Pan American Silver Financial Restatement, Reduction in La Colorada Carrying Value and 21% Increase in Silver Reserves
17 February 2006 - 12:28PM
PR Newswire (US)
VANCOUVER, Feb. 16 /PRNewswire-FirstCall/ -- Pan American Silver
Corp. (NASDAQ: PAAS; TSX: PAA) today reported several developments
in anticipation of its 2005 year-end results due to be announced on
February 23, 2006. Financial Restatement --------------------- In
2003, Pan American implemented a hedge accounting policy for the
accounting treatment of its base-metal forward contracts program.
Its external auditors, Deloitte & Touche LLP, reviewed the
initial implementation and concurred with the hedge accounting
treatment as reported since 2003. However, it has recently been
concluded that the Company's accounting for its forward contracts
for the sale of base metals (lead and zinc) and its forward
contracts for purchasing Mexican pesos with US dollars do not
technically qualify for hedge accounting under AcG-13, Hedging
Relationships. As a result, Pan American will restate its financial
statements for the first three quarters of 2005 and the 2004
financial year. The expected effect of these changes is a non-cash
earnings increase of $2.0 million after tax for the nine months
ended September 30, 2005 and a non-cash earnings decrease of $4.7
million after tax for 2004. Geoff Burns, President and CEO, said,
"This is purely a change in accounting treatment and has no
economic impact on Pan American and our cash flows. The details of
our base-metal forward contracts, which we have previously
disclosed, have not changed and they continue to serve Pan American
as a prudent risk management tool. Pan American has not and will
not hedge any of its silver production." Pan American is now
required to recognize mark-to-market valuations on its open forward
contract positions through its income at the end of each period. In
the past, Pan American had recognized gains, losses, revenues and
expenses from its forward contracts in its income only in the
period in which they settled. At December 31, 2005, the Company had
sold forward 13,400 tonnes of zinc at a weighted average price of
$1,551 per tonne ($0.704 per pound). These forward sales
commitments for zinc represent approximately 37 per cent of the
Company's forecast 2006 payable zinc production. At December 31,
2005 mark-to-market value of the Company's zinc forward contracts
was a negative $4.3 million. Pan American also mitigates the risk
of strengthening local currencies relative to the US dollar. As of
December 31, 2005 the Company had purchased 203 million Mexican
pesos settling between January 2006 and June 2006 to match
anticipated spending on the construction of Alamo Dorado at an
average MXN/USD exchange rate of 11.26. At December 31, 2005, the
positive mark-to-market value of the Company's position was $0.9
million. La Colorada Carrying Value -------------------------- It
is also anticipated that the fourth quarter 2005 results will
include a non-cash write-down of the carrying value of the La
Colorada silver mine in Mexico. Very high inflows of hot water,
high pumping costs and difficult ground conditions appear likely to
render the deeper portion of the La Colorada mineralization
unrecoverable, thus decreasing the mine's proven and probable ore
reserves from 29.9 million ounces to 16.2 million ounces. As a
result, the Company anticipates a non-cash write-down of the
carrying value of La Colorada of $29.7 million. Pan American is
currently conducting exploration drilling and is optimistic that La
Colorada's silver reserves may be increased and its mine life
extended. In 2006 the mine is forecast to produce 4.0 million
ounces of silver at a cash cost of $5.44/oz. Silver Reserves and
Resources Increase 21% (see table)
------------------------------------------------------ Pan American
has completed its annual review of its silver reserves and
resources. As of December 31, 2005 proven and probable reserves
totaled 178 million ounces; measured and indicated resources
totaled 185.3 million ounces; and inferred resources totaled 273.4
million ounces. Due to reserve increases at Pan American's other
properties, most notably at the Morococha mine in Peru, the
Company's proven and probable reserves increased by 21% in 2005 or
30.5 million ounces, even after accounting for the La Colorada
losses and reserve depletion of 15.2 million ounces due to 2005
mining activities. Ross Beaty, Chairman, said, "We have taken
conservative decisions to change our hedge accounting and to reduce
La Colorada's carrying value. I am hopeful that we will ultimately
recover some of the La Colorada ounces, discover new ounces there
and recover our full investment in the property. I am pleased that
our proven and probable reserves have increased so profoundly in
2005, despite the loss of the La Colorada ounces, and this speaks
to the quality and diversity of our operations and projects." Pan
American will release its 2005 fourth quarter and year-end
financial and operating results, along with its restated financial
statements, before market open on February 23, 2006. The Company
will then host a conference call on February 23, 2005 at 11:00 am
Pacific Time to discuss these results. North American residents
dial toll-free to 1-877-825-5811. International participants please
dial 1-973-582-2767. The call may also be accessed from the home
page of the Company's website at http://www.panamericansilver.com/.
It will be available for replay for one week after the call by
dialing 1-877-519-4471 and using replay pin number 6961962. For
Further Information Contact: Brenda Radies (604) 806-3158
CAUTIONARY NOTE Some of the statements in this news release are
forward-looking statements and as such are based on an assumed set
of economic conditions and courses of action. These include
estimates of earnings, reserves and resources, future production
levels, expectations regarding mine production costs, expected
trends in mineral prices and statements that describe Pan
American's future plans, objectives or goals. There is a
significant risk that actual results will vary, perhaps materially,
from results projected depending on such factors as changes in
general economic conditions and financial markets, changes in
prices for silver and other metals, technological and operational
hazards in Pan American's mining and mine development activities,
uncertainties inherent in the calculation of mineral reserves,
mineral resources and metal recoveries, the timing and availability
of financing, governmental and other approvals, political unrest or
instability in countries where Pan American is active, labor
relations and other risk factors listed from time to time in Pan
American's Form 40-F. > DATASOURCE: Pan American Silver Corp.
CONTACT: Brenda Radies, (604) 806-3158
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