Fool Exclusive: Great Panther Silver From the Inside-Out

I am a man on a mission: to provide my Foolish readers with the most comprehensive insight I can gather into the complex world of mining stock investments. I'll go to just about any length -- and even any depth -- to unearth useful perspective. On Monday, I took it to a new depth: 510 meters below the surface of Great Panther Silver's (AMEX: GPL  ) flagship Guanajuato silver and gold mine!

Reminiscent of my visit to Brigus Gold's (AMEX: BRD  ) Black Fox mine in Canada, the extent to which a deep well of mining history is woven into the fabric of life in Mexico's enchanting city of Guanajuato is immediately evident on the approach to the mine. From the taxi driver's recommendation that I visit the 220-year-old site of the legendary Valenciana silver mine, to the large bronze statue depicting a miner operating a jack-leg drill, the moment you arrive at Guanajuato you know you've reached truly one of the world's great mother lodes of silver. One of Guanajuato's hotels is aptly named: Villa de la Plata (silver town).

Indeed, since the late sixteenth century, the Guanajuato district has yielded more than 1 billion ounces of silver and 4 million ounces of gold, a bounty that would equate to more than $38 billion at current metal prices! Although the multiple mines that constitute Great Panther's Guanajuato complex experienced some lengthy interruptions over the years, during the late 18th century Guanajuato is thought to have provided approximately one-third of all the silver produced in the world. What is truly remarkable to witness from a firsthand perspective, meanwhile, is just how much high-grade treasure remains to be mined within this world-class epithermal vein system.

A pile of broken ore sits adjacent to one of the working production stopes within the Los Pozos orebody of the Guanajuato mine. Production during the third quarter was chiefly impacted by a lower average silver grade of 191 grams per tonne from this orebody. To keep that in perspective, recall that quality miner First Majestic Silver (NYSE: AG  ) reported a consolidated silver grade of 188 grams per tonne during the quarter.

Great Panther's ongoing bonanza
While all the silver mining stocks have pulled back sharply amid the latest correction to assail this volatile market, Great Panther shares took a deeper dip recently when third-quarter operating results revealed that a dip in average ore grades experienced during the second quarter continued into the third. As a result, the company will experience its first year of interrupted production growth within an impressive six-year record of steady expansion. Factoring in the company's $38 million net cash position, this fidgety equity market has now seen fit to value Great Panther's non-cash assets and operations beneath $300 million. For this long-term oriented Fool, the selloff has yielded nothing more than a terrific buying opportunity. Once the company moves through this recent hiccup and regains its growth momentum, I feel certain that Great Panther will continue to build powerful shareholder value for many years to come.

In order to fully understand the enormous potential of this small-cap producer, one must first grasp the tremendous scale of the miner's flagship asset. During my tour of the operation on Monday, we descended 275 meters down the historical Rayas shaft, which for its substantial width (37 feet in diameter!) represents a remarkable feat of engineering by 18th century miners. After viewing the Los Pozos orebody that is a current mainstay of production, we descended deep underground to a depth of 510 meters beneath the company's under-utilized processing plant adjacent to the Cata shaft. The Cata mine saw substantial development by the mine's previous operators, but the vein structures never did find a bottom, and even at these depths recent exploration is confirming further "down-dip" extension of the very high-grade ores. Exploration results released last August revealed a 3.2-meter interval that contained an incredible 6,447 grams of silver per tonne, and 29.44 grams of gold per tonne. A few hundred meters to the Southeast, the Santa Margarita zone is yielding ore with average gold grades between 4 and 6 grams per tonne!

Great Panther's Guanajuato mine complex spans an enormous strike length of 2.6 miles, and features an exhaustive network of modern and historical underground mine workings that facilitate accelerated exploration, development, and production from a range of extremely high-grade ore bodies. Despite substantial historical production (areas highlighted in green and light green), my visit to the mine reaffirmed my view of the tremendous exploration upside that remains therein.

Way over on the other end of the complex, near where the Guanajuatito mine abuts Endeavour Silver's (NYSE: EXK  ) Cebada mine, Great Panther has likewise enjoyed promising exploration results at depth, confirming that mineralization extends for at least 150 meters beneath the existing mine workings. The portion of Guanajuatito's down-dip extension that intersects the Veta Madre (Mother Vein) returned 3.59 meters of 241 grams of silver per tonne, while the deeper Footwall Zone assayed 1.72 meters of 839 grams of silver per tonne, and a noteworthy 2.77 grams of gold per tonne. No one knows how deep these structures will ultimately extend, but they have yet to show any signs of bottoming out. If even one or two more zones of these sorts of deeper extensions pan out, Great Panther could conceivably continue mining high-grade gold and silver here for generations to come.

There is so much more to this story
With far too much information to cram into a single article, I will refrain from attempting to tell Great Panther's entire story all at once. Rather, I encourage my readers to track Great Panther Silver by using the Fool's My Watchlist feature, and by bookmarking my article list here. Suffice to say, as exciting as the company's flagship operation is, let's not forget Great Panther has another mining operation in Durango State called Topia. Topia operates on a far smaller scale, currently running at about 200 tons per day, but the underlying asset is a sizeable high-grade resource yielding silver, gold, lead, and zinc. Costs are running quite high at Topia lately, but the company can go a long way toward addressing that issue by ramping-up production to match the plant's capacity of 270 tonnes per day.

Frankly, although costs are far lower at Guanajuato, it was hard to see that plant operating far beneath its boilerplate capacity of 1,200 tonnes per day, and I look forward to a fast-tracked development push to begin utilizing more of that valuable spare capacity.

A segment of the floatation circuit within Great Panther's 1,200 tonne-per-day processing plant at Guanajuato. This is near the end of the process that yields the final silver-gold concentrate. The impressive operation is achieving excellent gold and silver recovery rates, but this Fool is eager to see production rates expand to match the plant's considerable capacity.

Back near Guanajuato, Great Panther is actively exploring a very enticing property called San Ignacio, which borders Endeavour Silver's beautiful new discoveries near that miner's Bolanitos mine. I was able to get underground into Endeavour's fast-tracked development of those newly discovered vein structures, and I can attest to the gorgeous, gold-rich, and ultra-high-grade vein systems that are running through this now very substantial portion of the district. Great Panther has already published an initial resource of nearly 5 million ounces of silver-equivalent at San Ignacio (with a gold grade of 2 grams per tonne!), but I encourage readers to view that as merely a small taste of what is to come.

More recently, Great Panther added a huge property package of more than 1,500 hectares, called Santa Rosa. The exploration target here is a theoretical extension of the La Sierra vein structure that hosts AuRico Gold's (NYSE: AUQ  ) profitable El Cubo mine several kilometers to the south.

As a longstanding shareholder of both Endeavour Silver and Great Panther Silver, I emerge from this visit to both company's mining operations with a heightened appreciation for the powerful upside potential in these shares as silver prices continue their bull-market climb. While I remain similarly bullish on other quality silver producers like Alexco Resource (AMEX: AXU  ) and Fortuna Silver Mines (NYSE: FSM  ) , the sheer scale and quality of the epithermal vein structures running through the Guanajuato mining district ensure that Great Panther and Endeavour Silver will remain my primary vehicles for silver exposure for many years to come.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Alexco Resource, AuRico Gold Endeavour Silver, Brigus Gold, First Majestic Silver, and Great Panther Silver. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (18) | Recommend This Article (53)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 27, 2011, at 11:19 AM, Jbay76 wrote:

    Chris,

    Buen hecho senor! Those are wonderful pictures and a greatly appreciated update on GPL!

    I've been thinking this is a good time to get more share of either GPL or AXU, and I think this update has pushed me towards the former.

    Muchas gracias

    Juan

  • Report this Comment On October 27, 2011, at 12:10 PM, speedybure wrote:

    Bravo Chris! Still in Mexico?

  • Report this Comment On October 27, 2011, at 1:04 PM, SN3165 wrote:

    Nice job Chris. These articles are actually some of the most well-written here at the Fool, IMO.

  • Report this Comment On October 27, 2011, at 1:50 PM, speedybure wrote:

    Endeavor was a great tour although I liked them both. It was funny, the first morning at breakfast we were sitting next to each other and didn't know it.

  • Report this Comment On October 27, 2011, at 2:01 PM, BullionBullsBoot wrote:

    Nice write-up Chris, It was great mucking around in the mines with you. What did you think about the San Ignacio surface exploration? Do you think there would be any synergies between Endeavour and Great Panther in this area?

    I certainly gained an appreciation for how hard GPR has to work to develop new stopes with the oblique orientation of the viens in Santa Marguerita, Rayas, Alto Veins...

    It just not easy with smaller vein structures to quickly speed up the rate of production without losing grade. This may answer why production was off in the last couple of quarters. They have been diligently working the ore bearing structures via new stopes. It looks as though they will get new area into production with what they have done, . Going forward a new ramp connecting to Cata create more production areas, and ease of removing muck.

    Well, again, nice write up. I must get back to the salt mines.

  • Report this Comment On October 27, 2011, at 2:38 PM, XMFSinchiruna wrote:

    Hi Brian,

    I would like to have seen a few more drills out there at San Ignacio, since a comparison of the surface vein outcroppings between San Ignacio and Endeavour's prolific vein concentration next door certainly raiswes a bullish eyebrow.

    Definitely, potential synergies between the two companies are substantial, not just between San Ignacio / Bolanitos, but also between the Cebada operation and Great Panther's under-utilized plant. Yes, you can just imagine how cost-effective it could be, and how much faster as well, to access San Ignacio via Endeavour's existing underground workings next door. For years it's been the most obvious of potential transactions in silver to never occur. :P

    Your point about the steep angle of orientation of many of Great Panther's veins at Guanajuato (often dipping at a 45-degree angle) is important to understanding some of the challenges the company has faced in ramping-up production volume. That's simply the nature of the deposits, and they appear to have adapted well to the challenge with respect to their stope development and mining procedures.

    Great to meet both you and Chris (speedybure)!

  • Report this Comment On October 27, 2011, at 2:49 PM, XMFSinchiruna wrote:

    P.S. On second thought, sending Cebada ore to the Guanajuato plant would only make sense in a scenario where Endeavour's Bolanitos assets + Great Panther's San Ignacio were collectively producing enough to keep Endeavour's 1,600 tpd plant busy, and I think we are some time away yet from such a scenario.

    As with any prospective transaction, there are plenty of factors to take into consideration, but certainly given the degree of geographical proximity between their respective projects a consolidation would appear quite logical. As a shareholder of both companies, I would love to see it happen, but at the same time I trust both CEOs 100% to pursue the path to long-term shareholder appreciation that they each deem ideal.

  • Report this Comment On October 27, 2011, at 3:01 PM, dutchrigpig wrote:

    Hi Chris,

    Last week i did already buy a few more stocks from Great Panther, for the long term. Good to see some more information.

  • Report this Comment On October 27, 2011, at 4:35 PM, Jbay76 wrote:

    On a side note, how did you end up at GPL at the same time as Speedy and Bullion? Did GPL organize this?

  • Report this Comment On October 27, 2011, at 5:39 PM, BullionBullsBoot wrote:

    We were all invited on a tour of both operations along with about 18 others. There were investment bankers and fund managers, writers and analysts along with the senior leadership of both companies. The tour was organized and presented by both companies. However EDR took point on Travel inbound, and GPR coordinated a good deal of the in/around activities between hotels, restaurants and the airport. Both staffs were very open/available and helpful. A good time was had by all. (Or it atleast appeared so through by frosted mug).

  • Report this Comment On October 27, 2011, at 6:50 PM, speedybure wrote:

    Brian,

    Didn't know you were on here. Nice to hear.

  • Report this Comment On October 27, 2011, at 9:59 PM, speedybure wrote:

    Maybe she was half telling the truth

  • Report this Comment On October 28, 2011, at 9:11 AM, Jbay76 wrote:

    Spectacular BBB, maybe I am in the wrong industry...

  • Report this Comment On October 28, 2011, at 1:18 PM, sheet332 wrote:

    I agree with GPR and all your picks.

    You might want to cast your eye over to

    Aurcana. At some point next year, when the Shafter Mine opens, they'll be producing more silver than GPR.

    peter

  • Report this Comment On October 28, 2011, at 3:12 PM, SN3165 wrote:

    +1 to the last comment, assuming that all runs smoothly, the mine opens on time, no delays, etc. They are expecting to produce 3.8 mil. SEQs in the first year from Shafter alone. +1.2 or so from La Negra = 5 mil annually. The project has a massive internal rate of return (something like 80 percent with $40 silver?) and is fully financed. They have breakout potential, this is why I am a shareholder. Also keep an eye on Scorpio Mining, and of course Primero.

  • Report this Comment On October 30, 2011, at 11:09 AM, BullionBullsBoot wrote:

    Hey Mark, I haven't been on the Fool previously. (Not as a member) I just wanted to stay in touch with group. I was cool doing the tour with you and Chris. I realize now how valuable these tours are. I have a much better feel for GPR and EDRs operations, and currently upside and limitation for each. Nothing like mucking around. gooday to ya

  • Report this Comment On October 30, 2011, at 3:04 PM, speedybure wrote:

    No worries but we;re both Chris ;)

  • Report this Comment On October 30, 2011, at 4:54 PM, BullionBullsBoot wrote:

    Thompson of Haywood variety? Sorry for the confusion speedy.

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