Pan American Goldfields Initiation Of Coverage For Mine Development Q412

Pan American Goldfields (OTC: MXOM) is expecting to complete the Cieneguita preliminary economic assessment (PEA) in Q412. Following a successful completion, the company hopes to advance through feasibility studies towards the potential development of a commercial scale mine. The feasibility study should be funded by cash flow from an existing pilot operation at the site.


Pilot operation funds feasibility study
PAG operates two assets, for which it is currently making option payments that grant 100% ownership on completion of all payments owed. The assets are in established mining regions; by the very nature of the assets being in world-class gold belts, the company gives itself a better-than-fighting-chance of generating value via resource delineation. There remains much to do in terms of exploration and development of the assets, which is in part funded by the cash being generated from the Minera Rio Tinto (MRT) pilot operation. The coming year will be key for the company, as it looks to prove the economic viability of a larger operation at Cieneguita via a PEA and then a feasibility study, as well as starting its first drilling programme on the Cerro Delta property in Argentina.

Exploration upside – Argentina and the Far East
Pan American Goldfields has completed the early exploration stages and returned promising geophysical anomalies at the Cerro Delta project in Argentina. While this does not signify certainty of mineralisation, the similarity of the IP signature to those found at existing mines in the region is positive. We view the announcement of drilling results over the coming year as a key milestone, as the company looks to build a mineral resource estimate at Cerro Delta. In Mongolia, the company is exploring the opportunity to diversify its exploration portfolio by using well-connected members of its board with proven exploration success in the region.

Valuation – Cieneguita EV/Resource valuation US$0.45
Assuming PAG is valued at our average TSX market-wide EV/Resource values for an ounce of gold contained, we estimate that the Cieneguita resource would be worth approximately US$0.45/share, accounting for silver and lead credits. Following the PEA, we expect to have stronger information from which we can build a production model for the proposed Cieneguita operation. Upside to our valuation could be found in success in the drilling programme at Cerro Delta, which is planned for the 2012-2013 field season.

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