Pan American Silver reports first quarter results: Production and
costs increase (all amounts in US Dollars unless otherwise stated)
VANCOUVER, April 28 /PRNewswire-FirstCall/ -- FIRST QUARTER
HIGHLIGHTS ------------------------ - Silver production increased
27% over first quarter 2004 to 3.0 million ounces. - Cash flow from
operations was $2.7 million vs. $(0.3) million in 2004. - Cash
production costs increased to $4.50/oz. - Consolidated revenue of
$27.1 million increased 79% over the first quarter of 2004. The net
loss for the quarter was $2.9 million ($0.4 million in 2004) due
primarily to increased spending on the Manantial Espejo project,
reduced realized revenues due to base metal hedges and higher
production costs. - Commenced development of the Alamo Dorado
silver mine in Mexico. - Became the only silver producer on the
XAU, the Gold and Silver Index. - Launched a line of bullion
products to provide investors with easier access to physical
silver. FINANCIAL RESULTS ----------------- Pan American Silver
Corp.'s (NASDAQ: PAAS; TSX: PAA) consolidated revenue for the first
quarter of 2005 was $27.1 million or 79% greater than in 2004 due
to the addition of production from the Morococha mine acquired in
the third quarter of 2004. Cash flow from operations totaled $2.7
million versus $(0.3) million in 2004 due to increased silver and
base metal production and higher realized silver prices. Mine
operating earnings in the quarter decreased to $1.5 million from
$1.8 million in the year-earlier period, due to increased
depreciation charges and increasing production costs at the
operations. Cash production costs at all operations have been
negatively affected by increasing power, fuel and concentrate
shipping costs as well as the strengthening of local currencies
against the US dollar. Peruvian operations have also been affected
by increased timber costs due to local shortages, plus the
imposition of a 1% net smelter royalty on all production. These
factors contributed to a 19% increase in consolidated cash costs,
from $3.78/oz to $4.50/oz. Although this higher cost structure is
likely to continue to affect operations in the short term, work is
underway to increase efficiency and productivity in the second
quarter resulting in decreased unit costs. The net loss for the
first quarter increased from $0.4 million in 2004 to $2.9 million
in 2005 after taking into account the $2.0 million cost from zinc
and lead hedges and $1.0 million in increased exploration expense,
primarily for the feasibility-stage Manantial Espejo project in
Argentina. Without these items, Pan American would have realized a
profit in the quarter. In addition, Pan American became subject to
income taxes in Peru as of late 2004, resulting in an expense of
$1.2 million for income taxes and workers' profit participation
during the first quarter of this year. Exploration drilling will be
focused on Morococha, where the Company expects to expand reserves
and resources significantly. Consolidated silver production for the
first quarter totaled 2,995,702 ounces, a 27% increase over the
first quarter of 2004. The increase was due primarily to the
addition of the Morococha silver mine in Peru, acquired effective
July 1 of 2004, and increased production at the La Colorada mine in
Mexico, offset by lower production at Huaron and Quiruvilca. Zinc
and copper production also increased due to the contribution from
Morococha, while lead production decreased slightly over the
year-earlier period due to lower lead grades and recoveries at
Huaron and Quiruvilca. Working capital at March 31, 2005, including
cash and short-term investments of $91.9 million, declined $8.3
million from December 31, 2004 to $106.4 million, due primarily to
capital investments in the development of Alamo Dorado and capital
expenses at Huaron and La Colorada. Geoff Burns, President and CEO
of Pan American commented, "We have definitely seen higher costs
this quarter due to increased energy costs, new taxes and local
currency appreciation. Our focus is on efficiency and productivity
improvements to offset the rise. We expect to see increased silver
production and lower unit costs in the second quarter, but the
financial benefits of those improvements will not be realized until
the third quarter, given the lag time for our concentrate sales. We
still expect to produce approximately 13.5 million ounces of silver
this year at a cost of $4.25/oz". OPERATIONS AND DEVELOPMENT
HIGHLIGHTS ------------------------------------- PERU The Morococha
mine produced 653,534 ounces of silver at a cash cost of $3.72/oz.
In 2005 the Company expects to invest approximately $9.0 million in
mill refurbishment, underground development and mining equipment as
part of a gradual expansion to 3.9 million ounces of silver
production annually. In addition, 24,000 meters of drilling is
being conducted this year to exploit the property's immense mineral
potential. Initial results of the drilling completed to the end of
the first quarter are extremely encouraging. The Quiruvilca mine
produced 563,388 ounces of silver, a decrease of 9% due primarily
to lower silver grades. Cash costs increased to $4.20/oz reflecting
lower silver, zinc and lead production. Production in the quarter
was slowed by the required maintenance of main haulage equipment
for four weeks. The equipment has since been returned to service
and production and costs are expected to return to forecast levels
in the second quarter. Silver production at the Huaron mine in the
first quarter of 2004 decreased 8% to 884,146 ounces due to lower
grades and recoveries. As a result, cash costs increased 16% to
$4.74/oz. The mine has accelerated development of new stopes to
reach better grade ore. Production is expected to increase starting
in the second quarter and the mine is still expected to produce 4.0
million ounces of silver this year. The Silver Stockpile Operation
sold 206,015 ounces of silver in the first quarter, down 28% from
2004. Costs rose as a reflection of the royalty now being paid to
the Peruvian company Volcan under the operation's purchase
agreement. MEXICO Construction of the Alamo Dorado mine has
commenced, with commercial production of 5 million ounces of silver
annually expected to begin in late 2006. Capital costs for the
project will be $76.6 million, including working capital and a
contingency allowance. Pan American will fund the project from its
cash reserves. All necessary permits are in place, primary
equipment has been secured or identified and earth works will begin
in May. Alamo Dorado is expected to produce silver at a cash cost
of $3.25/oz or less for the next 8 years. The La Colorada mine
increased production to a record 688,619 ounces of silver in the
first quarter, an increase of 39% over the year-earlier period, due
primarily to better silver grades arising from the successful
implementation of more selective mining methods. Cash costs
remained stable at $5.58/oz. With the oxide mine now performing at
capacity, the operation's ability to increase production and reduce
costs further is dependent on the reactivation of sulphide
production, which was stopped due to excess water underground.
Hydrological studies are underway to assess the viability of
resuming sulphide mining, but no decision is expected until late in
2005. ARGENTINA Feasibility work continues on the 50% owned
Manantial Espejo silver-gold joint venture. An additional 7,900
meters of infill and extension drilling were completed during the
quarter and incorporated into the block models required for open
pit and underground mine design. Water sources have been identified
and pump testing on the water wells is under way. The feasibility
study is expected to be completed later in 2005. BOLIVIA The
resumption of mining at San Vicente has been delayed pending
conclusion of necessary agreements with state mining authority
Comibol, but production is expected to commence in May. San Vicente
is forecast to produce 700,000 ounces of silver to Pan American's
account at a cash cost of $2.23/oz. SILVER MARKETS --------------
The silver price opened the quarter at $6.77/oz and closed at
$7.19/oz with significant volatility. This volatility is expected
to continue in reaction to moves in the US dollar and speculative
interest. The annual world silver survey of supply and demand
statistics for 2004 will be published by the Silver Institute on
May 26 and a summary will be provided on Pan American's website. In
April Pan American launched a new line of silver bullion products
for its shareholders and other silver investors in order to provide
easier access to physical silver and to help stimulate demand. The
products comprise .999 pure silver coins and bars in one, five and
ten ounce weights, featuring Pan American's trademark "silver
hammer" and using silver supplied from Pan American's La Colorada
mine in Mexico, one of the world's purest silver mines. The Pan
American silver products will be minted at and exclusively
available through Washington State-based Northwest Territorial
Mint, one of the largest private mints in the United States. They
will sell for $0.50 to $0.70 per ounce above the spot price of
silver on the date of order, depending on volume. The coins and
bars can be ordered by calling the Northwest Territorial Mint at
1-800-344-6468 or at http://www.silverpa.com/. Pan American will
host a conference call to discuss the results on Friday, April 29,
2005 at 8:30 am Pacific time. North American residents dial
toll-free to 1-877-825-5811. International participants please dial
1-973-582-2767. The call may also be accessed from the home page of
the Company's website at http://www.panamericansilver.com/. It will
be available for replay for one week after the call by dialing
1-877-519-4471 and using replay pin number 5978629. For More
Information, please contact: Brenda Radies, Vice-President
Corporate Relations (604) 806-3158
http://www.panamericansilver.com/ CAUTIONARY NOTE Some of the
statements in this news release are forward-looking statements,
such as estimates of future production levels, expectations
regarding mine production costs, expected trends in mineral prices
and statements that describe Pan American's future plans,
objectives or goals. Actual results and developments may differ
materially from those contemplated by these statements depending on
such factors as changes in general economic conditions and
financial markets, changes in prices for silver and other metals,
technological and operational hazards in Pan American's mining and
mine development activities, uncertainties inherent in the
calculation of mineral reserves, mineral resources and metal
recoveries, the timing and availability of financing, governmental
and other approvals, political unrest or instability in countries
where Pan American is active, labor relations and other risk
factors listed from time to time in Pan American's Form 40-F.
Financial & Operating Highlights Three months ended March 31,
2005 2004
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Consolidated Financial Highlights (in thousands of US dollars)
(Unaudited) Net loss for the period $ (2,891) $ (366) Loss per
share $ (0.04) $ (0.05) Cash flow from (used by) operations $ 2,732
$ (334) Capital spending $ 10,003 $ 3,579 Exploration expenses $
1,424 $ 528 Cash and short-term investments $ 91,860 $ 142,799
Working capital $ 106,371 $ 128,630 Consolidated Ore Milled &
Metals Recovered to Concentrate Tonnes milled 393,594 293,067
Silver metal - ounces 2,995,702 2,361,933 Zinc metal - tonnes 8,871
7,108 Lead metal - tonnes 3,675 3,891 Copper metal - tonnes 927 610
Consolidated Cost per Ounce of Silver (net of by-product credits)
Total cash cost per ounce $ 4.50 $ 3.78 Total production cost per
ounce $ 5.82 $ 4.95 In thousands of US dollars Direct operating
costs, royalties, treatment and refining charges $ 28,805 $ 19,350
By-product credits (16,563) (11,401)
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Cash operating costs 12,242 7,949 Depreciation, amortization &
reclamation 3,570 2,453
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Production costs $ 15,812 $ 10,402
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Payable ounces of silver (used in cost per ounce calculations)
2,718,073 2,101,295 Average Metal Prices Silver - London Fixing $
6.97 $ 6.68 Zinc - LME Cash Settlement per pound $ 0.60 $ 0.46 Lead
- LME Cash Settlement per pound $ 0.44 $ 0.38 Copper - LME Cash
Settlement per pound $ 1.48 $ 1.24 Mine Operations Highlights Three
Months ended March 31 2005 2004
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Huaron Mine Tonnes milled 146,010 147,805 Average silver grade -
grams per tonne 218 229 Average zinc grade 3.02% 3.26% Silver -
ounces 884,146 963,716 Zinc - tonnes 3,179 3,796 Lead - tonnes
1,904 2,671 Copper - tonnes 381 387 Total cash cost per ounce $
4.74 $ 4.09 Total production cost per ounce $ 5.91 $ 5.34 In
thousands of US dollars Direct operating costs, royalties,
treatments and refining charges $ 10,241 $ 10,147 By-product
credits (6,439) (6,532)
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Cash operating costs 3,802 3,615 Depreciation, amortization and
reclamation 944 1,104
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Production costs $ 4,746 $ 4,719
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Payable ounces of silver (used in cost per ounce calculation)
802,794 883,846 Quiruvilca Mine Tonnes milled 89,925 92,220 Average
silver grade - grams per tonne 223 236 Average zinc grade 3.21%
3.99% Silver - ounces 563,388 616,890 Zinc - tonnes 2,451 3,225
Lead - tonnes 681 1,131 Copper - tonnes 321 223 Total cash cost per
ounce $ 4.20 $ 2.96 Total production cost per ounce $ 4.76 $ 3.25
In thousands of US dollars Direct operating costs, royalties,
treatments and refining charges $ 6,668 $ 6,212 By-product credits
(4,465) (4,516)
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Cash operating costs 2,203 1,696 Depreciation, amortization and
reclamation 291 162
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Production costs $ 2,494 $ 1,858
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Payable ounces of silver (used in cost per ounce calculation)
524,081 572,356 Three months ended March 31 2005 2004
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Morococha Mine(x) Tonnes milled 110,528 N/A Average silver grade -
grams per tonne 222 N/A Average zinc grade 4.06% N/A Silver -
ounces 653,534 N/A Zinc - tonnes 3,242 N/A Lead - tonnes 1,091 N/A
Copper - tonnes 224 N/A Total cash cost per ounce $ 3.72 N/A Total
production cost per ounce $ 5.47 N/A In thousands of US dollars
Direct operating costs, royalties, treatments and refining charges
$ 7,529 N/A By-product credits (5,345) N/A
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Cash operating costs 2,184 N/A Depreciation, amortization,
reclamation 1,031 N/A
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Production costs $ 3,215 N/A
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Payable ounces of silver (used in cost per ounce calculations)
587,685 N/A (x) The company acquired the Morococha Mine on July 1,
2004. Production costs and other amounts are for Pan American's
share only. Pan American's share increased from 86% to 87% during
the quarter La Colorada Mine Tonnes milled 47,130 53,402 Average
silver grade - grams per tonne 547 406 Silver - ounces 688,619
494,761 Zinc - tonnes - 88 Lead - tonnes - 90 Total cash cost per
ounce $ 5.58 $ 5.46 Total production cost per ounce $ 7.48 $ 7.92
In thousands of US dollars Direct operating costs, royalties,
treatments and refining charges $ 4,146 $ 2,980 By-product credits
(314) (354)
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Cash operating costs 3,832 2,626 Depreciation, amortization,
reclamation 1,304 1,186
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Production costs $ 5,136 $ 3,812
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Payable ounces of silver (used in cost per ounce calculations)
686,897 481,100 Three Months ended March 31 2005 2004
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Silver Stockpile Sales Tonnes sold 17,737 22,845 Average silver
grade - grams per tonne 361 390 Silver - ounces 206,015 286,565
Total cash cost per ounce $ 1.89 $ 0.07 Total production cost per
ounce $ 1.89 $ 0.07 In thousands of US dollars Direct operating
costs, royalties, treatments and refining charges $ 221 $ 12
By-product credits - -
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Cash operating costs 221 12 Depreciation, amortization, reclamation
- -
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Production costs $ 221 $ 12
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Payable ounces of silver (used in cost per ounce calculations)
116,616 163,994 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 (In thousands of U.S. dollars) March 31
Dec. 31 2005 2004 (Unaudited) (Audited)
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Assets Current Cash and cash equivalents $ 17,901 $ 28,345
Short-term investments 73,959 69,791 Accounts receivable, net of
$Nil provision for doubtful accounts 23,647 25,757 Inventories
8,279 10,674 Prepaid expenses 1,567 1,684
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Total Current Assets 125,353 136,251 Mineral property, plant and
equipment, net (note 3) 110,417 104,647 Investment and
non-producing properties (note 4) 126,877 125,863 Direct smelting
ore 2,546 2,671 Other assets 697 647
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Total Assets $ 365,890 $ 370,079
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Liabilities Current Accounts payable and accrued liabilities $
18,369 $ 20,331 Advances for metal shipments - 652 Current portion
of bank loans and capital lease 134 134 Current portion of
non-current liabilities 479 479
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Total Current Liabilities 18,982 21,596 Liability component of
convertible debentures 134 134 Provision for asset retirement
obligation and reclamation (note 3) 32,264 32,012 Provision for
future income taxes 33,162 33,212 Severance indemnities and
commitments 1,359 1,542 Non-controlling interest 1,460 1,379
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Total Liabilities 87,361 89,875
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Shareholders' Equity Share capital (note 5) Authorized: 100,000,000
common shares of no par value Issued: December 31, 2004 -
66,835,378 common shares March 31, 2005 - 66,926,051 common shares
381,490 380,571 Equity component of convertible debentures 636 633
Additional paid in capital 11,273 10,976 Deficit (114,870)
(111,976)
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Total Shareholders' Equity 278,529 280,204
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Total Liabilities and Shareholders' Equity $ 365,890 $ 370,079
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See accompanying notes to consolidated financial statements PAN
AMERICAN SILVER CORP. Consolidated Statements of Operations
(Unaudited - in thousands of US Dollars, except for shares and per
share amounts) Three months ended March 31, 2005 2004
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Revenue $ 27,081 $ 15,151 Operating costs 22,380 11,168
Depreciation and amortization 3,218 2,145
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Mine operating earnings 1,483 1,838 General and administrative,
including stock-based compensation 1,563 1,243 Exploration 1,424
528 Asset retirement and reclamation 527 302 Interest and financing
expenses 93 468
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Operating loss (2,124) (703) Investment and other income 256 337
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Loss before taxes and non-controlling interest (1,868) (366) Income
tax provision (942) - Non-controlling interest (81) -
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Net loss for the period $ (2,891) $ (366)
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Attributable to common shareholders: Net loss for the period $
(2,891) $ (366) Accretion of convertible debentures (3) (2,120)
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Adjusted net loss for the period attributable to common
shareholders $ (2,894) $ (2,486)
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Basic and fully diluted loss per share $ (0.04) $ (0.05) Weighted
average shares outstanding 66,878,766 54,054,224 See accompanying
notes to consolidated financial statements PAN AMERICAN SILVER
CORP. Consolidated Statement of Cash Flows (Unaudited - in
thousands of U.S. dollars) Three months ended March 31, 2005 2004
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Operating activities Net loss for the period $ (2,891) $ (366)
Reclamation expenditures (275) (362) Items not involving cash
Depreciation and amortization 3,218 2,145 Gain on sale of
marketable securities - (22) Non-controlling interest 81 - Interest
accretion on the convertible debentures - 269 Stock-based
compensation 297 440 Asset retirement and reclamation 527 302
Changes in non-cash operating working capital items (note 6) 1,775
(2,740)
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Cash generated by (used in) operations 2,732 (334)
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Financing activities Shares issued for cash 919 60,062 Share issue
costs - (84) Interest payment on convertible debentures - (2,307)
Repayment of bank loans and capital lease - (407)
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Cash generated by financing activities 919 57,264
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Investing activities Mineral property, plant and equipment
expenditures (8,988) (3,234) Investment and non-producing property
expenditures (1,015) (345) (Purchase)/maturity of short-term
investments (4,668) (334) Proceeds from sale of assets 500 - Other
76 297
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Cash used in investing activities (14,095) (3,616)
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(Decrease)/increase in cash and cash equivalents during the period
(10,444) 53,314 Cash and cash equivalents, beginning of period
28,345 14,191
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Cash and cash equivalents, end of period $ 17,901 $ 67,505
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Supplementary Disclosures Interest paid $ - $ 2,307
--------------------------- --------------------------- Taxes paid
$ 92 $ - --------------------------- ---------------------------
See accompanying notes to consolidated financial statements PAN
AMERICAN SILVER CORP. Consolidated Statements of Shareholders'
Equity For the three months ended March 31, 2005 (in thousands of
US dollars, except for amounts of shares) Conver- Common Shares
tible Additional ------------------ Deben- Paid in Shares Amount
tures Capital Deficit Total
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Balance, December 31, 2003 53,009,851 $225,154 $66,735 $12,752
$(120,543) $184,098 Issued on the exercise of stock options 785,095
9,437 - (3,965) - 5,472 Issued on the exercise of share purchase
warrants 544,775 1,965 - - - 1,965 Stock-based compensation - - -
2,189 - 2,189 Issued for cash, net of issue costs 3,333,333 54,820
- - - 54,820 Accretion of convertible debentures - - 2,871 -
(2,871) - Issued on the conversion of convertible debentures
9,145,700 88,950 (68,973) - (8,464) 11,513 Issued as compensation
16,624 245 - - - 245 Net income for the year - - - - 19,902 19,902
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Balance, December 31, 2004 66,835,378 380,571 633 10,976 (111,976)
280,204 Issued on the exercise of stock options 89,492 908 - - -
907 Issued on the exercise of share purchase warrants 1,181 11 - -
- 11 Stock-based compensation - - - 295 - 295 Accretion of
convertible debentures - - 3 - (3) - Net loss for the period - - -
- (2,891) (2,891)
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Balance, March 31, 2005 66,926,051 $381,490 $ 636 $11,273
$(114,870) $278,529
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See accompanying notes to consolidated financial statements PAN
AMERICAN SILVER CORP. Notes to Unaudited Interim Consolidated
Financial Statements As at March 31, 2005 and 2004 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
(the "Company") is engaged in silver mining and related activities,
including exploration, extraction, processing, refining and
reclamation. The Company has mining operations in Peru, Mexico and
Bolivia, project 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 periods
ended March 31, 2005 and 2004 are not necessarily indicative of the
results that may be expected for the year ending December 31, 2005.
The consolidated balance sheet at December 31, 2004 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, 2004. b) Principles of Consolidation: The
consolidated financial statements include the wholly-owned and
partially-owned subsidiaries of the Company, the most significant
of which are presented in the following table: Ownership Operations
and Subsidiary Location interest Status Development Projects
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Pan American Silver S.A.C. Peru 100% Consolidated Quiruvilca Mine
Compania Minera Huaron S.A. Peru 100% Consolidated Huaron Mine
Compania Minera Argentum S.A. Peru 86.7% Consolidated 70% Morococha
Mine Compania Minera Natividad S.A. Peru 100% Consolidated 30%
Morococha Mine Plata Panamericana S.A. de C.V. Mexico 100%
Consolidated La Colorada Mine Inter-company balances and
transactions have been eliminated in consolidation. Investments in
corporate joint ventures where the Company has ownership of 50% or
less and funds its proportionate share of expenditures are
accounted for under the equity method. The Company has no
investments in entities in which it has greater than 20% ownership
interest accounted for using the cost method. c) Revenue
Recognition: Revenue is recognized when title and risk of ownership
of metals or metal bearing concentrate passes to the buyer and when
collection is reasonably assured. The passing of title to the
customer is based on the terms of the sales contract. Product
pricing is determined at the point revenue is recognized by
reference to active and freely traded commodity markets. Under our
concentrate sales contracts with third-party smelters, final
commodity prices are set on a specified future quotational period,
typically one to three months, after the shipment arrives at the
smelter based on market metal prices. Revenues are recorded under
these contracts at the time title passes to the buyer based on the
expected settlement period. The contracts, in general, provide for
a provisional payment based upon provisional assays and quoted
metal prices. Final settlement is based on the average applicable
price for a specified future period, and generally occurs from
three to six months after shipment. Final sales are settled using
smelter weights, settlement assays (average of assays exchanged
and/or umpire assay results) and are priced as specified in the
smelter contract. Third party smelting and refining costs are
recorded as a reduction of revenue. d) Cash and Cash Equivalents:
Cash and cash equivalents includes cash, bank deposits, and all
highly-liquid investments with a maturity of three months or less
at the date of purchase. The Company minimizes its credit risk by
investing its cash and cash equivalents with major international
banks and financial institutions located principally in Canada and
Peru with a minimum credit rating of A1 as defined by Standard
& Poor's. The Company's management believes that no
concentration of credit risk exists with respect to investment of
its cash and cash equivalents. Due to the short maturity of cash
equivalents, their carrying amounts approximate their fair value.
e) Short-term Investments: Short-term investments principally
consist of highly-liquid debt securities with original maturities
in excess of three months and less than one year. These debt
securities include corporate bonds with S & P rating of A- to
AAA with an overall average of single A high. The Company
classifies all short-term investments as available-for-sale
securities. Unrealized gains and losses on these investments are
lower of cost and marked to market at the end of each period and
are included in determining net income/(loss). f) Inventories:
Inventories include concentrate ore, dore, ore in stockpiles and
operating materials and supplies. The classification of inventory
is determined by the stage at which the ore is in the production
process. Inventories of ore are sampled for metal content and are
valued based on the lower of actual production costs incurred or
estimated net realizable value based upon the period ending prices
of contained metal. Material that does not contain a minimum
quantity of metal to cover estimated processing expense to recover
the contained metal is not classified as inventory and is assigned
no value. All metal inventories are stated at the lower of cost or
market, with cost being determined using the first-in, first-out
method. Supplies inventories are valued at the lower of average
cost and replacement cost, net of obsolescence. Concentrate and
dore inventory includes product at the mine site, the port
warehouse and product held by refineries, and are also valued at
lower of cost or market. g) Property, Plant, and Equipment:
Expenditures for new facilities, new assets or expenditures that
extend the useful lives of existing facilities are capitalized and
depreciated using the straight-line method at rates sufficient to
depreciate such costs over the shorter of estimated productive
lives of such facilities or the useful life of the individual
assets ranging from five to twenty years. Certain mining equipment
is depreciated using the units-of-production method based upon
estimated total proven and probable reserves. Maintenance and
repairs are expensed as incurred. h) Operational Mining Properties
and Mine Development: Mineral exploration costs are expensed as
incurred. When it has been determined that a mineral property can
be economically developed as a result of establishing proven and
probable reserves, the costs incurred to develop such property
including costs to further delineate the ore body and remove over
burden to initially expose the ore body, are capitalized. Such
costs are amortized using the units-of-production method over the
estimated life of the ore body based on proven and probable
reserves. Significant payments related to the acquisition of the
land and mineral rights are capitalized as incurred. Prior to
acquiring such land or mineral rights the Company generally makes a
preliminary evaluation to determine that the property has
significant potential to develop an economic ore body. The time
between initial acquisition and full evaluation of a property's
potential is variable and is dependant on many factors including:
location relative to existing infrastructure, the property's stage
of development, geological controls and metal prices. If a mineable
ore body is discovered, such costs are amortized when production
begins. If no mineable ore body is discovered, such costs are
expensed in the period in which it is determined the property has
no future economic value. Interest expense allocable to the cost of
developing mining properties and to construct new facilities is
capitalized until the assets are ready for their intended use.
Gains or losses from sales or retirements of assets are included in
other income or expense. Ongoing mining expenditures on producing
properties are charged against earnings as incurred. Major
development expenditures incurred to increase production or extend
the life of the mine are capitalized. i) Asset Impairment:
Management reviews and evaluates its long-lived assets for
impairment when events or changes in circumstances indicate that
the related carrying amounts may not be recoverable. An impairment
is considered to exist if total estimated future cash flows or
probability-weighted cash flows on an undiscounted basis are less
than the carrying amount of the assets, including mineral property,
plant and equipment, non-producing property, and any deferred costs
such as deferred stripping. An impairment loss is measured and
recorded based on discounted estimated future cash flows or the
application of an expected present value technique to estimate fair
value in the absence of a market price. Future cash flows include
estimates of proven, probable, and a portion of resource
recoverable ounces, gold and silver prices (considering current and
historical prices, price trends and related factors), production
levels, capital and reclamation costs, all based on detailed
engineering life-of-mine plans. Assumptions underlying future cash
flow estimates are subject to risks and uncertainties. Any
differences between significant assumptions and market conditions
and/or the Company's performance could have a material effect on
any impairment provision, and on the Company's financial position
and results of operations. In estimating future cash flows, assets
are grouped at the lowest levels for which there are identifiable
cash flows that are largely independent of cash flows from other
groups. Generally, in estimating future cash flows, all assets are
grouped at a particular mine for which there is identifiable cash
flow. j) Reclamation and Remediation Costs: Estimated future
reclamation and remediation costs are based principally on legal
and regulatory requirements. The asset retirement obligation is
measured using assumptions for cash outflows such as expected labor
costs, allocated overhead and equipment charges, contractor markup,
and inflation adjustments to determine the total obligation. The
sum of all these costs are discounted, using the credit adjusted
risk-free interest rate from the time the Company expects to pay
the retirement obligation to the time the Company incurs the
obligation. The measurement objective is to determine the amount a
third party would demand to assume the asset retirement obligation.
Upon initial recognition of a liability for an asset retirement
obligation, the Company capitalizes the asset retirement cost to
the related long-lived asset. The Company amortizes this amount to
operating expense using the units-of-production method. The Company
evaluates the cash flow estimates at the end of each reporting
period to determine whether the estimates continue to be
appropriate. Upward revisions in the amount of undiscounted cash
flows will be discounted using the current credit-adjusted
risk-free rate. Downward revisions will be discounted using the
credit-adjusted risk-free rate that existed when the original
liability was recorded. k) Foreign Currency Translation: The
Company's functional currency is the US dollar. The accounts of
subsidiaries, not reporting in U.S. dollars, and which are
integrated operations, are translated into U.S. dollars using the
temporal method. Under this method, substantially all assets and
liabilities of foreign subsidiaries are translated at exchange
rates in effect at the date of the transaction or at end of each
period. Revenues and expenses are translated at the average
exchange rate for the period. Foreign currency transaction gains
and losses are included in the determination of net income/(loss).
l) Stock-based Compensation Plans: The Company provides options to
buy common shares of the Company to directors, officers, employees
and service providers. The board of directors grants such options
for periods of up to ten years, vesting period of up to four years
and at prices equal to or greater than the weighted average market
price of the five trading days prior to the date the options were
granted. The Company applies the fair-value method of accounting in
accordance with recommendation of CICA Handbook Section ("CICA
3870"), "Stock-based Compensation and Other Stock-based Payments".
Stock-based compensation expense is calculated using the
Black-Scholes option pricing model. m) Income Taxes: The Company
computes income taxes in accordance with CICA Handbook Section
("CICA 3465"), "Income Taxes", that requires an asset and liability
approach which results in the recognition of future tax assets and
liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax basis of
assets and liabilities, as well as operating loss and tax credit
carry-forwards, using enacted or substantially enacted, as
applicable, tax rates in effect in the years in which the
differences are expected to reverse. n) Use of Estimates: The
preparation of financial statements in conformity with accounting
principles generally accepted in Canada requires the Company's
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those
estimates. o) Earnings (loss) per share: Basic earnings (loss) per
share calculations are based on the net income (loss) attributable
to common shareholders for the period divided by the weighted
average number of common shares issued and outstanding during the
period. The diluted earnings/(loss) per share calculations are
based on the weighted average number of common shares outstanding
during the period, plus the effects of dilutive common share
equivalents. This method requires that the dilutive effect of
outstanding options and warrants issued should be calculated using
the treasury stock method. This method assumes that all common
share equivalents have been exercised at the beginning of the
period (or at the time of issuance, if later), and that the funds
obtained thereby were used to purchase common shares of the Company
at the average trading price of common shares during the period.
For convertible securities that may be settled in cash or shares at
the holder's option the more dilutive of cash settlement and share
settlement is used in computing diluted earnings/(loss) per share.
For settlements in common shares, the if-converted method is used,
which requires that returns on senior convertible equity
instruments and income charges applicable to convertible financial
liabilities be added back to net earnings/(loss), and the net
earnings/(loss) is also adjusted for any non-discretionary changes
that would arise from the beginning of the period (or at the time
of issuance, if later). Potentially dilutive securities totaling
4,666,778 for the three months ended March 31, 2005 (1,578,142 and
3,088,636 shares arising from outstanding stock options and share
purchase warrants, respectively) and 5,751,044 shares for the three
months ended March 31, 2004 (1,936,344 and 3,814700 shares arising
from outstanding stock options and share purchase warrants,
respectively) were not included as they were anti-dilutive. p)
Reclassifications: Certain reclassifications of prior year balances
have been made to conform to current year presentation. 3. Mineral
property, plant and equipment Mineral property, plant and equipment
consist of: March 31, 2005 December 31, 2004
--------------------------- --------------------------- Net Net
Accumulated Book Accumulated Book Cost Amortization Value Cost
Amortization Value ---------------------------
--------------------------- Mineral properties Morococha mine, Peru
$ 9,914 $ (729) $ 9,185 $ 9,693 $ (169) $ 9,524 La Colorada mine,
Mexico 4,153 (516) 3,637 4,153 (421) 3,732 Huaron mine, Peru 1 - 1
1 - 1 ------------------------------------------------------- $
14,068 $ (1,245) $ 12,823 $ 13,847 $ (590) $ 13,257
------------------------------------------------------- Plant &
equipment Morococha mine, Peru $ 9,227 $ (2,422) $ 6,805 $ 8,515 $
(1,930) $ 6,585 La Colorada mine, Mexico 25,147 (2,960) 22,187
23,514 (2,420) 21,094 Huaron mine, Peru 19,690 (7,952) 11,738
19,389 (7,659) 11,730 Quiruvilca mine, Peru 6,618 (6,544) 74 6,523
(6,523) - Other 5,310 (503) 4,807 706 (503) 203
------------------------------------------------------- $ 65,992
$(20,381) $ 45,611 $ 58,647 $(19,035) $ 39,612
------------------------------------------------------- Mine
development & other Morococha mine, Peru $ 9 $ - $ 9 $ 9 $ - $
9 La Colorada mine, Mexico 27,234 (3,044) 24,190 27,181 (2,420)
24,761 Huaron mine, Peru 35,198 (8,897) 26,301 34,238 (8,380)
25,858 Quiruvilca mine, Peru 19,078 (18,155) 923 19,078 (18,093)
985 Other 607 (47) 560 198 (33) 165
------------------------------------------------------- $ 82,126
$(30,143) $ 51,983 $ 80,704 $(28,926) $ 51,778
------------------------------------------------------- TOTAL
$162,186 $(51,769) $110,417 $153,198 $(48,551) $104,647
-------------------------------------------------------
------------------------------------------------------- On July 1,
2004, the Company acquired control and ownership of the assets and
liabilities of the Morococha mine. A summary of the terms and the
fair values of the assets and liabilities acquired and
consideration paid was included in the December 31, 2004 annual
consolidated financial statements of the Company. 4. Investment and
non-producing properties Acquisition costs of investment and
non-producing properties together with costs directly related to
mine development expenditures are deferred. Exploration
expenditures on investment and non-producing properties are charged
to operations in the period they are incurred. The carrying values
of these properties are as follows: March 31, December 31, 2005
2004 ------------- ------------- Morococha, Peru $ 40,472 $ 40,472
Alamo Dorado, Mexico 82,706 81,692 Manantial Espejo, Argentina
2,012 2,012 Other 1,687 1,687 --------------------------- $ 126,877
$ 125,863 --------------------------- ---------------------------
5. Share Capital a) Authorized and issued share capital The details
of the common shares issued and outstanding are as follows: 2005
Shares Issued Amount ---- --------------- ------------- Balance at
December 31, 2004 66,835,378 $ 380,571 Shares issued on exercise of
stock options 89,492 908 Shares issued on exercise of warrants
1,181 11 ----------------------------- Balance at March 31, 2005
66,926,051 $ 381,490 -----------------------------
----------------------------- 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 provides determined by the Company. The
following table summarizes information concerning stock options
outstanding as at March 31, 2005: Options Outstanding Options
Exercisable -------------------------------------------------
Weighted Number Average Number Outstanding Remaining Exercisable
Weighted Range of as at Contractual as at Average Exercise Year of
March 31, Life March 31, Exercise Prices Expiry 2005 (months) 2005
Price
-------------------------------------------------------------------------
$12.21 2005 26,500 3.00 7,500 $12.21 $6.05 2006 88,000 13.67 88,000
$6.05 $11.68 - $12.22 2007 306,000 31.53 246,000 $12.12 $7.36 -
$17.45 2008 457,308 38.92 67,308 $12.13 $11.79 - $27.23 2009
499,274 48.95 227,941 $22.82 $6.05 2010 217,000 68.47 217,000 $6.05
-------------------------------------------------------------------------
1,594,082 49.01 853,749 $9.01
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the three months ended March 31, 2005, the Company
recognized $295 of stock compensation expense consisting of $112
for options issued in 2004 and $183 for options issued in 2003. c)
Share purchase warrants As at March 31, 2005 there were warrants
outstanding that allow the holders to purchase 3,808,636 common
shares of the Company at Cdn$12.00 per share, which expire on
February 20, 2008. In the period, 1,181 common shares were issued
for proceeds of $11 in connection with the exercise of outstanding
warrants. 6. Changes in Non-Cash Working Capital Items The
following table summarizes the changes in non-cash working capital
items: March 31, 2005 2004
---------------------------------------------------------------------
Accounts receivable and prepaid expenses $ 2,110 $ (1,920)
Inventories 2,395 (1,835) Prepaids 117 (102) Accounts Payable and
accrued liabilities (1,962) 172 Advances for metal shipments (652)
662 Severance, indemnities and commitments (183) 283 Provision for
future income taxes (50) -
---------------------------------------------------------------------
$ 1,775 $ (2,740)
---------------------------------------------------------------------
---------------------------------------------------------------------
7. 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: For the three months
ended March 31, 2005
-------------------------------------------------------------------------
Mining & Development Investment -------------------- and Mexico
Peru exploration Corporate Total
-------------------------------------------------------------------------
Revenue from external customers $ 4,978 $ 24,108 $ - $ (2,005) $
27,081 Investment and other income 4 50 (40) 242 256 Interest and
financing expenses - (93) - - (93) Exploration (2) (17) (1,405) -
(1,424) Depreciation and amortization (1,259) (1,953) - (6) (3,218)
Net income (loss) for the period (957) 2,812 (1,443) (3,302)
(2,891) Property, plant and equipment Capital expenditures 1,686
2,345 5,945 27 10,003 Segment assets $ 55,548 $ 134,660 $ 95,645 $
80,037 $ 365,890 For the three months ended March 31, 2004
-------------------------------------------------------------------------
Mining & Development Investment -------------------- and Mexico
Peru exploration Corporate Total
-------------------------------------------------------------------------
Revenue from external customers $ 3,606 $ 12,788 $ - $ (1,243) $
15,151 Investment and other income 9 (134) (18) 445 302 Interest
and financing expenses (112) (86) - (270) (468) Exploration (7) -
(521) - (528) Depreciation and amortization (940) (1,194) - (11)
(2,145) Net income (loss) for the period (76) 2,601 (515) (2,376)
(366) Property, plant and equipment Capital expenditures 1,803
1,419 346 11 3,579 Segment assets $ 50,516 $ 59,208 $ 87,494 $
141,049 $ 370,079 First Quarter 2005 Management's Discussion and
Analysis 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 its future performance. This
MD&A has been prepared effective April 28, 2005. The MD&A
for the first quarter ending March 31, 2005, and 2004, should be
read in conjunction with the unaudited consolidated financial
statements for the three months ended March 31, 2005 and 2004 and
the related notes contained therein. The significant accounting
policies are outlined within Note 2 to the Consolidated Financial
Statements of the Company for the year ended December 31, 2004.
These accounting policies have been applied consistently for the
three months ended March 31, 2005. The preparation of financial
statements in conformity with Canadian GAAP requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. The most
significant estimates are related to the physical and economic
lives of mineral assets, their recoverability, site restoration and
related obligations. Some of the statements in this management
discussion and analysis are forward-looking statements, such as
estimates of future production levels, expectations regarding mine
production costs, expected trends in mineral prices and statements
that describe Pan American's future plans, objectives or goals.
Actual results and developments may differ materially from those
contemplated by these statements depending on such factors as
changes in general economic conditions and financial markets,
changes in prices for silver and other metals, technological and
operational hazards in Pan American's mining and mine development
activities, uncertainties inherent in the calculation of mineral
reserves, mineral resources and metal recoveries, the timing and
availability of financing, governmental and other approvals,
political unrest or instability in countries where Pan American is
active, labor relations and other risk factors listed from time to
time in Pan American's Annual Report. Results of Operations For the
three months ended March 31, 2005, the Company's net loss was $2.9
million (loss per share of $0.04) compared to a net loss of $0.4
million ($0.05 per share loss) for the corresponding period in
2004. Revenue from metal sales for the first quarter of 2005 was
$27.1 million, a 79 per cent increase from the corresponding period
in 2004. The acquisition of the Morococha mine in the third quarter
of 2004 was the main reason for the increase in revenue from a year
ago, accounting for $8.6 million of revenue in the first quarter of
2005. Revenue in the first quarter also benefited from higher
realized metal prices and increased concentrate shipments from the
Company's Peruvian operations versus the year-earlier period. The
growth in revenue was partially offset by reductions on account of
base metal hedges in the first quarter of 2005 totaling $2.0
million (2004 - loss of $1.2 million), and by the recently
introduced Peruvian mining royalties of $0.6 million (2004 - $nil).
The Company generated mine operating earnings of $1.5 million in
the first quarter of 2005 (2004 - $1.8 million). Mine operating
earnings are the difference between revenue and operating costs
plus depreciation and amortization. As reflected in the following
table, the first quarter of 2005 represents the eighth consecutive
quarter that the Company has generated mine operating earnings. The
table below sets out select quarterly results for the past nine
quarters, which are stated in thousands of US dollars, except per
share amounts. Mine Net income/ operating (loss) Net income Quarter
earnings/ for the (loss) Year (unaudited) Revenue (loss)(1) period
per share
-------------------------------------------------------------------------
2005 March 31 $ 27,081 $ 1,483 $ (2,891) $ (0.05)
-------------------------------------------------------------------------
2004 Dec. 31 $ 29,386 $ 2,766 $ 15,692 $ 0.23 Sept. 30 $ 27,409 $
5,850 $ 3,289 $ 0.05 June 30 $ 20,950 $ 2,411 $ 1,287 $ (0.12)(2)
March 31 $ 15,151 $ 1,838 $ (366) $ (0.05)(2)
-------------------------------------------------------------------------
2003 Dec. 31 $ 12,857 $ 81 $ (4,858) $ (0.15)(2) Sept. 30 $ 11,890
$ 1,258 $ (390) $ (0.01)(2) June 30 $ 12,553 $ 758 $ (442) $ (0.01)
March 31 $ 7,822 $ (78) $ (1,104) $ (0.02) (1) Mine operating
earnings/(loss) is equal to revenues less operating expenses less
depreciation and amortization (2) Includes charges associated with
early conversion and accretion of the Debentures Depreciation and
amortization charges for the first quarter increased to $3.2
million from $2.1 million in the first quarter of 2004. The
principle reason for this increase was the depreciation charges
related to Morococha, which was acquired with effect from July 1,
2004. General and administration costs for the three-month period
ended March 31, 2005, including stock-based compensation, were $1.6
million. These costs, which were $1.2 million for the comparable
quarter in 2004, were negatively impacted by a stronger Canadian
dollar as compared to the US dollar. Exploration expenses for the
first quarter of 2005 were $1.4 million, which is almost a three
fold increase from the corresponding period a year ago, reflecting
the increased feasibility activity at the Company's 50 per cent
owned Manantial Espejo property in Argentina. Asset retirement and
reclamation expense of $0.5 million in the first quarter of 2005
(2004 - $0.3 million) related to the accretion of the liability
that the Company recognized by adopting CICA Handbook Section 3110
- "Accounting for Asset Retirement Obligations" as at December 31,
2003. There has been no change during the quarter to the Company's
expectations of future site restoration costs at any of its mines.
Interest expenses have been reduced to $0.1 million in the first
quarter of 2005 compared to $0.5 million during the same period in
2004 as a result of the Company successfully inducing the early
conversion of 99 per cent of the 5.25 per cent convertible
unsecured senior subordinated debentures (the "Debentures") and
prepaying all bank debt in the second quarter of 2004. Investment
and other income of $0.3 million represented interest income
received from cash balances the Company maintained during the
quarter. During the later part of 2004, the Company became taxable
in Peru. As such, the Company incurred an income tax expense of
$0.9 million and increased operating costs relating to worker's
participation of $0.3 million during the first quarter of 2005
(2004 - $nil). Production Pan American produced 2,995,702 ounces of
silver in the first quarter of 2005, a 27 per cent increase from
the corresponding period in 2004. The acquisition of Morococha,
which produced 653,534 ounces at a cash cost of $3.72 per payable
ounce, accounts for all of the increase, while production from the
Company's other operations in total remained steady from production
levels achieved a year ago. The La Colorada mine continued to
improve during the first quarter with record silver production of
688,619 ounces at cash costs of $5.58 per payable ounce. The
Company's Pyrite Stockpile operation produced 206,015 ounces of
silver during the quarter at cash costs of $1.89 per payable ounce.
The Quiruvilca and Huaron mines endured difficult quarters during
which grades and recoveries did not meet expectations. Management
is confident that these operations will be able to make up for the
shortfall compared to expected production over the remainder of the
year and still expects to reach the consolidated production target
of 13.5 million ounces of silver in 2005. Consolidated cash costs
for the three-month period ended March 31, 2005 were $4.50 per
payable ounce compared to $3.78 per payable ounce for the
corresponding period of 2004. Peruvian mining royalties and Volcan
Minera S.A.'s one-third participation in the Pyrite Stockpile
operation, which totaled $0.6 million during the quarter (2004 -
$nil) are the primary reason for this increase. Higher energy costs
at all operations and lower grades and recoveries at Quiruvilca and
Huaron also negatively impacted cash costs per payable ounce. With
the addition of the low-cost San Vicente mine, towards the end of
May 2005, the Company expects consolidated cash costs per payable
ounce to decrease and is estimating consolidated cash cost per
payable ounce of below $4.25 for 2005. In April Pan American
launched a new line of silver bullion products for its shareholders
and other silver investors in order to provide easier access to
physical silver and to help stimulate demand. The products comprise
.999 pure silver coins and bars in one, five and ten ounce weights,
featuring Pan American's trademark "silver hammer" and using silver
supplied from Pan American's La Colorada mine in Mexico, one of the
world's purest silver mines. Cash and Total Production Costs per
Ounce for Payable Silver The Company has changed its method for
calculating cash and total costs per ounce of silver, with effect
from the first quarter of 2005. In the past, these calculations
were based on produced ounces, as set out on page 11 of the
MD&A for the year ended December 31, 2004. Under the new
method, the Company will calculate its cash and total costs per
ounce based on the silver ounces for which the Company is paid,
therefore negating the need to account for the cost of metals lost
in smelting and refining. The 2004 first quarter's costs per ounce
have been recalculated on a payable metal basis to ensure that the
comparables are consistent with the method used for the 2005 first
quarter's costs per ounce. 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 do not have
standardized meaning. 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.
March 31, 2005 2004 -------------------------- Operating Costs $
22,380 $ 11,168 Add/(Subtract) Smelting, refining, and
transportation charges 9,189 6,218 By-product credits (17,398)
(11,401) Mining royalties 445 - Change in inventories (2,136) 1,667
Other 104 298 Minority interest adjustment (342) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash Operating Costs A $ 12,242 $ 7,949 Add/(Subtract) Depreciation
and amortization 3,218 2,145 Asset retirement and reclamation 527
302 Other (175) 6
-------------------------------------------------------------------------
Production Costs B 15,812 10,402 Payable Ounces of Silver C
2,718,073 2,101,295 -------------------------- Total Cash Cost per
Ounce (A(x)1000)/B $ 4.50 $ 3.78 -------------------------- Total
Production Costs per Ounce (B(x)1000)/C $ 5.82 $ 4.95
-------------------------- Liquidity and Capital Resources At March
31, 2005, cash and cash equivalents plus short-term investments
were $91.9 million, a $6.3 million decrease from December 31, 2004.
Cash flows used in investing activities totaled $14.1 million and
consisted primarily of capital expenditures of $10.0 million,
mostly at Alamo Dorado and the purchase of short-term investments
of $4.7 million. Cash flow provided by operating activities was
$2.7 million for the quarter ended March 31, 2005. Financing
activities in the first quarter yielded $0.9 million from the
exercise of stock options. Working capital at March 31, 2005 was
$106.4 million, a reduction of $8.3 million from December 31, 2004.
The reduction is reflected largely in a $6.3 million decrease in
cash and cash equivalents plus short-term investments, a $2.4
million decrease in inventories and a decrease of $2.1 million in
accounts receivable partially offset by a $2.6 million decrease in
current liabilities. Capital resources at March 31, 2005 amounted
to shareholders' equity of $278.5 million. At March 31, 2005, the
Company had 66,926,051 common shares issued and outstanding. During
the quarter, the Company filed a preliminary short form shelf
prospectus with the securities commissions in Canada and a
corresponding registration statement with the SEC. These filings
allow the Company to make offerings of common shares, warrants,
debt securities subscription receipts or any combination thereof up
to $150 million during the next two years. Based on the Company's
financial position at March 31, 2005 and the operating cash flows
that are expected over the next twelve months, management believes
that the Company's liquid assets are more than sufficient to fund
planned operating and project development and sustaining capital
expenditures and to discharge liabilities as they come due. The
Company's did not have any material contractual obligation, or any
off-balance sheet arrangements, except as discussed below, at the
date of this MD&A. Pan American mitigates the price risk
associated with its base metal production by selling some of its
forecasted base metal production under forward sales contracts, all
of which are designated hedges for accounting purposes. At March
31, 2005, the Company had sold forward 22,000 tonnes of zinc at a
weighted average price of $1,121 per tonne ($0.509 per pound) and
1,425 tonnes of lead at a weighted average price of $633 per tonne
($0.287 per pound). The forward sales commitments for zinc
represent approximately 45 per cent of the Company's forecast zinc
production until March 2006. The lead forward sales commitments
represent approximately 45 per cent of the Company's forecast lead
production until May 2005. At March 31, 2005, the cash offered
prices for zinc and lead were $1,354 and $1,027 per tonne,
respectively. The mark to market value at March 31, 2005 was an
unrealized loss of $6.1 million. At the end of the first quarter of
2005, the Company had fixed the price of 600,000 ounces of silver
produced during the first quarter and contained in concentrates,
which are due to be priced in April and May of 2005 under the
Company's concentrate contracts. The price fixed for these ounces
averaged $7.08 per ounce while the spot price of silver was $7.15
on March 31, 2005. Exploration and Development Activities Following
the positive construction decision for Alamo Dorado in late
February 2005, the Company has made good progress towards reaching
production at Alamo Dorado by late 2006. Several key personnel were
hired during the quarter, including mine maintenance, planning and
process managers, a chief metallurgist and senior accounting and
finance managers. Critical equipment items, including a fleet of
mining trucks, a ball mill, a crusher and laboratory have been
secured. The Company spent $4.7 million on equipment and
construction related activities for the quarter ended March 31,
2005. Over the remainder of the year, the Company has budgeted to
spend an additional $40 million on the construction of Alamo
Dorado, which can be funded out of the Company's treasury. The
total capital costs for the project are expected to be $76.6
million, including working capital and a contingency allowance. The
Company continued work on the feasibility study for the 50 per cent
owned Manantial Espejo project in Argentina during the quarter. An
additional 11,700 meters of infill and extension drilling was
completed during the quarter and incorporated into the block models
required for open pit and underground mine design. The contract for
the feasibility level tailings facility design has been awarded and
pump testing on proposed water wells has been initiated. The
Company has opened a local office and begun hiring key personnel,
including a Community Relations director. Pan American's share of
the feasibility costs in the first three months of 2005 was $1.2
million, which was expensed as incurred. The completed feasibility
study for the project is expected by late 2005 at which time a
construction decision will be taken. Pan American's share of costs
to complete the feasibility study is expected to be approximately
an additional $1.8 million. At the San Vicente property, production
plans have been delayed several months while the Company negotiates
agreements with its joint venture partners, EMUSA and Comibol.
Production, which was due to commence in March, 2005, is now
expected towards the end of May, 2005. The Company still expects to
produce approximately 700,000 ounces from San Vicente in 2005 at a
total cost of under $2.50 per ounce; however, an extended delay may
impede the Company's ability to meet this production target.
DATASOURCE: Pan American Silver Corp. CONTACT: Brenda Radies,
Vice-President Corporate Relations, (604) 806-3158,
http://www.panamericansilver.com/
Copyright