Pan American Silver Corp. (PAAS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Pan American Silver Conference Call. [Operator Instructions] This call is being recorded on Tuesday, December 19, 2023. I would now like to turn the conference over to Siren Fisekci. Please go ahead.

Thank you, operator, and thank you for joining us today for Pan American Silver's Webcast and Conference Call to discuss our La Colorada skarn project. Please note this call includes forward-looking statements and information and you are advised to see the cautionary statements in the slides that accompany this call and in our news release issued on December 19 -- December 18, 2023, announcing the results of the PEA for the La Colorada skarn project. Joining the call today will be our VP of Geology and Exploration Chris Emerson and our SVP of Technical Services and Process Optimization, Martin Wafforn. We'll begin the call with a few introductory comments from Pan American's President and CEO, Michael Steinmann. There will be time at the end for questions and answers. I'll now turn the call over to Michael.

Thanks, Aaron, and thank you, everyone, for joining our call today. We are very pleased to share the results of our preliminary economic assessment for the La Colorada skarn project. We announced the discovery of the skarn deposit in October 2018, with initial drill results that indicated that we have discovered through brownfield exploration, a significant polymetallic deposit beneath our producing La Colorada mine. The results of the PEA announced on December 19 represent a significant milestone in the continued evolution and advancement of the La Colorada skarn project and it took only 5 years together obviously, because, as I mentioned, it is a brownfield exploration discovery. The PA currently envisions the 50,000 tonnes per day sublevel cave mining method accessed by decline ramps and featuring in 2 ventilation shafts. A conventional 50,000 tonnes per day capacity selective zinc and lead flotation processing plant and dry stack tailings facility would produce silver-bearing mineral concentrates at an average rate of over 2,000 tonnes per day of zinc concentrate grading about 59% sync and 846 tonnes per day of lead concentrate, creating about 61% of lead. The initial capital cost is estimated to be about $2.9 billion over a 6-year construction period with peak spending in years 4 and 5 when the mill is being constructed. The payback period of the initial investment is expected to be 4.3 years. Importantly, we would continue to mine the veins in the current La Colorada mine during the skarn construction and development period. The after-tax net present value discounted at 8% is estimated to be approximately $1.1 billion. The after-tax internal rate of return is estimated to be 14%. Those economics are based on metal prices of $2,800 per tonne of zinc, $2,200 per tonne of lead and $22 per ounce of silver. Sensitivities to the 6.5% discount rate and metal prices are provided in the news release. Pan American is focused on the silver and the deposit. The skarn is expected to produce about 17.2 million ounces of silver annually during the first 10 years of its estimated 17-year mine life. In addition to the large amount of silver, the deposit is estimated to produce 427,000 tons of zinc and 218,000 tonnes of lead annually during the first 10 years. Given the large amount of base metals in the deposit and the high quality of the zinc and lead concentrates that will be produced, we believe there is an attractive opportunity for -- to partner in the development of the skarn project for the base metals, while we would focus on the large silver production. With the release of the PA, we are now in a better position to engage parties who have expressed interest in partnering with us in developing this project. It is important to note that the PEA reflects only 1 point in time. The mineral resource update only includes the drill results up to December 2022 and does not include any drill results for 2023. The deposit remains open for further expansion with the drill program that continues to be actively underway. We will also continue to evaluate other options to develop -- for development of the skarn and opportunities to enhance further the life of mine economics. A copy of an updated technical report on Pan America's La Colorada property, including the PA and the La Colorada skarn project will be filed with Canadian securities regulators. The report will be available under the company's profile on SEDAR and on our website within 45 days of today. I'll now turn over the call to Chris Emerson, our VP of Exploration and Geology, who will provide you with some comments on the geology of the skarn deposit.

Thanks, Michael, and good morning, everyone. Over the next few minutes, I hope to give you a general overview of the La Colorada skarn geology and a description of the last 5 years of exploration work. The La Colorada project is located in the Zacatecas mining district within the Mexican silver belt. The project lies 16 kilometers southeast of Chalchihuites and 30 kilometers southwest of [indiscernible], two historic mining camps with silver and base metal production from veins and associated skarn deposits. We are in the eastern flank of the Sierra Madre Mountains. On the left-hand side of the slide, you'll see a general geology map of the La Colorada mine. For Pan American mine, silver and rich polymetallic veins. In particular, the Amolillo and NC2 vein are seen on the map. The skarn footprint can be seen to the east shown in red, and labeled 901, 902 and 903. The skarn sits roughly 800 meters below surface and covers an area over a strike length of 1.2 kilometers by 800 meters wide. What is a skarn? Skarn ore deposit forms when hot fluids from intrusive rocks being in place, replaced limestones, creating alteration minerals. With the formation of these minerals, spaces generated, which allows for later metal-rich ore forming fluids to deposit. Skarn deposits are often found in the contact zones between these intrusive igneous rocks and the carbonates or the [indiscernible]. Importantly, for the skarn is the formation of garnet and specifically for La Colorada skarn, the formation of brownish greenish garnets. The different colorations indicating few are close or far away from the heat source or the intrusive. The mapping and logging of these garnets within the drilling has allowed us to understand and build the geological and alteration model of our skarn deposit. On the right-hand side of the slide, you'll see a typical cross sector looking north. The light paint unit is the volcanics, which hosts the majority of the vein deposit, where we are currently mining. In blue, the limestone sits below. The darker pink blobs are the all-important intrusives, which are both of the hot mineral and metal fluids to create the metal alterations and the sulfides. You'll see those garnets on that cross section in the green brownish colors. The main sulfides are [indiscernible] and silver rich galena and pyrite. There is a minor portion of charcoal pyrites sporadically distributed. Next slide. Here, you will see a long section of the whole deposit and the geological resource. The drilling, geological and resource models have been completed to international standards. The indicated resource classification has been restricted to well-informed mineralized units that require at least 3 drill holes with a minimum of 5 composites within a 60- to 70-meter radius or less, while an inferred classification was assigned to all the units with at least 1 drill hole within 90 meters or less. We've been drilling the skarn since the initial discovery in 2018. And to date, we've drilled over 280,000 meters. The PA resource is based on only 242,000 meters. Most of the drilling has been completed from surface. Pan American has used directional drilling, specifically Devico for most of this program. You'll note the mother holes from surface and you'll see on this long section, the drill traces has come down from the top of the section with subsequent broader holes drilled off in different arrays. We expect the updated resource estimate for the skarn to include the additional 40,000 meters we drilled by mid-2024. The current indicated mineral resource is 173.6 million tonnes at 2.79% zinc lead, 1.32% lead and 33 grams a tonne silver. The inferred mineral resource totals 103.6 million tonnes, a 2.47% zinc, 1.03% lead and 35 grams a tonne silver. We posted a video of our -- to our website that further describes the geology and exploration results for the skarn deposit. Please take a moment to view the video because it does provide a more dynamic view of the deposit that we are unable to do through the slides alone. The video is available on the Events and Presentations page of our website, and the link is also included on the webcast details for this call. I would like now to turn the call over to Martin Wafforn, Senior Vice President of Technical Services and Process Optimization, who will provide more information on the development plans for the skarn.

Thank you, Chris, Michael, and good morning, everyone. The skarn deposit at La Colorada was discovered in 2018. And since then, we have been working diligently to successfully expand it and to find the best way to explore the resource. We published the first resource in 2019, and at the time, we envisaged a 10,000 tonnes per day production rate from a long-haul open stoping mine. As we were developing those plans, our exploration team was pulling in intercepts of skarn mineralization over hundreds of meters. The inferred mineral resource grew to 100.4 million tonnes in August 2020, and it soon became apparent that the overall dimension of the deposit were growing such that the long-haul mining method that we had selected was no longer viable. We reported a large increase in the mineral resource estimate for the skarn in September 2022 of 95.9 million tonnes of indicated mineral resource plus 147.8 million tonnes of inferred mineral resource using a sublevel caving method. Our approach for this preliminary economic assessment was to use a combination of independent third-party consultants for specific areas where we needed expertise and to compile and compete the report internally with our in-house experts. Starting with the design of the underground, which you can see on the slide showing the longitudinal section, the skarn deposit lies between 800 and 1,600 meters below surface, whereas our existing vein mine workings currently extend from surface down to 600 meters. The mining zones are called 901, 902, and 903. Unlike the veins currently being mined, the skarn zones are hundreds of meters thick, these are very large deposits and it has taken a lot of time to do the access design, review the capability, model the flow inside the mining zones and to optimize the economics. For the purposes of the PEA, we now have a mining inventory from combined categories that totals 284.7 million tonnes. The 901 and 902 zones are the biggest with the material extracted from the 901-zone estimated to total 119 million tons and from the 902 zone, 116 million tonnes. The 903 zone is still very large at 47 million tonnes. The Western most zone, 902, has the overall highest value per tonne. But in general, the highest grades are nearer the top of the ore bodies, supporting the selection of a top-down mining method like sublevel caving. The depth of the deposit below surface is a controlling factor in the estimated 6-year development and construction period. Mining and processing of the La La Colorada veins will continue throughout this construction period. The major underground development for the skarn project consists of twin access ramps from surface and 2 9-meter diameter concrete line ventilation shafts. We do anticipate high ROP temperatures and have designed a combination of high ventilating air volumes and a surface refrigeration plant to ensure a productive and safe work environment. One of the twin ramps mentioned will be fitted with a 3,800-meter lung conveyor for ore extraction. Turning to the next slide. One of the key aspects of the mine design is to ensure that the key infrastructure like the ventilation shafts, conveyor and access ramps are outside of the area likely to be impacted by KV. The repeated exploration success has actually caused us to move the design a few times already as these mining zones continue to expand. Depending on the rate of technological advancement, we anticipate production activities with battery electric vehicles were feasible and to take advantage of technological advances in the areas of remote and autonomously operated vehicles. An advantage of sublevel caving is that it is very repetitive -- its very repetitive process is conducive to automation. On the next slide, the PEA design has sublevels developed on 25-meter vertical intervals from an access route. A footwall drift is established and crosscuts are developed across the ore body to the hangwall every 15 meters. To start mining, a slot is busted at the far end of the cross cut and the rings are retreated with 1 ring blasted at a time and the tonnage extracted according to a flow model. Our plan is to mine the 3 zones down at the same vertical rate. We have benchmarked the drill point for activity against other sublevel cave mines at 400 tonnes per day per drawpoint. At that rate, we can exceed the overall planned production rate of 50,000 tonnes a day after an initial ramp-up period. Following the initial development phase, all the ore and some development waste will be primarily crushed underground and conveyed to a covered core ore storage facility on surface. The planned view of the surface -- skarn project surface facilities on the next slide shows the initial surface layout. The plant has 2 further stages of crushing followed by a single-stage ball mill grinding circuit and then selective lead and zinc flotation circuits. The option of a SAG mill will be the subject of a future trade-off study. At full production, we expect to produce over 2,000 tonnes per day of zinc concentrate and 850 tonnes per day of lead concentrate. The tailings will be second to recycle water to process filtered in a large filtration plant and then stacked as shown in the graphic. We conducted 182 flotation tests, including locked cycle tests. The metallurgical results are excellent. And we anticipate producing high-grade readily marketable concentrates with little in the way of penalty elements. Zinc recovery is projected at 93.7% into a concentrate grading 59% zinc. Lead recovery averaged 84.3% into a lead concentrate grading 61% lead. Overall silver recovery is 84.8% and with 72.5% into the lead concentrate and the remainder into the zinc concentrate. I'd like to highlight some of the economic results, which are presented on the slide PEA results summary, which, as noted, are based on a zinc price of $2,800 per tonne, lead of $2,200 per ton and silver of $22 per ounce. Average annual production from the first 10 years is 17.2 million ounces of silver, 427,000 tons of zinc and 218,000 tonnes of lead. The overall initial capital estimate is $2.8 billion. The estimated initial capital for the works associated with mining is $1.3 billion, mostly for mine development, especially the shafts and the ramps. Other significant mine initial capital is for infrastructure and mining equipment. Construction of the processing plant starts in the fourth year. The total for the plant and related facilities, including the tailings filtration plant is $1.2 billion. Most of the remaining initial capital is associated with surface infrastructure and items such as power studies and other costs. In terms of the economics, despite the impact of discounting during the long development period, the after-tax net present value at an 8% discount rate is $1.1 billion, and the internal rate of return of the project is approximately 14%. The payback period is 4.3 years. As Michael mentioned, this PEA is a snapshot in time. As you have seen from our press releases, we continue to grow successfully and still have all the results from 2023, more than 40,000 meters of drilling to inform future estimates. And with that, I'll pass the floor back to Michael.

Great. And thanks, Martin. As you can understand, our team is very excited about this project. This PA underscores Pan Americas commitment to excellence and responsible resource development. The use of existing La Colorada site infrastructure for the skarn project will be included as part of the design where it is practical to do so. The design of the new facilities and the underground mine will focus on the application of automation, electrification, energy efficiency and the use of renewable energy sources to minimize the carbon footprint of the skarn project. The La Colorada's skarn project offers our investors the potential for long-term value creation. We look forward to your continued support as we progress towards the next stage of this exciting project. And now together with the other members of our management team, we would be happy to take your questions. Please, operator?

[Operator Instructions] First question comes from Cosmos Chiu from CIBC.

Maybe my first question is on financing, Michael, you kind of touched on it and talked about the base metals potential here. But could you give us a bit more detail? Like you're looking at potentially offtake agreements or like joint venture partnerships and/or streaming agreements? And would you want to like maintain operatorship? Is that what you prefer? Maybe if you can give us a bit more color on that?

Yes. As you can imagine, as I mentioned in the call, Cosmos, having this study now out will really open up and really sets the table for further discussion with some interested parties. And I think our focus is really on the best return for our shareholders. I mean what we found here is an incredible deposit, the world-class discovery with a brownfield exploration project. That doesn't happen very often. As a matter of fact, in my over 30-year career, it never happened before. And I think it's something really exceptional to see. So there's a lot of potential to create value for our shareholders in a lot of different ways, Cosmos, and I don't really want to go in one direction or the other. I think you mentioned all the ways how we can create value and form partnerships here, and that really depends on what kind of offers we received here. As I said, there is, of course, interest from all sides in the base metal industry. As I also mentioned, we will focus on the silver one way or the other. This is probably about 60% revenue of zinc. So it's a perfect deposit when you look at it. That is a very, very large silver production but it's actually not the main product. So there should be a way to split the pie, if you want to call it like that, where we can focus on silver and somebody else can focus on base metals. But as I said, all options are open for me, and we will look at the best way to create value for our shareholders on this.

Of course, that's a good idea. And then moving on to -- maybe can you talk about timing? Certainly, you're looking into your financing options at this point in time, that also contain sort of near-term targets. But in terms of timing, production, in terms of decision, in terms of when you might go ahead with it? Could you talk about timing a little bit?

Look, the next step, and as we mentioned probably a few times in the call is that the 2023 drilling is not included yet. So next step will be an update that resource estimate. Many of you probably have seen our press release that we put out, I think, a couple of weeks ago or 3 weeks ago with some further exceptional drill results and those will be included in the new update as well. So that's the next step. And I think then forward, I don't have -- I mean, we put out that timing on construction, which is about 6 years. When you look at our current reserves at La Colorada, which I think, stand about 8 or 9 years, of course, they're still -- sorry, that's on the vein deposit, just to be clear, that production will continue. As you know, we are finalizing the ventilation circuit for the vein deposit, and the top part of the skarn and finalize that big ventilation raise as we speak. So that will continue while we advance this project. It will also continue while we start developing this project, which, as I mentioned in the call, will take about 6 years to develop all the underground. So it should be quite a seamingless transition from the vein mine to the big cave mine but -- sublevel cave mine, but I don't have a starting date yet, Cosmos, I'm sure you understand. This is hot off the press here. And as I said, once we have the new resource estimate probably mid next year, we can make the further decision on that. And obviously, it depends also what a potential partnership would look like and what a partner or partners would like to do to advance the project.

Great. And then maybe one last question here. As you mentioned, it's going to take about 6 years to develop. Is that being conservative? 6 years seems like a fairly long time. And then the other question is, I think you mentioned in the press release, you will need 2 ventilation shaft, and as you also mentioned, right now, you're putting a new ventilation shaft in place for your upper vein deposit. Is that the same shaft?? Or is it -- do you have to put in something different?

So these are different shafts for ventilation. We've got a great piece right now in place. We actually reached last week, the bottom of the ventilation shaft we are building right now has worked out very well, and we'll use the same shaft sinking techniques for the other 2 shafts, as you can imagine there will be way bigger shafts for this large production. The other thing to your other question is if this is conservative or not, well, this is a PEA-level estimate. So there's obviously a lot of unknown in this still that we are working on. And over the next few months and quarter advance and get more details on. So I would just say this is in point of time. That's what we know about the deposit. We, for sure, will work on optimizing that and that includes also the construction period for sure, how to construct and what we exactly construct. So this is just a PA level, and I don't want to really make further decision if this is really conservative or not, as I said, because it's very early stage.

The next question comes from John Tumazos from John Tumazos Very Independent Research.

Congratulations on all the work. Could you explain or confirm the definitions of recovery rate and production. Is the recovery rate to concentrate? Or are they refined metal payable to your shareholders? And is the production refined metal net of smelter charges, all payable where if we multiply the production times the revenue, all the revenue would be in the revenue line of your future income statements.

Yes. John, it's Martin Wafforn here. The numbers reported when we mentioned the 17.2 million ounces per year of silver as an annual average over the first 10 years, that's silver produced as we have typically report. So there is -- there are smelter terms that would need to come away from that for payability of the product.

So it's before deductions?

Yes.

Like -- John, just like any other production, we report.

And John, if I can add, this is Steve. The model and the economics reflect the terms of -- the expected terms for marketing those concentrates. So we do deduct all the treatment charges, we do deduct the payability so that the revenues do reflect in the economics, the actual revenues we expect to get.

And all of that information will be disclosed in this year...

In current terms about how much of the 17.2 million ounces would be the deduct and would there be a deduct from the letter zinc output?

Yes, to both. In terms of the -- let me look at the number here very quickly that the payability on the silver is it's 14 off the top of my head, million ounces. And...

So maybe I can weigh in when Martin is looking up the details. Yes, it's somewhere around 14 million ounces in total. There's a little bit of silver that reports to the zinc con, as you can imagine, John. So that silver has different payability than if it is in the lab but most silver contained in Galena, creating, as we said, very high quality and high-grade lead concentrate, which has way higher payability. So that's the difference to the produce number. And I don't know, Jeff, the number there. If not, obviously, it will be all disclosed in detail with all the metallurgy in our 43-101.

Are the recoveries to concentrate or refined metal?

The recoveries are to concentrate. But all the payables are obviously in our NSR calculation. When you look at the final recoveries, that includes all the treatment charge and refinery charge for the refined metals.

Sorry, John, we just had to -- trying to work it out with the average annual production for the first 10 years of production is? But it comes out to be in terms of payable metals. It's about 14 million ounces of silver, 361,000 tonnes of zinc and 200,000 tons of lead a year.

That will be payable in concentrates. But as I said, the economics include all the treatment charges and refining charges, et cetera.

Absolutely.

In terms of the price tag, obviously, it will be the largest CapEx in the company's history. In the past, Michael, you seemed a little reluctant to pursue MARA or La Arena sulfides. But now La Colorada, is a bigger capital. I know that you found this and you're proud of it that it might seem as though you could buy and build Discovery silver in Mexico or AbraSilver in Argentina for under a $1 billion. And the silver is nice, too.

Yes. Look, this has nothing to do with being proud and not proud of a project. This is about the economics and silver. We sold MARA because it's a copper deposit, and we are not a large copper producer. We talk about divesting our other copper assets for the same reason. I'm talking about looking at a partner or several partners for this project for the base metals, but there is a huge amount of silver in this deposit, and that's really the biggest difference to all the others. So -- it doesn't mean that we have to build this. It doesn't mean that we have to absorb all or much of this capital depending on the structure we find for a partnership. But my focus will be on that large amount of silver that comes out of this deposit, and that's really the biggest difference to the copper porphyries that we are divesting.

Michael, I'm not a mining engineer. I'm mostly a mathematician or a finance person. It would seem like a pre-stripped open pit like La Arena sulfide would be easier to execute in a sublevel cave 50,000 tonne a day underground mine with twin ramps and twin ventilation shafts. Those big trucks, they rule really easy. Don't you -- what gives you confidence in the executability of this technical study compared to just moving some trucks around an open pit?

Yes, John, Steve here. Great question. And I got to -- from my perspective, John, I think you're getting the taste of the future of mining. These near surface large deposits are few and far between these days. And you're seeing more and more of this style of development occurring around the world. There are several sublevel cave mines that we've looked at around the world. And of course, there are several block cave mines that you're seeing developed around the world today. It's really a direction that mining is going, in my opinion. We haven't seen deposits like this discovered near surface that would be conducive to open pit mining. I would say the technology has advanced a lot over the last couple of decades, particularly the last decade. And I think our view of this technology is it is a reliable technology. As Martin alluded to, it becomes almost a factory type mentality to mining and the equipment that's being developed and manufactured today, particularly when you look at electrification and automation, is really conducive to build a solid, reliable mine with these kind of deposits.

Thank you for being patient with my questions. And I'm sorry if I don't understand everything at the first pass.

That's okay. Thanks, John, for calling in. And as we said in 45 days, there will be the 43-101 out there with great details on all the mining methods recovers, production, et cetera, et cetera. So there will be a lot of details available and for sure, continued discussions with our shareholders about this great project.

The next question comes from Eric Winmill at Scotiabank.

Just wondering if you could elaborate a little bit on the permitting. I know you said you need to get the permitting before the construction startup. Any additional comments there, please?

Yes, Eric, Steve here. We do -- we would have to go through an [indiscernible] process to permit development of this nature in Mexico. We've been working on developing the baseline information for that. I will say there is a sublevel cave mine in Zacatecas that has been permitted in the recent decade. So it's not new territory for Zacatecas, we had -- we do operate the La Colorada mine. That does give us the foothold to where we think this is quite a permittable mine but we do have to go through the process. So that would be something we already are undertaking in terms of baseline analysis in terms of the preparation of the development plan. But until we decide which -- specifically which development we would go forward we wouldn't submit that plan for permitting.

Okay. Great. Very helpful. Maybe just one more for me. I know you talked about optimization and still early days. What are some of the areas that you really see that you might be able to get some optimization as you continue drilling at the new resource out?

From the geology side, for sure, on the resource, we did not find the end of this deposit yet. And again, when you look at the results we published in 2023, you understand my statement. There is a lot of high-grade intercepts that we discovered further, and we continue to grow there. I'll pass it on to Martin for the mine engineering opportunities.

Thank you, Michael. Yes, finding more high grade near the top, that always helps in terms of payback and everything else, that would be a fantastic outcome if we could -- if we can continue to expand on some of those high-grade intercepts that we've had in 2023, and we could put a resource around them big enough that we can improve the revenues in the first few years that would really help. As we look forward, there seems to be -- these deposits continue to expand, continue to grow. There is a potential that at some point, we start with the top at sublevel caving. And then as we get deeper, we start looking at blocked caving options, but that's -- that could be a way down the road yet. We'll see how this resort expands.

And if I could add, this is Steve. We are looking at potential for rail haulage of concentrates. We are close to an old rail line that can be upgraded and refurbished and brought back online, we're within about 20 kilometers of a spur for a rail line. Right now, the study assumes that all the concentrates would be trucked to ports those smelters for treatment. So that would help a lot. And I think it was alluded to earlier on one of the questions. But I think one of the things we're really focused on is speed of development, how quickly can we bring this up and can we shave time off the construction time. We do have challenging ground as we go through the volcanics as we know from our vein mining experience and our ventilation shafts. So we've kind of taken some approaches to that, and we're looking at alternatives and how we could speed that process up.

The next question comes from Craig Hutchison from TD Securities.

At one-point you guys were talking about, I think, a 10,000 tonne per day underground operation. And I guess the deposit has grown quite considerably over the last couple of years. But is there still scope to do a more targeted higher-grade operation, maybe focused on long-haul stoping? Or it's just the ground conditions such that sublevel caving is the only option you guys have?

It's -- I will start, and then I'll pass it on to Martin. First -- and Martin kind of alluded to it in his comments there as well. We were looking at a 10,000 tonne a day potential long-haul operation at the very beginning when we discovered this deposit because we did not know how big it is, when that happened when we came out with the first resource estimate. You can understand when you look at the resource now, and as we said, this will grow next year with the additional drilling. But if you will go with 10,000 tonnes, of course, we would look already at about what 85-plus-year mine life. It's -- that's one reason, of course, to go with a way quicker, way cheaper method. It's -- that the ore bodies are just of the size and with that you have to go with a way more massive mining method to advance this project. And Martin can allude a bit further but it's not really the ground condition, but it's really the infrastructure that we have to put in for the entire deposit. So it's very similar. And I mean, when you look, we put for -- just for comparison reason, we put the 30,000 tonnes case in and the PA. And you will see, of course, it's a bit less capital, but it's still very similar infrastructure that you need for that but way smaller production. But it will be in reality -- it's probably -- there will obviously be a ramp-up. And maybe a start up 30% or a bit smaller and then ramping up to a bigger to a bigger size. And maybe, Martin, you want to give a bit more color to this?

Yes. Thank you, Michael. Yes, Craig, definitely, we were looking at that. That was our sort of starting position to look at 10,000 tonnes a day long-haul open stoping with face backfill. As these deposits got bigger, it just became no longer technically viable to do that. And that was the opinion of some of the consultants that we had as well from a chip technical perspective. We've tried to look at going after individual high-grade areas outside as well. But what you get to is with the depth of these deposits, the infrastructure that needs to be put in place underground to deal with the hot rocks that are -- the heat that we expect to anticipate getting them in the mine is pretty substantial, and it doesn't vary very much depending on how the size of the mine changes. So where we get to is we need to have a method like sublevel caving or even block caving perhaps in the future. If you sort of look at the steps, the sublevel caving where we're going is about $40 a ton operating cost. And then we were looking much higher than that sort of $65, $70 a tonne for long-haul open stoping. So we think we're at the right mining method for sure.

Okay. Great guys. And just one other question for me. Can you talk a bit about your plans to negotiate preliminary term for a joint venture on the adjacent grounds. Is that required for the current PA? Or is that upside based on the exploration potential?

There's definitely exploration potential on the adjacent ground and we will start working on that. That's -- we assume that those are part of the deposit and new discoveries will like stand there. And when you look at the big flow models, I guess and assume Martin, that will also flow on some of the other ground that closer to surface.

Yes, absolutely. This joint venture property hasn't really been explored. We haven't really drilled them yet. So there's lots of...

And I think the important part is we know that the deposits are write up against the property boundaries. So both parties are very excited about the opportunities to cross over. And I think we're working very well on this.

[Operator Instructions] The next question comes from Carey MacRury from Canaccord Genuity.

Just wondering in terms of next steps, you mentioned another resource update coming next year, but is there plans to now move the study into sort of a PFS level study at this point? Or is that coming down the road?

Yes, Carey, this is Steve. As Martin alluded to, there are some upsides on the underground mining, particularly when we look at the life of mine here, and we know those deposits are growing so it does open up some other opportunities. Right now, we haven't really scheduled out exactly what our next steps would be but I wouldn't be surprised that the mining methods could change to the effect there'd be an update to the PEA before we entered into the PFS. We want to kind of look at these optimization studies that we described earlier. And see kind of where they fall out, and that will make a decision on how we go forward.

And then maybe just a follow-up on the capital. Obviously, the $2.8 billion is a big number, looking at partners. But in the event you didn't have a partner, would you be comfortable going it alone 100% if the economics were there?

Sorry, you broke up there. Could you come again?

Yes. I was just honestly in the event you didn't have a partner and the economics were positive, would you be comfortable going ahead on a 100% basis with the $2.8 billion capital?

Look, as I said, at that moment our focus is to partner up on this project and focus on the silver side of this very, very large silver deposit, a very large base metal deposit with silver in it. I think that makes a lot of sense for a company like Pan American Silver and that will be the focus on any discussions.

Okay. Fair enough. And maybe just one last one. Could you provide us just the life of mine grade that you're assuming for each of the metals.

Yes, give us one moment, we'll pull that up.

And again, the 43-101 will be out in 45 days from now. So with all the great details on reserve, resource -- sorry, not reserve resources, modeling, economics, mining, all the details. . So, yes, Martin, go ahead.

Yes. So the mining inventory, so this is a combined -- mining inventory combined categories. So it includes indicated mineral resource and inferred mineral resource but it also has all of the -- some of the dilution that comes into the mine plan as a result of the sublevel caving method. But sublevel caving method has a mining recovery and a mining dilution that kind of counter each other to some extent. So the tonnes are 284.7 million tonnes. The silver grade is 32 grams per tonne. The zinc grade is 2.54%, and the lead grade is 1.16%. So that's the overall mining inventory, as we call it, that will be appear in the PA.

Thank you. At this time, I will turn the call back over to Michael for closing comments.

Great. And thanks, operator, and thanks for calling in today. I think it's a very exciting project. It's a very, very large discovery. As we kind of alluded to very, very early on when we received the first intercept 5 years ago of 3 -- 350 meters of [indiscernible] center. So great to see the results from that -- all that effort on the exploration and looking really forward to advance this further, as we said, in the way that is described in this call. We will update the market probably mid-January with our outlook for 2024. Until then, enjoy the holidays, everyone, and looking forward to catch up early in 2024. Thank you very much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.