Pan American sees lower Mexico mine expansion costs

Pan American Silver (TSX, NYSE: PAAS) unveiled a new preliminary economic assessment (PEA) that cuts the projected cost of expanding the La Colorada mine in Mexico by almost one-third while expanding operating life.

Initial capital for the La Colorada Skarn project under a “base-case” scenario is now pegged at $1.9 billion (C$2.6 billion), with an after-tax net present value (NPV) of $2.6 billion and an internal rate of return of 17%, Pan American said late Tuesday in a statement. A previous version of the project, released in 2023, had been estimated to cost $2.8 billion and generate a $2.2 billion NPV.

“The revised mine plan for La Colorada skarn improves the project economics with reduced production costs through targeting of higher-grade zones and lower capital intensity through optimized mine and mill design,” Scotia Capital mining analyst Ovais Habib said Wednesday in a note.

La Colorada – the second-biggest of the company’s 10 operating mines – accounts for more than one-quarter of Pan American’s projected 2026 silver output. It’s expected to produce between 5.8 million and 6.25 million oz. of silver this year at an all-in sustaining cost of $33.25 to $35.75 per ounce.

After soaring 71% last year and setting new records into the early part of 2026, silver prices have retreated in the past month as the U.S.-led war on Iran war stoked investor concern over demand destruction.

Six years

Development at La Colorada is expected to take six years and to be funded by cash flows from existing operations, Pan American said. The new project incorporates the construction of a new 15,000 tonne-per-day plant and more selective long-hole mining of the skarn, which could push the mine’s life out to 2068.

Silver production at La Colorada is expected to average 19.1 million oz. annually during the peak five years following construction and ramp-up, CEO Michael Steinmann said in the statement.

With almost 94,000 metres of drilling on the skarn and vein mine not included in the resource estimate used for the revised PEA, exploration drilling offers an opportunity to increase peak silver production, Habib said.

The updated scenario replaces the previous large-scale, single-phase development plan – which included a block cave – with a staged construction that prioritizes higher-grade, lower-tonnage mining in the early years. This shift is intended to bring forward cash flow, contrasting with the previous concept that envisioned a 50,000-tonne-per-day bulk mining operation from the outset.

Under the revised plan, Pan American will first target higher-grade zones within the skarn using less capital-intensive mining methods before expanding to a larger-scale operation in a second phase. The change reflects new geological understanding, including the discovery of multiple high-grade silver zones that could enhance project economics, Pan American said.

Polymetallic

The skarn deposit lies beneath and adjacent to the existing La Colorada mine in Mexico’s Zacatecas state. The underground system hosts polymetallic mineralization including silver, zinc, lead and copper.

Over the next few months, crews are expected to start preparing to advance the construction of a ramp from the existing mine works to provide initial access to the skarn resources, Pan American said.

The skarn holds 265.4 million indicated tonnes grading 36 grams silver per tonne, 2.85% zinc and 1.37% lead for contained metal of 309 million oz. of silver, 7.6 million tonnes of zinc and 3.6 million tonnes of lead, according to a June 2025 resource.

Inferred resources are estimated at 61.7 million tonnes grading 30 grams silver, 2.55% zinc and 0.95% lead for contained metal of 59 million oz. of silver, 1.6 million tonnes of zinc and 0.6 million tonnes of lead.

Pan American shares rose 4.2% to C$51.97 Wednesday morning in Toronto, boosting the company’s market value to about C$22 billion ($16 billion). The stock has traded between C$20.55 and C$69.99 in the past year.