Pan American Silver Corp (PAAS) 2010 Q4 法說會逐字稿

Welcome to Pan American Silver Corporation's fourth-quarter and year-end 2010 results conference call and webcast. As a reminder, all participants are in a listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions.

(Operator Instructions)

At this time, I would like to turn the conference over to Ms. Kettina Cordero, Coordinator of Investor Relations. Please go ahead, Ms. Cordero.

Thank you, Operator, and good morning, ladies and gentlemen.

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

I would like to start this conference by reminding you that this call cannot be reproduced or retransmitted without our consent, and by pointing out that certain of the 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 project the Company's current views with respect to future events, and they 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 eccentricities and contingencies. Many known and unknown factors could cause actual results, performance 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, or related to, many of these factors.

We encourage investors to refer to the cautionary language included in our most recent news release dated February 15th, 2011, as well as 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. Investors are cautioned against attributing 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.

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

Thank you, Kettina. Good morning, ladies and gentlemen, and welcome to Pan American Silver's 2010 fourth-quarter and year-end earnings release conference call. We released quite a bit of pretty favorable news yesterday and are happy to be here this morning to try and provide some additional color and commentary.

As has become our normal call format, I will start with some very brief general comments about our fourth-quarter and full-year results, then Steve and Michael will provide a more detailed discussion of our activities and our mines, our development projects, and with our exploration programs. Rob will then discuss our record-breaking financial results and how we have continued to add to our [cap] position, as we get ready to develop our world-class Navidad silver project.

Before getting to our results, it is a pleasure to, again, be able to inform you that yesterday our Board of Directors approved the payment of our quarterly dividend. Our fourth dividend, and first to be declared in 2011, of $0.025 per share, will be paid on or about March 14 of this year to holders of record of common shares, as of the close of business on Monday, February 28. It is truly gratifying to comfortably share a portion of the Company's current prosperity directly with our shareholders. Even with the tremendous growth, and the substantial investment that it will require just ahead of us. In my opinion, this is clearly a sign of the stable and mature Company that Pan American has become since its inception just 15 years ago.

Now to our results. Pan American delivered a record-breaking fourth quarter in 2010, which was a culmination of a year which was by all measures the best in the Company's history. We produced 5.7 million ounces of silver in the fourth quarter, at a cash cost of $6.61 per ounce. Our fourth-quarter gold production was a very respectable 19,250 ounces, right in-line with our own expectations. Our zinc, lead, and copper production were slightly below plan, largely due to lower than forecast throughput at our Huaron and Morococha mines. This indirectly hurt our cash costs, which were a little higher than we thought they would be, due to the lower than expected by-product credits.

For the full year, we produced a new Company record of 24.3 million ounces of silver, at a cash cost of $5.69 per ounce, which was 800,000 ounces better than our full-year forecast of 23.5 million, and $0.21 per ounce better than our full-year forecasted cash cost of $5.90 per ounce. A cash cost forecast, which I will remind everyone, which we reduced in May of last year. It is nice, and yet another sign of the kind of Company that Pan American is, to again deliver on our forecast. Our consistent operating results, coupled with higher silver prices, translated into truly outstanding financial performance. Trying not to steal too much of Rob's thunder, as I know he is all set to review with you in detail our fourth-quarter and year-end financial results in a few minutes, I would like to mention a couple of key metrics.

For the fourth quarter, we established new records for income at $0.43 a share, operating cash flow at $0.77 per share, net sales at $191 million, and mine operating earnings of $91.2 million. For the full year, we delivered even more records. Record net income, $1.05 per share; record operating cash flow, over $2 per share; record margins; record sales; and probably most significantly, record net cash flow, net cash flow, which pushed our bank balances to over $360 million, and our working capital to over $434 million. I think it's safe to say we delivered stellar financial results in 2010. It was truly a great year to be in the silver mining business.

I will now turn the call over to Steve, who will present a detailed account of our operations and our project development activities. Steve?

Thank you, Geoff, and good morning.

It is my pleasure to provide you a report on our Q4 2010 mine operating results and project advances, having successfully achieved our 2010 goals for silver production, cash costs and project advancements. We encountered several unexpected challenges and pleasant surprises in Q4, and for all of 2010 for that matter, which collectively and reasonably balanced out to yield the results we had forecasted at the start of last year. Our biggest challenges in Q4 came in Peru, with the ground failure on one of our primary underground ore passes at Morococha, and not encountering the ore grades we had expected in key production zones at both Huaron and Morococha.

The loss of the ore pass and a higher grade production zone in the upper reaches of the Moro Solar vein of Morococha, resulted in approximately 5% less ore tonnes and 12% lower grades than we had forecasted. Morococha mined 153,000 tonnes in Q4 2010, producing 621,000 ounces of silver, at a cash cost of $5.18 per ounce, compared to Q4 of 2009 when we mined 176,000 tonnes, producing 733,000 ounces, at a cash cost of $2.36 per ounce. We are excavating a new ore pass at Morococha over the next few months to recover from the reduced mine extraction rates incurred during Q4.

As a result of lower than expected grades coming from the mine deepening 180 level, offset with production from other low-grade areas of the mine, Huaron produced 764,000 ounces of silver, at a cash cost of $11.86 per ounce in Q4 2010, compared to Q4 2009 when we produced 810,000 ounces at a cash cost of $10.73 per ounce. We are ramping-up development rates on the 180 and the 250 levels at Huaron to open more production faces, which should help to increase grades in the next couple of quarters. Quiruvilca produced 302,000 ounces, at an excellent cash cost of $3.89 per ounce during Q4, compared to 364,000 ounces, at a cash cost of $6.26 per ounce in Q4 of 2009. We will continue to mine profitably, while accelerating our reclamation efforts, and expect this will continue throughout 2011 at Quiruvilca.

Our Manantial Espejo mine in Argentina again produced one million ounces of silver, at a cash cost of $6.08 per ounce during Q4, as compared to one million ounces of silver produced, at a cash cost of $0.11 per ounce in Q4 of 2009. The higher cash costs were primarily due to the reduced gold by-product production. In the current quarter, we produced 12,411 ounces of gold, as compared to 19,533 ounces in Q4 of 2009. Our Q4 operating results were also nearly 20% higher than our expectation, as we absorbed the effects of the country's double-digit US dollar inflation rates that had been sustained over the past few years.

Our San Vicente mine in Bolivia produced 675,000 ounces of silver, at a cash cost of $9.08 per ounce during Q4 2010, which was about 38% below the production record we achieved in Q4 of 2009. We are now mining closer to the average life of mine ore reserve grade of the deposit. Overall, our cash operating costs continue to be exceedingly stable in the low inflationary environment that exists in Bolivia today.

Our Alamo Dorado mine in Mexico had yet another outstanding quarter in Q4, producing 1.4 million ounces of silver at a cash cost of $3.40 per ounce, well above our forecasted production performance, as we benefited from realizing more ore tonnes at a better than predicted grade in our Phase II pit layback. We have a team evaluating this pleasant surprise, and we'll be revising our resource model during the first part 2011. In all likelihood, we will need to do some additional drilling to fully understand the mineral distribution that lies ahead of us. At La Colorada mine, we produced right on plan at 946,000 ounces of silver, at a cash cost of $7.88 per ounce. Most of the additional mining gear we have ordered has now arrived on site, and we are already starting to see increased production rates early in 2011.

On the project front, we continue to advance our Navidad and La Preciosa studies, as well as the Morococha infrastructure relocations. We invested nearly $8 million at Navidad, $2 million at La Preciosa, and $6 million at Morococha during Q4. After a short holiday break, we have restarted the infill drill program at Navidad, and continue to advance the metallurgical testing, tailings facility geotechnical studies, environmental impact analysis, and community relation programs. We have now initiated basic engineering studies for the project and are on-track to complete a feasibility study in the fourth quarter of 2011.

At La Preciosa, we are studying alternative mine plans that take advantage of the improved long-term metal price projections, including a significantly expanded open pit alternative. The Morococha facility relocation project continues to advance satisfactorily towards a year-end 2011 completion, despite significant precipitation that has hampered our civil construction activity somewhat.

Overall, Pan American Silver had a respectable quarter. We produced 5.7 million ounces of silver, at a cash cost of $6.61 per ounce, pretty much right on our budgeted plans. A big thanks to Alamo Dorado's stellar performance and buoyant metal prices offsetting the challenges we faced at Morococha and Huaron, as well as the cost escalations and the high inflationary environment of Argentina. All in all 2010 ended with a healthy mix of unpleasant and pleasant operational surprises that balanced out and allowed us to solidly exceed both our forecasted silver production and cash cost results. As Geoff mentioned, in 2010 we produced 24.3 million ounces of silver, at a cash cost of $5.69 per ounce, exceeding our forecast of 23.4 million ounces, and beating our project cash cost $5.90 per ounce. In addition, we increased our understanding and significantly advanced our exciting development projects.

As we look forward to 2011, with the very strong metal prices and reduced gold production expectations as our mines mature towards average reserve grades, we foresee continued upward inflationary pressures on costs from all our local stakeholders, including employees, contractors, suppliers, communities and governments. With this concept in mind, I'd like to provide the following production and cost guidance for 2011.

At our Huaron mine, we expect to produce between 3.1 million to 3.2 million ounces of silver, at a cash cost between $11.10 and $13 an ounce. At Morococha, we expect to produce between 2.6 million to 2.7 million ounces of silver, at a cash cost of $4.80 to $6.60 per ounce. At Quiruvilca, we're expecting between 1.0 million to 1.1 million ounces, with a cash cost between $8.80 and $9.90 per ounce. At San Vicente we're expecting between 3.2 million to 3.3 million ounces of silver, with a cash cost between $7.60 and $8.60 per ounce. At La Colorada, we expect to produce between 4.1 million and 4.2 million ounces, with a cash cost between $7.60 to $8.50 an ounce. At Alamo Dorado we expect to produce 4.8 million to 5.1 million ounces of silver, with cash costs between $5.30 to $5.70 per ounce. And finally, at Manantial Espejo, we expect to produce between 4.2 million to 4.5 million ounces, with a cash cost between $4.80 and $5.60 per ounce.

These cash costs forecasts assume by-product credit prices of $2,050 per tonne for lead and zinc, which is $0.93 a pound; $7,000 per tonne for copper, or $3.17 per pound; and $1,320 per ounce for gold. In total, we are expecting to produce between 23 million to 24 million ounces of silver, at a cash cost between $7.00 to $7.50 per ounce. We further forecast project expenditures of $45 million at Navidad to advance engineering and permitting activities, assuming positive reforms of the Provincial law prohibiting open-pit mining around mid-year, post the Provincial elections. We expect another $37 million for the Morococha infrastructure relocation, net of payments received from Chinalco, and $1 million at La Preciosa, to complete the higher metal price alternative mine plan analysis and preliminary assessment during the first half of the year. In addition, we forecast sustaining capital expenditures at our other operations of $56 million, primarily for exploration drilling, underground trackless equipment replacements, underground mine developments, tailings dam raises and site infrastructure upgrades.

Finally, I'd like once again to extend my personal thanks to all our dedicated and hard working employees and contractors in Peru, Mexico, Bolivia, Argentina, and here in our head office. As I have mentioned before, these people are the backbone of our organization and continue to demonstrate their superior skills in sustaining, improving, and growing our business so successfully.

With that, I'll now turn the call over to Michael Steinmann for the exploration update.

Thank you, Steve. Good morning, everybody.

2010 was yet another successful brownfield exploration year for Pan American Silver. We drilled over 110,000 meters at our seven operations, and discovered 27 million ounces of new proven and probable silver reserves. It was almost sufficient to fully replace the 28.3 million contained ounces we mined during the record production year of 2010. As of January 1, 2011, the Company had proven and probable reserves of 230.8 million ounces of silver and 698,000 ounces of gold. The smaller reserves decrease of 1.4% compared to last year, was mainly caused by a reclassification from reserves to resources of about 1.9 million ounces of silver, from the pyrite stockpiles in Peru, due to the shutdown of the La Oroya Smelter.

La Colorada was again at the forefront of reserve replacement, adding 12.1 million ounces of new silver reserves to our books. This more than replaced what we mined, and added an additional two years of mine life. La Colorada has provided impressive reserve growth over the last two years, contributing 28.3 million ounces of silver reserves to the Company. Compared to last year, La Colorada's proven and probable reserves grew 26% to 38.3 million ounces, mostly from the NC2 vain. This major structure remains open at depth and to the east, and will be targeted for further exploration in 2011.

Drilling will continue at La Colorada with a program of over 14,000 meters, and I'm confident we will again see exciting and high-grade results from deeper drilling at our main structures. Although the mine gets deeper [end] ventilation, as well as water pumping are getting more expensive, exploration was able to add substantial growth at La Colorada, due to higher silver and base metal grades we are encountering at depth.

Additional highlights of the 2010 exploration program includes the addition of 4.6 million ounces at Manantial Espejo, and 4.2 million ounces at Alamo Dorado. Manantial Espejo more than replaced reserves mined, and we'll have our largest brownfield exploration program in 2011. The large, over 26,000 hectors mining property around the operation contains hundreds of vein showings, which we will explore with the $4.8 million exploration program.

Alamo Dorado had an exceptional year in 2010, producing 6.7 million ounces of silver. We mined more tonnes with higher grades in the open pit and are currently working on a new resource model to capture these positive additions, and to make a decision on a possible Phase III pit expansion. Proven and probable reserves are the base for our production. Maintaining them over long periods secures long mine lives, jobs for our workforce, and superior return to our shareholders.

Over the last seven years, we have been very successful with our brownfield exploration programs. We have added a total of 169 million ounces of new silver reserves since 2004, 21% more than we mined in the same period. We spent a total of $46.3 million during the same period for brownfield exploration, which means that we added new reserves at a cost of about $0.27 per ounce, while delivering year-after-year new production records.

While our reserves are sufficient to sustain our current production levels for the next 10 years, our goal is obviously to keep replacing every year what we mine. In order to achieve this in 2011, we will spend approximately $11 million for the brownfield exploration, including a 108,000 meter drill program at our seven operations. I continue to be very excited about the exploration potential of our mines, particularly at La Colorada, Manantial Espejo and San Vicente.

Green field exploration is another way to add value to our shareholders. In 2010, we spent about $5 million on greenfield projects, and will more than double that to about $12 million in 2011. The new properties we plan to explore are located in Mexico, Peru and Argentina.

2010 was a record year, not only for silver production, cash flow and earnings, but also for our drill programs, including brownfield, greenfield, and project development drilling at La Preciosa and Navidad. We finalized an impressive 271,500 meters of diamond drilling during 2010. The lion's shares were done at Navidad, with over 92,000 meters, and at La Preciosa, with nearly 63,000 meters of drilling. The result from Navidad drilling will be incorporated into the new resource model for the feasibility study. This asset has a phenomenal exploration potential, which we will further explore in 2011.

Our core assets have proven their exploration potential year after year, and I'm confident they will continue to do so. Our proven and probable reserves, our measured and indicated resources, have increased to almost 1 billion ounces of silver, and inferred category, that's another 245 million ounces. We have one of the largest reserve and resource books in the silver sector. Our mines, together with our exciting development projects, will keep growing the resource and reserve base, and I look forward to reporting on the advances and results during our quarterly conference calls.

Now to Rob for a financial review.

Good morning, ladies and gentlemen.

Our record financial results in Q4, and for the full 2010 year, reflected the combination of silver production growth, an extremely healthy price environment, and a clean balance sheet, which all translated into record sales, net cash flow, earnings, and another quarterly dividend for our shareholders. New financial records for Pan American included net income for the fourth quarter of $46.4 million, which equates to $0.43 per share, driving net income for the full year to a record $112.6 million, or $1.05 per share. We reported record sales of $191.1 million for Q4, and full-year sales of $632 million on the back of higher quantities of silver sold and much higher metal prices.

Our mine operating earnings were a record $91.2 million for the quarter and $239.8 million for the full year, a staggering 90% increase from 2009 mine operating earnings, which was our previous record. Cash flow generated from operations before working capital movements was $82.6 million in Q4, propelling our operating cash flow for the full year to $218.3 million, both numbers shattering previous cash flow records by more than 50%. With cash flow from operations at record levels, and capital expenditures at $28.5 million, we banked $67.1 million in cash and short-term investments during Q4. For the full year, our treasury balances increased by $159.6 million, net of paying our shareholders $8 million in dividends. Lastly, these record financial results have put the Company in an exceptionally strong working capital position, a record $433.8 million at December 31, 2010.

On every financial metric that I can think of, 2010 was our best year ever at Pan American. Certainly, the exciting precious metal price environment that we saw in 2010 helped to drive the Company's financial performance. However, we were able to deliver on our operational targets, which put us in the best possible position to benefit from surging metal prices. As Geoff mentioned earlier, for 2010, we were able to exceed silver production guidance by some 800,000 ounces, at cash costs that were 11% lower than forecast, which is a testament to the tremendous operating team we have at Pan American, and they picked a pretty good time to over deliver.

Our margin per tonne of ore milled makes one interesting analysis. Our average margin has gone from about $10 in Q4 2008, to about $60 in Q4 2009, to about $90 in Q4 2010. These margin increases reflect not only a stiff tail wind of higher prices, but also the benefits of higher grade ore from San Vicente, Manantial Espejo, and an absolutely spectacular year at Alamo Dorado.We have seen cost pressures across the board from increased prices for consumables, royalties, wages, to appreciating local currencies, all aggregating to approximately an 11% year-on-year increase in our cost per tonne. However, the growth of our net smelter returns have increased 31% on average over the same period, resulting in margin expansion of some plus 50%.

I'd like to make a few comments related to our statement of operations for Q4 2010. Aside from the favorable price -- metal prices, the massive increase in sales in Q4, compared to any quarter before, was partially due to the fact that we did draw down on our zinc concentrate and precious metal [dore] inventory, for sales of approximately $8.2 million from the sale of production over-and-above what was produced. Notwithstanding this inventory clearout in Q4, for the full year we still ended up building our overall inventory balances, as we increased our dore inventory position by almost 300,000 ounces of silver, partially offset by a reduction of approximately 5,700 tonnes of concentrate inventory. This is the main reason behind the 13.4 million increase in our inventory accounts on our balance sheet over the last year.

Included in net income in Q4 2010, was the write-off of $1.5 million in recognition of the doubt of the recoverability of the carrying value of our pyrite stockpile in Peru.Aside from the La Oroya Smelter, which remains closed, there do not appear to be any other economic alternatives for this material. Our G&A expense for the quarter was higher than normal, due mainly to certain severances and to a change in timing of our long-term incentive program. Offsetting that was our exploration expense, which was lower than normal, due to year-end reallocations of some costs to operations and the capitalization of some expenditures at Navidad.

Lastly, investments and other income was a healthy $3.1 million for the quarter. Mostly made up of net proceeds of an insurance claim we received following the theft of dore from our La Colorada mine early in the fourth quarter. Ordinarily, that margin would have been included in mine operating earnings instead of below the line in Other Income.

Our effective tax rate for the fourth quarter was up to 48%, which is higher than what we would have expected, primarily due to exploration and feasibility-related expenditures at Navidad and La Preciosa. For the time being, we have assumed that these expenditures will not be tax effective. We also recorded significant downward adjustment to tax assets we had estimated in Bolivia following clarification of the regulations related to exploration expenditures in that country. For the full year, the effective tax rate was 44%, whereas our long-term expectations would be in the 35% range.

Moving to the balance sheets, our working capital continued to strengthen during the quarter, increasing by $73.3 million, most of which is reflected in higher cash and short-term investment balances. Accounts receivables and taxes payable also increased noticeably, both due directly to the higher metal prices and resultant increase in the value of shipments, and the taxable income we generated. We finished the quarter with the working capital position of $433.8 million, including cash and short-term investments of $360.5 million, and no debt other than some minor capital leases.

As already mentioned, from a cash flow perspective, Q4 was exceptionally pleasing. Cash flow from operations before working capital movements was a record $82.6 million or $0.70 per share, a jump of $0.30 per share from Q3 2010. We expect to see our cash balances continuing to build rapidly in the coming quarters, as all our mines continue to generate positive cash flow. Our pristine balance sheet and strong cash flows put us in an excellent position as we assess the financing alternatives available to us for the construction of Navidad.

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

Thanks, Rob.

You have now heard where we have been. The obvious question is what lies ahead for Pan American. What is our strategy going forward? It's actually pretty straightforward. We're going to utilize our core strength and expertise as an operating Company to continue to focus on optimizing our mining operations, to maximize our cash flow generating capacity and profitability. We are going to continue to aggressively explore around our current assets to extend their mine lives. In short, we're going to run a tidy, profitable and sustainable business, which will strengthen our capacity to take on Navidad, the largest growth project that Pan American has ever had.

As Steve mentioned, we're forecasting 23 million to 24 million ounces of silver production in 2011, and 76,000 to 78,000 ounces of gold. We're expecting our 2011 cash costs to be between $7 to $7.50 per ounce. We're going to invest $54 million in capital in our existing operations to keep them running smoothly, and we're going to continue to explore for more proven and probable reserves.

We are going to spend approximately $12 million on greenfield exploration in the hopes of finding another major silver deposit, and we're going to invest almost $45 million at Navidad to finish a feasibility study and an environmental impact assessment, and fully prepare the project for a construction decision in fourth quarter of this year.

The one thing we haven't discussed, and I am sure you are interested to hear about, is the status of the mining law in Chubut, where our Navidad project is located. The mining law that prohibits open-cut mining in the province. The mining law that will need to be amended before we can proceed with Navidad's development.

I'm going to share with you some quotes from some of the most senior political figures in Chubut, that were published by the local newspapers in the province late in 2007 and early in 2011. I'm going to let you decide for yourselves if you believe, as I do, that the people of Chubut and the government will launch a well-informed discussion, that will lead to the very practical decision to allow for the responsible, environmentally-sensitive development of Navidad in the Central Maceta in Chubut.

December 28, 2010, Mario Das Neves, Governor of Chubut, "I am ready to discuss mining in the province's Central Plateau."

January 4, 2011, Senior [Cisterna], Minister of Finance of Chubut, "The province has called on a group of specialists to prepare a new mining bill to be discussed in 2011."

Senior [Hara], January 4, 2011, Mayor of (inaudible), "A positive economic and social change from the Navidad project is already noticeable in the communities. We have to live from our resources, and there are no other resources than mining."

January 5, 2011, Senior [Guaratano], Minister of Environment, Chubut, "The government is ready to support the development of mining in the Central Maceta."

We have focused a great deal of effort over the last year, and are openly sharing our activities and plans with the local communities around Navidad and with the provincial government. In my opinion, our transparent style appears to be working, and we are clearly garnering support for the development of the project. The Navidad project can clearly become a welcomed catalyst for reversing the steady population decline experienced over the past few decades in Chubut's Central Plateau, bringing significant prosperity to the people of that region.

As I mentioned in our last call, there are provincial elections in March of this year. I don't believe we will see any new announcements, or hear any further discussions on the topic of the mining law, until these elections have been completed. I fully expect that the mining discussion and debate will be initiated shortly after the elections, and I continue to be confident that the people of Chubut will support the zonification of the province, wherein the Central Maceta will be designated as an area where open-cut mine willing be allowed, and Navidad will be developed. This time frame is still 100% consistent with the planned completion of our feasibility study, and should put us in a good position to make a construction decision in fourth quarter 2011.

The development of Navidad is also a catalyst for the continued value [accretiation] in Pan American's share price. Navidad, as we disclosed when we issued our preliminary assessment in late November last year, has the ability to produce close to 20 million ounces of silver a year, almost doubling our current production profile, at a cash cost of approximately $7 per ounce, using a $25 silver price and a 5% discount rate, the all-in after-tax value of Navidad is more than $1.2 billion. In my opinion, this value isn't even close to being incorporated in our current share price.

Before opening the call to questions, I would like to make a very brief comment on silver and gold prices. Last quarter I said that in my opinion nothing had fundamentally changed over the past few years that would change the long-term investment appeal of silver and gold. Yet another quarter, and my views remain intact. In a world where currencies are going to become less and less able to maintain their value, prone to the vagrancies of political will, struggling under the weight of ridiculous debt levels, silver and gold, even at today's lofty prices, are going to look extremely appealing as long-term investments. In this environment, we will be able to continue to deliver superior financial results and growth, which I believe should make Pan American a compelling value proposition.

With that, I'll now ask the operator to open the lines for questions.

Thank you.

(Operator Instructions)

First question is from Chris Lichtenheldt of UBS Securities.

Thanks a lot. Good morning. Just a couple questions. First on the cash cost guidance. It looks like the actual number per ounce of silver is going up 25%-ish versus what you realized in 2010. But, of course, that's a pretty busy number. I'm wondering if you can give any guidance, either in dollar terms, or percentage, if not in dollars, how the costs per tonne on the ground are actually moving up what? What sort of inflation are you seeing on your inputs overall?

Yes, this is Steve. We're forecasting overall about a 3% to 4% -- probably close to 5% inflation for our costs next year.

Okay, great. So you're talking cost per tonne overall, 3% to 5%?

Correct.

So that might be lower than the 2010 -- than what you experienced in 2010. Would that be true?

It is, yes.

Okay. Great. Then just a question maybe probably for Michael on the reserves. I notice that you -- it looks like, if I'm not mistaken, the silver price you're using you're assuming in the reserve has gone up from about $13 to $18. I'm wondering if you can -- and looks like grade has also gone down just a little bit, but I'm wondering if you can help us gauge how much of the ounces you added this year were a result of potentially higher silver price and how much was sort of new discovery type finds?

Sure, Chris. Yes, you're right, silver price increased from $13 of last year's reserve calculation to $18 for silver price this year. Obviously that's the cost of the slightly lower silver grades with the higher price.

To give you guidance on the addition, let's say about 80%, around 22 million ounces, has been added to exploration. And about 5 million to 6 million ounces has been added to prices, which obviously is a move from our margin indicated into our proven and probable category.

I would like to state that in spite of that we still increased our measured and indicated resources by 4.2 million ounces and increased our inferred resources by 15.8 million ounces of silver.

Hey, Chris, it's Geoff. Really, the single biggest factor changing our cash costs going forward into 2011 is the lower gold production coming out of Manantial Espejo. I don't have the exact figure, but we're down about 15,000 ounces, give or take, year-over-year, and obviously at an assumed gold price of around $1,200 that has a very large impact, or not having that credit has a pretty large impact on our net cash cost.

Yes for sure, okay, I noticed that. That's probably the case moving forward. You don't expect any real return to the previous levels at Manantial? Is that fair?

I think consistently 2011 is probably as close to the reserve grade as we're going see going forward. We're just slightly above the long-term reserve grade versus our very first year of production we were quite a bit above the long-term reserve grade. And that helped us, I think we produced over 100,000 ounces a couple years ago of gold, and close to 75,000 -- or 80,000 ounces coming out of Manantial.

Right. Certainly nice while it lasted. That's great info. Thanks a lot.

Thanks, Chris.

Next question is from Haytham Hodaly of RBC Capital Markets. Please go ahead.

Good morning, Geoff, good morning, everybody.

Good morning Haytham.

Just some housekeeping items. Rob, can you give us -- I'm sorry if I don't see it in the news release, can you give what the actual realized prices were for gold, silver, copper, zinc, et cetera, for the year?

Sure. Realized for the year, for the full-year 2010, or for the quarter?

2010 is good.

Okay. For silver, we realized $19.87. Gold, $1,216. Zinc was $21.58. Lead, $21.39. And copper, $74.57.

Since I've got your attention, Rob, maybe a couple quick questions. Expensed exploration, I know there was a total of $20 million something in greenfield and brownfield exploration. How much of that do you think will actually be expensed this year?

It really is dependent on the results of the program. Obviously if we expense -- if we would expense expenditure that doesn't add to our reserve resource book, in terms of the splits -- Michael has got the details here.

We plan at the moment, I think it's about the $10 million that will be capitalized, and probably the rest should be expensed, depending on results, as Rob mentioned.

Okay. That's good. I guess with regards to the $54 million sustaining CapEx break down, what are the largest components of that?

Exploration drilling is the largest, followed by -- which is $12 million, followed by mine developments, mine equipment replacements, and then tailings dams.

So which mines specifically take the big brunt of things?

The biggest capital is being spent at Morococha and La Colorada. Morococha mostly on development work. We are going to advance development rates. La Colorada, we have a large tailings dam construction project this year.

What are you estimating for each of those?

$12.2 million at Morococha, and $10.8 million at La Colorada.

That's helpful. Thank you. Another question for -- probably for Steve. Just with regards to La Colorada, your throughput for the remainder -- or for this year, what are you looking at in terms of tonnage? Better question, Steve, before you go there. Can you break down roughly how much of that -- what you are going to give me the number, oxide versus sulfide as well?

That -- I don't have the break down. We're going to be somewhere close to 390,000 tonnes processed for 2011, and we were at 346,000 tonnes in 2010.

55% sulfide, 45% oxide. Pretty close.

Perfect, thank you for that breakdown. And I guess one last question. Actually, I'm probably going to have two questions. While we're on -- your silver grades or changing throughout this year and into 2012, 2013. How do you see the grades starting out this year, at least in the first half?

We're projecting around the 170 range. We've been close to that on the grade. 170 to 175.

Okay. And then last question for Rob, I know, Rob, we've talked about deferred taxes ad nauseam. I'm curious, you quoted an effective tax rate long term of 35% this last quarter, was 48%. How do you see 2011 panning out?

Yes, I think it really depends how we -- if we continue to treat our expenditures at Navidad as assuming that those will not be tax effective, that's going to have the impact of driving up that effective tax rate.

Hopefully we'll have an event during the year that allows us to change our position during that -- such as the feasibility study, that will allow us to change our approach to those expenditures and start building an assumption of a tax basis there.

So, our budget is right around the 40% mark as an effective tax rate in 2011.

Okay. So under 40%. Fair enough. Last question, while I've got you, Rob, G&A forecast for this year, excluding stock-based compensation?

Just give me a second here. G&A, excluding rebudgetting, right around $12.5 million.

Perfect. Thank you, gentlemen, I appreciate it.

Thanks.

Next question is from Alex Ceranic of BMO Capital Markets. Please go ahead.

Hi. Actually, my question was just answered. So I'll let someone else get back to it, thanks.

Next question comes from Ralph Profiti of Credit Suisse. Please go ahead.

Good morning. Thanks for taking my question. Geoff, there's roughly a 40/60 split in 2011 between infill and conversion and greenfield exploration, and you're also using $18 an ounce. Is there room to get more aggressive around your seven operations with respect to exploration over and above the $10 million, $11 million that you'll be spending? Or are you seeing more exploration up side success possibilities at La Preciosa and Navidad? Thank you.

Actually, part of our greenfield, we call it greenfield just because it's further away from our operations, obviously, but a large part of it is actually spanned around -- for example Manantial Espejo, but it is also spanned obviously around Navidad, La Preciosa, so in several of our projects and mines, we have very large land holdings. And when we go quite a bit further away from the course of the mining we start calling it greenfield, although it's more kind of brownfield exploration. So our programs are pretty aggressive, and a lot of the money that we spend on exploration goes actually into our properties.

Understood. And, secondly, want to dive into these inflationary pressures that you're seeing with respect to labor and currency. Can you talk about the specific geographies where we're seeing the most susceptibility to these pressures?

Yes, Ralph, I think the number one location is Argentina. Internal inflation rates estimated by non-government sources are in the neighborhood of 30%, and I would say that the non-government sources tend to be more accurate, in our opinion.

And we're seeing -- because of that, we're seeing direct wage pressures. It's very difficult not to provide wage increases commensurate with local inflation when you're certainly running a profitable operation, but that does translate into other services that are being provided -- team Manantial Espejo, trucking, catering, et cetera.

So that's the number one place where we're seeing the most inflation.

Frankly, in Bolivia, it's pretty stable. We're talking very low single-digit numbers. Similarly in Peru, although we're starting to see some recent pressure, and Mexico is also fairly stable at this point in time.

So the cost pressures, number one place is Argentina, for sure.

That's great. Thank you.

Next question comes from Steven Butler of Canaccord Genuity. Please go ahead.

Michael, question for you on exploration up side, or potential this year. Your focus. You mentioned specifically your excitement about up side at La Colorada, I believe it was, and Manantial Espejo. Can you elaborate a bit on some of the opportunities you see there at those two assets for resource additions this year?

Sure, Steven. First, La Colorada, obviously if you go back in the last two years, you saw there was this incredible reserve addition that we had. And resource, obviously what we talked about was to reserves at La Colorada. Adding probably as much as six to seven years of mine life already to La Colorada, and the structures just continue. We obviously develop the structures deeper down, we need new access for drilling, but so far there's no end in sight for the structures that we are drilling, so obviously my excitement that, that continues, we are hitting very high grade, which was -- the last year several times I talked about this high grade, multi meter, multi kilogram silver, very high grade base metals in the deeper sounds of La Colorada. So that's probably the primary source, La Colorada, for my excitement.

Going to Manantial Espejo, there is -- and I'm sure you probably have seen a map sometimes of the showings and veins that we know are around our main mining zones in Manantial Espejo, but our large land holdings of over 26,000 hectors contain really hundreds of veins. Some of them have been drilled in the past by us and by other companies. There's some very interesting intersects that we're going to follow up especially this year, with quite a large exploration program of about $4.8 million.

Okay. And La Colorada, is that strike and depth open-ended to some of these new structures as well, strike and depth?

Mostly depth. There is quite a bit -- on strike, too -- but, mostly on depth.

Okay. And can you guys confirm your expected expense exploration in 2011?

Just -- while Rob is checking on that number, Steven, the other exploration target which Michael may have glossed over just a bit is Alamo Dorado. Last year, we did mine well above reserve grade -- and actually discovered tonnes in areas in the pit that we weren't expecting.

We have been working very diligently over the last -- particularly the last month on remodeling the entire deposit. And from the work we have completed to date, it appears that there are opportunities that we need to investigate where ore has actually continued into the pit walls, and ore has been located in other areas within the pit that we need to follow up and understand, and that, coupled with the change in price, is likely going to allow us to add some additional, significant additional reserves to the mining plans at Alamo Dorado.

Probably going to take us, reality, at least six to eight months to put together the model and the additional drilling before we will be able to talk about it with any degree of clear definition. But there is an opportunity there that we haven't -- that's not going to be missed by us.

Okay. And then what's your sense of timing on updating the resource, and/or reserve, ultimately reserve at La Preciosa?

At La Preciosa or at Alamo Dorado?

Sorry, yes, I understand you're talking about Alamo Dorado. But switching gears to La Preciosa, is there a resource update that's still pending on that project, is that correct?

Yes. We're working on that resource estimate now. That is somewhat dependent on how we look at the potential economics given the higher metal prices. That's why we're holding off on it. We' probably three months to four months before releasing some figures there.

Lastly, unless Rob has -- maybe comes back with the expense exploration, you mentioned, Geoff, talking about the zonification potentially, and maybe a carve-out, is that's what is maybe more likely, is that if the mining code doesn't get rewritten entirely for the province, but only maybe rewritten as a subset or zoned for Manantial Espejo purposes? Is that what you're thinking?

Yes. Well, for Navidad. I think zonification is a very, very likely result. Last year the Governor was supportive of the glacier law. He was supportive of that, and commented that he was certainly in favor of protecting what he called the head waters of some of the major rivers in Chubut. And he's done that. I can't see him then -- frankly, I can't see him turning around and then allowing open pit mining in the western part of the province, which is where those headwaters are.

Similarly, I don't see -- I mean, they have some fairly sensitive coastline areas. I don't see them reversing their current position, allowing open cut mining in those areas.

Central Maceta is truly a different part of the province. In many respects it doesn't have the vegetation cover, it doesn't have the population. It is somewhat -- more than somewhat, it is economically depressed, and I can see them following that tact of, as I said, drawing some lines around areas in the province where open cut mining would be allowed.

As far as the rest of the mining law goes, that's a bit of a can of worms in terms of what they decide to do there. What I am -- I continue to be confident in, based on the comments before, is that it is going -- it is on this year's agenda. It is going to be introduced post-elections, and I still believe we're going to see Navidad be in a position to be developed.

Okay. And I assume, Geoff, Maceta is the same thing as plateau?

It is.

Thanks. My Spanish is not so good.

Thank you.

Steve, I have that number for you. At this point we anticipate expensing $28.2 million in exploration and business development in 2011. That's obviously making some assumptions about how we treat that program in terms of expensing and capitalizing, but based on our knowledge today, it's around about that number.

Okay, thanks, Rob.

Thanks, Steve.

The next question comes from Peter [Antiquo], a private investor.

How are you, gentlemen? Thanks for your good work. With the current sovereign debt crisis, and in the United States of America where most of the states are bankrupt, where this money printing or quantitative easing, if you wanted to call it, for the layman's term, and the currency exchange rate in Canada, which I believe is up about, I don't know, maybe between 5% and 7% last year, and I expect the currency exchange to continue in favor of the [luni], which will be advantageous to anybody that obviously has their money in Canadian money. First, I want to know, what do you expect? How much of a boon or a currency exchange do you expect in 2011 as compared to 2010? And with the entire United States of America, the states going bankrupt, which means we'll have to unleash another QE3 because the Federal Reserve will not allow them to go BK, and being the rising price of silver after $35, the sky is the limit on the up side, there would be no resistance. How does that affect -- how will that affect your bottom line? That's the first half of my complicated question.

Well, I'll make a couple comments on currency as it relates to our business. First comment I would make is relative to our cash balances. We certainly, over the course of last year, have diversified some of our currency holdings, into Canadian dollars. Frankly, away from US dollars to provide some more stability in the event that we do see continued weakness in the US dollar. And that is a program and a policy we're going to continue. We're trying to protect our cash balances and make sure we're in position to have cash when we need to expend it on our development projects.

In terms of the price, I'm reluctant to go so far as to start to predicting silver prices in absolute terms. I certainly do believe that, and it's not my own view, it's not just the US dollar. It's certainly the euro, certainly the Japanese yen, that currencies are going to have extreme difficulty in hanging on to their long-term values as a commodity of trade. And because of the debt levels that you've referenced and the debt levels that we're all aware of, and in that scenario, there's just no doubt in my mind that silver and gold, as stores of real value, are going to be -- continue to be very attractive, not only for investors. And so I still see some certainly positive up side signs for both of those metals.

Obviously how does that affect our bottom line? I think we spent a bunch of time this morning describing how the silver prices which popped in the fourth quarter of 2010, how explosive our earnings are and how levered we are to increases in the silver price. Record earnings --

At the end of the year you're talking about almost a $15 trillion debt, and with competitive currency devaluation, and really the -- I want to say the -- I believe the currency as we know it in the next 36 months could potentially be a dead man walking. With that, and the ratio to silver and gold getting better, and better in favor of silver, going forward, I personally, as an economist and as an investor, I'm extremely bullish on silver. If you want, to look at the metal price today, now silver is trading at $30.90. It was up $0.06, it was down $0.42, now it's up $0.12. It's extremely volatile. Now gold is up $7.10. The volatility today has been absolutely tremendous.

Just to show you how investors -- how most of the sentiment of uneducated investors, your silver price is down $1.18, with a huge increase in the bottom line of cash, so, oh, your guidance went down a little bit, but the cash price, if you're producing -- if you're expecting to produce a little bit less, based upon the gold, your gold outlook, when I read your report, I read it as extremely, extremely bullish. You have a huge cash reserve, you're unhedged with relatively no debt. Going forward, I expect your Company -- I mean, you may think I'm crazy, but I think your Company's share price from this day forward, 12 months out, will be double.

Well, Peter, I certainly hope you're correct. I share many of your sentiments with respect to silver prices and valuation. I think we did deliver a very, very positive quarter in many respects, and we've seen strong silver prices in the start of 2011, and I certainly expect to be back here in a couple of months' time, again being able to describe some very, very positive developments.

So I hope you are correct in terms of your view on our value and on the silver price. And thank you for your comment.

This concludes the time we have for questions and answers. I will turn the call back over to Mr. Burns for closing.

Well, thank you, everyone, for joining us here this morning to talk about last year and what we're planning to do in 2011. And as I just mentioned, I very much look forward to getting together again in about three months time to talk about how we did in the first quarter and provide further updates on our projects and hopefully with some new developments in Argentina to discuss as well. Thank you.

Ladies and gentlemen, this concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.