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Press release from Marketwire

Pan American Silver Posts Record Sales, Earnings and Cash Flows During the Second Quarter of 2011

Wednesday, August 10, 2011

Pan American Silver Posts Record Sales, Earnings and Cash Flows During the Second Quarter of 201122:22 EDT Wednesday, August 10, 2011VANCOUVER, BRITISH COLUMBIA--(Marketwire - Aug. 10, 2011) - (All amounts in US dollars unless otherwise stated and all production figures are approximate)Pan American Silver Corp. (TSX:PAA)(NASDAQ:PAAS) ("Pan American" or the "Company") today reported unaudited financial and operating results for the quarter ended June 30, 2011. The Company also provided an update on its operations and development projects.Starting January 1, 2011, the Company is required to report its financial results in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). Consequently, beginning January 1, 2011 Pan American is reporting under IFRS for interim and annual periods, with comparative information for 2010 restated under IFRS. A detailed description of the changes is included in Note 2 of the condensed consolidated financial statements for the three and six months ended June 30, 2011, available on SEDAR ( earnings release should be read in conjunction with the Company's MD&A, Financial Statements and Notes to Financial Statements for the corresponding period, which have been posted on SEDAR at and are also available on the Company's website at Quarter 2011 Highlights (unaudited)(1)-- Consolidated silver production of 5.6 million ounces-- Consolidated gold production of 21,900 ounces-- Consolidated cash costs(2) of $9.19 per ounce of payable silver, net of by-product credits-- Record revenue of $231.9 million, an increase of 54% -- Record mine operating earnings(3) of $118.6 million, an increase of 127%-- Record net earnings attributable to common shareholders of $113.5 million or $1.04 per share -- Adjusted net earnings attributable to common shareholders(4) of $76.1 million or $0.71 per share -- Record operating cash flows, before changes in working capital(5), of $119.4 million, or $1.11 per share -- Cash and short-term investments of $461 million, an increase of $63.8 million from March 31, 2011 -- Net working capital increased to a record $578.2 million(1) Financial information based on IFRS; percentages compare Q2 2011 with Q22010. (2) Cash costs per payable ounce of silver is a non-GAAP measure. The Company believes that, in addition to cost of sales, cash cost per ounce is a useful and complementary benchmark that investors use to evaluate the Company's performance and ability to generate cash flow and is well understood and widely reported in the silver mining industry. However, cash costs per ounce does not have a standardized meaning prescribed by IFRS GAAPas an indicator of performance. A reconciliation is included in the Company's MD&A on page 15. (3) Mine operating earnings is a non-GAAP measure used by the company to assess the performance of its silver mining operations. Mine operating earnings are equal to sales less cost of sales and depreciation and amortization and is considered to be substantially the same as gross margin.(4) Adjusted earnings attributable to common shareholders (a non-GAAP performance measure), are net earnings attributable to common shareholders less the mark-to-market impact of the Company's outstanding warrants. (5) Operating cash flows before changes in working capital is a non-GAAP measure used by the Company to manage and evaluate operating performance. The Company considers this measure to better reflect normalized cash flow generated by operations. Cash flow per share is a non-GAAP measure used as ameasure of return on capital and is calculated using cash flow from operations, before changes in non-cash working capital, divided by basic weighted average shares outstanding. Investors are cautioned that this measure is not defined in current GAAP and there is no comparable measure defined in GAAP. Commenting on Pan American's second quarter results, Geoff Burns, President & CEO, said, "By every financial measure we experienced an outstanding quarter. Capitalizing on record silver and gold prices we generated record sales, record earnings and record cash flow. Our silver production was on target, as our Mexican mines and our San Vicente mine continued to out-perform and offset a below-forecast quarter at our Peruvian operations. Our growth prospects continue to mature nicely. As we materially advanced both our Navidad silver project and La Preciosa joint venture project. In addition, recent press reports coming from the province of Chubut in Argentina, clearly indicate that the political debate on amending the mining law in Chubut has started."Financial ResultsDuring the second quarter of 2011, Pan American's revenue climbed to a record $231.9 million, an increase of $81.3 million or 54% from the same period of 2010. The increase was directly attributable to significantly higher metal prices, partly offset by lower quantities sold of all metals produced by the Company, with the exception of lead. In comparison to the second quarter of 2010, prices for silver and gold rose 107% and 26%, respectively, while zinc, lead and copper prices increased by 12%, 31% and 30%, respectively. Increased sales had a positive impact on quarterly mine operating earnings, which were also a record at $118.6 million or 127% more than a year ago.Net earnings and earnings per share attributable to common shareholders generated during the quarter ended June 30, 2011 were a record $113.5 million and $1.04, respectively. After subtracting a $36.5 million non-cash gain on the Company's outstanding warrants, adjusted earnings attributable to common shareholders were $76.1 million or $0.71 per share.During the second quarter, the Company increased its metal inventory balances by approximately 2,000 ounces of gold and 300,000 ounces of silver. Had these ounces, which were produced in the second quarter, been sold at the average realized prices during the same quarter, additional after tax earnings of approximately $7.0 million, or $0.07 per share, would have been reported. This increase in inventory is expected to be sold over the balance of the year, at which time the associated earnings and cash flow will be recognized.On the back of record earnings, Pan American also generated record operating cash flows, before changes in working capital, of $119.4 million, an increase of 123% year-on-year.Income taxes for the second quarter of 2011 were $31.1 million or $2.4 million higher than one year ago, due to higher taxable earnings. The Company's effective tax rate on adjusted earnings attributable to common shareholders during the quarter was 22% lower than expected due to the impact of foreign exchange movements and adjustments to deferred tax assets. The mark-to-market non-cash gain on the Company's outstanding warrants is not taxable and has been excluded from the calculation of the effective tax rate.At June 30, 2011, Pan American's cash and short-term investment position was $461 million, and the Company's working capital amounted to $578.2 million. These represent an increase of $63.8 million and $85.4 million from the first quarter of this year, respectively. The Company remains essentially debt-free and has a $150 million credit facility, which remains undrawn.Production and Mining OperationsDuring the second quarter of 2011, Pan American produced 5.6 million ounces of silver and 21,900 ounces of gold, which was 18% less and 4% more than a year ago, respectively. The Company's Mexican operations continued their solid production run and once again performed above forecast. The Alamo Dorado mine produced 1.4 million ounces of silver, or 1 million ounces less than during the second quarter of 2010 due to lower silver grades, while the La Colorada mine contributed 1.1 million ounces of silver.In Peru, the Morococha, Huaron and Quiruvilca mines had a challenging quarter and produced 0.4 million, 0.7 million and 0.2 million of ounces of silver respectively. At the Huaron mine, improvements in silver grades and recoveries were offset by lower throughput rates due to the shutdown of a large mechanized stope that was lower grade than expected. The Company is developing alternative mining areas to regain throughput rates over the next several months. At the Quiruvilca mine, lower silver grades and recoveries persisted as the mine approaches exhaustion and milling rates were briefly affected in May due to a failure of the primary ball mill. At the Morococha mine, quarterly production was negatively affected by a decision to temporarily suspend mining at a few of our higher-grade areas in the Yacumina and Morro Solar zone, which had been experiencing erratic grades, in order to conduct additional drilling and enable optimization of the mine design. This is expected to provide greater long-term value and recover part of the second quarter's production shortfall over the coming months.In Bolivia, the San Vicente mine had an excellent quarter, more than recovering from the issues experienced during the previous quarter. Capitalizing on higher silver grades and throughput rates, San Vicente produced 0.9 million ounces of silver, 7% more than during the second quarter of 2010.In Argentina, silver production at the Manantial Espejo mine remained practically flat year-on-year at 1.0 million ounces. Equipment availability has improved with the early arrival of additional open-pit equipment and management expects to begin to see increasing production with the introduction of accelerated mining in the open pits later this year.The Company's consolidated gold production increased by 4% as compared to the second quarter of 2010 to 21,900 ounces, on account of higher-than-expected gold grades at the Manantial Espejo and Alamo Dorado mines, which produced 15,523 ounces and 4,274 ounces of gold, respectively. The throughput shortfall at the three Peruvian operations had a negative effect on consolidated zinc, lead and copper production, which fell 21%, 5% and 26%, respectively, in comparison to the second quarter of 2010.Pan American's consolidated cash costs during the second quarter of 2011 rose to $9.19 per ounce of silver, net of by-product credits. The increase was mainly due to higher royalties in Argentina and Bolivia, which are directly related to higher metal prices, a significant increase in treatment and refining costs at San Vicente, higher diesel prices at Manantial Espejo, higher labour costs and higher mine development expenses at Huaron and Morococha to increase mining capacity.Project DevelopmentAt the Navidad development project, work continues towards completion of a Feasibility Study and an Environmental Impact Assessment towards year-end. During the second quarter of 2011, Pan American invested approximately $7.9 million in total and capitalized $4.8 million. Investments included roughly $1.9 million in diamond drilling and $1.5 million in community relations activities, some of which was for emergency community support following a recent volcanic event in Chile.Engineering consultants continue to be engaged in basic engineering for construction facilities, as well as geotechnical and metallurgical studies. In addition, the Company purchased long-lead time equipment necessary for the plant for $17 million consisting of a never used SAG mill, ball mill, and crushers.At the La Preciosa joint-venture, Pan American invested approximately $0.5 million in the technical work necessary to complete a Preliminary Economic Assessment ("PEA").At the Morococha mine, phase I of the relocation project continued as planned with all earthworks completed at quarter-end and much of the new building construction well advanced. During the second quarter of 2011, Pan American invested $7.6 million on the relocation project.OutlookDuring the first half of 2011, Pan American produced approximately 11 million ounces of silver at a cash cost of $8.53 per ounce of silver, net of by-product credits. Based on management's outlook for its mining operations for the balance of 2011, the Company expects to meet its annual silver production forecast of 23 - 24 million ounces of silver. However, the Company is increasing its cash cost guidance to $8.25 - $8.75 per ounce of silver, net of by-product credits, due to the increased royalty payments in Bolivia and Argentina on account of higher silver prices, as well as the effects of stronger-than-anticipated costs escalation in the industry.At June 30, 2011, the Company had produced 40,540 ounces of gold, approximately 9% above management's expectations due to higher grades and throughput rates at Alamo Dorado. In contrast, base metal production was below expectations by 23%, 9% and 15% for zinc, lead and copper, respectively, primarily due to lower throughput rates and grades at the Company's Peruvian operations. In consequence, the Company is increasing its gold production forecast for 2011 from 75,150 - 77,850 ounces to between 80,000 - 85,000 ounces, while annual zinc production is expected to decline to between 37,000 - 40,000 tonnes, down from between 43,400 - 47,500 tonnes.About Pan AmericanPan American Silver's mission is to be the world's largest low-cost primary silver mining company by increasing its low-cost silver production and silver reserves. The Company has seven operating mines in Mexico, Peru, Argentina and Bolivia. Pan American also owns the Navidad project in Chubut, Argentina and is the operator of the La Preciosa project in Durango, Mexico.Technical information contained in this news release has been reviewed by Michael Steinmann, P.Geo., Executive Vice President Geology & Exploration, and Martin Wafforn, P.Eng., Vice President Technical Services, who are the Company's Qualified Persons for the purposes of NI 43-101.Pan American will host a conference call to discuss its 2011 unaudited second quarter financial and operating results on Thursday, August 11, 2011 at 08:00 am Pacific Time (11:00 am Eastern Time). Participants can access the conference by dialing toll free 1-800-319-4610 (Canada & USA) or by dialing 1-604-638-5340 from outside North America. The call can also be accessed via live audio webcast at or at call will be available for replay for one week after the conference by dialing 1-604-638-9010 and entering code 6218 followed by the # sign.CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTSCERTAIN OF THE STATEMENTS AND INFORMATION IN THIS NEWS RELEASE CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND "FORWARD-LOOKING INFORMATION" WITHIN THE MEANING OF APPLICABLE CANADIAN PROVINCIAL SECURITIES LAWS RELATING TO THE COMPANY AND ITS OPERATIONS. ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, ARE FORWARD-LOOKING STATEMENTS. WHEN USED IN THIS NEWS RELEASE THE WORDS, "BELIEVES", "EXPECTS", "INTENDS", "PLANS", "FORECAST", "OBJECTIVE", "OUTLOOK", "POSITIONING", "POTENTIAL", "ANTICIPATED", "BUDGET", AND OTHER SIMILAR WORDS AND EXPRESSIONS, IDENTIFY FORWARD-LOOKING STATEMENTS OR INFORMATION. THESE FORWARD-LOOKING STATEMENTS OR INFORMATION RELATE TO, AMONG OTHER THINGS: FUTURE PRODUCTION OF SILVER, GOLD AND OTHER METALS AND THE TIMING OF SUCH PRODUCTION; FUTURE CASH COSTS PER OUNCE OF SILVER; THE PRICE OF SILVER AND OTHER METALS; THE EFFECTS OF LAWS, REGULATIONS AND GOVERNMENT POLICIES AFFECTING PAN AMERICAN'S OPERATIONS OR POTENTIAL FUTURE OPERATIONS, INLCUDING BY NOT LIMITED TO, LAWS IN THE PROVINCE OF CHUBUT, ARGENTINA, WHICH CURRENTLY HAVE SIGNIFICANT RESTRICTIONS ON MINING AND THE LAWS OF BOLIVIA, WHICH MAY BE AMENDED AND THUS COULD HAVE NEGATIVE CONSEQUENCES WITH RESPECT TO THE COMPANY'S SAN VICENTE MINE; THE LIKELIHOOD AND TIMINIG OF ANY POTENTIAL AMENDMENT OF THE LAWS IN CHUBUT, ARGENTINA AFECTING MINING; FUTURE SUCCESSFUL DEVELOPMENT OF THE NAVIDAD PROJECT, THE LA PRECIOSA PROJECT, AND OTHER DEVELOPMENT PROJECTS OF THE COMPANY; THE SUFFICIENCY OF THE COMPANY'S CURRENT WORKING CAPITAL, ANTICIPATED OPERATING CASH FLOW OR ITS ABILITY TO RAISE NECESSARY FUNDS; TIMING OFRELEASE OF TECHNICAL OR OTHER REPORTS; THE ESTIMATES OF EXPECTED OR ANTICIPATED ECONOMIC RETURNS FROM THE COMPANY'S MINING PROJECTS; ESTIMATED EXPLORATION EXPENDITURES TO BE INCURRED ON THE COMPANY'S VARIOUS PROPERTIES; FORECAST CAPITAL AND NON-OPERATING SPENDING; FUTURE SALES OF THE METALS, CONCENTRATES OR OTHER PRODUCTS PRODUCED BY THE COMPANY; AND THE COMPANY'S PLANS AND EXPECTATIONS FOR ITS PROPERTIES AND OPERATIONS.THESE STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND ARE NECESSARILY BASED UPON A NUMBER OF ASSUMPTIONS AND ESTIMATES THAT, WHILE CONSIDERED REASONABLE BY THE COMPANY, ARE INHERENTLY SUBJECT TO SIGNIFICANT BUSINESS, ECONOMIC, COMPETITIVE, POLITICAL AND SOCIAL UNCERTAINTIES AND CONTINGENCIES. MANY FACTORS, BOTH KNOWN AND UNKNOWN, COULD CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS TO BE MATERIALLY DIFFERENT FROM THE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT ARE OR MAY BE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS CONTAINED IN THIS NEWS RELEASE AND THE COMPANY HAS MADE ASSUMPTIONS AND ESTIMATES BASED ON OR RELATED TO MANY OF THESE FACTORS. SUCH FACTORS INCLUDE, WITHOUT LIMITATION: FLUCTUATIONS IN SPOT AND FORWARD MARKETS FOR SILVER, GOLD, BASE METALS AND CERTAIN OTHER COMMODITIES (SUCH AS NATURAL GAS, FUEL OIL AND ELECTRICITY); FLUCTUATIONS IN CURRENCY MARKETS (SUCH AS THE CANADIAN DOLLAR, PERUVIAN SOL, MEXICAN PESO, ARGENTINE PESO AND BOLIVIAN BOLIVIANO VERSUS THE U.S. DOLLAR); RISKS RELATED TO THE TECHNOLOGICAL AND OPERATIONAL NATURE OF THE COMPANY'S BUSINESS; CHANGES IN NATIONAL AND LOCAL GOVERNMENT, LEGISLATION, TAXATION, CONTROLS OR REGULATIONS AND POLITICAL OR ECONOMIC DEVELOPMENTS IN CANADA, THE UNITED STATES, MEXICO, PERU, ARGENTINA, BOLIVIA OR OTHER COUNTRIES WHERE THE COMPANY MAY CARRY ON BUSINESS IN THE FUTURE; RISKS AND HAZARDS ASSOCIATED WITH THE BUSINESS OF MINERALEXPLORATION, DEVELOPMENT AND MINING (INCLUDING ENVIRONMENTAL HAZARDS, INDUSTRIAL ACCIDENTS, UNUSUAL OR UNEXPECTED GEOLOGICAL OR STRUCTURAL FORMATIONS, PRESSURES, CAVE-INS AND FLOODING); RISKS RELATING TO THE CREDIT WORTHINESS OR FINANCIAL CONDITION OF SUPPLIERS, REFINERS AND OTHER PARTIES WITH WHOM THE COMPANY DOES BUSINESS;INADEQUATE INSURANCE, OR INABILITY TO OBTAIN INSURANCE, TO COVER THESE RISKS AND HAZARDS; EMPLOYEE RELATIONS; RELATIONSHIPS WITH AND CLAIMS BY LOCAL COMMUNITIES AND INDIGENOUS POPULATIONS; AVAILABILITY AND INCREASING COSTS ASSOCIATED WITH MINING INPUTS AND LABOUR; THE SPECULATIVE NATURE OF MINERAL EXPLORATION AND DEVELOPMENT, INCLUDING THE RISKS OF OBTAINING NECESSARY LICENSES AND PERMITS AND THE PRESENCE OF LAWS AND REGULATIONS THAT MAY IMPOSE RESTRICTIONS ON MINING, INCLUDING THOSE CURRENTLY IN THE PROVINCE OF CHUBUT, ARGENTINA; DIMINISHING QUANTITIES OR GRADES OF MINERAL RESERVES AS PROPERTIES ARE MINED; GLOBAL FINANCIAL CONDITIONS; THE COMPANY'S ABILITY TO COMPLETE AND SUCCESSFULLY INTEGRATE ACQUISITIONS AND TO MITIGATE OTHER BUSINESS COMBINATION RISKS; CHALLENGES TO, OR DIFFICULTY IN MAINTAINING, THE COMPANY'S TITLE TO PROPERTIES AND CONTINUED OWNERSHIP THEREOF; THE ACTUAL RESULTS OF CURRENT EXPLORATION ACTIVITIES, CONCLUSIONS OF ECONOMIC EVALUATIONS, AND CHANGES IN PROJECT PARAMETERS TO DEAL WITH UNANTICIPATED ECONOMIC OR OTHER FACTORS; INCREASED COMPETITION IN THE MINING INDUSTRY FOR PROPERTIES, EQUIPMENT, QUALIFIED PERSONNEL, AND THEIR COSTS; AND THOSE FACTORS IDENTIFIED UNDER THE CAPTION "RISKS RELATED TO PAN AMERICAN'S BUSINESS" IN THE COMPANY'S MOST RECENT FORM 40-F AND ANNUAL INFORMATION FORM FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION AND CANADIAN PROVINCIAL SECURITIES REGULATORY AUTHORITIES. INVESTORS ARE CAUTIONED AGAINST ATTRIBUTING UNDUE CERTAINTY OR RELIANCE ON FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY HAS ATTEMPTED TO IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY, THERE MAY BE OTHER FACTORS THAT CAUSE RESULTS NOT TO BE AS ANTICIPATED, ESTIMATED, DESCRIBED OR INTENDED. THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION, TO UPDATE THESE FORWARD-LOOKING STATEMENTS OR INFORMATION TO REFLECT CHANGES IN ASSUMPTIONS OR CHANGES IN CIRCUMSTANCES OR ANY OTHER EVENTS AFFECTING SUCH STATEMENTS OR INFORMATION, OTHER THAN AS REQUIRED BY APPLICABLE LAW.Pan American Silver Corp. Financial & Operating Highlights Three months ended Six months ended June 30, June 30, 2011 2010 2011 2010 ----------------------------------------------------------------------------Consolidated Financial Highlights (in thousands of U.S. Dollars) (Unaudited) Net income for the period $ 113,478 $ (5,585) $ 206,157 $ 20,572 Earnings per share attributable to common shareholders $ 1.04 $ (0.06) $ 1.91 $ 0.19 Adjusted earnings for the period attributable to common shareholders(1) $ 76,093 $ 4,504 $ 140,731 $ 21,632 Adjusted earnings per share attributable to common shareholders $ 0.71 $ 0.04 $ 1.31 $ 0.20 Mine operating earnings $ 118,629 $ 52,270 $ 214,647 $ 90,047 Cash flow from operations before changes in working capital $ 119,439 $ 53,647 $ 201,850 $ 98,410 Capital spending $ (45,130) $ (17,401) $ (65,176) $ (35,231)Cash and short-term investments $ 460,996 $ 237,710 $ 460,996 $ 237,710 Working capital $ 578,153 $ 315,714 $ 578,153 $ 315,714 Consolidated Ore Milled & Metals Produced Tonnes milled 1,171,361 1,127,524 2,332,881 2,273,158 Silver metal - ounces 5,620,038 6,882,852 10,964,777 12,390,126 Gold metal - ounces 21,900 21,133 40,540 49,029 Zinc metal - tonnes 8,582 10,893 17,426 21,783 Lead metal - tonnes 3,081 3,228 6,380 6,328 Copper metal - tonnes 1,054 1,433 2,300 2,734 Consolidated Cost per Ounce of Silver (net of by-product credits) Total cash cost per ounce $ 9.19 $ 5.64 $ 8.53 $ 5.07 Total production cost per ounce $ 12.75 $ 9.40 $ 12.03 $ 8.81 Payable ounces of silver (used in cost per ounce calculations) 5,369,975 6,603,883 10,463,449 11,854,788 (1) Adjusted earnings are calculated as earnings for the period less the gain or loss on derivatives as described in the MD&A. FOR FURTHER INFORMATION PLEASE CONTACT: Kettina CorderoPan American Silver Corp.Coordinator, Investor Relations(604) 684-1175(604) 684-0147 (FAX)