Written by Brian Boutilier

Bullion Bulls Canada

1 Nov 2011

My tour of the operations for Great Panther Silver (TSX: GPR) and Endeavour Silver (TSX: EDR) in Guanajauto, Mexico (which I had the good fortune of attending with my wife, Susan) is now history. There is much to report. I was happy to muck around the mines with 12 of the 25 folks in a larger group consisting of investment bankers, analysts and writers. Some of these intrepid souls are quicker writers than I, and have already published their own accounts of this event.

I would like to begin by offering our heart-felt thanks to the respective management and staffs of Endeavor and Great Panther. They were kind, generous and very approachable. While courtesy, safety and community relations were a constant, I found these two operations strikingly different. From my point of view, the ore bodies of the respective mines set the tone. So as to understand the challenge of underground mining, I’d like you to visualize descending these mines with me. As something which is still new to me, it was a visceral, confusing, yet exciting experience. In this article, I will focus on Great Panthers underground mine, and follow up with Endeavor’s operations in another installment (and those wanting even more detail can visit our forum).

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Our morning started with the “meet and greet” with Great Panther’s CEO Robert Archer, and Robert Brown (VP Exploration) along with the Mine and Safety Managers. We were briefed on operations, underground exploration, some surface exploration annual production and efficiency data. They showed us what they had accomplished, and were honest about operational challenges they faced. We were informed that our tour would only extend to a few of the more recent areas of exploration/development for the Guanajauto Mine Complex, We would see the Cata mill, and the surface drilling ongoing at San Ignacio, and the core shack. We would not visit Topia operations. Importantly there were coffee and stacks. The coffee was good.

In Guanajuato they have an SGS (i.e. their own “lab”) with 24-hour turnover assays generated by the underground exploration. Outside of that, they contract with independent labs for surface exploration, and for QA/QI redundancy for their underground resources.

Separate, and in addition to this complex, are the Topia mine/mill with 270tpd capacity and boasting a 19M oz resource, The Topia mill is currently working at 200tpd at a cost of 14-15$/Oz. The high cost is due to “community outreach”, a program where Great Panther purchases ore from local miners at a premium. They combine this with their own ore production.

Great Panthers Cata plant capacity is an impressive 1200 tpd with recovery rates of 88% for Au and 91% for Ag. Current mine production is approximately 600 tpd. The cost of production is less that 8$/Oz Ag equivalents. This leaves the Company with significant excess capacity.

It has increased underground exploration in the main complex, and workers are stoping and ramping for more ore access. To get a feel for that volume shortfall, picture an additional 600 one-ton capacity carts or several mucking vehicles with multi-ton capacity being hauled up from depths of up to 500 meters every day. Some of this is over uneven terrain, which at times can be knee-deep with water. While 500 meters is not considered “deep” using current technology, even with modern equipment this is still difficult in the narrow, uneven or steep areas of this older mine. Given this, it seems unlikely they could efficiently bridge this throughput shortfall with the Main Complex alone.

While there is an ore production shortfall, there is definitely no paucity of ore, There are many active areas of underground exploration including Guanjautito Deep, Valenciana Deep, Cata Deep, Los Posos and Promontorio. Resource expansion will be generated from underground drilling in these areas. The Guanajuato mines currently account for 3 million oz’s of silver (“Proven and Probable”), 3.7M (“Measured and Indicated”) and a 726K “Inferred” resource. These numbers can and will grow significantly. All of the underground and surface resources at Topia, San Ignacio and the Guanajuato together account for 30M oz. This overall number will also expand going forward with the additional surface exploration. This means that mine life is growing faster than the production rate.

Great Panther’s Guanajuato Mine Complex has two operating shafts and three ramps currently. It is host to many historic works over its 400 years of production, including Guanjautito, the historic Valenciana, Cata, Rayas and Promonotorio zones. The strike length of these producing areas exceeds 2 miles. They collectively have been the source of approximately 1 billion oz’s of silver production over the last several hundred years. Valenciana is the single most productive silver mine in modern history.

We began our physical tour of the mine complex after a brief on safety. I strained yet again to understand the impressive, but broken English of the Mine Manager. I must say that craning my neck doesn’t improve my comprehension of Spanish, yet I found myself doing it anyway. With safety concerns addressed, we suited up with coveralls tucked in knee high boots, hardhats, glasses, earplugs, We wore belts carrying an air filtration system incase of underground fire.

After our last, nervous bathroom breaks, we walked a couple hundred feet to the lift at the Cata shaft, while getting adjusted to our new kit. (pic) We were lowered 5 at a time down the CATA lift for a couple of hundred meters. We were told that this was in fact, the largest diameter shaft in the world. It was hand dug, and rough-hewn. While waiting for the others to arrive, I took stock of the weather down below. My wife Susan was a veteran of mining tours being a Geology undergrad. She warned me that things would be hot, humid and loud. I was undaunted, for the temps were around 70F with a following, cool, dry breeze of 1-2 knots off the starboard quarter, quite pleasant really. (What does she know?)

After being warned to keep our appendages in the vehicle, we progressed via Kubota 4 wheeler through Cata, then we rolled further down to Santa Margarita and some of the Veta Madre Structures (Alto veins). We pivoted our heads/headlamps on the signs painted on the walls of the switchbacks and intersections. They point out depth, and the direction to get out in case of trouble. To my eyes, there was little indication of where we were. Oh I knew how deep I was, but there was no, Santa Margarita Placard with a “you are here” or “x marks the spot”.

The passage-ways were convoluted with many sharp switchbacks. Occasionally, the turns were narrow enough where the vehicle had to make a 3-point turn to negotiate them. This is an older mine, well developed, with many backfilled areas from old stopes. If one worked in a deep zone, it would take about an hour on foot to get there at the beginning of a shift. Actually, it may be faster on foot. Nothing is quick or easy. What your carried in, you carried out.

We puttered along intermittently in the 4-wheelers for a couple of hours. We were jostled along over the uneven ground, and thankful for the hearing protection as we passed by exhaust points in the ventilation system. (These whistled much louder than a teapot on full boil). We stopped intermittently, to muck around in shin deep water, and dutifully hacked off ore samples from bearing faces with a rock pick. Red paint marked the spots. The geos trained among us picked, gathered, and kept shining their lamps on the various samples. They commented on the intrusives, the sulphidization or “squiggly bits.” Frankly, I found that the higher-grade mineralization wasn’t always that obvious, so I nodded my head and took their words for it. I was comforted to find from Mr. Brown, that the workers had the same trouble and often let the lab assays guide their progress.

As a visitor, admittedly things were visually confusing. I couldn’t always discern what was active stoping, where the active exploration areas were versus what drilling was being done to blast the actual head or footwall. Most of the ore is oblique in its orientation, so they often had to create stopes around the back of the ore body to gain access, while leaving pillars for support. There were zones where this was clear to see, but it wasn’t consistently obvious to me.

The deeper we went past 400 meters (progressing to the newer areas about 500 meters down) the darker it got. We encountered many workers, usually a brief smile or nod as we passed, careful to avert their eyes from our headlamps and preserve their night vision. In fact, I couldn’t help the feeling that we were disturbing nocturnal animals. Picture shining a light on a meerkat, pupils dilating, eyes avert quickly. We knew we were disrupting their work in these underground “burrows”. I was informed that they work 8-hour shifts, 7 days a week, for 3 weeks, then take a week off.

We saw drill teams doing in-fill drilling. We observed “jack teams” resting while we passed. These jacks were all turned-off to spare the chaos, and our hearing. I was informed that the drill jacks were powered pneumatically via compressed air, and water lines kept the tips cool while penetrating the ore face. The water and air-lines were draped along the tunnel walls. Unfortunately, I didn’t witness ore being jacked, blasted, mucked or transported - wrong shift evidently. Perhaps it would have been too chaotic or unsafe to drill, blast or muck out ore while we were there. Evidence of overhead bolting, and caging was abundant to prevent cave-ins.

The deeper we went the warmer it got, as we encountered new areas of exploration with active epithermal venting from drilling. Indeed, Susan was right (sheusually is). It was dripping hot water from above down the backs of our necks, glasses fogging, and brows dripping. In fact it was “raining” nearly as hard inside our suits due to the maxed-out humidity. But we were a stoic group, all wearing our best poker faces. There was nary a complaint uttered.

As the sweat started rolling off my brow, my mind wandered, imagining what is was like to grind away for an 8-hour shift fully suited up underground in the dark with only the lamp on my head for light. I tried to get a feel for how hard it would be to communicate with earplugs in, while maintaining the focus necessary to drill, catalogue and stay oriented to task. Having been deployed in Iraq (in my previous life), I know how the heat load can affect operations. These workers are tough and acclimatized.

After a couple of hours, we began our ascent back, grinding our way up the switchbacks. The air gradually got cooler, less humid. Slowly the tunnels got lighter, until we saw the rail-head. We squinted at the brighter light, and felt that lovely 2 knot wind once again, this time on our faces. Up the lift we went, to another rail area. We walked our way out in and along the rails.

The first four of us gathered outside, milling about, waiting for the rest of the group and staff. We passed some time looking over our rock samples. I had grabbed a chunk with some amethyst (silly, that in a silver mine). I caught the eye of a worker on break. He had been watching me admiring this bit of ore but was polite enough not to draw attention to my dubious “trophy”. He shifted his gaze, and leaned back to soak in the noon sun for a few more moments. He put out his cigarette, gathered his things, gave the group a nod and went back to work. It was there that I learned volumes about the miners for Great Panther: dedicated to their work, and harboring no hostility toward the foreign visitors to their workplace.

Since the tour, I’ve had a chance to mull over what I witnessed, and what I was told. GPR is working historic areas, and going deeper underground to find new ore access (400-500 meters currently). This means they have to haul ore out over a greater distance. Deeper also means it is hotter, wetter and requires ventilation and power to go further, this takes time, money and engineering. Having such a great distance to travel underground is in itself an operational challenge.

Great Panther’s workings in the Guanajuanto complex are just that, complex. They have a unique challenge with the orientation of the veins, and yet have consistently “answered” that challenge for the past 6 years.

The veins are oblique in orientation meaning that the stoping, exploration and blasting requires considerable care and skill, and can be time-consuming. Great Panther has done a great deal of underground exploration, and is identifying new ore bodies. They spent last year working new stopes. They also expressed their intention to build an additional ramp connecting to new areas for ease of transportation of ore and equipment, which should lead to slightly improving production numbers. Under these conditions, returning to increasing ore production at the Main Complex next year would be impressive.

How will the Company continue to grow reserves and more importantly close the gap in excess production capacity? The answer lies in the exploration and development of San Igancio. Admittedly, I previously thought of San Ignacio as the “side-show” outside of town. However, this land package is abutting the Endeavour’s Cebada mine. They are both about 5Km from town as the crow flies. They will have to truck ore right past Endeavor’s Lucero Ramp and close to the Bolanitos Mill. Realistically for a dump truck, it would be up an hour drive down the winding dusty road. Permitting for the trucks in town are details needing to be ironed out. Importantly, at San Ignacio, they are working the same basic epithermal shear system that Endeavor is at Cebada, promising, but that is the topic of the next installment.

Great Panther Staff and Management are a reflection of their mineralization and mine. They are more than meets the eye. While being modest about their accomplishments, one senses a fierce determination to overcome the challenges they face, and improve operations and conditions for yet another year. Finally, they are an integral part of the community, and of the history of this area. They are mining the same “Valenciana” that created a great deal of wealth Spanish nobility. With CPR its not just about profits, they are being noble. They are not taking undue risks their workers to reap personal rewards.

We completed our tour by meandering around the historic Valenciana smelter. Great Panther is working with local artisans and officials to create a community center and museum on these historic works. They are honoring the history of the people and land of Guanajauto, In doing so, they are helping write a much brighter chapter for these hard working people.