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Tue Aug 12, 2003
Pan American Silver Increases Production 12% In Second Quarter
(all amounts in US Dollars unless otherwise stated)
SECOND QUARTER HIGHLIGHTS
- Consolidated revenue increased 8% over second quarter of 2002 to $12.6 million. Net loss decreased 35% to $0.44 million or $0.01 per share.
- Silver production increased 12% over the same period of 2002, to 2.2 million ounces.
- Silver Stockpiles operation in Peru produced 186,000 ounces of silver at a cash cost of $2.02/oz.
- La Colorada mine expansion completed ahead of schedule and 5% under budget. On track to produce 3.8 million ounces of silver annually at a cash cost of $2.65/oz. starting in Q4.
- In August the Company completed the issue of $86.3 million of 5.25% unsecured senior subordinated convertible debentures to increase its financial strength and ability to fund new projects.
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FINANCIAL RESULTS
Pan American Silver Corp. (NASDAQ: PAAS; TSX: PAA) reported a net loss for the second quarter of $442,000 ($0.01 per share) compared to a net loss of $1.25 million ($0.03 per share) for the second quarter of 2002. Consolidated revenue for the quarter was $12.6 million, 8% greater than revenue in the second quarter of 2002 primarily due to increased silver production, offset by a lower realized silver price.
Consolidated silver production for the second quarter totalled 2,180,607 ounces, a 12% increase over the second quarter of 2002. The increase was due primarily to the addition of the high-grade pyrite stockpiles operation in Peru and higher tonnage and grade processed at La Colorada. Zinc metal production of 7,838 tonnes was 17% lower while lead production of 4,692 tonnes was 9% lower than in the second quarter of 2002, due to the lower grade of both metals at Quiruvilca. However, higher copper content in ore from Quiruvilca resulted in production of 1,017 tonnes of copper in the second quarter -- 43% higher than in 2002.
Cash costs of $4.42/oz in the second quarter remained stable versus cash costs of $4.39/oz in the corresponding period of 2002. Cash costs are expected to decline in the latter part of the year as the La Colorada mine reaches full production. Total production costs declined by 8% to $4.82/oz reflecting the higher production rate and reduced depreciation and amortization costs following the write-down of the carrying value of the Quiruvilca mine in the second half of 2002.
For the six months ended June 30, 2002 consolidated silver production was 4,330,659 ounces, an 8% increase over the first six months of 2002. Zinc production of 17,181 tonnes was 12% lower than in 2002. Lead production was flat at 10,504 tonnes and copper production of 1,784 tonnes was 29% higher. Although cash costs for the first six months increased 4% to $4.28/oz, total production costs declined 4% to $4.71.
Working capital at June 30, including cash of $11.14 million, improved to $5.9 million, an increase of $3.5 million from December 31, 2002. During the quarter, $0.4 million was repaid against the Huaron project loan, while $4.0 million was drawn from the La Colorada mine expansion project loan from the International Finance Corporation. Capital spending totalled $4.2 million, primarily for the expansion of the La Colorada mine. Working capital increased by $83.7 million when the proceeds (net of underwriters' commissions) from the issuance of the convertible debentures were received on July 30 and August 9, 2003.
OPERATIONS AND DEVELOPMENT HIGHLIGHTS
MEXICO
The La Colorada mine increased production in the second quarter by 25%, rising to 229,557 ounces of silver. Operating results continued to be treated as pre-production revenue. The $20 million expansion of the mine was completed in June, slightly ahead of schedule and 5% under budget. The expansion included the construction of a 600 tonne/day oxide mill added to the existing 200 tonne/day sulphide mill. The expanded mine is expected to reach an annualized production rate of 3.8 million ounces of silver early in the fourth quarter and to become Pan American's lowest cost mine with a cash cost of less than $3.00/oz. With more than 90% of its revenues derived from silver, La Colorada is one of the purest silver mines in the world.
The Company is currently updating the feasibility study on the Alamo Dorado silver project, acquired in early 2003 with the purchase of Corner Bay Silver. AMEC E&C Services Inc. has been retained to evaluate the economic benefits of adding a conventional mill circuit to a small-scale heap leach operation. The original heap leach feasibility study prepared by Corner Bay projected average annual production of 6 million ounces at an average cash cost of $3.25 per equivalent ounce of silver starting in 2005. A conventional mill will improve recoveries, thereby reducing cash costs and expanding the mineable reserves. A production decision is expected by the end of this year.
PERU
While production at the Huaron mine remained steady at 1,151,012 ounces of silver, cash and total costs were affected negatively by lower than expected equipment availability as well as expenditures for additional development and ground support. The cash cost in the quarter rose to $4.20/ounce, up from $3.64/oz in the year-earlier period and the total cost rose from $4.09/oz to $4.75/oz. The Company is currently working with the contractor to address the equipment issue and cash costs are expected to decrease in the third quarter. In July, the Company initiated a third-party evaluation of the potential to expand production at Huaron. As part of the feasibility study due at the end of the year, drilling has begun to convert known mineral resources into proven and probable reserves.
Production from the Quiruvilca mine remained steady at 614,274 ounces of silver, versus 610,444 ounces in the corresponding period of 2002. The mine continues to struggle with a high cash cost of $5.56/oz and declining ore grades. Starting in the third quarter, production is expected to be reduced from 40,000 tonnes per month to 25,000 tonnes per month and cash costs are expected to improve as the higher-cost North zone is closed and decommissioned.
The Silver Stockpile Operation continued to generate excellent cash flow, producing 185,764 ounces of silver at a cash cost of just $2.02/oz. With a total production cost of only $2.69/oz, the Stockpile contributed $0.3 million to second quarter earnings.
ARGENTINA
In the second quarter, drill results from the 50% owned Manantial Espejo silver-gold joint venture confirmed the size of the deposit and increased the Company's confidence in its geological model, leading the joint venture to accelerate the commissioning of a feasibility study on the property. The study will be initiated in the fourth quarter for completion in early 2005. Over the remainder of the year, geotechnical and environmental work will proceed to facilitate permitting. Initial scoping work indicates that at a rate of 1,500 tonnes per day, Manantial Espejo would produce 4 million ounces of silver and 70,000 ounces of gold annually.
BOLIVIA
Limited scale mining operations of 200 tonnes per day continued at the San Vicente project, under the operatorship of EMUSA, a Bolivian mining company that is extracting ore from the mine under a lease agreement with Pan American. The Company has an option to earn 100% of this property and expects to resume exploration and development work in the fourth quarter.
OTHER DEVELOPMENTS
Pan American is pleased to announce the addition of two new members to its senior operating team to help manage the Company's continuing growth. Steven Busby joins as Senior Vice-President, Project Development to manage the Company's portfolio of growth projects. Andrew Pooler joins as Senior Vice-President, Mining Operations responsible for Pan American's producing mines.
Mr. Busby brings more than 20 years of mining experience to his new position, most recently as a consultant providing engineering expertise to projects around the world. He has served in senior roles with Coeur d'Alene Mines, Amax Gold, Meridian and others. Mr. Pooler has also held senior executive positions in the mining industry throughout the Americas for more than 16 years.
SILVER MARKETS
The silver price declined in the second quarter, dropping to a low of $4.37 on April 3 and rebounding to $4.86 on May 15 briefly, before settling back down to the $4.50 level where it closed out the quarter on June 30. This marked the start of a steady rise, however, as prices climbed throughout July, breaking the $5.00 barrier on July 24. Prices appeared to be driven up by an increase in physical demand and speculative interest, marked by rising lease rates and increasing short-term futures contract prices.
According to Chairman and CEO Ross Beaty, "The Company has never been stronger or better positioned to reach its goal of becoming the world's pre-eminent silver company. We now have the portfolio of projects and the financial strength to double our production to 20 million ounces of silver over the next 24 months. We also expect to reduce our cash costs significantly over this period. I am very excited about our future growth, our new financial strength and the great new team we've assembled, which together will allow us to deliver on our mandate of providing the best possible equity vehicle for those investors seeking exposure to silver."
Pan American will host a conference call on Tuesday, August 12th at 8:00 a.m. Pacific time (11:00 a.m. Eastern time) to discuss the second quarter financial and operational results. North American participants please call toll-free 1-800-387-6216. International participants please dial 1-800-7664-7664. The conference may also be accessed live from the investor relations section of the Pan American website at www.panamericansilver.com. To listen to a playback for two weeks after the call, dial 1-800-408-3053 and enter the pass code 1465722.
For More Information, please contact:
Brenda Radies, Vice-President Corporate Relations
(604) 806-3158
Geoff Burns, President
(604) 684-1175
www.panamericansilver.com
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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.
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