Add/(Subtract) Smelting, refining, and transportation charges
17,795 9,469 48,474 27,204 By-product credits (44,424) (19,815)
(118,016) (55,431) Mining royalties 1,127 386 2,812 1,168 Workers
participation (1,842) (261) (5,660) (789) Change in inventories 225
733 2,638 2,464 Other 913 492 2,479 1,157 Minority interest
adjustment 44 (175) 386 (779) -----------------------------
--------------------- --------------------- Cash Operating Costs A
$ 4,650 $ 12,165 $ 15,836 $ 37,126 Add/(Subtract) Depreciation and
amortization 4,234 3,788 11,880 9,421 Asset retirement and
reclamation 615 736 1,843 1,674 Change in inventories (185) (45)
152 1,016 Other (22) (327) (91) (245) Minority interest adjustment
(166) (154) (468) (475) -----------------------------
--------------------- --------------------- Production Costs B $
9,126 $ 16,163 $ 29,151 $ 48,518 Payable Ounces of Silver C
2,963,597 2,930,179 9,043,186 8,479,763 ---------------------
--------------------- Total Cash Cost per Ounce (Ax1000)/C $ 1.57 $
4.15 $ 1.75 $ 4.38 --------------------- ---------------------
Total Production Costs per Ounce (Bx1000)/C $ 3.08 $ 5.52 $ 3.22 $
5.72 --------------------- --------------------- Liquidity and
Capital Resources At September 30, 2006, cash and cash equivalents
plus short-term investments were $181.1 million, a $4.2 million
decrease from June 30, 2006. The decrease is primarily due to the
fact that the Company invested $18.2 million in mining assets
during the quarter, which was more than the $15.3 million of cash
flow generated from operating activities during the quarter. In
addition, the Company's financing activities used $1.4 million
during the quarter, primarily to repay an advance on concentrate
shipments. The Company's investments in mining assets during the
third quarter were primarily related to purchase of mining
equipment and expenditures on property development at the Company's
two construction projects, Alamo Dorado and Manantial Espejo, where
$12 million was expended. Significant investments also occurred at
Morococha, where $2.1 million was invested in mine development and
at La Colorada, where $2 million was invested in underground
development of the sulphide ore zones and rehabilitating the
sulphide plant in preparation for its restart. For the nine-month
period ended September 30, 2006, cash and short term investments
increased by $125.8 million due mainly to the net proceeds of
$142.2 million from an offering of common shares completed during
the second quarter. The Company's operating activities generated a
further $52.5 million in the nine-month period, offset by capital
spending of $71.3 million, primarily at Alamo Dorado and Manantial
Espejo. Working capital at September 30, 2006 was $196.1 million,
an increase of $7.1 million from June 30, 2006. The increase in
working capital is reflected in a $6.6 million increase in accounts
receivable plus an increase of $4.1 million in supplies and
concentrate inventories, and a net decrease of $1.5 million in
current liabilities, partially offset by decreases in cash and
short term investments and in other current assets of $4.2 million
and $0.9 million respectively. Shareholders' equity at September
30, 2006 was $480.5 million, an increase of $12.5 million from
shareholders' equity at June 30, 2006 as a result of net income
generated during the quarter of $16.4 million plus $1.2 million
from the exercise of stock options. For the nine-month period ended
September 30, 2006, Shareholders' equity has increased by $223.2
million. This increase resulted primarily from the proceeds from
the public offering of common shares of $142.2 million, from the
$47.4 million acquisition of the remaining 50 per cent interest of
Manantial Espejo, and from the net income generated during the
period of $28.6 million. At September 30, 2006, the Company had
76.1 million common shares issued and outstanding. The Company's
financial position at September 30, 2006 and the operating cash
flows that are expected over the next twelve months leads
management to believe that the Company's liquid assets are more
than sufficient to fund planned capital expenditures, including the
construction of Alamo Dorado and Manantial Espejo, and to discharge
liabilities as they come due. At the date of this MD&A, the
Company did not have any undisclosed material contractual
obligations, or any off-balance sheet arrangements, except for
$12.7 million of commitments relating to the construction of Alamo
Dorado and Manantial Espejo. As at September 30, 2006, the Company
had sold forward 3,000 tonnes of zinc at an average price of $1,603
per tonne and had bought forward 3,000 tonnes of zinc at an average
of $2,986 per tonne. The forward zinc purchases and sales positions
have matching maturities and settle between October and December of
2006. At September 30, 2006, the cash offered price of zinc was
$3,366 per tonne, which resulted in a net unrealized mark-to-
market loss of the Company's zinc forward positions of $4.2 million
($5.1 million of unrealized losses and $1 million of unrealized
gains), and was recognized in the Company's second quarter net
income. At the end of the third quarter of 2006, the Company had
fixed the price of 800,000 ounces of silver produced during the
third quarter and contained in concentrates, which are 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 on
September 30, 2006, resulting in a mark to market gain of $0.2
million. In anticipation of expenditures in Mexican pesos ("MXN"),
the Company has entered into foreign currency contracts with an
aggregated nominal value of MXN 33 million settling between October
2006 and December 2006 at an average MXN/US$ exchange rate of
11.02. At September 30, 2006, the mark to market value of the
Company's position was $ nil. Outlook The construction of the
Company's Alamo Dorado project in Mexico was completed during
October 2006, substantially on budget and on schedule, with silver
dore production expected to commence in November 2006. The total
capital cost for the construction of the project was approximately
$79.9 million, which is within 4 per cent of the original
feasibility study forecast of $77 million. The project construction
was completed without the occurrence of a lost-time accident. Alamo
Dorado is expected to produce approximately 300,000 ounces of
silver in 2006 and thereafter, to average approximately 5 million
ounces annually at cash costs of less that $3.00 per silver ounce.
Construction of the Manantial Espejo project in Argentina has been
advancing since its commencement in April 2006. Activities at the
project during the third quarter were mostly related to
preparations for the Southern Hemisphere's upcoming summer
construction season. Detailed engineering design work for the main
infrastructure and processing facilities is well underway with the
Company's engineering contractor as well as preparatory work for
the underground access ramps. In addition, the Company continued to
fill key staffing positions during the quarter. Ordering of
critical-path, long lead- time equipment also continued during the
third quarter, including a new SAG mill. The Company anticipates
spending an additional $17 million on the construction of Manantial
Espejo over the remainder of the year, which will be funded out of
the proceeds from the common share offering completed in the second
quarter. Capital costs for the project are expected to be $112.3
million including working capital and normal construction
contingencies, plus $18.1 million in Argentine Value Added Tax
which will be refundable once the mine is in production. Based on
the Company's actual silver production and cash costs per ounce for
the first nine months, management expects to produce approximately
13.4 million ounces of silver at cash costs of $1.60 per ounce in
2006, compared to management's forecast of 14.1 million ounces of
silver at cash costs of $4.43 per ounce presented in the 2005
annual MD&A. Cash costs per ounce are now expected to be much
lower than management's original forecast due to higher than
expected by-product credits from base metal sales. The shortfall in
silver production is primarily due to a delay in restarting the
sulphide operation at La Colorada compared to management's
expectations at the beginning of the year. The sulphide plant at La
Colorada was expected to restart in April 2006 and contribute
approximately 0.8 million ounces of silver production in the
current year. However, a delay in restarting the sulphide plant
resulted in production only commencing during the third quarter and
it is now expected to contribute 0.3 million ounces of silver in
2006. Caution Regarding Forward Looking Statements THIS MD&A
CONTAINS "FORWARD-LOOKING INFORMATION" WITHIN THE MEANING OF
APPLICABLE CANADIAN SECURITIES LEGISLATION. STATEMENTS CONTAINING
FORWARD- LOOKING INFORMATION EXPRESS, AS AT THE DATE OF THIS
MD&A, 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. CONTACT: Alexis Stewart, Director Corporate &
Investor Relations, (604) 684-1175, DATASOURCE: Pan American Silver
Corp. CONTACT: PRNewswire - - 11/02/2006
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