Pan American Silver Corp. (PAAS) Q2 2006 Earnings Report, Transcript and Summary

Good morning, my name is Eduardo, and I will be your conference facilitator today. At this time I would like to welcome everyone to the Pan American Silver Corp. Q2 2006 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to turn the floor over to your host, Ross Beaty, Chairman of Pan American Silver Corp. Sir, you may begin your conference.

Okay, thanks operator, and good morning ladies and gentlemen. Welcome to the Q2 Pan American Silver Conference Call. With me in Vancouver are Geoff Burns, Pan American’s President and CEO, and all three of our Senior Vice Presidents Rob Doyle. Robert Doyle is our Chief Financial Officer. Andy Pooler, is the Head of our Operations, Steve Busby, Head of our Project Development, and Michael Steinmann, Senior Vice President Geology and Exploration. As well we have Alexis Stewart, who is our new Director of Corporate and Investor Relations. Well, as you can see we had a great quarter, record cash flow, record earnings, record working capital. We’re on target for record production in 2006 and we’ve record growth in progress as we expect to nearly double our production again by 2008. Every one of our mining operations is running well right now and we are meeting or exceeded our budget estimates on all our mining operations and all our development projects. We have a happy story and it’s a great time to be in the silver mining business. I will open things up, turn the call over to Geoff for the operations and developmental overview and then come back for an explanation of date and review of silver markets. Then we will open the call to questions. Our Q2 numbers speak for themselves. We forecast this performance in our Q1 Conference Call and today I am very pleased to forecast even stronger results in Q3 and likely Q4 even if silver and other metal prices remain static. Our stock price has been relatively weak since our Q1 results were announced in early May. Of course, we were not alone in this most major mining companies show similar declines. But three things were specific to Pan American and the things have some impact on weakening our share prices and I am going to discuss each briefly here. Firstly silver bases were weak at weekend I should say from around $14 an ounce in May to a low of around $9 in June. Since, then they have recovered nicely and I think the outlook is excellent for continuing silver price strings in the foreseeable future and I will talk little bit more about this later. Secondly, a lot of investors were spooked by the political uncertainty in Latin America during Q2. New presidents were being elected in Peru and Mexico and a lot of negative noise came from the recently installed President of Bolivia. Peru and Mexico of course are very important to us but Bolivia is not. It’s a tiny part of our story comprising about 2% of our assets. Bolivia for most of its 180-year history and its certainly a tough place to work. But our mine there is back in operation after we settled some issues with the Bolivian government and we think it as a good fortune potential. As for Peru and Mexico pro-business presidents have now democratically elected in both countries and we are confident that positive wealth creating foreign investment friendly policies will continued to be implemented there. Those countries have been very positive for Pan America and we are certain this will continue. I want to remind all our share owners that every country in Latin America is fundamentally different and for the most part very positive to mining companies such as ours. The figures in the Q2 should now replaced by relief and stable pro-mining governments are in place now for at least to next 4 to 5 years and thirdly, our first quarter financial results were (inaudible) primarily due to the accounting change we had to make that require us to book very large non-cash losses for our zinc hedge positions. These really obscured the cash flow and income generating potential of our operations. Well, we close our hedges in four regions and thus we will not have any more impacts this matter any further. Another financial detail in Pan American’s account also served up to make our Q1 numbers worse than they really were which I will explain now with correction in the form of concentrate, that is struck to a Peru seaport and then it sits there until a ship takes it up to deliver to the world’s smelters be it in China, Europe or wherever. Our sales contracts provided that the contained silver and other metal is only priced two to five months after delivery to those smelters. So our quarterly revenue really reflects metal prices of the previous quarter as much as anything. Since the Q4 of 2005 prices were a lot lower than the Q1 fixed prices, we showed lower revenue numbers than perhaps the market expected. That’s why the Q2 was so much better than the Q1 and its also a way I can safely predict that all other things being equal our Q3 numbers will beat our Q2 numbers. So, with three issues improved, I hope our share holders will be really pleased with out financial picture today and in the future. And on that note, I am going to turn the call over to Geoff Burns for a more detailed analysis.

Thanks Ross, before taking a brief tour around each of our operations, I would like to start by making a couple of general observations about our operating performance in the Q2. As Ross mentioned each and everyone one of our minds continued the positive production trends that they established in the Q1. Tones of ore mined in mill increased across the board and as a result production at all of our operations increased as compare to the first six months of last year. Morococha plus 12%, Quiruvilca plus 4%, Huaron plus 1% and La Colorada plus 20%. These results were especially pleasing because to a large extent they represent the quantifiable tangible returns from the significant investments we made in our capital and exploration programs in 2004 and 2005. Well, I don’t see these kind of increases continuing I do fully expect us to continue to produce at the levels we have seen in Q2 over the balance of 2006. Now for some quick highlights in each of our operations. Starting in Peru, our Morococha mine continued its trend of record breaking performance. Morococha produced 772,000 ounces of silver in Q2. Cash costs were negative $3.81 per ounce reflecting higher base metal byproduct credits particularly from Zinc. Our silver production for the first half of the year was 1.7 million ounces well above our forecast. As expected both silver and zinc grades declined marginally. However, we more than made up for these decreases with increase throughput and better metal recoveries. In our last quarterly call I mentioned that we have just completed some improvements to our milling circuit which we believe would allow us to increase throughput. This has happened and we average close to 47,000 tones per month through the mill on the Q2. We are working our way higher and I am happy to report that we reached almost 55,000 tones though the mill in July up 20% as compared to a year ago. We’ve several major projects on the go at Morococha at the moment. We’ve continued to extend our Sierra Nevada ramp which become our primary ore extraction haulage way and the primary access to the (inaudible) ore bodies that we discovered last year. We’re rehabilitating our central shaft as well as the volcano tunnel which accesses the Buena Ventura ore block, the highest grade material in the mine. All of these steps as well as the major engineering study that we launched earlier this year are aimed toward achieving one goal, to double production at Morococha over the next three years. Now we are on, we produced almost 900,000 ounces of sliver in the Q2 at a cash cost of $1.71 per ounce. Production at Huaron rebounded in the Q1 of this year and the trend continued in the Q2 as it shift to the balance of 2006. Similar to Morococha we are working at quite a number of projects at Huaron. Most designed to increase efficiencies or facilitate cost reductions. But by far the most important of these projects is the mine deepening program that we kicked off. The program which will take at least another 12 months to complete will allow us to access new higher grade and wider ore zones that we’ve never previously mined and ships at the operation for continued stellar performance for years to come. Quiruvilca continued to be a reliable low cost ore producer. The ore production for the Q2 was 583,000 ounces bringing half year production to 1.2 million. Cash cost declined significantly to negative $1.07 per ounce which is a $1.99 less than in the Q1 and again reflects the benefits of the mine’s base metal production. Throughout the quarter and for that matter for the first six months of this year Quiruvilca has surpassed the company’s expectations in respect of tones mined and milled and there is so reason that this performance will not continue going forward. In Mexico, the La Colorada mine increased its sliver production again. Our purest silver mine, La Colorada is also our largest silver producer in the Q2 at 914,000 ounces, an increase for 23% as compared to the Q2 of last year. Cash cost remain stable at $5.50 per ounce. Our oxide plant continue to perform well, bringing year to date production to 1.7 million ounces. As described during our first quarter call, we recommence mining and milling of sulfide ore in the Q2. The sulfide plant is been restarted and while the throughput rate is slightly behind schedule. We are confident that we will be able to ramp up to the plan 250 tones per day capacity for the plant by the end of this year. We should see that the La Colorada mine produce half a million ounces from sulfites in 2006. With the pending start of the Alamo Dorado, the recommence in mining and milling at San Vicente less than a week away, we are right on track to achieve our forecasted 2006 production a 14 million ounces silver. With continued strength and base metal prices we should see our cash cost continue at the same levels as we have seen in the Q1 and Q2. It was a solid-solid operating quarter and it should be more of the same for the rest of this year. Now let’s look to our future. I am delivering to you the growth, that has been become synonymous with Pan American. We have two major production projects that we are moving forward with Alamo Dorado and Manantial Espejo. When completed, both of these new mines will help diversify our production base and deliver fundamentally lower cost production. I am happy to be able to tell you that the Alamo Dorado mine in Mexico is in the final stages of construction with 82% of the construction work complete, the project to still on budget of 76.6 million and we still expect to start commissioning of the facilities near start of the Q4 right on schedule. Mining activities, which commenced last August, are continuing and the pre-strip of the pit is almost completed. We have now stock piled over 240,000 tones of low grade material and are ready to start feeding the mill as soon as it’s done. Construction of the Alamo Dorado mine has progressed this far without recording one last time accident, since we started the construction and development. That’s over a 1 million man hours without a significant injury. In Argentina, construction of Manantial Espejo officially commenced in Q2. Basic engineering is well under way, site services are being established and most importantly we have broken ground and started our underground ramp system for the exploitation of the Maria vein. A project management team has been established and we are working closely with the provincial and municipal governments to move forward with the key infrastructure projects. Establishment of electric grid power and the building of the necessary accommodations for the permanent workforce that will be arriving during the next 18 months. In January 2008, we planned to be producing at Manantial Espejo, 4.03 million ounces of silver and 60,000 ounces of gold annually. Cost should be exceedingly low, particularly in view of the current gold prices, which will be a byproduct to the silver produced at Manantial. Finally, a quick comment about San Vicente in Bolivia, after a very protracted negotiation with COMIBOL, the Bolivian state mining company production at San Vicente will be within days and once again will be generating positive cash flows from this high grade silver zinc deposit. We are still refining our expansion plans for San Vicente and that was expected to be at least another six month before we complete sufficient engineering to make any further investment decisions. That concludes my comments, back to you Ross.

Okay, thanks a lot Geoff, that was a good run through. I will just give a few words about our exploration programs, as the share holders know, we are right on schedule to continue our production growth from 12.5 million ounces in 2005 to over 25 million ounces by 2008. That’s by far the largest primary silver mining company in the world. We are now focused on organic growth, in our silver resources rather than costly acquisitions in this expensive sellers market today. And we are having great success so far. We have over 24 drills active at the present time. Mostly at in and around our existing operations, and I can report that we have already found new silver resources well in excess of what we have mined this year and that will continue. Results are especially good at Morococha, Huaron and La Colorada operations as we discussed in our Q2 report. I can give all kinds of details on specific vein intersections at Morococha and Huaron and La Colorada as well as Quiruvilca , but I think it’s not really the appropriate time to do that right now. So I should just say that as Geoff mentioned in his comments the ingredients for our expansions are continue development of those operations, it will support of our exploration discovery so far this year. Turning to silver markets for a moment. I was very pleased to see the positive silver fundamentals reported in the most credible independent silver survey available. The world silver survey published in May by Gold Fields Mineral Services and we put up a summary of this -- of that report in our website. Industrial silver demand rose by 11% in 2005 and vastly overshadowed the small net silver decline in photography. I say a small net decline, because the less silver is used in photography less is supplied back to the market in the form of recycle of photographic waste. And don’t forget that silver is used in nearly every single digital products, including cameras, in the electronic systems and as a key ingredient in the camera body manufacturing process. And let’s not forget the great new sources of silver demand that began in Q2, the new ETF quoted on the Amax. This is sopping up a lot of the above ground inventory and without doubt significant positive effect on the silver base. To finish up, I want to remind the investment worldwide Pan American silver research and compelling story today. We are a real mining company. We own our mines and we control our destiny. We have outstanding silver both in terms of our reserves and resources which exceed 630 million ounces of silver and in terms of our large and rapidly growing silver production base. Our financial picture has never been healthier. Our operations have never run better. In fact I am really pleased to report that we had another record month in July, in terms of tones processed at our mines. We set as -- as Jeff alluded here, we set new production records at both Huaron and Morococha in July again. Our developmental projects are on time and I -- adjusted on budget. That speaks to the high quality of our management team and the reliability and believability over a forecast. Metal prices continue to have a lot of wind behind them and silver is especially strong. It’s a great time to be in the silver business and we are now the preeminent silver mining company in the business. I hope you understand why I feel so positive about our prospects. We will be talking about Pan American in several places in September -- late August and September as well as and if any of you have the chance to come and hear the stories. We will be doing a small road show through New York and Toronto at the end for August and in September, we’ll be attending the Merrill Lynch Investment Conference in early September, the Silver Summit in Coeur d'Alene Idaho, more for retail investors, and in mid September and in late September, the Denver Institution Investors Conference. Well, I think I’ll end -- after all that hoopla, I think I’ll end now and open the call up to questions. Eduardo?

Thank you. [Operator Instructions]. Thank you, our first question is coming from Ian Howat of National Bank Finance, please go ahead.

Good morning gentleman. Yeah, with regards to the Manantial Espejo, I shall just know (inaudible) with the capital project and you have got the update here. I apologize, talk to you later guys. Yeah, that was an easy question Ian.

Yeah

[Operator Instructions]. Thank you our next question is coming from Neville Dastoor of Canaccord Adams, please go ahead.

Thanks, hi guys. Just in relationship to the zinc hedging, wondering how you have accounted for it, I guess when used as oppose to the cash cost?

That’s correct. Yeah, Neville, Rob Doyle here. Actually the hedge is accounted for in a one line item on the income statement under commodity contracts, so the loss for the quarter of 4.8 million incorporates the closing out of all of all of our hedge positions, so it’s not revenue as it was and our previous treatment and our current treatment its a one line item on the income statement.

Okay, and then the cash cost of $1.17 don’t reflect anything?

That’s correct.

Thank you.

Thank you once again, ladies and gentlemen. [Operator instructions]. Thank you, sir there don’t appear to be any further questions at this time.

Okay, that’s fine we will close the call and lets say if anybody else coming through you might leave another minute or few to allow people to gather their thoughts otherwise we –

Absolutely sir, [Operator instructions]. Thank you, our next question is coming from Adrian Day of Adrian Day Asset Management, please go ahead.

Yes, thanks good morning I just want to ask a quick question if I may -- which, I know this was a great quarter -- the potentials that you have given us for growth is excellent, what -- can you tell us, which of your mines is most likely to close down first so we can look at that depletion?

Well, let’s look at each one of the mines Adrian, Quiruvilca has been running continuously since 1926, Huaron has been more or less continuously for 64 years. Morococha has been running more or less continuously for about 50 years. La Colorada is been on operation about 60 years these are long, long life mines even though traditionally and typically they have reserved lives of anywhere from 2 to 5 years in the proven and probable category ahead of that’s the financial of underground mine.

Right.

(Inaudible) mine that Pan American -- analyst and investors on the basis of its proven and probable reserves comparing to say open pit or companies that have open pit reserves that generally might know that all the risks underground mines just go and go and go as mine get deeper. It’s very much a function of metal prices Adrian, as today’s metal prices I would say all of these underground mines have futures that are you know, almost indefinite with the possible of exception of La Colorada, because La Colorada which currently has reserves for another few years, 3 or 4 years only, 5 years? Yeah, five years only, in La Colorada we had a tremendous amount of difficulty with the hot water at depth and the amount of water, and the balance there is really one of operating costs and metal prices because if we have metal prices like we have today, we can justify higher cost power, or it actually bring in lower cost power with the significant capital cost, and there are reserves there resources there, and there is lots of silver beneath the lowest levels that we have reserves but we haven’t got them as economic reserves because of the cost of pumping this water. So that’s the function of metal prices and so forth.

But at the current prices, is La Colorada much more than 5 years do you think?

That La Colorada will be absolutely operating more than 5 years, I’m going to say that without any hesitation at current prices it will be, in fact just talking about La Colorada for a second again, I will go into you know, the actual resources that La Colorada are very, very large and much lower grade. We have, you know, we have a least 50 million ounces as possibly posted 100 million ounces of silver resources that if we wanted to take all the resources with or without regard to economics, we would put a 100 million ounces into our resource statement.

Okay.

But the fact is La Colorada is a relatively high cost mine that we were mining in. Underneath the existing reserves at La Colorada is a very, very large zone of quite the grade silver lead zinc that we discovered when we were first drilling the property in 1997-1998 we had some holes of -- I forgot exactly whether they were 100 meters, 150 meters with almost continuous silver, lead and zinc in them with quite good grade. That would be you know, certainly economic as a large opened drill that mine but once again we are fighting hot water down there and lots of it and we currently haven’t got the power infrastructure to be able to mine under serious conditions. We are thinking of bringing in power that would reduce the cost of power and that wouldn’t perhaps make some of that economic or may be all of it economic. Those are the kind o upside that Pan American has certainly with the operations and because of today’s metal price environment you know, we were looking at those quite carefully because they represent wonderful growth opportunities for us to take our productions from 30, you know, 25 or 26 million as its now higher yet from our existing operations with minimal capital, minimum hassle, we have got all the infrastructure in place that work for us you know, and those are the kind of opportunities that exist with us and operating mining company that are low cost opportunities for shareholder wealth creation.

Okay, well great, that was a great answer thank you.

It’s my pleasure.

Thank you, our next question is coming from Craig West, please go ahead.

Good morning gentlemen, great results this morning. Just one quick question on La Colorada in the startup of the full fledged production there, could you talk a little bit about what kind of base metal production you will expect to see there and may be and talk about costs?

The primary byproduct there, Craig is lead and to a smaller degree zinc coming out of there. So we do expect to see some byproduct credits on the up to 250 tons a day. We are going to putting through that mill. So it will produce ounces with undercurrent price conditions at significantly below the 515 ounce we were seeing on the offsite side.

Okay.

If I were to give you an estimate right now we’re probably thinking somewhere in the 350 range for those ounces given that, that dynamic.

Okay, great thank you. I mean you mentioned very briefly the decline that’s being driven there at Morococha to act with some of the other areas, how far long is that has that proceeded in sort of what timeframe are you thinking to be reaching some other newer areas?

That’s the start of it, I’m going to say a project is going to be two and half to three years to totally complete, that primary access is running east west across the portion of our property and then its going to be heading to site cross another very large tract of our claims and ultimately it’s going to probably access about 2/3 of our ore zones at Morococha or talking about or thinking about equipping it with the conveyor system to speed extraction. So that’s a very major project in terms of actually accessing short term production we’re probably a few months away from really getting to the, we’re actually already mining some zones around it right now, but getting (inaudible) which is a very large zone for us we’re probably four to five months away from accessing that next mining zone.

Okay, so there has been some exploration in the areas between where the ramp is now where it s going to end up, you know that hasn’t been yet explored.

Actually there is quite a large area that we are going to cross that really has had minimal exploration, the zones close to the port, kind of make sense I believe we have explored and we have discovered some very significant reserves and resources that’s the location for the port itself but yeah, part of this is we are going to get some real good exploration kickers I believe as we continue to drive that ramp to through the east and again to the south.

Yeah excuse me, this is Andy Pooler, Vice President of Operations. The ramp is a 4X4 meter there we are going to run trucks out of. It will encounter probably with seven or six ore bodies along the way weighing target so, each advance to the ramp will increase the productivity of Morococha as it advances at the tune of anywhere from 100 to 200 meters a month.

Okay.

Thanks Andy and also thanks to you Craig for your recent report on Pan American UBS put out a good report on a bunch of silver companies and I would happy to see we were ranked number one in quality, so that was a nice part for you too.

Thank you.

Thank you, our next question is coming from Jed Richardson of Sprott Security, please go ahead.

Quick question just looking out may be to -- just looking at the balance sheet the short term investments into those increased the little the last couple of quarters and was still all debt securities or is there if any equity investments in there?

It’s all in high quality bonds, there not equity expression in that portfolio.

Okay, and you know, also mentioned that you were considering acquisitions right now because the prices, is there a size that you would hope to grow organically, is there a size that -- a production that Pan American kind of have a target for or just kind of measured growth over the next few quarters in excess to the new mines that you are bringing on?

Right, we do have a target sort of five-year target. We like to see our production grow 15 million ounces and you don’t get there easily by internal discovery. So I didn’t make a complete statement there, we are certainly in focus, we have been for the last 12 to 18 months on internal growth, we have done a lot of working know under, around our existing operations particularly, we’ve launch genitive programs in Mexico, Peru and elsewhere in all of Latin America so far and we are -- those things take -- they only take a lot longer to sort of realize material results from when you start at earlier stages. But we do observed that prices of industry and silver opportunities in terms of acquisitions are much higher than they were here you know that’s obvious. And generally speaking we are not sort of you know compulsive deal makers we don’t need to make deals to grow stronger, we don’t need to make deals to have a great financial position and our team is pretty well focus on the growth we’ve got on our pipeline. On the other hand it would not be good, we will not make new acquisitions, we are not looking at anything, we are certainly -- we have been looking at really all opportunities because of course our intention is to be the preeminent in silver producer globally and you don’t necessarily get there if someone else find a great discovery that the third party might acquire. So, I would say we are looking at most good silver opportunities many of this opportunities are much different. When you take a close look at them we might versus the promotional comments that are made to public market and your investors may focus on and so value is very different realities in us between -- to the public valuations and real valuations to say a mining like yourself and that’s true for any operating company looking at acquisition. So we’ve been long to make acquisitions and haven’t actually make one for over two years really since we acquired Morococha. So to say we have some false starts, we’ve try to bunch it didn’t conclude for -- with or another and so as to say we don’t have a fuel in our pipeline right now that we are looking at. So I hope that was a fuller answer to press the question you have post.

No that’s great actually just to -- add to that you would -- any acquisitions you have made you -- Pan American will be the operation of, right? You don’t want to set up a -- you know like a silver stream and things like that.

Right, never say never -- you know there are -- again its value that we look at as much as anything and how it fits with everything else we are doing how it fits with our management side never say never there are -- sometimes there are opportunities, but on the whole I continue to say our bias is towards project that we would be operation on and we are generally bias against the silver stream kind of deals we think they are not -- well, just to say that -- that we see (inaudible) acquiring silver streams and all sorts of fronts, but I don’t think I need to go any further than that.

All right great thanks.

Thank you our next question is coming from Michael Dudas of Bear Stearns, please go ahead.

Good morning, gentlemen.

Good morning, Michael.

My first question -- you handled very adroitly for the previous one on acquisition, but I have one follow up to that. How do you look at external opportunities that might be a little bit different than some of your peers?

Well the most significant -- Geoff here, the most significant thing I think that Pan American brings to the table as a buyer of opportunities is our skilled operating team. We are a mining company, there are very few mining companies in the industry today with a track record of our group, bringing on operations on budget having them perform as schedule in way we are very proud of that and our team is deep and is strong and is particularly Latin American friendly. Almost all of our senior officers speak Spanish we have a very good network in Latin American operation offices in Mexico, Mexico of course is true Bolivia, Argentina and lots and lots of contact elsewhere in Latin America. So we bring operational horsepower to the table which is lacking generally in this market. We bring financial horsepower as well -- silver business inside and out we know open pit operations, we know underground operations, we know how to (inaudible). Those are the things that I think are -- should be attractive to companies, bring us opportunities. Anything need to add to that?

Actually, I, I think -- Michael and you can go down the list I mean of things you look for certainly reserves and resources and I think the one thing you need to Pan American is we are historically have look at situations, we are applying that technical expertise can enhance the value obviously we have been able to do that that we are on, we seem to be able to repeat that scenario very much at Morococha and that’s you know something that we really look very closely at because that’s where you can create some significant value versus just paying full price for a very establish mature situation.

Or paying you know --

Premium.

-- a very significant price -- you know no operating control whatsoever you pay for resources that may or may not be there you -- you know those things are -- to me they are not great ways to create wealth, but you know what that --

Now, the numbers do speak, and my follow up would be on zinc I applaud you for taking care of the hedge in Q2. But review for us now, how you are thinking about you know I guess I think $0.74 is terrific, but thinking about 40 you know is there going to change in the focus on unlocking and hedging for this or other metals going forward. So could you just you know elaborate little bit on that, please?

Sure. It’s a very thorny issue it’s -- and quite frankly we are spilt on our board, we have an interesting board we have some real hard ass operators like John Wright metallurgical engineer, John Willson is the ex-CEO of Placer Dome, he is a miming engineer and these guys, you know, they want to protect their cost ratio. All you do that is you hedge when you’ve got an all time record metal price, you (inaudible) and in doing so you protect your cost and you maximize your revenue and you know and that is what the hedge is all about and you protect the downside of this, and there is all kinds of ways to do that in the you know, in the hedging world, you can buy any programs but at the end of the day it’s always a hedge. If the price of metal goes up it looks like a bump and that’s what happened the us in Q1 after we thought we were heroes and stepping in front of the zinc during last year and getting 72,000 tons an all time high, almost an all time high that time and then watching the price double. So that’s the you know, the hedge we also have on board a couple of fund managers Michael Larson he runs Bill Gates’ money and Bill Fleckenstein who is a fund manager and a very, very strong opinion guy and a wonderful, wonderful board member. And both of these guys make the observation that you know, it’s fine to hedge you know, you do make, perhaps if the metal price goes down you make a financial gain. But it will also do in the hedge you know, zinc like we did and what’s the new accounting rules that were different and what they were when we are actually get into that hedge loss fall, a kind of rules change and we have to choose this big non-cash accruals for the hedge losses which were non-cash items. It really obscured our earnings picture, it obscured our cash generation potential, it obscured our earnings, when we had good earnings, but we have throw this big non-cash losses and it really did negative, I would say it paints a more negative pictures that needed to and that cost us a lot. So when you weigh the benefits against the cost, it is a tough and thorny issue which we have debated, every single board meeting we have a debate on this. And that’s going to continue. Now lesser issues that are still hedges, but once that are more easily explained our hedges, for example on currency, we hedged our Mexican peso risk against the dollar to mitigate significant changes in that set of currencies. We are now -- probably going to do the same thing in Argentina once we have our cost we are purely define, to reduce the risk of a blowout on either side, on the currency side against our budget. We have a real debate going on right now in our board whether or not to hedge gold, at current prices we can -- for example (inaudible) is going to put us about 70,000 ounces a year, 60,000 ounces a year. We can get a floor of $600 and all the upside above $1000 ceiling -- you know, just - you know, that’s something which we you know which we actually -- we had board meeting last week, we had a discussion about that, we are not going to do anything right now because we think that the negatives of hedging gold currently are out way by the positives. And that’s where it came down, but it is a thorny issues. Never say never I will not say we’ll never hedge thing again, I will not say we will never ever hedge gold, but I will say we will never hedge our silver. We will never hedge our silver because our silver gives, we will never hedge our silver because our silver gives our investors our leverage, the second we hedge that we take away that leverage and why invest in Pan American compared to something else, so that’s one thing that is sacrosanct, we will not hedge our silver production.

A very candid and complete the answer, thank you very much.

Thanks Michael.

Thank you. [Operator Instructions].

If there is no further ones we’ll wind it up.

Thank you, sir, that is correct they are no -- they appear to be no further questions at this time.

Okay. Let’s bring the call to a close and thank everybody -- thanks very much everybody for listening and attending this morning. Give us a call if you got any further questions behind what we have done today.

Thank you. This concludes today’s Pan American Silver Corp. conference call. You may now disconnect and have a wonderful day.