pan american silver generates record mine operating earnings
during the third quarter
Quarterly
Net Income and Cash Flow Rise on Record Silver Sales
Vancouver, B.C. - November 8, 2010 - Pan
American Silver Corp.
(NASDAQ: PAAS; TSX: PAA) ("Pan American" or the "Company")
today reported unaudited financial and operating results for the quarter ended
September 30, 2010. Increasing precious metal prices coupled with a solid
operating performance allowed the Company to deliver a new quarterly record for
mine operating earnings (3) of $60.6 million, while both net income
and free cash flow also surged to near record levels. In addition, Pan American
provided an update on its operations and development projects.
This earnings release should be read in conjunction
with the Company's MD&A, Financial Statements and Notes to Financial
Statements for the corresponding period, which have been posted on SEDAR at www.sedar.com and are also available on the Company's website
at www.panamericansilver.com.
Third Quarter 2010 Highlights
(unaudited) (1)
�
Consolidated silver production was 6.2 million
ounces.
�
Consolidated gold production was 21,277 ounces.
�
Consolidated cash costs (2) were $6.08
per ounce of payable silver, net of by-product credits.
�
Record sales of $161.3 million; an increase of 36%.
�
Record mine operating earnings (3) of
$60.6 million; an increase of 75%.
�
Net income increased 66% to $28.8 million or $0.27
per share.
�
Cash flow from operations (before changes in
non-cash operating working capital) (4) increased 17% to $50.7
million, or $0.47 per share.
�
Cash and short-term investments rose $50.7 million
from the previous quarter to $288.4 million.
�
Net working capital increased to $360.5 million.
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(1)
Financial information based on Canadian GAAP; percentages compare Q3 2010 with
Q3 2009.
(2)
Cash costs per payable ounce of silver is a
non-GAAP measure. The Company believes that, in addition to cost of sales, cash
cost per ounce is a useful and complementary benchmark that investors use to
evaluate the Company's performance and ability to generate cash flow and is
well understood and widely reported in the silver mining industry. However, cash costs per ounce does not have a standardized meaning
prescribed by Canadian GAAP as an indicator of performance. A reconciliation is included in the Company's MD&A on
page 12.
(3)
Mine operating earnings is a non-GAAP measure used by the company to assess the
performance of its silver mining operations. Mine
operating earnings are equal to sales less cost of sales and depreciation and
amortization and is considered to be substantially the same as gross
margin.
(4)
Cash flow from operations (before changes in non-cash
operating working capital) is a non-GAAP measure used by the Company to manage
and evaluate operating performance. The Company considers this measure to
better reflect normalized cash flow generated by operations. Cash flow
per share is a non-GAAP measure used as a measure of return on capital and is
calculated using cash flow from operations, before changes in non-cash working
capital, divided by basic weighted average shares outstanding.
Investors are cautioned that this measure is not defined in current GAAP and
there is no comparable measure defined in GAAP.
Commenting on Pan American's strong third
quarter results, Geoff Burns, President & CEO, said, "Our consistent
operating excellence has allowed us to harvest the benefits of rising silver
and gold prices and consequently we delivered superior financial results for
the 3rd quarter. It was indeed gratifying to see Pan American
generate a new quarterly record for mine operating earnings, while banking
nearly $51 million. This, coupled with the steady progress on the
technical work to advance the Navidad and La Preciosa silver development projects, made for an excellent
quarter."
Financial Results
During the quarter ended September 30, 2010,
Pan American posted record sales of $161.3 million, an increase of 36% compared
to the same period of last year. Increased revenue resulted from higher
quantities of silver, zinc and lead sold combined with higher realized prices
for silver, gold, zinc and copper, partially offset by lower quantities of gold
and copper sold. Quarterly mine operating earnings were also a record at
$60.6 million, which represents a 75% increase compared to the third quarter of
2009.
Net income for the third quarter of 2010 was
$28.8 million or $0.27 per share, an increase of 66% year-on-year. Net
income rose significantly due to higher realized prices for all metals produced
by the Company, with the exception of lead, and increases in the quantities of
silver, zinc and lead sold. Included in the calculation of quarterly net
income were $9.8 million in exploration and development expenses at the
Company's development projects and an income tax provision which increased to
$17.6 million on account of higher taxable earnings at the Company's operations
and the 12.5% Bolivian mining tax implemented in October of 2009.
Cash flow from operating activities (before
changes in non-cash operating working capital) of 2010 rose to $50.7 million or
$0.47 per share for the third quarter, a 17% increase compared to the third
quarter of last year.
At September 30th, 2010, the Company
had cash and short term investments of $288.4 million, an increase of $50.7
million as compared to the end of the second quarter of this year. The
Company's working capital rose to $360.5 million.
Production and Mining Operations
During the third quarter of 2010, Pan
American's seven mines performed largely as expected, producing a total of 6.2
million ounces of silver, down 2% from the comparable period in 2009. The
variance was largely due to production declines experienced by the Company's
Peruvian operations due to lower silver grades and recoveries, which was
largely offset by another excellent quarter at our Mexican mines.
Silver production at the Company's Mexican
operations, La Colorada and Alamo Dorado, was up
year-on-year thanks to increased throughput rates at both mines and higher
silver grades at Alamo Dorado. The Alamo Dorado mine continued to benefit
from high-grade ore mined during this year's unusually long dry season,
producing 1.8 million ounces of silver at cash costs of $2.98 per ounce of
silver in the third quarter. The La Colorada
mine had another consistent quarter contributing 0.9 million ounces of silver
at cash costs of $8.67 per ounce. Quarterly gold production at both Alamo
Dorado and La Colorada was down slightly year-on-year
due to lower gold grades and totaled 4,181 ounces and 993 ounces, respectively.
In Per�, the Morococha mine produced 0.7 million ounces of silver at
cash costs of $4.20 per ounce of silver, the Quiruvilca
mine produced 0.3 million ounces of silver at cash costs of $9.40 per ounce of
silver and the Huaron mine produced 0.8 million
ounces of silver at cash costs of $11.71 per ounce of silver. While
Huaron is still not back to normal production levels,
higher grade ore from the mine's lower 180 level plus the resumption of
mechanized mining in certain areas allowed throughput rates to rise steadily
throughout the quarter and contributed to a 12% increase in silver production
as well as to a decrease of almost $2.00 per ounce in cash costs as compared to
the 2nd quarter of this year.
In Argentina, the Manantial
Espejo mine produced 1 million ounces of silver at a
cash cost of $3.65 per ounce of silver, which was similar to the quantity of
silver produced during the third quarter of 2009; however, cash costs rose
substantially due to higher on site expenditures and lower gold by-product
credits as gold production declined 28% due to the expected decrease in mined
gold grades.
Lastly, the San Vicente mine in Bolivia
produced 0.7 million ounces of silver during the third quarter of 2010 at cash
costs of $8.99 per ounce of silver. Silver production declined due to
processing lower silver grade material. The mine has been operating at
commercial production levels for a full year and mined ore grades are now more
representative of the overall reserve averages.
During the three months ended September 30,
2010, Pan American produced a total of 21,277 ounces of gold, 10,811 tonnes of zinc, 3,774 tonnes of
lead and 1,226 tonnes of copper. Year-on-year,
gold production declined 24% and copper production was down 34% due to planned
lower gold grades at Manantial Espejo
and lower-than-expected copper grades at Morococha
and Huaron.
Pan American's consolidated cash costs for the
quarter ended September 30, 2010 were $6.08 per ounce of silver, net of
by-product credits, which was 24% higher than the same period in 2009.
Cash costs increased due to upward pressures on property operating expenditures,
including labour, energy and consumables, plus higher
royalties and treatment charges. Cash costs were also negatively affected
by the appreciation of local currencies against the US Dollar in Peru and
Mexico, and lower quantities of gold and copper sold, partially offset by
higher realized by-products metal prices.
Project Development
At the Navidad silver
development project, Pan American steadily advanced all the technical work
necessary to complete a preliminary economic assessment ("PEA") later
this year. During the third quarter of 2010, the Company spent $10.8
million and completed approximately 33,400 meters of diamond drilling,
including infill, condemnation and geotechnical drilling. The Company
also advanced a number of project development activities including
metallurgical testing, field and geotechnical work for the design of the
tailings dam and the open pit, plus other engineering studies necessary for the
PEA. Year-to-date, Pan American has invested approximately $29 million on
the development work for Navidad.
Meanwhile, Pan American also intensified the
communications and community relations campaign it initiated earlier this
year. Throughout the third quarter, Company officials met local
authorities, community leaders and residents and conducted a number of site
visits in order to promote transparency and present the long-term benefits of
developing the project in an environmentally sensitive and responsible
manner. At present, Navidad employs 178 workers
and contractors, primarily from the local communities. The Company
expects to spend $36 million at Navidad during 2010
and to complete the PEA before year-end. The Company also expects to
complete an Environmental Impact Assessment during the first quarter of
2011.
In spite of the lack of progress in the
legislative front in the province of Chubut to allow open pit mining in the
central Meseta and a degree of political uncertainty
in Argentina that has accompanied the untimely death of former president Nestor
Kirchner, we remain determined to continue working closely with the local
communities around Navidad and communicating openly
with the provincial government to allow us to develop Navidad.
At the La Preciosa
joint-venture silver project, Pan American has essentially completed the 2010
resource definition drilling and exploration program. During the third
quarter of 2010 Pan American invested $3.1 million at the project and executed
20,482 meters of drilling, including exploration drilling at the Nancy and Orito targets. Only limited drilling between the main
resource and the Martha NW area remains for this year. Technical work for
the project's PEA is well advanced and the Company expects to complete and
release this report before year-end.
In Per�, technical work
for the relocation of Morococha's ancillary
facilities and processing plant is well underway. The location of the new
structures has been identified and ground preparation work is already
advancing. During the third quarter of 2010, Pan American incurred $2.7
million in project expenditures at Morococha and
received $5.8 million from Minera Chinalco
Peru.
Outlook
During the first nine months of 2010 Pan
American produced 18.6 million ounces of silver at an average cash cost of
$5.41 per ounce of silver, net of by-product credits. Additionally, the
Company produced 70,306 ounces of gold, 32,594 tonnes
of zinc, 10,102 tonnes of lead and 3,960 tonnes of copper. Based on year-to-date production,
Pan American expects to comfortably meet or exceed its full year 2010
consolidated silver production forecast of 23.4 million ounces at a cash cost
below $5.90 per ounce of silver, net of by-product credits.
Geoff Burns added, "2010 is shaping up to
be another outstanding year for Pan American. In all likelihood, we will
surpass the silver production guidance we released last February to post our 15th
consecutive year of silver production growth. With precious metal prices
at record levels, this should translate into outstanding financial
results. Further quantitative easing in the United States and the debt
situation in most of the European Union countries continues to reaffirm my
strong belief in the fundamental and increasing value of both silver and
gold. In a world where reserve currencies continue to struggle, silver
and gold should perform very well. In this environment, with silver and
gold prices on the rise, our value proposition is second to none thanks to our
operational expertise and our world class development
projects."
About Pan American
Pan
American Silver's mission is to be the world's largest and lowest cost primary
silver mining company by increasing its low-cost silver production and silver
reserves. The Company has seven operating mines in Mexico, Peru,
Argentina and Bolivia and a stockpiles operation in Peru. Pan American
also owns the Navidad project in Chubut, Argentina
and is the operator of the La Preciosa project in
Durango, Mexico.
Technical
information contained in this news release has been reviewed by Michael
Steinmann, P.Geo., Executive Vice President Geology
& Exploration, and Martin Wafforn, P.Eng., Vice President Technical Services, who are the
Company's Qualified Persons for the purposes of NI 43-101.
Pan
American will host a conference call to discuss its 2010 unaudited third
quarter financial and operating results on Tuesday, November 09, 2010 at 07:00
am Pacific Time (10:00 am Eastern Time). Participants can access the
conference by dialing toll free 1-800-319-4610 (Canada & USA) or by dialing
1-604-638-5340 from outside North America. The call can also be accessed via
live audio webcast at https://services.choruscall.com/links/pan101109.html
or at www.panamericansilver.com.
The
call will be available for replay for one week after the conference by dialing
1-604-638-9010 and entering code 6218 followed by the # sign.
Information Contact
Kettina
Cordero
Coordinator, Investor Relations
(604) 684-1175
info@panamericansilver.com
www.panamericansilver.com
CAUTIONARY NOTE REGARDING
FORWARD-LOOKING STATEMENTS
Certain
of the statements and information in this news release constitute
"forward-looking statements" within the meaning of the United States
Private Securities Litigation Reform Act of 1995 and "forward-looking
information" within the meaning of applicable Canadian provincial
securities laws relating to the Company and its operations. All
statements, other than statements of historical fact, are forward-looking
statements. When used in this news release the words,
"believes", "expects", "intends", "plans",
"forecast", "objective", "OUTLOOK",
"POSITIONING", "POTENTIAL", "ANTICIPATED",
"budget", and other similar words and expressions, identify
forward-looking statements or information. These forward-looking
statements or information relate to, among other things: future production of
silver, gold and other metals; future cash costs per ounce of silver; the price
of silver and other metals; the effect of the acquisition of aquiline resources
on the company; THE EFFECTS OF LAWS, REGULATIONS AND GOVERNMENT POLICIES
AFFECTING PAN AMERICAN'S OPERATIONS OR POTENTIAL FUTURE OPERATIONS, INLCUDING
BY NOT LIMITED TO, LAWS IN THE PROVINCE OF CHUBUT, ARGENTINA, WHICH, currently
have significant restrictions on mining; FUTURE SUCCESSFUL DEVELOPMENT OF THE
NAVIDAD PROJECT, the la preciosa project, AND OTHER DEVELOPMENT PROJECTS OF THE
COMPANY; the sufficiency of the Company's current working capital, anticipated
operating cash flow or its ability to raise necessary funds; the anticipated
costs, timing and successful completion of the future relocation of the core
Morococha facilities and the effects of such relocation on the company; the
accuracy of mineral reserve and resource estimates; timing of production and
the cash and total costs of production at each of the Company's properties;
ongoing OR FUTURE DEVELOPMENT PLANS AND capital replacement, improvement or
remediation programs; the estimates of expected or anticipated economic returns
from the Company's mining projects; estimated exploration expenditures to be
incurred on the Company's various properties; forecast capital and
non-operating spending; future sales of the metals, concentrates or other
products produced by the Company; and the Company's plans and expectations for
its properties and operations.
These
statements reflect the Company's current views with respect to future events
and are necessarily based upon a number of assumptions and estimates that,
while considered reasonable by the Company, are inherently subject to
significant business, economic, competitive, political and social uncertainties
and contingencies. Many factors, both known and unknown, could cause
actual results, performance or achievements to be materially different from the
results, performance or achievements that are or may be expressed or implied by
such forward-looking statements contained in this News Release and the Company
has made assumptions and estimates based on or related to many of these
factors. Such factors include, without limitation: fluctuations in spot
and forward markets for silver, gold, base metals and certain other commodities
(such as natural gas, fuel oil and electricity); fluctuations in currency
markets (such as the Canadian dollar, Peruvian sol, Mexican peso, Argentine
peso and Bolivian boliviano versus the U.S. dollar); risks related to the
technological and operational nature of the Company's business; changes in
national and local government, legislation, taxation, controls or regulations
and political or economic developments in Canada, the United States, Mexico,
Peru, Argentina, Bolivia or other countries where the Company may carry on
business in the future; risks and hazards associated with the business of
mineral exploration, development and mining (including environmental hazards,
industrial accidents, unusual or unexpected geological or structural
formations, pressures, cave-ins and flooding); RISKS RELATING TO THE CREDIT
WORTHINESS OR FINANCIAL CONDITION OF SUPPLIERS, REFINERS AND OTHER PARTIES WITH
WHOM THE COMPANY DOES BUSINESS; inadequate insurance, or inability to obtain
insurance, to cover these risks and hazards; employee relations; RELATIONSHIPS
WITH AND CLAIMS BY LOCAL COMMUNITIES AND INDIGENOUS POPULATIONS; availability
and increasing costs associated with mining inputs and labour; the speculative
nature of mineral exploration and development, including the risks of obtaining
necessary licenses and permits AND THE PRESENCE OF LAWS AND REGULATIONS THAT
MAY IMPOSE RESTRICTIONS ON MINING, INCLUDING THOSE CURRENTLY IN THE PROVINCE OF
CHUBUT, ARGENTINA; diminishing quantities or grades of mineral reserves as
properties are mined; global financial conditions; the Company's ability to
complete and successfully integrate acquisitions AND TO MITIGATE OTHER BUSINESS
COMBINATION RISKS; challenges to, OR DIFFICULTY IN MAINTAINING, the Company's
title to properties AND CONTINUED OWNERSHIP THEREOF; the actual results of
current exploration activities, conclusions of economic evaluations, and
changes in project parameters to deal with unanticipated economic or other
factors; increased competition in the mining industry for properties,
equipment, qualified personnel, and their costs; and those factors identified
under the caption "Risks Related to Pan American's Business" in the
Company's most recent Form 40-F and Annual Information Form filed with the
United States Securities and Exchange Commission and Canadian provincial
securities regulatory authorities. Investors are cautioned against
attributing undue certainty or reliance on forward-looking statements.
Although the Company has attempted to identify important factors that could
cause actual results to differ materially, there may be other factors that
cause results not to be as anticipated, estimated, described or intended.
The Company does not intend, and does not assume any obligation, to update
these forward-looking statements or information to reflect changes in
assumptions or changes in circumstances or any other events affecting such
statements or information, other than as required by applicable law.
Financial &
Operating Highlights
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Three months ended
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Nine months ended
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September 30,
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September 30,
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2010
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2009
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2010
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2009
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Consolidated
Financial Highlights (in thousands of US$)
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(Unaudited)
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Net income for the
period
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$
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28,815
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$
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17,375
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$
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66,184
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$
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34,193
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Basic earnings per
share
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$
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0.27
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$
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0.20
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$
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0.62
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$
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0.40
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Mine operating
earnings
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$
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60,581
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$
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34,708
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$
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148,599
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$
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68,672
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Cash flow from
operations (before changes in non-cash operating working capital)
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$
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50,748
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$
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43,262
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$
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135,712
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$
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99,173
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Cash flow from
operations per share
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$
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$
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$
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$
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Capital spending
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$
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18,500
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$
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5,828
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$
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53,731
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$
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44,134
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Cash and
short-term investments
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$
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288,391
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$
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149,447
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$
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288,391
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$
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149,447
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Working capital
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$
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360,473
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$
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257,683
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$
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360,473
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$
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257,683
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Consolidated Ore
Milled & Metals
Recovered to
Concentrate
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Tonnes milled
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1,196,131
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1,129,609
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3,469,289
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3,270,278
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Silver metal -
ounces
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6,228,004
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6,352,778
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18,618,129
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17,050,812
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Gold metal -
ounces
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21,277
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28,017
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70,306
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74,080
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Zinc metal - tonnes
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10,811
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11,212
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32,594
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32,355
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Lead metal -
tones
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3,774
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3,361
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10,102
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10,855
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Copper metal - tonnes
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1,226
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1,849
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3,960
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4,865
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Consolidated Cost
per Ounce of Silver
(net of
by-product credits)
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Total cash cost
per ounce
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$
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6.08
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$
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4.91
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$
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5.41
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$
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5.57
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Total production
cost per ounce
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$
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9.97
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$
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8.95
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$
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9.20
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$
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9.64
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Payable ounces of silver
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5,959,576
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6,038,812
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17,814,364
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16,184,464
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(used in cost per ounce calculations)
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