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Pan American Silver
expects
annual
silver production growing to 23 million ounces in 2008, becoming the largest primary
silver producer in the world
Metals/Mining
Silver
(PAAS-NASDAQ)
Pan American Silver Corporation
Suite 1500, 625 Howe Street
Vancouver, B.C. Canada V6C 2T6
Phone: 604-684-1175
Geoffrey A. Burns
President and CEO
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
November 17, 2005
BIO:
Geoffrey A. Burns
President and CEO
Mr. Burns has over twenty years' experience in the precious metals mining industry. He
joined Pan American in 2003 after four years as Senior Vice-President and Chief Financial
Officer of Coeur d'Alene Mines Corp. Prior to this, Mr. Burns was the Chief Financial
Officer of Prime Resources Group and the Controller of Homestake Canada Inc. Mr. Burns
holds a Bachelor of Science degree in Geology from McMaster University in Hamilton and a
Masters of Business Administration from York University in Toronto. While concentrated on
financial management, with particular emphasis on capital markets transactions and mine
financing, Mr. Burns also has extensive experience in mine operations, project
development, human resources and long term strategic planning. Mr. Burns was appointed
Chief Executive Officer of the Company in May 2004.
Company Profile:
Pan American Silver Corp. is focused exclusively on silver mining and in 2004 produced
11.2 million ounces. This 30% increase over 2003 levels was the tenth consecutive year of
production growth. In 2005, the Company expects to increase production to 12.5 million
ounces of silver, thanks to the addition of the recently acquired Morococha mine in Peru.
This year the Company also began construction of the Alamo Dorado silver mine in Mexico
and has major projects in Bolivia and Argentina. The successful development of these
projects will double Pan American’s current silver production to 23 million ounces in
2008.
CEOCFO: Mr. Burns, what
was your vision when you became CEO and where are you today?
Mr. Burns: “The reason I joined Pan American is because
I saw the potential and the growth that the company had experienced and what was available
for us going forward. That excited me and I wanted to become part of that growth and that
future. My vision is simple. Pan American should be, and I want it to be, the silver
equity to buy if an investor is looking for production, leverage, and increases in value.
In order to put Pan American in that category, step one is to continue to grow along the
same profile as we have in since 1994, and step two is to evolve the company from
essentially an exploration company into a mining operation company generating consistent
profits and cash flow.”
CEOCFO: How have you
grown over the years and how have you turned from exploration to the production?
Mr. Burns: “In our first ten years, which ended at the
end of 2004, the company had grown from zero production to almost 11.5 million ounces of
silver a year and gone from zero reserves and resources in the ground to almost 700
million ounces of reserves and resources in the ground. The next five years in the
company, we have projects in development where we are constructing and projects where we
are close to making our construction decisions, which will take that production to almost
25 million ounces of silver by 2010. At the same time, looking at our cost of production
declining from five dollars an ounce in some of the early years in the nineties, to three
dollars and fifty cents an ounce by 2010.”
CEOCFO: How are you able
to lower the production cost?
Mr. Burns: “It is a combination of things. You cannot
change what God has given you in terms of resources in the ground. The higher grade the
resource, the lower cost to extract per unit of silver that we produce. We have upgraded
the quality of our assets through acquisition primarily. Over that same period, we have
invested heavily in productivity improvements and mechanization so better engineering and
geological technologies ensure mining just the best parts of the ore bodies. Investments
in capital and especially in knowledge, within our engineering and geology, have had a
positive effect on our ability to lower our cost.”
CEOCFO: Geographically,
where is your silver?
Mr. Burns: “We are primarily located in South America.
We are in the number one and number two silver producing countries in the world, number
one being Mexico. In Mexico, we have one operating mine La Colorada in production right
now. We are building a second mine, Alamo Dorado, which will be in production in late
2006. We are also in Peru, which is the second largest silver producing company in the
world. In Peru, we have four operating mines and produce almost ten million ounces of
silver there. We are also in Bolivia and have a very small operation in Bolivia called SAN
VICENTE, and expect in the next three months to make a production decision on another
project in Argentina.”
CEOCFO: Will you tell us
more about the new developments in Alamo Dorado?
Mr. Burns: “Alamo Dorado is going to be our newest mine;
it is an asset that we purchased from a junior mining company in early 2003. For us, it is
our first soup to nuts development where we studied the ore reserve, studied the resource,
developed the flow sheet and the processing alternatives and are now in the process of
constructing a new operation from what was a hill in the state of Sonora in Mexico. So
that is very exciting for us. We expect to produce more than five million ounces of silver
a year at a cost of approximately three dollars and fifty cents an ounce with a 10-year
mine life. That is an exciting growth and we are looking to see good cash flow, good
return and good profitability from that asset. Morococha is an operation of ours in Peru
that and we acquired that asset at the end of the third quarter 2004 from a private family
owned business. Our vision for that is that there was a tremendous exploration potential.
The mine had been in operation for more than forty years and no one had tapped the
potential of the district. Since we acquired that asset, we immediately embarked on a very
aggressive exploration program and in fact one that is continuing. We have seven drill
rigs working down there as we speak and we are starting to realize on that potential. In
June of this year, we had published the fact that we added almost 23 million ounces of
silver to our reserve and resource base essentially in the first nine months of ownership.
We not only expect, but I can guarantee, that we are going to see similar additions and
even larger additions as we continue to explore this property. What that means is a hugely
increasing resource base. We are probably not running the operation in optimal fashion. We
have a much longer life, more than we thought we had when we bought it or what the
previous operators thought they had when they were operating it. We have now embarked on
the first phase of a major expansion plan. I see us doubling our production from Morococha
over the next four years. Those are two very exciting growth legs for Pan American.”
CEOCFO: What do you look
for today when researching new operations and has the increase in silver prices affected
this process?
Mr. Burns: “Silver is primarily a byproduct. Over 75% of
the world’s silver comes from a small proportion of the revenue of a copper mine or
zinc or gold mine. Very few mines are primary silver mines where the number one metal
extracted from the mine is silver. The last time I counted, there were 27 of those mines
of which we hold six. To find an asset or a newer operation that is primarily silver,
regardless of the price of silver, is a hard thing to do. Part 2 is when you find those
operations; they hold a very high value relative to the price because silver trades as a
precious metal like gold. Whether the price is at five dollars or seven sixty, those
assets are going to trade at some multiple of their underlying fundamental value. Putting
it in today’s terms of seven sixty, what you find is that multiple increases. You put
those things together and it is very difficult right now for us to find assets and then to
make an attempt to acquire those assets at a reasonable price that would assure our
shareholders get some return for the acquisition cost. Because of those facts, we have
embarked on a much more aggressive exploration program, where there is higher risk in
terms of not finding anything for your dollar. The return is going to be a lot higher by
exploring primarily around the properties we already own, where we already have capital,
infrastructure and where we have already sunk acquisition costs. We are still looking and
we would love to add new assets right now. We are focused on expanding the assets we
already have and adding value by finding more resources and reserves.”
CEOCFO: Is having
resources in the ground that will last over several years a high priority for you?
Mr. Burns: “We have within our grasp a fast growth
program. We also, I believe, have the best reserve, resource profile and I say that
because our reserves and resources are primarily already at our operating locations where
we can extract the value and produce the silver from them. As with any mining company as
you go from an explorer into a true operator, you have to balance all those things. When
you are an explorer, you explore, when you are a developer, you have a different story. As
you become that long life producer where you should be judged by the leverage you are
providing and the earnings you are providing, you have to have that balanced approach and
I think we have the best in the industry.”
CEOCFO: In closing, why
should investors be interested in silver and why Pan American?
Mr. Burns: “Besides our ability to create value and
leverage we are providing, and our asset base, the last piece is our management team here.
At the same time that the company has evolved, we have very judiciously robbed talent from
other very experienced mining companies in all fields, including investor relations, and
most importantly in our technical core competencies. They are the best in the industry, no
question about it. That is why they should choose Pan American. In terms of silver, it
comes down to an investor’s desire to have some exposure to that precious metal. Here
is where I am at in terms of what I see for the future of silver for the short and medium
term. Silver continues to be used on the demand side at a greater rate than it is being
produced. Here has been a long history of very large above ground inventories of silver
that have been filtered into the market over the last 10 year period where demand has
continued over supply. Quantities are reducing, it is like a rain water, you know
that the rain water is running out, you know that it is getting near the bottom of the
bucket but you are not sure when it is going to run out, that is my view on what the
potential is for silver. That deficit of supply is going to continue and when those above
ground inventories are reduced to a smaller size than they are right now, I see an
explosion in the price. I am not naïve enough to believe that if the price explodes it
will stay there, because as any precious metal/commodity, new production will eventually
come on stream; there is no doubt about it. In the mining game, that production takes four
to five years from idea to output. I see right now the potential for silver to explode in
price, and if it does, I see it could stay at those higher levels for year.
There is no doubt that part of the increase that we are living with now is that inventory
squeeze five years ago. The equation has not changed and that is why I am so bullish. The
U.S. dollar has done what it has done and silver has responded as many of the other metals
have and oil as well. There is some of that in the price but there is also a true shortage
and I do not see that changing in the short term.”
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