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Pan American deal buys near-term production

In case you were worried, we here at RIMwise, er, Streetwise, know there is more going on in the world than what's taking place in Waterloo. A perfect example: Pan American Silver Corp.'s $1.5-billion takeover of Vancouver's Minefinders Corp.

The deal's been in the works since early 2010, according to the two chief executives officers who spoke on a conference call Monday, and both men said they had flirted with the idea for years. However, it took them a while to sit down and see whether the details made sense.

For Pan American, the purchase provides more exposure to Mexican mining through Minefinders' Dolores gold and silver mine in the northern part of the country. CEO Geoff Burns said that's a positive for two key reasons: cash costs in Mexico are very stable, and there are minimal threats of any government intervention.

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"Mexico has had some of the most stable costs, at least within the countries where we operate," he said, citing cost inflation of Argentina running at more than 30 per cent annually and more than 15 per cent in Peru. Mr. Burns also said Mexico is a very favourable mining jurisdiction relative to say, Peru or Bolivia, which have a higher degree of risk.

Combined, the companies produced 26 million ounces of silver and 154,000 ounces of gold in 2011, and are expected to double production by 2015 to 65 million ounces of silver equivalent. Pan American's big Navidad exploration project is expected to add significant production once it is brought on stream, and until then Minefinders provides near-term production to hold the firm over.

Mr. Burns said the deal was unique for his firm, the company having been built up organically by turning around distressed assets. But he was compelled to act because they've scanned the world over and the opportunities for undeveloped assets are "just not out there," he said. "At least not anywhere we've looked."

But don't expect any other deals for Pan American any time soon. Should the Minefinders deal go through, the firm will have eight operating mines and three development projects that include the Navidad asset and a mill at Dolores, so Mr. Burns isn't looking to get his hands into anything else right now.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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