FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For May 23, 2003
PAN AMERICAN SILVER CORP.
1500 - 625 HOWE STREET
VANCOUVER, B.C.
V6C 2T6
Indicate by check mark whether the registrant files or will file annual reports
under cover of Form 20-F or Form 40-F.
Form 20-F____ Form 40-F__X__
Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes____ No__X__
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): 82-____
[PAN AMERICAN SILVER LOGO] Pan American Silver Corp.
2003 FIRST QUARTER REPORT TO SHAREHOLDERS
for the period ended March 31, 2003
NASDAQ STOCK EXCHANGE PAAS
TORONTO STOCK EXCHANGE PAA
TORONTO STOCK EXCHANGE, WARRANTS PAA_t
May 13, 2003
FIRST QUARTER REPORT TO SHAREHOLDERS ON RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
HIGHLIGHTS
o Record quarterly silver production of 2.15 million ounces from Pan
American's four wholly owned silver operations.
o Acquisition of Corner Bay Silver completed and feasibility study review of
Alamo Dorado silver project initiated.
o Excellent silver and gold drilling results at Manantial Espejo property,
Argentina.
o La Colorada mine expansion on schedule and budget for July 2003 start-up.
FINANCIAL (ALL AMOUNTS ARE EXPRESSED IN US$)
Pan American Silver Corp. (NASDAQ: PAAS; TSX: PAA; Warrants TSX: PAA_t) reported
a net loss for the first quarter of $1.1 million ($0.02 per share) compared to a
net loss of $1.3 million ($0.03 per share) for the first quarter of 2002.
Consolidated silver production for the three months ended March 31, 2003
totalled 2.15 million ounces representing a four percent increase from the same
period of the prior year. This increase was due to increased production from the
Huaron mine and production from silver-rich pyrite stockpiles acquired late last
year partially offset by lower production from the Quiruvilca mine. Zinc metal
produced during the first quarter of 2003 amounted to 9,343 tonnes (2002 -
10,107 tonnes), lead production was 5,812 tonnes (2002 - 5,441 tonnes) and
copper production was 767 tonnes (2002 - 669 tonnes).
Revenue for the first quarter of 2003 amounted to $7.8 million (2002 - $10.2
million). The decrease in revenue was due to the timing of concentrate
shipments. Revenue for the first quarter of this year was generated from sales
of 14,260 tonnes of zinc concentrate (2002 - 18,990 tonnes), 1,256 tonnes of
lead concentrate (2002 - 4,790 tonnes) and 2,878 tonnes of copper concentrate
(2002 - 2,934 tonnes). Operating costs were also lower for the first quarter of
2003 relative to 2002 because of lower shipments. The concentrate shipment
delays were requested by certain purchasers to allow them to accumulate larger
volumes and thereby lower unit shipping costs.
The average metal prices realized during the first quarter of 2003 were
marginally higher than for the corresponding period of last year. The price
received per ounce of silver averaged $4.37 (2002 - $4.15) and for zinc the
realized price per pound was $0.36 (2002 - $0.36).
During the first quarter of 2003, operating activities generated cash of $0.5
million. Investing activities consumed $2.3 million and financing activities
generated $4.2 million. Operating cash flow resulted from an increase in cash
advances received for concentrates not shipped. Investing activities consisted
of spending on property plant and equipment of $5.4 million
including $4.2 million for the La Colorada mine expansion and $0.5 million on
infrastructure and equipment at the Huaron mine. Cash of $3.1 million was
received from the acquisition of Corner Bay Silver Inc. Proceeds of $4 million
were received from the La Colorada expansion loan and repayments of $0.4 million
were made on the Huaron loan. Total debt and capital asset lease obligations
outstanding at March 31, 2003 amounted to $9.2 million of which $1.6 million is
current.
PERU OPERATIONS
Pan American's three Peru silver operations produced a total of 1.95 million
ounces of silver in the first quarter. The Huaron mine had a good quarter,
producing 1.2 million ounces of silver, 5,500 tonnes of zinc and 4,400 tonnes of
lead from 158,000 tonnes of ore at a total cash cost of $3.81 per ounce of
silver produced net of by product credits. The mine's 10 percent expansion,
which commenced in late 2002, is nearly complete and production for 2003 is
planned at 4.9 million ounces of silver. The Quiruvilca mine produced 0.6
million ounces of silver, 3,700 tonnes of zinc and 1,300 tonnes of lead in the
quarter from 121,000 tonnes of ore. Quiruvilca's operating results continue to
be negatively affected by low metal prices, and expected but lower-than-normal
grades in the current mining areas. Total cash costs at Quiruvilca were $5.20
per ounce of silver produced net of by product credits. The small pyrite
stockpile operation near the Huaron mine produced 0.13 million ounces of silver
in the quarter at a cash cost of $2.08 per ounce.
MEXICO OPERATIONS
At the Company's La Colorada mine, 0.2 million ounces of silver were produced in
the first quarter. Operating results continue to be treated as pre-production
revenue. The mine's fully financed $20 million expansion project remains on
schedule and budget for completion in early July, with forecast production of
2.2 million ounces in 2003 at a cash cost of $3.06 per ounce of silver. In March
the Company began drawing from the $10 million project loan from the
International Finance Corporation, a member of the World Bank Group, to fund
remaining capital expenditures.
The highlight of the first quarter was the completion of the Company's
acquisition of Corner Bay Silver and its wholly owned Alamo Dorado silver
project in Sonora State. This followed approval of the transaction by
shareholders in September and an agreement respecting water rights for the
project from Mexican authorities in February. Pan American is now updating the
Corner Bay feasibility study and a drilling and metallurgical testing program
has been initiated in order to evaluate a mill versus heap leach process for the
project. This program is expected to be complete in September and will enable
project financing later in the year and, subject to financing, commencement of
construction. Based on Corner Bay's original feasibility study, planned
production from Alamo Dorado is 6 million ounces per year at an average cash
cost of $3.25 per equivalent ounce of silver.
EXPLORATION AND DEVELOPMENT PROJECTS
A 6,000 meter drilling program at the 50 percent owned Manantial Espejo property
in Argentina concluded during the quarter, with excellent results. Planning is
now in progress for an underground tunnelling and drilling program, to commence
in late 2003. The recent drilling is expected to increase the current measured
and indicated resource of 4,390,000 tonnes grading 264 g/t silver and 4.51 g/t
gold and inferred resource of 1,590,000 tonnes grading 258 g/t silver and 3.65
g/t gold. In Bolivia, silver production continued from the small scale San
Vicente silver
- 2 -
mine under lease to a Bolivian mining company. Discussions remain
underway to re-initiate work that will enable a new feasibility study and
ultimately expanded mine production. Finally, in Russia, the Dukat mine
continued its start-up though production statistics are not yet available.
OTHER DEVELOPMENTS
Pan American is pleased to welcome several new members to its senior operating
group to better manage its strong growth. John Wright, President and Chief
Operating Officer, will be stepping down in mid-year for family reasons but he
will remain an active Director of the company. Geoff Burns has been appointed to
fulfil his functions. Mr. Burns has had a distinguished career in the mining
industry. He served in a variety of financial roles including Chief Financial
Officer and Controller with a major Canadian gold mining company from 1984 to
1998 and most recently he was Chief Financial Officer of a large US silver and
gold producer from 1999 to 2003. Brenda Radies has joined the company as Vice
President of Corporate Relations to replace Rosie Moore. Since 1993, Ms. Radies
has been with one of Canada's and the world's largest gold producers, most
recently as Director of Corporate Communications. Robert Pirooz has rejoined the
Company as Vice President, Legal Affairs. Finally, Bill Faust, a mining engineer
with broad experience in mine development and operations in North America and
Mexico, joins the company as manager of the Alamo Dorado silver mine development
project, a position he held with Corner Bay Silver.
SILVER MARKETS
The most reliable annual compendium of silver statistics was published on May 8,
2003 by London-based GFMS on behalf of the Silver Institute. GFMS reported that
the deficit between silver fabrication demand and conventional silver supply
(mine production and scrap) remained very large at 67.4 million ounces.
Industrial demand for silver increased in 2002, world silver mine production
declined (and is likely to decline further in 2003), and overall silver demand
fell by 3.5 percent, overwhelmingly due to a 28 percent slump in Indian
jewellery and silverware demand. Chinese government sales were reported to have
decreased to 51 million ounces from 68 million in 2002. Although GFMS increased
its estimate of remaining Chinese silver stocks, it noted that Chinese internal
demand increased sharply in 2002 almost eliminating the historic surplus of
Chinese mine supply. Once this surplus is eliminated, China will be a net silver
consumer which is expected to result in faster depletion of remaining Chinese
official silver stocks. The recent weakness of the US dollar is also a positive
factor in silver market fundamentals.
Respectfully submitted,
(signed) (signed)
Ross J. Beaty John Wright
Chairman & C.E.O President & C.O.O.
CAUTIONARY NOTE
Some of the statements in this news release are forward-looking statements, such
as estimates of 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. Actual results and developments
may differ materially from those contemplated by these statements 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.
- 3 -
FINANCIAL AND OPERATIONAL HIGHLIGHTS
THREE MONTHS ENDED
MARCH 31
2003 2002
--------------------------------------------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL HIGHLIGHTS (IN THOUSANDS OF US DOLLARS)
Net income (loss) $ (1,104) $ (1,303)
Earnings (loss) per share (0.02) (0.03)
Contribution from mining operations 393 997
Capital spending 5,436 1,314
Exploration expense 496 83
Cash 12,561 19,921
Working capital $ 3,901 $ 14,298
CONSOLIDATED ORE MILLED & METALS RECOVERED TO CONCENTRATE
Tonnes milled 305,669 299,871
Silver metal - ounces 2,150,052 2,065,503
Zinc metal - tonnes 9,343 10,107
Lead metal - tonnes 5,812 5,441
Copper metal - tonnes 767 669
Net smelter return per tonne milled $ 40.42 $ 41.33
Cost per tonne 38.44 37.99
--------------------------------------------------------------------------------------------------------------------
Margin per tonne $ 1.97 $ 3.34
====================================================================================================================
CONSOLIDATED COST PER OUNCE OF SILVER (NET OF BY-PRODUCT CREDITS)
Total cash cost per ounce $ 4.13 $ 3.84
Total production cost per ounce $ 4.60 $ 4.63
(In thousands of US dollars)
Direct operating costs & value of metals lost in smelting and refining $ 12,409 $ 12,535
By-product credits (4,335) (4,594)
--------------------------------------------------------------------------------------------------------------------
Total Cash operating costs 8,074 7,941
Depreciation, amortization & reclamation 902 1,619
--------------------------------------------------------------------------------------------------------------------
Total Production costs $ 8,977 $ 9,560
====================================================================================================================
Ounces used in cost per ounce calculations 1,953,340 2,065,503
AVERAGE METAL PRICES
Silver - London Fixing $ 4.67 $ 4.49
Zinc - LME Cash Settlement per pound $ 0.36 $ 0.36
Lead - LME Cash Settlement per pound $ 0.21 $ 0.22
Copper - LME Cash Settlement per pound $ 0.75 $ 0.71
AVERAGE PRICES REALIZED
Silver - per ounce (note) $ 4.37 $ 4.15
Zinc - per pound $ 0.36 $ 0.36
Lead - per pound $ 0.21 $ 0.22
Copper - per pound (note) $ 0.67 $ 0.62
Note - Pan American pays a refining charge for silver and copper
- 4 -
MINE OPERATIONS HIGHLIGHTS
HUARON MINE
THREE MONTHS ENDED
MARCH 31
2003 2002
--------------------------------------------------------------------------------------------------------------------
Tonnes milled 158,040 149,100
Average silver grade - grams per tonne 264 269
Average zinc grade - percent 4.06% 4.12%
Silver - ounces 1,199,701 1,146,309
Zinc - tonnes 5,502 5,121
Lead - tonnes 4,416 3,515
Copper - tonnes 265 381
Net smelter return per tonne $ 45.62 $ 44.82
Cost per tonne 40.62 35.57
--------------------------------------------------------------------------------------------------------------------
Margin per tonne $ 5.00 $ 9.25
====================================================================================================================
Total cash cost per ounce $ 3.81 $ 3.17
Total production cost per ounce $ 4.35 $ 3.61
(In thousands of US dollars)
Direct operating costs & value of metals lost in smelting and refining $ 7,004 $ 5,963
By-product credits (2,431) (2,329)
--------------------------------------------------------------------------------------------------------------------
Total cash operating costs 4,572 3,634
Depreciation, amortization and reclamation 647 507
--------------------------------------------------------------------------------------------------------------------
Total production costs $ 5,219 $ 4,141
====================================================================================================================
Ounces for cost per ounce calculations 1,199,701 1,146,309
QUIRUVILCA MINE
Tonnes milled 121,345 135,148
Average silver grade - grams per tonne 183 192
Average zinc grade - percent 3.53% 4.04%
Silver - ounces 619,754 728,619
Zinc - tonnes 3,740 4,888
Lead - tonnes 1,303 1,819
Copper - tonnes 502 288
Net smelter return per tonne $ 34.55 $ 36.93
Cost per tonne 39.17 38.39
--------------------------------------------------------------------------------------------------------------------
Loss per tonne $ (4.62) $ (1.46)
====================================================================================================================
Total cash cost per ounce $ 5.20 $ 4.44
Total production cost per ounce $ 5.46 $ 5.79
(In thousands of US dollars)
Direct operating costs & value of metals lost in smelting and refining $ 5,126 $ 5,485
By-product credits (1,903) (2,253)
--------------------------------------------------------------------------------------------------------------------
Total cash operating costs 3,223 3,232
Capital spending expensed and reclamation 164 987
--------------------------------------------------------------------------------------------------------------------
Total production costs $ 3,387 $ 4,219
====================================================================================================================
Ounces for cost per ounce calculations 619,754 728,619
- 5 -
LA COLORADA MINE
THREE MONTHS ENDED
MARCH 31
2003 2002
--------------------------------------------------------------------------------------------------------------------
Tonnes milled 14,828 15,623
Average silver grade - grams per tonne 512 434
Silver - ounces 196,712 190,575
Zinc - tonnes 101 98
Lead - tonnes 93 107
Net smelter return per tonne $ - $ 46.09
Cost per tonne - 57.59
--------------------------------------------------------------------------------------------------------------------
Loss per tonne $ - $ (11.50)
====================================================================================================================
Total cash cost per ounce $ - $ 5.64
Total production cost per ounce $ - $ 6.30
(In thousands of US dollars)
Direct operating costs & value of metals lost in smelting and refining $ - $ 1,087
By-product credits - (12)
--------------------------------------------------------------------------------------------------------------------
Total cash operating costs - 1,075
Depreciation, amortization and reclamation - 125
--------------------------------------------------------------------------------------------------------------------
Total production costs $ - $ 1,200
====================================================================================================================
Ounces for cost per ounce calculations - 190,575
PYRITE STOCKPILE SALES
Tonnes sold 11,456 -
Average silver grade - grams per tonne 363 -
Silver ounces 133,885 -
Net smelter return per tonne $ 30.83 $ -
Cost per tonne 0.74 -
--------------------------------------------------------------------------------------------------------------------
Margin per tonne $ 30.09 $ -
====================================================================================================================
Total cash cost per ounce $ 2.08 $ -
Total production cost per ounce $ 2.77 $ -
(In thousands of US dollars)
Value of metals lost in smelting and refining $ 279 $ -
By-product credits - -
--------------------------------------------------------------------------------------------------------------------
Total cash operating costs $ 279 -
Depreciation, amortization and reclamation 92 -
--------------------------------------------------------------------------------------------------------------------
Total production costs 371 -
====================================================================================================================
Ounces for cost per ounce calculations 133,885 -
- 6 -
PAN AMERICAN SILVER CORP.
Consolidated Balance Sheets
(Unaudited - in thousands of U.S. dollars)
MARCH 31 DECEMBER 31
2003 2002
CURRENT
Cash and cash equivalents $ 12,561 $ 10,185
Short-term investments 13 13
Accounts receivable 4,931 4,598
Inventories 7,593 4,637
Prepaid expenses 2,019 3,197
---------------------------------------------------------------------------------------------------------------------
Total Current Assets 27,117 22,630
Mineral property, plant and equipment, net 66,110 59,447
Investment and other properties (note 4) 83,048 4,193
Direct smelting ore 4,229 4,303
Other assets 4,413 4,393
---------------------------------------------------------------------------------------------------------------------
Total Assets $ 184,917 $ 94,966
=====================================================================================================================
LIABILITIES
Current
Operating line of credit $ - $ 125
Accounts payable and accrued liabilities (note 5) 14,501 15,227
Advances for metal shipments 6,228 2,158
Current portion of bank loans and capital lease 1,638 1,638
Current portion of severance indemnity and commitments 933 953
Current portion of deferred revenue 130 130
---------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 23,430 20,231
Deferred revenue 1,006 923
Bank loans and capital lease (note 6) 7,535 3,942
Provision for reclamation 13,051 12,971
Provision for future income tax 19,035 -
Severance indemnities 1,521 1,407
---------------------------------------------------------------------------------------------------------------------
Total Liabilities 65,578 39,474
---------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Share capital
Authorized:
100,000,000 common shares of no par value
Issued:
December 31, 2002 - 43,883,454 common shares
March 31, 2003 - 51,684,728 common shares 215,950 161,024
Additional paid in capital 11,117 1,092
Deficit (107,728) (106,624)
---------------------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 119,339 55,492
---------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 184,917 $ 94,966
=====================================================================================================================
See accompanying notes to consolidated financial statements
- 7 -
PAN AMERICAN SILVER CORP.
Consolidated Statements of Operations and Deficit
(Unaudited - in thousands of U.S. dollars,
except for shares and per share amounts)
THREE MONTHS ENDED
MARCH 31,
2003 2002
REVENUE $ 7,822 $ 10,199
EXPENSES
Operating 7,429 9,202
General and administration 401 359
Depreciation and amortization 471 1,429
Reclamation 79 198
Exploration 496 83
Interest expense 159 266
---------------------------------------------------------------------------------------------------------------------
9,035 11,537
---------------------------------------------------------------------------------------------------------------------
Net loss from operations (1,213) (1,338)
Other income 109 35
---------------------------------------------------------------------------------------------------------------------
Net loss for the period (1,104) (1,303)
Deficit, beginning of period (106,624) (72,966)
---------------------------------------------------------------------------------------------------------------------
Deficit, end of period $ (107,728) $ (74,269)
=====================================================================================================================
Basic and fully diluted loss per share $ (0.02) $ (0.03)
Weighted average shares outstanding 50,597,399 38,603,987
See accompanying notes to consolidated financial statements
- 8 -
PAN AMERICAN SILVER CORP.
Consolidated Statements of Cash Flows - Direct Method
(Unaudited - in thousands of U.S. dollars)
THREE MONTHS ENDED
MARCH 31,
2003 2002
OPERATING ACTIVITIES
Sales proceeds $ 11,958 $ 12,380
Hedging activities 164 313
Interest paid (70) (266)
Other income and expenses 19 36
Products and services purchased (10,585) (10,406)
Exploration (505) (77)
General and administration (504) (348)
-------------------------------------------------------------------------------------------------------------------------
477 1,632
-------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Shares issued for cash 723 17,251
Share issue costs - (792)
Proceeds from line of credit - 110
Repayment of line of credit (125) -
Proceeds from bank loans 4,000 -
Repayment of bank loans (note 5) (407) (258)
-------------------------------------------------------------------------------------------------------------------------
4,191 16,311
-------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and equipment expenditures (5,436) (710)
Investment and other property expenditures 100 (604)
Acquisition of cash of subsidiary 3,063 -
Other (19) (39)
-------------------------------------------------------------------------------------------------------------------------
(2,292) (1,353)
-------------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents during the period 2,376 16,590
Cash and cash equivalents, beginning of period 10,185 3,331
-------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 12,561 $ 19,921
=========================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Shares issued for acquisition of mineral property (note 4) $ - $ 1,250
Shares, warrants and stock options issued for acquisition
of subsidiary (note 2) 64,228 -
-------------------------------------------------------------------------------------------------------------------------
$ 64,228 $ 1,250
=========================================================================================================================
See accompanying notes to consolidated financial statements
- 9 -
PAN AMERICAN SILVER CORP.
Consolidated Statements of Cash Flows - Indirect Method
(Unaudited - in thousands of U.S. dollars)
THREE MONTHS ENDED
MARCH 31,
2003 2002
OPERATING ACTIVITIES
Net loss for the period $ (1,104) $ (1,303)
Items not involving cash
Depreciation and amortization 471 1,429
Reclamation provision 79 198
Operating cost provisions 352 (260)
Changes in non-cash operating working capital items 679 1,568
-----------------------------------------------------------------------------------------------------------------------
Cash provided by operations 477 1,632
-----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Shares issued for cash 723 17,189
Share issue costs - (730)
Proceeds from line of credit - 110
Repayment of line of credit (125) -
Proceeds from bank loans 4,000 -
Repayment of bank loans (407) (258)
-----------------------------------------------------------------------------------------------------------------------
4,191 16,311
-----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Property, plant and equipment expenditures (4,415) (710)
Mineral property expenditures 100 (743)
Changes in non-cash working capital items (1,021) 139
Acquisition of cash of subsidiary 3,063 -
Other (19) (39)
-----------------------------------------------------------------------------------------------------------------------
(2,292) (1,353)
-----------------------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents during the period 2,376 16,590
Cash and cash equivalents, beginning of period 10,185 3,331
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 12,561 $ 19,921
=======================================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS
Shares issued for acquisition of mineral property (note 4) $ - $ 1,250
Shares, warrants and stock options issued for acquisition
of subsidiary (note 2) 64,228 -
-----------------------------------------------------------------------------------------------------------------------
$ 64,228 $ 1,250
=======================================================================================================================
See accompanying notes to consolidated financial statements
- 10 -
PAN AMERICAN SILVER CORP.
Consolidated Statements of Shareholders' Equity
For three months ended March 31, 2003
(in thousands of US dollars, except for shares)
COMMON SHARES ADDITIONAL
----------------------- PAID IN
SHARES AMOUNT CAPITAL DEFICIT TOTAL
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 37,628,234 $ 130,723 $ 1,120 $ (72,966) $ 58,877
Exercise of stock options 1,445,400 6,102 - - 6,102
Shares issued for cash, net of share
issue costs 3,450,000 15,599 - - 15,599
Issued on acquisition of Manantial
Espejo 231,511 1,250 - - 1,250
Issued on acquisition of royalty 390,117 3,000 - - 3,000
Issued as compensation payable 69,000 253 - - 253
Issued to purchase silver stockpiles 636,942 4,000 - - 4,000
Exercise of shares purchase warrants 32,250 97 - - 97
Foreign exchange translation
adjustment - - (28) - (28)
Net loss for the year - - - (33,658) (33,658)
------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 43,883,454 161,024 1,092 (106,624) 55,492
Exercise of stock options 164,615 723 - - 723
Issued on acquisition of Corner Bay 7,636,659 54,203 - - 54,203
Fair value of stock options granted - - 1,136 - 1,136
Fair value of warrants granted - - 8,889 - 8,889
Net loss for the quarter - - - (1,104) (1,104)
------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 2003 51,684,728 $ 215,950 $ 11,117 $ (107,728) $ 119,339
==============================================================================================================================
- 11 -
NOTES TO UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(As at March 31, 2003 and 2002 and for the three month periods then ended)
1. BASIS OF AND RESPONSIBILITY FOR PRESENTATION
These unaudited interim consolidated financial statements are expressed
in United States dollars and are prepared in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"), which are more fully
described in the annual audited consolidated financial statements for the year
ended December 31, 2002 which is included in the Company's 2002 Annual Report.
These statements do not include all of the disclosures required by Canadian GAAP
for annual financial statements. Certain comparative figures have been
reclassified to conform to the current presentation. Significant differences
from United States accounting principles are described in note 7.
In management's opinion, all adjustments necessary for fair
presentation have been included in these financial statements.
2. BUSINESS COMBINATION
On February 20, 2003, the Company acquired a 100% interest in Corner
Bay Silver Inc. ("Corner Bay"). The consideration paid to the shareholders of
Corner Bay was 7,636,659 common shares of the Company (a "Pan American share"),
representing 0.3846 of a share of the Company for each share of Corner Bay and
3,818,329 warrants (the "Pan American warrant") to purchase common shares of the
Company, representing 0.1923 of a warrant for each share of Corner Bay. The
common shares issued were valued at $54,203,000, which was derived from an issue
price of Cdn$11.30 translated at $0.6595 for each U.S. dollar, less a deemed 5%
issue expense of $2,707,000. The share purchase warrants were assigned a value
of $8,889,000, which was derived from a warrant valued at $2.328 per warrant.
The warrants were valued using an option pricing model assuming a weighted
average volatility of the Company's share price of 35 percent and a weighted
average annual risk free rate of 4.16 percent.
The value of the common shares issued by the Company was estimated based on the
average closing price of the Company's common shares for the period before and
after the date that the terms of the transaction was agreed and announced.
Each whole Pan American warrant allows the holder to purchase a Pan American
share for a price of Cdn$12.00 for a five-year period ending February 20, 2008.
In addition, the Company agreed to grant 553,846 stock options to purchase Pan
American shares. These options replace 960,000 fully vested stock options held
by employees and shareholders of Corner Bay. The value of the stock options
granted was determined to be $1,136,000. The options granted have a weighted
average exercise price of Cdn$8.46 and a weighted average remaining life of 26
months.
The purchase method of accounting was applied to account for this acquisition,
which results in the allocation of the consideration paid to the fair value of
the assets acquired and the liabilities assumed, as follows:
- 12 -
As at
February 20,
2003
-------------
Fair value of net assets acquired (000's)
Current assets $ 3,168
Equipment 2,500
Mineral properties 78,955
Other assets 19
-------------
83,639
Less:
Current liabilities 859
Provision for future income tax liability 19,035
-------------
$ 64,748
=============
Consideration paid:
Issue of 7,636,659 common shares $ 54,203
Issue of 3,818,329 share purchase warrants 8,889
Issue of 553,846 replacement stock options 1,136
-------------
64,228
Add: Estimated costs of acquisition 520
-------------
$ 64,748
=============
The purchase consideration of $64,748,000 for 100% of Corner Bay exceeds the
carrying value of the net assets acquired by $54,385,000, which was applied to
increase the carrying value of the mineral property. The resulting estimated
future income tax liability of $19,035,000 has also been applied to increase the
carrying value of the mineral property. The most recent financial statements for
Corner Bay are as at December 31, 2002. Consequently, this purchase price
allocation is provisional and may change.
3. SEGMENTED INFORMATION
The Company operates in one industry, has three reporting segments and has
activities in six countries. Segmented disclosures and enterprise-wide
information are as follows:
For the three months ended March 31, 2003
-------------------------------------------------------------------
Corporate Exploration &
In thousands of U.S. dollars Mining Office Development Total
-----------------------------------------------------------------------------------------------------------------
Revenue from external customers $ 7,658 $ 163 $ - $ 7,822
Net loss from operations (544) (213) (347) (1,104)
Segmented assets $ 89,738 $ 9,311 $ 85,855 $184,904
For the three months ended March 31, 2002
-------------------------------------------------------------------
Corporate Exploration &
In thousands of U.S. dollars Mining Office Development Total
-----------------------------------------------------------------------------------------------------------------
Revenue from external customers $ 9,886 $ 313 $ - $ 10,199
Net loss from operations (1,260) (6) (37) (1,303)
Segmented assets $ 84,302 $19,096 $ 3,900 $107,298
- 13 -
4. INVESTMENT AND OTHER PROPERTIES
Acquisition costs are deferred in the accounts. Exploration
expenditures on investment properties are charged to operations in the period
they are incurred. During the first quarter of 2003, exploration and development
expenditures were spent on the following properties:
in thousands of U.S. dollars 2003
------------------------------------------------------------------
Manantial Espejo, Argentina $ 310
San Vicente, Bolivia 130
Other 56
----------
$ 496
==========
During the first quarter ended March 31, 2003, the Company completed
the acquisition of Corner Bay Silver Inc. (note 2) and its Alamo Dorado
concessions (the "Concessions"). The Concessions were valued at $78,671,000.
Alamo Dorado expenditures for the first quarter were $284,000 consisting of
$100,000 for mine development and $184,000 for acquisition and merger related
costs. These costs were deferred in the accounts.
On March 27, 2002, the Company acquired a fifty percent interest in the
Manantial Espejo property located in Argentina. The purchase price was
$1,912,432 paid with cash of $662,432 and the issuance of 231,511 common shares
valued at $1,250,000. The Company also paid $100,000 to eliminate a 1.2 percent
net smelter return royalty over the property.
5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consists of:
March 31, December 31,
in thousands of U.S. dollars 2003 2002
----------------------------------------------------------------------
Trade payables $ 12,173 $ 13,528
Payroll and related benefits 1,089 1,242
Sales tax 785 237
Royalty 102 111
Other 352 109
------------- ---------------
$ 14,501 $ 15,227
============= ===============
6. BANK LOANS
During the first quarter ended March 31, 2003, the Company reduced its
Huaron loan by $407,000 and drew down $4,000,000 of its $10,000,000 La Colorada
project loan facility with International Finance Corporation ("IFC"). The IFC
loan bears interest at 6-month LIBOR plus 3.50% until certain technical and
financial tests are achieved and 6-month LIBOR plus 3.25% thereafter and is
repayable in semi-annual installments of $1,000,000 commencing November 14,
2004. As at March 31, 2003, the Company had accrued $12,600 of interest, which
has been deferred as part of the La Colorada development costs. The Huaron loan
bears interest at 6-month LIBOR plus 3% and is repayable at the rate of $135,000
per month.
- 14 -
7. DIFFERENCES BETWEEN CANADIAN AND UNITED STATES GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
These financial statements are prepared in accordance with accounting
principles generally accepted in Canada ("Canadian GAAP"). The differences
between Canadian GAAP and accounting principles generally accepted in the United
States ("US GAAP") as they relate to these financial statements are summarized
below and discussed in Note 16 in the Company's 2002 annual report.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations ("SFAS 143"), which address financial accounting and
reporting for obligations associated with the retirement of long-lived assets
that result from the acquisition, construction, development or the normal
operation of long-lived assets, except for certain obligations of leases. SFAS
143 is effective for financial statements issued for financial years beginning
after June 15, 2002 with earlier application encouraged. Under SFAS 143, the
Company's accrued reclamation provision of $13,051,000 would be removed from the
accounts with a credit to earnings. This credit would be offset by a
corresponding charge to earnings due to the impairment of the Quiruvilca mine
that had been recognized in 2002. Additionally, the expected fair value of
future site restoration costs estimated at approximately $11,000,000 would be
recorded as an asset and a liability. Future period operations would be charged
with amortization of this $11,000,000 amounting to $850,000 per year and would
also be charged with $540,000 per year as an amount representing accretion of
the liability for future restoration at a credit - adjusted interest rate.
The estimated amount for future asset retirement obligations is
uncertain due to assumptions regarding current and future costs, potential
changes in legislative and regulatory requirements, technological developments,
expected economic mine lives and other factors. Therefore, such estimates will
be revised as additional information becomes available. Changes in the estimated
future asset retirement obligation will result in corresponding changes to the
amount and timing of the related accretion and amortization charges. Adopting
SFAS143 would not have a material affect on the Company's results of operations.
8. SHARE CAPITAL
On February 20, 2003, the Company completed the purchase of Corner Bay
by issuing 7,636,659 common shares valued at $54,203,000 net of a deemed 5%
issue expense of $2,707,000. Also during the first quarter of 2003, the Company
issued 164,615 common shares for proceeds of $723,403 pursuant to the exercise
of stock options.
- 15 -
The following table summarizes information concerning stock options outstanding
as at March 31, 2003:
Options Outstanding Options Exercisable
-------------------------------------------------------------------------
Weighted
Average
Number Remaining Number
Range of Outstanding Contractual Exercisable as Weighted
Exercise Year of as at March Life at March 31, Average
Prices Expiry 31, 2003 (months) 2003 Exercise Price
-----------------------------------------------------------------------------------------------------------------
$5.31 2003 50,000 2.99 50,000 $5.31
$3.10 - $6.30 2004 273,078 13.93 273,078 $22.51
$3.41 - $8.18 2005 291,723 25.73 291,723 $7.23
$3.41 2006 350,300 37.51 350,300 $3.41
$5.79 - $6.88 2007 739,360 53.85 663,360 $6.81
$8.18 2008 19,231 58.72 19,231 $8.18
$3.41 2010 466,900 91.50 466,900 $3.41
-----------------------------------------------------------------------------------------------------------------
2,190,592 29.41 2,114,592 $5.16
=================================================================================================================
9. SUBSEQUENT EVENT
On April 30th, 2003, the Company made a bid to purchase a silver
property. As part of the bid process a bid bond, guaranteed by a $2,000,000 cash
deposit, was provided to the vendor. If the bid is successful, the deposit will
form part of the purchase price of the property. If the bid is unsuccessful, the
bid bond will be cancelled and the deposit will be refunded to the Company. The
cash deposit will be accounted for as restricted cash.
- 16 -
FIRST QUARTER 2003 MANAGEMENT'S DISCUSSION & ANALYSIS
RESULTS OF OPERATIONS (all amounts are expressed in U.S. dollars)
For the quarter ended March 31, 2003 the Company's net loss was $1.10 million
($0.02 per share) compared to a net loss of $1.30 million for the corresponding
period of 2002. There were no unusual accounting items in either the first
quarter of 2003 or 2002. One operating development in the first quarter of this
year was different than last year. Metal in concentrate production was somewhat
greater in the three months ended March 31, 2003 relative to the same period of
2002, but shipments of concentrate were significantly lower this year compared
to last year. This was due to customers postponing shipments in order to
accumulate larger loads and thereby obtain lower unit ocean freight rates. Ocean
freight rates for lead concentrates were approximately 40 percent higher during
the first quarter of this year due, principally, to the war in Iraq. This cost
increase is born by our customers. During the second quarter ocean freight rates
started to decline and our customers are facing shortages of material.
Therefore, shipments during the second quarter are likely to be significantly
greater than normal. Consolidated revenue variances were as follows and
illustrate that the decrease in revenue was principally due to the volume of
sales and to a lesser extent by final price adjustments and lower hedging and
trading revenue, which was partially mitigated by modestly higher prices and
revenue from the sale of pyrite material.
CONCENTRATE SALES
VOLUME VARIANCE ZINC LEAD COPPER TOTAL
Higher (Lower) Volume (tonnes) (4,730) (3,533) (56)
Last Year's Prices ($ per tonne) $ 195 $ 478 $ 1,329
-------- -------- -------- --------
$ (920) $ (1,690) $ (75) $ (2,685)
======== ======== ======== ========
PRICE VARIANCE ZINC LEAD COPPER TOTAL
Higher (Lower) Prices ($ per tonne) $ (10.03) $(112.52) $ 186.47
Current Year's Sales (tonnes) 14,260 1,256 2,878
-------- -------- -------- --------
$ (143) $ (141) $ 537 $ 252
======== ======== ======== ========
Subtotal (2,433)
Pyrite Sales 389
Final Settlement Price Adjustments (184)
Hedging & Trading Revenue (149)
--------
TOTAL REVENUE VARIANCE (2,377)
========
If all the concentrates produced in the first quarter of 2003 had been sold
consolidated revenue would have been approximately $11.7 million.
Operating costs for the three months ended March 31, 2003 were $1.77 million
lower in for the first quarter of this year compared to last year. This decrease
is due to lower volumes of concentrate shipped, as shown below. Since October 1,
2002 all spending, including expenditures for items that would normally
represent a capital asset, is being expensed at Quiruvilca. In the first quarter
of 2003, $0.2 million of such expenditures were charged to operations.
- 17 -
CONCENTRATE PRODUCTION COSTS
VOLUME VARIANCE ZINC LEAD COPPER TOTAL
Higher (Lower) Volume (tonnes) $ (4,730) (3,533) (56)
Last Year's Cost ($ per tonne) $ 147 $ 367 $ 1,053
-------- -------- -------- --------
$ (694) $ (1,296) $ (59) $ (2,050)
======== ======== ======== ========
COST VARIANCE ZINC LEAD COPPER TOTAL
Higher (Lower) Costs ($ per tonne) $ (12.58) $(140.80) $ 161.32
Current Year's Sales - tonnes 14,260 1,256 2,878
-------- -------- -------- --------
$ 179 $ (177) $ 464 $ 467
======== ======== ======== ========
Subtotal $ (515) $ (1,473) $ 405 $ (1,583)
Expense Quiruvilca capital spending $ 218
Pyrite related costs $ 83
Shipping and selling $ (99)
Mine administration costs $ (392)
--------
TOTAL COST VARIANCE $ (1,773)
========
If all the concentrate produced during the first quarter was sold, operating
costs would have been about $10.7 million.
The net costs or revenue of the La Colorada operation are being deferred while
the mine is being expanded. During the first quarter of 2003 net costs of $0.11
million were deferred as part of the costs of the mine expansion. Significant
changes in depreciation and reclamation for the three months ended March 31,
2003 relative to the first quarter of last year are due to the write-down of the
Quiruvilca mine assets and the $10 million provision for future reclamation of
the Quiruvilca mine. These charges against operations were taken during the
second half of 2002. Exploration costs are higher because of increased activity,
compared to 2002, at the Manantial Espejo property in Argentina.
FINANCIAL POSITION & CASH FLOW
During the quarter ended March 31, 2003, Pan American closed the acquisition of
Corner Bay Silver Inc. ("Corner Bay"). This transaction is described in note 2
of the unaudited consolidated financial statements for the quarter. As a result
of the acquisition the Company issued shares, share purchase warrants and
replacement stock options with a value of $64.75 million to the former
shareholders, officers and directors of Corner Bay. This transaction is the
principal reason for the increase in shareholders' equity from $55.49 million at
December 31, 2002 to $119.34 million at March 31, 2003.
Cash on-hand stood at $12.56 million at March 31, 2003, which was an increase of
$2.38 million during the first quarter of 2003. Operating activities generated
$0.48 million, financing activities generated $4.19 million and investing
activities consumed a net $2.92 million. Included in investing activities was
the receipt of $3.06 million in cash as part of the Corner Bay acquisition and
spending of $5.44 million on property, plant and equipment. Capital expenditures
included $4.22 million at La Colorada as part of the mine's $20 million
expansion and $0.52 million at the Huaron mine. Financing activities included $4
million received as the first draw down of the La Colorada project loan and
repayments of the Huaron loan amounting to $0.41 million. During the second
quarter the Company expects to draw down the remaining $6 million available
under the La Colorada loan. Operating activities included cash received from
customers of $11.96 million, which was $4.14 million greater than revenue for
the first quarter. Of this difference $4.07 million relates to advance payments
received for metals in concentrate not shipped. Under our sales contracts, if a
buyer postpones shipment, the Company is entitled to advance payments against
future delivery. Such advance payments are accounted for as a current liability
until the associated concentrates are shipped and then are accounted for as
sales revenue.
- 18 -
Working capital amounted to $3.70 million at March 31, 2003 compared to $2.40
million at December 31, 2002. Changes in current assets included the increase in
cash of $2.28 million along with increases in inventories of $2.96 million, an
increase in receivables of $0.33 million and a decrease in prepaid expenses of
$1.18 million. The inventory increase is principally due to posted concentrate
shipments. The decrease in prepaid amounts is due to the receipt of goods or
services at the La Colorada expansion. And the increase in receivables is a
timing difference between the payment by a customer and the timing of an
accounting period end. The most significant changes in current liabilities was
the $4.07 million increase in advance payments for future concentrate deliveries
discussed previously and a reduction in accounts payable and accrued liabilities
of $0.73 million. The reduction in payables is a function of the timing of
purchases at La Colorada and a decision to reduce the overall level of supplier
accounts in Peru.
LA COLORADA EXPANSION
At March 31, 2003, the Company had spent $10.58 million and committed a further
$2.54 million of the project's expected cost to complete of $20.37 million.
To-date the project is on budget and slightly ahead of schedule for a start up
in July 2003.
SUBSEQUENT EVENT
On April 30, 2003 the Company entered a bid for a mining operation. As part of
the bidding process Pan American placed a refundable $2 million bid bond with
the vendor. If the Company's bid is successful, the $2 million cash guarantee
for the bid bond will form part of the purchase price. If the bid is
unsuccessful the bond will be cancelled and the cash guarantee will be released.
While the bid bond is outstanding, the cash guarantee will be accounted for as
restricted cash and will not form part of the Company's working capital.
- 19 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PAN AMERICAN SILVER CORP.
Date: May 23, 2003 By: /s/ Ross Beaty
--------------------------
Ross Beaty
Chairman and C.E.O.
-2-