Special Report

Great Panther Is on the Prowl for Acquisitions

Great Panther Silver's modus operandi is to buy a past-producing mine, get it up and running as quickly as possible, and use the cash flow to fund more acquisitions, says CEO Bob Archer in this interview with The Gold Report. Having succeeded in Mexico with Guanajuato and Topia, the company is now taking on Coricancha in Peru.

Great Panther's Projects in Mexico
Management Q&A: View From the Top

The Gold Report: Can you start off by telling us your perception of the silver market and how you think silver is going to perform in the Trump era?

Bob Archer: I believe precious metals bottomed near the end of 2015. Through 2016 we saw quite a nice rebound both in metal prices and in market sentiment, so that's been very positive for the industry. The price of silver rebounded a lot faster than the price of gold. That reversed the gold-silver ratio that had been going up until the end of 2015, when it peaked at about 83 or 84.

Through 2016, on a percentage basis, silver outperformed gold, so the ratio has dropped back down. At one point it got down to around 65, but it's back up around 70 right now.

I think that trend will continue: The gold-silver ratio will continue to decrease. The longer-term average over the last 10 to 20 years has been around 60. But when metal prices peaked in 2011, that ratio went down to about 35. So there is a very good sense that silver will outperform gold quite significantly over the next few years.

As far as Mr. Trump is concerned, so far he's been really good for precious metals, largely because the market does not like uncertainty, and that pretty much surrounds him like a cloud. Nobody really seems to know what to think. As long as that uncertainty is out there, precious metals will do quite well.

TGR: Would you tell us a little bit about your own history? You're a geologist, and your first ventures were in exploration. Then you moved into production. What did you learn from this?

BA: One of the key things that I learned was that exploration companies are solely reliant on the markets for funding. Given the cyclical nature of this business, it's great when things are going well, it's easy to raise money and you can fund your programs. But when you go through a downturn, you can get several years where it's virtually impossible to raise money for exploration companies and exploration projects. Those times can be extremely difficult.

So when my original business partner and I started out with the concept of Great Panther Silver Limited (GPR:TSX; GPL:NYSE.MKT), our business model was to get into production as quickly as possible and then grow the company primarily out of cash flow. That way we wouldn't have to weather these cycles quite so badly. I am pleased to say that we have been successful in doing that, and we've emerged from this last downturn stronger than ever.

TGR: Great Panther has two mines in Mexico: the Guanajuato mine complex and Topia. Do you anticipate difficulties in conducting business in Mexico in light of tensions between the Trump Administration and the Mexican government?

BA: Mining doesn't really seem to be affected too much by all of that. If anything, it's been beneficial for us because the tension has created a lot of weakness in the Mexican peso. The foreign exchange rate has worked to our benefit because most of our costs in Mexico are in pesos, while revenue is in dollars. That favorable foreign exchange rate has been one of the things that has helped us to push our cash costs down over the last couple of years, last year in particular.

TGR: Would you tell us about your Mexican operations?

BA: Our Guanajuato operation is our flagship; it provides more than 75% of our production. We produce silver and gold from Guanajuato in the form of a pyrite concentrate that gets sold directly to smelters. There are two mines operating there that feed into one central plant. The bulk of the production, about 60% of it, comes from our San Ignacio mine, which was a discovery that we made in 2010.

Because San Ignacio lies just outside the city of Guanajuato, and just outside our main property and plant, we were able to bring that into production very quickly. We're just trucking the ore around to the plant, so we didn't have to build a new mill facility or permit tailings ponds. We were able to go from a discovery hole to commercial production within three and a half years, which is a very fast time frame in the mining industry.

We're continuing to grow the resource base at San Ignacio. Lots of good things ahead for that project and for the mine in general.

Our other mine is called Topia, which is located in northwestern Durango. It's a narrow-vein silver-lead-zinc mine with a small amount of gold. Topia is higher cost than Guanajuato largely because of being labor intensive but is still profitable. We produce a lead concentrate that contains the silver and a zinc concentrate as well, both of which get sold to a metal trader in Mexico. Topia typically generates about 1 million ounces (1 Moz) a year of silver equivalent (Ag eq), while Guanajuato produces about 3 Moz Ag eq. So in total we're producing around 4 Moz Ag eq annually.

TGR: In 2016 Great Panther's production in Mexico decreased. What happened?

BA: We had produced about 4.15 Moz in 2015, and we dropped down to about 3.9 Moz in 2016 largely because of a couple of temporary shutdowns at Topia in Q3 and at Guanajuato in Q1. Then we shut down the Topia plant on Dec. 1 to conduct some upgrades and maintenance, as well as to switch over the tailings storage facility there from a wet tailings deposition to a dry stack.

The plant is still shut down at Topia but that project is almost complete. We should be back up and running this month.

The other reason was that grades were slightly lower at San Ignacio last year than they were the previous year. That's really just natural grade variability within the veins as we move along strike. We're bound to get that within these types of systems. Some years are better than others. But these are just typically slight variations.

Our forecast for this year is to be back up between 4 and 4.1 Moz.

TGR: Great Panther recently signed an agreement to acquire the Coricancha mine in Peru. Can you tell us why Peru and why this mine?

BA: I first went to Peru in 2009, and I saw a lot of opportunity there for a company like ours. Peru is the second largest silver-producing country certainly in Latin America; some people would say the world depending on whether you count China as No. 2 or No. 3. Mexico is No. 1. What I recognized in 2009 was that there were very few midsize public companies working in Peru. Statistically, geologically, you have to have a lot of midsize deposits. The big ones are being mined by the larger companies, the smaller ones mainly by small private operators. But there weren't a lot of midsize companies.

So we've been looking in Peru fairly actively since about 2010 and have been negotiating on a number of different deals through that period. I'd been familiar with Coricancha since that time and followed it. When it came available, in 2014, we expressed interest and took an option on the project first to do some work on it, get comfortable with it and decide if it was something that we really wanted to step up and buy.

Essentially we decided that we did. We conducted about $2 million ($2M) worth of work on the property. Then last year we notified the owners, Nyrstar (NYR:BSE), that we wanted to move ahead with an acquisition. We negotiated the terms in Q3/16 and signed the purchase agreement in December. We're just waiting for that to close. Then we'll take possession and start to advance the project.

TGR: Do you have any idea of how soon you would start drilling?

BA: The underground drilling should start probably within a couple of months of us taking possession. Surface drilling will take longer because it requires a permit. We may be able to get a permit by Q4/17 or it may go into Q1/18. The mine is on care and maintenance at the moment. It does have a fully operational 600-ton-per-day plant. Everything is fully permitted. So it's really a question of conducting a prefeasibility-level study, including engineering and environmental evaluations, and doing the drilling.

We'll be upgrading the resource by Q2/17. All of that will give us a better understanding by, hopefully, the end of 2017 as to what really needs to be done to bring it back to full production and the time frame it would take to do that.

But at this point, with the information that we have, we're estimating that it will take about 18 months to bring it back into production at an approximate cost of around $25M. We are fully funded to do that, so we don't anticipate having to come back to the market.

TGR: Where do you see Great Panther going from here?

BA: Focusing on getting Coricancha back up and running is going to be a key aspect of what we do over the near term. At full production, based on historical records, we estimate that Coricancha has the potential to produce about 3 Moz Ag eq on an annual basis, which would be about a 75% increase for us. So it's a very meaningful addition to our portfolio.

But in the interim, we are also looking to make another acquisition. If we could find something that's actually in production now, that would be ideal.

TGR: Great Panther's shares have been quite high recently and have been staying quite high. Can you tell us what's going on with the company financially?

BA: One of our strengths right now is our balance sheet. We did raise some money last year. We completed a bought-deal financing in the summer for $30M, plus we raised another $5.5 through an at-the-market financing over a few months. So net proceeds from all of that were a little over $33M, which, combined with our positive cash flow, has given us about $56M in cash and cash equivalents, and working capital of about $67M, with no debt. So we have a very, very strong balance sheet.

That, plus the prospects for Coricancha and the fact that we don't anticipate going back to market to finance it, are all reasons why the company is attractive right now. I'm pleased to say that there was a positive response in the market when we announced the Coricancha deal back in December, so that was very nice to see.

TGR: Is there anything else that you'd like to tell our readers?

BA: We're very optimistic about the future for Great Panther and are moving forward on our growth strategy with expansion through Peru. We would like to use Coricancha as a foundation for future growth in Peru. Great Panther was built by acquiring past-producing mines and bringing them back into production, refurbishing them and bringing them up to their proper operating efficiencies. So we hope to do the same thing with Coricancha and be able to build on that. By focusing on Mexico and Peru and trying to maintain our focus on silver as much as possible, we think the company has a great future.

TGR: Thank you for your time.

Bob Archer is a cofounder of Great Panther Silver Limited, and as CEO and a director, he is responsible for the development of the strategic direction of Great Panther Silver. Archer has more than 35 years of experience working for mining companies throughout North America, including Newmont Exploration of Canada Ltd., Rio Algom Exploration Inc., Placer Dome Canada Ltd. and Noranda Exploration Inc. He spent eight years in senior management roles with companies in the junior sector prior to founding Great Panther.

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Disclosure:
1) Patrice Fusillo conducted this interview for Streetwise Reports LLC and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
2) Great Panther Silver Limited is a sponsor of Streetwise Reports. Streetwise Reports does not accept stock in exchange for its services. Click here for important disclaimers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Great Panther Silver Limited had final approval of the content and is wholly responsible for the validity of the statements. Opinions expressed are the opinions of Bob Archer and not of Streetwise Reports or its officers.
4) Bob Archer: I was not paid by Streetwise Reports to participate in this interview. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview. I or my family own shares of the following companies mentioned in this interview: Great Panther Silver Limited.
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