Canada-based Pan American Silver Corp has completed the sale of its first operating asset in the northern Andean region of Peru to Quiruvilca Ltd, a subsidiary of Southern Peaks Mining.
Under the terms of the sale agreement, effective 1 June 2012, Pan American sold 100% of its ownership interest in Pan American Silver S.A. Mina Quiruvilca (Quiruvilca), the company that owns the Quiruvilca mine.
Pan American Silver Corp president and CEO Geoff Burns said the company's first asset provided a cornerstone that enabled it to grow its silver production and strengthen its operating capabilities.
"Quiruvilca had become a higher-cost producer that was increasingly reliant on base metals and no longer fit in our portfolio of operating assets," said Burns.
"After a thorough evaluation process, we are satisfied that the purchaser is capable of operating Quiruvilca in a professional and responsible manner, which will be a longer term benefit for the mine's workers, the nearby communities, the local government and the environment."
Quiruvilca Ltd has agreed to pay $2m, which is subject to certain conditions, in exchange for 100% of the assets and the assumption of all liabilities of Quiruvilca.
The company will also pay, on a quarterly basis, either a 2% net smelter returns royalty on all saleable metals, or the price difference between $23 per ounce of silver and the market price on 50% of Quiruvilca's future payable silver production for the applicable quarter. This is based on an agreement that such payments will be capped at $3 million in any 12-month period until Quiruvilca generates $25 million.
Pan American will receive a net gain of about $11.3m on the disposition of the mine's assets and liabilities.