Pan American Silver Corp.

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Argentina - Manantial Espejo

Click here for map of Manantial Espejo

The Manantial Espejo mine is located in the province of Santa Cruz, in the mineral-rich Patagonia region of southern Argentina. The silver-gold property consists of 17 mineral concessions covering 25,533 hectares, extending 36 by 19 kilometres. Nearby operations include AngloGold's Cerro Vanguardia gold mine and Coeur d'Alene's Martha silver mine.

Preliminary examination of the Manantial Espejo property was first carried out in the 1970s by the Argentinean government. Ownership then passed through several individuals and corporations that included Barrick Gold and St. Joe Minerals. In mid-2006, Pan American Silver Corp. consolidated its 100% interest in the property. Development activities began and have proceeded continuously since then. In November 2008, the Company announced that it expects total capital expenditures at Manantial Espejo to be approximately 20% to 24% above the previous estimate of $185.3 million.

Commissioning of the processing plant started on September 27, 2008 and Manantial Espejo began pouring dore on December 29, 2008. The commissioning and ramp up was very smooth and Manantial Espejo to reached design capacity of 2,000 tonnes per day by the end of the first quarter of 2009. At feasibility study levels Manantial Espejo is expected to produce an average of 4 million ounces of silver and 60,000 ounces of gold annually and should be the Company's lowest cost mine.

Geology

Silver and base metal mineralization in the Manantial Espejo district is spatially and genetically related to a large bimodal igneous province, the Deseado Massif, which is dominated by acid volcanics and their resedimented products of the Chon Aike and La Matilde Formations (Upper Jurassic), and andesites of the Bajo Pobre Formation (Middle Jurassic). The older volcanics form the basement unit and are locally mineralized. The Chon Aike and La Matilde Formations host mineralization, which occurs at the faulted contacts of volcanic facies as well as at contacts of volcanic stages.

The ore deposits at the Manantial Espejo project are predominantly veins having short strike slip and larger down dip displacements. Styles of mineralization include massive quartz veins, vein breccias, sheeted and stockwork veining and minor dissemination. Quartz is the main infill mineral, displaying distinctive textures indicating the overprinting of hydrothermal events which occurred in the area.

Mineralization is interpreted as occurring at the intersection of west-northwest trending fault zones and arcuate structures that could be related to a possible volcanic center. Gold occurs mainly as electrum in pyrite while the silver occurs in a number of forms including argentiferous galena and silver sulphosalts. Sulfides account for up to 3 to 5% of the rock mass as veinlets and disseminations.

Mineralization at Manantial Espejo is hosted in four main veins: the Maria Vein, Karina/Union Vein, Melissa Vein and Concepcion Vein. The majority of the mineralization outlined to date is in the Maria Vein. The vein is a thick multiphase silica vein exposed on surface for more than 1.0 kilometre and has been intersected at a depth of up to 275 metres. This vein averages 7.8 metres in true width ranging from 0.63 metres to 20 metres. The vein is open to the east and at depth.

Exploration

Reconnaissance exploration of Manantial Espejo was first done by Argentine government geologists during the 1970s. Exploration drilling was begun by Barrick in 1996 and has continued intermittently by other companies since then.

Exploration methods include diamond core, reverse circulation and wagon drilling. For the entire Manantial Espejo property, this work consists of 1,043 drill holes totaling 93,867 metres. The diamond core samples were considered to be of superior quality and representative of the deposits. Therefore, with the exception of five reverse circulation holes in the Maria Vein, recent resource modeling evaluations have been based upon core samples from 662 diamond drill holes representing approximately 65,896 metres.

Diamond drill holes are located and oriented by geologists in the field to obtain drill spacing in the 25 to 50 metre range on vein, with the closer spacing in the higher grade zones. Manantial Espejo drilling data are used for metals exploration, resource modeling, geotechnical studies, metallurgical examinations and hydrological exploration.

Mineral Reserves ^{1, 2}

Reserve Category	Tonnes (000's)	Grams of Silver per tonne	Grams of Gold per tonne
Proven	4,308	163	2.33
Probable	3,033	138	2.00
Total	7,341	153	2.19

1. Calculated as at December 31, 2009 using prices of $13 per ounce of silver, $875 per ounce of gold.

2. Mineral reserve estimates for Manantial Espejo were prepared under the supervision of, or were reviewed by Michael Steinmann, P.Geo., Executive Vice President Geology & Exploration and Martin G. Wafforn, P.Eng., Vice President Technical Services, who are Qualified Persons as that term is defined in NI 43-101.

3. For all ores at Manantial Espejo the metallurgical recovery of the plant was assumed to be 93.57% for silver and 94.25% for gold. Payable amounts in the doré product of the mine are assumed to be 99.75% for silver and 98.87% for gold. The cut off grade applied for all open pit ores was 73 g/t. The nominal cut-off used to define underground Maria longhole stoping ore was 160gpt AgEq. The nominal cutoff used to define underground Maria and Melissa shrinkage stoping ore was 194gpt AgEq. The nominal cutoff used to define underground Concepcion cut and fill stoping ore was 210gpt AgEq. In all underground reserves, stoping blocks were visually defined using the cited cut-offs with a long section display of silver equivalent grade. However, once the stopes were defined, all recovered material inside of the stopes was defined as ore, regardless of grade. In all cases, the value ratio used to determine silver equivalency was 59.787. This ratio and the cut-offs were determined by the same method as in the feasibility study, using feasibility costs, payables, taxes, royalties, and metallurgical recoveries. However, all of the input values were revised to match the final results of the feasibility, with the exception of Gold and Silver sales prices, which were $525 and $9 respectively.

Mineral Resources ^{1, 2, 3}

Resource Category	Tonnes (000's)	Grams of Silver per tonne	Grams of Gold per tonne
Measured	815	100	1.02
Indicated	2,154	103	0.98
Inferred	1,410	103	1.09

1 Calculated as at December 31, 2009 using a price of $13 per ounce of silver and $875 per ounce of gold.

2 Mineral resource estimates for Manantial Espejo were prepared under the supervision of, or were reviewed by, Michael Steinmann, P.Geo., Executive Vice President Geology & Exploration and Martin G. Wafforn, P. Eng., Vice President Technical Services, who are Qualified Persons as that term is defined in NI 43-101.

Mine Plan

The mine plan for the Manantial Espejo project consists of two surface and two underground mines, a 2,000 tonne-per-day processing facility, expanded housing in the local community and participation in a new power line that will service the mine and the local community.

The surface mining method proposed for the ore is conventional open pit mining using currently owned 54-tonne off road trucks and a mix of front end rubber tired loaders and track loading equipment.

The considerable variation in dip and thickness of the various mineralized zones throughout the property require a number of different underground mining methods to be utilized. Underground mining operations will consist of either long-hole, cut and fill or shrinkage methods.