrate

115

 

Figure 13.13

Silver extraction with and without lead nitrate by vein type

115

 

Figure 13.14

Comparison of silver feed grade vs silver tailing grade and silver extraction

117

 

Figure 13.15

Comparison of sulphur grade versus gold and silver extraction in botella tests on Martha composites

118

 

Figure 13.16

Metallurgical sample locations plotted on a horizontal projection of the deposit coloured by mineral resource grade and classification

120

 

Figure 13.17

Variability composite samples versus forecast silver grades

120

 

Figure 13.18

Silver feed versus tailing grades and extraction during botella tests

123

 

Figure 14.1

Oblique view from the SSW of vein projections

129

 

Figure 14.2

Oblique view of host rock estimation zones within 50 m of veins

150

 

Figure 14.3

Swath plot showing sample input and estimated silver grades for the Martha Alta vein

153

 

Figure 14.4

Grade tonnage curves by mining method and by classification

157

 

Figure 16.1

Example section showing undiluted and diluted vein

163

 

Figure 16.2

Pit shell tonnes and grade

167

 

Figure 16.3

Plan view of pit shells

168

 

Figure 16.4

Plan view of pit designs

169

 

Figure 16.5

Cross section through Pit 1 at 2702250 mN

170

 

Figure 16.6

Underground panels

173

 

Figure 16.7

Conceptual underground development with stoping panels

174

 

Figure 16.8

Mill feed by source

179

 

Figure 16.9

Open pit mining physicals

179

 

Figure 16.10

Underground development

180

 

Figure 16.11

Underground mining tonnages

180

 

Figure 16.12

Open pits and waste rock dumps

181

 

Figure 17.1

La Preciosa process flow sheet

188

 

Figure 18.1

La Preciosa processing facility plan

189

 

September 2011

 

12



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

Figure 18.2

Tailings facility layout

190

 

Figure 18.3

Plan of the proposed access route from Durango to the Project site

191

 

Figure 18.4

Plan of the proposed power line route

192

 

Figure 18.5

La Preciosa Project proposed well field location

193

 

Figure 22.1

Cumulative cash flow graph

211

 

Figure 22.2

Sensitivity analysis spider graphs

212

 

September 2011

 

13



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

1                                Summary

 

This technical report has been prepared to disclose relevant information about the La Preciosa silver property (the Property). This information has resulted from additional mineral resource delineation drilling at the project (the Project), updated mineral resource estimates, and a preliminary economic assessment. This technical report supports the recently updated mineral resources at the La Preciosa silver property and the results of the preliminary economic assessment. The economic assessment is preliminary in nature. It includes Inferred mineral resources that are considered too speculative geologically to have the economic conditions applied to them that would enable them to be categorised as mineral reserves, and there is no certainty that the preliminary economic assessment will be realised.

 

1.1                       Property description and ownership

 

This technical report refers to the Property, an advanced stage silver exploration project located approximately 84 kilometres (km) by road northeast of the city of Durango, in Durango State, México. In October 2009, Pan American Silver Corp. (Pan American), Orko Silver Corp. (Orko), PASMEX S.A. de C.V. (PASMEX, a subsidiary of Pan American which holds Pan American’s interest in the Project) and Proyectos Mineros La Preciosa S.A. de C.V. (the La Preciosa JV Company) entered into a formal joint venture agreement in connection with the Project. Under the terms of the joint venture agreement, PASMEX acts as the Project operator and Pan American can earn a 55% interest in the joint venture by bringing the Project into production.

 

As of the end of 2010, Pan American had invested approximately $14 million on over 90,000 metres of exploration and infill mineral resource drilling, metallurgical testing, engineering activities to evaluate alternative extraction and development scenarios to maximize the Project’s economics, baseline environmental studies, and community relations work.

 

1.2                       Geology and mineralisation

 

The Property comprises a block of mineral exploitation concessions covering an area of approximately 1,134 hectares (ha) located on the eastern flank of the Sierra Madre Occidental mountain range. Cretaceous age conglomerate and Tertiary age andesitic volcanic rocks are the main hosts of Tertiary age epithermal quartz veins containing economic levels of silver and gold mineralisation, as well as barite and lesser quantities of base metals, primarily zinc and lead. Two major vein and vein breccia systems are exposed on hills and ridges on either side of an approximately 800 metre (m) wide valley. The dominant geological feature on the Property is the northwest-trending La Preciosa Ridge which hosts the dominantly north-striking and westward-dipping main vein system, which includes the Martha, Abundancia, Gloria, Pica, Luz Elena, Sur, and Nueva veins. These veins are cross-cut by east-striking, south-dipping Transversal veins. The major vein breccia system to the east of La Preciosa Ridge on the eastern side of the valley floor includes the northwest striking Zona Oriente and Zona Oriente Extension, which is believed to be the surface expression of the Martha vein.

 

September 2011

 

14



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

1.3                       Status of exploration, development, and operations

 

On the order of 30,000 tonnes (t) of material from the La Gloria and Abundancia veins was removed by historical mining dating from the late 1800s. Underground workings are accessible on the La Gloria and Abundancia veins over a distance of approximately 2.5 km at the north end of the La Preciosa Ridge. Approximately 10,000 t of stockpiled mineralised material is present on the surface above the old workings. Historical underground workings are also found at the south end of the ridge. Aside from drill access roads and buildings to support drill core processing activities and core storage, no other development has been made on the Property and there are no active mining operations.

 

Numerous mineralised vein structures have been identified by nearly 1,000 drillholes and underground channel samples principally

distributed over an area of approximately 850 ha. A total of 18 different veins tested by 677 drillholes have demonstrated sufficient geological continuity for estimation of mineral resources.

 

1.4                       Mineral resource estimate

 

The most recently estimated mineral resources effective 30 June 2011 (shown in Table 1.1) and the results of a preliminary economic assessment based on these mineral resources are disclosed in this technical report. No mineral reserves have been estimated for the Project. Additional infill drilling is recommended to upgrade Inferred mineral resources to Indicated for conversion to mineral reserves as the Project progresses. A number of continuous improvement recommendations have been made in the relevant sections of this report to increase confidence in the data used to estimate mineral resources.

 

September 2011

 

15



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Table 1.1         La Preciosa Project mineral resource estimate — effective 30 June 2011

 

Mining method

 

Classification

 

Cut-off
grade Ag
ppm

 

Tonnes
(millions)

 

Ag
ppm

 

Silver
million
ounces

 

Au
ppm

 

Gold
thousand
ounces

 

Silver
equivalent
ppm

 

Silver
equivalent
million
ounces

 

Open pit

 

Indicated

 

35

 

10.9

 

129

 

45

 

0.19

 

66

 

139

 

49

 

Open pit

 

Inferred

 

35

 

7.6

 

74

 

18

 

0.13

 

31

 

81

 

20

 

Underground

 

Indicated

 

85

 

13.9

 

152

 

68

 

0.35

 

156

 

170

 

76

 

Underground

 

Inferred

 

85

 

7.6

 

117

 

28

 

0.21

 

52

 

128

 

31

 

Total

 

Indicated

 

 

 

24.8

 

142

 

113

 

0.28

 

222

 

156

 

124

 

 

 

Inferred

 

 

 

15.2

 

96

 

46

 

0.17

 

83

 

105

 

51

 

 

Notes:

 

Mineral resources that are not mineral reserves do not have demonstrated economic viability. CIM (2010) defines a mineral reserve as the economically mineable part of a Measured or Indicated mineral resource demonstrated by at least a preliminary feasibility study. No mineral reserves have been estimated. Mineral resources have accounted for minimum mining width and planned mining dilution.

 

The estimate of mineral resources may be materially affected by environmental, permitting, legal, title, taxation, socio-political, marketing, or other relevant issues, but no such issues have been identified at this time.

 

Tonnes, grades, and ounces have been rounded and this may have resulted in minor discrepancies in the totals. Grades are expressed in parts per million (ppm) which is equivalent to grams per tonne (g/t).

 

Cut-off grades are based on operating cost estimates and metal prices of $25 per ounce silver (Ag) and $1,250 per ounce gold (Au). Metal prices are based on a weighted average of historical three year average daily silver prices and a two year future price forecast.

 

The division between open pit and underground mineral resources is set on a horizontal level at the 1920 m elevation, which is considered close to optimum at the metal prices and operating costs assumed in this preliminary economic assessment.

 

Silver equivalent grade values assume a gold to silver ratio of 50 to 1 based on the assumed metal prices. The metallurgical recoveries and refining charges are assumed to be the same for silver and gold for the purposes of the equivalence calculation only.

 

1.5                       Mining methods and Project infrastructure

 

Mineralisation at the Project will be exploited using both open pit and underground mining methods. Open pit mining will be undertaken using conventional truck and shovel techniques. The veins at the Property vary widely in both width and dip to an extent that the choice of a single underground mining technique will not be appropriate for all veins. Shrinkage stoping was identified as the most appropriate method for steeply dipping veins (greater than 70°) and room and pillar (with backfill where the width requires it) was considered appropriate for shallow dipping veins (less than 35°).

 

The Property is not yet connected to the commercial electrical grid but a nearby village and a town are serviced by the commercial electrical grid. The Property is presently supplied electrical power by one 65 kilowatt (kW) diesel generator and two smaller 5.5 kW diesel generators. The main power grid for Durango follows a paved federal highway and a power connection is available for the Project from a substation located in the city of Canatlán, Durango, 41 km northwest of the Project site.

 

A nearby town has a gas station and the services of metal fabricators and mechanic shops. A railway line is present near the south boundary of the Property and the railway has a direct line to Torreon, the site of the nearest metal smelter.

 

The water for drilling and services is obtained from a water reservoir in a nearby village.  Water for mining production is proposed to be supplied from an underground source

 

September 2011

 

16



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

in the thick gravels on the plain to the east of the Project, accessed by drilling a 200 m deep water well 7.2 km to the east of the Project.

 

Presently the Property has six core storage sheds, an office, lunch room, washrooms, small warehouse, flammable substances storage area, drilling company workshop, night watchman’s accommodation, and a generator/core cutting shed.

 

The proposed main processing facilities for the Project will include primary crushing, grinding, leaching, counter current decantation, tailings detoxification, silver and gold precipitation, refining, and tailings disposal facilities. In addition to the main process facilities, there will be several surface buildings constructed to support the mining and process operations.  These facilities include administration, security, warehouse, change house, explosives storage, and truck shop buildings, and truck wash and mill maintenance facilities.

 

1.6                       Capital and operating costs and economic analyses

 

Based on the mineral resource estimate and some economic assumptions, Snowden has developed a detailed mine plan and schedule, and incorporated assumptions with respect to metallurgical recovery, mining recovery, and dilution. This plan has resulted in an estimation of capital costs as detailed in Table 1.2 and operating costs as summarised in Table 1.3. The average life-of-mine cash costs were estimated at $11.84 per ounce of silver, net of gold by-product credits.

 

Table 1.2         La Preciosa Project preliminary capital cost estimates

 

Type

 

$ Million

 

Open pit mining equipment

 

25.9

 

Underground mining equipment

 

15.8

 

Open pit pre-strip

 

4.4

 

Underground capital development

 

3.7

 

Plant

 

143.3

 

EPCM

 

22.1

 

Owner’s costs

 

47.9

 

Escalation of plant and EPCM costs

 

6.4

 

Total estimated capital(1)

 

269.5

 

 


Note(1): Excludes sustaining capital. EPCM is engineering, procurement, and construction management costs

 

September 2011

 

17



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Table 1.3         La Preciosa Project preliminary operating cost estimates

 

Cost type

 

$/Tonne

 

$/Tonne milled

 

Open pit reference mining ($ per tonne of waste)(1)

 

1.11

 

 

Open pit reference mining (($ per tonne of feed)

 

1.45

 

 

Underground mining ($ per tonne of feed)

 

31.49

 

 

Total mining

 

 

 

26.60

 

Processing ($ per tonne of feed)

 

 

16.64

 

General and administration ($ per tonne of feed)

 

 

 

2.57

 

Average total cost(2) ($ per tonne of feed)

 

 

 

45.81

 

 


Note(1): Reference costs are at pit crest. Mining cost increases with depth.

Note(2): Excludes taxes and royalties.

 

The metal prices used in this technical report are based on a weighted average calculation of the historical prices (weight 60%) and future forecast prices (weight 40%) as of the end of June, 2011.

 

For the calculation of the silver price used in this technical report, the historical price of US$19.44 is the average of the London Bullion Market daily silver prices for the 36 months prior to the end of June, 2011. The future price of $33.70 is the 24 month future price forecast on the Chicago Mercantile Exchange (previously the Comex futures division of NYMEX). The weighted average price of $25.14 was rounded down to $25.00.

 

For the calculation of the gold price used in this technical report, the historical price of US$1,110.70 is the average of the London Bullion Market daily PM gold prices for the 36 months prior to the end of June, 2011. The future price of $1,491.38 is the 24 month future price forecast on the Chicago Mercantile Exchange. The weighted average price of $1,262.98 was rounded down to $1,250.

 

Based on the costs, the plan and schedule, and the commodity prices, the financial outcomes that were derived for the Property are shown in Table 1.4. These outcomes include allowances for taxes and royalties as detailed in Section 22.1.

 

Table 1.4         La Preciosa Project preliminary financial metric estimates(1)

 

Measure

 

Units

 

Value(2)

 

Undiscounted present value

 

$ Million

 

497.0

 

Net present value at 5% discount p.a.

 

$ Million

 

314.6

 

Net present value at 10% discount p.a.

 

$ Million

 

191.2

 

Internal rate of return

 

%

 

24.3

 

Payback period

 

Years

 

3.3

 

 


Note(1): The economic assessment is preliminary in nature. It includes Inferred mineral resources that are considered too speculative geologically to have the economic conditions applied to them that would enable them to be categorised as mineral reserves, and there is no certainty that the preliminary economic assessment will be realised.

Note(2): Based on metal prices of $25/oz silver and $1,250/oz gold. Inclusive of taxes, royalties, and a management fee of 5% of operating costs ($50.9 million) and 5% of initial capital costs ($13.5 million) paid to the operator.

 

September 2011

 

18



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

1.7                       Mineral processing, metallurgical testing, and recovery methods

 

In the period from 2007 to 2010 a total of 865 samples from diamond drill core were used to prepare 44 metallurgical composites, including 28 variability composites. They were studied at two independent commercial laboratories to evaluate the response to gravity and flotation concentration and agitation cyanidation.

 

Whole ore agitation cyanidation was determined to be the most favourable processing option. At the currently estimated global plant feed grade of 137 parts per million (ppm) silver (Ag), the data forecasts a laboratory silver extraction of 86%. Gold extraction is affected by oxidation with a nominal 70% extraction in the sulphide zones increasing to 90% in some of the oxidised zones, with an overall forecast of 78% gold extraction.

 

The consumption of cyanide has been quite variable. Although the majority of the test work reported consumption of less than 1.3 kilograms per tonne (kg/t), some tests were as high as 6 kg/t (which is considered to be a high rate of cyanide consumption), where favourable metallurgical results were reported. Additional testing will be required to better understand the reported high cyanide consumptions. It is anticipated that to the extent that elevated cyanide consumption is encountered in operation, the cyanide concentration in the plant solutions will be permitted to decrease below the optimum of 2 grams per litre (g/l), incurring a few percent loss in silver extraction but a net gain as a result of lower cyanide costs.

 

The deposit benefits from fine grinding to at least P80 = 74 microns (80% passing 200 mesh) with a leaching time that is expected to be in the range of three to four days. Small quantities of copper and zinc are leached in the process and report to the pregnant solution as cyanides. They will be destroyed in the operating plant cyanide destruction circuit.

 

A two staged laboratory test programme is recommended in which the first stage will determine the role of pH. The second stage should comprise another variability testing programme to confirm the silver and gold tailings grades by ore type, establish crushing and grinding work indices including JK drop weight, and cyanide destruction. The results of this programme may alter the feasibility study stage design criteria and therefore impact the capital and operating costs, particularly so in the grinding circuit.

 

The plant facilities for the Project have been designed for a throughput of 5,000 dry metric tonnes per day. Feed grade material will be processed by crushing and grinding prior to cyanide leaching. Recovery of soluble metals will be accomplished by multi-stage counter current decantation followed by zinc precipitation. The precipitate will be further refined through smelting and will yield a doré product for sale that will contain the silver and gold produced at the Project. Leach tailings will go through cyanide detoxification with sulphur dioxide prior to discharge at the tailings facility. The tailings facility will be of conventional construction utilising multiple spigot discharge points and a reclaim barge. A tailing facility containment dam will be constructed from mined waste or surface quarry material.

 

1.8                       Environmental studies, permitting, and social and community impact

 

Reporting of the environmental baseline data collected for a full year between 2010 and 2011 has been completed for the Project. The baseline data will be used to compile the environmental impact statement (MIA), which will be submitted to the Mexican

 

September 2011

 

19



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

government for approval prior to the issuing of construction and operation permits. The most likely significant environmental issues that may be related to the permitting of the Project include long-term water quality and quantity management, securing water rights, protracted approval and permitting processes, long-term management of metal leaching and acid rock drainage (MLARD), construction and operation of the access road, social issues, securing surface rights, and management and liner considerations for the tailings impoundment facility. The main documents to be prepared and submitted to obtain construction and operation permits are the MIA, a forest land use modification, a risk analysis, and an archaeological study report.

 

Likely social concerns surrounding the development of the Project include acquisition of surface land, water use, perceptions of the cyanide facility and the use of cyanide, operation of the access road, potential imposition of access restrictions to the area, and the expectations that the Project development may generate in surrounding communities with respect to employment and quality of life.

 

It is recommended that a programme be commenced to acquire rights to the land in the area of the Project which will allow the infrastructure to be commissioned on the Property. The access rights will include the area for the well, transmission corridors, mine and mill areas, tailings storage facility, buffer zone, etc. As water supply is critical to the success of the Project, it is recommended that water rights required for the facility also be acquired. An extensive community engagement process should also be immediately established.

 

Consideration should be given to continue to collect environmental data beyond the baseline data required for the MIA. The activities to be considered include:

 

·            The installation of a weather station for meteorological data collection.

 

·            The installation of monitoring wells and piezometers for open pit areas as well as upstream and downstream from the tailings storage facilities and process plant to monitor ground water characteristics.

 

·            Design and implementation of an environmental monitoring programme.

 

·            Dust monitoring.

 

·            Complete static and kinetic testing for MLARD which will be coupled with an ongoing monitoring programme for waste rock and tailings.

 

1.9                       Conclusions and recommendations

 

With a net present value of $315 million at a 5% discount rate, an internal rate of return of 24.3%, and a Project payback of 3.3 years, the Project is sufficiently robust that, at the metal prices used in this analysis ($25 per ounce silver and $1,250 per ounce gold), there is a reasonable likelihood that the Project will proceed following the completion of a feasibility study.

 

On the basis of the results of this preliminary economic assessment, the recommendation is made to proceed to a feasibility study. The expected cost of completing the feasibility study, from the issuing of the preliminary economic assessment forward, has been estimated at $8 million (excluding the acquisition costs of land and water rights).

 

Inferred mineral resources will be excluded from the estimates forming the basis of the recommended feasibility study, as required by CIM (2010), which will impact the feasibility study financial outcomes.

 

September 2011

 

20



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

1.10                           Cautionary note regarding forward-looking information and statements

 

This preliminary economic assessment is preliminary in nature. It includes Inferred mineral resources that are considered too speculative geologically to have the economic conditions applied to them that would enable them to be categorised as mineral reserves, and there is no certainty that the preliminary economic assessment will be realised.

 

Certain of the statements and information in this Technical Report constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995 and “forward-looking information” within the meaning of applicable Canadian Provincial securities laws. All statements, other than statements of historical fact, are forward-looking statements. When used in this Technical Report the words “estimates”, “expects”, “projects”, “plans”, “contemplates”, “calculates”, “objective”, “potential”, and other similar words and expressions, identify forward-looking statements or information. These forward-looking statements or information relate to, among other things: the future successful development of the Project; the estimates of expected or anticipated economic returns, as reflected in the preliminary economic assessment; the timing for completion of a feasibility study and environmental impact assessment on the Project; future production of silver and gold and mine-life of the Project; future cash costs per ounce of silver; the price of silver and gold; the sufficiency of Pan American’s current working capital, anticipated operating cash flow or its ability to raise necessary funds; the capital necessary to construct a mine at the Project and the time-line for such construction; the accuracy of mineral resource estimates; estimated production rates for silver and other payable metals produced at the Project; timing of production and the cash and total costs of production; the estimate of metallurgical recoveries for silver and gold; the estimate for mining dilution; the estimated cost of and availability of funding necessary for sustaining capital; and ongoing or future development plans and capital replacement, improvement or remediation programmes.

 

These statements reflect current views with respect to future events and are necessarily based upon a number of assumptions and estimates that, while considered reasonable, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies. Many factors, both known and unknown, could cause actual results, performance or achievements to be materially different from the results, performance or achievements that are or may be expressed or implied by such forward-looking statements contained in this Technical Report and assumptions and estimates have been made based on or related to many of these factors. Such factors include, without limitation: fluctuations in spot and forward markets for silver, gold, base metals and certain other commodities (such as natural gas, fuel oil and electricity); fluctuations in currency markets (such as the Mexican Peso versus the United States Dollar); changes in national and local government, legislation, taxation, controls or regulations and political or economic developments, particularly in Mexico and in Canada; risks and hazards associated with the business of mineral exploration, development and mining (including environmental hazards, industrial accidents, unusual or unexpected geological or structural formations, pressures, cave-ins and flooding); employee relations; relationships with and claims by local communities and indigenous populations; availability and increasing costs associated with mining inputs and labour; the speculative nature of mineral exploration and development, including the risks of obtaining necessary licenses and permits and the presence of laws and regulations that

 

September 2011

 

21



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

may impose restrictions on mining; diminishing quantities of grades of mineral reserves as properties are mined; global financial conditions; challenges to, or difficulty in maintaining, title to properties and continued ownership thereof; the actual results of current exploration activities, conclusions of economic evaluations, and changes in Project parameters to deal with unanticipated economic or other factors; increased competition in the mining industry for properties, equipment, qualified personnel, and their costs; and, with respect to Pan American, those factors identified under the caption “Risks related to Pan American’s business” in Pan American’s most recent Form 40F and annual information form filed with the United States Securities and Exchange Commission and Canadian provincial securities regulatory authorities. Investors are cautioned against attributing undue certainty or reliance on forward-looking statements. Although Pan American and Orko have attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results not to be as anticipated, estimated, described, or intended. The companies do not intend, and do not assume any obligation, to update these forward-looking statements or information to reflect changes in assumptions or changes in circumstances or any other events affecting such statements or information, other than as required by applicable law.

 

September 2011

 

22



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

2                                Introduction

 

This technical report has been prepared by Snowden Mining Industry Consultants Inc. (Snowden) for Pan American Silver Corp. (Pan American) and Orko Silver Corp. (Orko), in compliance with the disclosure requirements of Canadian National Instrument 43-101 (NI 43-101), to support disclosure of the results of a preliminary economic assessment of the Property. This disclosure includes information from additional mineral resource delineation drilling, updated mineral resource estimates, and a preliminary economic assessment.

 

The effective date of this technical report is 30 June 2011. The Project drilling data cut-off date for mineral resource estimation was 25 October 2010. The economic analysis to determine the appropriate cut-off grades for reporting mineral resources and for the subsequent mining study was completed on 30 June 2011. No new material information has become available between these dates and the signature date given on the certificate of the qualified persons.

 

This preliminary economic assessment is preliminary in nature. It includes Inferred mineral resources that are considered too speculative geologically to have the economic conditions applied to them that would enable them to be categorised as mineral reserves, and there is no certainty that the preliminary economic assessment will be realised. Mineral resources that are not mineral reserves do not have demonstrated economic viability.  No mineral reserves have been estimated.

 

Pan American is a silver mining and exploration company listed on the Toronto Stock Exchange (TSX:PAA) and the NASDAQ (NASDAQ:PAAS) stock exchange. Orko is a silver exploration company listed on the TSX Venture Exchange (TSX.V: OK.).

 

Unless otherwise stated, information and data contained in this report or used in its preparation have been provided by Orko and Pan American. This technical report has been compiled from sources listed in the References Section and cited in the text by Mr. Anthony Finch, P.Eng., M.AusIMM, Divisional Manager, Mining Engineering of Snowden, Mr. Michael Stewart, M.AIG, Principal Consultant of Quantitative Geoscience Pty. Ltd. (QG), Mr. Joshua Snider, P.E., Engineer with M3 Engineering & Technology Corporation. (M3), Mr. Thomas Drielick, P.E., Senior Vice President with M3, and Mr. Gary Hawthorn, P.Eng., Owner of Westcoast Mineral Testing, Inc.. Mr. Finch, Mr. Stewart, Mr. Snider, Mr. Drielick, and Mr. Hawthorn are qualified persons as defined by NI 43-101 and are independent of Pan American and Orko. The responsibilities of each co-author are provided in Table 2.1.

 

Mr. Snider visited the Project site on 9 June 2010, accompanied by Hernán Dorado Smith, Senior Planning Engineer of Pan American. Mr. Snider reviewed the site with emphasis on process plant and tailings locations.

 

Mr. Finch and Mr. Stewart visited the Project site on 5 July 2011, accompanied by Ms. Pamela De Mark, Director of Resources, Samuel Coronado, La Preciosa Project Manager, Sergio Morfín, Exploration Manager México, and Hernán Dorado Smith, Senior Planning Engineer, all representatives of Pan American. Mr. Finch reviewed the potential pit locations, the portal and the dump locations, as well as the general infrastructure and access to the Project site. Mr. Stewart reviewed representative drill core intersections of the veins and surrounding host rock located at the core storage facility on the Project site, confirmed the collar coordinates of selected drillholes, visited

 

September 2011

 

23



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

outcrops of the Martha, Gloria, Abundancia, and Transversal veins, reviewed paper and digital geological interpretations, and reviewed the geological database.

 

Because a current personal inspection has been conducted by other qualified persons responsible for the preparation of this technical report, and no additional beneficial information would have been derived from a site visit at this stage of the Project, Mr. Hawthorn and Mr. Drielick did not conduct a site visit.

 

Table 2.1         Responsibilities of each qualified person

 

Qualified
person

 

Company

 

Responsible for sections

Anthony Finch

 

Snowden Mining Industry Consultants Inc.

 

1: Summary; 2: Introduction; 3: Reliance on Other Experts; 4: Property Description and Location; 5: Accessibility, Climate, Local Resources, Infrastructure and Physiography; 12: Data Verification; 15: Mineral Reserve Estimates; 16: Mining Methods; 19: Market Studies and Contracts; 20: Environmental Studies, Permitting and Social or Community Impact; 21: Capital and Operating Costs; 22: Economic Analysis; 24: Other relevant data and information; 25: Interpretation and Conclusions; 26: Recommendations; 27: References

 

 

 

 

 

Michael Stewart

 

Quantitative Geoscience Pty. Ltd.

 

1: Summary; 2 :Introduction; 6: History; 7: Geological Setting and Mineralisation; 8: Deposit Types, 9: Exploration; 10: Drilling; 11: Sample Preparation, Analyses and Security; 12: Data Verification: 14: Mineral Resource Estimates; 23: Adjacent Properties; 25: Interpretation and Conclusions; 26: Recommendations

 

 

 

 

 

Joshua Snider

 

M3 Engineering & Technology Corp.

 

1: Summary; 2: Introduction; 12: Data Verification; 18: Project Infrastructure; 21: Capital and Operating Costs; 25: Interpretation and Conclusions; 26: Recommendations

 

 

 

 

 

Thomas Drielick

 

M3 Engineering & Technology Corp.

 

1: Summary; 2: Introduction ; 12: Data Verification; 17: Recovery Methods; 25: Interpretation and Conclusions; 26: Recommendations

 

 

 

 

 

Gary Hawthorn

 

West Coast Mineral Testing Inc.

 

1: Summary; 2: Introduction ; 12: Data Verification; 13:Mineral Processing and Metallurgical Testing; 25: Interpretation and Conclusions; 26: Recommendations

 

Unless otherwise stated, all units are metric and currencies are expressed in US dollars ($). Project data coordinates are based on the International Terrestrial Reference System (ITRS), which is similar to within a few centimetres of the World

 

September 2011

 

24



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Geodetic System (WGS) 84, the coordinate system used by the Global Positioning System (GPS).

 

September 2011

 

25



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

3                                Reliance on other experts

 

The qualified persons preparing this technical report have relied on the reports, opinions, and statements of experts who are not qualified persons as defined by NI43-101. Information regarding environmental aspects of the Property has been provided by Wade Stogran, Director, Environmental Affairs of Pan American, who is not a qualified person. Information regarding land occupancy and lease agreements has been provided by one of the La Preciosa JV Company’s legal counsel in Durango, Mexico, Mr. Eduardo Bravo Campos, now deceased.

 

In development of the mineral inventory for this assessment Snowden has based its geotechnical design criteria on a report written by Golder Associates (Golder, 2010). This report was commissioned by Pan American to assess the geotechnical aspects of mining at the Project in both the underground and the open pit environments.

 

September 2011

 

26



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

4                                Property description and location

 

Information in this section is updated from Mine Development Associates (MDA, 2009).

 

4.1                       Location, mineral tenure, and surface rights

 

The Property is located approximately 84 kilometres (km) by road northeast of the City of Durango in Durango State, México. The centre of the mineral resources are at 2,702,000 North, 555,400 East in the Universal Transverse Mercator (UTM), North American Datum of 1927 (NAD 27).

 

The Project is located within eight concessions with a total area of 1,134.1 hectares (ha). Each corner of each concession is surveyed by a licensed surveyor with reference to the location of a claim monument. The Property is surrounded by the Santa Monica and San Juan properties, which are also controlled by the La Preciosa JV Company. A map of the Property land position is shown in Figure 4.1 at three different scales.

 

Details of the concessions, including the expiration date of the claims, are given in Table 4.1. The La Preciosa JV Company holds 100% of the registered and beneficial title in the Properties, free and clear of all encumbrances (other than liens in favour of government authorities as reflected by the terms of the mineral leases, licenses and permits and all obligations arising from any royalty or similar agreements existing on the effective date of the joint venture agreement in favour of government authorities), except as discussed in Section 4.3.

 

The La Preciosa JV Company has entered into a series of contracts with local landholders and Ejido Councils (farm owners’ collective) in order to conduct exploration on their land. Separate contracts are held to maintain free access to the site. New negotiations will be required to either purchase land or to obtain long term agreements for the future Project operations.

 

September 2011

 

27



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Figure 4.1      La Preciosa Property land position location map

 

 

September 2011

 

28



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

 

Note: black lines are lease boundaries controlled by the La Preciosa JV Company, black shaded areas are third party land holdings, and red shaded area is the vein interpretation.

 

September 2011

 

29



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Table 4.1                          La Preciosa Property concession details

 

Claim name

 

Expedient

 

Title

 

Issue date

 

Area (ha)

 

$MXP(1) per ha

 

Total $MXP(2)

 

Expiry date

 

La Preciosa property concessions

La Preciosa

 

321.1-2/398

 

182517

 

15/07/1988

 

143.6119

 

111.270

 

15,980

 

14/07/2038

 

Lupita

 

321.1/9-303

 

182584

 

12/08/1988

 

27.1878

 

111.270

 

3,025

 

11/08/2038

 

Fracción La Preciosa

 

321.1/2-399

 

185128

 

14/12/1989

 

2.5249

 

111.270

 

281

 

13/12/2039

 

San Patricio

 

321.42/919

 

189616

 

05/12/1990

 

29.474

 

111.270

 

3,280

 

04/12/2040

 

La B

 

2/1.3/01962

 

214232

 

06/09/2001

 

28.2006

 

111.270

 

3,138

 

05/09/2051

 

El Choque Tres

 

2/1/02251

 

218953

 

28/01/2003

 

10.0

 

63.220

 

632

 

27/01/2053

 

El Choque Cuatro

 

25/30812

 

220251

 

02/07/2003

 

644.1296

 

31.620

 

20,367

 

01/07/2053

 

El Choque Seis

 

25/31144

 

220583

 

02/09/2003

 

249.0

 

31.620

 

7,873

 

01/09/2053

 

Adjacent concessions controlled by the La Preciosa JV Company

Santa Monica

 

25/31208

 

221288

 

20/01/2004

 

16385.457

 

31.620

 

518,108

 

19/01/2054

 

Santa Monica Sur

 

25/31411

 

223097

 

15/10/2004

 

900.0

 

31.620

 

28,458

 

14/10/2054

 

San Juan

 

25/31434

 

226663

 

17/02/2006

 

14003.4737

 

15.72

 

220,135

 

16/02/2056

 

 


Note(1): MXP = Mexican Pesos.  Note(2): Fees are payable twice per year and are due every January and July.

 

September 2011

 

30



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

4.2                                 Issuer’s interest

 

On 13 April 2009, Pan American and Orko announced that they had signed a letter agreement setting out the basic terms under which they may jointly develop the Project. Pursuant to the letter agreement, Pan American agreed to act as operator and, in order to retain a 55% interest in the Project, to (i) make a minimum of $5,000,000 in expenditures relating to exploration of the properties within 12 months of executing the letter agreement, (ii) prepare a feasibility study in respect of the Project within 36 months of executing the letter agreement, and (iii) following a positive construction decision by the parties, contribute 100% of the funds necessary to develop and construct an operating mine as contemplated in the feasibility study.

 

In October 2009, Pan American, Orko, (PASMEX, a subsidiary of Pan American which holds Pan American’s interest in the La Preciosa Project and which is the operator) and the La Preciosa JV Company entered into a formal joint venture agreement in connection with the Project.

 

Pursuant to the terms of the joint venture agreement dated 13 April 2009, if PASMEX fails to complete the required expenditures during the first 12 months or to complete the feasibility study within the 36-month period, PASMEX will surrender its interest in the La Preciosa Project. If, however, PASMEX incurs the required expenditures during the first 12 months and completes the feasibility study within the allotted period, but elects not to proceed with funding the construction of the Project, PASMEX will surrender its 55% interest but will be entitled to receive a 1.5% net smelter return royalty on the Project as provided in the joint venture agreement. Orko or the La Preciosa JV Company have the right to purchase the net smelter return royalty from PASMEX for $8,000,000 for a period of three years from the date of the surrender of the Pan American interest.

 

4.3                                 Royalties, back-in rights, payments, agreements, and encumbrances

 

The Project is subject to the San Juan Property Option Agreement dated April 10, 2006, among Orko and the Silver Standard Group, in accordance of which the La Preciosa JV Company pays the La Cuesta Royalty, comprised of $5,000 or 2% of direct exploration costs, and 0.25% of net smelter returns.

 

Additionally, there is a Net Smelter Return Royalty Agreement dated 19 June 2002 among Minas Luismin S.A. de C.V., Minas Sanluis, S.A. de C.V. and Corporación Turística Sanluis, S.A. de C.V. (CTS) which runs with the Property and grants a 3% net smelter returns royalty to CTS on minerals derived from the La Preciosa, Lupita, Fracción La Preciosa, San Patricio, El Choque Tres, and La B claims.

 

For this preliminary economic assessment, El Choque Cuatro and El Choque Seis are also included in economic model but they are not subject to any royalties. Therefore, based on the estimated feed grade tonnes to be extracted from the various claims, a weighted average net smelter royalty of 2.5% is applied in the economic model.

 

There are no other known royalties, back-in rights, payments, agreements, or encumbrances.

 

September 2011

 

31



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

4.4                                 Environmental liabilities

 

A stockpile of approximately 10,000 tonnes (t) of material produced from the historical workings is located towards the north end of La Preciosa Ridge and there are small historical workings over some of the veins. These do not present a significant environmental liability and will be processed as plant feed.

 

Nearby farmers produce beans and maize and local cattle graze on neighbouring land. There are a number of unpaved access roads on the Property as well as minor infrastructure to support exploration and drilling activities. The major environmental issue in the area is the current cattle, goat and agricultural regime that tends to exceed the carrying capacity of the area.

 

4.5                                 Permits

 

Pan American has obtained five exploration permits from the Secretaría de Medio Ambiente y Recursos Naturales (Ministry of Environment and Natural Resources, SEMARNAT) since the start of Pan American’s involvement in the Project. Data collection work is complete to compile the database of vegetation, wildlife, ground and surface water quality and quantity, climate, and other items necessary for submission of the MIA (Environmental Impact Assessment). The database summary report has been completed and the information from that report will be used for compiling the MIA for submission to and approval by SEMARNAT. Pan American has obtained contracts and agreements with the owners of the Property for exploration and will need the same for mining.

 

4.6                                 Significant factors and risks

 

The Property is subject to the same risks as any other mining project in México or in other newly industrialised nations, including under-estimation of capital and/or operating costs, delays or inability in securing land agreements, the inability to attract qualified personnel, personal security risks, poor communication with stakeholders, over-estimation of mineral resources and metal prices, inflation of capital and/or operating costs, complicated geotechnical conditions, and changes in the Project mine plan. There are no other known significant factors and risks that may affect access, title, or the right or ability to perform work on the Property.

 

September 2011

 

32



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

5                                          Accessibility, climate, local resources, infrastructure and physiography

 

Information in this section is updated from MDA (2009).

 

5.1                                 Access

 

The Property is located approximately 84 km by road northeast of the city of Durango and can be accessed by vehicle from Durango in approximately 90 minutes. A Google satellite map showing the location of the Property relative to Durango and the access roads is shown in Figure 5.1. From Durango, travel is northeast toward Torreon by the sealed Federal Highway 40 to the town of Francisco I. Madero. From this point a secondary paved road is followed northwest to the village of Lázaro Cardenas, then by a newly paved road to the village of Francisco R. Serrano. After 9 km there is a turnoff on a newly paved road southwest to the village of Francisco Javier Mina, then travel is to the south for 5.5 km by gravel road to the access road to the Project site. The access road is a 3.5 km gravel road heading southeast and leads to the portal of the historic workings and the main camp of the Project.

 

Figure 5.1                                       La Preciosa Property location and access map

 

 

September 2011

 

33



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

5.2                                 Climate and length of operating season

 

The Property area has a semi-arid climate, with an annual average temperature of about 25°C and an average annual precipitation of about 600 millimetres (mm), usually occurring between May and October. Temperatures can fall below freezing on winter nights but snow is rare. Activities can take place year round. The dominant wind direction is southeast.

 

5.3                                 Proximity to population centre and transport

 

Durango is the capital city of Durango State and has a population of approximately 600,000. One of the major industries in Durango is mining, particularly for silver, and the region is a good source of skilled personnel, support services, and mining equipment. The city of Durango is served by an international airport with daily flights connecting to destinations in México and the United States. Durango is located on Mexican Federal Highway 40 which connects Durango to Mazatlan approximately 310 km to the southwest on the Pacific coast and to Torreón approximately 245 km to the northeast. A rail line runs between Durango and Torreón and connects to other cities in México and the United States.

 

5.4                                 Surface rights, land availability, infrastructure, and local resources

 

5.4.1                        Surface rights, land availability, and mining areas

 

The Property has ample land for the construction of the mine, mill, and supporting facilities including tailings and waste disposal. A plan of the proposed pits, dumps, tailings dam, plant, and infrastructure is shown in Figure 5.2

 

Surface rights are coordinated through agreements with the Ejido Councils (farm owners collective). Any future surface utilisation or construction will require negotiating with the Ejido Councils involved. Separate surface access contracts are also in place with some independent ranch owners who are not members of Ejido Councils. Details of the landowners in the area of the proposed mine and plant facilities are shown in Table 5.1. A plan of the land owner boundaries is shown in Figure 5.3.

 

September 2011

 

34



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Figure 5.2                   Plan of proposed pits, dumps, tailings dam, plant, and infrastructure

 

 

Table 5.1                          Land owners in the area of proposed mine and plant facilities

 

Name and property type

 

Area (ha)

 

Candelaria Uves Solórzano — private

 

200

 

Petra Higareda — private

 

55

 

Ciro Diaz — private

 

100

 

Ricardo Flores Magón — Ejido

 

150

 

Lázaro Cárdenas — Ejido

 

101

 

La Preciosa — La Preciosa Resources

 

45

 

 

September 2011

 

35



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Figure 5.3                   Plan of land owner boundaries in the area of the proposed mine and plant facilities

 

 

5.4.2                        Power, infrastructure, and water

 

Both the quality of infrastructure and the population density increases towards the city of Durango. The Property is not connected to the commercial electrical grid but the nearby village of Francisco Javier Mina (population around 920) and the town of Francisco I. Madero (population around 4,550) are serviced by the commercial electrical grid. The Property is presently supplied electrical power by one 65 kilowatt (kW) diesel generator and two smaller 5.5 kW diesel generators. The main power grid for Durango follows a paved federal highway and a power connection is available for the Project from a substation located in the city of Canatlán, Durango, 41 km northwest of the Project site.

 

The town of Francisco I. Madero has a Pemex gas station and the services of metal fabricators and mechanic shops. A railway line is present near the south boundary of the Property and the railway has a direct line to Torreon, the site of the nearest metal smelter.

 

September 2011

 

36



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Presently the Property has six core storage sheds, an office, lunch room, washrooms, small warehouse, flammable substances storage area, drilling company workshop, night watchman’s accommodation, and a generator/core cutting shed.

 

The water for drilling and services is obtained from a water reservoir in Francisco Javier Mina, charged at a rate of $500 Mexican Pesos per 1.75 cubic metres (m3), including the cost to haul the water to the Project by tanker trucks to water tanks located adjacent to the drilling areas. Water for mining production is proposed to be supplied from an underground source in the thick gravels on the plain to the east of the Project. The underground source will be accessed by drilling a well 200 metre (m) deep on the Ejido Lázaro Cardenas property located 7.2 km to the east of the Project. The cost for the installation of the well is anticipated to be on the order of $700,000.

 

The fee for industrial use of the water as imposed by the Mexican National Water Commission (CONAGUA) is $7.1623 Mexican Pesos per m3 of water. The area in which the water well is proposed does not require a permit to initialise construction, however, once the well is complete and operational it must be registered with CONAGUA, which administers water management at the federal level.

 

5.4.3                        Local resources and mining personnel

 

There is a sufficient local work force available in Durango and the surrounding region for Project construction and operators, details are shown in Table 5.2.

 

September 2011

 

37



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Table 5.2                                              La Preciosa Project work force availability

 

Federal 
code

 

State

 

Municipality 
code

 

Municipality

 

Local 
code

 

Locality

 

Total 
population

 

Active 
population

 

Distance 
to Project 
(km)

 

10

 

Durango

 

1

 

Canatlán

 

1

 

Canatlán

 

11,495

 

4,285

 

43

 

10

 

Durango

 

1

 

Canatlán

 

110

 

Ricardo Flores Magón

 

1,467

 

479

 

13

 

10

 

Durango

 

5

 

Durango

 

1

 

Victoria de Durango

 

518,709

 

204,350

 

84

 

10

 

Durango

 

5

 

Durango

 

295

 

Vicente Suárez

 

92

 

31

 

48

 

10

 

Durango

 

20

 

Pánuco de Coronado

 

1

 

Francisco I. Madero

 

4,550

 

1,601

 

32

 

10

 

Durango

 

20

 

Pánuco de Coronado

 

8

 

Francisco Javier Mina (Corralejo)

 

919

 

201

 

9

 

10

 

Durango

 

20

 

Pánuco de Coronado

 

14

 

General Lázaro Cárdenas

 

389

 

121

 

27

 

10

 

Durango

 

20

 

Pánuco de Coronado

 

9

 

Francisco Rueda Serrano

 

541

 

160

 

23

 

 

September 2011

 

38



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

5.5                                 Topography, elevation, and vegetation

 

La Preciosa lies on the western edge of the high plains of northern México, an extensive volcanic plateau characterised by narrow, northwest trending ranges separated by wide, flat-floored filled basins. In the Durango area, the basins have elevations of between 1,900 m to 2,100 m above sea level and the higher peaks rise to 3,000 m. The Property elevation in the area of the mineralised zones at La Preciosa is between 1,990 m and 2,265 m. The highest elevations on the Property are at the northwest trending La Preciosa Ridge which overlies the La Gloria and Abundancia veins. A broad valley forms to the east of the ridge and extends approximately 1 km toward another lower lying ridge to the northeast. Grasses, small shrubs, and cactus comprise the typical vegetation on the steep hillsides with larger bushes and mesquite trees in the lower lying areas near springs and streams. Nearby farmers produce beans and maize with groundwater sourced from thick gravel beds in the surrounding plains. Local cattle graze on land dominated by litho-soils supporting nopal (prickly pear) and huizache (acacia) scrubland.

 

September 2011

 

39



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

6                                          History

 

6.1                                 Prior ownership, exploration, and development work

 

6.1.1                        Late 19th century work

 

Mining has occurred on the Property area since the late 19th century. The earliest known workings from this time are concentrated on the Abundancia and La Gloria veins at the north end of La Preciosa Ridge, and are known as the Mina La Preciosa. Drifting on a vein at the south end of the ridges at Mina El Orito may also have taken place during the same time period. Mining ceased during the start of the Mexican Revolution in 1910 and the Property area lay idle until selective small scale mining operations took place between 1970 and 1979. Previous mining is believed to total no more than 30,000 t of material.

 

6.1.2                        Work by Luismin from 1981 to 1982 and 1994

 

In 1981, Compañía Minera Minas San Luis (Luismin), operating as Minera Thesalia through a joint venture between Tormex S.A. and Luismin, conducted detailed channel sampling of surface outcrops in the eastern breccias (Zona Oriente) and main vein systems as well as a single east-west line of induced polarisation (IP) resistivity across the Property. Luismin also drilled seven diamond drill core holes, two from underground and five from surface, for 1319 m. The holes targeted the Abundancia and La Gloria veins 50 m to 75 m below the primary underground workings on the 2065 level. The drill programme terminated in 1982, reportedly due to falling metal prices. The half core is still intact and stored on site and the drillhole data is available in the database.

 

Luismin enlarged the main 2065 level within the Abundancia and La Gloria vein underground workings to a 3 m by 3 m size over approximately 60% of the drifts to provide access for trackless mining and drilling equipment. Luismin collected underground channel samples at two to three metre intervals along the drifts. In addition, Luismin collected chip samples from a total of 450 m of underground workings along the Abundancia vein and 408 m along the La Gloria vein. In total, Luismin collected 1,365 chip samples from underground.

 

Luismin extracted approximately 11,730 t of material at an estimated grade of 0.43 parts per million (ppm) gold (Au) and 157 ppm silver (Ag) from the underground workings and placed it in stockpiles at the portal, which remain largely intact.

 

Luismin completed only limited work after 1982, including a single 313 m long drillhole in the eastern vein breccia system (Zona Oriente) in 1994. The drillhole intersected a series of variably silicified zones and veinlet stock work with anomalous silver, gold, lead, zinc, and mercury grades, but the hole did not pass through the entire width of the structure. In 1988 a small scale bench metallurgical test was performed on a sample of material extracted from the Abundancia and La Gloria veins, the results of this test work are discussed in Section 13.

 

Luismin staff prepared several historical internal mineral resource estimates which relied heavily on underground chip sample assays and only limited drilling. The results of these estimates are no longer relevant.

 

September 2011

 

40



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

6.1.3                        Work by Orko from 2003 to 2008

 

In December 2003, Orko Gold Corp., now known as Orko Silver Corp., negotiated a joint-venture option agreement with Luismin. An independent property examination including the selection of eight surface rock samples for verification of historical data was performed in early 2004 on behalf of Orko. Geological mapping and surface sampling began in 2004 and target areas were identified for more detailed follow up.

 

In January 2005, 40 line kilometres of 3D induced polarisation resistivity and chargeability surveys were completed on the Property. The geophysical surveys were conducted over the north part of the main structures (Mina La Preciosa), extending across the central valley and the eastern vein breccia (Zona Oriente), and northward to Cerro Prieto and the northern projection of the main structures (La Preciosa Norte). Weak geophysical signatures were noted on the ridge where the Mina La Preciosa veins are known, but the method provided inconclusive results beneath the basalt cover to the north along the same vein trend. A large multi-line chargeability anomaly was observed in the central valley beneath the basaltic cover.

 

Orko’s diamond drill core programme began in 2005 with the initial drilling targeting the Mina La Preciosa veins. The 2005 to 2008 drilling programmes successfully intersected the Abundancia, La Gloria, and Luz Elena veins in multiple intercepts, as well as oblique intercepts of the Esperancita and Carmen veins. The deeper and thicker Martha vein structure was discovered in late 2006 in drillhole BP06-77. In total, Orko drilled 388 diamond drill core holes for 152,368 m.

 

Orko prepared a series of five mineral resource estimates from 2006 to 2008. These estimates were prepared by interpretation of multiple mineralised zones defined by structure and by grade on longitudinal sections using minimum cut-off grades of 100 ppm Ag equivalent and 150 ppm Ag equivalent and a minimum true vein width of 1.5 m (silver equivalent was calculated as the silver assay grade plus 60 times the gold assay grade, assuming a 100% relative recovery of each metal). The interpretations were projected to a maximum of 25 m vertically below the drillhole intercept with the vein. Immersion method specific gravity measurements were available for every sample submitted during the 2005 to 2007 drilling programmes and were used to derive tonnes and contained metal. Grades were estimated by true thickness weighted average grade of all drill intercepts within each mineralised zone. All mineral resource estimates were classified as Inferred.

 

In March 2009, Orko disclosed the results of an independent mineral resource estimate undertaken by MDA (2009), based on Orko’s 388 drillholes. Geological models were prepared on paper cross sections, digitised to honour the three dimensional contacts on the drillhole trace, and then converted into wireframe solids. The solids were used to code the assay database, define separate silver and gold grade estimation domains, to prepare the block model, and to code the block model for density. Silver grade estimation domains were based on a cut-off grade of approximately 4 ppm Ag to 30 ppm Ag, depending on the style of mineralisation. Gold grade estimation domains were based on a cut-off grade of approximately 0.1 ppm Au.

 

Drillhole intersections lying within the grade estimation domains were top cut for extreme grade values defined by examination of the sample grade statistics in each domain. Samples were then composited to 3 m lengths honouring geological boundaries. Estimation was by inverse distance squared with ordinary kriging and nearest neighbour estimates as a check, using a minimum of one sample composite and

 

September 2011

 

41



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

a maximum of 12 composites required to return an estimate and a restriction of two composites per drillhole.

 

The percentage of the block lying within the wireframe was coded to the block model and the percentage was then used to calculate the weighted average of the tonnes and grades for mineral resource reporting. All high grade material estimated within or 10 m beyond the digitised historical workings was depleted from the model, resulting in the depletion of 410,000 t.

 

Mineral resources were classified as Inferred and Indicated and reported from vein material only above a range of silver equivalent cut-off grades using a ratio of 60 gold to 1 silver. Above a 100 ppm Ag equivalent, Indicated mineral resources were reported as 10.6 million tonnes (Mt) at 201 ppm Ag equivalent, 185 ppm Ag, and 0.27 ppm Au in the Indicated category and 12.1 Mt at 200 ppm Ag equivalent, 185 ppm Ag, and 0.25 ppm Au in the Inferred category. These mineral resource estimates have not been reviewed or validated by QG and are reported for historical purposes only. The results of these mineral resource estimates have been superseded by the updated mineral resource estimates presented in Section 14.

 

September 2011

 

42



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

7                                          Geological setting and mineralisation

 

Information in this section has been excerpted and updated from MDA (2009) and Coote (2010).

 

7.1                                 Regional geology

 

The Property is located in a geological sub-province known as the “Altas Llanuras” or High Plains, on the eastern flank of the Sierra Madre Occidental mountain range (Figure 7.1). The Altas Llanuras sub-province is a volcanic highland composed of Tertiary (Paleocene) to Quaternary (Pleistocene) age sequences of andesite, dacite-rhyolite, and basalt, which in turn rest on a basement of Cretaceous age conglomerate and Permian age metamorphic rocks. The present basin and range topography reflects a series of north to northwest trending linear grabens along the range fronts.

 

In the region north of the city of Durango, sedimentary rocks of Cretaceous age are exposed in small windows through the Tertiary age volcanic rock cover. These consist of mudstone, shale, limestone, and conglomerate with volcanic, sedimentary, and limestone clasts. The Cretaceous age rocks are covered by a sequence of andesite tuff, flows, and agglomerate of the Paleocene-Eocene age Lower Volcanic Series. In the surrounding ranges, the Lower Volcanic Series is overlain by thick sequences of rhyolite and dacite ignimbrite, tuff, and volcanic breccia of the Oligocene age Upper Volcanic Series. The Upper Volcanic Series is not exposed at La Preciosa, but it is exposed in cliffs to the west of La Preciosa.

 

The basins and parts of the lower hills are covered with varying thicknesses of Pliocene to Pleistocene age basalt that erupted from numerous vents now marked by small volcanic cones and domes that dot the plains. Several volcanic vents have been mapped on the Property, including the prominent Cerro Prieto.

 

September 2011

 

43



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Figure 7.1                   Regional geological setting map

 

 

September 2011

 

44



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

7.2                                 Local geology

 

The oldest rocks within the Property, found only in deeper drill core intersections, are a Permian age metamorphic series consisting of graphitic schist, chlorite schist, and layers of quartzite. Above the metamorphic units is a thick package of Early Cretaceous age polymictic conglomerate composed of fragments of sub-angular to rounded schist, limestone, quartz, intrusives, and volcanic rocks and containing lenses of arkosic sandstone. This sedimentary package is overlain by andesitic tuff, andesite, and agglomerate of the regional Tertiary age Lower Volcanic Series. In places the flows are porphyritic and tuffs are partly welded. Rhyolites of the Tertiary age Upper Volcanic Series are not found in the immediate study area, but can be seen on cliffs further to the west on the San Juan property. The Cretaceous age conglomerate and Tertiary age Lower Volcanic Series andesitic rocks are the main host rocks of the mineralised veins, although vein mineralisation does extend into the basement metamorphic rocks. There are a few dacitic, rhyolitic, and andesitic dikes and micro-sills noted in deeper core intersections, but intrusive rocks are generally rare. The youngest rocks are basalt flows which erupted from several Pleistocene age volcanic vents and which now fill the lower valleys. A small number of basalt dykes related to this extrusive activity were encountered in drilling at La Preciosa. Cerro Prieto, Cerro Blanco, and Cerro La Chicharronera are prominent examples of the volcanic vents. An example cross section at 2701780 mN showing the drillhole traces and lithology at La Preciosa is shown in Figure 7.2.

 

Figure 7.2                                       Example cross section of drillholes and lithology at 2701780 mN

 

 

The Property covers a series of Tertiary age gold and silver-bearing epithermal quartz veins which also contain barite, calcite, fluorite, and quantities of base metals, primarily zinc, lead, and copper. There are two major vein and vein breccia systems exposed on a

 

September 2011

 

45



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

series of hills and ridges which are separated by a flat-floored valley roughly 800 m in width. The main vein system on La Preciosa Ridge (shown in Figure 7.3) consists of dominantly northward-striking and westward-dipping veins (e.g., Abundancia, La Gloria, Esperancita, Luz Elena, and Martha), plus east-west striking, south-dipping cross-cutting veins (e.g., Transversal). The eastern vein breccia system (Martha East) strikes northwest and is interpreted to be a surface expression of the shallowly dipping Martha Vein. A sub-parallel north-northwest trending vein system (La Plomosa, El Vaquero, and Nancy) is exposed on the hills immediately to the west of La Preciosa Ridge, mostly on the San Juan concession.

 

Figure 7.3                                       Local geology plan

 

 

September 2011

 

46



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

7.3                                 Property geology

 

The La Preciosa Ridge vein system has been traced on surface for over 3.7 km and drilling has revealed that the veins continue to the north beneath the basalt cover. Exploration towards the northwest of the Martha vein was not conclusive because the drillholes did not extend to the contact of the volcanics and conglomerate. It is possible that the Martha vein has been truncated by a normal, east-west trending fault with dextral displacement, moving the vein to the east and at greater depth. Future drill programmes with deeper holes will explore this possibility. The veins are also interpreted to extend farther south of known exposures.

 

Individual veins have been traced for up to 3.1 km along strike. Within the main vein system, the Abundancia, La Gloria, Luz Elena, and Martha veins have been explored in the most detail. A representative cross section at 2701780 m N showing the Gloria, Abundancia, Luz Elena, Pica, Alacran, and Martha veins, drillhole traces, and the principal rock groups is shown in Figure 7.4. The Abundancia and La Gloria veins coalesce at depth with a shallow northward plunge at the intersection and the merged vein continues as the Abundancia vein. Vein thicknesses vary from 1.5 m to 26 m wide at Abundancia, 1.5 m to 17 m at La Gloria, and 1.5 m to 35 m at Martha veins. Continuity of the Abundancia and La Gloria vein structures has been demonstrated through a total of 2.5 km of underground drifts.

 

The Martha vein contains the largest part of the mineral resource on the Property. Mineralisation is found in metamorphic rocks at depth, through to the conglomerate unit above, and then follows the angular unconformity at the base of the andesite. The portion of the Martha vein with the greatest widths and highest grades occurs when the low angle structure develops on the contact of the volcanic and conglomerate units. The vein continues to depth in the shales but usually splits into several narrow veins. A similar effect occurs where the vein develops between the contact between the volcanic rocks and schists, or else when the vein extends into the volcanic units.

 

The east-west trending Transversal veins occupy a south-dipping normal fault, with the Zona Sur area representing the short offset, down dropped block. The Abundancia vein continues south of the Transversal vein in the Zona Sur. As it is in a structurally separate sector, it has been interpreted apart from the main Abundancia vein. The Esperancita vein is a northwest trending structure overlying the Abundancia vein.

 

September 2011

 

47



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Figure 7.4                                       La Preciosa cross section at 2701780 mN showing drillhole traces, veins, and lithology

 

 

September 2011

 

48



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

7.4                                 Mineralisation

 

Mineralisation at the Property is hosted within multiple discrete poly-phase quartz veins, often displaying banded, smoky, drusy, and chalcedony textures. Fluorite, amethyst, a substantial number of barite laths, calcite, and rhodocrosite may also be present, and sulphide mineralisation in the form of sphalerite, galena, pyrite, chalcopyrite, acanthite, sparse native silver and free gold, as well as iron and manganese oxides have been noted in drill core. The principal silver bearing mineral at La Preciosa is acanthite, pseudomorphed after argentite or as microcrystalline to amorphous grains.

 

All veins on the deposit appear to be structurally controlled with movement on pre-, syn-, and post-mineralisation normal faults creating openings and fracturing in which the veins and mineralisation were deposited. The greatest thickness and highest grade portions are found where the largest amounts of opening and fracturing occurred. Away from these zones the expressions of the veins weaken. In each stage of variably crustiform banded fracture fill/breccia cement mineralogy, minor amounts of carbonate interstitial to quartz and chalcedonic quartz is succeeded by later carbonate-rich and quartz-poor assemblages. The trend of decreasing mosaic quartz/chalcedonic quartz and increasing carbonate/iron carbonate is repeated for each major stage of fracturing and brecciation.

 

In a recent petrologic study, Coote (2010) identified mainly argentite, tennantite/tetrahedrite, and Ag sulphosalts in samples. The majority of gold/electrum is inter-grown with or occupying the same paragenetic position as argentite, silver sulphosalts, sphalerite and galena, mostly transitional between quartz and carbonate/iron carbonate in formation. The minerals and textures identified in the studies indicate that gold/electrum has a similar hydrothermal paragenesis to silver sulphides/sulphosalts and base metal sulphides. Most of the identified gold/electrum is intergrown with argentite, silver sulphosalts, sphalerite, galena, and carbonate/iron carbonate. Only minor amounts of gold/electrum were identified in exclusive association with very fine grained quartz of early paragenesis in any given sequence of multiple stage fracture/cement mineralogy. There is a moderate to weak correlation between silver and gold, copper, and lead grades.

 

Wall rocks hosting mineralisation are variably silicified, with proximal patchy illite-smectite alteration and distal chlorite alteration. The presence of mangano-calcite has been noted in several drillholes, but it is not uniformly distributed. In shallower drillholes, pyrolusite and limonite often appear on fracture surfaces.

 

The host rocks and veins have undergone intense weathering. The base of oxidation is erratically distributed as weathering is controlled by the presence of post mineralisation faults which allowed the percolation of oxidised meteoric groundwater to vertical depths of 350 m below surface. Weathering minerals include iron oxides, iron carbonates, manganese oxides, and unidentified clays.

 

The Martha vein in general contains more calcite and a higher proportion of pale, low-iron content sphalerite, galena, and pyrite compared to the Abundancia and La Gloria veins. It can be considered as a mineralised zone or lode of stock work, silicification, breccias, veins, vein breccias, veinlets, and a general mix of multiple styles of mineralisation. Within this broader zone, the Martha lode ranges from 1 m thick to 35 m thick and averages approximately 5 m. Generally one but occasionally more high grade veins or vein breccias exist within the thickness of the vein zone. The high grade vein zones range from less than 1 m thick to 10 m thick and average 5 m. The upper

 

September 2011

 

49



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Martha vein (Martha Superior) has the highest silver grades and is primarily composed of quartz and contains dark sphalerite, pyrite, chalcopyrite, argentite, silver sulphosalts, and native silver. The main Martha vein and the lower Martha vein (Martha Inferior) are lower in silver tenor and are composed primarily of quartz and carbonate (calcite and rhodochrosite) with pyrite, galena, iron-poor sphalerite, and silver sulphosalts. In Martha East, pale green fluorite is present as a late stage mineral at a surface expression of the Martha vein where it flares into veinlets and silicified breccia bodies.

 

Eighteen geologically continuous veins have been defined by extensive diamond drilling intersections and three dimensional geological interpretations (wireframes) have been made of these veins for the purpose of mineral resource estimation. The principal vein, Martha Alta, extends along strike for a distance of 3 km and has a width of approximately 1.5 km. All the vein sets strike roughly north-south except for two cross cutting veins (Transversal Norte and Transversal Sur). The dip of the individual veins varies, with some steeply dipping vein sets to the northwest close to surface, and others dipping shallowly, either close to the surface or at depth. There are three main sets of veins present at La Preciosa, including:

 

·            Martha veins dipping at moderate angles (approximately 20° to 30°) towards the southwest (235° to 260°).

 

·            Steeper dipping veins sitting above Martha (approximately 55° to 70° dip towards around 260°).

 

·            Transverse veins (50° dip towards 170°).

 

Details of each of the defined veins, including volume, strike length, thickness, orientation, and depth below surface are given in Table 7.1.

 

September 2011

 

50



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Table 7.1                                              Vein volumes and orientations

 

Vein

 

Volume (m3)

 

Strike 
length (m)

 

Down dip 
width (m)

 

Thickness (m)

 

Dip

 

Strike

 

Depth below 
surface (m)

 

Carmen (2 lenses)

 

274,400

 

450

 

50 - 125

 

5

 

80

 

290

 

30 and 165

 

Gloria

 

743,600

 

900

 

200

 

4

 

80

 

350

 

0 to 50

 

Gloria Rama

 

162,300

 

380

 

160

 

3

 

60

 

350

 

0 to 50

 

Nieta

 

137,700

 

280

 

100

 

4

 

60

 

340

 

0

 

Pica (2 lenses)

 

543,600

 

900

 

200 - 400

 

2

 

60

 

350

 

50 and 100

 

Martha Alta

 

15,217,800

 

3,100

 

600 – 1,400

 

5-15 (average 5)

 

20

 

320

 

0

 

Martha Baja

 

2,045,800

 

1,400

 

200 – 1,000

 

3

 

20

 

330

 

0

 

Martha Media

 

1,030,000

 

580

 

200

 

9

 

40

 

360

 

185

 

Martha Media Alta

 

187,700

 

290

 

120 – 180

 

5 – 10 (average 5)

 

20

 

360

 

200

 

Martha Ramas (7 lenses)

 

978,100

 

2,150

 

100 – 220

 

2

 

10 – 30

 

360

 

30 to 300

 

Transversal Norte

 

242,600

 

500

 

150

 

2.5

 

45

 

075

 

0

 

Transversal Sur

 

423,700

 

650

 

150 – 400

 

3

 

50

 

090

 

0

 

Abundancia (2 lenses)

 

2,402,100

 

1,700

 

300 – 500

 

4

 

40

 

360

 

0

 

Alacran

 

244,000

 

500

 

250

 

2

 

30

 

350

 

60

 

Esperancita

 

165,600

 

450

 

200

 

2

 

45 – 70

 

330

 

0

 

Luz Elena (2 lenses)

 

237,300

 

550

 

300

 

2

 

30 and 65

 

350

 

50 and 150

 

Nueva

 

292,900

 

530

 

400

 

1.5

 

5

 

350

 

35

 

Olin

 

71,900

 

125

 

200

 

3

 

30

 

350

 

160

 

Sur

 

218,500

 

530

 

175 – 250

 

2

 

20

 

350

 

10

 

 

September 2011

 

51



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

8                                          Deposit types

 

Information in this section is excerpted and updated from MDA (2009) and Coote (2010).

 

Mineralisation at the Property is hosted by quartz-carbonate-barite veins. The occurrence of adularia and the style of early quartz and chalcedonic quartz replacement amongst wall rock replacement and fracture-fill cement assemblages confirm that silver and base metal mineralisation is associated with low to intermediate sulphidation epithermal style systems typical of the Mexican silver belt.

 

Significant widths of mineralised quartz and carbonate dominated fracture fill and breccia cement assemblages have developed as a result of extended episodes of hydrothermal fluid flow and repeated rupturing of wall rock and pre-existing vein/cement assemblages. Multiple stages of silver and base metal mineralisation are associated with repeated fluid boiling and mixing events, defined by crustiform banded fill/cement assemblages.

 

The Martha vein, which contains the principal mineral resources at La Preciosa, is a low angle structure partly localised at the contact between sedimentary rocks (conglomerate and sandstone) and volcanic rocks (andesite/andesite clastic rocks).

 

The geology and style of mineralisation at La Preciosa are similar to those of other silver producing districts in the western Americas. México is host to many silver-gold mining districts, alternating with Peru as the largest silver producer in the world.

 

September 2011

 

52



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

9                                          Exploration

 

Information in this section is excerpted and updated from MDA (2009).

 

No significant exploration has been reported on the Property prior to 1981, when Luismin began working on the Property. Only limited exploration took place between 1982 and 2004, when Orko acquired the Property.

 

9.1                                 Exploration by Luismin from 1981 to 1982 and 1994

 

Luismin conducted exploration between 1981 and 1982, including detailed channel sampling of surface outcrops in the main vein systems and Zona Oriente (now believed to be a surface expression of the Martha vein), geophysical surveying of a single IP resistivity line across the north end of La Preciosa Ridge extending eastward to Zona Oriente, and diamond drilling of the Abundancia and La Gloria veins. There are no available details of the results of the geophysical programme although it is reported that a weak response was interpreted for the area of the Abundancia and La Gloria veins and a weaker response was interpreted on the silicified mounds of Zona Oriente. The low sulphide content and low contrast between quartz veins and enclosing silicified andesite could be attributed to the lack of a stronger geophysical response. The 1981 and 1982 drilling programme comprising 7 drillholes and the 1994 programme comprising a single drillhole were reportedly terminated due to falling metal prices. More details on the diamond drilling programme are given in Section 10.

 

Luismin enlarged approximately 60% of the drifts to 3 m high by 3 m wide on the main 2065 m level within the Abundancia and La Gloria vein underground workings to provide access for trackless mining and drilling equipment. Underground channel samples were selected at 2 m to 3 m intervals along the drifts. In addition, 450 m of underground workings along the Abundancia vein and 408 m along the La Gloria vein were chip sampled. In total, 1,365 chip samples were collected underground by Luismin and 406 channels are preserved in the current drilling database.

 

Luismin staff prepared several historical internal mineral resource estimates which relied heavily on underground chip sample assays and only limited drilling. The results of these estimates are no longer relevant.

 

9.2                                 Exploration by Orko from 2004 to 2008

 

In early 2004, Orko commissioned an independent property examination which included the collection of eight surface rock samples for verification of historic data. Later in 2004, the Property was mapped at a scale of 1:5000, identifying target areas for more detailed work.

 

In January 2005, SJ Geophysics Ltd. of Delta, BC, Canada conducted a three dimensional IP resistivity and chargeability geophysical survey. The survey took place over the north part of the main structures at Mina La Preciosa, extending across the central valley and the eastern vein-breccia (Zona Oriente) and northward to Cerro Prieto and the northern projection of the main structures. 40 line-kilometres were run at 100 m line spacing and 25 m station spacing. A weak geophysical signature was noted on the shallow, near surface response high on the ridge where veins are known, but the resistivity method was not successful beneath the basalt cover to the north. A large,

 

September 2011

 

53



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

multi-line chargeability anomaly was delineated beneath the basaltic cover in the valley between La Preciosa Ridge and Zona Oriente.

 

A geochemical sampling programme was conducted over the southern part of La Preciosa in 2008, with the grid starting on Cerro El Venado and heading southward on east-west lines. On the ridges the line spacing was 100 m and the sampling spacing was 25 m along lines, and in flat-lying areas, the sample spacing was 50 m. The entire grid runs 5 km north-south and averages 2 km wide east-west. 1,167 soil samples were collected from the “B” soil horizon. Strong multi-element geochemical anomalies were found for the Veta Nueva, El Orito, El Orito Norte, and Nancy veins.

 

Diamond drilling by Orko commenced in March 2005 on La Preciosa Ridge, targeting the Abundancia and La Gloria veins and intersecting the Luz Elena vein at depth. Other holes drilled during 2005 targeted the Zona Oriente area located 1 km northeast of the La Preciosa Ridge historic mine areas. The 2006 drilling campaign demonstrated continuity of vein mineralisation at La Preciosa Ridge from the south at Abundancia and to the north at Esperancita. Drilling also intersected the up dip portions of the Luz Elena vein to the east. The Martha vein was discovered in drillhole BP06-77 during late 2006 and later drilling in 2007 targeted both the shallow La Preciosa veins and the deeper Martha vein. The Martha vein was the primary target for the mid to late 2007 drill campaign, which extended the limits of the vein to the south and further up dip to the east. Also during 2007, Orko re-entered and extended several holes drilled in 2006 which were completed just above the projected Martha vein depth. By this time, the Martha vein had been expanded to cover an area of 2,000 m in the north-south direction and 1,600 m in the east-west direction, remaining open to the south and west. The northern extension has not been found and the eastern end outcrops or else abuts the recent basalt. In 2008 the principal drilling target was the up dip eastward side of Martha as well as along strike to the south-southeast.

 

After compiling the drilling data from each drilling campaign, Orko prepared a series of five mineral resource estimates from 2006 to 2008. The results of these mineral resource estimates have been superseded by the updated mineral resource estimates presented in Section 14.

 

9.3                                 Exploration by Pan American from 2009 to 2010

 

Since Pan American commenced operating the La Preciosa Project, exploration efforts concentrated on drilling 331 drillholes, mainly as infill drillholes to the north of the deposit. Details of this drilling programme are given in Section 10. The database as of 25 October 2010 comprised 726 drillholes for 238,864 m and was used to prepare the updated mineral resource estimates given in Section 14.

 

September 2011

 

54



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

10                                    Drilling

 

Information in this section has been updated from MDA (2009).

 

10.1                           Drilling summary and database

 

All drill holes on the Property have been diamond core, of varying diameters, and drilled by Luismin, Orko, or Pan American. The database as of 25 October 2010 comprised 726 drillholes for 238,864 m. Most holes are oriented from west to east at varying dips, depending on the target vein orientation, to optimise the drillhole intersection with the vein, and therefore the down hole length of the drill intersection is close to the true thickness of the vein. The mineral resource estimation methodology is not sensitive to intersection angle.

 

Holes have been drilled over targets for a combined strike distance of over 9 km, and the majority of the drillholes on the Property have been used for geological interpretation and estimation of Inferred and Indicated mineral resources at La Preciosa, covering an area of 3 km by 2 km.

 

Table 10.1 shows details of the drillhole database (as well as the channel samples) by operator and by prospect as at 25 October 2010. A location plan of the drillholes by operator available in the database as at 25 October 2010 relative to the lease boundaries and the mineral resource area is shown in Figure 10.1. A representative cross section at 2701980mN showing the orientation of drillholes relative to the dip of the veins is given in Figure 10.2.

 

Table 10.1                                       La Preciosa Property drillhole and channel database

 

Operator

 

Prospect

 

Years

 

# holes
/channels

 

Metres

 

Hole number 
prefix

 

Luismin

 

La Preciosa

 

1981 – 1982 and 1994

 

7

 

1,319

 

BP

 

Luismin

 

La Preciosa channel samples

 

1981 - 1982

 

406

 

867

 

CG, CGV, CA, CAV

 

Orko

 

Orito

 

2006

 

7

 

2,326

 

BO

 

Orko

 

San Juan

 

2007

 

8

 

3,556

 

SJ

 

Orko

 

La Preciosa

 

2006

 

1

 

451

 

BC

 

Orko

 

La Preciosa

 

2005

 

6

 

1,910

 

BB

 

Orko

 

La Preciosa

 

2005 to 2008

 

366

 

144,125

 

BP05 to BP08

 

Pan American

 

La Preciosa

 

2009 to 2010

 

331

 

85,177

 

BP09 to BP10

 

Total

 

 

 

 

 

1,132

 

239,733

 

 

 

 

September 2011

 

55



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Figure 10.1                                Location map of drillholes relative to mineral resource area

 

 

September 2011

 

56



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Figure 10.2                                Cross section at 2701980 showing drillhole orientation relative to vein orientations

 

 

September 2011

 

57



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

10.2                           Drilling by Luismin from 1981 to 1982 and 1994

 

There are currently 7 drillholes for 1,319 m in the La Preciosa database. Two holes were drilled from underground and five were drilled from the surface. The primary targets were the Abundancia and La Gloria veins at 50 m to 75 m below the primary underground workings on the 2065 level. A final hole 313 m in length was drilled in 1994 in the eastern vein breccia system, but the data for the drillhole is not in the database. The hole reportedly intersected a series of variably silicified zones and veinlet stock work with elevated silver, gold, lead, zinc, and mercury values, but did not completely intersect the structure. There are no available details on the drilling procedures, except that the drill core was either of BQ or AX size. The remaining half core is stored in the original core boxes on site.

 

10.3                           Drilling by Orko from 2005 to 2008

 

Orko began drilling on the Property in March 2005, ultimately completing 388 diamond drillholes for 152,368 m, spaced on roughly 100 m centres and with all but 16 of the holes targeting various veins at La Preciosa. Orko contracted Major Drilling International for all of the drilling completed on the Project, using Longyear 44, 38A, and 38B machines. Drill core diameter started at HQ size with reduction to NQ size at around 260 m down the hole. Between rod runs, the drillers inserted a wooden block marked with the down hole depth in both feet and metres. Downhole surveys were taken approximately every 50 m down the hole with a Reflex survey instrument, and the results of the surveys indicate moderate deviation in bearing and dip down the hole. No down hole survey is available at the collar of the drillhole.

 

Drill core was collected on a daily basis from the drill rig by Orko technicians, who taped the boxes shut prior to transport to the site core shed. Once at the shed, the technicians cleaned the boxes and core, and marked the boxes with the hole number, box number, and the depth intervals, and reconciled them with the depths marked on the driller’s depth blocks.

 

After the drillhole was completed, a PVC pipe was placed in the hole and a cement block was installed on the collar. The cement block was clearly inscribed with the name of the drillhole, the final hole length, and the bearing and dip of the hole. An independent surveyor was contracted to survey the coordinates of the collar on a regular basis.

 

10.4                           Drilling by Pan American from 2009 to 2010

 

Pan American began drilling on the Property in June, 2009 and as at 25 October 2010 had completed 331 diamond drillholes for 85,177 m. The drilling focussed on infilling the 100 m centres completed by Orko to 50 m centres over an approximately 800 square metre (m2) area located to the north and northwest of the deposit. Additionally, confirmatory infill holes were drilled on section elsewhere over the mineral resource, as well as two 15 m to 20 m close-spaced drill crosses to assess the short range continuity of geology and mineralisation. The same drilling contractor employed by Orko, Major Drilling International, was engaged by Pan American to carry out the drilling programme and similar drilling and down hole surveying procedures were followed, although greater capacity drill rigs were employed which resulted in fewer NQ sized drillholes. From early 2010 selected drillholes were surveyed using a Reflex ACT/QPQ orientation tool to obtain oriented drill core for geotechnical

 

September 2011

 

58



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

purposes. The preservation of the drill collar and survey of the collar coordinates follow the same procedure established by Orko.

 

10.5                           Exploration targets

 

In addition to extending the mineralisation limits of the known veins, there are a number of other smaller and lower priority exploration targets located outside of the area of the deposits comprising the mineral resource. Three of these targets, including the Nancy, El Orito Norte, and Mina El Orito veins, have been tested by diamond drillholes while the remaining targets have been identified by surface mapping and anomalous soil geochemistry results. A plan of these target areas is shown in Figure 10.3 and a summary of the drilling results is given in Table 10.2.

 

The Nancy vein is a structure located in the Western Structural Trend located about 1.4 km to the southwest of the Martha vein. The initial discovery of the surface outcrop of a 3 m wide northern extension of the vein was made by Orko in 2006. The target was followed up with soil and trench sampling which yielded anomalously high silver values. In 2010 Pan American drilled 12 holes spaced on a 100 m by 100 m grid. Eleven of these holes intersected a continuous flat lying vein with a strike length of 300 m and a width of 200 m at between 50 m and 100 m below the surface.

 

El Orito Norte is a continuation of a vein interpreted to connect Mina El Orito in the south to Veta Nueva in the north, and was discovered by Orko in 2004. The vein is located about 250 m to the southwest of the Martha vein. In 2011 Pan American drilled 11 holes on a roughly 100 m by 100 m grid spacing and intersected a moderately dipping vein (approximately 60°) located between 175 m and 275 m below surface in ten of the drillholes.

 

Mina El Orito is located at the southern end of the main structural trend and dates from before the Mexican Revolution. The old workings are not accessible but rock piles and a series of shafts can be traced over a strike length of approximately 500 m. In 2006 Orko drilled six holes on a 100 m by 100 m grid spacing, but no spatially continuous anomalous metal values have yet been intersected. The best drillhole, BO06-01, intersected anomalous metal values of 43 ppm Ag and 63.7 ppm Au over a down hole interval of 0.60 m.

 

Other targets identified by surface mapping and soil geochemistry include Veta Nueva, Nancy Sur, La Plomosa Sur, and Dany. Veta Nueva, located south of Cerro El Venado on La Preciosa Ridge in the Zona Sur area, was discovered by Luismin in the 1980s and is exposed in the north wall of a steep valley cut which separates Zona Sur from El Orito Norte. Nancy Sur is located 350 m to the southeast of the Nancy vein and is interpreted to be a southern extension of the Nancy vein. La Plomosa Sur is located to the west on the ridge above the Nancy vein in the Western Structural Trend. A very old open pit is present at the top of the ridge. Dany is located south of the La Plomosa Sur area.

 

September 2011

 

59



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Figure 10.3                                Plan of exploration targets

 

 

Table 10.2                                       Downhole intersection results from exploration targets

 

Target

 

Hole number

 

Downhole 
length (m)(1)

 

Ag (ppm)

 

Au (ppm)

 

Nancy

 

BP10-588

 

0.90

 

91

 

0.12

 

 

 

BP10-590

 

0.35

 

254

 

0.03

 

 

 

BP10-592

 

6.70

 

67

 

0.08

 

 

 

BP10-593

 

3.30

 

42

 

0.18

 

 

 

BP10-595

 

2.50

 

157

 

1.12

 

 

 

BP10-597

 

3.40

 

34

 

0.06

 

 

 

BP10-601

 

0.80

 

104

 

1.46

 

 

 

BP10-602

 

1.40

 

34

 

0.10

 

 

September 2011

 

60



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

Target

 

Hole number

 

Downhole 
length (m)(1)

 

Ag (ppm)

 

Au (ppm)

 

 

 

BP10-604

 

0.95

 

100

 

0.14

 

 

 

BP10-606

 

1.50

 

41

 

0.17

 

 

 

BP10-608

 

1.10

 

36

 

0.08

 

El Orito Norte

 

BP10-562

 

1.30

 

20

 

0.03

 

 

 

BP10-568

 

2.05

 

2

 

0.02

 

 

 

BP10-576

 

2.30

 

142

 

0.02

 

 

 

BP10-584

 

14.30

 

69

 

0.02

 

 

 

BP10-591

 

0.30

 

35

 

0.04

 

 

 

BP10-594

 

0.40

 

12

 

0.05

 

 

 

BP10-598

 

6.35

 

168

 

0.12

 

 

 

BP10-603

 

1.15

 

149

 

0.09

 

 

 

BP10-612

 

1.70

 

29

 

0.06

 

 

 

BP10-614

 

8.20

 

84

 

0.11

 

 


Note(1): The down hole length is not equal to the true width of the intersection, which varies depending upon the orientation of the drillhole as it intersects the mineralised zone. Holes are planned to intersect the zones as close to perpendicular as possible, so the true width may be approximately 5% narrower than the down hole length.

 

10.6                           Material impact on accuracy and reliability of drilling results

 

MDA (2009) examined core recovery of Orko drillholes in detail and QG examined all drillholes available as at 25 October 2010. Both MDA and QG determined that core recovery is generally poorer in mineralised lithologies, but that within mineralised material, there is no obvious or strong correlation between recovery and silver grades.

 

Both Orko and Pan American use the same methodology for recording core recovery. Between each drill rod run, the diamond drillers insert a block in the core tray indicating the down hole depth of the drill rods. The difference in the down hole depths between two consecutive depth blocks gives the length of each drill run and depending on ground conditions, the length of each drill run may not always be equal to the full length of the drill rod. Geological technicians determine core recovery by measuring the total length of recovered core in the core tray between the drill runs and dividing by the length of each drill run.

 

Measuring drill core recovery between drill runs is problematic when sample intervals do not coincide with the drill run depths. Usually sample intervals are selected with respect to geological boundaries and are usually selected at intervals less than the length of the drill run. This results in a repetition of the core recovery measurement between consecutive samples and prevents knowing exactly over which assay interval any core loss occurred. The number of these repetitions is relatively small, but to eliminate the problem entirely, measuring drill core recovery on a sample by sample basis is recommended for future drilling campaigns to better assess whether there is any correlation between sample recovery and silver grade.

 

September 2011

 

61



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

The lowest sample recovery of 86% occurs in vein lithologies. There is no way to determine how the core loss occurred for each drill run, but it can occur due to broken ground conditions, the presence of voids within the rock mass, or poor drilling practices.

 

10.7                           Conclusions and recommendations

 

No special measures were taken to improve drill core recovery except changing the amount of additives such as polymers and drilling mud and occasionally drilling shorter runs when the geologist was present at the rigs. Considering that drill core recovery averages approximately 86% in vein material, and that this 14% loss of material is one of the major factors affecting confidence in the mineral resource estimates, more care should be placed on improving drill core recovery within the vein systems, perhaps with the use of triple tube drilling methods.

 

September 2011

 

62



Table of Contents

 

GRAPHIC

Pan American Silver Corp. and Orko Silver Corp. La Preciosa Silver Property, Durango, México

Preliminary Economic Assessment - Technical Report

 

11                                    Sample preparation, analyses, and security

 

Information in this section is excerpted and updated from MDA (2009) and Snowden (2011).

 

11.1                           Sampling by Luismin from 1981 to 1982 and 1994

 

There are no documented details on the sampling methodology, approach, and security measures employed by Luismin. The only detail known from visual inspection of the drill core is that samples were split with a screw-wedge core splitter and that the drill core was clearly marked and neatly stored. The number of samples selected and assayed by Luismin, approximately 130 samples, comprises a very small proportion of the database. The lengths of these samples are variable and were probably selected according to geological features, with the majority of the samples ranging from 0.5 to 2.0 m in length. The only known detail about the laboratory sample preparation and analytical methods undertaken by Luismin is that the samples were sent to the Luismin laboratory in Durango.

 

11.2                           Sampling by Orko from 2005 to 2008

 

11.2.1                  Sample pr