(all amounts in US Dollars unless otherwise stated) VANCOUVER, Nov.
2 /PRNewswire-FirstCall/ --
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THIRD QUARTER HIGHLIGHTS
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- Record metal sales of $64.3 million, up 114% from $30.1 million
in third quarter 2005. - Record net income of $16.4 million
($0.22/share), up from $0.2 million in Q3 2005. - Mine operating
earnings of $29.2 million, a five-fold increase over Q3 2005. -
Cash costs decrease 62% to $1.57 per ounce of silver as compared to
Q3 2005. - Silver production of 3.2 million ounces. - Cash flow
from operations of $15.8 million, an increase of $11.5 million over
Q3 2005. - Construction of Alamo Dorado mine completed in October
2006. - Basic engineering at Manantial Espejo project completed, on
schedule. - San Vicente mine began processing ore and selling
concentrates.
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FINANCIAL RESULTS ----------------- Pan American Silver Corp.
(NASDAQ: PAAS; TSX: PAA) today reported record results for the
third quarter ending September 30, 2006. Third quarter sales
reached an all time high of $64.3 million, a 114% increase over the
year earlier period. Consolidated net income for the quarter
established a new Company record at $16.4 million, or $0.22 per
share, as compared to $0.2 million, or $nil per share, in the third
quarter of 2005. Net income for the third quarter of 2006 included
an income tax provision of $8.4 million. Commenting on the quarter,
Geoff Burns, President and CEO, said: "As forecast, Pan American
Silver again delivered record results as we continue to benefit
from strong silver and base metal prices and growing production
profile." Mine operating earnings for the third quarter increased
almost 500% to $29.2 million over the $5.0 million recorded in the
year-earlier period. The increase is attributed to higher silver
prices and higher revenues from base metal production, partially
offset by increased operating costs resulting from increases in
labour compensation, energy and fuel costs, as well as increased
workers' participation costs in Peru. Operating cash flow in the
quarter was $15.8 million compared to $4.2 million in the
year-earlier period. Working capital at September 30, 2006 was
$196.1 million, an increase of $7.1 million from June 30, 2006. The
Company's cash flow from operations plus its liquid assets should
be more than sufficient to fund all currently planned capital
expenditures, including construction of the Manantial Espejo
project and the expansion of the Morococha mine. Consolidated
silver production for the third quarter totaled 3.2 million ounces,
a slight increase over Q3 2005. The La Colorada mine continued to
ramp up its rate of production during the third quarter, producing
13% more ounces of silver compared to the year earlier period.
Processing of ore at the San Vicente mine commenced in August,
which added modestly to the Company's third quarter silver
production. Partially offsetting these increases in production were
modest production declines at Quiruvilca and Morococha where, as
expected, ore grades declined due to the planned extraction of
lower grade ore during the quarter. Consolidated cash costs for the
quarter were $1.57 per ounce compared to $4.15 per ounce for the
year-earlier period. Byproduct base metal credits continued to have
an extremely positive effect on the Company's cost to produce
silver. Morococha was once again the Company's lowest cost mine,
recording cash costs of negative $5.14 per ounce for the third
quarter. Ross Beaty, Chairman, stated: "Pan American is thriving
today with record financial results, our best balance sheet ever, a
well-diversified base of six operating silver mines, one newly
constructed mine and another project under development that will
double our silver production by 2008. We are also actively
exploring in many locations and I am confident that this will lead
to great new silver growth opportunities for the long term."
OPERATIONS AND PRODUCTION HIGHLIGHTS
------------------------------------ PERU The Morococha mine
contributed 694,984 ounces of silver in the quarter at a cash cost
of negative $5.14 per ounce. As anticipated, mill throughput
increased steadily throughout the quarter, with the mill posting a
new monthly tonnage record by processing just over 56,000 tonnes of
ore in August. Production at the mine is expected to continue to
increase as mill capacity is ramped up to 60,000 tonnes per month
and rehabilitation of the tunnel access to the high grade
Buenaventura ore block is completed. Silver production at the
Quiruvilca mine was 489,972 ounces for the quarter, and
year-to-date production continues to track projections. Cash costs
per ounce of production remained extremely low at negative $0.39
per ounce, down from $3.55 per ounce in Q3 2005. Third quarter
production at Huaron was 941,569 ounces of silver produced at cash
costs of $2.32 per ounce as compared to 940,400 ounces at a cash
cost of $5.13 per ounce recorded in the year earlier period. The
sustained high production results from the mine are attributed to
record mill throughput (offset slightly by lower grades and
recovery) that is expected to continue through the balance of 2006
and into 2007. The Silver Stockpile operation produced 121,327
ounces of silver in the third quarter, which is lower than expected
as a result of fewer tonnes being shipped at lower than expected
grade. Year-to-date production nevertheless remains within budget
and fourth quarter shipments are expected to increase. MEXICO The
commissioning team at the Alamo Dorado mine was assembled in the
third quarter and construction of the mine was completed on
schedule in October 2006, with silver production set to commence in
mid-November. By the end of the quarter, the primary crusher was
operative and ore stockpiled ahead of the crusher totaled 345,000
tonnes. Construction expenditures were within 4% of the original
budget, totaling approximately $79.9 million. Alamo Dorado is
expected to produce an average of 5 million ounces of silver
annually. The La Colorada mine notched another consecutive record
producing quarter, with silver production increasing to 923,553
ounces, or 13% more than the year-earlier period. Cash costs
increased slightly to $5.92 per ounce of silver, reflecting the
fact that mining and processing from the sulphide zone has only
reached 50% of planned capacity. Production from the oxide zone
continued to meet quarterly and year-to-date forecasts, with
slightly lower grades in the third quarter being offset by higher
mill throughput and higher than expected recovery rates. By the end
of 2006, the sulphide plant is expected to reach full capacity of
200 tonnes per day. ARGENTINA Basic engineering and plant design
for the Manantial Espejo project was substantially completed in the
third quarter and site construction planning commenced. Mining
crews began ramp development at the Maria mine site area. By the
end of the fourth quarter, all surface and underground mining
equipment will be on site. Total project commitments at the end of
the quarter totaled $7.0 million, primarily for the purchase of
mobile equipment and for SAG and ball mill purchases. The project
is scheduled to be completed in early 2008 and produce an average
of 4.3 million ounces of silver and 62,000 ounces of gold annually.
BOLIVIA Following recommencement of milling at the high grade
silver-zinc San Vicente mine, the mine contributed a total of
55,370 ounces of silver in the third quarter from ore that had been
mined and stockpiled throughout the second quarter. Cash costs per
ounce of silver were significantly higher (at $8.09) than the
Company's long-term expectations of $3.50 per ounce as a result of
mill start-up costs, costs to warehouse ore not shipped, and higher
silver prices which increased royalty payments owed to Comibol,
Bolivia's national mining company. Feasibility analysis and
engineering is continuing on a plan to expand mine production and
build a new mill on the property. An investment decision is
expected in early 2007 and will carefully take into consideration
the political climate in Bolivia. The San Vicente mine today
represents less than 2% of the book value of Pan American's
consolidated operations. EXPLORATION ----------- By the end of the
third quarter, the Company had more than 25 active drill rigs at
existing operations, development projects and exploration sites.
The more notable exploration results came from the Huaron and La
Colorada mines. At Huaron, a total of 24 holes were drilled on site
throughout the quarter. Very positive results were obtained at the
250 level, where high grade silver and base metal intersects were
found. At La Colorada, exploration in the third quarter continued
to focus on delineation of the new Amolillo vein and Recompensa
structure to expand reserves and resources in the area. Primarily
as a result of development of the Amolillo deposit, the Company
expects to more than replace all reserves mined in 2006. In the
third quarter, the Company set up an exploration office in Ecuador
as it initiated exploration efforts within that country. SILVER
MARKETS -------------- The price of silver steadily increased
through the first two months of the quarter, reaching a high of
$13.50 (London fix) per ounce on September 5, then dropping to a
low of $10.70 per ounce in mid-September, only to rebound somewhat
by the end of the month to close to the average price for the
quarter of approximately $11.70 per ounce. Investment demand for
silver remained strong throughout the third quarter, as evidenced
by holdings in the silver exchange traded fund ("ETF"), which, by
the end of the quarter, reached approximately 105 million ounces of
physical silver. To meet this rising demand, the administrators of
the ETF, on September 27, filed for registration with the SEC of 15
million additional shares, enabling purchase by the ETF of 150
million additional ounces of physical silver. Physical interest in
the Pan American Silver line of bullion products continues to
remain high, as indicated by the sale of the 1,000,000th ounce of
silver by the Northwest Territorial Mint in the third quarter and
by the strong demand for the Company's new 100-ounce silver bar.
All Pan American Silver products are available directly through the
mint's website (http://www.silverpa.com/). Pan American will host a
conference call to discuss its financial and operating results on
Friday, November 3, 2006 at 7:00 am PST (10:00 am EST). North
American participants please dial toll-free 1-888-694-4728 and
international participants please dial 1-973-582-2745. The call may
also be accessed from the home page of the Company's website at
http://www.panamericansilver.com/. 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 7953226. CAUTIONARY NOTE
REGARDING FORWARD-LOOKING STATEMENTS THIS NEWS RELEASE CONTAINS
"FORWARD-LOOKING INFORMATION" WITHIN THE MEANING OF 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 ALAMO
DORADO AND MANANTIAL ESPEJO, THE EXPECTED RESULTS FROM EXPLORATION
ACTIVITIES, THE ECONOMIC VIABILITY OF THE DEVELOPMENT OF NEWLY
DISCOVERED ORE BODIES, THE ESTIMATION OF 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 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 OTHER BASE METALS, AS WELL AS THOSE FACTORS
DESCRIBED IN THE SECTIONS RELATING TO RISK FACTORS OF PAN AMERICAN
SILVER'S BUSINESS FILED IN THE COMPANY'S REQUIRED SECURITIES
FILINGS ON SEDAR. 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 Three months
ended Nine months ended September 30 September 30 2006 2005 2006
2005
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Consolidated Financial Highlights (in thousands of US dollars)
(Unaudited) Net income for the period $ 16,355 $ 172 $ 28,558 $ 920
Basic income per share $ 0.22 $ 0.00 $ 0.39 $ 0.01 Diluted income
per share $ 0.20 $ 0.00 $ 0.37 $ 0.01 Cash flow from operations $
15,765 $ 4,227 $ 52,509 $ 8,463 Exploration and Project Development
expenses $ 2,267 $ 394 $ 4,138 $ 2,703 Cash and short-term
investments $ 181,136 $ 68,364 $ 181,136 $ 68,364 Working capital $
196,006 $ 85,837 $ 196,006 $ 85,837 Consolidated Ore Milled &
Metals Recovered to Concentrate Tonnes milled 495,137 439,823
1,408,755 1,251,838 Silver metal - ounces 3,226,775 3,202,289
9,871,671 9,286,658 Zinc metal - tonnes 9,922 9,977 30,115 28,094
Lead metal - tonnes 4,060 4,113 11,927 11,492 Copper metal - tonnes
1,126 1,042 3,333 3,020 Consolidated Cost per Ounce of Silver (net
of by-product credits) Total cash cost per ounce(x) $ 1.57 $ 4.15 $
1.75 $ 4.38 Total production cost per ounce(x) $ 3.28 $ 5.52 $ 3.34
$ 5.72 In thousands of US dollars Direct operating costs,
royalties, treatment and refining charges $ 46,341 $ 30,935 $
126,853 $ 89,724 By-product credits (41,690) (18,769) (111,021)
(52,605)
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Cash operating costs 4,650 12,165 15,832 37,119 Depreciation,
amortization and reclamation 4,476 3,998 13,320 11,391
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Production costs $ 9,126 $ 16,163 $ 29,151 $ 48,511
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Payable ounces of silver (used in cost per ounce calculations)
2,963,597 2,930,179 9,043,186 8,479,763 Average Metal Prices Silver
- London Fixing per ounce $ 11.70 $ 7.07 $ 11.21 $ 7.06 Zinc - LME
Cash Settlement per tonne $ 3,363 $ 1,298 $ 2,966 $ 1,296 Lead -
LME Cash Settlement per tonne $ 1,189 $ 892 $ 1,176 $ 952 Copper -
LME Cash Settlement per tonne $ 7,670 $ 3,759 $ 6,612 $ 3,479 Mine
Operations Highlights Three months ended Nine months ended
September 30 September 30 2006 2005 2006 2005
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Huaron Mine Tonnes milled 185,290 167,585 513,235 427,814 Average
silver grade - grams per tonne 193 212 203 214 Average zinc grade
2.48% 2.70% 2.58% 2.86% Silver - ounces 941,569 940,400 2,773,593
2,747,189 Zinc - tonnes 3,095 2,823 8,818 9,067 Lead - tonnes 1,750
1,635 5,371 5,161 Copper - tonnes 426 449 1,272 1,326 Total cash
cost per ounce(x) $ 2.32 5.13 2.53 5.04 Total production cost per
ounce(x) $ 3.67 6.37 3.81 6.25 In thousands of US dollars Direct
operating costs, royalties, treatment and refining charges $ 15,929
$ 10,456 $ 42,587 $ 31,456 By-product credits (13,940) (6,067)
(36,202) (18,872)
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Cash operating costs 1,989 4,389 6,385 12,583 Depreciation,
amortization and reclamation 1,149 1,064 3,217 3,026
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Production costs $ 3,138 $ 5,453 $ 9,602 $ 15,610
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Payable ounces of silver (used in cost per ounce calculation)
856,108 856,228 2,521,986 2,496,885 Quiruvilca Mine Tonnes milled
92,468 95,539 282,100 275,792 Average silver grade - grams per
tonne 199 217 217 223 Average zinc grade 2.70% 3.34% 2.86% 3.21%
Silver - ounces 489,972 579,586 1,681,179 1,723,973 Zinc - tonnes
2,090 2,698 6,849 7,472 Lead - tonnes 650 754 1,968 2,103 Copper -
tonnes 308 366 1,004 1,009 Total cash cost per ounce(x) $ (0.39) $
3.55 $ (0.15) $ 4.07 Total production cost per ounce(x) $ 0.99 $
4.10 $ 1.07 $ 4.62 In thousands of US dollars Direct operating
costs, royalties, treatment and refining charges $ 8,871 $ 6,914 $
25,525 $ 20,251 By-product credits (9,048) (5,007) (25,761)
(13,723)
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Cash operating costs (176) 1,907 (236) 6,528 Depreciation,
amortization and reclamation 628 296 1,902 879
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Production costs $ 451 $ 2,203 $ 1,666 $ 7,407
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Payable ounces of silver (used in cost per ounce calculation)
454,284 537,719 1,561,459 1,603,593 Three months ended Nine months
ended September 30 September 30 2006 2005 2006 2005
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Morococha Mine(1) Tonnes milled 150,191 119,953 423,451 347,023
Average silver grade - grams per tonne 176 216 191 218 Average zinc
grade 3.61% 4.58% 3.91% 4.30% Silver - ounces 694,984 705,981
2,202,128 2,051,128 Zinc - tonnes 4,567 4,455 13,994 11,554 Lead -
tonnes 1,591 1,724 4,514 4,228 Copper - tonnes 381 227 1,031 685
Total cash cost per ounce(x) $ (5.14) $ 1.99 $ (3.58) $ 2.82 Total
production cost per ounce(x) $ (3.23) $ 3.68 $ (1.87) $ 4.54 In
thousands of US dollars Direct operating costs, royalties,
treatment and refining charges $ 14,311 $ 8,582 $ 39,309 $ 24,207
By-product credits (17,507) (7,322) (46,359) (19,000)
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Cash operating costs (3,196) 1,260 (7,050) 5,207 Depreciation,
amortization and reclamation 1,185 1,077 3,360 3,178
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Production costs $ (2,012) $ 2,337 $ (3,689) $ 8,385
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Payable ounces of silver (used in cost per ounce calculations)
622,402 634,104 1,970,474 1,847,927 (1) Production and cost figures
are for Pan American's share only. Pan American's ownership was
approximately 88.7% during the quarter. La Colorada Mine Tonnes
milled 60,463 56,746 174,257 156,209 Average silver grade - grams
per tonne 547 510 546 537 Silver - ounces 923,553 817,744 2,635,197
2,249,760 Zinc - tonnes - - - - Lead - tonnes 68 - 74 - Total cash
cost per ounce(x) $ 5.92 $ 5.48 $ 5.83 $ 5.48 Total production cost
per ounce(x) $ 7.55 $ 7.40 $ 7.66 $ 7.40 In thousands of US dollars
Direct operating costs, royalties, treatment and refining charges $
6,050 $ 4,832 $ 16,835 $ 13,300 By-product credits (631) (374)
(1,553) (1,009)
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Cash operating costs 5,418 4,458 15,282 12,291 Depreciation,
amortization and reclamation 1,499 1,561 4,805 4,308
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Production costs $ 6,918 $ 6,019 $ 20,086 $ 16,599
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Payable ounces of silver (used in cost per ounce calculations)
915,811 813,752 2,621,902 2,242,188 Three months ended Nine months
ended September 30 September 30 2006 2005 2006 2005
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Silver Stock Piles Tonnes sold 13,506 15,076 42,763 46,488 Average
silver grade - grams per tonne 279 327 324 327 Silver - ounces
121,327 158,578 445,655 514,608 Total cash cost per ounce(x) $ 3.30
$ 1.72 $ 3.21 $ 1.76 Total production cost per ounce(x) $ 3.30 $
1.72 $ 3.21 $ 1.76 In thousands of US dollars Direct operating
costs, royalties, treatment and refining charges $ 217 $ 152 $ 796
$ 510 By-product credits - - -
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Cash operating costs 217 152 796 510 Depreciation, amortization and
reclamation - -
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Production costs $ 217 $ 152 $ 796 $ 510
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Payable ounces of silver (used in cost per ounc calculations)
65,694 88,376 247,982 289,169 San Vicente Mine(xx) Tonnes milled
6,725 - 15,712 - Average silver grade - grams per tonne 317 - 319 -
Average zinc grade - percent 3.32 - 3.70 - Silver - ounces 55,370 -
133,920 - Zinc - tonnes 169 - 453 - Copper - tonnes 11 - 26 - Total
cash cost per ounce(x) $ 8.09 $ - $ 5.48 $ - Total production cost
per ounce(x) $ 8.40 $ - $ 5.78 $ - In thousands of US dollars
Direct operating costs, royalties, treatment and refining charges $
963 $ - $ 1,800 $ - By-product credits (564) - (1,146) -
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Cash operating costs 399 - 655 - Depreciation, amortization and
reclamation 15 - 36 -
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Production costs $ 414 $ - $ 690 $ -
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Payable ounces of silver (used in cost per ounce calculations)
9,298 - 119,384 - (x) See discussion below in Management discussion
and analysis under, "Cash and total production costs per ounce for
payable silver" for non-GAAP measures. (xx) The production
statistics represent Pan American's 55% interest in the mine in
2006. Pan American Silver Corp. Consolidated Balance Sheets (In
thousands of US dollars) (Unaudited) September 30, December 31,
2006 2005
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Assets Current Cash and cash equivalents $ 72,434 $ 29,291
Short-term investments 108,702 26,031 Accounts receivable, net of
$Nil provision for doubtful accounts 41,216 27,342 Inventories
(note 4) 24,611 16,667 Unrealized gain on commodity and foreign
currency contracts 1,161 863 Prepaid expenses and other 2,993 1,935
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Total Current Assets 251,117 102,129 Mineral property, plant and
equipment, net (note 6) 113,071 99,815 Construction in progress
(note 7) 78,721 34,306 Investment in non-producing properties (note
7) 183,460 123,259 Direct smelting ore (note 4) 1,937 2,236 Other
assets 2,461 535
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Total Assets $ 630,767 $ 362,280
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-------------------------------------------------------------------------
Liabilities Current Accounts payable and accrued liabilities $
31,890 $ 21,886 Unrealized loss on commodity contracts 5,115 4,810
Taxes payable 16,289 447 Current portion of non-current liabilities
1,817 223
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Total Current Liabilities 55,111 27,366 Liability component of
convertible debentures 91 126 Provision for asset retirement
obligations and reclamation (note 8) 42,140 39,378 Provision for
future income taxes 45,024 32,396 Other liabilities and provisions
20 1,894 Non-controlling interest 7,874 3,798
-------------------------------------------------------------------------
Total Liabilities 150,260 104,958
-------------------------------------------------------------------------
Shareholders' Equity Share capital (note 9) Authorized: 200,000,000
common shares of no par value Issued: December 31, 2005 -
67,564,903 common shares September 30, 2006 - 76,066,532 common
shares 583,091 388,830 Equity component of convertible debentures
710 762 Additional paid in capital 13,566 13,117 Deficit (116,860)
(145,387)
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Total Shareholders' Equity 480,507 257,322
-------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 630,767 $ 362,280
-------------------------------------------------------------------------
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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 per share
amounts) Three months ended Nine months ended September 30,
September 30, 2006 2005 2006 2005
-------------------------------------------------------------------------
Sales $ 64,268 $ 30,086 $ 172,859 $ 84,530 Cost of sales 30,813
21,337 82,723 62,134 Depreciation and amortization 4,234 3,788
11,880 9,421
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Mine operating earnings 29,221 4,961 78,256 12,975 General and
administrative, including stock-based compensation 2,739 2,065
7,088 5,378 Exploration and project development 2,267 394 4,138
2,703 Asset retirement and reclamation 615 735 1,843 1,674
-------------------------------------------------------------------------
Operating income 23,600 1,767 65,187 3,220
-------------------------------------------------------------------------
Interest and financing expenses (87) (126) (436) (312) Investment
and other income 1,956 1,190 3,296 2,438 Loss on commodity and
foreign currency contract (676) (2,198) (17,286) (2,044)
-------------------------------------------------------------------------
Income before taxes and non-controlling interest 24,793 633 50,761
3,302 Income tax (provision) benefit (8,398) 79 (19,988) (1,609)
Non-controlling interest (40) (540) (2,215) (773)
-------------------------------------------------------------------------
Net income for the period $ 16,355 $ 172 $ 28,558 $ 920
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Attributable to common shareholders: Net income for the period $
16,355 $ 172 $ 28,558 $ 920 Accretion of convertible debentures (5)
- (31) (3)
-------------------------------------------------------------------------
Adjusted net income for the period attributable to common
shareholders $ 16,350 $ 172 $ 28,527 $ 917
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic income per share $ 0.22 $ 0.00 $ 0.39 $ 0.01 Diluted income
per share $ 0.20 $ 0.00 $ 0.37 $ 0.01 Weighted average number of
shares outstanding (000's) Basic 76,007 66,974 72,790 66,943
Diluted 80,687 71,553 77,469 71,882 See accompanying notes to
consolidated financial statements Pan American Silver Corp.
Consolidated Statement of Cash Flows (Unaudited - in thousands of
US dollars) Three months ended Nine months ended September 30,
September 30, 2006 2005 2006 2005
-------------------------------------------------------------------------
Operating activities Net loss income for the period $ 16,355 $ 172
$ 28,558 $ 920 Reclamation expenditures (301) (324) (668) (824)
Items not involving cash: Depreciation and amortization 4,234 3,788
11,880 9,421 Accretion of asset retirement obligation 615 735 1,843
1,674 Loss (gain) on disposition of assets 944 (453) 760 (453)
Future income taxes 2,043 (1,313) 460 (1,618) Non-controlling
interest 39 540 2,215 773 Unrealized (loss) gain on commodity and
foreign currency contracts (3,217) 1,259 6 (2,080) Stock-based
compensation 378 345 1,600 1,347 Changes in non-cash operating
working capital items (Note 10) (5,325) (522) 5,855 (697)
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Cash generated by operations 15,765 4,227 52,509 8,463
-------------------------------------------------------------------------
Investing activities Mineral property, plant and equipment
expenditures (18,026) (16,482) (71,272) (40,731) Maturity
(purchase) of short-term investments 13,714 9,630 (82,671) 23,428
Other (585) 547 (752) 949
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Cash used in investing activities (4,897) (6,305) (154,695)
(16,354)
-------------------------------------------------------------------------
Financing activities Shares issued for cash 698 1,539 153,033 2,740
Share issue costs 181 - (7,664) - Interest paid on convertible
debentures (22) - (41) - Repayment of short-term loan (2,202) (408)
- (693)
-------------------------------------------------------------------------
Cash (used in) generated by financing activities (1,354) 1,131
145,328 2,047
-------------------------------------------------------------------------
Increase/(decrease) in cash and cash equivalents during the period
9,514 (947) 43,142 (5,844) Cash and cash equivalents, beginning of
period 62,919 23,448 29,291 28,345
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 72,433 $ 22,501 $ 72,433
$ 22,501
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental Disclosures Interest paid $ 16 $ 18 $ 35 $ 36
-----------------------------------------------
----------------------------------------------- Taxes paid $ 1,505
$ 1,001 $ 5,254 $ 4,112
-----------------------------------------------
----------------------------------------------- See accompanying
notes to consolidated financial statements Pan American Silver
Corp. Consolidated Statements of Shareholders' Equity (in thousands
of US dollars, except for amounts of shares) Common Shares
----------------------- Convertible Shares Amount Debentures
-------------------------------------------------------------------------
Balance, December 31, 2004 66,835,378 $ 380,571 $ 633 Issued on the
exercise of stock options 300,325 2,780 - Issued on the exercise of
share purchase warrants 1,186 11 - Stock-based compensation on
options granted - - - Issued warrants to settle obligation - - -
Accretion of convertible debentures - - 3 Issued as compensation
29,484 410 - Other - - - Net loss for the year - - -
-------------------------------------------------------------------------
Balance, September 30, 2005 67,166,373 $ 383,772 $ 636
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, December 31, 2005 67,564,903 $ 388,830 $ 762 Issued on the
exercise of stock options 224,308 3,733 - Issued on the exercise of
share purchase warrants 12,372 163 - Issued on the conversion of
debentures 7,311 93 (83) Issued as compensation 26,231 559 - Shares
issued to acquire mineral interests 1,950,000 47,381 - Stock issued
for cash 6,281,407 142,332 - Accretion of convertible debentures -
- 31 Stock-based compensation on options granted - - - Net income
for the period - - -
-------------------------------------------------------------------------
Balance, September 30, 2006 76,066,532 $ 583,091 $ 710
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Additional Paid in Capital Deficit Total
-------------------------------------------------------------------------
Balance, December 31, 2004 $ 10,976 $ (116,664) $ 275,516 Issued on
the exercise of stock options (51) - 2,729 Issued on the exercise
of share purchase warrants - - 11 Stock-based compensation on
options granted 937 - 937 Issued warrants to settle obligation
2,100 - 2,100 Accretion of convertible debentures - (3) - Issued as
compensation - - 410 Other (172) - (172) Net loss for the year -
920 920
-------------------------------------------------------------------------
Balance, September 30, 2005 $ 13,790 $ (115,747) $ 282,451
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Balance, December 31, 2005 $ 13,117 $ (145,387) $ 257,322 Issued on
the exercise of stock options (934) - 2,799 Issued on the exercise
of share purchase warrants (29) - 134 Issued on the conversion of
debentures - - 10 Issued as compensation 70 - 629 Shares issued to
acquire mineral interests - - 47,381 Stock issued for cash - -
142,332 Accretion of convertible debentures - (31) - Stock-based
compensation on options granted 1,342 - 1,342 Net income for the
period - 28,558 28,558
-------------------------------------------------------------------------
Balance, September 30, 2006 $ 13,566 $ (116,860) $ 480,507
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Pan American Silver Corp. Notes to Unaudited Interim Consolidated
Financial Statements As at September 30, 2006 and 2005 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 and nine month periods ended September 30, 2006
and 2005 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2006. The consolidated
balance sheet at December 31, 2005 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, 2005.
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 Ownership and Development Subsidiary Location interest
Status Projects
-------------------------------------------------------------------------
Pan American Quiruvilca and Silver S.A.C. Peru 100% Consolidated
Huaron Mines Compania Minera Argentum S.A. Peru 88.5% Consolidated
Morococha Mine Plata Panamericana La Colorada S.A. de C.V. Mexico
100% Consolidated 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
Espejo Triton S.A. Argentina 100%(1) Consolidated Project (1) The
Company acquired the remaining 50% interest from the joint venture
partner on April 10, 2006. 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) Revenue Recognition:
Revenue is recognized upon delivery 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 quotational period,
typically ranging from one month prior to shipment, and can extend
to three months after the shipment arrives at the smelter and is
based on average 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. Variations between the price
recorded at the shipment date and the actual final price set under
the smelting contracts are caused by changes in metal prices, and
result in an embedded derivative in the accounts receivable. The
embedded derivative is recorded at fair value each period until the
final settlement occurs, with changes in fair value classified as a
component of revenue. Final sales are settled using smelter weights
and final settlement assays (average of assays exchanged and/or
umpire assay results). Third party smelting and refining costs are
recorded as a reduction of revenue. d) Accounts Receivable: The
Company has 10 customers that account for 100% of the concentrate
and dore sales revenue. The loss of certain of these customers or
curtailment of purchases by such customers could have a material
adverse affect on the Company's results of operations and financial
condition. e) Reclassifications: Certain reclassifications of prior
year balances have been made to conform to current year
presentation. 3. Acquisition of Manantial Espejo (Minera Triton
S.A.) mining assets In April, 2006, Pan American completed the
acquisition of 50 percent interest in the Manantial Espejo project
from Silver Standard Resources Inc. The transaction, gives the
Company a 100 percent interest in Manantial Espejo. The purchase
price was 1.95 million common shares of Pan American valued at
approximately $47.4 million. The measurement of the purchase
consideration was based on a Pan American common share price of
$24.30, representing the average closing price on the NASDAQ Stock
Exchange for the two days prior to and two days after the public
announcement of our purchase. The acquisition was accounted for by
the purchase method of accounting and the accounts of Minera Triton
have been consolidated from April 1, 2006, which was the date the
Company acquired effective control and ownership of the assets and
liabilities of Minera Triton. The preliminary allocation of the
fair value of assets and liabilities acquired and the consideration
paid are summarized as follows: Current assets, including cash of
$45 $ 71 Plant and equipment 1,711 Mineral properties 57,201 Other
1,176 ----------------------------------------------------- 60,159
Less: Accounts payable and accrued liabilities (99) Future income
tax liability (12,511)
----------------------------------------------------- Total
purchase price $ 47,549
-----------------------------------------------------
----------------------------------------------------- Consideration
paid is as follows: Issue of Shares $ 47,381 Acquisition costs 168
----------------------------------------------------- $ 47,549
-----------------------------------------------------
----------------------------------------------------- The purchase
cost was allocated to the underlying assets acquired and
liabilities assumed based upon their estimated fair values at the
date of acquisition. The Company estimated fair values based on
discounted cash flows and estimates made by management. The
purchase consideration for the mining assets of Manantial Espejo
exceeded the carrying value of the underlying assets for tax
purposes by $32.9 million. In addition, the Company considered the
prior ownership basis in calculating the tax impact of the
acquisition. These amounts have been applied to increase the
carrying value of the mineral properties for accounting purposes.
However, this did not increase the carrying value of the underlying
assets for tax purposes and resulted in a temporary difference
between accounting and tax values. The resulting estimated future
income tax liability associated with this temporary difference of
$12.5 million was also applied to increase the carrying value of
the mineral properties. For purposes of presenting a summary of
assets and liabilities acquired, the balance sheet of Minera Triton
S. A. at April 1, 2006 has been used as a proxy for the balance
sheet on April 10, 2006. The Company does not expect that the final
allocation of the consideration among the assets and liabilities of
the Manantial Espejo Project will materially vary from those shown
above. 4. Inventories Inventories consist of the following:
September 30, December 31, 2006 2005
-------------------------------------------------------------------------
Concentrate inventory $ 8,716 $ 6,421 Direct smelting ore and
stockpile ore 5,324 3,184 Dore and finished inventory 2,695 3,101
Materials and supplies 9,813 6,197
-------------------------------------------------------------------------
26,548 18,903 Less: non-current direct smelting ore (1,937) (2,236)
-------------------------------------------------------------------------
$ 24,611 $ 16,667
-------------------------------------------------------------------------
-------------------------------------------------------------------------
5. Commodity and foreign currency contracts At September 30, 2006,
the Company had sold forward 3,000 tonnes of zinc at a weighted
average price of $1,603 per tonne. The Company had bought 3,000
tonnes of zinc at a weighted average cost of $2,986 per tonne,
settling between October and December 2006. These forward purchases
were entered into to exactly offset all of the Company's zinc
forward sales positions. At September 30, 2006, the cash offered
prices for zinc average was $3,366 per tonne which results in a net
unrealized mark-to- market loss of the Company's zinc forward
contracts at that date of $4.2 million ($5.1 million of unrealized
losses and $1.0 million of unrealized gains). The Company has
purchased Mexican Pesos ("MXN") with an aggregated nominal value of
MXN 33.0 million settling between October and December 2006 at an
average MXN/USD exchange rate of 11.02. At September 30, 2006, the
mark to market value of the Company's position was $nil. At
September 30, 2006 the Company had fixed the price of 800,000
ounces of its second quarter's silver production contained in
concentrates, which is due to be priced in October and November of
2006 under the Company's concentrate contracts. The price fixed for
these ounces averaged $11.80 per ounce while the spot price of
silver was $11.55 per ounce on September 30, 2006, resulting in a
mark to market recorded unrealized gain of $0.2 million. 6. Mineral
property, plant and equipment Mineral property, plant and equipment
consist of: September 30, 2006
-------------------------------------- Accumulated Net Book Cost
Amortization Value -------------------------------------- Morococha
mine, Peru $ 42,682 $ (8,472) $ 34,210 La Colorada mine, Mexico
28,007 (4,841) 23,166 Quiruvilca/Huaron mines, Peru 77,730 (32,333)
45,397 Alamo Dorado, Mexico 750 (121) 629 Manantial Espejo,
Argentina 7,735 (808) 6,927 San Vicente mine, Bolivia 2,563 (224)
2,339 Other 976 (573) 403
-------------------------------------------------------------------------
TOTAL $ 160,443 $ (47,372) $ 113,071
-------------------------------------------------------------------------
-------------------------------------------------------------------------
December 31, 2005 --------------------------------------
Accumulated Net Book Cost Amortization Value
-------------------------------------- Morococha mine, Peru $
34,137 $ (6,414) $ 27,723 La Colorada mine, Mexico 23,529 - 23,529
Quiruvilca/Huaron mines, Peru 79,860 (33,997) 45,863 Alamo Dorado,
Mexico 419 (87) 332 Manantial Espejo, Argentina 1,938 (227) 1,711
San Vicente mine, Bolivia 363 (56) 307 Other 856 (506) 350
-------------------------------------------------------------------------
TOTAL $ 141,102 $ (41,287) $ 99,815
-------------------------------------------------------------------------
-------------------------------------------------------------------------
7. Construction in progress and investment in non-producing
properties The carrying values of Construction in progress are as
follows: September 30, 2006 December 31, 2005 Net Book Value Net
Book Value -------------------------------------- Alamo Dorado,
Mexico $ 73,398 $ 34,306 Manantial Espejo, Argentina $ 5,323 -
-------------------------------------------------------------------------
TOTAL $ 78,721 $ 34,306
-------------------------------------------------------------------------
-------------------------------------------------------------------------
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: September 30, December 31, 2006 2005
--------------------------- Morococha, Peru $ 28,107 $ 31,052 Alamo
Dorado, Mexico 89,964 84,543 Manantial Espejo, Argentina 59,344
1,979 San Vicente, Bolivia 4,662 4,454 Other 1,383 1,231
--------------------------- $ 183,460 $ 123,259
--------------------------- --------------------------- 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 September 30, 2006:
-------------------------------------------------------------------------
Balance at December 31, 2005 $ 39,378 Reclamation expenditures
(668) Accretion 1,843 Alamo Dorado liability increase to September
30, 2006 1,587 Changes in estimates -
-------------------------------------------------------------------------
Balance at September 30, 2006 $ 42,140
-------------------------------------------------------------------------
9. Share capital The Company completed its base shelf offering on
April 18, 2006 and completed an over-allotment option of the
Offering on April 21, 2006. The Offering consisted of 6.28 million
common shares priced at $23.88 for gross proceeds of $150 million
and net proceeds after deducting underwriting fees, of $142.2
million. 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, 2004 1,683,574 $ 9.90 3,809,817 $ 9.98 5,493,391
Granted 87,000 16.12 255,781 16.91 342,781 Exercised (693,933) 9.15
(1,320) 9.98 (695,253) Cancelled (26,000) 18.16 - - (26,000)
-------------------------------------------------------------------------
As at December 31, 2005 1,050,641 10.88 4,064,278 10.71 5,114,919
Granted 191,332 19.23 - 191,332 Exercised (224,308) 12.48 (12,372)
(10.08) (236,680) Cancelled (5,166) 16.36 - - (5,166)
-------------------------------------------------------------------------
As at September 30, 2006 1,012,499 $ 12.16 4,051,906 $ 10.77
5,135,408
-------------------------------------------------------------------------
-------------------------------------------------------------------------
In the three month period ending September 30, 2006, 65,000 common
shares and 837 common shares were issued for proceeds of $0.6
million and $0.09 million in connection with the exercise of
outstanding options and warrants, respectively. In the nine month
period ending September 30, 2006, 224,308 common shares and 12,372
common shares were issued for proceeds of $2.8 million and $0.2
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 3.81% and 3.88%,
volatility between 29.59 and 38.00 percent, expected lives between
1.5 and 3.1 years, and an exercise price of Cdn $22.04 per share.
The following table summarizes information concerning stock options
outstanding as at September 30, 2006: Options Outstanding Options
Exercisable
---------------------------------------------------------- Number
Weighted outstanding Number Average and Weighted Outstanding
Remaining Weighted exercisable Range of average as at Contractual
average as at Exercise exercise September Life exercise September
Prices price 30, 2006 (months) price 30, 2006
-------------------------------------------------------------------------
$ 4.48 $ 4.48 175,000 49.51 $ 4.48 175,000 $ 7.98 - $10.76 $ 8.82
322,333 15.80 $ 8.79 222,333 $12.94 - $18.86 $ 16.68 288,000 33.66
$ 17.27 128,000 $19.77 - $24.01 $ 19.49 227,166 45.65 $ 13.51
21,438
-------------------------------------------------------------------------
$ 12.70 1,012,499 34.36 $ 9.95 546,771
-------------------------------------------------------------------------
-------------------------------------------------------------------------
During the nine months ended September 30, 2006, the Company
recognized $0.9 million of stock-based compensation expense related
to stock option grants. c) Earnings Per Share (Basic and Diluted)
For the three months ended September 30 2006
-------------------------------------------------------------------------
Income Shares Per-Share (Numerator) (Denominator) Amount
---------------------------------------- Net Income Available to
Common Shareholders $ 16,350 Basic EPS 16,350 76,007,433 $ 0.22
Effect of Dilutive Securities: Convertible Debentures 4 68,130
Stock Options - 546,771 Warrants - 4,064,278
---------------------------------------- Diluted EPS 16,354
80,686,612 $ 0.20 ----------------------------------------
---------------------------------------- For the three months ended
September 30 2005
-------------------------------------------------------------------------
Income Shares Per-Share (Numerator) (Denominator) Amount
---------------------------------------- Net Income Available to
Common Shareholders 172 Basic EPS $ 172 66,973,830 $ 0.00 Effect of
Dilutive Securities: Convertible Debentures - 74,922 Stock Options
- 874,308 Warrants - 4,064,412 -
---------------------------------------- Diluted EPS $ 172
71,987,472 $ 0.00 ----------------------------------------
---------------------------------------- For the nine months ended
September 30 2006
-------------------------------------------------------------------------
Income Shares Per-Share (Numerator) (Denominator) Amount
---------------------------------------- Net Income Available to
Common Shareholders $ 28,527 Basic EPS 28,527 72,789,973 $ 0.39
Effect of Dilutive Securities: Convertible Debentures 12 68,130
Stock Options - 546,771 Warrants - 4,064,278
---------------------------------------- Diluted EPS $ 28,539
77,469,152 $ 0.37 ----------------------------------------
---------------------------------------- For the nine months ended
September 30 2005
-------------------------------------------------------------------------
Income Shares Per-Share (Numerator) (Denominator) Amount
---------------------------------------- Net Income Available to
Common Shareholders $ 917 Basic EPS 917 66,943,226 $ 0.01 Effect of
Dilutive Securities: Convertible Debentures $ 28 74,922 Stock
Options - 874,308 Warrants - 4,064,412
---------------------------------------- Diluted EPS $ 945
71,956,868 $ 0.01 ----------------------------------------
---------------------------------------- Potentially dilutive
securities totaling nil for the quarter and nine months ended
September 30, 2006 and 62,608 shares for the quarter and nine
months ended September 30, 2005 (arising from exercisable stock
options) were not included as their effect would be anti-dilutive.
10. Changes in non-cash working capital Items The following table
summarizes the changes in non-cash working capital items: Three
Months Ended Nine months Ended September 30, September 30, 2006
2005 2006 2005
-------------------------------------------------------------------------
Accounts receivable $ (6,660) $ (155) $ (15,204) $ 5,666
Inventories (3,519) (1,416) (6,370) (2,147) Prepaid expenses
(1,295) (553) (1,058) (1,571) Accounts payable and accrued
liabilities 5,439 2,722 27,745 (1,738) Other 710 (1,120) 742 (907)
-------------------------------------------------------------------------
$ (5,325) $ (522) $ 5,855 $ (697)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
11. Supplemental cash flow information The following table
summarizes the supplemental cash flow information: Three Months
Ended Nine months Ended September 30, September 30, Shares issued:
2006 2005 2006 2005
-------------------------------------------------------------------------
On conversion of debentures $ 7 $ - $ 93 $ 88,848 As compensation -
- 559 410 For purchase of Minera Triton - - 47,381 - For share
purchase warrants - 2,100 - 2,100 12. 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: Revenue September 30 Net capital assets
----------------------- ----------------------- September December
2006 2005 30, 2006 31, 2005
-------------------------------------------------------------------------
Peru $ 141,196 $ 69,792 $ 107,902 $ 105,281 Canada - - 190 190
Mexico 28,239 14,738 187,010 142,258 United States - - 1,191 1,198
Argentina - - 71,924 3,691 Bolivia 3,424 - 7,035 4,762
-------------------------------------------------------------------------
Total $ 172,859 $ 84,530 $ 375,252 $ 257,380
-------------------------------------------------------------------------
-------------------------------------------------------------------------
For the three months ended September 30, 2006
-------------------------------------------------------------------------
Mining Operations Development ---------------------- and Mexico
Peru exploration Corporate Total
-------------------------------------------------------------------------
Revenue from external customers $ 10,680 $ 53,147 $ 441 $ - $
64,268 Depreciation and amortization $ (1,388) $ (2,738) $ (78) $
(30) $ (4,234) Reclamation accretion $ (84) $ (531) $ - $ - $ (615)
Interest and financing expense $ - $ (87) $ - $ - $ (87) Investment
and other income $ 1 $ (22) $ (211) $ 2,188 $ 1,956 Loss on
commodity and foreign currency contracts $ - $ - $ - $ (676) $
(676) Exploration expense $ (243) $ (831) $ (1,153) $ (40) $
(2,267) Income (loss) before taxes $ 3,325 $ 23,141 $ (1,595) $
(118) $ 24,753 Net income (loss) for the period $ 3,325 $ 14,974 $
(1,319) $ (625) $ 16,355 Property, plant and equipment capital
expenditures $ 1,987 $ 4,700 $ 11,204 $ 135 $ 18,026 Segment assets
$ 36,341 $ 196,373 $ 229,574 $ 168,479 $ 630,767 For the three
months ended September 30, 2005
-------------------------------------------------------------------------
Mining Operations Development ---------------------- and Mexico
Peru exploration Corporate Total
-------------------------------------------------------------------------
Revenue from external customers $ 5,355 $ 24,731 $ - $ - $ 30,086
Depreciation and amortization $ (1,489) $ (2,274) $ (8) $ (17) $
(3,788) Reclamation accretion $ 157 $ (892) $ - $ - $ (735)
Interest and financing expense $ - $ (154) $ - $ 28 $ (126)
Investment and other income $ (5) $ 13 $ 420 $ 913 $ 1,341 Loss on
commodity and foreign currency contracts $ - $ - $ - $ (2,198) $
(2,198) Exploration expense $ - $ (511) $ (193) $ 159 $ (545)
Income (loss) before taxes $ (1,803) $ 2,279 $ (271) $ (1,112) $ 93
Net income (loss) for the period $ (1,803) $ 3,358 $ (271) $
(1,112) $ 172 Property, plant and equipment capital expenditures $
1,695 $ 2,740 $ 11,764 $ 283 $ 16,482 Segment assets $ 59,693 $
136,518 $ 112,882 $ 62,012 $ 371,105 For the nine months ended
September 30, 2006
-------------------------------------------------------------------------
Mining Operations Development ---------------------- and Mexico
Peru exploration Corporate Total
-------------------------------------------------------------------------
Revenue from external customers $ 28,239 $ 141,196 $ 3,424 $ - $
172,859 Depreciation and amortization $ (4,449) $ (7,169) $ (171) $
(91) $ (11,880) Reclamation accretion $ (252) $ (1,591) $ - $ - $
(1,843) Interest and financing expense $ - $ (300) $ - $ (136) $
(436) Investment and other income $ (10) $ (389) $ (155) $ 3,850 $
3,296 Loss on commodity and foreign currency contracts $ - $ - $ -
$ (17,286) $ (17,286) Exploration expense $ (718) $ (1,382) $
(1,984) $ (47) $ (4,131) Income (loss) before taxes $ 7,085 $
61,646 $ (1,545) $ (18,640) $ 48,546 Net income (loss) for the
period $ 7,085 $ 42,106 $ (1,320) $ (19,313) $ 28,558 Property,
plant and equipment capital expenditures $ 4,663 $ 11,713 $ 54,560
$ 336 $ 71,272 Segment assets $ 36,341 $ 196,373 $ 229,574 $
168,479 $ 630,767 For the six months ended September 30, 2005
-------------------------------------------------------------------------
Mining Operations Development ---------------------- and Mexico
Peru exploration Corporate Total
-------------------------------------------------------------------------
Revenue from external customers $ 14,738 $ 69,792 $ - $ - $ 84,530
Depreciation and amortization $ (3,349) $ (5,944) $ (8) $ (30) $
(9,421) Reclamation accretion $ 490 $ (2,066) $ - $ - $ (1,674)
Interest and financing expense $ - $ (267) $ - $ (45) $ (312)
Investment and other income $ (5) $ 439 $ 399 $ 1,605 $ 2,438 Loss
on commodity and foreign currency contracts $ - $ - $ - $ (2,044) $
(2,044) Exploration expense $ (2) $ (511) $ (2,077) $ (113) $
(2,703) Income (loss) before taxes $ (1,952) $ 10,603 $ (2,418) $
(3,704) $ 2,529 Net income (loss) for the period $ (1,952) $ 8,994
$ (2,418) $ (3,704) $ 920 Property, plant and equipment capital
expenditures $ 4,033 $ 12,149 $ 24,639 $ (90) $ 40,731 Segment
assets $ 59,693 $ 136,518 $ 112,882 $ 62,012 $ 371,105 Third
Quarter 2006 Management's Discussion and Analysis November 2nd,
2006 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 third quarter ending September 30, 2006, and 2005, should be
read in conjunction with the unaudited consolidated financial
statements for the three months ended September 30, 2006 and 2005
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, 2005, the related
MD&A, and Pan American's Annual Information Form (available on
SEDAR at http://www.sedar.com/) and Form 40F. The significant
accounting policies outlined within these documents have been
applied consistently for the three and nine months ended September
30, 2006. Management evaluated the effectiveness of the Company's
disclosure controls and internal controls over financial reporting
as of the end of the third quarter of 2006. Based on this
evaluation, management concluded that the Company's disclosure
controls and internal controls over financial reporting were
effective and hence management did not make any material changes to
these controls during the third quarter of 2006. 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 Basic operating income/ income Quarter earnings/ (loss) for
(loss) Year (unaudited) Sales (loss)(1) the period per share
-------------------------------------------------------------------------
2006 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)
-------------------------------------------------------------------------
2003 Dec.31 $ 12,857 $ 81 $ (2,840) $ (0.05)(2) Sept. 30 $ 11,890 $
1,258 $ (1,225) $ (0.10)(2) (1) Mine operating earnings/(loss) are
equal to sales less cost of sales and depreciation and amortization
and is a non-GAAP measure (see mine operating earnings for further
explanation) (2) Includes charges associated with early conversion
and accretion of the Debentures For the three months ended
September 30, 2006, the Company generated record net income of
$16.4 million (basic income per share of $0.22) compared to net
income of $0.2 million (basic income per share of $0.00) for the
corresponding period in 2005. The improved financial results for
the quarter are primarily due to significantly higher silver prices
and record low costs per payable silver ounce (due to higher base
metal by-product credits). For the nine-month period ended
September 30, 2006 the Company had net income of $28.6 million,
compared to net income of $0.9 million for the corresponding period
in 2005. Higher realized prices combined with increased silver and
base metal production were the primary reasons for the dramatic
increase in net income for the nine-month period ended September
30, 2006 versus the comparable 2005 period. Net income for the
nine-month period ended September 30, 2006 includes a loss of $17.3
million relating to commodity and currency contracts, (compared to
a loss of $2.0 million for the same period in 2005) and an income
tax provision of $20 million (compared to an provision of $1.6
million for the same period in 2005). Sales for the third quarter
of 2006 were $64.3 million, a 114 per cent increase from sales in
the corresponding period in 2005. Sales in the third quarter of
2006 benefited from significantly higher realized metal prices,
increased production from the La Colorada mine, an increased
quantity of concentrate shipped from the Company's Peruvian
operations versus the year- earlier period (shipments of
concentrate are an essential criterion for revenue recognition) and
the recommencement of operations at San Vicente. Sales for the
nine-month period ended September 30, 2006 of $172.9 million were
more than double the sales for the comparable period in 2005, due
primarily to the same factors described above. Cost of sales for
the three months ended September 30, 2006 were $30.8 million, a 44
per cent increase from the $21.3 million recorded in the same
period of 2005. Similar to the explanation of higher sales for the
third quarter of 2006, cost of sales were higher due to (i)
increased mining and milling rates at La Colorada (approximately 7
per cent higher relative to a year ago), (ii) the shipment of
approximately 3,800 tonnes more concentrates from the three mines
in Peru relative to the comparable period in 2005 and (iii) the
recommencement of operations at San Vicente. Cost of sales were
also negatively impacted by significantly increased worker's
participation costs in Peru, which are based on the increased
taxable income being generated by the Company's Peruvian mines.
Cost of sales for the nine-month period ended September 30, 2006
were $82.7 million, which represents a 33 per cent increase over
the comparable period of 2005. The factors described in the
paragraph above plus the cost of sales at the San Vicente mine in
Bolivia, which was operating in the first and third quarter of 2006
but not in 2005, were the primary reasons for the increase from the
comparable period in 2005. Depreciation and amortization charges
for the third quarter of 2006 increased to $4.2 million from $3.8
million recorded for the corresponding period in 2005. For the
nine-month period ended September 30, 2006, these charges increased
to $11.9 million from $9.4 million a year ago. The higher level of
concentrate shipments and milling rates at La Colorada were the
main reasons for the increase in both the three-month and
nine-month periods ended September 30, 2006 compared to the
depreciation and amortization charges recorded in the respective
periods of 2005. The significant increase in sales relative to cost
of sales and depreciation and amortization charges resulted in mine
operating earnings in the third quarter of $29.2 million, which was
489 per cent higher than the mine operating earnings generated in
the third quarter 2005 of $5.0 million. During the nine-month
period ended September 30, 2006, the Company generated mine
operating earnings of $78.3 million, more than five times higher
than the mine operating earnings of $13.0 million in the same
period of 2005. Mine operating earnings are a non-GAAP measure that
is widely used in the mining industry as a benchmark for results of
mining operations and is used by management to monitor and assess
performance at each operation. General and administration costs for
the three-month period ended September 30, 2006, including
stock-based compensation, were $2.7 million. These costs increased
from $2.1 million for the comparable quarter in 2005 due to the
higher salary levels experienced across the entire mining industry
and by additional costs associated with the Company's Sarbanes
Oxley compliance project. General and administration costs of $7.1
million for the nine-month period ended September 30, 2006
(compared to $5.4 million in the same period in 2005) increased
primarily for the same reasons. Exploration and project development
expenses for the third quarter of 2006 were $2.3 million compared
to $0.4 million for the third quarter of 2005. The current
quarter's expense consisted primarily of maintenance costs at San
Vicente and exploration activities at Huaron and La Colorada.
Exploration expenses for the first nine months of 2006 were $4.1
million (first nine months of 2005, $2.7 million). Exploration
costs in the three-month and nine-month comparable periods of 2005
were incurred primarily to complete the feasibility study for the
Manantial Espejo project, which is now under construction. Asset
retirement and reclamation expense of $0.6 million in the third
quarter of 2006 (third quarter 2005, $0.7 million) related to the
accretion of the Company's mines closure liabilities. The accretion
for the nine-month period ended September 30, 2006 was $1.8 million
compared to $1.7 million for the same period of 2005. The modest
increase in the accretion charge relative to last year is directly
due to the Company increasing its estimate for the future
consolidated mine closure liability at the end of 2005. Interest
and financing expense incurred as a result of transactional bank
fees in the third quarter of 2006 of $0.1 million was similar to
the interest expenses incurred during the same period in 2005 and
during the first and second quarter of 2006. Investment and other
income of $2.0 million in the third quarter of 2006 (third quarter
2005, $1.2 million) represented interest income received from cash
balances the Company maintained during the quarter. Investment and
other income for the nine-month period ended September 30, 2006 was
$3.3 million (nine-month period of 2005, $2.4 million). The higher
interest rate environment prevailing in 2006, combined with higher
average cash balances, resulted in the increase over the comparable
periods. Loss on commodity and foreign currency contracts amounted
to $0.7 million in the current quarter compared to a loss of $2.2
million in the third quarter of 2005. The third quarter's loss
arose as a result of the Company's silver fixing and Mexican peso
hedging activities. The Company closed out its remaining zinc
forward positions in the second quarter of 2006 and thus there was
no effect on the Company's statement of operations from zinc
positions in the third quarter. The zinc forward positions were the
primary reason for the loss of $17.3 million incurred in the
nine-month period ended September 30, 2006 and for the $2.0 million
loss incurred in the comparable period of 2005. Income tax
provision of $8.4 million for the third quarter was a significant
increase from a $0.1 million tax credit in the comparable period of
2005 due to sharply higher taxable income generated by the
Company's Peruvian entities and the fact that these entities
utilized their remaining tax loss carry forwards in 2005. Income
tax provision for the nine-month period ended September 30, 2006
increased to $20 million from $1.6 million recorded in the same
period of 2005 due to the same reasons. Metal Production Pan
American produced 3.2 million ounces of silver in the third quarter
of 2006, a 1 per cent increase from the corresponding period in
2005. Silver production increased by 13 per cent at La Colorada,
due primarily to higher silver grades and increased milling rates
as a result of restarting the sulphide plant at the mine.
Operations were also restarted at San Vicente during the quarter
and contributed 55,000 ounces of silver to Pan American's account.
Silver production at Huaron was similar to the level achieved a
year ago while lower silver grades were the primary reason for the
slight drop in production at the Company's other operations
relative to the comparable period in 2005. Consolidated base metal
production remained similar to production levels from a year ago,
with higher mill tonnage offsetting the impact of lower ore grades.
Please refer to the "Financial & Operating Highlights" section
of this third quarter report for a detailed breakdown of each
mine's production data. Cash and Total Production Costs per Ounce
for Payable Silver Consolidated cash costs for the three-month
period ended September 30, 2006 were a record low of $1.57 per
payable ounce of silver compared to $4.15 per ounce for the
corresponding period of 2005. The decrease in cash costs was
primarily a result of the increase in by-product credits generated
from increased base metal production at higher metal prices. At
both Morococha and Quiruvilca, the by-product credits were greater
than the operating costs, resulting in cash costs per ounce of
negative $5.14 and negative $0.39 respectively. The cash costs per
ounce as compared to the same period in 2005 decreased by $7.13 at
Morococha, by $3.94 at Quiruvilca and by $2.81 at Huaron. At La
Colorada, which is a nearly pure silver mine and thus realizes only
minor by-product credits, cash costs per ounce were $0.44 higher
than those recorded a year ago. The Company's Pyrite Stockpile
operation recorded higher costs than it had a year ago due to the
fact that the cost structure of that operation is linked to silver
prices, resulting in higher costs when silver prices are higher. At
San Vicente, start-up costs and a cost structure linked to silver
prices resulted in cash costs per ounce of $8.09, which is
significantly more than the Company's long-term expectation of
$3.50 per ounce. The Company reports the non-GAAP cash cost per
ounce of payable silver in order to manage and evaluate operating
performance at each of the Company's mines. The measure is widely
used in the silver mining industry as a benchmark for performance,
but does 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 cost of
sales, as shown in our unaudited Consolidated Statement of
Operations for the period. Three months ended Nine months ended
September 30 September 30 2006 2005 2006 2005 ---------------------
--------------------- Cost of sales $ 30,813 $ 21,337 $ 82,723 $
62,134 DATASOURCE: Pan American Silver Corp. CONTACT: Alexis
Stewart, Director Corporate & Investor Relations, (604)
684-1175,
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