Pan Am Silver’s La Colorado Skarn project is large but manageable, BMO says

Pan American Silver’s (TSX: PAAS; NYSE: PAAS) La Colorada Skarn project in Mexico could mine 50,000 tonnes of ore a day to produce 17.2 million oz. a year of silver, according to a preliminary economic assessment.

The project in central Mexico’s Zacatecas state has an after-tax net present value of $1.09 billion at an 8% discount rate with an after-tax internal rate of return of 14%, the Vancouver-based company says in the report released on Monday. It would also produce 427,000 tonnes zinc and 218,000 tonnes lead annually for its first decade, it said.

Pan American envisions a sub-level cave mining method, conventional zinc/lead flotation processing plant and drystack tailings facility to produce “meaningful levels” of silver, lead and zinc, BMO Capital Markets says in a note on Tuesday.

“This is a large project for Pan American Silver but in our view it is a manageable size for the company to build,” mining analyst Jackie Przybylowski said in the note.

However, the analyst estimates $3.5 billion to build the project compared with the study’s $2.8 billion because of early-stage risks with at least three years to go before building.

“Our expected construction period 2027-2032 and production start in 2033 fits well with the depletion of the current La Colorada operation, which we anticipate in 2032,” Przybylowski said.