FIRST QUARTER HIGHLIGHTS
* Net income of $20.4 million ($0.27/share), up from a net loss
of $2.8 million ($0.04 loss per share) in Q1 2006.
* Quarterly silver production of 3.3 million ounces, at a cash cost
of $2.98 per ounce.+
* Sales of $48.1 million, up 5% from $45.7 million in first quarter
2006.
* Mine operating earnings of $14.9 million.
* Operating improvements at La Colorada resulted in a 7% production
increase.
* Construction at Manantial Espejo mine over 25% complete.
+ Cash costs are a non-GAAP measure.
* Financial information in this news release is based on Canadian
GAAP.
VANCOUVER, B.C., April 30, 2007 (PRIME NEWSWIRE) -- Pan American Silver Corp. (Nasdaq:PAAS) (TSX:PAA):
FINANCIAL RESULTS
Pan American Silver Corp. today reported that consolidated net income for the first quarter 2007 was $20.4 million, or $0.27 per share, as compared to a net loss of $2.8 million, or $0.04 loss per share, in the year earlier period. First quarter sales were $48.1 million, a 5% increase over the first quarter 2006. Included in net income for the quarter was a gain on the sale of the Company's interest in the Dukat mine in Russia of $10.25 million ($0.13 per share). Mine operating earnings for the first quarter were $14.9 million.
First quarter net income was impacted by below forecast silver production due to slower than expected commissioning of the new Alamo Dorado mine in Mexico; a negative adjustment of $5.0 million in gross sales due to final pricing in the current quarter of fourth quarter 2006 zinc production that had been provisionally priced at December 31, 2006; and, most significantly, because only 74% of concentrate produced in the first quarter was shipped and the balance was recorded as inventory and not as sales.
Commenting on the quarter, Geoff Burns, President and CEO, said: "Our operations delivered solid production performances in the first quarter. However, our financial picture does not fully reflect these results as a significant amount of our concentrate production in Peru was not shipped in the quarter and we absorbed a zinc price adjustment on last quarter's production. We will realize additional revenue from concentrate sales in the second and third quarters and from increased silver production at Alamo Dorado mine as it now ramps up to design capacity."
Cost of sales for the quarter increased by $4.7 million over the year-earlier period to $29.0 million, largely attributable to industry-wide cost escalations for energy, labour and consumables, as well as increased expenditures at La Colorada associated with restarting the sulphide plant. Working capital at March 31, 2007 was $207.4 million, an increase of $2.8 million from December 31, 2006. Capital expenditures in the quarter were $19.3 million, of which $8.4 million was spent on construction of the Manantial Espejo mine in Argentina.
PRODUCTION AND OPERATIONS
In the first quarter 2007, silver production totaled just over 3.3 million ounces, a slight increase over Q1 2006 and a quarterly production record for the company. The La Colorada mine continued to increase its rate of production, producing 7% more ounces of silver compared to the year earlier period, and production at the San Vicente mine increased by 74% over first quarter 2006.
Consolidated cash costs for the quarter were $2.98 per ounce compared to $2.47 per ounce for the year-earlier period. Byproduct base metal credits continued to have a positive effect on the Company's cash cost per ounce of silver produced. Morococha was once again the Company's lowest cost mine, recording cash costs of negative $4.20 per ounce for the first quarter. Cash costs at Huaron declined by 46% over the first quarter 2006. Extended commissioning of the new Alamo Dorado mine increased cash costs in the quarter, and these are expected to decline when full scale production is achieved.
PERU
The Morococha mine contributed 638,904 ounces of silver in the quarter at a cash cost of negative $4.20 per ounce. Despite encountering lower head grades, as expected in the 2007 mine plan, silver production from the mine was higher than anticipated for the first quarter, with the mill processing consistently over 56,000 tonnes per month. The Company continued development of the Sierra Nevada ramp. This two year project will provide primary access to two main ore zones -- Manto Italia and Codiciada -- and has been designed to allow for future production increases.
Silver production at the Quiruvilca mine was 403,919 ounces for the quarter. Cash costs per ounce rose to $2.33 due to higher operating costs for labour and electricity and lower than expected silver production as a result of lower ore grades. Work continued throughout the quarter on the mine deepening project to develop below the 400 level, with excavation of the zone's main haulage ramp completed. Grades are expected to improve throughout the second quarter as ore will start to be mined from the higher grade zones below the 400 level.
First quarter production at Huaron was right on target with 927,093 ounces of silver produced. Cash costs declined to $1.99 per ounce as compared to $3.69 per ounce recorded in the year earlier period. Mill throughput increased 11% as compared to the first quarter of 2006 and averaged 62,000 tonnes per month, offsetting the slightly lower grades and recovery. The mine deepening project to the 180 level continued in the first quarter with anticipated completion in May 2008. This is a key project for Huaron's future as it will provide long term access to some of the highest grade ore blocks in the mine's reserves.
The Silver Stockpile operation produced 115,925 ounces of silver in the first quarter at a cash cost of $3.84 per ounce.
MEXICO
Commissioning continued at Alamo Dorado in the first quarter. Difficulties in the filtration system resulted in fewer tonnes milled than planned. The mine produced 267,024 ounces of silver in the quarter. The mine is resolving these mechanical start-up issues and production is rapidly increasing, with April production forecast at over 250,000 ounces of silver. The mine's revised production forecast for 2007 is 3.6 million ounces of silver, increasing to an average annual production of 4.3 million ounces for 2008 and beyond. Cash costs in the first quarter were $10.22 per ounce due to the extended commissioning phase and should decrease to an average $3.73 per ounce for 2007 as production scales up to design levels. Commissioning activities continued to focus on the filtration, refining and AVR circuits. The crushing, grinding and leaching circuits in the mill are operating smoothly and the metallurgical characteristics of the ore are as expected. Mining activities in the open pit continued to exceed budget, with a total of 780,568 tonnes of ore and waste rock mined throughout the quarter, with ore grades according to plan.
The La Colorada mine had a good quarter, with silver production reaching 854,745 ounces, or 7% more than the year-earlier period. Cash costs were $6.78 per ounce of silver, reflecting increased costs associated with restarting the sulphide plant and ramping up mill capacity. The mine established a third consecutive monthly tonnage record in March by processing over 24,000 tonnes of ore, and successful development into higher grade zones is expected to contribute to increased production in the second quarter.
ARGENTINA
Mining and construction activities at the Manantial Espejo project continued as planned throughout the first quarter, with delivery of the majority of the surface mining equipment. By the end of the quarter, in excess of 500 metres had been advanced on the Maria and Melissa underground ramps, out of a total of 4,000 metres of development programmed for completion prior to plant commissioning. Pre-stripping of the Karina Union open pit ramped up to approximately 5,000 tonnes per day. Total project expenditures at the end of the quarter totaled $32.4 million and the Company estimates the project to be 25% complete. Construction is scheduled for completion in May of 2008, with commissioning to start immediately thereafter. Manantial Espejo is expected to produce an average of 4.1 million ounces of silver and 60,000 ounces of gold annually.
BOLIVIA
Mining at the high grade silver-zinc San Vicente mine continued as planned throughout the first quarter, with 136,473 ounces of silver produced, 74% more than in the year-earlier period. Cash costs of $3.16 per ounce for the quarter were higher than in the year-earlier period primarily as a result of higher royalties paid to Comibol, the Bolivian state mining company. Plans to expand mine production and build a new mill on the property were advanced, pending a positive construction decision.
Pan American Silver's mission is to be the largest and lowest cost primary silver mining company globally, and to achieve this by constantly increasing its low cost silver production and its silver reserves. Pan American has delivered 13 consecutive years of production growth and expects to continue this trend in 2007 as silver production is forecast to increase by 31% to 17 million ounces.
Pan American will host a conference call to discuss its financial and operating results on Tuesday, May 1, 2007 at 8:00 am PST (11:00 am EST). North American participants please dial toll-free 1-888-694-4728 and international participants please dial 1-973-582-2745. The call will also be broadcast live on the internet at http://www.vcall.com/IC/CEPage.asp?ID=116212. The call will be available for replay for one week after the call by dialing 1-877-519-4471 (for North American callers) and 1-973-341-3080 (for international callers) and using the replay pin number 8685860.
The Pan American Silver Corp. logo is available at http://www.primenewswire.com/newsroom/prs/?pkgid=3233
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS NEWS RELEASE CONTAINS "FORWARD-LOOKING INFORMATION" WITHIN THE MEANING OF THE UNITED STATES "PRIVATE SECURITIES LITIGATION REFORM ACT" OF 1995 AND APPLICABLE CANADIAN SECURITIES LEGISLATION. STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION EXPRESS, AS AT THE DATE OF THIS NEWS RELEASE, THE COMPANY'S PLANS, ESTIMATES, FORECASTS, PROJECTIONS, EXPECTATIONS, OR BELIEFS AS TO FUTURE EVENTS OR RESULTS AND THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION TO, UPDATE SUCH STATEMENTS CONTAINING THE FORWARD-LOOKING INFORMATION. GENERALLY, FORWARD-LOOKING INFORMATION CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "PLANS", "PROJECTS" OR "PROJECTED", "EXPECTS" OR "DOES NOT EXPECT", "IS EXPECTED", "ESTIMATES", "FORECASTS", "SCHEDULED", "INTENDS", "ANTICIPATES" OR "DOES NOT ANTICIPATE", OR "BELIEVES", OR VARIATIONS OF SUCH WORDS AND PHRASES, OR STATEMENTS THAT CERTAIN ACTIONS, EVENTS OR RESULTS "MAY", "CAN", "COULD", "WOULD", "MIGHT" OR "WILL BE TAKEN", "OCCUR" OR "BE ACHIEVED". STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS WITH RESPECT TO TIMING AND BUDGET OF CONSTRUCTION ACTIVITIES AT MANANTIAL ESPEJO, THE EXPECTED RESULTS FROM EXPLORATION ACTIVITIES, THE ECONOMIC VIABILITY OF THE DEVELOPMENT OF NEWLY DISCOVERED ORE BODIES, THE ESTIMATION OF MINERAL RESERVES AND RESOURCES, FUTURE PRODUCTION LEVELS, EXPECTATIONS REGARDING MINE PRODUCTION COSTS, THE REQUIREMENTS FOR ADDITIONAL CAPITAL, THE RESULTS OF DRILLING, AND PAN AMERICAN SILVER'S COMMITMENT TO, AND PLANS FOR DEVELOPING, NEWLY DISCOVERED AND EXISTING MINERALIZED STRUCTURES.
STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, LEVEL OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS OF PAN AMERICAN SILVER AND ITS OPERATIONS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, RISKS RELATED TO TECHNOLOGICAL AND OPERATIONAL NATURE OF THE COMPANY'S BUSINESS, CHANGES IN LOCAL GOVERNMENT LEGISLATION, TAXATION OR THE POLITICAL OR ECONOMIC ENVIRONMENT, THE ACTUAL RESULTS OF CURRENT EXPLORATION ACTIVITIES, CONCLUSIONS OF ECONOMIC EVALUATIONS, CHANGES IN PROJECT PARAMETERS TO DEAL WITH UNANTICIPATED ECONOMIC FACTORS, FUTURE PRICES OF SILVER, GOLD AND BASE METALS, INCREASED COMPETITION IN THE MINING INDUSTRY FOR PROPERTIES, EQUIPMENT, QUALIFIED PERSONNEL, AND THEIR RISING COSTS, UNPREDICTABLE RISKS AND HAZARDS RELATING TO THE OPERATION AND DEVELOPMENT OF OUR MINES OR PROPERTIES, THE SPECULATIVE NATURE OF EXPLORATION AND DEVELOPMENT, FLUCTUATIONS IN THE PRICE FOR NATURAL GAS, FUEL OIL AND OTHER KEY SUPPLIES, AS WELL AS THOSE FACTORS DESCRIBED IN THE SECTION "RISK RELATED TO PAN AMERICAN'S BUSINESS" CONTAINED IN THE COMPANY'S MOST RECENT FORM 40F/ANNUAL INFORMATION FORM FILED WITH THE SEC AND CANADIAN PROVINCIAL SECURITIES REGULATORY AUTHORITIES. ALTHOUGH THE COMPANY HAS ATTEMPTED TO IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN FORWARD-LOOKING STATEMENTS, THERE MAY BE OTHER FACTORS THAT CAUSE RESULTS TO BE MATERIALLY DIFFERENT FROM THOSE ANTICIPATED, DESCRIBED, ESTIMATED, ASSESSED OR INTENDED. THERE CAN BE NO ASSURANCE THAT ANY STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION WILL PROVE TO BE ACCURATE AS ACTUAL RESULTS AND FUTURE EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH STATEMENTS. ACCORDINGLY, READERS SHOULD NOT PLACE UNDUE RELIANCE ON STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION.
Financial & Operating Highlights
Consolidated Financial Highlights
(in thousands of US dollars)
(Unaudited)
Three months ended
March 31,
2007 2006
---------------------------------------------------------------------
Net income (loss) for the period $ 20,435 $ (2,761)
Earnings (loss) per share $ 0.27 $ (0.04)
Mine operating earnings $ 14,874 $ 17,976
Cash flow from operations
(excluding changes in operating
assets and liabilities) $ 13,727 $ 8,911
Capital spending $ 17,251 $ 16,261
Exploration expenses $ 549 $ 1,234
Cash and short-term investments $ 162,342 $ 48,643
Working capital $ 207,355 $ 63,108
Consolidated Ore Milled & Metals
Recovered to Concentrate
Tonnes milled 637,589 456,339
Silver metal - ounces 3,344,084 3,327,527
Zinc metal - tonnes 9,554 10,700
Lead metal - tonnes 3,734 3,954
Copper metal - tonnes 1,303 1,041
Gold metal - ounces 2,908 1,618
Consolidated Cost per Ounce of
Silver (net of by-product credits)
Total cash cost per ounce (1) $ 2.98 $ 2.47
Total production cost per ounce (1) $ 4.75 $ 3.92
In thousands of US dollars
Direct operating costs, royalties,
treatment and refining charges $ 51,924 $ 37,651
By-product credits (42,788) (30,176)
---------------------------------------------------------------------
Cash operating costs 9,136 7,475
Depreciation, amortization and
reclamation 5,446 4,401
---------------------------------------------------------------------
Production costs $ 14,582 $ 11,876
=====================================================================
Payable ounces of silver (used in
cost per ounce calculations) 3,069,553 3,031,459
Average Metal Prices
Silver - London Fixing $ 13.29 $ 9.72
Zinc - LME Cash Settlement
per tonne $ 3,460 $ 2,248
Lead - LME Cash Settlement
per tonne $ 1,787 $ 1,240
Copper - LME Cash Settlement
per tonne $ 5,941 $ 4,944
Gold - London Fixing $ 650 $ 554
Mine Operations Highlights Three Months ended
March 31
2007 2006
---------------------------------------------------------------------
Huaron Mine
Tonnes milled 180,825 162,518
Average silver grade - grams
per tonne 197 215
Average zinc grade 2.81% 2.77%
Silver metal - ounces 927,093 934,480
Zinc metal - tonnes 3,294 2,892
Lead metal - tonnes 1,767 1,819
Copper metal - tonnes 344 403
Gold metal - ounces 927 344
Total cash cost per ounce (1) $ 1.99 $ 3.69
Total production cost per ounce (1) $ 3.19 $ 4.90
In thousands of US dollars
Direct operating costs, royalties,
treatment and refining charges $ 16,403 $ 12,562
By-product credits (14,745) (9,434)
---------------------------------------------------------------------
Cash operating costs 1,658 3,128
Depreciation, amortization
and reclamation 997 1,026
---------------------------------------------------------------------
Production costs $ 2,655 $ 4,154
=====================================================================
Payable ounces of silver (used in
cost per ounce calculation) 833,160 847,290
Quiruvilca Mine
Tonnes milled 89,201 95,520
Average silver grade - grams
per tonne 169 227
Average zinc grade 2.43% 2.99%
Silver metal - ounces 403,919 608,637
Zinc metal - tonnes 1,780 2,439
Lead metal - tonnes 595 665
Copper metal - tonnes 381 354
Gold metal - ounces 313 298
Total cash cost per ounce (1) $ 2.33 $ 0.92
Total production cost per ounce (1) $ 3.81 $ 2.05
In thousands of US dollars
Direct operating costs, royalties,
treatment and refining charges $ 9,392 $ 7,664
By-product credits (8,521) (7,144)
---------------------------------------------------------------------
Cash operating costs 871 520
Depreciation, amortization and reclamation 554 640
---------------------------------------------------------------------
Production costs $ 1,425 $ 1,160
=====================================================================
Payable ounces of silver (used in
cost per ounce calculation) 373,430 566,492
Morococha Mine (88.5% ownership)
Tonnes milled 146,133 132,773
Average silver grade - grams
per tonne 163 201
Average zinc grade 3.34% 4.46%
Silver metal - ounces 638,904 735,426
Zinc metal - tonnes 4,066 5,086
Lead metal - tonnes 1,234 1,470
Copper metal - tonnes 549 270
Gold metal - ounces 116 233
Total cash cost per ounce (1) $ (4.20) $ (1.85)
Total production cost per
ounce (1) $ (2.35) $ (0.23)
In thousands of US dollars
Direct operating costs, royalties,
treatment and refining charges $ 14,511 $ 11,411
By-product credits (16,927) (12,622)
---------------------------------------------------------------------
Cash operating costs (2,417) (1,211)
Depreciation, amortization
and reclamation 1,066 1,060
---------------------------------------------------------------------
Production costs $ (1,351) $ (151)
====================================================================
Payable ounces of silver (used in
cost per ounce calculations) 575,958 655,112
La Colorada Mine
Tonnes milled 68,469 56,541
Average silver grade - grams
per tonne 458 511
Silver metal - ounces 854,745 797,246
Zinc metal - tonnes 48 --
Lead metal - tonnes 138 --
Copper metal - tonnes 857 7.53
Total cash cost per ounce (1) $ 6.78 $ 5.76
Total production cost per
ounce (1) $ 8.50 $ 7.84
In thousands of US dollars
Direct operating costs, royalties,
treatment and refining charges $ 6,593 $ 4,968
By-product credits (909) (392)
---------------------------------------------------------------------
Cash operating costs 5,684 4,576
Depreciation, amortization
and reclamation 1,441 1,655
---------------------------------------------------------------------
Production costs $ 7,125 $ 6,231
=====================================================================
Payable ounces of silver (used in
cost per ounce calculations) 837,735 794,468
Alamo Dorado(2)
Tonnes milled 137,041 --
Average silver grade - grams
per tonne 124 --
Silver metal - ounces 267,024 --
Gold metal - ounces 696
Total cash cost per ounce (1) $ 10.22 $ N/A
Total production cost
per ounce (1) $ 15.13 $ N/A
In thousands of US dollars
Direct operating costs, royalties,
treatment and refining charges $ 3,175 $ N/A
By-product credits (456) --
---------------------------------------------------------------------
Cash operating costs 2,719 --
Depreciation, amortization
and reclamation 1,308 --
---------------------------------------------------------------------
Production costs $ 4,027 $ N/A
=====================================================================
Payable ounces of silver (used in
cost per ounce calculations) 266,104 N/A
(2) Alamo Dorado had not achieved commercial production levels,
which is expected to commence in the 2nd quarter of 2007.
San Vicente Mine (55% ownership)
Tonnes milled 15,920 8,987
Average silver grade - grams
per tonne 312 361
Average zinc grade - percent 2.99% 3.99%
Silver metal - ounces 136,473 78,550
Zinc metal - tonnes 367 284
Copper metal - tonnes 28 15
Total cash cost per ounce (1) $ 3.16 $ 2.85
Total production cost
per ounce (1) $ 3.82 $ 3.14
In thousands of US dollars
Direct operating costs, royalties,
treatment and refining charges $ 1,616 $ 783
By-product credits (1,230) (584)
---------------------------------------------------------------------
Cash operating costs 386 199
Depreciation, amortization
and reclamation 81 20
---------------------------------------------------------------------
Production costs $ 467 $ 219
=====================================================================
Payable ounces of silver (used in
cost per ounce calculations) 122,176 70,086
Pyrite Stockpile
Tonnes sold 14,730 14,935
Average silver grade - grams
per tonne 245 361
Silver metal - ounces 115,925 173,188
Total cash cost per ounce (1) $ 3.84 $ 2.67
Total production cost
per ounce (1) $ 3.84 $ 2.67
In thousands of US dollars
Direct operating costs, royalties,
treatment and refining charges $ 234 $ 262
By-product credits -- --
---------------------------------------------------------------------
Cash operating costs 234 262
Depreciation, amortization
and reclamation -- --
---------------------------------------------------------------------
Production costs $ 234 $ 262
=====================================================================
Payable ounces of silver (used in
cost per ounce calculations) 60,990 98,011
(1) Cash cost per ounce is a non-GAAP measurement and investors
are cautioned not to place undue reliance on it and are urged to
read all GAAP accounting disclosures presented in the unaudited
consolidated financial statements and accompanying footnotes. In
addition, see the reconciliation of operating costs to "Cash Cost
per Ounce of Payable Silver" set forth in the Management
Discussion and Analysis.
PAN AMERICAN SILVER CORP.
Consolidated Balance Sheets
(Unaudited in thousands of U.S. dollars)
March 31, 2007 Dec. 31, 2006
-----------------------------------------------------------------
Assets
Current
Cash $ 83,132 $ 80,347
Short-term investments 79,210 91,601
Accounts receivable, net of $Nil
provision for doubtful accounts 47,271 65,971
Inventories (note 4) 30,867 22,216
Unrealized gain on commodity and
foreign currency contracts 232 186
Future income taxes 7,230 6,670
Prepaid expenses 3,310 3,106
----------------------------------------------------------------
Total Current Assets 251,252 270,097
Mineral property, plant and
equipment, net (note 6) 298,496 112,993
Construction in progress (note 7) 32,403 104,037
Investment in non-producing
properties (note 7) 90,989 188,107
Direct smelting ore (note 4) 1,714 1,831
Future income tax asset 500 500
Other assets 5,104 2,430
----------------------------------------------------------------
Total Assets $ 680,458 $ 679,995
================================================================
Liabilities
Current
Accounts payable and accrued
liabilities $ 29,649 $ 40,095
Taxes payable 11,663 23,187
Other current liabilities 2,585 2,199
----------------------------------------------------------------
Total Current Liabilities 43,897 65,481
Provision for asset retirement
obligation and reclamation
(note 8) 44,665 44,309
Future income taxes 47,218 48,499
Non-controlling interest 9,526 9,680
----------------------------------------------------------------
Total Liabilities 145,306 167,969
----------------------------------------------------------------
Shareholders' Equity
Share capital (note 11)
Authorized:
200,000,000 common shares of no
par value
Issued:
March 31, 2007 - 76,350,133
common shares
December 31, 2006 - 76,195,426
common shares 587,208 584,769
Additional paid in capital 14,301 14,485
Accumulated other comprehensive
income (note 9) 436 --
Deficit (66,793) (87,228)
----------------------------------------------------------------
Total Shareholders' Equity 535,152 512,026
----------------------------------------------------------------
Total Liabilities and
Shareholders' Equity $ 680,458 $ 679,995
================================================================
See accompanying notes to consolidated financial statements
Pan American Silver Corp.
Consolidated Statements of Operations
(Unaudited -in thousands of US Dollars, except for per share amounts)
Three months ended
March 31,
2007 2006
--------------------------------------------------------------------
Sales $ 48,057 $ 45,744
Cost of sales 28,961 24,297
Depreciation and amortization 4,222 3,471
--------------------------------------------------------------------
Mine operating earnings 14,874 17,976
General and administrative 1,858 1,933
Exploration and project development 549 1,234
Asset retirement and reclamation 636 614
--------------------------------------------------------------------
Operating earnings 11,831 14,195
Loss on commodity contracts
(net of gains) (160) (11,830)
Gain on sale of assets 10,268 --
Interest and financing expenses (158) (146)
Foreign exchange loss (60) (82)
Investment and other income 1,838 339
--------------------------------------------------------------------
Net earnings before non-controlling
interest and taxes 23,559 2,476
Non-controlling interest (524) (1,224)
Income tax provision (2,600) (4,013)
--------------------------------------------------------------------
Net income (loss) for the period $ 20,435 $ (2,761)
====================================================================
Attributable to common shareholders:
Net income (loss) for the period $ 20,435 $ (2,761)
Accretion of convertible debentures -- (13)
--------------------------------------------------------------------
Net income (loss) for the period attributable
to common shareholders $ 20,435 $ (2,774)
--------------------------------------------------------------------
Earnings (loss) per share
Basic earnings (loss) per share $ 0.27 $ (0.04)
Diluted earnings (loss) per share $ 0.26 $ (0.04)
Weighted average shares outstanding
Basic 76,279 67,665
Diluted 79,292 67,665
Consolidated Statements of Comprehensive Income
(Unaudited -in thousands of US Dollars)
Three months ended
March 31,
2007
---------------------------------------------------------------------
Net income for the period. $ 20,435
Other comprehensive income, net of tax (Note 9) 283
---------------------------------------------------------------------
Comprehensive income $ 20,718
---------------------------------------------------------------------
See accompanying notes to consolidated financial statements
Pan American Silver Corp.
Consolidated Statements of Cash Flows
(Unaudited - in thousands of U.S. dollars)
Three months ended
March 31,
2007 2006
-----------------------------------------------------------------
Operating activities
Net income (loss) for the period $ 20,435 $ (2,761)
Reclamation expenditures (280) (282)
Adjustments to determine net cash
from operating activities:
Depreciation and amortization 4,222 3,471
Future income taxes (1,841) (609)
Asset retirement and reclamation
accretion 636 614
Non-controlling interest 524 1,224
Unrealized loss on commodity
contracts (46) 6,783
Stock-based compensation 345 471
Gain on sale of assets (10,268) --
Changes in operating assets and
liabilities(note 12) (11,465) (1,394)
-----------------------------------------------------------------
Cash generated by operating activities 2,262 7,517
-----------------------------------------------------------------
Investing activities
Purchase of Mining property,
plant and equipment (19,272) (16,261)
Proceed from sale of short-term
investments 12,606 19,920
Proceeds from sale of assets 10,250 --
Purchase of other assets (2,453) --
-----------------------------------------------------------------
Cash generated by investing activities 1,131 3,659
-----------------------------------------------------------------
Financing activities
Proceeds from issuance of
common shares 1,698 2,084
Dividends paid by subsidiaries
to non controlling interest (2,306) --
Interest paid on convertible
debentures -- (19)
-----------------------------------------------------------------
Cash (used in) provided by
financing activities (608) 2,065
-----------------------------------------------------------------
Increase in cash and cash
equivalents during the period 2,785 13,241
Cash and cash equivalents,
beginning of period 80,347 29,291
-----------------------------------------------------------------
Cash and cash equivalents,
end of period $ 83,132 $ 42,532
=================================================================
Supplementary Disclosures (note 13)
Interest paid $ -- $ 19
===================
Income taxes paid $ 16,119 $ 1,432
====================
See accompanying notes to consolidated financial statements
Pan American Silver Corp.
Consolidated Statements of Shareholders' Equity
For the three months ended March 31, 2007 and 2006
(Unaudited - in thousands of US dollars, except for amounts of shares)
Common Shares
--------------------- Convertible
Shares Amount Debentures
---------------------------------------------------------------------
Balance, December 31, 2005 67,564,903 $388,830 $ 762
Issued on the exercise of
stock options 149,308 2,739 --
Issued on the exercise of share
purchase warrants 1,062 15 --
Stock-based compensation on
options granted -- -- --
Issued on conversion of debentures 6,789 86 (76)
Accretion of convertible debentures -- -- 13
Stock based compensation 14,449 272 --
Net loss for the year -- -- --
---------------------------------------------------------------------
Balance, March 31, 2006 67,736,511 $391,942 $ 699
---------------------------------------------------------------------
Additional
Paid in Capital Deficit Total
---------------------------------------------------------------------
Balance, December 31, 2005 $13,117 $(145,387) $ 257,322
Issued on the exercise of
stock options (667) -- 2,072
Issued on the exercise of share
purchase warrants (2) -- 13
Stock-based compensation on
options granted 471 -- 471
Issued on conversion of debentures -- -- 10
Accretion of convertible debentures -- (13) --
Stock based compensation -- -- 272
Net loss for the year -- (2,761) (2,761)
---------------------------------------------------------------------
Balance, March 31, 2006 $12,919 $(148,161) $ 257,399
---------------------------------------------------------------------
Common Shares Additional
--------------------- Paid in
Shares Amount Capital
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance, December 31, 2006 76,195,426 $584,769 $14,485
Issued on the exercise of
stock options 132,556 2,138 (513)
Issued on the exercise of share
purchase warrants 7,341 90 (16)
Issued as compensation 14,810 211 --
Stock-based compensation on
options granted -- -- 345
Cumulative impact of change in
accounting policy (note 3) -- -- --
Other comprehensive income -- -- --
Net income for the period -- -- --
---------------------------------------------------------------------
Balance, March 31, 2007 76,350,133 $587,208 $14,301
=====================================================================
Accumulated
Other
Comprehensive
Income Deficit Total
---------------------------------------------------------------------
---------------------------------------------------------------------
Balance, December 31, 2006 $ -- $(87,228) $512,026
Issued on the exercise of
stock options -- -- 1,625
Issued on the exercise of share
purchase warrants -- -- 74
Issued as compensation -- -- 211
Stock-based compensation on
options granted -- -- 345
Cumulative impact of change in
accounting policy (note 3) 153 -- 153
Other comprehensive income 283 -- 283
Net income for the period -- 20,435 20,435
---------------------------------------------------------------------
Balance, March 31, 2007 $ 436 $(66,793) $535,152
=====================================================================
See accompanying notes to consolidated financial statements
Pan American Silver Corp.
Notes to Unaudited Interim Consolidated Financial Statements
As at March 31, 2007 and 2006 and for the three month periods
then ended
(Tabular amounts are in thousands of US dollars, except for numbers
of shares, price per share and per share amounts)
1. Nature of Operations
Pan American Silver Corp, subsidiary companies and joint ventures
(collectively, the "Company" or "Pan American") are engaged in
silver mining and related activities, including exploration,
extraction, processing, refining and reclamation. The Company's
primary product (silver) is produced in Peru, Mexico and Bolivia,
along with development activities in Argentina, Mexico and
Bolivia, and exploration activities in South America.
2. Summary of Significant Accounting Policies
a) Basis of Presentation: The accompanying unaudited consolidated
financial statements have been prepared in accordance with
accounting principles generally accepted in Canada for interim
financial information and follow the same accounting policies and
methods as our most recent annual financial statements.
Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in
Canada for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have
been included. Operating results for the three-month ended March
31, 2007 and 2006 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2007.
The consolidated balance sheet at December 31, 2006 has been
derived from the audited financial statements at that date but
does not include all of the information and footnotes required by
accounting principles generally accepted in Canada for complete
financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included
in the Pan American Silver Corp. (the "Company") Annual Report for
the year ended December 31, 2006.
b) Principles of Consolidation: The consolidated financial
statements include the wholly-owned and partially-owned
subsidiaries of the Company and joint ventures, the most
significant of which are presented in the following table:
Operations and
Subsidiary Location Ownership Status Development
interest Projects
---------------------------------------------------------------------
Pan American
Silver S.A. Quiruvilca and
Mina Quiruvilca Peru 99.9% Consolidated Huaron Mines
Compania Minera
Argentum S.A. Peru 88.5% Consolidated Morococha Mine
Plata Panamericana
S.A. de C.V. Mexico 100% Consolidated La Colorada Mine
Minera Corner Alamo Dorado
Bay S.A. Mexico 100% Consolidated Project
Compania Minera San Vicente
PAS Bolivia S.A. Bolivia 55% Consolidated Project
Compania Minera Manantial
Triton S.A. Argentina 100% Consolidated Espejo Project
Inter-company balances and transactions have been eliminated upon
consolidation. Investments where the Company has an ownership of
50% and funds its proportionate share of expenditures are
accounted for using the proportionate consolidation method.
Investments where the Company has an ownership of less than 50%
and funds its proportionate share of expenditures are accounted
for under the equity method. The Company has no investments in
entities in which its ownership interest is accounted for using
the cost method.
c) Reclassifications: Certain reclassifications of prior year
balances have been made to conform to current year presentation.
3. Changes in Accounting Policy
On January 1, 2007, the Company retroactively adopted, without restatement of prior periods, the recommendations included in the following Sections of the Canadian Institute of Chartered Accountants Handbook: Section 1530, "Comprehensive Income", Section 3855, "Financial Instruments - Recognition and Measurement", Section 3865, "Hedges", Section 3861, "Financial Instruments - Disclosure and Presentation", and Section 3251, "Equity".
Section 1530, "Comprehensive Income", requires the presentation of comprehensive income and its components in a new financial statement. Comprehensive income is the change in the net assets of a company arising from transactions, events and circumstances not related to shareholders. Section 3251, "Equity", establishes standards for the presentation of equity and changes in equity during the reporting period.
Section 3855, "Financial Instruments - Recognition and Measurement", and Section 3861, "Financial Instruments - Disclosure and Presentation, establish standards for classification, recognition, measurement, presentation and disclosure of financial instruments (including derivatives) and non-financial derivatives in the financial statements. This standard prescribes when to recognize a financial instrument in the balance sheet and at what amount. Depending on their balance sheet classification, fair value or cost-based measures are used. This standard also prescribes the basis of presentation for gains and losses on financial instruments. Based on financial instrument classification, gains and losses on financial instruments are recognized in net income or other comprehensive income.
The company has made the following classification:
- Short-term investments are classified as "Available for sale securities". They are initially recorded at cost, which upon their initial measurement is equal to their fair value. Subsequent measurements are recorded at amortized cost using the effective interest method. Interest income and amortized premium or discount is charged to net income. Changes in the market value of the security are recorded as changes to other comprehensive income.
- Accounts receivable are classified as "Loans and Receivables". They are recorded at cost, which upon their initial measurement is equal to their fair value. Subsequent measurements are recorded at amortized cost using the effective interest method.
- Accounts payable and accrued liabilities are classified as "Other financial liabilities". They are initially measured at their fair value. Subsequent measurements are recorded at amortized cost using the effective interest method.
Section 3865, "Hedges", sets out standards specifying when and how an entity can use hedge accounting. The adoption of this new standard is optional. It offers entities the possibility of applying different reporting options than those set out in Section 3855, "Financial Instruments - Recognition and Measurement", to qualifying transactions that they elect to designate as hedges for accounting purposes.
The Company enters into forward exchange contracts in the normal course of its operations. For these derivatives, the Company elected not to use hedge accounting. As a result, based on Section 3855, "Financial Instruments - Recognition and Measurement", these derivatives are measured at fair value at the end of each period and the gains or losses resulting from remeasurement are recognized in net income as gains or losses in commodity or foreign currency contracts.
The adoption of these new standards translated into the following changes as at January 1, 2007: a $153,000 increase in accumulated other comprehensive income and a $153,000 increase in short-term investments reported under assets. The adoption of these new standards had no impact on the Company's cash flow.
For the three-month period ended March 31, 2007, the Company has recorded a gain of $283,000, net of $Nil in related income taxes, representing the portion of the non realized gains on short-term investments recorded under other comprehensive income realized during the period.
4. Inventories
Inventories consist of the following:
March 31, 2007 December 31 2006
-------------- ----------------
Concentrate inventory $11,683 $ 3,558
Stockpile ore 4,150 3,760
Direct smelting ore 2,164 2,278
Dore and finished inventory 2,732 3,352
Materials and supplies 11,852 11,099
-------------- ----------------
32,581 24,047
Less: non-current direct smelting ore (1,714) (1,831)
-------------- ----------------
$30,867 $22,216
============== ================
5. Commodity and foreign currency contracts
The Company has purchased Mexican Pesos ("MXN") with an aggregated nominal value of MXN 44.2 million settling between April and July 2007 at an average MXN/USD exchange rate of 11.04. At March 31, 2007, the mark to market value of the Company's position was $nil.
At March 31, 2007 the Company had fixed the price of 700,000 ounces of its first quarter's silver production contained in concentrates, which is due to be priced in April and May of 2007 under the Company's concentrate contracts. The price fixed for these ounces averaged $13.67 per ounce while the spot price of silver was $13.35 per ounce on March 31, 2007, resulting in a mark to market recorded unrealized gain of $0.2 million.
At March 31, 2007, the Company had fixed the price of 1,662 tonnes of lead contained in its first quarter's production contained in concentrates, which are due to be priced in April of 2007. The Company has fixed the price at a weighted average price of these tonnes at $1,912 per tonne while the cash price of lead was $1,935 per tonne on March 31, 2007, resulting in a mark to market position of $nil.
6. Mineral property, plant and equipment
Mineral property, plant and equipment consist of:
March 31, 2007
-------------------------------------
Accumulated Net Book
Cost Amortization Value
-------------------------------------
Morococha mine, Peru $ 54,534 $(10,940) $ 43,594
La Colorada mine, Mexico 32,044 (8,373) 23,671
Quiruvilca/Huaron mines, Peru 82,094 (35,844) 46,250
Alamo Dorado, Mexico (1) 178,935 (137) 178,798
Manantial Espejo, Argentina 4,120 (1,753) 2,367
San Vicente mine, Bolivia 3,732 (475) 3,257
Other 1,207 (648) 559
---------------------------------------------------------------------
TOTAL $356,666 $(58,170) $298,496
=====================================================================
December 31, 2006
-------------------------------------
Accumulated Net Book
Cost Amortization Value
-------------------------------------
Morococha mine, Peru $ 46,631 $ (9,778) $ 36,853
La Colorada mine, Mexico 34,618 (10,982) 23,636
Quiruvilca/Huaron mines, Peru 80,127 (34,475) 45,652
Alamo Dorado, Mexico (1) 1,356 (133) 1,223
Manantial Espejo, Argentina 2,953 (1,284) 1,669
San Vicente mine, Bolivia 3,717 (328) 3,389
Other 1,179 (608) 571
---------------------------------------------------------------------
TOTAL $170,581 $(57,588) $112,993
=====================================================================
(1) Prior year balances for non-producing properties and
construction in progress have been reclassified to current year
presentation under mineral property, plant and equipment.
7. Construction in progress and investment in non-producing properties
The carrying values of Construction in progress are as follows:
March 31, 2007 December 31, 2006
Net Book Value Net Book Value
-----------------------------------
Alamo Dorado, Mexico $ -- $ 80,546
Manantial Espejo, Argentina 32,403 23,491
---------------------------------------------------------------------
TOTAL $32,403 $104,037
=====================================================================
Acquisition costs of investment in non-producing properties together with costs directly related to mine development expenditures are deferred. Exploration expenditures on investment in non-producing properties are charged to operations in the period they are incurred.
The carrying values of these properties are as follows:
March 31, 2007 December 31, 2006
------------------------------------
Morococha, Peru $ 23,125 $ 28,107
Alamo Dorado, Mexico -- 91,404
Manantial Espejo, Argentina 59,447 61,110
San Vicente, Bolivia 6,870 6,077
Other 1,547 1,409
-----------------------------------
$ 90,989 $ 188,107
===================================
8. Asset retirement and obligations
Reclamation and remediation costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. The estimated undiscounted cash flows generated by our assets and the estimated liabilities for reclamation and remediation are determined using the Company's assumptions about future costs, mineral prices, mineral processing recovery rates, production levels and capital and reclamation costs. Such assumptions are based on the Company's current mining plan and the best available information for making such estimates. On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions.
The following is a description of the changes to the Company's asset retirement obligations from January 1 to March 31, 2007:
Balance at December 31, 2006 $ 44,309
Reclamation expenditures (280)
Accretion expense 636
Revisions in estimated cash flows --
--------
Balance at March 31, 2007 $ 44,665
========
9. Accumulated other comprehensive income
March 31, 2007
(Unaudited)
--------------
Balance beginning $ --
Cumulative impact of accounting changes
relating to financial instruments (Note 3) 153
--------------
Adjusted balance beginning 153
Unrealized gain on available for sale securities 283
--------------
Balance at March 31, 2007 $ 436
==============
Accumulated other comprehensive income includes unrealized gains on marketable securities designated as "available for sale".
10. Dukat sale
On November 8, 2004 the Company completed the sale of its 20 percent interest in the Dukat silver mine in Russia for up to $43.0 million. The Company received $20.5 million in cash and may receive up to $22.5 million in contingent future payments. The future payments are to be made annually based on the yearly average of silver price as follows:
Average Amount
Price of Silver of annual payment
---------------------------- ------------------------
$5.50 - $6.00 $500,000
$6.00 - $7.00 $1,000,000
$7.00 - $8.00 $2,000,000
$8.00 - $9.00 $5,000,000
$9.00 - $10.00 $6,000,000
$10.00 - and above $8,000,000
During 2006 and 2005 the Company recognized gains of $8.0 million and $2.0 million, respectively, relating to the future payments based on the fact that the average silver price for the year was $11.55 for 2006 and $7.31 for 2005. The Company has received from the purchaser of the Dukat property the amount due of $2.0 million on December 28, 2006. The Company has recorded the $8.0 million as a receivable due on or before December 28, 2007.
The agreement also includes provisions for early payment of remaining future payments on the occurrence of certain events. Once such event occurred in March 2007 when the purchaser of the Dukat property went out to raise money on an initial public offer ("IPO") for the property. According to the provisions in the sale agreement, this event triggers an early payment where by the Company is to receive 50 percent of the outstanding future payments owed at the time of the IPO, which amounted to $10.25 million. The Company received $10.25 million in cash in March, 2007 and has recognized this receipt as a gain in net income for the current period.
11. Share capital
a) Stock Options and Share Purchase Warrants
Transactions concerning stock options and share purchase warrants are summarized as follows:
Incentive Share Purchase
Stock Option Plan Warrants
------------------- ------------------ Total
Shares Price Shares Price Shares
---------------------------------------------------------------------
As at
December 31,
2005 1,050,641 10.88 4,064,183 10.71 5,114,919
Granted 191,332 19.23 -- 191,332
Exercised (275,358) 12.19 (23,970) 10.63 (299,328)
Cancelled (47,200) 20.64 -- -- (47,200)
---------------------------------------------------------------------
As at
December 31,
2006 919,415 $12.11 4,040,213 $10.84 4,959,628
Granted 158,983 24.28 -- 158,983
Exercised (132,556) 12.25 (7,169) 10.24 (139,725)
Cancelled (7,648) 17.65 -- (7,648)
---------------------------------------------------------------------
As at
March 31, 2007 938,194 $14.36 4,033,044 $10.88 4,971,238
=====================================================================
In the three month period ending March 31, 2007, 132,556 common shares and 7,169 common shares were issued for proceeds of $1.6 million and $0.1 million in connection with the exercise of outstanding options and warrants, respectively.
b) Share Option Plan
The Company has a comprehensive stock option plan for its employees, directors and officers. The plan provides for the issuance of incentive stock options to acquire up to a total of 10% of the issued and outstanding common shares of the Company on a non-diluted basis. The exercise price of each option shall be the weighted average trading price of the Company's stock on the five days prior to the award date. The options can be granted for a maximum term of 10 years with vesting provisions determined by the Board of Directors. The Company used as its assumptions for calculating the value of the stock options granted a discount rate between 3.96% and 3.99%, volatility between 37.8 and 42.4 percent, expected lives between 1.5 and 3.0 years, and an exercise price of Cdn $28.41 per share.
The following table summarizes information concerning stock options outstanding as at March 31, 2007:
Options Outstanding
-------------------------------------------------
Weighted Number Weighted Average
Range of average Outstanding Remaining
Exercise exercise as at Contractual
Prices price March 31, 2007 Life (months)
---------------------------------------------------------------------
$ 4.34 $ 4.34 175,000 43.53
$ 7.72 - $ 8.86 $ 8.48 220,833 9.90
$14.31 - $18.24 $ 16.23 205,999 27.71
$19.12 - $23.22 $ 19.39 162,379 48.08
$24.64 - $28.62 $ 24.99 173,983 54.16
---------------------------------------------------------------------
$ 14.36 938,194 34.90
=====================================================================
Options Exercisable
--------------------------------------------
Range of Weighted average Number outstanding and
Exercise exercise exercisable as at
Prices price March 31, 2007
---------------------------------------------------------------------
$ 4.34 $ 4.34 175,000
$ 7.72 - $ 8.86 $ 8.48 220,833
$14.31 - $18.24 $ 16.29 149,002
$19.12 - $23.22 $ 19.90 56,227
$24.64 - $28.62 $ 28.62 15,000
---------------------------------------------------------------------
$ 10.73 616,062
=====================================================================
During the three months ended March 31, 2007and 2006, the Company recognized $0.3 million and $0.5 million, respectively of stock-based compensation expense related to stock option grants.
c) Earnings Per Share (Basic and Diluted)
For the three months ended March 31
2007
---------------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income Available to
Common Shareholders $ 20,435
Basic EPS 20,435 76,278,598 $0.27
Effect of Dilutive Securities:
Stock Options -- 515,875
Warrants -- 2,498,016
---------------------------
Diluted EPS $ 20,435 79,292,489 $0.26
======================================
2006
---------------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
--------------------------------------
Net Income Available to
Common Shareholders$ $ (2,774)
Basic EPS (2,774) 67,664,933 $(0.04)
Effect of Dilutive Securities:
Stock Options -- --
Warrants -- --
--------------------------
Diluted EPS $ (2,774) 67,664,933 $(0.04)
======================================
Potentially dilutive securities totaling nil for the quarter ended March 31, 2007 and 5,205,573 shares for the quarter ended March 31, 2006 (arising from convertible debentures, stock options, and warrants) were not included as their effect would be anti-dilutive.
12. Changes in non-cash working capital Items
The following table summarizes the changes in non-cash working capital items:
Three Months Ended
March 31,
2007 2006
---------------------------------------------------------------------
Accounts receivable $ 20,282 $ (1,706)
Inventories (8,897) (2,013)
Prepaid expenses (204) (316)
Accounts payable and accrued liabilities (22,617) 3,016
Other (29) (375)
---------------------------------------------------------------------
$(11,465) $ (1,394)
=====================================================================
13. Supplemental cash flow information
The following table summarizes the supplemental cash flow information:
Three Months Ended
March 31
2007 2006
Common shares issued on the
conversion of convertible debentures $ -- $ 86
Common shares issued as compensation
expense $ 211 $ 272
14. Segmented information
Substantially all of the Company's operations are within the mining sector, conducted through operations in six countries. Due to differences between mining and exploration activities, the Company has a separate budgeting process and measures the results of operations and exploration activities independently. The Corporate office provides support to the mining and exploration activities with respect to financial, human resources and technical support.
Segmented disclosures and enterprise-wide information are as follows:
Net capital assets(1)
Revenue March 31 -----------------------
--------------------- March 31, December 31,
2007 2006 2007 2006
---------------------------------------------------------------------
Peru $ 32,775 $ 36,556 $113,342 $110,993
Canada -- -- 540 222
Mexico 13,121 6,387 202,470 196,994
United States -- -- 1,191 1,191
Argentina -- -- 94,218 86,271
Bolivia 2,161 2,801 10,127 9,466
---------------------------------------------------------------------
Total $ 48,057 $ 45,744 $421,888 $405,137
=====================================================================
(1) Net capital assets are comprised of Mineral property, Plant
and equipment, construction in progress and non-production
property.
For the three months ended March 31, 2007
---------------------------------------------------------------------
Mining Operations Development
------------------- and
Mexico Peru exploration Corporate Total
---------------------------------------------------------------------
Revenue from
external
customers $ 13,121 $ 32,775 $ 2,161 $ -- $ 48,057
Depreciation
and
amortization $ (2,215) $ (1,842) $ (147) $ (18) $ (4,222)
Reclamation
accretion $ (79) $ (557) $ -- $ -- $ (636)
Interest and
financing
expense $ -- $ (158) $ -- $ -- $ (158)
Gain on
disposition
of assets $ 18 $ -- $ -- $ 10,250 $ 10,268
Investment
and other
income $ 138 $ 830 $ 28 $ 842 $ 1,838
Foreign
exchange
income
(loss) $ 41 $ (17) $ (73) $ (11) $ (60)
Loss on
commodity
and foreign
currency
contracts $ -- $ -- $ -- $ (160) $ (160)
Exploration
expense $ 295 $ (117) $ 6 $ 365 $ 549
Income
before taxes $ 2,262 $ 11,273 $ 219 $ 9,281 $ 23,035
Net income
for the
period $ 1,607 $ 9,809 $ 259 $ 8,760 $ 20,435
Property,
plant and
equipment
capital
expenditures $ 5,046 $ 4,880 $ 9,228 $ 118 $ 19,272
Segment assets $238,423 $191,609 $126,475 $123,951 $680,458
For the three months ended March 31, 2006
---------------------------------------------------------------------
Mining & Development Investpment
-------------------- and
Mexico Peru exploration Corporate Total
---------------------------------------------------------------------
Revenue from
external
customers $ 6,387 $ 36,556 $ 2,801 $ -- $ 45,744
Depreciation
and
amortization $ (1,444) $ (1,970) $ (25) $ (32) $ (3,471)
Reclamation
accretion $ (84) $ (530) $ -- $ -- $ (614)
Interest and
financing
expense $ -- $ (66) $ -- $ (80) $ (146)
Foreign
exchange
loss $ 23 $ (102) $ (3) $ -- $ (82)
Investment and
other income $ 12 $ (76) $ -- $ 321 $ 339
Loss on
commodity and
foreign
currency
contracts $ -- $ -- $ -- $(11,830) $(11,830)
Exploration
expense $ (162) $ (444) $ (628) $ -- $ (1,234)
Income (loss)
before taxes $ (287) $ 14,263 $ 219 $(12,943) $ 1,252
Net income
(loss) for the
period $ (287) $ 10,334 $ 219 $(13,027) $ (2,761)
Property, plant
and equipment
Capital
expenditures $ 960 $ 2,432 $ 12,848 $ 21 $ 16,261
Segment assets $ 30,021 $159,149 $157,317 $ 25,890 $372,377
Revenue March 31
--------------------------
Product Revenue 2007 2006
------------------------------------------------------
Silver $ 9,400 $ 6,387
Zinc concentrate 12,026 15,015
Lead concentrate 9,671 6,551
Copper Concentrate 17,488 17,657
Pyrite 963 1,080
Royalties (1,491) (946)
------------------------------------------------------
Total Revenue $ 48,057 $ 45,744
======================================================
First Quarter 2007 Management's Discussion and Analysis
April 30, 2007
The Management's Discussion and Analysis (MD&A) focuses on significant factors that affected Pan American Silver Corp.'s and its subsidiaries' ("Pan American" or the "Company") performance and such factors that may affect future performance. The MD&A for the first quarter ending March 31, 2007, and 2006, should be read in conjunction with the unaudited consolidated financial statements for the three months ended March 31, 2007 and 2006 and the related notes contained therein, which have been prepared in accordance with Canadian GAAP. In addition, the following should be read in conjunction with the Consolidated Financial Statements of the Company for the year ended December 31, 2006, the related MD&A, and Pan American's Annual Information Form (available on SEDAR at www.sedar.com) and Form 40F. All figures are in United States dollars unless otherwise noted.
Some of the statements in this MD&A are forward-looking statements that are subject to risk factors set out in the cautionary note contained herein.
Results of Operations
The table below sets out selected quarterly results for the past thirteen quarters, which are stated in thousands of US dollars, except for the per share amounts.
Mine Net income/ Basic
Quarter operating (loss) for earnings (loss)
Year (unaudited) Sales earnings(1) the period per share
---------------------------------------------------------------------
2007 March 31 $48,057 $ 14,874 $ 20,435 $ 0.27
---------------------------------------------------------------------
2006 Dec.31 $82,588 $ 35,063 $ 29,648 $ 0.39
Sept. 30 $64,268 $ 29,221 $ 16,355 $ 0.22
June 30 $62,848 $ 31,060 $ 14,964 $ 0.21
March 31 $45,744 $ 17,976 $ (2,761) $ (0.04)
---------------------------------------------------------------------
2005 Dec.31 $37,871 $ 8,683 $ (29,514) $ (0.44)
Sept. 30 $30,086 $ 4,961 $ 172 $ 0.00
June 30 $25,358 $ 4,526 $ 4,971 $ 0.07
March 31 $29,086 $ 3,488 $ (4,223) $ (0.06)
---------------------------------------------------------------------
2004 Dec. 31 $30,022 $ 3,402 $ 13,527 $ 0.21
Sept. 30 $27,916 $ 6,357 $ 358 $ 0.01
June 30 $21,179 $ 2,640 $ 3,352 $ (0.09)(2)
March 31 $15,708 $ 2,395 $ (2,023) $ (0.08)(2)
---------------------------------------------------------------------
(1) Mine operating earnings are equal to sales less cost of sales
and depreciation and amortization, which is considered to be
substantially the same as gross margin.
(2) Includes charges associated with early conversion and
accretion of the Debentures
For the three months ended March 31, 2007, the Company's net income was $20.4 million (basic earnings per share of $0.27) compared to a net loss of $2.8 million (basic loss per share of $0.04) for the corresponding period in 2006. Included in the net income for the current quarter was a gain on the sale of the Company's interest in the Dukat mine in Russia of $10.25 million. The net loss in the comparable period in 2006 included a loss on commodity and currency contracts of $11.8 million, primarily as a result of the Company's zinc forward sales positions.
Sales for the first quarter of 2007 were $48.1 million, a 5 per cent increase from sales in the corresponding period in 2006. Whilst sales in the first quarter benefited from significantly higher realized metal prices versus the year-earlier period, this benefit was largely offset by the impact of a 21 per cent decrease in the quantity of concentrate shipped from the Company's Peruvian operations. The Company only shipped approximately 74 per cent of the concentrates produced during the first quarter of 2007 and since shipments of concentrate is an essential criterion for revenue recognition, approximately 8,600 tonnes of concentrates produced but not shipped were added to concentrate inventory during the quarter. The Company expects to ship this additional concentrate inventory and recognize the related sales in the second and third quarters of 2007. Sales in the first quarter of 2007 were also negatively impacted by adjustments of approximately $5.0 million relating to final pricing of 2006 zinc production, which had been provisionally priced at December 31, 2006 at higher zinc prices than prevailed in the first quarter of 2007.
Cost of sales for the three months ended March 31, 2007 was $29.0 million, a $4.7 million increase from the operating costs recorded in the same period of 2006. Most of the increase was attributable to the cost of sales at La Colorada, which increased mill throughput rates by 21 per cent relative to the first quarter of 2006 by restarting the sulphide plant in the third quarter of 2006. The higher cost of sales relative to a year ago was also a result of the industry-wide escalations experienced in the cost of energy, labour and consumables.
Depreciation and amortization charges for the first quarter of 2007 increased to $4.2 million from $3.5 million recorded for the corresponding period in 2006. This increase is primarily due to increased milling rates at all of the Company's mines.
Mine operating earnings in the first quarter of 2007 were $14.9 million, which was 17 per cent less than the mine operating earnings generated in the first quarter 2006 of $18.0 million. Mine operating earnings were negatively impacted by the lack of concentrate shipments from the Company's Peruvian operations during the quarter.
General and administration costs for the three-month period ended March 31, 2007, including stock-based compensation, were $ 1.9 million, which were similar to the general and administration costs for the comparable quarter in 2006.
Exploration expenses for the first quarter of 2007 were $0.5 million compared to $1.2 million incurred in the first quarter 2006. Exploration expenses in the first quarter of 2007 related to the Company's regional exploration activities, primarily in Mexico and Peru, and are expected to increase as drilling programs accelerate over the remainder of the year. The exploration expense in the comparable period primarily reflected the activity required to complete the feasibility study at the Company's Manantial Espejo property in Argentina, which is currently under construction.
Asset retirement and reclamation expense of $0.6 million in the first quarter of 2007 related to the accretion of the Company's mine closure liability and was similar to the expense recorded in the first quarter of 2006.
Interest expense in the first quarter of 2007 of $0.2 million remained similar to the interest expenses incurred during the same period in 2006. This expense primarily consisted of transactional bank fees.
Investment and other income of $1.8 million for the first quarter of 2007 increased from $0.3 million in the comparable period of 2006 as a direct result of the higher cash balances maintained by the Company in the first quarter of 2007, compared to a year ago.
Income tax provision of $2.6 million in the first quarter of 2007 decreased from $4.0 million due primarily to the fact that the Company's Peruvian entities shipped significantly less concentrate than the comparable period of 2006.
Non-Controlling Interest declined to $0.5 million in the first quarter of 2007 compared to $1.2 million in the prior year due to the fact net income from the Morococha mine in Peru and the San Vicente mine in Bolivia was lower than the comparable period in 2006. Morococha's net income was lower due to the fact that less concentrate was shipped in the first quarter of 2007 while San Vicente's net income was lower due to higher royalties paid to the Bolivian state mining company, Comibol.
Metal Production
Pan American produced 3.34 million ounces of silver in the first quarter of 2007, which was similar to the silver production in the corresponding period of 2006. The Alamo Dorado mine, which was in commissioning during the first quarter, contributed 0.27 million ounces of silver production. As expected, silver grades declined at all of the Company's other operations relative to the first quarter of 2006, partially offset by higher throughput rates at Huaron, Morococha, La Colorada and San Vicente. A 7 per cent increase in silver production was recorded at the La Colorada mine as a result of restarting the sulphide plant in the third quarter of 2006.
Consolidated copper and gold production increased over production levels from a year ago by 25 per cent and 80 per cent, respectively. Zinc and lead production was negatively impacted by lower grades, other than at Huaron, resulting in 11 per cent less zinc production and 6 per cent less lead production compared to the first quarter of 2006.
Cash and Total Costs per Ounce for Silver
Consolidated cash costs for the three-month period ended March 31, 2007, including cash costs of Alamo Dorado production, which was not in commercial production in the first quarter, were $2.98 per ounce compared to $2.47 per ounce for the corresponding period of 2006. Excluding Alamo Dorado's cash costs, which were recorded at $10.22 per ounce reflecting the costs associated with continuing commissioning efforts in the first quarter, consolidated cash costs would have been $2.29 per ounce for the first quarter of 2007.
Consolidated cash costs benefited from increased by-product credits due to higher base metal and gold prices. The Company's cash costs were negatively impacted by the industry-wide escalations in labour, spare parts and energy costs, by processing lower grade ores and by higher Peruvian worker's participation costs. At Morococha, the by-product credits were greater than the operating costs, resulting in cash costs per ounce of negative $4.20 which was $2.35 lower than cash costs per ounce recorded in the comparable period of 2006. Cash costs per ounce at Huaron reduced by 46 per cent to $1.99, while at Quiruvilca, La Colorada, Pyrite Stockpiles and San Vicente, cash costs per ounce increased by $1.41, $1.02, $1.17 and $0.31, respectively, relative to cash costs per ounce recorded a year ago.
The Company reports the cash cost per ounce of payable silver. This non-GAAP measure is used by the Company to manage and evaluate operating performance at each of the Company's mines and is widely reported in the silver mining industry as benchmarks for performance measurement, but does not have standardized meaning and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Canadian GAAP. To facilitate a better understanding of this measure as calculated by the Company, we have provided a detailed reconciliation of this measure to our operating costs, as shown in our unaudited Consolidated Statement of Operations for the period.
Cash and Total Cost per Ounce Reconciliation
(in thousands of US dollars) Three Months Ended
March 31,
2007 2006
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Cost of Sales $28,961 $24,314
Add/(Subtract)
Smelting, refining, and
transportation charges 19,760 14,085
By-product credits (45,538) (32,327)
Mining royalties 1,491 847
Worker's participation (1,144) (1,340)
Change in inventories 2,892 1,081
Other (3) 819
Minority interest adjustment (2) (3)
Alamo Dorado commissioning costs 2,719 --
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Cash Operating Costs A $ 9,136 7,476
Add/(Subtract)
Depreciation and amortization 4,222 3,471
Asset retirement and reclamation 636 742
Change in inventories 833 366
Other (41) (20)
Minority interest adjustment (205) (157)
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Total Costs B 14,582 11,878
Payable Silver Production (oz.) C 3,069,553 3,031,459
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Cash cost per ounce (A*$1000)/C $ 2.98 $ 2.47
Total production costs
per ounce (B*$1000)/C $ 4.75 $ 3.92
Liquidity and Capital Resources
At March 31, 2007, cash plus short-term investments were $162.3 million, a $9.6 million decrease from December 31, 2006. The aforementioned decrease in cash plus short-term investments together with cash received from the sale of the Company's interest in the Dukat mine in Russia of $10.25 million and cash generated by operations of $2.3 million was used to fund the Company's investments in mining property, plant and equipment, which totaled $19.3 million during the quarter and to fund dividends distributed to minority shareholders of Morococha of $2.3 million. During the quarter the Company invested in mining equipment and development, primarily at Manantial Espejo and Alamo Dorado, where $8.4 million and $4.6 million were spent, respectively. Mine development at Morococha, La Colorada and Huaron during the quarter utilized $2.9 million, $1.9 million and $1.6 million, respectively.
Working capital at March 31, 2007 was $207.4 million, an increase of $2.7 million from December 31, 2006. The increase in working capital resulted primarily from a $21.6 million decrease in current liabilities and an $8.7 million increase in inventories partially offset by an $18.7 million decrease in accounts receivable plus a $9.6 million decrease in cash and short term investments. The decrease in current liabilities was primarily a consequence of significant tax and workers' participation payments in Peru and settling losses on December 2006 zinc forward positions in January of 2007.
The non-current assets portion of the Company's balance sheet changed significantly in the first quarter of 2007 as a consequence of completing construction activities at Alamo Dorado, which is expected to achieve commercial production in the second quarter of 2007. The balance of $80.5 million related to Alamo Dorado reflected in "Construction in Progress" at December 31, 2006 was transferred to "Mineral Property, Plant and Equipment". In addition, the carrying value of Alamo Dorado disclosed under "Investment in non-producing properties" of $91.4 million at December 31, 2006 was also transferred to "Mineral Property, Plant and Equipment" in the first quarter of 2007 for a total carrying value for Alamo Dorado of $178.8 million at March 31, 2007. Consistent with Pan American's accounting policies, this carrying value will be amortized on a unit-of-production method based upon estimated proven and probable reserves.
Shareholders' equity at March 31, 2007 was $535.2 million, an increase of $23.1 million from shareholders' equity at December 31, 2006 primarily as a result of net income generated during the quarter of $20.4 million plus $1.7 million from the exercise of stock options. At March 31, 2007, the Company had 76.4 million common shares issued and outstanding.
The Company's financial position at March 31, 2007 and the operating cash flows that are expected over the next twelve months leads management to believe that the Company's liquid assets are sufficient to fund planned capital expenditures, including the construction of Manantial Espejo and expansion of San Vicente, and to discharge liabilities as they come due.
At the date of this MD&A, the Company did not have any undisclosed material contractual obligations, or any off-balance sheet arrangements, except for $17.7 million of commitments relating to the construction of Manantial Espejo.
At the end of the first quarter of 2007, the Company had fixed the price of 700,000 ounces of silver produced during the first quarter and contained in concentrates, which are due to be priced in April and May of 2007 under the Company's concentrate contracts. The price fixed for these ounces averaged $13.67 per ounce while the spot price of silver was $13.35 on March 31, 2007, resulting in a mark to market gain of $0.2 million. In addition, the Company had fixed the price of 1,662 tonnes of lead produced during the first quarter and contained in concentrates, which are due to be priced in April of 2007 under the Company's concentrate contracts. The price fixed for these tonnes averaged $1,912 per tonne while the cash price of lead was $1,935 on March 31, 2007, resulting in an immaterial mark to market loss.
Approximately one-third of the Company's operating and capital expenditures are denominated in local currencies other than the US dollar. These expenditures are exposed to fluctuations in US dollar exchange rates relative to the local currencies. From time to time, the Company mitigates part of this currency exposure by entering into contracts designed to fix or limit the Company's exposure to changes in the value of local currencies relative to US dollars. In anticipation of operating expenditures in Mexican pesos ("MXN"), the Company has entered into foreign currency contracts with an aggregated nominal value of MXN 44.2 million settling between April and July of 2007 at an average MXN/US$ exchange rate of 11.04. At March 31, 2007, the mark to market value of the Company's position was no material.
Exploration and Development Activities
The Company provided an update to the Manantial Espejo project in Argentina in a press release on April 18, 2007. As of March 31, 2007, the Company estimated that the project was 25% complete. Working with its third party EPCM contractor, the Company completed an updated capital cost control estimate for the project. As a direct result of industry-wide cost escalations for construction materials and equipment, coupled with significantly higher in-country costs for labour, total capital costs for construction of the project are expected to increase by 30% to an estimated $170 million, which includes $21 million in refundable Value Added Tax. Included in this latest estimate is a further allowance for continued escalation through to project completion.
Site construction and development work at Manantial Espejo is accelerating. Development of the two primary ramps, which provide underground access to the Maria and Melissa ore zones, are proceeding on schedule. To date, in excess of 500 metres has been advanced on both ramps, out of a total of 4,000 metres of development programmed for completion prior to plant commissioning. With the majority of the surface mining equipment now on site, pre-stripping of the Karina Union open pit has ramped up to approximately 5,000 tonnes per day, with the waste material being used for the construction of the tailings containment dam. Bulk earthworks for the crushing and plant area are complete, concrete foundations for the maintenance shop has been poured, and concrete is currently being placed in the foundations for the mill building and grinding mill. Major mill components have been ordered and employee permanent housing construction is well advanced. The Company has hired nearly 170 employees who are advancing these mine developments, and close to 250 construction contract workers occupy the on-site Project construction camp.
At the San Vicente property in Bolivia, the Company has been mining on a limited scale as it progresses its expansion plans. A positive construction decision regarding this expansion is pending.
Change in Accounting Policies and Initial Adoption
The significant accounting policies outlined within the Consolidated Financial Statements of the Company for the year ended December 31, 2006 have been applied consistently for the three months ended March 31, 2007, with the exception of several changes in accounting policy; which were retroactively adopted on January 1, 2007, without restatement of prior periods. The Company adopted the recommendations included in the following Sections of the Canadian Institute of Chartered Accountants Handbook: Section 1530, "Comprehensive Income", Section 3855, "Financial Instruments - Recognition and Measurement", Section 3865, "Hedges", Section 3861, "Financial Instruments - Disclosure and Presentation", and Section 3251, "Equity". The adoption of these new standards translated into the following changes as at January 1, 2007: a $153,000 increase in accumulated other comprehensive income and a $153,000 increase in short-term investments reported under assets. The adoption of these new standards has no impact on the Company's cash flow. For more details relating to the changes in accounting policy, please refer to Note 3 of the unaudited consolidated financial statements for the three months ended March 31, 2007 and 2006.
Internal Controls over Financial Reporting
No changes were made to the Company's internal controls over financial reporting during the first quarter of 2007 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
Outlook
Commissioning activities at the Alamo Dorado mine are taking somewhat longer than planned. Difficulties in the filtration system and excessive scaling resulted in fewer tonnes milled than anticipated and as a result production was limited to 267,024 ounces of silver during the quarter. The mine is resolving these mechanical start-up issues and production is rapidly increasing, with April production forecast at over 250,000 ounces of silver.
Commissioning activities will continue to focus on the filtration, refining and AVR circuits. The crushing, grinding and leaching circuits in the mill are operating smoothly and the metallurgical characteristics of the ore are as expected. Mining activities in the open pit exceeded planned extraction rates and the ore grades continue to be as predicted by the reserves.
Management expects to achieve commercial production, from an accounting perspective, early in the second quarter, taking into consideration the performance in April, and achieve forecast monthly production rates by June 2007. However, management does not expect to make up the shortfall in silver production experienced in the first quarter due to the delay in achieving design capacity. As a consequence, management has revised its production forecast for Alamo Dorado for 2007.
Following is a table showing management's updated forecast production for Alamo Dorado for 2007 compared to the original forecast presented in the annual MD&A for 2006:
Alamo Dorado Revised 2007 Forecast Original 2007 Forecast Tonnes Milled 1,155,042 1,384,000 Silver ounces 3,600,000 4,250,000 Gold ounces 12,200 14,700
The revised production forecast for Alamo Dorado has resulted in a decrease in management's forecast for consolidated silver and gold production for 2007. Consolidated silver production is now forecast to reach 17 million ounces, while 16,900 ounces of gold production is expected in 2007. Cash costs are expected to remain as originally forecast at approximately $3.04 per ounce.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS MD&A CONTAINS "FORWARD-LOOKING INFORMATION" WITHIN THE MEANING OF THE UNITED STATES "PRIVATE SECURITIES LITIGATION REFORM ACT" OF 1995 AND APPLICABLE CANADIAN SECURITIES LEGISLATION. STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION EXPRESS, AS AT THE DATE OF THIS MD&A, THE COMPANY'S PLANS, ESTIMATES, FORECASTS, PROJECTIONS, EXPECTATIONS, OR BELIEFS AS TO FUTURE EVENTS OR RESULTS AND THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION TO, UPDATE SUCH STATEMENTS CONTAINING THE FORWARD-LOOKING INFORMATION. GENERALLY, FORWARD-LOOKING INFORMATION CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "PLANS", "PROJECTS" OR "PROJECTED", "EXPECTS" OR "DOES NOT EXPECT", "IS EXPECTED", "ESTIMATES", "FORECASTS", "SCHEDULED", "INTENDS", "ANTICIPATES" OR "DOES NOT ANTICIPATE", OR "BELIEVES", OR VARIATIONS OF SUCH WORDS AND PHRASES, OR STATEMENTS THAT CERTAIN ACTIONS, EVENTS OR RESULTS "MAY", "CAN", "COULD", "WOULD", "MIGHT" OR "WILL BE TAKEN", "OCCUR" OR "BE ACHIEVED". STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS WITH RESPECT TO TIMING AND BUDGET OF CONSTRUCTION ACTIVITIES AT MANANTIAL ESPEJO AND THE COMPANY'S OTHER DEVELOPMENT PROJECTS, THE SUFFICIENCY OF PAN AMERICAN'S CURRENT CAPITAL AND ANTICIPATED CASH FLOW. THE EXPECTED RESULTS FROM EXPLORATION ACTIVITIES, THE ECONOMIC VIABILITY OF THE DEVELOPMENT OF NEWLY DISCOVERED ORE BODIES, THE ESTIMATION OF MINERAL RESERVES AND RESOURCES, FUTURE PRODUCTION LEVELS, EXPECTATIONS REGARDING MINE PRODUCTION COSTS, THE REQUIREMENTS FOR ADDITIONAL CAPITAL, THE RESULTS OF DRILLING, AND PAN AMERICAN SILVER'S COMMITMENT TO, AND PLANS FOR DEVELOPING, NEWLY DISCOVERED AND EXISTING MINERALIZED STRUCTURES.
STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, LEVEL OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS OF PAN AMERICAN SILVER AND ITS OPERATIONS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS, RISKS RELATED TO TECHNOLOGICAL AND OPERATIONAL NATURE OF THE COMPANY'S BUSINESS, CHANGES IN LOCAL GOVERNMENT LEGISLATION, TAXATION OR THE POLITICAL OR ECONOMIC ENVIRONMENT, EXPOSURE TO FLUCTUATIONS IN THE LOCAL CURRENCIES OF THOSE COUNTRIES IN WHICH PAN AMERICAN CARRIES ON BUSINESS, THE ACTUAL RESULTS OF CURRENT EXPLORATION ACTIVITIES, CONCLUSIONS OF ECONOMIC EVALUATIONS, CHANGES IN PROJECT PARAMETERS TO DEAL WITH UNANTICIPATED ECONOMIC FACTORS, FUTURE PRICES OF SILVER, GOLD AND BASE METALS, INCREASED COMPETITION IN THE MINING INDUSTRY FOR PROPERTIES, EQUIPMENT, QUALIFIED PERSONNEL, AND THEIR RISING COSTS, UNPREDICTABLE RISKS AND HAZARDS RELATING TO THE OPERATION AND DEVELOPMENT OF OUR MINES OR PROPERTIES, THE SPECULATIVE NATURE OF EXPLORATION AND DEVELOPMENT, FLUCTUATIONS IN THE PRICE FOR NATURAL GAS, FUEL, OIL AND OTHER KEY SUPPLIES, AS WELL AS THOSE FACTORS DESCRIBED IN THE SECTION "RISKS RELATED TO PAN AMERICAN'S BUSINESS" CONTAINED IN THE COMPANY'S MOST RECENT FORM 40F/ANNUAL INFORMATION FORM FILED WITH THE SEC AND CANADIAN PROVINCIAL SECURITIES REGULATORY AUTHORITIES. ALTHOUGH THE COMPANY HAS ATTEMPTED TO IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN FORWARD-LOOKING STATEMENTS, THERE MAY BE OTHER FACTORS THAT CAUSE RESULTS TO BE MATERIALLY DIFFERENT FROM THOSE ANTICIPATED, DESCRIBED, ESTIMATED, ASSESSED OR INTENDED. THERE CAN BE NO ASSURANCE THAT ANY STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION WILL PROVE TO BE ACCURATE AS ACTUAL RESULTS AND FUTURE EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH STATEMENTS. ACCORDINGLY, READERS SHOULD NOT PLACE UNDUE RELIANCE ON STATEMENTS CONTAINING FORWARD-LOOKING INFORMATION.