Great Panther Recovers from its 2Q Report
By Ted Niles
“In this kind of a market,” says Bob Archer, “people have kind of a show-me attitude.” The President and CEO of Great Panther Silver is referring to the blow the company suffered last month after its 2Q financials were released. He explains, “We had a little hiccup in the second quarter in terms of our concentrate sales from our Guanajuato operation. Our primary buyer said they weren’t going to accept any more concentrate, and that forced us to scramble to find another buyer. Which meant that we had a little bit of a buildup of inventory at the end of the quarter—our revenues and earnings for the quarter were substantially below what they normally would have been.”
Hiccup certainly seems like the appropriate word. Short-lived, innocuous but still irritating. Great Panther shares lost 25% before the proverbial paper bag burst on August 18 with the announcement that the company had found a new Mexican buyer for its concentrate. Indeed, says Archer, “We have resolved the problem such that as we draw down on the inventory to a new buyer the revenues in 3Q and 4Q will be higher than they normally would be and will balance out by the end of the year.” He adds, “It’s a bit of a non-issue for us, but the market is saying I want to see those numbers. I think largely because of that we’re undervalued relative to our peers right now.”
The hiccup cured, Great Panther’s strengths are being recognized. Robin McCutcheon of Seeking Alpha marvelled that it was “still relatively inexpensive compared to the mainstream miners.” The Motley Fool’s Christopher Barker urged readers to “carefully consider” the company.
And there is much to consider about this primary silver producer and its two wholly-owned and royalty-free mines in Mexico. The first, Guanajuato—in, as you might expect, Guanajuato State—is a silver-gold mine occupying 4.2-kilometres of the Veta Madre vein structure. Guanajuato is an underground mine and has NI 43-101 measured and indicated resources of 5.45 million ounces silver equivalent—4.37 million ounces of which are proven and probable reserves—and 2.68 million ounces silver equivalent inferred. In 2010, it produced 1.4 million ounces silver equivalent at a cost of $6.61 per ounce.
The Topia silver-lead-zinc property is Great Panther’s second mine, located in Durango State, and is the smaller of the two operations. As with Guanajuato, silver mining in the area goes back to the Conquistadors. Topia comprises four concessions totalling 6,438 hectares and has measured and indicated resources of 7.4 million ounces silver equivalent, 16.4 million pounds zinc, 28.3 million pounds lead and inferred resources of 11.9 million ounces silver equivalent, 23.4 million pounds zinc and 41.1 million pounds lead. In 2010, it produced 822,000 ounces silver equivalent at a cost $9.06 per ounce.
Great Panther acquired the properties in 2005 planning to avoid debt and shareholder dilution. Archer explains, “Some people at the time advised us to just raise $50 million and go hard at it, but we said no. We wanted to do it at a more gradual level. We’ve been upgrading consistently year after year at the operations and doing a lot of drilling to expand the resource.” Since Great Panther began production in 2006 it has increased production and resources year over year. It achieved net positive cash flow in May 2009.
They are the highest assays we’ve seen in the drilling at the mine. We do know that bonanza-grade mineralization exists at different places within the mine, but it’s the first time we’ve had these kinds of grades in the drilling. They’re pretty spectacular —Bob Archer
Also in 2009 Great Panther announced a three-year growth strategy to increase production at Guanajuato and Topia to a total of 3.8 million silver-equivalent ounces by 2012, lower operating costs to roughly $5.00 per ounce silver and outline and maintain a total resource of 40 million ounces silver equivalent. Archer comments, “I’m pleased with our progress. It’s not a straight-line projection by any means, but we’re still maintaining our targets for 2012. We’re a little over halfway through our three-year organic growth strategy. We’ve upgraded the plants, and we’ve increased the capacity. Now it’s a matter of trying to increase the output from the mines.”
Toward that end, Great Panther’s 2011 drill program includes 60,000 metres of surface and underground exploration to upgrade resources: 6,000 metres at Topia, 30,000 metres at Guanajuato, and 24,000 metres at the company’s new San Ignacio project—located 20 kilometres by road from Guanajuato’s Cata mill. Great Panther also acquired the equally-close Santa Rosa project in July, where drilling is expected to begin by 4Q.
March 10 assays of San Ignacio included 5.04 grams per tonne gold and 1,404 g/t silver over 0.9 metres, 3.77 g/t gold and 356 g/t silver over 1.8 metres, 3.08 g/t gold and 421 g/t silver over 3.8 metres, 1.69 g/t gold and 655 g/t silver over 2.4 metres and 4.2 g/t gold and 854 g/t silver over 1.5 metres. August 30 assays of Guanajuato’s Cata mine include 29.44 g/t gold and 6,447 g/t silver over 3.2 metres, 7.38 g/t gold and 2,114 g/t silver over 5.4 metres, 6.02 g/t gold and 1,347 g/t silver over 2.3 metres and 5.41 g/t gold and 1,764 g/t silver over 3.3 metres. Archer remarks, “They are the highest assays we’ve seen in the drilling at the mine. We do know that bonanza-grade mineralization exists at different places within the mine, but it’s the first time we’ve had these kinds of grades in the drilling. They’re pretty spectacular.”
He continues, “Our COO has already given the go ahead to start development and get those zones into production as soon as possible. Probably early 4Q. Guanajuato is at half capacity right now—we’re running it at about 600 tonnes a day, and it can operate at about 1,200 tonnes a day. So there’s room there to add additional feed from San Ignacio when we get that going.” San Ignacio is anticipated to have a new resource by 4Q 2011 as well.
Great Panther continues to concentrate on steady development. “We’re very focused on acquisitions at the moment,” Archer says, “and looking to acquire either another project or another company that would bring us additional projects in the near term. We really are very growth oriented at the moment.”
At press time, Great Panther Silver had 134.2 million shares trading at $3.26 for a market cap of $437.6 million.