Pan American Silver Corp (PAAS) 2011 Q4 法說會逐字稿

Welcome to the Pan American Silver Q4 and Year-End 2011 Results Conference Call and Webcast. As a reminder, all participants are in 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 this conference over To Mrs. Kettina Cordero, Coordinator Investor Relations. Please go ahead.

Thank you, operator, and good morning, ladies and gentlemen. Joining me here today are our 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, Bob Doyle.

I would like to start today's call by reminding our listeners that this call cannot be reproduced or retransmitted without our consent and by indicating 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 the statements of historical fact, are forward-looking statements. These statements reflect the Company's current views with respect to future events and are necessarily based on a number of assumptions and estimates that, while considered reasonable by the Company, are inherently subject to significant business, economic, competitive, political and social uncertainties and contingencies.

Many 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 the most recent news release dated February 22nd, 2012 and as well as those factors identified under the captions risks related to Pan American's business in the Company's Form 40-F and annual information forms.

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

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

Thank you, Kettina. Good morning, ladies and gentlemen, and welcome to Pan American Silver's 2011 fourth quarter and full-year earnings conference call.

This morning we will be discussing our fourth quarter and full-year operating and financial results that were released earlier, provide you with our forecast for 2012, update you on our year-end silver reserves and resources and future exploration programs, as well as on the progress of our development projects.

In addition, I will talk briefly about our proposed acquisition of MineFinders and their flagship property, the Dolores Mine in Mexico. As is our custom, I will begin with some general remarks before passing the call to Steve, Michael and Rob, who will provide you more detailed commentary.

I'd like to start by letting you know that yesterday our Board of Directors approved a 50% increase in our quarterly dividend from $.025 per share to $.0375 per share per quarter. The payment of our first cash dividend of 2012 will be made on or about Monday, March 19th to holders of record of our common shares as of the close of business on March 5th.

It is very rewarding and a true reflection of the financial success we have been enjoying at Pan American to be able to increase our dividend for the second time since we first started paying it a little over two years ago.

In addition to returning cash to our shareholders directly through our dividends, we have also been returning cash by way of a normal course issuer bid, which we announced on August 26th of last year, wherein we could buy up to 5% of our issued and outstanding shares. As Rob will describe in a few moments, we've been actively repurchasing some of our common shares and continued to do so up until early December of last year when we signed a letter of intent to pursue the purchase of MineFinders.

While we have significant capital requirements ahead of us with the pending development of Navidad, our major growth project, we remain very comfortable that we can meet this need as well as continue to directly share in our good fortune with our shareholders through the payment of dividends.

Now let's recap what we accomplished during the fourth quarter and for the full year of 2011. We produced 5.3 million ounces of silver at a cash cost of $11.18 per ounce net of byproduct credits, which was slightly lower than we had planned.

Our Mexican mines in the Colorado and Alamo Dorado continued to perform extremely well during the fourth quarter, a trend that they enjoyed all year, as did our San Vicente Mine in Bolivia.

However, as Steve will discuss in more detail, we had one short-term issue and one longer-term issue at Manantial Espejo in Argentina that provided some fourth quarter challenges and we made another short-term decision to focus on exploration at Alamo Dorado, which cost us some anticipated production.

Net-net we're about 8% behind in what we thought we would deliver in terms of silver productions in the fourth quarter and, as a consequence, our costs were higher than anticipated.

However, from a financial perspective, our fourth quarter performance was very strong. We generated adjusted earnings of $64.5 million, or $0.61 per share. Our mine operating earnings were $88.3 million and our cash flow from operations before changes in working capital was a very healthy $79 million, or $0.74 per share, very respectable financial results.

For the full year 201l our silver production was 21.9 million ounces at a consolidated cash cost of $9.44 per ounce of silver. We generated mine -- record mine operating earnings of over $400 million. We generated record adjusted earnings of $252.3 million or $2.37 per share.

We produced record cash flow from operations before changes in working capital of $347 million, or $3.26 per share, and ended the year with cash and short-term investments of close to $0.5 billion and working capital of $566 million.

These are simply tremendous financial results that we in management are extremely proud of and hope that you, our shareholders, are equally proud of how your Company performed. Simply put, we have never in our history been in better shape financially.

Now over to Steve, who will run us through our operations and development projects. Steve?

Thank you, Geoff, and good morning, ladies and gentlemen. Despite coming out of the third quarter of 2011 in very good shape to achieve our aggressive production and cash cost guidance, we did face three specific challenges that disrupted our normally predictable operating performance in the fourth quarter of 2011.

Two of these challenges occurred our Manantial Espejo mine, where an unexpected ball mill bearing failure led to a two-week plant shutdown and the poor mobile mine equipment availability we've been experiencing due to the heightened restrictions on importations in Argentina, which impaired the flow of spare parts and led to reduced mine production.

In addition, we made a decision to interrupt mine sequencing at Alamo Dorado in order to allow safe access for exploration drilling of our phase III pit expansion, which allowed us to add a full year of reserves to the life of mine plan but limited our ability to mine new ore during the quarter.

As a consequence, our consolidated silver production in the fourth quarter, as Geoff mentioned, was 5.3 million ounces at a cost of $11.18 per ounce bringing our full-year silver production to 21.9 million ounces at a cost of $9.44 per ounce.

Our byproduct metal production was 78,000 ounces of gold, 35,000 tonnes of zinc, 11,700 tonnes of lead and 3,100 tonnes of copper.

We are finding it quite challenging to adapt our Manantial Espejo operation to the heightened importation restrictions in Argentina, where it has become very time consuming to import the necessary spare parts, particularly for our mobile mining fleets, despite enormous efforts from ourselves and our primary equipment suppliers.

Our mobile mine equipment availabilities are running well below expectations and this has caused shortfalls in mining rates delaying access to anticipated higher grade ores.

In addition to increasing our efforts to find domestic purchasing alternatives, which have had limited success, we are stepping up efforts again offshore purchasing in order to allow for even greater lead times, which we anticipate will eventually allow us to catch up with the delivery of critical spare parts and components necessary to move to a more normal equipment availability.

We also faced an undetected primary ball mill lubrication system malfunction at Manantial Espejo during the quarter, which resulted in the failure of a critical trunion bearing. Fortunately we do carry spares for this critical bearing onsite. However, we did have to mobilize special tools and manufacturer representatives disrupting many Christmas holidays to conduct the repairs in December resulting in a two-week plant downtime.

As a result of these factors, Manantial Espejo produced just over 800,000 ounces of silver during the forth quarter of 2011 at a cash cost of $7.85 per ounces, which was 28% below the 1.15 million ounces and above the $2.52 cost expectations that we had planned.

I'm happy to be able to report that after completing the repair, the plant restarted quite nicely and once again achieved planned throughputs in January of 2012. In fact, January's production at Manantial Espejo was over 300,000 ounces of silver and over 5,000 ounces of gold.

At our Alamo Durado mine in Mexico we decided to extend in-pit exploration drilling efforts into the fourth quarter after seeing some positive results from drill holes completed earlier in the year in anticipation of positive results, which could extend the mine life.

The extended drilling required modifications to the mine sequencing and prevented mining at the rates necessary to access high grade ores that had been planned for the fourth quarter. The decision paid off with the addition of close to a full year of production to the mine life.

As such, Alamo Dorado produced 1.2 million ounces silver at a cost of $5.45 per ounce in Q4, which was 20% below our planned quarterly production and above our $4.89 per ounce expectation we had projected.

Elsewhere the remainder of our five operations produced reasonably in line with our fourth quarter projections. Our three operations in Peru, Huaron, MorHHococha and Quiruvilca produced right at 1.3 million ounces projected.

La Colorada produced 1.1 million ounces, slightly ahead of our expectations offset by a small shortfall at San Vicente, which produced 842,000 ounces.

Our cash cost for the Peruvian mines collectively in Q4 was $19.65 per ounce. La Colorada was $9.26 per ounce and San Vicente was $13.35 per ounce, all about 13% higher than our expectations for the fourth quarter, primarily due to better than expected underground operating development advances at both Huaron and Morococha, which are already starting to show the benefits in early 2012.

We continue to advance our growth project studies as well as the Morococha infrastructure relocations during the fourth quarter of 2011.

For the quarter we invested $9.5 million advancing the feasibility study at Navidad, which included work on the basic project designs, as well as the purchase of additional surface rights.

We also invested $1.4 million for engineering and feasibility studies at La Preciosa and we spent $6.2 million advancing our Morococha mine infrastructure relocation.

2011 was a tremendous year on the project front. Total investments at Navidad was $51 million. We advanced our resource modeling and mine planning, conducted additional metallurgical tests, both to support the existing flow sheet and also to investigate potential value added downstream processing alternatives.

We significantly advanced the feasibility study and the environmental impact assessment. We completed over 37 kilometers of infill and some step-out drilling. We supported local community programs that would help facilitate the Navidad development and we also purchased the long lead time front end crushing and grinding equipment for the project.

Also, in 2011 a total of $3.8 million was invested at La Preciosa to advance environmental base line studies and to complete the preliminary economic assessment, which included mine planning, process facility and related infrastructure engineering and metallurgical studies.

We invested a total of $27 million on our Morococha mine infrastructure relocation project during the year and virtually completed the construction activities with only interior finishing, furnishing and power, sewage and water hookups remaining to complete the project in early 2012.

We ended 2011 producing 21.9 million ounces of silver at the $9.44 cost short of our revised forecast of 22.5 million ounces and above our high end cost projection of $8.50 per ounce but quite respectable taking into account the challenges that we faced.

With the Q4 issues behind us, it's rewarding to see that 2012 has started well and we produced approximately 1.85 million ounces of silver in January with all seven of our mines producing very close to and above our planned outputs.

As we look forward to the entire year of 2012, the Company expects production of between 21.5 and 22.5 million ounces at a cash cost between $12.50 to $13.50 per ounce.

For 2012 we expect our direct operating cost to rise some 15% at Huaron and Morococha, largely due to increased underground development and infill drilling rates. We are expecting to have to absorb another year of greater than 20% real dollar inflation in Argentina and we estimate that the overall continued industry wide escalations are close to 11% compared to our 2011 performance for all other direct operating costs.

In addition, we are anticipating a substantial increase to our royalty payments at San Vicente, where the operating cash flow participation of COMIBOL, the Bolivian Governments mining entity and Pan American's joint venture partner, will rise to 37.5% according to the terms of our original joint venture agreement since we estimate successfully achieving the capital recovery milestone in early 2012.

We also expect base metal byproduct credits to trend marginally lower using our lower-priced forecast for 2012. The Company expects to produce between 75,000 to 80,000 ounces of gold, 33,000 to 34,000 tonnes of zinc, 11,000 to 11,500 tonnes of lead and 2,500 to 3,000 tonnes of copper during 2012.

The breakdown of the silver production that we see is at Huaron we expect to product between 2.7 million to 2.8 million ounces at a cash cost somewhere between $20.90 and $22.70 per ounce. Morococha we're expecting 1.7 million to 1.8 million at $24.60 to $26.50 per ounce.

Quiruvilca we're anticipating about 200,000 ounces of production at around $31.30 an ounce during the first quarter of 2012. San Vicente we're expecting somewhere between 3.4 million to 3.5 million ounces at $18.40 to $18.70 per ounce considering the higher royalty payment to COMIBOL.

La Colorada we're on track for 4.1 million to 4.3 million ounces at between $9.50 and $9.90 an ounce. Alamo Dorado we expect 5.1 million to 5.4 million ounces at between $6.40 and $6.80 an ounce and Manantial Espejo we expect between 4.3 million and 4.5 million ounces at between $8.60 and $10.40 an ounce.

These cash cost forecasts assume byproduct credit prices of $1,900 a tonne or $0.86 a pound for zinc, $2,000 a tonne or $0.91 a pound for lead, $7,300 a tonne or $3.31 a pound for copper and $1,600 an ounce for gold.

We're also planning project expenditures of $23 million in Navidad to prepare for a positive law reform in Chubut, which would allow issuance of the feasibility study and submission of the environmental impact assessment by midyear, as well as further advancing the basic and detailed design engineering efforts to prepare ourselves for possible construction late in the year.

We're also planning to spend $4 million on our [Calcatreo] property in the Rio Negro Province of Argentina to complete a scoping study in light of the recently announced repeal of the ban on the use of sodium cyanide in mineral processing.

We estimate spending $7.5 million to complete the relocation of our infrastructure and ancillary facilities at Morococha and another $1 million at La Preciosa to advance the feasibility study in the first quarter of this year.

In addition, we forecast sustaining capital expenditure at our operations of approximately $88 million, primarily for mobile mine equipment additions and replacements, underground mine development, pit layback pre-stripping, tailing dam rises, site infrastructure upgrades and almost $16 million for onsite exploration drilling.

The most significant expenditures include expansion of our mining fleet and capitalizing some of the pre-strip at Alamo Dorado to develop the new phase 3 pit extension. Pre-stripping and open pit expansion at Manantial Espejo, a modest sulfide plant expansion at La Colorada, the addition of a backfill plant at Morococha and significant tailing dam expansions at both Huaron and La Colorada.

Relative to our exciting acquisition of MineFinders, which we are hoping to close by the end of March, we would expect the Dolores mine to contribute approximately 2.6 million ounces of silver production and 56,000 of gold for the nine-month period from April 1st to December 31st of 2012. This expectation is based on Delores's actual production from April 1st to December 31st, 2011.

The effect of bringing the Delores mine production into the Pan American Silver group of assets could increase our overall consolidated 2012 production to between 24.1 million to 25.1 million ounces of silver and 131,000 to 136,000 ounces of gold.

Before turning the call over to Michael, I'd like 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. This team has proven again their ability to take on the most difficult challenges this industry faces today.

Also, in anticipation of a positive outcome of our shareholder voting in late March, I'd like to extend a warm welcome to the MineFinders' team into our organization.

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

Thank you, Steve, and good morning, ladies and gentlemen. 2011 was yet another successful Brownfield exploration year for us. We drilled over 150,200 meters at our seven operations and discovered 29.3 million ounces of new proven and probable silver mineral reserves, more than replacing the 24.7 million contained ounces we mined during 2011.

As of January 1st, 2012 the Company had a proven and probable reserve of 235.3 million ounces of silver and 618,000 ounces of gold, representing an increase of 2% to our silver reserve ounces year-over-year, net of 2011 production.

La Colorada was again at the forefront of reserve replacement, adding 10.6 million ounces of new silver reserves to our books. This more than replaced the 4.8 million ounces we mined and added an additional two years of mine life.

La Colorada has provided impressive reserve growth over the last three years, contributing almost 39 million ounces of new reserves to the Company, and has become our second largest silver reserve. Mine life has been extended substantially over the last years reaching now over nine years at current production levels.

Compared to last year La Colorada's proven and probable reserves grew 15% to 44.1 million ounces, mostly from sulfide mineralization. Most of the major structures remain open at [depth] and to the east and will be target for further exploration in 2012.

Drilling will continue with the program of over 21,000 meters. La Colorada has been a real success story. The veins are extremely continuous and so a remarkable vertical extension of up to now over 600 meters. Base metal grades are increasing with depth and silver grades remain high.

I'm also looking forward to exploring the [deep ground] potential as part of the 2012 exploration program, 200 to 300 meters below the current production levels.

Another highlight of the 2011 exploration program includes the addition of 4.3 million ounces at Alamo Dorado, adding another year of production to this high margin deposit. We concluded over 10,800 meters of exploration drilling at Alamo during 2011, mostly focusing on the vast extension of the Phase II pit and the possible Phase III pit expansion to the north.

Although drilling was completed in December of 2011, we required a bit more time for the mine planning and capitol estimates for Phase III. Hence, these ounces are not included in the reserves yet but could potentially add another year to the Alamo Dorado production.

The current mine life at Alamo Dorado extends for another five years but, as I mentioned above, the Phase III expansion and low-grade stockpiles could extend this time line by another one to two years.

Huaron, Quiruvilca and San Vicente all more than replace the reserves demand last year. Most remarkable was the success of San Vicente, where we added 9.5 million ounces of new silver reserves during 2011. This was possible due to a 14,400 meter drill program and the high-grade nature of the discoveries.

The lateral [Ramodos] vein returned over 400 meter strike line from level minus 130 with average vein width of 3.7 meters and an average silver grade of 1,510 grams. We discovered even higher grades at the [Union] vein on level minus 110, where we developed a portion of the vein over 100 meters long containing an average grade of 3,250 grams silver, over an average width of about 1.5 meters.

Exploration and development will continue in these veins to the east, west and [underground].

The only slightly disappointing note that to this annual exploration program was Manantial Espejo. Although we discovered lots of new mineralization, we had to re-categorize 3 million ounces of silver reserves as resources due the significant increase in production costs for the underground mine. These ounces are still in the ground and hopefully will be available under a slightly different cost or higher silver price environment.

Proven and probable reserves are the base for our mine plans, daily production and ultimately cash flows replacing and increasing reserves has provided long mine lasts for our operations and secured superior returns for our shareholders.

Over the last eight years we have been very successful with our Brownfield exploration programs. We have added over 198 ounces, million ounces, of new proven and probable silver reserves since 2004, 20% more than we mined in the same period. We spent a total of $64 million during the same period for Brownfield exploration, which means that we added new reserves at the low cost of about $0.32 per silver ounce.

Our reserves are sufficient to sustain our current production levels for the next 10 years. In order to maintain these levels, we will spend approximately $15.5 million on Brownfield exploration including a 116,000 meter drill program at our seven operations during 2012.

I would like to add some remarks on our Greenfield program. In 2011 we spent about $12 million on Greenfield projects including $4.5 million at Navidad. The 2012 budget calls for $7.8 million to be spent on Greenfield exploration. This could, of course, change with the addition of Dolores and all the other exciting exploration projects that MineFinders acquisition will bring to the table. Hence, a new detailed budget will be presented in Q2 after the acquisition will be completed.

Once again, our strong core assets have proven the exploration potential by providing us with another year of reserve replacement and I am confident they will continue to do so. We have one of the largest reserves and resources in the silver sector and I am very excited to hopefully be adding the Dolores mine and the La Bolsa project to our portfolio. In my opinion Dolores has impressive resource expansion potential, which we will be starting exploring in the second half of this year.

But that's not all. The acquisition will also add over 62,000 hectares of [prospective] ground to our Mexican portfolio, including the La Virginia project, a very exciting mid-stage exploration project, and six early stage silver/gold prospects in Northern Mexico.

With that, I would like to pass it on to Rob Doyle.

Good morning, ladies and gentlemen. Our financial results in Q4 and for the full 2011 year were extremely robust including several new financial records for Pan American. Annual sales were $855.3 million, an increase of 32% over 2010 sales, driven primarily by higher realized prices for all metals, partially offset by decreased quantities of metal salt.

Mine operating earnings in 2011 increased to a record $409.1 million, an increase of 70% over the prior year, as growth and sales significantly outweighed increases in cost of sales.

The Company generated record adjusted earnings after adjusting for the derivative mark-to-market gain on its warrants of $252.3 million, or $2.37 per share, more than double the comparable number in 2010.

Cash flow from operations was at a record $359.5 million, or $3.38 per share, a 48% increase from 2010.

Determined to return value to shareholders and in the context of these record financial results, the Company announced its intention to purchase up to approximately 5.4 million of our common shares under a normal course issuer bid, representing up to 5% of Pan American's issued and outstanding shares in August of 2011. Thus far under the share buyback program we have purchased approximately 3.6 million shares at an average price of $26.20, or a total consideration of about $94 million.

In addition, the Company continued to pay quarterly dividends of $0.025 per share, thereby paying $10.7 million in dividends to our shareholders during 2011.

On every financial metric 2011 was our best year ever at Pan American. The exuberant precious metal price environment that we saw in 2011 drove the Company's strong financial performance relative to 2010, partially offset by higher operating costs and lower volumes of metal sold. It is remarkable to see a more that $200 million increase in revenues in 2011, despite the fact that we sold 3.4 million less silver ounces, almost 13,000 less gold ounces and over 10,000 less base metal tonnes than we sold in 2010.

The story of 2011 is one of margin expansion. Yes we have seen cost pressures across the board from increased prices of consumables, royalties and labor costs all aggregating to approximately a 26% year-on-year increase in our cost per tonne. And yes we have suffered from deteriorations in the high grade silver concentrate terms which have negatively impacted our net net smelter returns.

However, our margin per tonne still increased 68% on average on the back of significantly higher realized prices. These expanded margins are clearly reflected on our income statement with our gross margin -- that is mine operating earnings over sales -- jumping to 48% in 2011, up from 37% in 2010.

The lower volumes sold were a result of producing less in 2011 but also due to increases in inventories. We accumulated over 0.5 million ounces of silver and 1,100 ounces of gold during 2011, as well as 3,300 tonnes of zinc and 1,100 tonnes of copper. These increases in metal inventories arose as a result of timing of shipments and should be released into income together with the associated margin during 2012.

Turning to Pan American's Q4 financial performance, I'd like to draw your attention to the following highlights. Adjusted net income was $64.5 million, which equates to $0.61 per share. Mine operating earnings were $88.3 million, a gross margin of 42%.

Cash flow generated from operations was $105 million in Q4, a new quarterly record. We recognized other income of $10 million in the quarter, made up predominantly of proceeds received from [Chanel Cuir] of $4.5 million as part of our deal to relocate our facilities at Morococha. The reversal of unnecessary provisions related to severance and receivable discounts of $4 million and $0.5 million insurance claim we received following the theft of [Doray] from Alamo Dorado mining the third quarter.

Our effective tax rate in the fourth quarter was only 18% and after adjusting for the distorting impacts of the warrant gain, were still only 25%, which is lower than what we would have expected, primarily due to the recognition of deferred tax assets related to double deduction of exploration expenses in Argentina combined with favorable impacts on our net tax assets of FX and inflation adjustments.

For the full year the effective tax rate was 32% after adjusting for the warrant mark-to-market gains, which is closer to our long-term expectation in the 35% range.

Moving to the balance sheet, our working capital actually decreased by $47 million during the fourth quarter for the first time since late 2008, mostly due to the share buyback program, which required funding of $66.1 million in the quarter.

We also moved the book value of our Pico Machay exploration project in Peru out of current assets and into the long-term portion of our balance sheet as we reevaluate our intention to dispose of that asset.

We still finished the quarter with an exceptionally strong working capital position of $566.4 million including cash and short-term investments of $491.2 million and no debt other than some minor capital leases.

Looking back, 2011 was an incredibly successful year from a financial perspective. Pan American generated $457.7 million in operating cash flow before working capital movements and taxes and received another $17.5 million in BAT recoveries in Argentina and Bolivia. We returned $104.7 million of that to our shareholders via the share buyback program and quarterly dividends, invested $145.7 million in our assets, paid income taxes of 57.8 million and still put $130.7 million in the till.

Pending the successful completion of the MineFinders acquisitions at the end of March, we look forward to adding another highly cash generative mine to our portfolio, which together with our pristine balance sheet puts us in an excellent position as we assess the financing alternative available to us for the construction of Navidad.

With that, I'll hand it back to Geoff for some closing comments.

Thanks, Rob. Before opening up the call to questions, I wanted to provide some comments and thoughts on three specific things. The first is increasing operating cost. The second, our Navidad project in Argentina and the changing operating environment in that country. And three, our proposed acquisition of MineFinders.

First, operating costs; in my almost 30 years in this business I have never witnessed the magnitude of cost pressure we are facing and it's not just Pan American. As many of you on the phone know, it is an industry-wide phenomenon. From increasing royalties and government takeaways, many of which are geared directly to metal prices, to rising labor costs and increased supply and energy costs, controlling our expenses has become a tremendous challenge and one that we are totally focused on.

But our arsenal is limited and we are seeing real and significant per tonne increases in the costs of mining and processing. But -- and this is in my opinion is the critical focus, as Rob has just outlined in detail, our margins have never been stronger. The increase in the price of gold and silver has, at least to this point, outpaced the cost escalation we have seen.

Now looking to Argentina, where I just returned from a visit a couple of weeks ago, there is no doubt that the federal government and the provinces are now vocally supporting mining. The reversal of the ban on the use of sodium cyanide in Rio Negro, where our [Calcatreu] project is located, bears witness to this fact as does the ACTA that was signed just last week with the federal government and the governors of 10 of the provinces in Argentina to form a coalition in support of the mining industry.

Well worth noting, Martin Bussey, the Governor of the Province of Chubut, was one of these signatories. We obviously support these efforts and continue to believe that the environmentally sensitive and socially responsible development of our Navidad project would bring welcome investment and economic activity to a region in Chubut that is economically challenged and struggling even further given the devastating effects of the ash fall from the volcanic activity in Chile last year.

I remain extremely confident that we're going to see the amendment to the law in Chubut that currently bans open pit mining, which will position us to proceed with the development of the world-class Navidad project. However, at the same time, the operating and construction environment in Argentina is becoming increasingly difficult and significantly more expensive. Real inflation has been close to 25% per year for the last three years. There are severe import restrictions, which Steve mentioned earlier, and as of October 26th of last year, every US dollar we make exporting and selling our silver and gold in Argentina must be repatriated to the country and converted to argentine pesos.

All of these things combined have significantly increased the risks of operating in Argentina. In deference to my mining colleagues that also operate in the country, I have to tell you that currently Argentina is by far the most expensive jurisdiction in the world to construct a mining project. While I fully expect Miss Kirchner, President of Argentina, with a renewed mandate to manage this situation and begin to stabilize inflation rates within world norms in the near future, it is impossible to ignore the elevated risk of the present circumstances.

This brings me to the last point I wanted to talk about, which is our proposed acquisition of MineFinders and their flagship asset, the Dolores mine in Mexico. I am very excited about this transaction and the prospects for Pan American, both today and in the future. We believe the strategic rational behind this transaction is sound. This is very much a de-risking transaction for Pan American. Acquiring the Dolores property adds a proven long life, low cost operating mine, which clearly increases and diversifies our operating and cash flow base into a highly preferred mining jurisdiction. It very much rebalances our future geopolitical risk.

Specifically, the combination of Pan American MineFinders provides a number of very key benefits. It will create the leading growth oriented geographically diversified low cost primary silver producer with a combined market capitalization of approximately $4 billion. The combined Company will have exceptional growth profile second to none in our sector with Navidad, La Preciosa and the potential mill expansion at Dolores, which could double our production by 2015.

Our combined proven and probably silver reserves will be approximately 350 million ounces and our gold reserves will exceed 3 million ounces while our measured and indicated resources will surpass 740 million ounces silver and 2 million ounces for gold. The combined balance sheet will be strong with almost $600 million in cash and our access to capital, should it actually ever be required, will be superior.

And lastly and perhaps most importantly, I think it is fair to conclude there will be an attractive re-rating potential for both companies. In my and our Board's opinion this is a win/win transaction for Pan American and for MineFinders.

With that, operator, I would now like to open up the session for questions and answers.

(Operator Instructions). The first question today comes from Ralph Profiti of Credit Suisse.

Thanks for taking my question. Rob, you mentioned the deterioration and less favorable terms of some of these silver rich copper concentrates in Peru. I was wondering if you can help us quantify the impact. Are these mine specific issues related to penalties or just flow through on price participation of the silver price? And I am just trying to reconcile why there's such a difference between what we're seeing in the commercial terms for copper concentrates.

Sure, Ralph. There are a lot of different variables of course go into concentrate contracts but I think the single biggest deterioration that we've seen is certainly in the silver refining charges for any concentrates above somewhere like 8 kilos of silver contained so that also applies to lead. It's not specific to copper so whereas historically we've seen refining charges somewhere in the $0.50 range likely, now we're seeing it more expressed as a percentage of price so up to 8% or even as up 12% of price so you could be seeing much, much higher refining charges on a per ounce basis.

That's probably the biggest single movement. The TCs really haven't -- are not that material on the tonnage that we produce, very distinct from the standard copper market where the high silver value are not so evident.

That's helpful. Thank you. If I can just ask a follow-up on Morococha, where we've seen sort of grade deterioration, particularly in Q4, where you're now substantially below the reserve grade just wondering what the roadmap looks like there. Can this mine ever get back to the 170 grams per tonne range that historically was the peak grade? And secondly, with regards to throughput, as you finish transition and the infrastructure improvements, is the right number going forward sort of the 1,600 to 1,700 tonnes per day rate? Thank you.

Yes, Ralph, this is Steve Busby. First off, yes we do anticipate grades to return back to the reserve grades. We are seeing lower grades during the last part of 2011 pretty much by design. We did pull out of three high grade areas that we normally mine at Morococha, the [Moral Solar] area and the [Yakmin] area.

We pulled out of those areas to allow us to better define the ore zones and go in with a more mechanized mining method and more productive and better approach to mining those areas than what we had been using in the past, which was conventional narrow vein cut and fill styles. So, as those areas start to come back on line, which we'll see over the course of 2012 into 2013, we are anticipating grades to come back into the reserves type grades that we carry for the mine.

In terms of throughputs, we currently see probably about I would say a three-year ramp to see higher throughputs to get back over into the high grade [Yakamino] we have to complete this critical [Cunia] at 400 level development and that's about a two-year development to get over there and come back under that ore deposit and then we have to develop the stopes and start the stope mining in that area. So we show in our plan kind of a ramp up, if you will, over the next three years or so to the old style throughput rates.

Got it, very helpful; thanks very much.

Gary S. Lundgren, CTK Chicago Partners.

I would like to know what you -- how the mine plan is coming for La Preciosa and if you think that that will be developed on time and what your thoughts are with that.

We're currently looking at the PEA and revising it based on some additional information that we received from some of our technical consultants relative to the structural integrity of the mine plan or the rock surrounding the mine plan that we put together and that's leading us to change our look at how we're going to mine that operation. And it's probably going to take us close to I'm going to say the end of the first quarter to have completed our studies and then completed our assessment of that, at which point we will move more directly to a full feasibility study. But until we can complete that first part of the exercise, we really can't go full tilt on the feasibility study.

So when do you anticipate a full feasibility study done if by the end of the first quarter the other work is completed?

It will have to come after that. It's probably another number of months post completion of what I'll call or what we're calling our scoping study before we can complete a full feasibility.

Okay thank you very much.

[John Kratochwil], Canaccord.

I've got a quick question, a couple quick questions; first of all, taxes in Peru, has there been any discussion on what those, the new tax rates, might be or has any decision been made on that?

Yes the new tax regime was introduced late last year in Peru. In our particular case there really isn't a material difference from the old royalty tax regime so it hasn't had a material impact on our financial outlook at all in Peru.

Okay and then moving on to operating costs, I mean looking at Huaron Morococha specifically, the costs -- the total cash costs -- have or are expected to come up quite a bit in 2012. Is that something that we should be expecting going forward life of mine or are you expecting cash costs to come down in 2013 and going forward?

Yes, John, this is Steve. It's certainly, as Geoff mentioned, cost controls are primary focus at these operations right now. The cost increases that we see reflect two things. One, it reflects an increase in our development, underground development, rates to access new ores. We were doing more underground development to ensure that we have adequate ore supplies relative to the ore tonnes we mine as well as the 11% cost escalations that we've estimated between what we saw in 2011 and what we expect in 2012.

We do intend to try to find better ways to mine, better ways to process more efficiently, better ways to treat our concentrates, as Rob mentioned before, which is driving a big part of those costs as well, those cost increases. We have to find new ways of doing things and that's what we intend to do. It's kind of an engineering approach to changing the way we do things but to predict where that will come, we can't make a prediction on that right now.

No understood and so I mean Morococha, should we expect kind of -- I know you can't go life of mine but 2013-ish, I don't know how far an outlook you have but should we be expecting more in the high teens then per ounce?

Yes I mean clearly Morococha as the grade comes up and the production rate comes up, the unit cost per ounce will certainly come down and we expect it to come down into the ranges that Huaron. They're very similar mines when you look at them into those kind of mid-teens type ranges.

Okay and then finally, Quiruvilca, is there any potential to reopen and get production going on in there? They've got lots of reserves remaining so I was just wondering what the potential is for that.

I think we're, to be blunt, we've included in 2012 only the first quarter of production for Quiruvilca and we're looking at some strategic options as we've mentioned in there. We might go looking at the pricing and looking at where our costs are. We might put it on care and maintenance. We're also looking at potentially divesting that asset. I mean, it's just such a non core piece of our business frankly in terms of the number of ounces it's now contributing and the margins, which it's now contributing that we're I guess the nicest way to put it is not sure we would do anyone the best favor by exhausting what's left of the reserve there at these price levels.

Okay well, fair enough. Thank you very much. That answers my question and congratulations on a strong quarter.

(Operator Instructions). Chris Lichtenheldt, UBS.

Just a few questions; first, thanks for addressing the situation in Argentina. Obviously that's pretty topical and I know we're waiting for the feasibility on Navidad hopefully later this year but given the inflation that you talked about over the past few years and now further complicating the issue would be the import restrictions. Can you talk a little bit about what sorts of things you might be looking at doing to try to combat that inflation against large CapEx potentially there?

Yes, Chris, this is Steve. It's a very good question. We are tackling that on several fronts. One opportunity that we see right now that looks very interesting to us is the various ore types that we have and we have eight different pits that we're looking at at Navidad with two different ore types and they vary in hardness. We have a very hard ore at Loma de la Plata. We have a very soft ore at Galena Hill and Calcite Hill and Calcite Northwest and others. And when we ran the PEA we ran everything at a fixed throughput of 15,000 tonnes a day.

We know when we're processing the softer ores that that plant is capable of producing a significantly higher throughput rate so we're looking at that and trying to incorporate that into a mine plan that makes sense and we think that's going to offer substantial savings. It will shorten the mine life, increase production per year, offer substantial savings and G&A costs and our fixed costs. So we're excited about that.

The other thing, we're doing a lot of project optimization. We're combining a lot of facilities where we used to have kind of camp facilities for the operators and camp facility for the constructors. We're kind of trying to bring a lot of that infrastructure and ancillaries together and reduce the overall construction costs of those things in a number of areas that we're seeing opportunities that we can improve that we're tackling right now.

Okay that's great. Thanks. And some of the materials and equipment you'll need will you be able to get it from outside of the country to alleviate some of the in country inflation or how do these import restrictions hinder that potential?

Yes, Chris, I think, as we were -- you know, with the law change and effective EIA, I think we'll have to have some very distinct conversations with the government to make sure that they will allow us to bring in the construction gear as well as the -- I'm going to say the processing equipment and the actual operating equipment that we're going to need to run Navidad.

And that's a discussion that is pending into the future. I think it would be very, very difficult to move forward with the size of the project that we're looking at without some absolute surety that we'll be able to get the equipment in that we need in order to build it, but that discussion, and I think they will be open to that sort of discussion once we're in actually a position to start to build.

I think the second thing that is sitting there when you -- having been now in Argentina and operating for a number of years and seeing what's happened certainly over the last two years, there is -- seems to me to be somewhat of a disconnect between the rates of inflation within Argentina that we're seeing and the exchange rate relative to the US dollar. And there can be no doubt that some of the import restrictions, no doubt that the requirements to bring revenues back into the country have a whole lot to do with the argentine Central Bank's need requirement to have US dollars.

So my expectation would be that over time that we would see that exchange rate -- I'm going to say more equilibrate to the balance that we're seeing from the rest of the world. And when that happens, and I think it's something we're going to see over some time, it is going to very much change that operating environment relative to the capital costs and relative to future operating costs. But that event remains in the future and it's an event that it's one we can't really predict. But more than anything, more than anything, that probably is going to be the key to controlling some of the inflationary pressures and cost escalations we're seeing.

Okay great. That's very good information. Just the last thing I'll ask on that, I mean is it timing of a potential currency re-rating something you could wait for? I mean, would that factor into your timing or you just go ahead as you can?

I think it's something that we would have to very carefully assess. It's full on it would be a very difficult decision for ourselves or for that matter any company to construct a new project in the face of a 20%, you know, 25% inflationary headwind. That is a very, very difficult proposition for anybody in spite of in our case the Navidad being a world-class silver deposit. That is extreme challenge and one that I am very hopeful when we get to that point we'll see some other changes within the structure in Argentina that will allow us to move very quickly to construction.

Great thanks a lot. Just a couple last quick housekeeping, on the income statement, Rob, you have $10 million or so of other income. Can you just let me know what that is?

Sure, Chris. About $4.5 million of that is proceeds we received from [Chanelco] relative to our deal with them to part fund the relocation of our Morococha facilities. And then there's about $4 million of provisions that we released relative to some severance that's not required and also some discounting of our BAT receivable, which we had put -- last year we put it into a long-term receivable and took a present value hit through the income statement, given our really excellent track record in 2011 of recovering BAT, both in Argentina and Bolivia. We've now reclassified those receivables into current assets and have been able to reverse that present value discount.

I see. Great. Okay that's it for me. Thanks a lot.

There are no more questions at this time. I will now turn the call back over to Mr. Burns for concluding comments.

Thank you, operator, and thank you, everyone, for joining us again this morning for our earnings conference call. We look forward to talking to you again post the completion of our transaction and at the end of the first quarter of 2012. Thanks very much.

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