Thank you, operator, and welcome everyone to Pan American Silver's First Quarter 2021 Conference Call. Media and other participants on the call are invited to participate in listen only mode. We released our results after yesterday's Market closed and a copy of the news release, MD and A and presentation slides for today's call are available on our website. That material in today's call contains certain statements and information that constitute forward looking statements and information. Please review the cautionary statements included in our news release and presentation as well as the risk factors described in our most recent Form 40 F and Annual Information Form.
I will now turn the call over to Pan American's President and CEO, Michael Steinmann, who will provide a brief review of our results. We will then open the call to questions and answers.
Thank you for joining us today to discuss our Q1 results. It was a challenging quarter operationally, which obviously translated into our financial results. At La Colorada, We are advancing several ventilation projects to provide ventilation for our longer term operating and development plans, including development of the Skarn deposit and to regain access to the highest grade areas of the mine. In Q1, during commissioning of the new surface to 3 45 meter level race, the bottom 42 meters of that race became blocked. We are working to bypass that blockage through drifting from a nearby ramp and additional race boring.
We expect that that work to be completed late in Q3, leading to improved grades, throughput rates and mine sequencing late in 2021. In addition, most of the zinc and lead concentrate we produced at La Colorada in Q1 was not shipped until after the quarter closed, delaying base metal and silver sales. The inventory buildup was a result of an extended negotiation with a domestic transport contractor, where we opted to withhold transporting concentrate until we could come to mutual agreement agreeable terms, as well from transitioning to our new 2021 lead smelter customers based in Europe. Concentrate shipment resumed in early April 2021 and our site inventory levels have returned to normal levels With all of the withheld concentrate from Q1 2021 now having been shipped, the delayed sales from the build in inventory will be commercialized over the next two quarters. The combination of the ventilation blockage And the delay in shipping concentrate production resulted in highly distorted all in sustaining costs at La Colorada in Q1, which will be lower for the remainder of the year with the accumulated Q1 concentrate stocks having been shipped.
The temporary buildup in inventories also occurred at Dolores due to ore stockpiling in preparation for the rainy season, which prevents us from mining the high grade ores at the bottom of the open pit. As well, lead sequencing constraints during the current stage pad construction led to a buildup of in pad inventory, delaying some production later into the year. Together, the inventory build ups at La Colorada, Dolores and Chavindo led to a $39,900,000 build up at cost in inventories, which resulted in revenue of $368,100,000 for the quarter. Operating cash flow was $29,900,000 reflecting both the impact of inventory build on working capital and $61,300,000 of cash taxes paid in the quarter as our tax payments are typically weighted to the Q1 of the year. We recorded a net loss of $7,600,000 or $0.04 per share in Q1, including a $39,000,000 non cash mark to market loss on some of our short term investments, mostly in New Pacific Metals, which owns the large silver sand project in Bolivia.
Adjusted for the $39,000,000 investment loss, adjusted earnings were $37,400,000 or $0.18 per share. It's worth mentioning that our short term investments at the end of Q1 had a market value of $72,900,000 which is well above the $20,400,000 cost base and that New Pacific Metals share price has substantially recovered since Q1. Our financial position remains solid with $206,400,000 in cash and short term investments. Our $500,000,000 line of credit remains undrawn. The Board approved the quarterly dividend of $0.07 per common share unchanged from last quarter.
Q1 consolidated silver production totaled 4,600,000 ounces impacted by the ventilation issues at La Colorada, mine sequencing and the inventory buildup at Dolores and Chahuindo And lower production than expected at Manantiale Espejo. While the COVID-nineteen pandemic continues to restrict throughput rates At our underground operations, it has had an outsized effect in some jurisdictions. Argentina is one of them Our interprovincial travel restrictions have reduced workforce deployments for our Manantiale Spejo operations to a greater extent than we expected. Silver segment cash costs in Q1 were $12.30 and all in sustaining costs were $16.99 per silver ounce sold. These costs have been heavily impacted by the lower amount of ounces sold due to the inventory build up and lower production at La Colorada and Manantiales Bejo.
Due to the delays in establishing ventilation at La Colorada and our expectation of prolonged shortfalls in workforce deployment at Manantial Espejo, We have revised our silver production forecast for 2021 to a range between 20,500,000 to 22,000,000 ounces from our original guidance of 22,500,000 to 24,000,000 ounces. Correspondingly, our estimated For Silver segment cash cost was increased to a range of $9.60 to $11.60 per ounce and $14.25 to $15.75 per ounce for all in sustaining costs from previous guidance of $8.50 to $10 $12.50 to $14 respectively. Q1 consolidated gold production totaled 137,600 ounces. Septayments will reduce mining rates about 10% below plan during the quarter to address geotechnical conditions in a section of the Bal Creek mine discussed last quarter, While advancing development in lower level that will enable increasing mining rates back to normal around midyear. At Salwinder production was impacted by lower tons placed, crates and extraction rates due to mine sequencing into a new area of the pit, which has more fine grained host rock with a higher clay content.
We stockpiled approximately 335,000 tons of this fine grain material Equivalent to about 11% of the ore we mined during Q1, which will be blended with coarser ores to be mined later in the year for placement on the heaps. At Dolores, higher gold grades from mine sequencing were partially offset by the buildup in inventories mentioned previously, which resulted in the production being delayed later into 2021. All of these issues are transitory And we continue to expect steadily increased gold production rates during the remainder of the year. Gold segment cash costs in Q1 were 8.46 dollars and all in sustaining costs were $10.58 per gold ounce sold. Given the throughput improvements expected at Timmins and Shaw Window Through the remainder of the year, we are maintaining 2021 annual gold production guidance of 605,000 to 6 100 and 55,000 ounces and estimated gold segment cash cost and ACE cost of $8.25 to $9.25 per ounce and $11.35 to $12.50 per ounce respectively, inclusive A $15,000,000 reduction in sustaining capital expenditure to a range of $230,000,000 to $245,000,000 due to deferred timing of certain expenditures at Jawindo.
We continue to expect throughput rates and production in 2021 to improve Based on the assumption that the impact of COVID-nineteen will diminish over the year, ventilation improves at La Colorada through our ongoing ventilation projects, More coarse ores are mined at Shaw Window allowing blending with the stockpile fine grain ores and lower mining levers are opened at the Balcreek mine in Timmins. Given the large tax payment is behind us and strong metal prices, we look forward to generating strong cash flow back end loaded in the year. Yesterday, we also issued a news release on our La Coloradas Carne project, reducing some impressive drill results from the 65,000 meter infill and expansion drill program. The advancing this ground project Targeting a Preliminary Economic Assessment Technical Report or PEA at the end of 2021. In addition to surface and underground infill diamond drilling, we are commencing geotechnical ventilation, backfill, Geochemistry and Hydrogeological Field Evaluations along with mine, plant and infrastructures design studies.
Metallurgical testing continues to demonstrate favorable flotation results and expansion of baseline environmental data collecting is ongoing. We have already submitted permit applications for certain site infrastructure projects that will assist in advancing the Skarn project Beyond the PA, which in some cases will also simultaneously benefit the existing La Colorada mine operations. These include projects such as camp expansions, access road upgrades, potential underground access ramp And shaft excavation entrances, ventilation systems and mine cooling to address the naturally increasing rock temperatures with depth. At Escobar, the start for the pre consultation meetings have been moved from April 2021 to May 21 Because of the rise of COVID-nineteen cases in Guatemala and resulting government decree to restrict gatherings and movement, Pan American Silver has been requested to participate in the process, which is led by the Ministry of Energy and Mines in Guatemala. We look forward to an inclusive consultation process respecting the Shinkah people's right to consultation under the principle of good faith, Mutual respect, transparency, without pressure or conditioning from parties.
Before we move on to the Q and A section, I would like to mention that last week we released our 2020 Sustainability Report. This year's report takes into consideration the TCFD and South Bay reporting frameworks. The report is available on our website for those interested to learn more about our commitment to sustainable mining practices. And with that, I would like to open the call for questions.
Thank you. We will now begin the question and answer session. Our first question is from Tyler Langton with JPMorgan. Tyler Langton, your line is open.
Good morning. Thanks for taking my questions. I guess just to start with the impact from COVID at La Colorada And, Manache Al, I mean, is just trying to get a sense of the situation sort of got worse, say, versus last quarter? And then I With your guidance, you kind of you said it was based on sort of the COVID related restrictions easing. Is it something where By the end of the year, there's sort of no more restrictions.
I'm just trying to get a sense of what level of restrictions you kind of maybe still expect to carry on
Yes, Tyler, Michael here. Of course, at the beginning of the year, when we did our budget, we kind of assumed A straight line improvement, 25 percent kind of every quarter. We already knew that we don't know exactly how the pandemic And how that happens, looks like in some of our operations, the Q1 impact was stronger than we expected. But that doesn't mean that it doesn't get much faster, better at the end of the year. I just don't know at this time where it's going.
Very important to mention here, Taylor, that it's really on the underground operations that we see the impact, not in our open pits, But because most of our silver is produced in our underground mine, especially La Colorada and Manatea de Espejo, The impact on the silver is much bigger than on the gold production. So that's really the main reason for that. But locally, when you look at it, It's most countries we are working in have kind of a, I know they call it a traffic light system or system where they look regionally, How the outbreaks move around and then there are regional restrictions that come in place automatically. So it's Not anymore like countrywide shutdowns, but there are restrictions that make it harder sometimes in one place than in another. And it's really moving a bit around And where the pandemic shows more cases in each country or each region of a country.
But yes, very important to mention that The impact is really mostly seen on the underground, but vaccines are rolling out Faster now, slower start like in many countries in the world, and I think that will accelerate during the year and will improve the situation, but as for Q1, as I said, probably slightly more impact than what we expected, Maybe Steve, you want to add some?
Yes. Just to add, Tyler, this is Steve here. The impact is More severe than we expected down at Manatee Elespeyo due to as Michael said the interprovincial travel restrictions That require us to put our people through quarantining and testing both coming into the province Because of many of them that work from outside the province, but also when they leave. So it really extends the shift schedules out, really limits how many people We can actually bring on the site to do the mining. So we just don't have the full staff of people that we expected.
We expected some impacts, but they were more severe. In Argentina, we think that when we look at the epidemic outbreak there, it's been fairly strong in the And we think that's going to continue for a while. That's why we made an adjustment there. At La Colorada, we saw a bit of a spike in cases During Q1, probably peaked sometime in early mid March and we've seen it starting to come off there. So We're more optimistic moving there that we're over on the other side of the curve after Q1 in La Colorada.
Okay. No, that's very helpful. And then just as a follow-up with the ventilation block at Jettler, Colorado. In terms of should Q2 and Q3 how should production sort of cost look in those quarters compared to Q1 had sort of A full impact. And then I guess, I think you kind of mentioned that you want to have that resolved in Q3.
Should kind of production be back to normal? And then does that kind of, I guess impact sort of any of those sort of the longer term improvements that you were sort of expecting from the ventilation system?
Yes. So this is Steve and we expect to as we indicated complete the bypass of the blockage of the raise That was incurred during Q1. By the end of Q3, we'll immediately put the ventilation fan that was already in process of being When we have the sloughing and the blockage that occurred, so that will go fairly quickly and that will open up that East area. Before we get that opened up, we're really limited on how much diesel equipment we can run-in the mine given the limitations on ventilation And particularly in that East high grade zone. So currently we expect we'll be restricted to about 1500 to 1600 tons per day Mining rates at La Colorada until that ventilation is repaired and then by the end of the year, we'll be back up to the 2,200, 2,400 tons a day that we typically saw when ventilation is in order.
And because we're not in that high grade zone, Our grades during this period of restriction is also lower. We're probably in the 275 to 300 gram silver head grades. And again, once that ventilation opens up, we get back over into that East high grade zone. We expect the grades to come more normal towards reserve grades 330 gram type head grams.
Perfect. That's very helpful. Thanks so much.
The next question is from Cosmos Chiu with CIBC. Cosmos Chiu, your line is open.
Hi, thanks. Thanks, Michael and team. Certainly a tough Q1, but at least it looks like things will get better in the second half. Maybe my first question is also on La Colorada. Could you maybe talk a bit more about what happened with the slogging of the raised wall here?
Was it Just a bit more fracture fragmented than you had expected. Have you fixed that portion yet? Have you shot treat the portion that was slogging yet? And then I guess as you talked about you're trying to bypass the area that's plugged. So are you going to raise bore through that section And then kind of like shotcrete that section right away.
Can you maybe talk a bit more about how you're going to fix it?
Sure, Cosmos. This is Steve. And maybe stepping back a little bit just for everybody's benefit. The main 2 of our main ventilation raises At La Colorada that were nearly 10 years old had eroded, had sloughed, had blocked between 2018 And the last one in late 2019. And at that time that restricted our ventilation capacity, restricted our ability to mine in that So we started to do an extensive program of looking at alternatives of how to replace those ventilation raises And we came up with this program that had been implemented in many mines in Mexico of preconditioning the ground where the rays would go With grouting and we entered an extensive grouting program for 6 months starting in March of 2020.
And between the grouting and the ground foundation preparation for the raised boring, that program took us through to October of 2020. And it looked pretty solid. We were pretty pleased with the results of that grounding program. And actually we We're able to successfully complete the race bore quite quickly from November to mid January. We had that 3.1 meter diameter raised bore pulled through that pre grouted ground, quite successfully.
It went quite And we immediately started to shotcrete that raise with using a robotic shotcrete machine that we lowered down into the hole. We were having good success and suddenly we started getting sloughing on the walls Of this hole and I should mention this ground is very, very challenging. It's a volcanic day site material And what we believe is happening is there are some clay zones within that material and it just doesn't absorb the grout. It just Doesn't hold the stability of the grout. And so we started to observe some sloughing coming off the walls.
That sloughing actually in a couple instances damaged And destroyed the robotic shotcrete machine. We had to pull it out, rebuild it, put it back in. So we spent between January late March grouting and it was during that period of the grouting that part of the Sloughing came down, plugged the bottom of the raise. We decided to leave it plugged so that we could complete the grouting and stop that sloughing. And indeed that's what we've seen.
Today the sloughing has quieted down. We haven't seen any additional sloughing. We're very happy with the grouting that's on that It's solidifying. So we went in late March to open up the bottom of that. And between March April, we spent quite a bit of time Trying to drill that plug from the side, obviously, you don't want anybody up underneath there.
So we're drilling and shooting it from the side and we're just By the end of April decided it was kind of a futile attempt. We weren't going to get it out that way and we made a decision That we're going to cross cut from a nearby ramp up towards the top of the plug that's 42 meters off the bottom of the And that's what we're doing now. Once we get to the top of that plug, we'll build a raised bore chamber that's off to the side of the current raised bore And it will actually be a bypass raise from that 42 meters above down to the bottom. And as I said, that'll take us Through the end of Q3 to complete that project and we'll have a full ventilation circuit then on that eastern side.
Of course. And then in terms of, I believe, this one event raise is part of 3, I believe, event raises that you were trying to Construct, does this now push back the timeline for the others? Is this number 1 or number 2 that you've completed this vent raise? And does that change the timeline for the other ones?
Yes, great question, Cosmos. This is number 2 actually. Number 1 was from the 3.4 5 level down to the 528 level that was a second stage in this area. That one was completed. That's a limestone Rock hosted rays.
So we don't have near the problems in limestone that we do in the day sites. So that one was completed. We're quite happy it's functional once we get this upper stage fixed. So this is the second one. The third one we're putting in Over on what we call Veta Trace, Veta 3 and we're pre grouting that ground now to run a raised bore there And it's quite challenging ground we're seeing in the grouting program, real challenges that we're facing there.
We're not sure we're going to be able to And as such, we're starting to consider an alternative raise that takes us even further to the east, Which is our most favorable ground from a mining perspective. It's also the most broken up ground, which is probably by nature. That's why it's Broken up, it's very mineralized. So we're going to go further east and we're actually looking at a number of alternative technologies for that raise. But to be honest, we're seriously considering a conventional shaft, concrete lined, Blindshaft excavation there.
We think that's the one that'll be the most certain, it'll be the most supportive And actually it looks quite favorable to do that project. So we're hoping to announce that over the next Quarter or so, but that's kind of where it's heading at this point.
Okay, great. Thanks, Steve. Maybe switching gears a little bit at Dolores, as you talked about in the MD and A, there were certain Not issues, but production was delayed due to leach pad kinetics. Could you maybe talk a bit more about that as well? Is it Anything related to the pulp agglomeration or is it really the height of the heap at this point in time?
If I worked it out in terms based on your numbers, it looks like recovery for silver was about 56% In the quarter, which is comparable to the 53% last year, gold was lower, 58% versus 73% last year. So I guess my question is, what's the factor behind the leach pack Kinetics and is it just really impacting the gold?
Yes, very good question, Cosmo. First off, I'd like to say that That inventory build at Dolores, the majority of that about 2 thirds of that roughly was really stockpiling of high grade from the pit And that's a strategy we're deploying this year so that we keep high grade available for the pulp During the rainy season, when the rainy seasons hit there, the bottom benches of the pit, which is where the high grade is inaccessible. So we're stockpiling that over and that's the majority of that inventory increase. Relative to the leach pad kinetics and you're right, we're a little bit off mostly on gold On that kinetics and interestingly it has to do with this connection between 2 of our leach pads, PADD 3 and PADD 1 and it's in an area that is not that deep with ore, it's in an area that's pretty shallow with ore And it's just a tricky area to make that connection, the topography there, the terrain there is very challenging. And so What happens is we have to load and leach very quickly and get off of it and we're going through a number of cycles there and trying to stabilize The heap as it builds and connects to those two areas.
So we have to move through there very quick and cut our leach cycle times down and that's the effect of what we're seeing.
Okay, great. So I guess the inventory buildup isn't all exactly related to recovery, a part of it is mine sequencing as well with the higher grades?
Exactly. A big part of it is mine sequencing.
I got it. Okay. And then maybe one last question. Manantio Ezejo, I see that guidance has been lowered by about 8% to 10%. I think I asked the question during the Q4 call as well, Michael.
A big part of that previous guidance was dependent on sort of the startup of Cozy and Joaquin. With a lowered production guidance now for Milentio, Hespeo, how much have you factored in, in terms of Potential delays or setbacks at Cozy and Joaquin.
Yes. Cosmos, Steve again. Actually, we're mining pretty well in COSIM Joaquin. Our limitation is getting Tough miners in there to get the tonnage out that we want. And we're mining kind of the early stopes on the fringe of the deposit.
So we have seen lower grades than we were anticipating. And so it makes it that much more More tons which were limited to because of people and it's really the tonnage concern that we have is why We don't see that relaxing in the next foreseeable future for the next few months anyway. And that's what really drove us to We've got to reduce the tonnage coming out of Acosia and Joaquin from what we originally anticipated and make it up with lower grades coming out of Manatee El Espao And that's the net effect of that change.
Just maybe to add here that for people who are not that familiar with South and Patagonia for underground mining That most of the mining companies including ourselves resource to underground miners from different provinces as well And some obviously from the province, but it's open pit miners are Available in the province and then underground miners, many companies resource to other provinces as well. And that's really what issue lies that the Interprovincial travel is very restricted in Argentina and makes it harder for us as Steve said to cut the tons out from the underground operations So that's the reason for that change.
Thanks again, Michael and team and Steve. And those are all the questions I have. Thanks for answering my questions.
Thanks, Cosmos.
The next question is from Trevor Turnbull with Scotiabank. Trevor Turnbull, your line is open.
Thank you. And thank you, Michael.
I
had a question, I guess, with respect to Bell Creek. It got touched on at the end of last quarter, you were Making some geotechnical modifications to accommodate, it sounds like wider ore. And I'm just wondering if it Is it as simple as just adding more support, more rock bolting that type of thing? Or is there a more significant Planning element to how you approach these areas. And the reason I was asking is it seems as if the remedy is going to take some time.
You were talking about it getting kind of back to where you want it later this year. And so to me that seemed like maybe it was more than just applying more hardware to the problem.
Hi, Trevor. Steve here. Yes, so what we're seeing there is some Instabilities and ground control issues on the sill pillar of a couple of the stopes that we started mining late last year. The wider zone is actually an opportunity for us and it's in the lower the next levels of development at Bell Creek. So we're anxious to get into that lower development because we had to slow down the mining to put greater ground support, Greater monitoring of seismic activity, greater controls around the stope sill pillar, if you will.
And so it slowed down the mining in that area. So that's what took us down late last year. As we indicated last year, we're advancing on this wider zone that's the next levels down. And so we're anxious To get into that towards mid year this year to get our tonnage rates back up and all the while we're redesigning these sill pillars to try to avoid With the mining sequencing and the support, the combination of those two factors to avoid having those problems in the future. Okay.
And then maybe just a quick question on costs. Your costs went down at many of the Silver segment operations, obviously, with the exception of La Colorada and you've talked about Manantiel. But the others, you actually lowered the cost guidance going forward. You've kept your base metal assumptions unchanged, so that doesn't seem to be the factor. I was just curious what's driving those better numbers?
Yes. Trevor, Rob Doyle here. Good morning. Yes, we are seeing better Byproduct credits coming through, which is helping that, which is the main factor behind that and And strong base metal production, we haven't changed our base metal guidance at all. So it's really on the byproduct side where we're seeing the benefits.
The next question is from Don DeMarco with National Bank Financial. Don DeMarco, your line is open.
Okay. Thank you, operator, and thank you, Michael and team. Maybe I'll start off with Shwindo. When I look at the gold guidance hasn't changed, which is great to see. Yes, we did see the Some of the softer production coming out of Timmins, which has already been discussed on the call.
But I also see Schwindo seem to be running below The run rate, can you just remind me about maybe the seasonal impacts on Schwindo
or
So what happened in Q1 is that our mine sequencing, we got into opening a new phase of the mine and We encountered more finer grain, more clay like materials than we had anticipated. And that's Right now, our current objective is to blend that kind of material with good quality rock before we place it on the leach To ensure good permeabilities for leaching, and we didn't have enough rock in this new section of the pit. So we've stockpiled, As Michael said, 335,000 tons. So about 10%, 11% of what we mined during the quarter went into stockpile that wasn't anticipated. As we get into the rock in that section of the pit, we'll be able to pick up that stockpile and blend it with better rock And put it on the heap.
So that's why we expect expanded production rates as we work our way through the year at Shwendo this year.
Okay.
Okay, that's great. And maybe just returning to the question about the impacts of COVID weighing. And I appreciate the color that Michael had provided with regard to the focus on the underground operations. But to get a little bit more granular, Is it social distancing requirements that's causing the issues or potential supply chain slowdowns? Like what is it on the ground level that is that's impacting the production performance and what indications do you have that this can be addressed by way of a vaccine or whatever other measures
Yes, Don, this is Steve again. One of the big factors in limiting our Deployment of personnel during COVID in the underground is really camp space and we have to spread everybody out in the camps And we find that with the open pit mines, we've had enough construction camps and things like that at those big operations We can spread everybody out pretty easily. In these underground mines, we didn't have that flexibility to have an excess camp capacity. We have been building excess camp capacity At all of the many of the underground operations, but that's really been the constraint. And they also We have seen, as I mentioned earlier, some spikes in the epidemic in the regions that's It's been predominantly, I don't know why around some of our underground mines like La Colorada.
And we pick that up through our testing as we mobilized people. We're just finding a lot of people don't pass those screenings when there is an epidemic occurring. So it's Reduced our workforce and our ability to deploy there. So that's why we think with the vaccine rollout, once we can relieve some of that Physical distancing open more capacity in our camps and not screen as many people out as they come to work. That will really enhance our production through the year is how we predicted.
But it's done and
I weigh in here as well. For example, La Colorada, where we have very large drill programs going on for not only for the exploration, but for this Karn site, for the infill drilling, for the PA, That requires many more people on-site as you can imagine, many more contractors, a lot of specialists that help us to Collect the data for the PEA and obviously everything gets more complicated when you have more people inside as Steve said. Everybody gets tested people, Some people don't pass screening. So there's definitely complications on all side when you are In a region where there is big, bigger outbreaks and as I said, this kind of moves around from region or country to country As you see when you look at the virus map over the last years, we see that countries suddenly have Bigger outbreaks, we just experienced that in Canada where we're now coming off what is in now the 3rd wave, I guess. So the same thing happens in Latin America.
You asked about the vaccine and we see vaccine rollouts happening slowly, but everywhere in all the countries we are working, I believe some are quicker, some are a bit slower. Obviously, I can't make statements on the effectiveness on that vaccine. I can just See what happened in the rest of the world and it seems that countries that have a high vaccine rate see a very large effectiveness, very important effectiveness That vaccine, we see that in Israel, in the UK, in the U. S. I think we see it starting gripping here in Canada as well.
And I obviously would assume that we see the same around the globe and also in the countries we are working in Latin America. So that was Really what I was referring to with my comment on the vaccination rollouts.
Okay. Well, thanks for that. And shifting over to the La Color of Ross Garnes, my final question. Certainly, this is a catalyst that's Quite significant and you released some drilling update with the financials last night. So what I see is that there was a highlight hole That reported 11.7 percent, I think equivalent over 115 meters.
This is above what we calculate as an average grade somewhere on the order of around 8 How do you find the are you getting really high grade hits like this? And What are the implications on proximity to infrastructure potentially sequencing some high grade zones or whatnot? Just any additional color on this
Hi, Don, it's Chris here.
Yes, I mean, we were obviously infill drilling, so We're hoping to get high grades. So this is all going to plan in inverted commas. Sure. As I mentioned as the firstly, it's mentioned those 30 drill holes and the one specifically relating to is in that core, which is very close to the intrusive. It's where we've got this exoscon, it's where the fluids have come up and then sort of dissipated out.
So really around this higher grade core, which is going to be the emphasis on the PEA and where all the infill drilling is happening is we were expecting These high grade areas, as we move out off to the West, we go into the more of the Breccia. This is in between the Breccia and the intrusive and this is where we were expecting to see those high grades. Specifically, as we stepped out beyond the breccia on U-forty, we then started to see additional SCOM, which is really pleasing for the team And then for the expansion of this project going forward.
Yes. Just to weigh in here too, I mean, it's really impressive. Of course, when you look at the infill drilling and that's Chris said that the area we'll use for the PA, but it shouldn't be missed that yes, those step out holes To the West or Southwest, passing that Pradja and we finding more wide high grade intercepts of skarn In areas that we actually did not identify before, as I said in the call and in the press release, We do focus on the infill drilling right now because we already have over 100,000,000 tons of resource. So we can advance with the PA, But it definitely looks like that this skarn mineralization will continue to the west. We don't know yet how far we are actually currently drilling there and Still hitting high grade wide intercepts, so it's wide open there.
And as soon as we have the information available for the PEA, I'm I'm sure Chris and his team can't wait to explore further to divest and expand the size of the current resource.
Okay. Okay. Well, thank you for that. That's all for me and good luck rebounding in production and costs for the rest of the year.
Thank you.
The next question is from Lawson Winder with Bank of America Securities. Lawson Winder, your line is open.
Great. Thank you, operator. Hello and thank you for the update, Michael and Steve and team. You sound very confident that the ventilation issues at La Colorado will get resolved and that confidence makes perfect sense to me. However, I'd like to maybe just drill down a little bit more.
I know we've talked about it a lot just in terms of timing and cost impacts around that. And just ask, With the current how much current ventilation is there at La Colorada? And How long could you continue to mine just with what ventilation you have up and running and working?
Yes. Thanks, Lawson. Currently in round numbers, we're extracting about 350,000 CFM through the whole operation, and that's what limits us to the 1500 to 1600 tons per day capacity. We have plenty of reserves within the levels that we can access at that ventilation flow rate For quite a while, again, it's lower grade. It's just to operate at that, we don't see any Future constrictions of that, that's we can continue that.
As we open up these new ventilation raises, the one that's blocked Some of the others, we're hoping to get up to about 900,000 CFM, which is what we want to be at the 2200, And again, I want to highlight the issue is in this volcanic dayside material, all of historically The ventilation raises at La Colorada were simply a race for, we didn't put any people or equipment down the holes And support them. And those were adequate at the higher levels of mining at La Colorada. They held together The airflow rates were low enough. We didn't see any conditions of it eroding over time. As we get deeper and deeper on this ore body, The temperatures do increase, the condensation, the humidity increases and our flow rates have to increase, Particularly with the higher production rates we have.
So as we put more air, hotter air, wetter air through these raises in the day sites, We're seeing them starting to erode. So clearly long term this has been I'd say this has been a great learning tool for us as we look Forward to the Skarn because we have to develop a lot of infrastructure through this kind of material for the Skarn. So what we've learned here is Immensely valuable as we look forward to that Skarn project. And we learned that you have to we have to have fully lined And supported raises. We can't have online raises anymore through this staysite material.
And so that's why we're looking at alternative technologies And potentially even blind shaft excavations that we do future raises. With those, we have all the confidence that we need To get the flow rates we need to keep this operation going well into the Skarn and the big production rates of the Skarn.
I think, Lawson, you asked about the cost of them. I believe we started on this race with probably $4,500,000 with all the additional work, we're probably going to be around the $6,000,000 range. It's this solution that is much lower cost, but as we learned, Even with the grounding can cause some problems. Steve's obviously that confidence for the concrete line Baker Blind shaft excavation because we have a fully lined shaft that we use for extraction, which is Over 600 meters long that we build in 2017. 2017, right.
And that's obviously working every day. We use that for Of the ore, it's a fully concrete line, large diameter, I think 5 meter to 5, 10 diameter shaft. So Of course, that comes at a higher cost, but we know that we can build that. And when we look at Skarn and much, much That's probably very exciting too.
Okay. That's great color. So the incremental cost just Cost if you had to go to blind raises for all the future ventilation. Just if you were to take the existing first Or the most recently completed ventilation shaft, what would that cost be versus a fully blind cost? Yes.
Sorry, the cause of a blind race.
Yes. And just to clarify that $6,000,000 we're talking about does include the development and the bypass As well, it's not just the shock creating alone. But we don't we haven't done an estimate Of the new blind shaft yet, we're working on that diligently right now. But what I can point to is what Michael brought up is our existing shaft Which is a 5.1 meter diameter, 6 20 meter deep shaft, fully concrete lined. That shaft is fully equipped with a hoist and all the gear, the headframe.
So I mean we wouldn't look at that For a ventilation shaft, it would just be the concrete lining without all the hoist and everything in the background. But that shaft we did 2016, twenty $17,000,000 it was $38,000,000 to do that shaft, and about 12 months once we started doing the blind excavations. So clearly without the hoist and headframe all the gear for rock handling it's going to be less, but we don't have an estimate yet that I'm prepared to give out at
And of course, this kind of infrastructure, if you look at this kind of diameter and large and deep Ventilation shaft is not only for the current production from the veins for La Colorada, but Partial development for the future production from this corn that will need for sure huge and very big Diameter and long shafts for ventilation for much increased tonnage. So that's kind of the first step, I would call it, of expanding or working on the mine towards the Skarn development.
Yes. Okay. That's great color. Then Steve, you just mentioned that in response My last question or my original question that in fact there were lots of the lower grade reserves in front and I just I'm guessing you're talking years as opposed to quarters when you say lots of reserves?
Yes, years, yes.
Okay. Okay. Well, that certainly gives me quite a bit
of confidence. Don't forget we have currently, I believe, about 11 years of Reserves in veins, just in the veins ahead of us, probably about a similar amount of years and resources that every year Chris and his team is converting a slice deeper down into reserve from the resource. But yes, I think we're sitting at around 11 Years of reserves. Obviously, we'll have come out with our reserve and resource update midyear like we do now every year.
Okay, great. And then just finally on the Clay, have you guys started now Doing the necessary EQ and other drilling and to understand where that Clay is and perhaps you should remodel the controls out on that Clay, so you can predict where it might be and to hopefully avoid it As best as possible in the future?
Yes. Great question, Lawson. We did do an extensive amount of geotechnical drilling before we started this That's what led us to design the pre grouting program that we implemented. We have not been able to map clay zones per se to where we could bypass or move away from them. They're kind of intermixed and they're very erratic.
Unfortunately, it's the kind of material. And as we move further east, it only gets worse. It's the kind of material we're going to have to figure out a way to deal with. That's just the way it is.
Okay. And hence the discussion about potentially doing fully concreted blind raises. Okay. That makes sense. All right.
Thanks very much, guys. That clears a lot up and I appreciate your time today.
Thank you.
The next question is from Ryan Thompson with BMO. Ryan Thompson, your line is open.
Hey, guys. Thanks for the update. Just a couple of questions on the sort of, call it, social, political, legal side of things. I noticed in your disclosure that there was recently a legal proceeding brought at Escobar. Could you just give us a little bit of color on that?
And if there's any sort of potential for delays on the ILO-one 169 consultation process or would this legal proceeding sort of run-in parallel to that?
Yes, I'll start with and then I'll pass it on to Christopher Lemann as well. I don't really see a delay on the pre consultation Because of that, really what happened for the delay, as you know, we announced Last quarter, I think, our last call that the pre consultation was planned for April. It's now planned for later this month. And the reason was really it's about probably about 5 days or a week before it should have started. The government of Guatemala put out a new decree really limiting congregations of people and travel.
And of course, in that case, the government could not proceed and have large meetings for a pre consultation. So it was really due to probably the 2nd wave there, yes, 2nd wave of COVID that we've seen in Guatemala that Took a strong grip. So that was really the reason for the delay. We're really looking forward to Go into this pre consultation hopefully later this month now. And I don't really see This as another reason for delay, it's really a COVID related issue that we've seen last time.
Got it. Yes.
Hi, Ryan. It's Christopher Lemmon. I'm General Counsel with Pan American Silver. This claim is by a small community near Escobar and It's like a lot of claims that we deal with throughout all of our operations. And it certainly won't impact And we'll deal with the claim and mount our defenses and we don't foresee any problems with defending them.
Got it. Okay. Thank you. And then maybe just switching over to Peru, obviously, there's a lot of chatter there on Political front and the narrative seems to be changing every day, it seems. Just wondering if you could provide any sort of Comment on what you're seeing or hearing from sort of boots on the ground in Peru on the upcoming election in early June?
Well, look, I mean, in general, obviously, we have elections everywhere. We are working every 4 or 5 years depending on the country. And it's just a normal democratic process where in this case the population of Peru will elect their next leader And we are a long, long time here in Peru since 'ninety four since the start of the company. And Peru was a good place and there's always a good place, I think, to work and we'll work with the new leader and the new government, the Same way then we work with the outgoing administration. So No, I can't give you obviously, you can look at polls or not.
I don't know looking around at elections across the globe, How predictable the polls actually are or not, we can discuss about it all day long. So I'm not going to make My prediction is obviously here because we'll just wait and see what happens. And as I said, this is in the hands of the Peruvian population electing their next leader as it should be.
Okay. Thanks for that. And then maybe just lastly, obviously copper prices are looking pretty good here. Can you just give us any sort of Update on Maurena 2, I know there's been some thought of potentially selling it before, are you seeing increased interest or can you just Provide any sort of update on that?
Sure. Of course, a lot of interest in copper. It's going where I thought it's going and a lot of people I'm not the only one obviously Let's see that we have a strong recovery after the pandemic here in the world. Economy, we have A large post towards electrification in the world, which will require, as I always said, a lot of copper, but it will require also a lot of silver. It will require a lot of battery metals as well.
Silver will be essential here for all the electronics, of course, And the clean energy production. So it's doing where we thought it's going to go I think and I think we're going to see that Strong demand ongoing. You saw probably the report from the Silver Institute for last year where we obviously saw A decrease in the demand on the silver side for the industrial side and jewelry side due to the But it wasn't actually not that big as I would have expected and is recovering very nicely, while we actually saw record inflows In the ETTs and on the investment side. So of course, that's the reason my silver price sits where it is right now. Looking at La Arena, well, I shared many times that we are still drilling there.
We keep finding more and more gold reserves. It will be very interesting to get the update at midyear on the reserve there, but we already announced that I think we're still sitting right now at least at another 3 years of production from the gold oxide. So we are still quite a bit away From the sulfides of the porphyry below, but there's definitely more interest in a project like Arena with the copper prices as you can imagine and we'll diligently advance the project on the exploration side to define obviously Our production plan is advancing over the coming years and parallel look at Possible divestment of the porphyry, which is a much different project much, much further down the road And probably further down the road in that sense as we have longer and longer reserves on the oxide side than we initially expected.
This concludes the question and answer session. I'd like to turn the conference back over to Michael Steinmann for closing remarks.
Thank you, Matt. Thank you very much for calling in today. Looking forward to update you on our Q2 results, which will be somewhere In August, right in summer. So stay safe, stay healthy and looking forward to catch up in a few months. Thank you very much.