Pan American Goldfields: Shares Trading At A 58% Discount

We attended a site visit to Pan American Goldfields’ (PAG) Cieneguita project from February 25 to March 1, 2013. During this time we viewed a successful, although small-scale pilot operation, which proves at this basic level that flotation methods will work to extract the amounts of gold, silver and lead in ores. PAG now envisages a modified flotation circuit to underpin its imminent Cieneguita preliminary economic assessment (PEA) due in April. Furthermore, the relevance of the current mining operation is solely to fund the pre-feasibility study (cost estimated at US$5.0-7.0m) due to follow the PEA and although mining above the resource grade, the current pit outline forms only a small footprint in the overall global resource. Until such a time as the PEA is released, we value PAG on an EV/resource ounce at US$0.47/share.


New resource indicates greater silver content
PAG published a revised NI 43-101 compliant resource estimate on 13 March 2013. The total resource is now 57.96Mt at 0.46g/t Au and 31.46g/t Ag for 0.86Moz Au and 58.62Moz Ag. The largest increase was in inferred silver ounces from 0.50Moz to 21.04Moz. The global resource tonnage increased 182% from 20.54Mt to 57.96Mt. However, these increases in tonnages and silver ounces were at the sacrifice of grade, illustrated by average gold and silver grades across all resource categories falling by 38% and 39% respectively. See pages 4 and 5 for a full breakdown.

Industry leading consultants on board for feasibility
Gary Parkison (PAG director) also attended the site visit and is currently managing completion of the PEA (consultant M3 is the lead author of the PEA) and the eventual completion of the feasibility study. A number of reputable US-based consultants will be used for the latter, including Independent Mining Consultants, Resource Development Inc, SRK consulting, Process Development and M3 Engineering & Technology to extract the maximum financial return from Cieneguita.

Valuation: Shares trading at a 58% discount
Until PAG releases its Cieneguita PEA, expected in April 2013, we continue with a valuation based on an EV per resource ounce methodology. Assuming PAG is valued at our average TSX market-wide EV/resource values for an ounce of gold contained, we estimate the new March 2013 Cieneguita resource would be worth c US$0.47/share, accounting for silver and lead credits. Following the PEA, we expect more robust information from which to build a production model for the proposed Cieneguita operation.

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