-- Posted 30 November, 2011 | |

Site Visit: Great Panther Silver Ltd.

Overview: Great Panther Silver Ltd.

Great Panther Silver Ltd.’s [NYSE.GPL, TSX.GPR] extensive property in the Guanajuato silver district includes many famous Spanish colonial era mines along the Veta Madre, or “Mother Vein.” Today Great Panther continues mining high grade silver from several ore shoots that extend below historic workings, plus they are also finding hidden adjacent veins with drills and other modern exploration methods. When I toured the company’s Guanajuato mines last month I saw they have recently completed substantial infrastructure and operations improvements. Despite some challenges in Q3 that will lower the company’s overall production to their 2010 rate, they have since adjusted accordingly and going forward they are positioned to continue growing in the 4^th quarter and beyond.  

Great Panther is led by experienced Canadian and Mexican management, has zero debt, and $38 million in cash. Currently trading near US$2.80 per share with about 135.1 million shares outstanding, their market cap is around $378.3 million. With a track record of expansion over the past 4 years, the company is poised to continue improving both of their operations at Guanajuato and Topia in the future. With cash from profitable production, they are also evaluating prospective acquisition targets that could quickly add more production and exploration growth from a third mine.

Management

Great Panther’s President and CEO Robert Archer is a Professional Geologist with over 30 years of experience in the mining industry with companies including Newmont, Rio Algom Exploration, Placer Dome and Noranda. COO Charles Brown is a mining engineer with over 30 years of international mining experience, having most recently worked with NewGold Inc. Mexican mining engineer Francisco Ramos Sanchez is the company’s VP Business Development, who has over 30 years of experience with important local companies such as Penoles, Grupo Mexico, and other companies.  

Graham Parsons, MBA is the company’s new General Manager of Guanajuato Operations, who just joined the company in October, is fluent in Spanish having previously worked at mines in Spain, Argentina, and Venezuela.  Mexican mining engineer Javier Ramirez Vargas has been General Manager of the company’s Topia mine since 2006, and has over 30 years of experience with important mining operations in the country including Plata Panamerica S.A. (Pan American Silver), and Real del Monte y Pachua S.A., among others.

Guanajuato Site Visit

The silver mines at Guanajuato, Mexico were discovered over 450 years ago and are still some of the richest producers in the world.  Evidence of the tremendous wealth dug from these mines has endured for centuries in the form of Spanish Colonial era castles and cathedrals that were built around the area’s numerous mine shafts. Nestled in the Sierra Madres, this colorfully painted city’s historical architecture forms a maze of narrow alleyways that wind along the hillside such that it is recognized as a UNESCO World Heritage Site and also hosts a vibrant arts scene. The Universidad de Guanajuato is focused on the sciences and is one of the two main colleges in Mexico that awards degrees in Mining Engineering (with the other in Mexico City), while it also boasts acclaimed architecture and arts programs. Our post-Silver Summit analyst tours coincided with the annual 3-week long International Cervantino Festival that is named after the famous Spanish author of “Don Quixote.”  

A Spanish mule train driver named Juan de Rayas originally discovered silver in the district at Endeavour Silver Corp’s [AMEX.EXK, TSX.EDR] neighboring La Luz mine in 1548, and 2 years later he found another important outcrop at Great Panther’s Rayas mine, which Guanajuato city grew around. Rayas is one of the world’s largest and oldest operating shafts with an octagonal diameter of 11.31 m (37.2 ft) and depth of 400 m (1,312 ft) and their nearby Cata shaft is also of a similar size.  These two large shafts are connected underground by haulage level drifts and ultimately join with several other portals and shafts in their mine complex to help provide natural ventilation for their extensive historic workings. Modern fans and ducts then boost fresh air to the miners where they are digging. The Rayas shaft and hoisting works that lowered us into the mine are shown in the adjacent picture, and accessed from the portal shown above.

Combined, the company’s mines along the Veta Madre and Endeavour’s adjacent mines have made this the second most productive silver district in Mexico, next to Fresnillo in neighboring Zacatecas State. During the 1700s the Guanajuato mines were the largest in the world, and they have poured about 1.2 billion ounces of silver and 6 million ounces of gold. Other than brief interruptions during the Independence War in 1810 and Mexican Revolution in 1910, these mines have continued to operate for over 450 years, and are expanding with ongoing efforts.

Great Panther acquired their flagship Guanajuato property in 2005 from a local mining association that went bankrupt. Initially they had to bring their operations up to modern standards by investing in mineral exploration, mine and mill infrastructure, and the local workforce and community. By overcoming these challenges and restoring their facilities the company has earned their social license locally, plus was awarded the national distinction as a “Socially Responsible Company” by CEMEFI, Mexico in March 2011.

Great Panther’s Guanajuato properties include most of the main Veta Madre as a consolidated underground mining complex with offices at the Cata mill, and also two additional large claim blocks in the district surrounding historic mines called San Ignacio and Santa Rosa.  Their Cata mill and mine offices are conveniently located at the northern edge of town, and their workings plus development projects are depicted in the company’s cross-sectional map below.

Great Panther’s Guanajuato underground complex is mostly accessed by the Rayas shaft, with the Rayas ramp being used for supplies, and the Cata shaft hoisting ore up to the Cata mill. The Guanajuatito ramp is also being used for underground exploration. Silver is currently being mined from stopes at Cata Deep and development of the new Cata Clavo resource, the Los Pozos deposit, and the gold-rich Santa Margarita Resource below the old Rayas stopes.  

Modern mechanized rubber tire equipment is being used with bulk tonnage drift and fill underground mining methods. The picture above-right shows the boom of a “jumbo” drilling the vein in a Los Pozos stope, their most productive mining area. The Veta Madre deposits dip around 45 degrees, which is a challenging angle to mine. Fortunately the veins typically carry high silver grades and have a competent hanging wall that is easily supported with standard rock bolts. Notice the bolts and vein painted in red along a stope in the Santa Margarita deposit in the picture at left. The two miners (lights) in this stope are working with a jackleg drill to selectively mine silver ore enriched with especially high gold grades.

Rubber tire loaders are used to transfer broken ore from the vein to chutes, which load trains for haulage to the Cata shaft, where the rock is then hoisted to the surface near the Cata mill.

As shown below, another electric powered jumbo drill is being used on the 510 level (meters deep) to develop their new Cata Clavo deposit, which consists of several parallel ore shoots. Mine geologists have mapped and assayed bonanza grade mineralization across mineable widths along this drift, where we collected samples rich in black silver sulphide. The Alto veins we examined in this area are explained in the company’s October 13^th news, where recent drill intercepts include hole UG11-135 that recovered 3.2 meters of 29.44 g/t gold and 6,447 g/t silver. This new Cata Clavo deposit will be increasing production in the coming months.

These epithermal veins are rich in silver while lacking any significant base metal concentration, which implies geologically they are not at the bottom of the system and thus the shoots are likely to extend further at depth. Moreover, the Guanajuato district is known to have had multiple mineralizing events occurring over time that can further enrich their metal content.   

Great Panther is also drilling for additional resources along the Veta Madre from the surface at their La Valenciana mine, plus have other targets near historic workings in the heart of this district. Drilling around old La Valenciana stopes is targeting potential for parallel veins that were previously either too low grade to be economic with the Spaniards original technologies, or of similar high grades but were hidden just beyond their workings. Also, this drilling will test the extent of some accessible old stopes that might be gobbed full of rock that didn’t meet the colonial Spaniards cutoff grade around 700 g/t silver for hoisting and milling but could be above today’s economic grade of 150 g/t silver, for help filling any additional mill capacity while their new stopes are coming online. During the 1700s Valenciana was Spain’s most productive mine generating about 1/3 of global silver production.  

The company is also exploring two other large projects nearby in the district at San Ignacio and Santa Rosa, which are shown on the above map. At San Ignacio they recently discovered several important new parallel veins that are adjacent to Endeavour Silver’s new Lucero South mine, near La Luz. Results from the San Ignacio Project’s first NI 43-101 compliant resource estimate were just announced October 11^th, which includes mineralization in seven parallel veins. This deposit’s total inferred resources contains 611,000 tonnes grading 127 g/t silver and 2.05 g/t gold for a total of 4,494,000 silver equivalent ounces.

Drilling at San Ignacio has found that despite minimal outcrops, hidden below the surface several veins contain mineable grades and thickness. Generally the most cost-effective way to simultaneously explore and develop vein deposits is by using the traditional “drill for structure and drift for grade” method, just as the company is doing along the Veta Madre below historic stopes. Once drilling has recovered sufficient mineralization to quantify a resource, drift mining along the vein is used to explore how the deposit might “pinch and swell” while excavating a bulk sample. Thus the company is currently drilling to test the extent of mineralization along these veins, while also looking to identify a prospective site for a new mine portal.  

Exploration drilling at their nearby Santa Rosa Project will begin in Q4 of this year. While the property has some historical underground workings, it has not been tested with modern exploration tools.

In the picture at right of the Cata Plant, Great Panther’s COO Charles Brown looks over silver being floated by bubbles with state of the art Outotec TankCells. Two of their three active ball mills are visible in the background. Over the past several years the company’s improvements to the plant have increased overall recovery from about 70% to 90%. Since they recently doubled the plant’s capacity to 1,200 tpd and optimized the processing circuits, their focus is now on ramping up ore production from the mines.

Last quarter’s metal production decreased because of lower realized grades than anticipated, despite mining more tonnes. Consequently, the company has adjusted their mining and grade control procedures accordingly. Santa Margarita also fell behind schedule so their new General Manager of Guanajuato Operations is pushing to get faster development and production at these new stopes. As we saw underground, several new high grade mining areas will be coming online from the Cata Clavo and Santa Margarita veins soon. The company was also impacted by the smelter postponing concentrate purchases so they have arranged for another buyer to take their concentrates and will realize cash flow from these sales in Q4.

Great Panther is demonstrating they can address and overcome challenges by continuously improving their operations.  The company is very well positioned to continue growing their production and resources at the Guanajuato projects we visited because they have a strong cash position from profitable production, experienced management team, and excellent community relationships. Their Topia mine has also delivered shareholder value for many years, so considering what they have accomplished at both of their producing silver mines we are looking forward to even better times ahead with Great Panther.

Simon Russell is a mining and geological engineer with 10 years of diverse experience. His background includes hydrology and environmental engineering, exploration geology, underground contract mining, mine engineering and project management, and mine investment analysis. Mr. Russell has worked for many different types of mineral projects internationally and across the western United States for investors, consulting firms, and both major and junior resource companies. Mr. Russell is not and investment advisor, nor is this an investment advice.