Pan American posts US$2.9mn Q1 loss

Vancouver-based miner Pan American Silver's (TSX: PAA) net loss increased 690% to US$2.9mn in the first quarter of 2005 compared to the corresponding quarter in 2004, the company said in a statement. The loss increased mainly due to rising production and exploration costs and the effect of hedging. Zinc and lead hedges cost the company US$2mn in 1Q05, while exploration expenses increased by US$1mn, primarily due to the Manantial Espejo JV project in Argentina, which is at feasibility stage, Pan American said. Cash production costs at all of the company's operations were negatively affected by increasing power, fuel and concentrate shipping costs plus the strengthening of local currencies against the US dollar. Peruvian operations were also affected by the imposition of a 1% net smelter royalty on all production plus increased timber costs due to local shortages. Pan American CEO Geoff Burns said the company is focusing on increased efficiency and productivity but that the benefits are not likely to be seen until the third quarter of 2005. Overall silver production increased 27% to just under 3Moz during the quarter, primarily due to the addition of the Morococha silver mine in Peru and increased production at the La Colorada mine in Mexico. However, this was partly offset by lower production at the Huaron and Quiruvilca mines in Peru. Overall the company still expects to produce approximately 13.5Moz of silver in 2005 at a cost of US$4.25/oz. PERU The Morococha mine produced 653,534oz of silver in 1Q05 at a cash cost of US$3.72/oz. In 2005, the company expects to invest approximately US$9mn in mill refurbishment, underground development and mining equipment as part of a gradual expansion to 3.9Moz/y of silver. Silver production at Quiruvilca decreased 9% due primarily to lower silver grades. Cash costs increased to US$4.20/oz, reflecting lower silver, zinc and lead production. At the Huaron mine, silver production decreased 8% to 884,146oz due to lower grades and recoveries, with cash costs increasing 16% to US$4.74/oz. The mine has accelerated development of new stopes to reach better ore. MEXICO Construction of the Alamo Dorado mine has begun, with commercial production of 5Moz/y of silver expected to begin in late 2006. Capital costs for the project will be US$76.6mn, including working capital and a contingency allowance. The La Colorada mine increased production to a record 688,619oz of silver in the first quarter, an increase of 39% over the year-earlier period, due primarily to better silver. Cash costs remained stable at US$5.58/oz. ARGENTINA Feasibility work continues on the 50%-owned Manantial Espejo silver-gold JV and is expected to be completed later in 2005. An additional 7,900m of infill and extension drilling were completed during the quarter. BOLIVIA The resumption of mining at the San Vicente mine has been delayed pending the conclusion of the necessary agreements with state mining authority Comibol, but production is due to begin in May. San Vicente is forecast to produce 700,000oz of silver for Pan American's in 2005 at a cash cost of US$2.23/oz. OTHER METALS During the quarter, Pan American's zinc production increased 25% to 8,871t, lead production fell 6% to 3,675t and copper production increased 52% to 927t.