VANCOUVER, Feb. 16 /PRNewswire-FirstCall/ -- Pan American Silver Corp. (NASDAQ: PAAS; TSX: PAA) today reported several developments in anticipation of its 2005 year-end results due to be announced on February 23, 2006. Financial Restatement --------------------- In 2003, Pan American implemented a hedge accounting policy for the accounting treatment of its base-metal forward contracts program. Its external auditors, Deloitte & Touche LLP, reviewed the initial implementation and concurred with the hedge accounting treatment as reported since 2003. However, it has recently been concluded that the Company's accounting for its forward contracts for the sale of base metals (lead and zinc) and its forward contracts for purchasing Mexican pesos with US dollars do not technically qualify for hedge accounting under AcG-13, Hedging Relationships. As a result, Pan American will restate its financial statements for the first three quarters of 2005 and the 2004 financial year. The expected effect of these changes is a non-cash earnings increase of $2.0 million after tax for the nine months ended September 30, 2005 and a non-cash earnings decrease of $4.7 million after tax for 2004. Geoff Burns, President and CEO, said, "This is purely a change in accounting treatment and has no economic impact on Pan American and our cash flows. The details of our base-metal forward contracts, which we have previously disclosed, have not changed and they continue to serve Pan American as a prudent risk management tool. Pan American has not and will not hedge any of its silver production." Pan American is now required to recognize mark-to-market valuations on its open forward contract positions through its income at the end of each period. In the past, Pan American had recognized gains, losses, revenues and expenses from its forward contracts in its income only in the period in which they settled. At December 31, 2005, the Company had sold forward 13,400 tonnes of zinc at a weighted average price of $1,551 per tonne ($0.704 per pound). These forward sales commitments for zinc represent approximately 37 per cent of the Company's forecast 2006 payable zinc production. At December 31, 2005 mark-to-market value of the Company's zinc forward contracts was a negative $4.3 million. Pan American also mitigates the risk of strengthening local currencies relative to the US dollar. As of December 31, 2005 the Company had purchased 203 million Mexican pesos settling between January 2006 and June 2006 to match anticipated spending on the construction of Alamo Dorado at an average MXN/USD exchange rate of 11.26. At December 31, 2005, the positive mark-to-market value of the Company's position was $0.9 million. La Colorada Carrying Value -------------------------- It is also anticipated that the fourth quarter 2005 results will include a non-cash write-down of the carrying value of the La Colorada silver mine in Mexico. Very high inflows of hot water, high pumping costs and difficult ground conditions appear likely to render the deeper portion of the La Colorada mineralization unrecoverable, thus decreasing the mine's proven and probable ore reserves from 29.9 million ounces to 16.2 million ounces. As a result, the Company anticipates a non-cash write-down of the carrying value of La Colorada of $29.7 million. Pan American is currently conducting exploration drilling and is optimistic that La Colorada's silver reserves may be increased and its mine life extended. In 2006 the mine is forecast to produce 4.0 million ounces of silver at a cash cost of $5.44/oz. Silver Reserves and Resources Increase 21% (see table) ------------------------------------------------------ Pan American has completed its annual review of its silver reserves and resources. As of December 31, 2005 proven and probable reserves totaled 178 million ounces; measured and indicated resources totaled 185.3 million ounces; and inferred resources totaled 273.4 million ounces. Due to reserve increases at Pan American's other properties, most notably at the Morococha mine in Peru, the Company's proven and probable reserves increased by 21% in 2005 or 30.5 million ounces, even after accounting for the La Colorada losses and reserve depletion of 15.2 million ounces due to 2005 mining activities. Ross Beaty, Chairman, said, "We have taken conservative decisions to change our hedge accounting and to reduce La Colorada's carrying value. I am hopeful that we will ultimately recover some of the La Colorada ounces, discover new ounces there and recover our full investment in the property. I am pleased that our proven and probable reserves have increased so profoundly in 2005, despite the loss of the La Colorada ounces, and this speaks to the quality and diversity of our operations and projects." Pan American will release its 2005 fourth quarter and year-end financial and operating results, along with its restated financial statements, before market open on February 23, 2006. The Company will then host a conference call on February 23, 2005 at 11:00 am Pacific Time to discuss these results. 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 6961962. For Further Information Contact: Brenda Radies (604) 806-3158 CAUTIONARY NOTE Some of the statements in this news release are forward-looking statements and as such are based on an assumed set of economic conditions and courses of action. These include estimates of earnings, reserves and resources, 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. There is a significant risk that actual results will vary, perhaps materially, from results projected 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. > DATASOURCE: Pan American Silver Corp. CONTACT: Brenda Radies, (604) 806-3158

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