Pan American cuts costs, boosts production and earnings

The second quarter of 2006 was another record-breaking quarter for Pan American Silver (PAA-T, PAAS-Q), which posted a 201% increase in net earnings to US$15 million, or 21 per share, from US$5 million in the comparable period of 2005.

Pan American produced 3.3 million oz. silver during the latest quarter ended June 30, up 7% from a year earlier, with five of its six mines reporting higher production and mill throughput.

The most significant production increases came from the La Colorada and Morococha mines in Mexico and Peru, respectively. Production at La Colorado climbed 23% to 914,398 oz. silver, while Morococha maintained its record-breaking production performance and status as the company’s lowest-cost mine by churning out 771,718 oz. silver at a cash cost of minus US$3.81 per oz.

Pan American also recorded its lowest cash production costs to date, at US$1.17 per oz., compared with US$4.48 per oz. a year earlier. The 74% reduction was partly attributed to increased base metal production coupled with higher base metal prices. The second lowest-cost mine was the Quiruvilca mine in Peru, which produced 582,570 oz. at a cash cost of minus US$1.07, down from US$4.46 per oz. silver a year earlier.

President Geoff Burns stated that the first and second quarters of this year “combined to deliver Pan American’s highest production, earnings and cash flow performance ever.” He noted that the company is on track to produce 14 million oz. silver this year at a considerably lower cash cost than previously estimated, adding that two mines under construction “should deliver sharply increased silver production and even better financial returns in the near future.”

The company’s Alamo Dorado mine in Mexico’s Sierra Madre mineral belt is near mechanical completion and on schedule for startup in the fourth quarter. To date, more than US$62.8 million has been spent to build the mine, with about 85% of the construction completed. More than 168,190 tonnes have been mined and stockpiled and the processing plant is now in operation.

Alamo Dorado is expected to contribute about 500,000 oz. to the company’s consolidated production this year, rising to an average of 5 million oz. silver annually over the life of the open-pit operation.

Construction of the Manantial Espejo mine is under way in Argentina, and on track for completion in late 2007. Capital costs for the project are expected to total US$112.3 million over 18-20 months. The mine is designed to produce an average of 4.3 million oz. silver and 62,000 oz. gold annually.

Engineering studies are in progress to expand Morococha and the San Vicente mine in Bolivia. The new mines and expansion projects are expected to boost the company’s annual silver production to more than 25 million oz. annually by 2008.

Pan American is conducting exploration and drilling programs at existing operations and at advanced development projects to expand its resource and reserve base.