Pan American Goldfields Ltd. (MXOM: OTCQX U.S.) | Pan American Goldfields Ltd. Reports on Results of a Preliminary Economic Assessment for the Cieneguita Gold-Silver Project, Mexico


VANCOUVER, June 12, 2013 /PRNewswire/ – Pan American Goldfields Ltd. (OTCQX: MXOM) (the “Company”) is pleased to announce the results of a
Preliminary Economic Assessment (“PEA”) on its 80% owned Cieneguita
gold-silver project located in Chihuahua State, Mexico. The PEA was
prepared by M3 Engineering and Technology Corporation (“M3”) and
utilizes a resource model developed by Independent Mining Consultants,
Inc. (“IMC”), both based in Tucson Arizona. The PEA confirms that the
Cieneguita project represents an exceptional opportunity to develop a
highly economic, relatively low-cost mine in the prolific Sierra Madre
gold and silver belt in Mexico. The complete PEA will be filed at SEDAR
within 45 days. All costs are in US Dollars.

Key Findings of the PEA

  • The PEA considers an open pit mining operation using an operator owned
    mining fleet which feeds mineralized material to an adjacent flotation
    plant and cyanide leach facility with dry stack tailings disposal. A
    processing rate of 15,000 tonnes per day (“tpd”) provides for an 11
    year mine life while processing a total of 56.7 million tonnes of
    material from an open pit with a low overall stripping ratio of 1.2 to
  • Forecast life of mine (“LOM”) production is 509,000 ounces gold and 55.5
    million ounces silver, or 1.50 million ounces of gold equivalent, worth
    a total of about $2.10 billion, using the base case metal prices of
    $1,400 per ounce gold and $25 per ounce silver.
  • The average annual LOM production is forecast to be 46,300 ounces of
    gold and 5.05 million ounces of silver, or 136,500 ounces of gold
  • Average annual production in the first three years of operation is
    forecast to be 64,000 ounces gold and 6.84 million ounces silver, or
    186,200 ounces gold equivalent, or about 36% percent higher than the
    average LOM annual production, through mining of a shallow,
    higher-grade core of the deposit in the early years of the operation.
  • Estimated cash operating costs are estimated to average $518 per ounce
    gold equivalent for the first three years of operation and $701 for the
    life of the mine, with LOM average annual pre-tax net operating income
    of $97.1 million and $1.07 billion LOM, using base case metal prices.
  • Initial start-up capital costs including working capital and owner’s
    costs are estimated to be $484 million, including a 25% contingency
    ($81.6 million). Sustaining LOM capital costs are estimated at $20.5
  • Using base case metal prices the PEA indicates the Cieneguita project
    has a pre-tax Internal Rate of Return (“IRR”) of 22.4%, a payback of
    3.0 years and a Net Present Value at an 8% discount rate (“NPV8”) of
    $248 million. The project is leveraged to higher metal prices with the
    pre-tax IRR rising to 32.6%, and the NPV8 increasing to $462 million
    using recent metals prices of $1,600 per ounce gold and $30 per ounce
    silver, while the payback decreases to 2.4 years.

Neil Maedel, the Company’s Chairman and Principal Executive Officer
commented: “The results of the PEA define an exceptional project and a
highly attractive asset in the current metal price environment.
Cieneguita’s location, deposit type and relatively low capital costs
make it a low-risk venture with a very attractive rate of gold and
silver production for a mid-size producer. We expect to commence a
feasibility study immediately to further de-risk and add value to the
Cieneguita project. There is excellent potential to further enhance the
economics of the project through continued enhancements to the
processing flow sheet and through a planned infill and step out
drilling program to better define the boundaries and grade distribution
of the deposit. I would like to complement our staff and our current
board of directors for an excellent job of guiding the work leading to
the completion of a PEA of the highest standards and which we expect
will add tremendous value for our shareholders”.

Resource Base and Mine Schedule

The PEA utilized the mineral resource model that was prepared by IMC and
discussed in the Company’s release dated March 13, 2013. The resource
estimate as reported below utilized an indicative minimum or cut-off
net smelter return (“NSR”) dollar value of $14.10 per tonne of ore
processed with only the revenue from gold and silver used to define the
cut-off NSR. Assumed metal prices and recoveries Metal prices and
assumed are $1,500 per ounce gold and $30.00 per ounce silver.

The measured and indicated mineral resource is 35.0 million tonnes at
0.45 g/t gold, 33.4 g/t silver, 0.16% lead, and 0.25% zinc. In terms of
contained metal this amounts to 509,800 ounces of gold and 37.6 million
ounces of silver. The inferred mineral resource is an additional 22.9
million tonnes at 0.48 g/t gold, 28.6 g/t silver, 0.13% lead, and 0.22%
zinc. This amounts to 352,200 contained gold ounces and 21.0 million
contained silver ounces. There is no guarantee that any of the mineral
resource will be converted to mineral reserves. There is also no
guarantee that any of the inferred mineral resource will be upgraded
to, measured or indicated mineral resource. Further, the PEA is an
estimate of the economic viability of the project and there is no
certainty that the results projected will be realized and actual
results may vary substantially.

IMC prepared a mining schedule and pit design from the above resource
that included material of all resource classifications (measured,
indicated, and inferred) and was based on mining 15,000 tpd of ore for
350 days per year for 5,250,000 tonnes per year (“tpy”) of ore. Year 1
ore feed is scheduled at 4,200,000 tonnes, 80% of nominal plant
capacity, and is made up of the ore mined during preproduction and year
1. IMC employed a variable cut-off grade strategy when developing the
mine schedule so that the highest mined grades, or ore with the highest
NSR cut-off, were mined earlier in the mine life to achieve quicker
project payback and to balance the mine and plant production
capacities. Accordingly, the schedule indicates the mined gold and
silver grades in the first three years of operation are about 34% and
43% higher than the LOM averages, respectively. The material below the
variable cut-off grade and above the minimum cut-off NSR value of
$15.00 per tonne is placed in a low grade stockpile. The $15.00 NSR
cut-off covers process and GA cost plus $0.90 per tonne for mine
re-handle. The NSR values are based on the same metal prices as used
for the resource estimate noted above.

The direct mill ore or material that will be transported directly to the
mill and processed, amounts to 50.6 million tonnes grading 0.49 g/t
gold, 34.4 g/t silver, and 0.16% lead. The low grade stockpile amounts
to 6.1 million tonnes grading 0.30 g/t gold, 12.5 g/t silver, and 0.07%
lead and is processed during Years 10 and 11. Based on the IMC schedule
the project commercial life is 11 years after the preproduction period
(year -1). Total ore production amounts to 56.7 million tonnes grading
0.47 g/t gold, 32.0 g/t silver, and 0.15% lead, with total material
removed from the pit at 124.4 million tonnes. With the low grade
stockpile considered as ore, total waste amounts to 67.7 million tonnes
for a waste to ore ratio of 1.2 to 1.

Development Overview

The PEA is based on the metallurgical testing, processing flow sheet and
metal recoveries as described in the Company’s March 13, 2013 release.
Ore from the open pit is delivered at the nominal rate of 15,000 tpd to
the processing plant which includes a conventional crushing (primary
crushing followed by secondary and tertiary crushing) and grinding
(ball milling) circuit to produce a p80 -212 micron product. The ground
product is passed to a flotation plant consisting of lead and bulk
pyrite flotation circuits. The lead flotation circuit will consist of
rougher and cleaner flotation to produce a high value lead concentrate
which will be shipped off site and sold to a third party smelter. This
concentrate will contain about a third of the gold and half of the
silver contained in the ore. The lead rougher flotation tailings will
be floated to produce a bulk pyrite concentrate which will be reground
to at least p80 -37 microns and then leached with cyanide. The gold and
silver in the cyanide leach solution will be recovered via a
Merrill-Crowe plant with gold-silver dore bars produced on site. Dore
production will contain about one third of the gold and one half of the
contained silver values. Overall metal recoveries from the scheduled
ore production are about 60% for gold and 95% for silver and 72% for
lead, with total LOM gold and silver production estimated at 509,000
ounces and 55.5 million ounces, respectively, along with 134 million
pounds of lead.

Following the metal recovery steps all process tailings will be passed
to a hydraulic filter press which will remove water and allow for
storage in a single dry stack tailings storage facility located
adjacent to the process plant. Water recovered from the press is
recycled for use in the process plant. The existing infrastructure in
the general area will need to be improved to support the development of
the project as defined in the PEA, including the construction of an
upgraded power line to supply power from the national grid as well as a
dedicated water supply pipeline.

Capital and Operating Costs

Capital and operating costs were all estimated by M3 except for the
mining related costs that were estimated by IMC. Capital costs were
generally developed from design drawings and quantities and vendor
quotes. Operating costs were estimated based on a first principles
approach. All costs are considered current to Q2 2013.

The initial capital requirement is estimated as follows:

Sustaining capital requirements over the LOM are estimated at an
additional $20.5 million.

The operating costs are estimated as follows, on an per tonne of ore
processed basis:

Total life of mine operating costs is estimated at $1.08 billion. The
estimated LOM direct cash operating cost is $701 per ounce of gold
equivalent or $12.53 per ounce of silver equivalent (treating gold,
silver and lead revenue as a by-product credit as appropriate) based on
the base case metal prices.

Both M3 and IMC have recent extensive and relevant experience in
developing capital and operating costs on similar size projects in
Mexico. In particular, M3 has been responsible for the design,
engineering and construction of the Penasquito, Alamo Dorado, Mercedes
and San Jose operations in Mexico, and is currently in advanced
engineering or construction on the Morelos project and several Grupo
Mexico owned projects in Mexico and the Escobal project in Guatemala.

Financial Results

The PEA demonstrates strong project economics and high leverage to gold
and silver prices. The financial results were developed for three
different metal price assumptions including the base case and two
higher cases (cases 1 and 2) which reflect metal prices observed within
the last 12 months.

The financial analysis for the base case indicates a pre-tax NPV5 of
$350 million, a NPV8 of $248 million, a 22.4% IRR and payback of 3.0
years. On an after-tax basis the base case indicates a NPV5 of $223
, a NPV8 of $140 million, a 16.3% IRR and a payback of 4.0
years. The project is expected to generate $1.07 billion of LOM pre-tax
cumulative net operating income. The financial results are summarized
in the table below.

Opportunities and Next Steps

Some of the opportunities to improve upon the capital and/or operating
costs that have been or will be evaluated in the coming months and
prior to completion of the feasibility study include the following:

  • Evaluation of alternative metallurgical processing options, including
    the “all leach” option which would allow for all metal production to
    remain on site, with savings in both capital and operating costs
  • Additional metallurgical work to improve gold recoveries over those
    noted in the current base case processing option
  • Evaluate the possible substitution of the all new equipment considered
    in the PEA with used or surplus process or mining equipment to lower
    the capital cost
  • Evaluate other processing rates which may allow for maximizing the
    economic returns while minimizing initial capital costs
  • Evaluation of the capital and operating costs associated with alternate
    cyanide recovery options as well as crushing and grinding circuit
    equipment and configurations
  • Evaluate the options to outsource and/or lease various equipment,
    including mining equipment, as well as to stage the development to
    reduce the initial capital requirement

Pan American intends to aggressively advance the Cieneguita project
towards the completion of a feasibility study, leaving open the option
for completing an interim pre-feasibility study. An in-fill and step
out drill program is required to move the inferred class resource into
the measured/indicated class so that it can be included within the mine
plan as ore in future feasibility level studies. The Cieneguita deposit
is open along strike as well as along the north and south margins, and
is still open at depth. The proposed drill program will address these
issues of resource delineation as well as provide geotechnical
information for open pit slope stability and provide additional
material for metallurgical testing. The comprehensive drilling program
is currently planned to start in the next few months.

Mr. Gary Parkison, CPG, Director of Pan American Goldfields Ltd., is the
qualified person who supervised the preparation of the technical
information in this release. Mr. Alberto Bennett, PE, Vice President of
M3, and Mike Hester, FAusIMM, Vice President of IMC, have also reviewed
and approved the data contained in this release.

Pan American Goldfields will be hosting a conference call and webinar at
1:00PM PDT on Thursday June 13, 2013 to discuss the highlights of the
Cieneguita PEA. Pre-registration is required. Link and call-in
information can be found on the company website at in the calendar section under the Investors tab.

About Pan American Goldfields Ltd.

Pan American Goldfields is a precious metals mining and exploration
company. Its focus is the production of gold and silver and the
development and expansion of its Cieneguita mine in Mexico’s booming
Sierra Madre gold-silver belt.

On behalf of the Board of Directors,

Neil Maedel, Chairman

Safe Harbor Disclosure

The information in this press release contains forward-looking
statements regarding future events or the future financial performance
of the Company. Please note that any statements that may be considered
forward-looking are based on projections; that any projections involve
judgment, and that individual judgments may vary. Moreover, these
projections are based only on limited information available to us now,
which is subject to change. Although those projections and the factors
influencing them will likely change, we are under no obligation to
inform you if they do. Actual results may differ substantially from any
such forward looking statements as a result of various factors, many of
which are beyond our control, including, among others, the timing and
outcome of our feasibility study on our Cieneguita Project; the costs
and results of our initial production activities on our Cieneguita
Project; the future financial and operating performances of our
projects; the estimation of mineral resources and the realization of
mineral reserves, if any, on our existing and any future projects; the
timing of exploration, development, and production activities and
estimated future production, if any; estimates related to costs of
production, capital, operating and exploration expenditures;
requirements for additional capital and our ability to raise additional
capital on a timely basis and on acceptable terms; government
regulation of mining operations, environmental risks, reclamation and
rehabilitation expenses; title disputes or claims against our existing
and any future projects; and the future price of gold, silver, or other
minerals. These and other factors can be found in our filings with the
SEC, including in our Annual Report on Form 10-K under “Item 1A — Risk
Factors” filed with the Securities and Exchange Commission on May 16,
. The Company undertakes no obligation to release publicly the
results of any revision to these forward-looking statements to reflect
events or circumstances following the date of this release.

Additional Information

Pan American Goldfields Ltd., its directors and executive officers may
be deemed to be participants in the solicitation of proxies from the
Pan American stockholders in connection with the matters to be
considered at Pan American’s 2013 Annual Meeting of Stockholders. Pan
American has filed a definitive proxy statement and form of WHITE proxy
card with the U.S. Securities and Exchange Commission in connection
with the 2013 Annual Meeting of Stockholders. PAN AMERICAN STOCKHOLDERS
regarding the identity of potential participants, and their direct or
indirect interests, by security holdings or otherwise, is set forth in
the proxy statement and other materials filed with the SEC.
Stockholders will be able to obtain any proxy statement, any amendments
or supplements to the proxy statement and other documents filed by Pan
American with the SEC for no charge at the SEC’s website at Copies will also be available at no charge by writing to Pan American
Goldfields Ltd., 570 Granville Street, Suite 1200, Vancouver, BC V6C
3P1, by calling Pan American’s proxy solicitor, MacKenzie Partners,
toll-free at (800) 322-2885 or by email at


SOURCE Pan American Goldfields Ltd.

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