Pan American Silver Corp. (PAAS) Q1 2007 Earnings Report, Transcript and Summary

I would like to welcome everyone to the Pan American Corporation First Quarter 2007 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer period. If you would like to ask a question during this time, please press * and then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Thank you. It is now my pleasure to turn the floor over to your host Geoff Burns, President and CEO. Sir, you may begin your conference. Geoffrey A. Burns : Thank you Operator. Good morning Ladies and Gentlemen, and welcome to Pan American Silver’s First Quarter for 2007 Earnings Release Conference Call. Joining me today here in Vancouver are: Andy Pooler, our Senior VP of Operations, Steve Busby, our Senior VP of Project Development, Rob Doyle, Chief Financial Officer, Michael Steinmann our Senior VP of Exploration and Mine Geology, and Alexis Stewart, our Director of Investor Relations. Over the next 20 minutes or so, we’re going to try to update you on the company’s activities over the past several months, touching on our silver and base metal production, our construction activities in Argentina, our exploration activities through Mexico and South America, and also comment on our financial performance. We produced 3.34 million ounces of silver in the first quarter of 2007, marginally higher than in Q1 2006 at a consolidated cash cost of $2.98 per ounce. Excluding the higher cost production from Alamo Dorado, which we are still commissioning during the first quarter, our cash costs were $2.29 per ounce of silver. This is 7% lower than the first quarter of 2006 when our cash costs were $2.47 per ounce. In addition to silver, we also produced 9,600 tons of zinc, 3,700 tons of lead, and 1,300 tons of copper, all comparable to the levels we achieved in the same period a year ago. Net income for Q1 2007 was $20.4 million which was far higher than the loss of $2.8 million we recorded in the comparable period last year. However, in the first quarter of this year, we received an additional $10.25 million in cash from the 2004 sale of our interest in the Ducat mine in Russia and recorded a gain on this sale. Excluding this gain, our financial results for Q1 were not as strong as we would have expected. There are three fundamental reasons for this result. Firstly, we produced 33,400 tons of concentrate from our mines in Peru during the first quarter of this year. We only shipped, and therefore only recognized sales on 74% or 24,900 tons of this production. Much of the material that remained unsold at the end of the quarter was comprised of our higher value, silver-lead concentrates. On a net, after-tax income basis, the unsold concentrates would’ve added approximately $5 million to our bottom line in the first quarter. It would be nice to ship all the concentrate we produce in any given quarter, however, this fundamentally is not how our concentrate shipment process works. There will be quarters where we ship more concentrate than we produce, and there will be quarters like the current quarter where we ship less than we produce. The bad news is that the lack of shipments in Q1 2007 clearly had a negative impact on our short term financial results. The good news is that those same concentrates will be sold in Q2 and Q3 of this year and will have an off-setting positive impact on those quarters’ financial performance. Secondly, we absorbed a $5 million zinc pricing adjustment for zinc production that had been produced and sold at December 31st of last year but where the final pricing had not yet been established. The zinc metal that is contained in concentrates we sell is typically priced at a date that is three months after the date we ship the materials. At the end of last year, we had a significant quantity of zinc metal and concentrate where the final pricing hadn’t been established. As accounting convention would dictate, we estimated the price we would receive for the zinc production based on December 31, 2006’s closing zinc price, which was well above $4,000 per ton. As I’m sure most of you are aware, the zinc price declined significantly during Q1 particularly in January. And as a consequence, the final prices we will receive are much of this material declined as well. And that result was during the first quarter. We absorbed a negative pricing adjustment of approximately $5 million of gains gross sale. Clearly this impacts our bottom line. However, zinc prices appear to have rebounded from some of the lows we saw in January and have stabilized at very favorable levels, and I am hopeful that we won’t have to adjust our sales again in a similar fashion. Thirdly and finally, our commissioning efforts at Alamo Dorado have taken longer than we planned. I will update you as to our progress at our newest silver mine more detail in a moment. Sufficed to say, we planned for a quicker ramp up at Alamo Dorado and it didn’t happen. From a financial perspective, Alamo Dorado did not achieve commercial production in the first quarter of 2007 and did not contribute as we had previously anticipated to our bottom line. That’s a snapshot of our financial performance in Q1. With the exception of our slow startup at Alamo Dorado, our operations delivered solid performance in the first quarter. However, as I just described, our financial performance did not fully reflect these results. My expectations going forward are simple. I am confident we will show significant improvement in our financial results over the balance of the year at these same silver and zinc price levels. We will ultimately sell all the (inaudible) we have produced. The zinc price adjustment is behind us and the Alamo Dorado min will achieve commercial production status from an accounting point of view during the second quarter of this year. Now for a tour around each of our operations, let’s start in Mexico with Alamo Dorado and the commission efforts at our newest silver mine. Alamo Dorado produced just over 260,000 ounces of silver in the first quarter. This was a cash cost in excess of $10 per ounce. This is well below our forecasted production of approximately 800,000 ounces. Why? Two things really slowed up our startup at Alamo. The first was our tailing filter. The filters separate the solution which contains the dissolved silver from a solid material which goes to our (inaudible). The filters are covered with a cloth lining which holds solids while the silver bearings solutions filter through to the refinery where the silver is ultimately recovered. Much the same as the paper coffee filter as we put in our automatic drip coffee makers every day, which lets the coffee through but keeps the coffee grounds out of the machine. Simply put, we receive a batch of sub-standard filter cloths from our suppliers which simply didn’t do the job they are supposed to do. They stretched, they deformed, and we fought them on a daily if not hourly basis. But we’re still ending up with coffee grounds in our coffee. We’ve obtained quality cloths and we’re happy to report, that this problem is behind us. The second issue we have faced which can only be described as somewhat of an irony is that we have more silver in solution reporting to the refinery that we have been able to consistently plate and extract. This is more of a learning curve training issue than it is a mechanical problem. We need to get better and quicker at harvesting the silver in our refinery that has already been dissolved in solution. OK, those are the reasons we’ve been unable to turn the key at Alamo Dorado and achieve the performance we had planned to achieve. So the real question is: where are we now and what can be expected going forward? I’m extremely happy to be able to tell you that over the past two weeks, we have achieved an excess of 4,200 tons per day through our filters. As a reminder, the feasibility capacity for the plant was only 4,000 tons per day and we have recovered over 11,000 ounces of silver per day during that same period. That’s still about 1,500 ounces short of our feasibility estimate but we’re getting very close. For the month of April, we produced close to 250,000 ounces of silver at Alamo and we’re forecasting almost 300,000 ounces in May. From there, we should see steadily improving results over the next 3-4 months as we move towards our design parameters. I would be remiss if I didn’t mention a couple of other things which are always identified as risk to any startup operation. Our ores are performing as predicted and with the exception of the two items I just noted, our metallurgical guesswork is being confirmed by our plant operation. At the moment, our process in circuit is literally with dissolved silver. As a result of this slower than planned startup, we feel compelled to revise our production forecast for 2007 for Alamo. While there’s a decent chance we will recover from much of the loss we have seen in the first quarter, out of an abundance of caution, we’re decreasing our forecast at 2000 in production to 3.6 million ounces of silver at Alamo. This is 650,000 ounces lower than our previous guidance of 4.25 million ounces. Average cash costs of the year should approach levels we previously advised close to $3.50 per ounce. Sticking with our Mexican operations, we’re very pleased with the first quarter performance at our La Colorada Mine. Our pure silver mine produced 840,745 ounces of silver in the first quarter, an increase of almost 7% as compared to 2006. Cash costs were higher at $6.78 per ounce reflecting increased costs associated with the startup of our sulfide circuit. La Colorada mine, in process, had record tons in the first quarter of 2007, and the sulfide circuit has ramped up nicely processing between 250 and 270 tons per days to augment our oxide circuits which has been running at nearly 575 tons per days for the year. In April, La Colorada achieved a month silver production record of over 340,000 ounces. The mine is truly on a production roll. We received a number of pieces of underground mining equipment we ordered last year and our mining rates have increased, as have the silver grades of both the oxide and sulfide ore we are currently feeding to our recovery circuit. After a tough year in 2006, La Colorada is right on track to produce 3.8 million ounces of silver in 2007. Moving to Peru, our Morococha mine produced close 639,000 ounces of silver at a cash cost of negative $4.20 per ounce in the first quarter of this year. Our lowest cost producer continues to benefit from its zinc by-product productions coupled with continued strong zinc prices. As planned, silver production was lower than a year ago, as a result of mining in areas where silver and lead ore grades are lower. Having said this, silver production was higher than we forecasted in the first quarter and we are confident that we’ll achieve our forecast at Morococha for the entire year of 2.67 million ounces. We have continued to increase our capacity at Morococha and have almost made some adjustments to the circuit which we hope will ultimately increase our silver and zinc recoveries. It is processing consistently over 56,000 tons per months throughout the first quarter, some 30% higher than we acquired this operation in mid 2004. Morococha had a good quarter and is on pace for a very good year. The Huaron mine, our largest silver producer, maintained its late 2006 production level and produced 927,100 ounces of silver in the first quarter at significantly lower cash costs. Cash costs from the current quarter were $1.99 per ounce of silver produced which was 46% lower than the cash costs of a year ago, offsetting a plant decline in silver head graves with an increase in (inaudible). The milling circuit at Huaron processes consistently at 62,000 tons per month. This is 11% higher than the year earlier period. Our mining deepening project continues on track and is scheduled for completion in May 2008. This is a key project for Huaron’s future, as it will provide long term access to some of the highest grade ore blocks in the mine’s reserves. Like Morococha and La Colorada, Huaron recorded a solid first quarter production and we are confident that we’ll achieve our full year target of 3.8 million ounces in 2007. At Quiruvilca, production was lower for the first quarter, as expected, because we are mining in lower grade areas of the mine while we complete our 400 level ramp development project. Silver production for the quarter was 404,000 ounces at a cash cost of $2.33 per ounce. Silver and zinc rates are likely to stay at these same levels. We will see significant improvement for the third quarter and for the balance of the year as ore will start to be mined from the higher grade zones below the 400 level. Overall we were a little behind our forecast for the first quarter at which Quiruvilca should make up our annual call by the end of the year. In Bolivia, our San Vicente mine put in a solid first quarter. Our share of the mine’s production jumped almost 50% to 136,500 ounces in silver at a cash cost of $3.16 per ounce. Production from this high grade silver and zinc ore body continued on a modest basis as we mined in full process at about 250 tons per day. The real future at San Vicente is expanding the mining and milling capacity. As I’ve mentioned before, we have completed a feasibility study on just such an expansion and a construction decision is imminent. Please watch this space. There’s real growth potential for Pan American at San Vicente - growth, which up to this point has never been included in our long term forecast for the company. Now to Argentina and our Manantial Espejo project. Construction at Manantial Espejo which will be our eighth mine is in full swing. At the end of March, project expenditures were $32.4 million and we estimate that we are 25% complete with our construction and mine development. We have taken delivery on the majority of our underground and surplus mining equipment. We have advanced the underground laps to the Melissa and Maria veins to a total of 500 meters out of the 4000 meters we will have completed prior to the starting up of our plant. We have commenced pre stripping of the Coeur d'Alene open pit and are using the waste material to help construct our facility. We are pouring the concrete and foundations for our maintenance shop, our processing facility, and our crushing point. Infrastructure is well advanced with the establishment of permanent housing in town and at the site. We are on schedule for an April 2008 completion with commissioning to start immediately thereafter. We continue to receive exceptional support from all levels of government in Argentina; Federal, Provincial, and Municipal, who have truly become our partners in this project. While construction is progressing well, we have seen a significant increase in our estimate in our capital cost to complete this project. As we’ve previously announced, our estimate of the capital cost of the project has increased to $170 million which includes $21 million of refundable value-added tax. This is a disappointing development. Our estimated costs to complete Manantial Espejo has been subjected to many of the unavoidable cost escalations that have been seen throughout the industry: Labor costs have increased, concrete and construction material costs have increased, EPCM costs have increased, just to name a few of the most significant drivers. To be conservative we have included in our latest estimates allowance for further cost escalation over the balance of the project construction. Clearly we were hoping to duplicate some of the success we had at Alamo Dorado in mitigating these same cost escalation factors but those opportunities are just not available to us at Manantial and we’ve had to be realistic about what it’s going to cost us to complete this project. Manantial Espejo will be one of our largest producers when we fire up the plant next year. The mine should average 4.2 million ounces of silver per year and treating the significant gold figure we will recover as a by product credit, our cost should be well below $1 per ounce. That’s the tour around our operations and constructions projects. We continue to be very active on the exploration side and I would ask Michael Steinmann, our senior VP of exploration to share with you some of what he and his group are currently working on.

Good morning. I’m sure most of you have seen our press release from February 16 with its company wide reserve and resource estimates. We published a 20% increase of our private and public reserves, adding 35.4 million ounces of silver compared to the year before. In order to achieve similar results in 2007, an aggressive exploration program at our operations in Greenfield project has been started in January. I would like to give you a short overview of the exploration plan for this year. First, our ground field exploration programs. On Morocoha we’re building on 8-10 bricks on a program of 40,000 meters for exploration and over 7000 meters for drilling. The total costs for this program will be approximately $2.8 million. At Huaron the program is 28,000 meters using three to four weeks for a total of about $1.3 million. We are drilling through the year at about 20,000 meters using three weeks for a total cost of about $1 million. At La Colorada we are drilling with three weeks on a program of 13,000 meters for a total cost of about $1.5 million. In total our ground field exploration program for 2007 is about $6.5 million which will be spent on over 100,000 meters of diamond drilling alone. Our Greenfield exploration programs are mainly focused on Mexico, Peru, Ecuador and Argentina where we have several prospects in each country. We plan to spend a total of $2.5 million on these properties for exploration work and are constantly reviewing opportunities in these countries. We’re also active in staking new ground. For example in Peru, we staked in the first quarter 13,500 hectares of exploration properties which will be part of our exploration program throughout the year. As you see we are very active exploring around our mines as well as on Greenfield properties and will be releasing the results once the first stage of the program has been finished around the middle of this year. It’s going to be challenging to duplicate the kind of reserve increases we enjoyed last year and I’m confident that in 2007 we will once again add to our reserve base and I can tell you that I’m very pleased with the progress we have made in our Greenfield programs for this date. Geoffrey A. Burns : Thank you Michael. I’d like to touch on a couple of other items before we open up the lines for questions. We held our annual general meeting yesterday and Mr. John Right who has been a director of the company since inception as Pan American Silver in 1994 did not stand for re-election. I would personally like to thank Mr. Right for his years of dedicated service both on the board and as a key member of management for many years prior to my joining the company. John was one of the co-founders of Pan American, along with Ross Beaty, our Chairman, and was truly instrumental in the evolution of the company. I will miss his guidance. I wish him the best in all of his future endeavors. As for the silver market, in spite of the last couple of days which has yet again proven that the silver price can be extremely volatile, the basic drivers of the silver price continue to be bullish. The US dollar continues to show weakness, the silver ETF has continued to grow, reaching almost 121 million ounces at the end of March, and fundamental investment demand has remained strong with growth in China and India unabated. Together these factors make a good case for continued strong silver prices. In summary, with the exception of La Colorado, we had a good, solid production quarter, however for the reasons I have described we didn’t achieve the performance we were hoping for. However I am extremely optimistic about the balance of 2007. La Colorado is now wrapping up nicely and will deliver to its performance. We will sell in the second and third quarters the concentrate we produced in the first quarter. La Colorado mine reached record production in April and there is no reason to believe that the production trends we have established in the first four months of this year will not continue. Morococha and Huaron are right on track for excellent years. Put this all together and 2007 should be the best year ever for Pan American and we are on path to produce 25 million ounces of silver in 2009. This is mining. We have the team, we have the assets and one quarter does not a year make. Thank you and I would ask the operator to open the line for questions.

At this time, if you would like to ask a question please press * then the number 1 on your telephone keypad. We will pause for a moment to compile the Q&A roster. Our first question comes from John Bridges of JP Morgan. John Bridges – JP Morgan: Hi, you reported copper production at La Colorado mine which is presumably coming from the new sulfate circuit? Could you please give us some more details on the copper grades in the sulfides, both the reserve grade and what you’re doing currently? Geoffrey A. Burns : Are copper grains coming from Colorado? We do not commercially produce copper in La Colorado. Andrew Pooler: I’m sorry to interrupt, thank you for point that out. I’m afraid that John refers to the gold production for the quota. Geoffrey A. Burns : That is 11,057 ounces. 857 ounces of gold produced for the year which is actually 46% above our budget. John Bridges – JP Morgan: OK, I was just wondering where all that copper came from. OK, thanks for that. Geoffrey A. Burns : You’re welcome.

Thank you. Our next question comes from Howard Flinker with Flinker & Co.. Howard Flinker – Flinker & Co.: I have a few questions about taxes. Is that VAT in Argentina new? Robert G. Doyle : No its not Howard, that’s been there for quite a while. Howard Flinker – Flinker & Co.: I understand that you describe it as something that was unexpected or did I misunderstand? Robert G. Doyle : No, the VAT taxes are not unexpected. They are fully refundable and we included them in our capital estimate because he pays them up front and then gets them back at the end of production. Howard Flinker – Flinker & Co.: Did you not include them before? Robert G. Doyle : They were included before as well. Howard Flinker – Flinker & Co.: Oh they were. Did the Peruvian tax go up? Is there a new Peruvian tax? Did Garcia say they need a new house or something like that? Robert G. Doyle : There has been no change to Peruvian tax rates. Howard Flinker – Flinker & Co.: And finally, please explain that accounting phenomenon where you shifted $4.5 million of costs in the fourth quarter to the first quarter, or it was delayed for some reason? I don’t understand that. Robert G. Doyle : OK, Howard, if you’re referring to our zinc pricing adjustment at the end of last year, we have sold our zinc on an accounting basis, but the final pricing on that material from our customers is not set for up to three months into the future. Howard Flinker – Flinker & Co.: How so? Robert G. Doyle : That’s just a function of how our concentrate sales contracts work, standard in the industry. Howard Flinker – Flinker & Co.: So, up to three months in the future the price can go either way? Robert G. Doyle : It can go either way, that’s correct. Howard Flinker – Flinker & Co.: And who gets the benefit if it goes up, and who gets the benefit if it goes down? Robert G. Doyle : If it goes up, we get the benefit. If it goes down, potentially we get less value for that material. Howard Flinker – Flinker & Co.: I see. So that’s also fixed. It’s not some choice of the smelter? Geoffrey A. Burns : No, the smelter determines that the period of pricing, but up or down goes to either party. Howard Flinker – Flinker & Co.: I forget where zinc was at the end of the year, clearly if I can infer properly… Geoffrey A. Burns : It was well above $4,000 thousand per ton, Howard. Howard Flinker – Flinker & Co.: Oh I see. And now it’s $3,200? Geoffrey A. Burns : Zinc pays $3,600 on three month basis. Howard Flinker – Flinker & Co.: OK, thanks, those are my only questions. Geoffrey A. Burns : You’re welcome.

Thank you. Once again if you would like to ask a question, please press star and the number one on your telephone keypad. Our next question comes from Haytham Hodaly with Salman Partners. Haytham Hodaly – Salman Partners : Good morning gentlemen. Geoffrey A. Burns : Good morning Haytham Haytham Hodaly – Salman Partners : Just a couple quick questions, can you just give me your forecast for G&A this full year and maybe for your expiration budget that would be expensed etc.? Geoffrey A. Burns : I think our G&A in the first quarter was just about $2 million and essentially for G&A, you can just take that and multiply it by four Haytham, and you’re going to get a pretty decent estimate for the year. Haytham Hodaly – Salman Partners : What about your stock based compensation expenses and all that? Is that built in there? Geoffrey A. Burns : It’s built in there, yes. And in terms of our expiration budget that will be expensed from that…expiration is capitalized. We’re looking at close to $7-$8 million for 2007. Haytham Hodaly – Salman Partners : Are there any plans to put any hedging in place for the (inaudible)? Geoffrey A. Burns : That was a long, heavily debated topic at our board meeting yesterday. What I can tell you is that as of today we do not have any mandate for putting any sink hedging in place, but we are going to watch the market very closely. Certainly we’re cognizant of some of the comments that were in your newsletter as well as some of the other people who follow the price who suggest that while they’re strong at the moment, there is some potential for degradation in the price. So we don’t have anything today, but I’m not going to preclude us from moving into that market over the next several months. Haytham Hodaly – Salman Partners : One last question on the path proceeds. Initially it was $20 million. I think you said that in this quarter you have another $10 million. Is that correct for this last year? Geoffrey A. Burns : Yes, we did. Haytham Hodaly – Salman Partners : Again, that additional $10 million which showed up in the first quarter numbers, assuming silver price stays above $10, how would expect that to play out for the next twelve months? A similar number? Geoffrey A. Burns : Actually, no. The reason for the additional payment was part of the structure of our deal with Poly-Metal was that if they ever IPO’d the company, which they did near the end of last year, that they would have to pay us in advance, half of the outstanding amount that they owed us. So, they did IPO the company and as a result of that, they were dictated to pay us $10.5 million. If the price of silver stays where it is right now, there is about another $2.5 million that we can expect to receive from Poly-Metal at the end of this year and then that would complete that deal. Haytham Hodaly – Salman Partners : So there is $2.5 million left in Q4 of ’07 and then you’re done. There should be no more surprises after that? Geoffrey A. Burns : There should be no more surprises after that, although this was a pretty nice surprise. Haytham Hodaly – Salman Partners : Definitely. Thank you gentlemen.

Thank you. Our next question comes from Daniel Altman with Bear Stearns. Daniel Altman – Bear Stearns: Good morning. Can you just share with us the revenue break-down of our product in the first quarter? Geoffrey A. Burns : Daniel, that’s a fairly detailed question in terms of dollars and percentages. If I could ask you to give us a call back here at Pan Am and talk to Robert Doyle, and he’d be happy to share that with you. We just don’t’ have that handy right at the moment. Daniel Altman – Bear Stearns: OK.

Thank you. Our next question comes from Frederick Brimberg with Avatar Associates. Frederick Brimberg – Avatar Associates: Hi, good morning. I have two macro questions. Can you update us on the strikes in Peru. I understand they’re not affecting you’re mine directly, but if you can just bring us up to date with your current situation down there. Andrew Pooler : Sure. Actually that’s an operations question and something I should have touched on in my comment. Yes, there has been a call for a general mining strike by the unionized workers in Peru and the issue really involves contracting out some of the work at various areas of the mine where companies have their own employees but then also carry on mining using contract employees. The issue really revolves around profit sharing. As a full time employee of a particular operation, you’re entitled to an 8% share, obviously pro-rated over a number of workers of the profits of any given operation. If you’re a contract worker, you do not participate in that profit sharing. So that’s the issue. And our operations were almost 100% company only employees. At the moment we have a number of contractors, but we have been systematically over the last two years adding them to our payroll to bring them on to our payroll. As it stands right now, as you’ve noted, all of our operations are still going full tilt. We have not been affected by the general strike. In fact, we’ve settled our labor contract with the union early this year and they actually wrote a letter to the country union telling them that they did not want to participate in any job action whatsoever. So at this point in time we have been very fortunate not to have a union disruption to our operations from that general strike. How it will play out, at the other mines and throughout the country is a little more difficult to call. Certainly the federal government has called the strike illegal and is busy trying to mandate the workers back to the job. Today is a holiday in Peru, so I suspect a number of those workers, you can call it a strike or holiday as I'm not really sure which one it qualifies as for today, but my long-term expectation would be to see most of those workers back on the job throughout the country. And I am hopeful that we've been blessed without any disruptions, and we'll continue on that path. Frederick Brimberg – Avatar Associates: Second question is, and I've talked to Rob about this in the past, but I'd just like a reminder. In Argentina, that government has had a history of not upholding contracts with foreigners. I understand the president is very friendly to the company. Could you update me, or all of us, on why you feel confident on your long-term investments in that country, given its history with foreigners? Geoffrey A. Burns : Sometimes you're good, and sometimes you're a bit lucky when it comes to politics. In our particular case, our operation is located in the province of Santa Cruz. Nestor Kirchner is from that particular province, he's the president of the country, as are a number of his senior cabinet members, and they have been very pro-active, along with the provincial government, in fostering development of all sorts, including mine development. There are clear indications that their long-term political future will see them back in the province when they are done at the federal level, and we are already aware of steps that are being taken internally to the province to provide states for their return. So, while in a general concept of the country some of your comments may be applicable, we are fortunate to be located in an area that is clearly favored by the political winds in Argentina. Frederick Brimberg – Avatar Associates: Is it possible, though, if there were a change in the leadership to a president who is not from that province, that it might then be a problem? Geoffrey A. Burns : We could speculate Frederick, on where the politic is going five or six years from now. It's possible they could have another president come in who is even more in favor of that particular province. That's a tough speculation to make. I can tell you that right now, at the municipal level, the town of Gubernador, at a provincial level and at a federal level, we have very strong support, and we are hopeful it will last. Frederick Brimberg – Avatar Associates: OK. Moving on to Bolivia. I noticed in the release a positive construction decision regarding expansion for San Vicente is pending. Can you just help us understand your confidence, given Mr. Morales' background? Why have confidence making a long-term commitment to that country? Geoffrey A. Burns : I think in the case of San Vicente there is about three things. The first one is magnitude of our commitment to what is going to end up. If we have a positive construction decision, being the magnitude of our investment, then I could say on a material level without getting into the specifics, which we can't do before we make a formal announcement, that any magnitude of investment is going to be very small relative to what we're investing in Argentina, or what we just invested in Mexico, for some very positive production results. So magnitude versus potential returns is the number-one issue. Number two is there has been an incredible amount of rhetoric picked up in the press from Mr. Morales. The reality is, for the vast majority of the mining industry, ourselves included, with the exception of perhaps one specific company, there has been no change whatsoever to the way we do business, the way we're being taxed, the way we're operating, the way we pay our unions, since Evo has taken office. That's zero change, nothing has changed. I'm not saying that's an absolute for sure going forward, but that's certainly the result of a lot of talk and not much action. I guess the last thing is that Bolivia is, indeed, a very poor country. They do need foreign investment in the mining industry. They just need it. It's one of their primary economic drivers in the country. They don't have the wherewithal to develop many of the natural resources themselves, particularly in mining. And again, despite the rhetoric, underneath that rhetoric in dealing with most of the cabinet ministers that report to Mr. Morales, the message has been very clear: We need your investment, we want your investment, we'd like you to continue operating in our country. So for those sort-of three reasons, it is by no means a certainty, but that gives me comfort that an investment in Bolivia is not out of the question. Frederick Brimberg – Avatar Associates: Thank you. The original guidance for silver production this year, I know has dropped to $17 million, but I don't remember from what. Geoffrey A. Burns : The original guidance was $17.6 million. Frederick Brimberg – Avatar Associates: OK, great. And the differential is because of the commissioning problems in Mexico, rather than the inventory problems in Peru? Is that fair? Geoffrey A. Burns : That's absolutely correct. Frederick Brimberg – Avatar Associates: Alright, so you'll make all that up. OK, great. Gentlemen, thank you very much for your time and patience this morning. Geoffrey A. Burns : You're welcome Frederick. Operator : Thank you. Once again, if you would like to ask a question, please press * and the number 1 on your telephone keypad. Our next question comes from Richard Gray with Blackmont Capital. Richard Gray – Blackmont Capital : Hi Geoff., I guess just a little further onto the previous question. How have the events down in South America changed your acquisition strategy? Are you still looking at things down in Peru, Bolivia, and Argentina? Or are you kind-of looking at more opportunities in Mexico, for example? Geoffrey A. Burns : No Richard, we're still very actively looking in the South American countries. I mean, on an absolute basis, would I say we would favor Peru over Bolivia? Yes. Does that preclude us doing something in Bolivia? No. Richard Gray – Blackmont Capital : OK. Fair enough, thanks. Geoffrey A. Burns : You're welcome, Richard. Operator : Thank you. At this time, there appears to be no further questions. I'll turn the floor back over to Geoff Burns for any closing remarks. Geoffrey A. Burns : Thank you, operator, and thanks everyone for joining us here this morning to talk about our first quarter. I look forward to talking to you again in a few months time about how we do in the second quarter, and as I said, I am confident that our financial performance will more closely reflect our operating performance. Good day. Operator : Thank you. This does conclude today's Pan American Silver Corporation conference call. You may now disconnect.