Pan American Silver Corp (PAAS) 2009 Q3 法說會逐字稿

Welcome to the Pan American Silver third quarter 2009 earnings conference call.

During today's presentation, all parties will be in a listen-only mode.

Following the presentation, the conference will be open for questions.

(Operator Instructions).

This conference is being recorded, today, November 11th, 2009.

I would now like to turn the conference over to Kettina Cordero, Coordinator of Investor Relations.

Please go ahead, ma'am.

Thank you, operator.

Good morning, ladies and gentlemen.

Joining me here today are Geoff Burns, our President and CEO, Steve Busby, our Chief Operating Officer, Michael Steinmann, our Executive Vice President of Geology and Exploration and Rob Doyle, our Chief Financial Officer.

I would like to start today's conference by mentioning this call cannot be reproduced or retransmitted without written consent.

I also point out that certain statements and information in this call will constitute forward-looking statements and forward-looking information within the meaning of applicable securities laws.

All statements other than statements of historical fact are forward-looking statements.

These statements reflect the Company's current views with respect to future events, and are based on a number of assumptions and estimates that while considered reasonable by the Company are inherent subject to business, economic competitive, political and social uncertainties and contingencies.

Many factors with known and unknown could cause actual results and or achievements to be materially different from those expressed or implied by such forward-looking statements, and the Company has made assumptions and estimates based on our related to many of these factors.

We encourage in the most recent news release dated November 10th, 2009, as well as those factors identified under the caption related to Pan American business in the Company's most recent form 40-F and AIF.

Investors are cautioned against placing undue certainty or reliance on forward-looking statements, and the Company does not intend or assume any obligation to update these forward-looking statements or information, other than as required by law.

I will now turn the call to Geoff Burns, President and CEO.

Thank you, Kettina.

Welcome to Pan American's third quarter earnings release conference call.

Wow, what a difference a year makes, only 12 months ago, we were in the midst of an economic crisis, and saw financial markets that complete this array.

Metal prices were collapsing and with them the share prices in the companies like ours that produce metals were in free fall.

We were reengineering our mining, cutting capital, wages, and squeezing our costs everywhere we could.

At the same time, we were working hard to complete two key project developments, Manantial Espejo in Argentina and San Vicente in Bolivia.

It was a difficult period of time for Pan American, and for a lot of companies not only in the mining business but in all economic sectors.

It is truly rewarding today to be able to talk to you about our third quarter and to realize that the extremely difficult decisions and consequent actions we undertook a year ago have clearly paid dividends.

What are those dividends?

First, we produced a new quarterly Company record of 6.4 million ounces of silver up 31% from the same period a year ago, and up 10% as compared to our second quarter of this year.

Second, our quarterly gold production also climbed to over 28,000 ounces, also a new Company record, and up another 12% from the second quarter of this year, which was also a Company record at that time.

Gold is now clearly our most significant by-product, accounting for almost 20% of our total revenues.

Third, our consolidated cash costs declined 26% to $4.91 per ounce, well below our full year forecast of $6 per ounce.

This is extremely gratifying, as we have been able to hang on to the massive cost decline we reported earlier this year.

Fourth, our cash flow from operating activities before working capital adjustments was a very healthy $43 million or $0.50 per share with the majority of that cash making its way directly into our bank account.

And finally we posted net income of $17.4 million or $0.20 per share, an increase of 172% as compared to the third quarter of last year, and $7.2 million higher than our second quarter of this year.

Clearly, the swift recovery in the price of both silver and gold and to a lesser extent the recovery in base metal prices have contributed to this performance.

But there is no doubt in my mind that the actions and plans we implemented a year ago when we are in full-on crisis mode have allowed us to post one of the best quarters in in the Company's history.

Now I will turn it over to Steve, Michael and Rob who are joining me here this morning, who I know will provide you with additional color and commentary on our operation, our development projects, our exploration programs, and our financial condition.

Steve?

Thank you, Geoff.

And good morning, ladies and gentlemen.

I am very proud of all of our operations and project accomplishments during the third quarter, and pleased to be able to provide you a more detailed description of our performance.

Starting off in Argentina, we had a solid state operating at Manantial Espejo where we produced just over one million ounces of silver at an excellent cash cost of negative $3.11 per ounce thanks to better than planned gold production of over 20,000 ounces at better than forecasted gold prices.

We have successfully repaired the failed grinding mill motor I described last quarter, without incurring any material disruptions to our production, and have been steadily improving operating performance ever since.

The plant processed nearly 170,000 tons of ore in the quarter which is 92% of our designed capacity, and we have reached design capacity during the months of September and October.

The silver mill feed grades for the quarter at Manantial Espejo was 214 grams per ton and 88% was recovered, just shy of our expectations.

However, this was more than offset with the better than expected gold grade of 3.9 grams per ton, and better than expected gold recoveries of plus 95%.

We are expecting slightly improved silver production at similar cash cost performance from Manantial Espejo this year as our initial employee training efforts are now being enhanced, with realtime experience and the local operators are gaining more confidence in their own abilities resulting in a stable operating environment.

Our Peruvian operations produced just over two million ounces of silver in the third quarter at a cash cost of $8 per ounce of silver, which is right on our previous production forecast from the second quarter despite continuing to incur higher smelting costs with the closure of the Doe Run smelter, which has added over $1.35 per ounce to the cash cost of operating mines in Peru, in addition to not selling any of our silver stock pile materials which is is used by the smelter for flexes.

Higher base metal prices have helped to offset the effect of the Doe Run smelter closure in Peru.

We continued to advance our mine deepening project that we are on, that was started in 2006, and although the development and mining of the higher grade ore zones from these areas will be ramping up slower than we had planned due to the need for more extensive ground support efforts than we had originally anticipated.

We forecast the ramp up for the higher grade production from the 180 level deepening will slowly increase from the current 2,000 tons of ore per month, to an expected steady state, 9,000 tons of ore per month by the third quarter of 2010.

The lower ramp up that is pushing us to advanced developments and open mining and other areas, which generally produce lower grade ores at a higher cash cost.

As a result, production that we are on for the next few quarters is forecasted to slowly ramp up about 10% from the current 910,000 ounces of silver per quarter, to close to one million ounces of silver, with costs decreasing at the same rate from the current $10.35 per ounce, to around $7.50 per ounce at current base metal prices once we achieve the steady state production from the deep developments.

We are very pleased with the solid performance out our Morococha mine, where we are producing right at plans rates of nearly 750,000 ounces of silver per quarter at cash cost of $5.33 per ounce.

We anticipate this production rate and cost base will continue for quite some time, assuming the base metal prices stay relatively consistent.

Simultaneously, we are advancing our long-term multiyear underground mine access and infrastructure projects designed to sustain current approximate performance far into the future given the significant resource base we have at Morococha.

We are continuing reduced yet profitable operations at Quiruvilca, given the current metal prices and have a plan in place to place the mine in care and maintenance should this situation deteriorate.

Quiruvilca produced more than 360,000 ounces of silver in the third quarter, at a cash cost of $7.69 per ounce, which includes capital expenses and we expect this will continue into early 2010.

Our mines in Mexico continues to perform solidly, with Alamo Dorado producing 1.6 million ounces of silver with a cash cost of $4.37, and La Colorada producing 885,000 ounces of silver at a cash cost of $7.92 per ounce for the third quarter.

Gold production at Alamo Dorado once again exceeded our expectations.

The mine produced nearly 5,000 ounces for the quarter against our forecast of approximately 3,000.

We have now essentially mined our high grade zone out of the Phase I pit at Alamo, and we will see production rates decline as we strip down to the Phase II pit which may actually grow into a Phase III pit with some of the recent extension drill results that Michael Steinmann will describe later in this call.

As such we are forecasting the fourth quarter silver production at around one million ounces for Alamo Dorado.

The quarterly production rate will continue into mid to late 2010, when we will start to see again high grade ore from our Phase II pit.

We are expecting continued solid performance from La Colorada for some time to come and we are very pleased with the opportunity to extend the lives of both our Mexican mines given some of the recent successes we have seen from our exploration efforts.

As promised last quarter, I am extremely pleased to be able to provide you details of our outstanding start up at San Vicente in Bolivia, where we produced over 870,000 ounces of silver at a cash cost of $5.81 per ounce during the third quarter, only our second of operation, since commission in the new plant and expanded mine.

Ramp up continues well ahead of our projections, with the plant processing just over 600 tons per day during the quarter, against our design of 750 tons per day.

We were able to feed higher grade ore to the plant during the quarter, which resulted in us able to produce silver ounces at essentially full plant capacity rates.

We anticipate continued success in the ramp ups toward design throughputs in the last quarter of the year and our fee grades will decline somewhat so we can sustain current silver production rates and costs.

We have completed our winterization projects at San Vicente and continue to gain comfort and confidence in the operation as the operators become familiar with the new plant expanded mine.

It is a pleasure to observe the outstanding accomplishments of the local work force, and the obvious welcomed economic stimulus this mine expansion and plant construction project has brought to the local community of San Vicente.

We are optimistic that our successes at San Vicente is being viewed positively in the country and could incentivize additional foreign investing into a region that so desperately needs it.

As you can imagine our mine development and operating teams are excited about future prospects at La Preciosa in Mexico and the suite of projects we'll secure with the Aquiline acquisition, particularly of course the Navidad project in Argentina.

We have motivated development team with proven talents to maximize the value of these assets, and can't wait to get things kicked off.

This is a very exciting time to be part of the Pan American Silver organization, and our future looks very bright indeed.

As Geoff mentioned overall, Pan American Silver had another solid quarter, producing a record-breaking 6.4 million-ounces of silver at a cash cost of $4.91 per ounce, better than our expectations, thanks primarily to outstanding performance from the operating time together with better than expected by product metal prices.

We are confident we will achieve our 2009 production and cost guidance and stand ready to tackle our next development project.

I will now turn the call over to Michael Steinmann for the exploration update.

Thank you, Steve.

Good morning.

Q3 was not only a quarter of record gold and silver production but also a record quarter for our exploration drilling.

We completed our 28,500 meters of diamond and RC drilling in our Brown and Greenfield programs, including the La Preciosa project in Mexico.

Year-to-date, this standard 55,800-meters of drilling at our operations and projects.

Already beyond our full-year planned program of 53,000-meters.

No doubt at La Preciosa a lions share of this drilling with over 14,000-meters during Q3.

During the last five months, we drilled 78 holes at La Preciosa for a total of 22,367-meters and collected over 3,300 samples.

Our joint venture partner Orko Silver published results in a press release on September 8th, 2009.

As expected, all of the info holds intersected the main Martha vein as well as foot wall structures.

Martha is an up to 40-meter wide structural corridor containing several sets of more narrow, high grade veins with lower grade intervals.

Drill hole, BP09-374 returned 32.68 meters [sic -- see Orko press release] at 245 grams silver, and 0.38 grams gold.

Including a high grade vein of of 3.50 meters at 1,017 grams silver and 2.18 grams gold.

Hole 359 return 34.77-meters have 202 grams silver and hole 372 returned 22.45 meters at 289-gram silver and 0.51 grams gold.

Additional detail on these and other holes been published by Orko Silver in September '08 -- sorry, September 8th, 2009.

Most of the holes serve to drilling for the Martha vein structure by far the most important structure onsite, but also some surrounding new exploration targets like the Vaquero and Baritina veins have been partially drilled and more exploration targets will be tested in the coming months.

In field drilling will continue with the maximum spacing of 50-meters in order to upgrade part of the resources into (inaudible) and indicated categories.

Besides the drilling, we work very active on preliminary resource modeling and possible mining methods.

Technical studies are in progress and metallurgical work is advancing well on floatation and cyanide leach tests.

Our goal is to complete the feasibility study and be proficient to make a production decision for La Preciosa by the end of 2010.

The Brownfield programs at our operating wells advanced very well, too during Q3.

They're currently drilling at every of our operations and there's one additional exploration project in Peru.

Like in Q2, La Colorada returned by far the highest grade intersect especially from the drill on the vertical expansion of the NC2 vein.

The wide sulfide structure shows continues mineralization and is still open unto the east.

It is up to 10 meters wide where an average of about five meters.

Besides the main structure, there are hanging and foothold veins and we discovered several replacement in the limestones.

Up to date, we grow out about 250-meters along strike of this 750-meter long structure, and approximately 25-meters space pattern.

The deepest hole reached level 610 about 200-meters below the actual mining level.

Some of the most notable intersects are 6.65 meters at 2,021 grams silver, 3.46 meters at 4,536 grams silver, 8.44 meters at 765 grams silver, 6.43 meters at 1,000 grams silver.

13.30 meters at 670 grams silver, and 6.80 meters at 1,342 grams silver.

In addition, all of this holes returned up to three gram gold, and 15% to 25% combined lead/zinc.

So far we drilled 26 holes in this zone and every one of them returned an economic grades.

We're currently working on a new resource and reserve estimation for La Colorada and will release the overall results as soon as we have finished.

I have no doubt that the sulfides of NC2 veins will form an important part of the La Colorada production during the coming years and provide the plant with new high grade silver and base metal ores.

At the Alamo Dorado, we drilled other 3,700-meters year to date, targeting the south of the pit as well as areas below the pit shell.

The gain of reserves to the north and southeast of the pit has been offset by a loss to the southwest due to a structural complication.

We are currently drilling on a possible plan Phase III pit extension as Steve mentioned.

Besides the depletion due to production we don't anticipate any material reserve change at Alamo Dorado at the end of the year.

As I mentioned the Brownfield programs are in full swing at our operations, and the Greenfield programs are advancing well at San Vicente and Manantial Espejo with substantial land holdings around those mines.

Additional surface is mobilizing to San Vicente as we speak and Manantial Espejo is drilling with two rigs at surface and one rig underground to take advantage of the good climate during the coming spring and summer months.

These are two of our most prospective properties and I am sure we will see important new results during the first six months of 2010.

I am extremely pleased with the exploration results we achieved so far in 2009.

All of this new information will be included in the annual reserve and resource update which I will share with you in January 2010.

I am confident that once again, we will more than replace all of the resources we have mined in 2009.

Now to Rob for the financials.

Good morning, ladies and gentlemen.

Our financial results in Q3, 2009 were just what you would expect from Pan American, given our growing production base and the improving price environment for metal we produce.

We reported record sales of $118.6 million, which was a 49% increase from a year ago on the back of record silver and gold production.

Our mine operating earnings were a solid $34.7 million more than double mine operating earnings from a year ago, and up 48% from Q2.

Net income was $17.4 million which equates to $0.20 per share, again more than double net income from a year ago, and up 70% from Q2.

Cash flow generated from operations before working capital movement was $43.3 million, very nearly double to $22.1 million from one year ago, and 20% higher than Q2.

The strong cash flow from operations and capital expenditures significantly reduced to $5.8 million for the quarter, we banked $28 million in cash during the quarter.

These excellent results could have been even better had we been able to sale all of the metal we produced during the quarter.

However shipments and design schedules around quarter end resulted in us building end resulted in us building our position, by almost 400,000 ounces of silver, 4,000 ounces of gold and 9,600 tons of zinc concentrate during the quarter.

We will be working hard to reduce these inventory levels and recognize the associated sales and profit with this third quarter production in the fourth quarter.

So what is at the heart of our improving financial results?

There are two main factors, firstly, the addition of high margin production from the Manantial Espejo and the San Vicente mines which have both ramped up extremely smoothly reaching commercial production in the first quarter of operation off the construction activities.

Secondly, the continuation in and recovery of metal prices resulted in a further expansion of our margin per ton in Q3.

Our average margin per ton of ore milled has gone from about $10 in Q4 of 2008 to $53 in Q3 2009.

Our total number of tons milled has increased by 30% over that same period.

Simply put, our results reflect the benefits of increased throughput of higher margin ore combined with improving price environment for the metals we produce.

On statement of operations for Q3 2009 did contain several items that are worth further discussion.

Sales increased by $39.1 million from the comparable quarter in 2008.

Almost entirely due to increased, increases in the quantities of silver and gold sold.

Which increased by 30% and 450% respectively.

These increases and quantities sold also resulted in our cost of sales increasing by 17% and our depreciation charge almost doubling in Q3 of 2009.

However the increased sales significantly outweighed the increase in cost of sales and depreciation, resulting in mine operating earnings that more than doubled to $34.7 million.

Included in the net income in Q3 2009, was a noncash foreign exchange loss of $2.4 million, and the revaluation of the Company's cash, and other working capital, and future income tax balances that we dominated in local currencies.

This loss was offset by a mark to market gain of $2.7 million, on an equity warrant position held by us at quarter end.

Moving to the balance sheet, our working capital went from to strength to strength during the quarter, increasing by $41.6 million.

Most of the increase in working capital is reflected in higher cash and short term investment balances, which rose by $37.1 million.

As I mentioned earlier, our [doray] and concentrated inventory increased which added $10.3 million to our working capital.

Finished the quart we are the working capital position of $258 million, and cash and short term investments of almost $150 million and no debt.

From a cash flow perspective, cash flow from operations before working capital movement was $43.3 million a jump of $7.2 million from Q2 2009, and double the operating cash flow for the comparable quarter of 2008.

With the construction of Manantial Espejo and San Vicente now behind us our capital expenditure for the third quarter on property plant and equipment was only $5.8 million.

The combination of sharply higher operating cash flow, and significantly lower capital expenditures resulted in Pan American increasing its cash balance by $28 million during the quarter.

We expect to see our cash balances continue to build in the coming quarters as all of our mines are generated positive cash flow.

Lastly I'd like to give you a brief update on the Doe Run Peru situation.

The owner of the La Oroya smelter in Peru, which was closed during the third quarter and remains closed today.

Doe Run Peru was the largest buyer of the Company's copper concentrate production and the only buyer of the pyrite stock pile material.

We were able to sell copper concentrates to other buyers during Q3 2009.

However the terms of such sales were significantly inferior to the term of the Company's concentrated contracts with Doe Run Peru by approximately $2.7 million before tax effects.

This added approximately $1.35 per ounce to the cash costs at our Peruvian mines in the third quarter.

Some impacts are expected on future results of the Company for at least the period that the Doe Run smelter remains closed.

We do believe that the recent developments surrounding Doe Run Peru have been positive especially given that the Peruvian congress granted a 13 month extension for the completion of their (inaudible) obligations.

We are optimistic that the smelter will resolve financing requirements and resume operations in the first half of 2010.

However, we still remain the doubtful debt provision of $4.4 million that we established in the second quarter related to the accounts receivable balance from Doe Run Peru and have made no adjustments to their provision in the third quarter.

With that I will hand it back to Geoff for closing comments.

Thanks, Rob.

Okay.

You have now heard in detail what we accomplished last quarter, and now let's look at where Pan American is headed in and why I remain as optimistic as ever about the prospects for the balance of the year and beyond.

We are maintain ing our production forecast for 2009 and are planning to produce 25.1 million ounces of silver, not including the production from our Quiruvilca mine which is still moving towards care and maintenance.

Although at current price levels we may be compelled to revisit this decision.

We are maintaining our cash cost forecast of $6 per ounce for the year, but I think it is safe to say we are likely to do much better, given the fact that for the first nine months of 2009, our cash costs were $5.57 per ounce.

We should more than double, actually almost triple our gold production this year, and like silver are maintaining our 2009 guidance for gold at 85,000 ounces.

Again, frankly, given the fact that we have already produced over 74,000 ounces of gold so far this year I think we will do quite a bit better here.

As Michael indicated we are going to continue to aggressively explore at all of our operations with particular emphasis at Manantial Espejo, San Vicente and obviously La Colorada.

Just because I think it is worth repeating, we have clearly discovered an exciting new extension the NC2 zone at the La Colorada mine.

6.65-meters at over two-kilos of silver per ton which is almost 22 feet at 65 ounces of silver per ton has to register as one of the best drill holes that Pan American has ever had.

All I can say is stay tuned as we continue to explore this tremendous target.

We are going to continue to push hard at La Preciosa and are targeting a full feasibility study by the end of next year.

The Martha vein is proving up nicely.

We have identified a half dozen new exploration targets that will be methodically exploring in the coming months, and as I said before, it is our opinion that La Preciosa is a tremendous property in a great location and absolutely the right stage to create additional value by bringing this project forward.

There's a defined silver resource in excess of 135 million ounces of silver, it is in Mexico, and literally within an hour of our established infrastructure in Durango.

With no debt, over $258 million in working capital, our heavy capital expenditures behind us, we are well positioned to generate significant positive cash flow and earnings for balance of this year and beyond.

I would like to finish my remarks by taking a brief moment to talk about the friendly offer we mailed on October 30th, to purchase Aquiline Resources Inc.

I truly see this as a tremendous transaction, and an ideal combination and a chance to create additional value for both Pan American and Aquiline shareholders.

It is a transaction that will marry Pan American's financial horsepower and proven mine development capabilities with Aquiline's world class primary silver deposit, Navidad.

And secondly, and perhaps more importantly, I see Pan American as uniquely positioned to move Navidad forward.

As you know, we have recently completed the construction and commissioning of the Manantial Espejo mine in Argentina.

And consequently are intimately familiar with the Argentina landscape and the political sensitivities within our host country.

The key to unlocking the ability to develop Navidad lies, in my opinion, in our ability to address these sensitivities and work with the Government of Chubut and with the local communities that surround Navidad.

If we are successful with this acquisition, which is open for acceptance until December 7th, about a month from now, the potential production growth from developing Navidad will be transformational to Pan American.

With La Preciosa, and hopefully Navidad, Pan American will have reloaded the growth pipeline at that time when we are generating tremendous cash flows and have the people and resources available to take on new development opportunities and move your Company to another level.

It is clear, there's clearly good reason to be optimistic about Pan American's future.

With that, I would now ask the operator to open the questions.

Thank you, sir.

We will now begin the question-and-answer session.

(Operator Instructions).

Just a moment for our first question.

Our first question comes from Steven Butler from Canaccord Adams.

Please go ahead.

Good morning, Geoff, question for you guys and I guess Rob for you, you mentioned the shipments of lower than production 400,000 ounces of silver, 4,000 of gold, 9,600 tons I think of zinc, what would that be roughly, 10.3 billion build, what would be related to earnings as best you would estimate that can fall into Q4 from Q3 assuming Q3 prices?

We haven't done that analysis.

Just as a rough guideline, the increase in inventory number you quoted there of $10.3 million, that's of course the cost, and then if you applied our mine operating earnings margin to that cost basis you might get an idea of what we would expect on that operating earnings on that inventory but that would be about the only guidance I could give you right now.

We haven't done that annually, Geoff maybe help you there, Steve.

Our average cash cost was just under $5.

There's 400,000 ounces we treat this zinc and gold as byproducts as you know.

Right.

So you are looking at $17 prices, you are look at $12 margins on those.

Right, okay.

So that's not a bad would not be a bad guideline to use and apply a 30% tax rate to it.

We can work that out, Geoff.

Yes, thank you.

Michael ton La Colorada is it is the NC2 zone and is where is it spatially again, you said a couple hundred meters below, and what's the rough dimensions of the zone if terms of strike with depth.

NC2 is one of the main mines we are mining at the time in the upper levels.

It is producing the sulfide for our full side plant mostly, this is the continuation deeper down and further to the east.

It is 750-meter long.

We drilled the deepest hole, 200-meters, 250 this month close to 300-meters.

So that's half.

I have some indication on the other half with one or two older holes we drilled.

That high grade continues there.

How deep it is?

For the moment it is in limestone, we start getting realized replacement structures replacement in limestone, but how deep it goes down is one of the leading indications we have is a pretty big price cut but a drilling deficit from our levels we currently access for production so stay tuned for drilling in the coming months as we continue to east.

But rough dimension you should look at it as 750-meters by maybe 150, 200-meters down.

And thickness roughly?

Average about 5-meters will be good.

Okay.

Thanks very much, guys.

Thanks, Steve.

Thank you.

(Operator Instructions).

Our next question comes from the line of Chris Lichtenheldt with UBS.

Please go ahead.

Good morning.

Thanks for taking my questions.

First on the Doe Run Peru situation, the alternatives that you are seeking in terms of your concentrates it doesn't look like it has gotten a whole lot worse relative to the second quarter.

Is that true that in terms are steady state until you get back in the running

It is Rob Doyle here.

That is true.

In fact we have probably seen a fairly significant improvement in the copper concentrate market.

So we have managed to commit some of your 2010 production into contracts to other buyers of concentrate at significantly better terms than we realized in Q2 or Q3.

So there is some relief in that market by the looks of it.

Okay.

Great.

Can you just remind us as you move at Alamo Dorado as you move into the next phase, what silver and gold grades might look like and how many quarters, and how many quarters until you expect it back up to higher grades in second phase?

Yes, while we are mining did stripping down that pit we will probably be seeing grades drop to the 90, somewhere between 80 and 100 grams I would say, and then once we are back into the high grade we will see the plus 125 to 150 type gram.

Okay.

Great.

And gold will move similarly?

Or is it a little more steady?

Gold is a little more steady but we expect it to drop back to the more historic 0.3-gram range.

But yes, it is somewhat follows that silver to some degree.

Okay.

Great.

Thanks.

And then lastly.

On the [Alculine] offer if I can, I think you are seeking the Argentine antitrust I am wondering if you can update us as to the timing on when that may come or if you have any feedback.

Yes, Chris we made application.

Especially since it's advance ruling.

Basically on the day, we mailed and we are expecting a reply in 30 days.

I can tell you that it's our, Argentine legal counsel tells us this is kind of just a matter of due course, that there is no concern that we'll have any problems with the antitrust ruling.

It is just a matter of making the application.

Thank you.

Thanks a lot.

Thank, Chris.

Our next next question comes from the line of Haytham Hodaly with Salman Partners.

Thanks operator.

Morning everybody.

Morning.

A couple of easy questions, what do you expect your run rate for your G&A look like next year.

This is a bit of an unusual quarter, about $4 million we had a couple of compensation related catch up accruals to do.

I think we've been running prior to that at about between $2.7 million to $3 million a quarter, and I don't expect that, that should be our normalized rate.

Okay.

And then maybe just a second, effective tax rate guidance for next year maybe?

Should be coming in around 30% as we were this quarter.

Okay.

And in terms of the closing of the Aquiline, what's the timing of that again?

Refresh my memory.

The expiring date for tendering Aquiline shares is December 7th at 9:00 p.m.

eastern standard time, subject to us there is a period likely extension of 10 days to that as per our agreement on the support, or excuse me on the support agreement.

But it is December 7th is the date.

Okay.

Perfect.

Thank you.

Our next question comes from the line of John Bridges with JPMorgan.

Please go ahead.

Good afternoon, Jeff, everybody.

The inventory, the 400,000 ounces, how much of that is actually going to be available and how much is simply filling up the pipeline as you expand your operations?

Okay.

Hey John, how are you doing?

That's actually out turned material.

It is not in the circuits anywhere.

It is simply material that just for timing and location of where that material was in the transportation it didn't get sold.

So, that's not a matter of pipeline filling, it is just exactly where it was in our sales process.

Okay.

And on the, on your lower cash cost, how much of that was related to base metals maybe concentrate adjustments helping you this quarter?

Yes, the base metal and by-product, it is not just base metal, it is gold by-product now coming out of Manantial Espejo.

In Q3 2008 our by-products credits were about $8.27 in per ounce.

This year, that same number was about $9.69 an ounce.

So you can see there's roughly $1 plus in there that relates strictly to metal prices.

And as well, increased gold quantities, we are producing more gold.

Okay.

Just.

Just one further point you made, the provision, we didn't see a significant adjustment in Q3 which I was quite surprised at.

It was only about a $300,000 benefit from sales being priced in Q2 that were repriced in Q3.

It was just a function of when open QPs were actually finalized given that prices traded flat to slightly down in July.

But for the quarter it was only about a $300,000 benefit.

A relatively minor number.

I am glad you guys are surprised by these things too.

Totally unpredictable.

And then finally, are there any sort of date that we can look to with respect to mining in Argentina next year?

Yes.

As I said, in our conference, as I said in our conference call when we announced the deal, we had some meetings with some very senior officials in the provincial Government of [Shiboot] and much of that discussion is going to remain confidential.

Here is what I said in that call, and I am going repeat it is if the Aquiline acquisition closes as we expect in the middle of December, and we are going to immediately start a three prong program of drilling, metallurgical testing, environmental impact assessment, and feasibility study.

I guess that's four prongs not three, and we would expect to produce a feasibility study in approximately 12 to 14 months time.

I do not believe that the mining laws in [Shiboot] will have any impact on us whatsoever when we reach the end of that time frame and are ready to make a production decision.

Okay, great.

Good luck, guys.

Congratulations on the results.

Thanks, John.

(Operator Instructions).

Our next question cops from David Christie of Scotia Capital.

Please go ahead.

Just a quick review on the provision l pricing, 300,000-mark to market for the quarter, was there any settlement gains?

That was a combination of --

That's the combination.

Right.

Okay.

Good.

And for Aquiline, what are you envision you will spend as far as drilling et cetera?

We are just doing our budget reviews in a couple of weeks time actually, and obviously, we're assuming we are successful.

I would anticipate us spending somewhere in the neighborhood of $10 million to $15 million in 2010.

But that is subject to the meetings that I just talked about.

Perfect.

Thank you very much.

Our next question cops from line of Karen [Lazarosic] with KLP Capital Management.

Please go ahead.

I am fairly new to this story.

I was wondering what your hedging program is if you have one and what it would look like for 2010?

The Company's philosophy firstly on silver is not to hedge the exposure we have to silver.

So our hedging program is really confined to by-products particularly base metals and from time to time currencies.

We have a very small residual in place which runs out at the ends of December, the same goes to our currencies, we have a small Mexican peso and Peruvian which also in December.

So for 2010, we won't have any hedge positions open.

However, the subcommittee of the Board of Directors, the hedge committee does review those, those businesses from time to time and we may be adding to them depending on the circumstances.

So for your gold bi products you get the spot price.

That's correct.

Great.

Thank you.

There are no further questions at this time.

I would like to turn the call over to Geoff Burns, President and CEO.

Thank you, operator.

Thanks everybody for joining us this this morning, and we will look forward to talking to you again in the coming months, hopefully to discuss a successful transaction with Aquiline and to update you on our advances at La Colorada in term of exploration, and finally to probably talk about our year-end earnings early in the, early in 2010.

Thanks very much.

Ladies and gentlemen, this concludes the Pan American Silver third quarter 2009 earnings conference call.

If you would like to listen to a replay of today's conference, please dial 303-590-3030 or toll free 1-800-406-7325 using access code 479606.

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