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Greetings from Mexico!
I’m traveling this mineral-rich country in search of conquistador silver. Yes, mines that the Spanish discovered and worked in the New World are still being worked today. And last week, I had a chance to visit one of them.
The location?
A Beautiful Mexican Colonial City
Founded on Silver!
My journey began in the city of Guanajuato, Mexico. Unlike a lot of other mining towns, this city is so gorgeous that you should put it on your list of “Top 10 Cities to See Before I Die.” It has colonial-era architecture, gorgeous theaters, and quaint zocalos (town squares) strolled by troubadours in period dress. It boasts an amazing underground traffic system and impressive monuments and museums. In short, Guanajuato is a feast for the eyes. And the stomach, too — don’t get me started on how good the food is here.
Anyway, Guanajuato is a city that was founded on silver. A large silver vein found in the 16th Century sparked a silver rush. As the number of miners grew, the mines became larger and the mountains of ore became mountains of silver.
When the conquistadors ruled Mexico, Guanajuato’s biggest mine was Valenciana. It was one of the richest silver finds in all of history, and there were other lucrative mines in the area as well. In the 18th Century, the Guanajuato Mining District alone accounted for 30% of the world’s total silver production.
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Over a billion ounces of silver were hauled out of the Guanajuato Mining District’s hard rock during its heyday. So, it’s all worked out and done, right? Not so fast!
A Rich Vein of Silver Discovered
1,410 Feet Below the Earth’s Surface
May turn out to be the Mother Lode!
In Guanajuato, I visited a company named Great Panther. I’ve been following Great Panther for years — ever since I ran into its chief executive, Karre Foy, in a waiting room in Vancouver, British Columbia, and he told me a story that pricked up my ears with its potential for wealth.
My Red-Hot Canadian Small-Caps subscribers made a tidy sum on this stock the first time I recommended it. But like all small-cap explorers and miners, Great Panther had its growing pains, so the time came for us to exit.
Is it time to get back in now? That’s what I was in Mexico to find out.
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| Great Panther’s CEO (in blue) prepares to lead us into the mine. |
Great Panther picked up its Guanajuato mining properties for a song some years back, when silver was near its nadir and the mines had been run into the ground by the co-op that owned it. I won’t go too deeply into Mexican politics or how the former socialist system that controlled mining was the ruin of many a poor miner. Suffice it to say that Great Panther got a great resource on the cheap.
But the mine needed a lot of work, as did the plant. I toured the plant while I was there, and it’s top-notch. Great Panther has mines in the Guanajuato District, including Cata, Rayas and yes, Valenciana. Despite pumping out all those riches over the centuries, Valenciana still contains plenty of silver, though it is not in production right now.
These mines are along the main Veta Madre (Mother Lode) structure that trends northwest-southeast through the district for at least 16 miles.
The particular mine I visited was the Cata Mine. There, I journeyed down 430 meters, or 1,410 feet below the surface of the Earth.
First we crammed into a tiny, open-sided elevator, packed so close you could smell what the guy next to you had for breakfast. Then we lowered to the 345-meter level. Our descent took us down a shaft dug over centuries by men using nothing but pick axes and brute strength.
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| The top of the exploratory drill … | |
When the elevator hit bottom, we first entered a well-lit tunnel, then turned off and slogged through stygian darkness and sometimes sucking mud. As with any mine like this, air has to be pumped in. The air blowers are roaringly noisy, but that noise is reassuring.
Finally, we reached an exploratory drill site. This drill was probing the 600-meter level. Great Panther has found a really rich vein down there with bonanza grade samples. More drilling is needed, of course. But you can see why the folks at Great Panther are so excited over the prospects.
After checking out the exploratory drill, we turned and walked down, down, down, past abyssal drop-offs and long-abandoned tunnels, to the 430-meter level, where a massive pillar of precious ore was all that was holding millions of tons of rock from crashing down on our heads.
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| A pillar supports the roof 430 meters down. That’s me on the right walking as close as allowed to the pillar. |
What’s down there? Silver — potentially lots and lots of silver, and some gold, too. In fact, that pillar alone is worth over a quarter-million dollars. Robert Archer, Great Panther’s CEO, who guided our tour down below, explained that the pillar is going to be replaced with supports so they can harvest the silver in it.
To be sure, miners as a rule are optimistic, but Archer was pretty sure of how well things were going with the mining operation.
Despite the fact that the walk back UP from the bottom of the mine nearly killed me, I came away with this impression …
At Guanajuato, Great Panther is not only trying to develop a world-class mine, they’re trying to do it smarter.
For example, the tonnage of rock put through the mill dropped to 40,393 in the first quarter from 45,773 in the fourth quarter. But that’s because Great Panther’s mining engineers purposely avoided rock that would bring down the grade and raise their cost-per-ounce. So, at the same time, the average gold grade increased from 0.86 grams per tonne (g/t) to 1.40 g/t while the silver grade increased from 113 g/t to 188 g/t. And this resulted in a 65% increase in the silver equivalent grade from 156 g/t to 258 g/t.
Along with improvements at the mill, the higher grades helped the company produced 1,369 ounces of gold and 198,663 ounces of silver in the first quarter, 45% and 56% higher than in the previous quarter.
Guanajuato is the centerpiece of Great Panther’s mining operations, and the company has big plans. It is also operating the Topia Mining project, and has earmarked another project (Mapimi) for fast-track development as an open-pit mine. In short, Great Panther plans to use cash flow from Guanajuato to help it build a world-class operation.
Now, I would raise two caution flags:
First, much of the work that Great Panther is doing is still exploratory. Some of the projects it is working on may be economically feasible, or they may not.
Second, while its cash cost per ounce is going down at Guanajuato, costs went up slightly at Topia. While overall cash operating cost per silver ounce decreased by 17% from 11.14 in 2007 to $9.20 in the first quarter of 2008, there are other silver miners with much lower cash costs.
Bottom Line: While I don’t think Great Panther is a near-term payoff, it may be worth tucking in your portfolio and forgetting about for awhile. Of course, that depends on your individual investment profile and your appetite for risk and reward. Never forget that this is a speculative mining stock.
Yours for trading profits,
Sean
P.S. Great Panther is an example of the kind of companies I look at for my Red-Hot Global Small-Caps service. But it isn’t the only company I visited in Mexico. If you’re interested in the others, call 800-898-0819 and talk to a personal customer representative about joining me in Red-Hot Global Small-Caps at a special price (mention code p446-83481). Or click here to subscribe now.
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