I was invited to tour the Guanajuato operations controlled by Great Panther (T.GPR), one of the largest historic silver districts in the world with a history of more than 400 years of mining. This project was acquired by Great Panther nearly 4 years ago, and like many historic Mexican mine districts, it was in bad shape when they picked it up. That run-down condition allowed GPR to buy the asset very cheaply, but it also meant that they had a huge and expensive refurbishment project to get things running efficiently, and rebuild the mineral inventory to allow for sustained mining.

The district is focused on two main vein systems, both extending for several kilometres along strike with known productive mining depths beyond 500m below surface. The veins are continuous but economic grades are confined to ore shoots of several hundred meters each which occur in a regular distribution along the veins. Silver is enriched to 10,000 g/t and more in these veins, and gold is relatively low grade, with minor base metals content.

Much of the older workings near surface cannot be accessed safely but the deeper tunnels developed within the last 100 years are extensive and some of the 'waste rock' left by historic mining activity is economic to process at current metals prices. GPR has been identifying zones where this can be safely and profitably extracted, and running it though the mill to generate income. None of this lower grade material is included in the resources for the project, however it is likely that a large tonnage exists and can contribute to positive economics for the mine many years into the future.

The company was mostly focused on upgrading and refurbishing the mill facility during the last few years. The prior operator was a mining co-operative that had run out of money and allowed the operations to deteriorate into a very rundown condition. GPR has gradually improved the condition of the mill to now allow for processing of 500 tpd, and the capacity will eventually be increased to run at the 1200 tpd plant design. As new equipment is added and quality standards improved the efficiency of the plant has climbed. In the most recent quarter GPR was achieving about 85% recovery of the gold and silver throughput, which is very good for a floatation cell operation.

One of the big improvements installed by the company was a new, modern lab for testing ore grades and evaluating exploration samples. The advantage for this is that immediate assay results can be gained instead of waiting for weeks to get data, allowing for a more efficient ore control at the mill, and more responsive exploration and development program in the field. SGS operates the lab independantly so the assay results can be used to generate compliant resource estimates and reported in NRs.

As efficiency has improved the grades of the concentrate produced has also increased. This is significant since a higher grade concentrate will contain more gold and silver, and the shipping cost per tonne is significant. Richer concentrates therefore improve the overall margins on a per-tonne basis. The effects of higher ore grades processed, greater throughput at the mill, increased total production levels, and higher cons grades, has allowed GPR to report an operating profit and generate the cash flow to fund further capital improvement projects and new exploration work.

There are nearly two dozen shafts servicing the mine workings. Some of these are a triumph of engineering, considering the technology and best practices of the day that were employed, many constructed more than 100 years in the past. This is a testament to the richness of the ore, since in Mexico only the very high grade mines ever justified the expense and time to sink a shaft for mining access. Most mines in Mexico were driven from the surface, or accessed through an adit in the hillside.

GPR has chosen to refurbish several of the shafts and they are functioning as part of the modern mine operations. The other shafts are still contributing fresh air to the lower workings, and this is evident from touring the mine tunnels, where fresh air and cooler temperatures are a welcome bonus.

During the tour of the workings we were able to see old zones of the mine that were being reworked by GPR to extract remnant resource zones, and then stabilized with waste fill material. This allows GPR to win a blend of feed material including higher grade pillar ore from the old mine stopes, plus lower grade peripheral zones that were below cutoff from the prior mining. There is a tremendous tonnage of this material that remains to be extracted and GPR has still only sampled a small portion of the historic workings.

The lower extensions of the old mines remain productive and GPR has been successful to establish entire new ore zones in the old workings, some of which are now being mined. Grades up to 10,000 gpt silver have been accessed and contribute a small tonnage towards the total throughput at the mills.

An entirely new ore shoot is being developed from surface at the northwest extension of the system, serviced by ramp access. A new zone is also in development at the extreme southeast portion of the vein system, as a ramp is being driven to reach new zones. These discoveries were achieved in part due to diamond drilling work. Prior operators did not complete much drilling, and instead they developed along known veins until they pinched out. By running drills into these resource zones GPR geos have identified parallel vein shoots that are entirely untouched, adjacent to mined out veins.

To depth there are also new ore zones that are being established through underground drilling programs. We toured one underground drilling station that was in process during the trip, and went to the bottom of the Cata Shaft, then walked several hundred meters down new ramp access to depth in order to visit new stopes of high grade ore that have recently been developed by GPR. This potential to depth may be realized in many other old shafts below the areas mined out by previous operators.

I have been monitoring the progress of Great Panther since the time when this district was acquired by the company. I have always felt that the company was valued at a premium given the limited resources that were defined in the past, and the expensive task to refurbish operations, so I was not a buyer. After this tour I bought my first position of stock in the company and will be adding from here.

My personal opinion is that the company has now completed the 'heavy lifting' to get this mine into shape from which stable growth can be achieved going forward. GPR has proven the ability to find and develop new ore zones effectively, and has demonstrated quarter-over-quarter improvements in operating and financial results, despite the difficult and challenging market circumstances. The share price has come down signifcantly during this time, so the value per share is much greater now.

I think this mine offers tremendous potential to yield extremely high grade discovery for decades in the future. I think the company is capable of increasing production and generating further improvements in operating margins, such that it can produce at a profit even if the metals prices do not go higher. My personal bias is for MUCH higher gold and silver prices in the future, and therefore we could find very strong operating results for GPR in the years ahead.

Management has done a very good job to get to where the company is now positioned to realize some of the potential that was created through this acquisition. In addition the company also controls the Topia Mine in Durango, with a similar track record of growth and operating improvements. GPR is one of a very small handfull of juniors including Endeavour Silver (T.EDR), Impact Silver (V.IPT), First Majestic (T.FR), and Alamos Gold (T.AGI) that has been able to generate organic growth and maintain earnings momentum even during the credit crisis. I own shares in all of these companies and look for even greater success as the conditions in the sector improve.

Mike Kachanovsky
August 4, 2009.

Personal disclosure: I received no form of compensation for my commentary and this report is based entirely on my own observations and published material disclosed by the company. I own shares in GPR. My immediate travel expenses during this tour were paid for by Great Panther. I have made every effort to present information that is factual and accurate but some errors or omissions are possible. This report is to serve as a personal opinion only and should not be construed as investment advice. Do you own research.