Pan American Silver Corp. (PAAS) Q2 2008 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen thank you for standing by. Welcome to the Pan American Silver Second Quarter 2008 Earnings Conference. During todays presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for question. (Operator Instructions). This conference is being recorded today Wednesday August 13, 2008. At this time I would like to turn the conference over to Mr. Geoff Burns, President and CEO. Please go ahead sir. Geoff Burns – President and Chief Executive Officer: Thank you operator. Good morning, ladies and gentlemen and welcome to Pan American Silver’s second quarter earnings release conference call. Joining me today here in Vancouver are Steve Busby, our Chief Operating Officer, Michael Steinmann, our Senior Vice President of Exploration and Mine Geology; Rob Doyle, our Chief Financial Officer and Kettina Cordero, our Coordinator of Investor Relations. I am going to start today's call by making some remarks about our overall performance, and then I am going to ask Steve, Michael and Rob to update you on our mining operation, our development projects, our exploration programs and our financial condition. By all measures the second quarter 2008 was a very solid quarter for Pan American Silver. We again increased our silver production. We report to the new quarterly record for cash flow from operations and for the ninth consecutive reports a substantial bottom line net income. Led by our largest and newest sliver mine Alamo Dorado which produced 1.5 million ounces in the second quarter and our Huaron mine improved which produce just under a million ounces as the company produced 4.7 million of ounces of silver in Q2 an increase of 11% as compared to the second quarter of last year. Our cash cost to produce silver increased to 528 per ounce. This is was up shortly from the second quarter of last year, when a constant production was under $2.60 per ounce. Our cost are still being pushed by rapidly escalating energy prices particularly electricity improved, increased labor cost decreasing by product credits from our zinc production and strengthening local currencies relative to the US dollar. These and with the increased cost our mine operating earnings climb 25% as compared to a year ago to 39.3 million reflecting higher margins and at the same time we delivered a new company record for cash flow from operations which was 45.7 million for the quarter equal to $0.57 per share. Our net income also climbed 16% to 21.4 million or $0.26 per share for the second quarter. It is worth mentioning at this point that similar to a couple of other gold companies Gold Corp and Umana that recently released their second quarter results, we were also hit with the non-cash foreign exchange loss to our future income tax liability account. It is also worth noting that this $3.9 million we had to recognize has no bearing on our current cash taxes or for that matter on any future cash taxes. I am sure Rob will make some additional comments on the suggested shortly, but excluding this item, our exempted net income for the second quarter was 25 million or $0.31 per share. While our mines operated pretty much as planned during the second quarter, our growth projects, Manantial Espejo in Argentina and San Vicente in Bolivia all as well progressed extremely well. Manantial Espejo was approximately 90% complete to the end of the June and should be producing silver and gold to the fourth quarter of this year. And San Vincente remains on schedule to be completed by the end of this year with commissioning to commence early in 2009. With that I am going to turn things over to Steve, who is going to provide some additional color to our mining operations as well as an update on the Manantial and San Vincente. Steve.

Thank you Jeff and good morning ladies and gentlemen. Overall, it was a very good quarter from the mining operations perspective. Although we continue to taste some distinct cost and labor issues which are beyond our control particularly in Peru. On the project development side construction at Manantial Espejo and San Vincente is advancing satisfactorily in spite of some irritating equipment delivery interruptions. I am pleased to report that our operations produced 4.7 million ounces of silver for the quarter as planned. Although our operating cost have increased above what we planned $5.28 per ounce. This strong production was led by another solid quarter at Alamo Dorado which is enjoying an outstanding first year full year production producing 1.5 million ounces well ahead of our projections. Our unit cash operating costs at Alamo Dorado finished the quarter at $3.77 per ounce as better than expected gold production and prices have to offset some significant material supply and energy cost increases. We expect this momentum of production and cost will carry through the remainder of this year as we are now mining right in the heart of the high grade zone of our Phase I open pit. La Colorada had another solid quarter producing 970,000 ounces of silver as planned with well managed mining and milling operations. The unit cash operating cost for the quarter at La Colorada increased $8.63 per ounce driven upwards by a strong Mexican Peso and increasing supply cost. We are anticipating continued stable performance of La Colorada for the remainder of this year and are focusing our efforts towards exploring thereby prospects that may extend the life of this silver mine. Our Peruvian operations delivered just over 2 million ounces of silver at a cash operation cost of $4.35 per ounce. Cost in Peru have climbed significantly from last year due to escalating supply cost increased labor cost and significant energy cost increases. Today Peru is facing a nation wide power crisis or demand has outpaced supply resulting in some rolling black outs in the nations capital. As expected the power supply shortfalls will continue through to December when the raining season will refurnish the dams and hydroelectric supplies. It is our understanding that there are efforts underway to relieve a constrained natural gas supply line which will result in serious short falls in the long run. So far we have not experienced any power disruptions at our mines, but our power cost at Huaron during June have increased fourfold and we are expecting some increases at Quiruvilca and Morococha during the remainder of the year as the government develops their mitigation plans. Our Peruvian production was led by the Huaron mine which produced 956,000 ounces of sliver as planned while continue to match the long term mine deepening project. We continue to be bullish on the long term prospects of our deepening project and the potential contribution this project will provide to the continued future growth of the company. Morococha mine produced 645,000 ounces of sliver during the quarter which was slightly below plan following the series of shortlived labor streaks that lingered into early July. All of our employees and contractors are now working normally, and we are not aware of any pending issues that would impact our operations over the remainder of the year. Meanwhile our mine expansion project continues on plan and I am confident that this program would solidify a long and prosperous future at Morococha. Our Quiruvilca mine produced 335,000 ounces of sliver which was 14% below our plan due to mining lower grade ore blocks while we catch up on some underground mine development. Assuming we are not hit with any further nationally driven labor movements we are now expecting to improve our proving production about 5% during the second half of the year, although it is clear that our cost are going to remain higher than we had originally forecasted. In Bolivia our San Vicente mine mill and infrastructure expansion project is advancing on schedule and on budget while we continue to produce full treat orders at a nearby mill. The silver mining program produced nearly 220,000 ounces of silver during the second quarter and a cash cost of $9.51 per ounce above the $7.43 per ounce anticipated. Lower grade ores caused by mine development priorities caused escalations and favorable currency exchange rate and high Bolivian inflation push cost higher than we anticipated. We expect an increased production rate but higher silver grades for the remainder of this year. The new access ramp for the trackless mine development continues to advance ahead of our schedule and our plant construction is accelerating. Total project expenditures at the end of the quarter were $36 million and total commitments were $55 million with the project at 58% complete. At our Manantial Espejo project in Argentina we suffered from an unfortunate trough to some key imported electrical components when it arrived in Argentina and this is largely responsible for the short delay in the start of plant commissioning. We have located replacement here and are targeting to begin moving the first ore to the mill in the latter part of October after we get the plant energized in mid to late September and complete the dry testing of all the components. As such, we had previously announced in July a revised 2008 production forecast from Manantial Espejo at 400,000 ounces of silver and 800,000 ounces of gold at a cash operating cost of $2 per ounce. Despite this disruption and delay I am pleased with the continued construction advance where we have now surpassed over 2 million safe work hours without a last timex then. This is a particularly gratifying achievement given the very harsh cold and extreme wind condition that exist onsite during the winter months. We were inhaling the warmer string weather which will help reduce the potential impacts of freezing during our critical startup period. We were essentially fully staffed for the startup and have our commissioning team largely in place. This has been the exciting time for the project and we have seen some outstanding sliver and gold grades encountered in our mining operations which are perfectly positioned to deliver high quality ore to the mill for startup and early production. I would like to take the special opportunity to inform you that our La Colorada mine in Mexico has won this prestigious 2007 Silver Helmet Award for being the safest underground mine in all of Mexico that has over 500 employees. I would like to personally congratulate our employees at La Colorada who would definitely earned this more with their outstanding dedication to safety. In summary, we continue to deliver solid production. Our forecast for 2008 is to produce 18.8 million ounces of silver at a cash operating cost of $5.10 per ounce. Our projects are advancing which will ensure continued production growth well into the future. We are not with our challenges and are battering to deal with the significant cost inflation that has impacted our industry so heavily. North American has a seasoned management team in place that is capable of addressing these challenges roughly and confidently. This concludes my brief overview of our mine operations and projects advances. I will now turn it over to Michael Steinmann for the Exploration Update.

Thank you Steve and good morning. As you heard from Steve we delivered another record production in Q2 of 4.7 million ounces of silver and are forecasting a 2008 production of 18.8 million ounces. In order to maintain reserves of our existing operations and to continue with our strong growth as a sliver produces successful Brown and Greenfield Exploration program are inclusive importance. I believe we have extraordinary results for our exploration efforts during the first six month of 2008 and I would like to share with you some of the highlights. Between our Brown and Greenfield Exploration programs we executed a total of 54,700 meters of diamond drilling during the first six month of the year, right on track for our plus 100,000 meter program for 2008. The underground exploration program at Huaron returned excellent results in the first six months. We discovered several expansions of mine range to the east mine as well as one new rain to the north. Mining drill holes return multi meter wide intersects with not only high silver but also substantial things grades. As you know we have published January and February new reserves and resource statements and I am not able to report single drill hole intersect during this conference call. Reserves depend on many economic factors such as metal prices, metallurgical recoveries, cost and sales conditions, but I am confident that we have already replaced our forecast of annual production at Huaron in the first six months of this year. This is another example of the mens potential of the Huaron deposit. Even more exciting are the results from Morococha. As I mentioned in our Q1 conference call that we discovered the Morro Del solar structure to the Northwest of the processing plant. Details enacting and surface drilling reveal that these six additional parallel rains, up to now we explored 400 meters direct lines of the total of 2.2 clones recognized at 31st. Huaron takes place from surface down to 400 level only exploring the first 200 to 250 meter down expansion of the rains. The main access to this Northwest area will be through the new Manto Italia ramp currently underdevelopment. Once finalized, we will have access to an additional 400 vertical meters of rain expansion for exploration and development. The most important structure Morro Del Solar has an average length of 2.6 meters and some holes returned up to nine meters. I will still regret they are just below 300 grams per ton, but many intersect has 500 to 1000 grams per ton and some returned up to 2.7 kilogram of silver per ton. Zinc grades was just over 5% with maximum result of 30%, and lead average 1.6% with a maximum of 11%. We finalize over 30 holes in this area and will publish a press release with detailed through holes results in early September. This is an exciting new area from Morococha have a large potential for many year of future production, I am extremely confident that once again it will more than replace the mine reserves in 2008 with our explorations programs at Morococha. Including the deep expansion of the mine range of La Colorada continues to return high silver grades as well as zinc and lead as the mineralogy is changing to sulfides at deeper level. With new discoveries and vertical extensions of known structures like what other will straightly more than replace the reserves mine 2008. Beside our mines we are ruling during 2008 two Greenfield project in Peru and are exploring on our large land package of over 77,500 tractors. In Mexico we have ruling in 2008 three Greenfield projects and are working on the surface geology of several early stage projects. I will keep informed as soon as more detail results are available. I will pass now on to Rob for his financial review. Including the deep expansion of the mine range of La Colorada continues to return high silver grades as well as zinc and lead as the mineralogy is changing to sulfides at deeper level. With new discoveries and vertical extensions of known structures like what other will straightly more than replace the reserves mine 2008. Beside our mines we are ruling during 2008 two Greenfield project in Peru and are exploring on our large land package of over 77,500 tractors. In Mexico we have ruling in 2008 three Greenfield projects and are working on the surface geology of several early stage projects. I will keep informed as soon as more detail results are available. I will pass now on to Rob for his financial review.

Thanks Michael and good day to our listeners. On Pre-financial results in Q2 of 2008 relative to Q2 2007 we’ve driven by highest ore prices coupled with the successful ramp of elemental order which achieve commercial production in Q2 of 2007. As Geoff mentioned our headline financial highlights for the second quarter included sales of a 104.1 million up 31% from a comparable period, non-operating earnings of 39.3 million up 25%, hitting term of 21.4 million up 16%, and cash flow form operations before changes in working capital of 45.4 million up 45%. At freezing these financial results are, we have been impacted by declining zinc practice which have dropped 42% from a year ago. We have also been impacted by stronger local currencies and by continued escalation on the cost of energy and labors especially improved. As Steve talked about many factors that have impacted cash cost a kind of zinc prices is a single biggest factor behind the increase in our cash cost on silver. As many of you know we utilize our base metal production as a byproduct credit against the cost of producing sliver, and as these byproducts appears to decline by $2.24 per hours in Q2 on contemplating process of earnings. Our overall operations contributed in a meaningful way to our profitability this quarter. This is the first quarter that our Mexican operations generated the majority of our operating earnings about 56% with our proven operations contributing 39% and San Vicente in Bolivia the remaining 5%. The Strong operating performance at Alamo Dorado and the fact that Mexican mines are pure silver mine and therefore less exposed to lower prices, but the main reasons they might be taking the proving operation this quarter. I will just make a few comments about specific line items in our consolidated statements of operations, and else cost of sales and depreciation were all significantly higher in Q2, 2007 primarily reflecting the impact of much higher production rate at Alamo Dorado. In addition for choosing more dore in Mexican we also reduce our dore inventory during the quarter by saving approximately 200,000 ounces more than was produced, giving us with the bucks 820,000 ounces in inventory at quarter end. We are taking higher sales from our Mexican operations with effect that our Peruvian operations are amiable to ship 92% of the concentrate that was produced in the quarter, and was less than what we’ve shipped in Q2 2007. We shipped about 33,000 tons of concentrate in Q2 2008 which was about 3000 tons less than we produced, thereby increasing our constant inventory balance from about 10,000 tons to 13,000 tons during the quarter. And leaving some additional Q2 earnings locked up in inventory. When you look at our statement of operations the amount that we incurred a loss on commodity and foreign exchange contracts of $1.1 million during the period. Taking up this number is the realized game of $4 million on settlement of our zinc and FSH books and through the 15 activities which were more than off state by approximately one million marked to market unrealized loss of the valuation of our position at quarter end. A negative marked to market related mostly our Peruvian sell hedge book which has awareness to June 30th as it still has redeemed the strengthening trend. We also had incurred a foreign exchange loss of $29,000 in Q2 again there are two large numbers that will set that account. We generated an unrealized gain on our cash and working capital balances held in currency other than the US Dollars of 3.9 million and could an unrealized non-cash does of about the same amounts as a result of reevaluating our future income tax liabilities for the impact of stronger local currencies. As Jim mentioned this entry has not impacting our cash taxes now or in the future which is why we have excluded this amount from this non-cash reevaluation from our adjusted net earnings, which were $25 million for the quarter or $0.31 per share. Our income tax for the quarter was 12.5 million which was an effective tax rate of 37%. This effective tax rate was slightly above our expectation given the tax rate that prevail in the jurisdictions in which we operate. Either the reevaluation of our future income tax balances create to the permanent difference between our book and tax values which explains the higher effective rate. Moving briefly on to the balance sheet, our working capital decreased by 18.9 million during the quarter as we invested heavily in our two development projects in Manantial Espejo and San Vincente. We spent 40.7 million at Manantial Espejo inclusive of 7.3 million of refundable debt and 13.5 million at San Vincente. In addition we spent 14.9 million at capital projects and our existing operations. These capital expenditures were largely funded from cash flow generated from operations of 50.8 million and the balance from our working capital. We finished the quarter with working capital position of 214.6 million and are well funded to complete our constructions projects and the other type of projects at our existing operations. With these comments I will hand it back to you Geoff.

Thanks Rob. Before making a couple of closing remarks I would like to make at least a few short comment on the silver market, the silver price and the equity markets in general. There is no question that silver and precious metals prices have been extremely volatility and under significant downward pressure. The related equities Pan American included have also been hit hard during this short period to this proportion that we sell in my opinion. I personally do not believe that the fundamentals it took silver to over $20 per ounce in March of this year and helped the silver price average close to $17.50 for the first six months of 2008 have significantly changed. The supply and demand balance remains favorable for silver. Or perhaps more importantly while showing some recent signs of strength in my view the US dollar will continue to be subject of significant downward pressure. The credit crisis did not over. The US economy is in recession, and inflationary pressure that has been created by flooding the market with liquidity that helps stabilize the banking sector was going to accelerate. We have seen that in our cost, we have seen that every time we fill up with gas or diesel, and we have seen that everytime we go to the grocery store. Given this backdrop it seems to me the silver and gold look like pretty good investments relatively to holding assets valued in US dollars. Investor in the silver ETF seem to agree. While silver prices have dropped almost $2 in the last few weeks there has been almost no liquidation of holdings in the several ETF which now stands at close to 200 million assets. I believe we are witnessing some short term trading volatility and I remain very optimistic that we will see silver and gold trend much higher over the balance of this year and in the 2009. You heard form Steve, Micheal and Rob the market issues, the project development, the exploration and financial performance we had a very solid second quarter and have had an excellent first half for 2008. We delivered record cash flow from operating activities our ninth consecutive quarter of substantial bottom line net income, growth and revenues and growth in mine operating earnings, and our newest mine Alamo Dorado is running better than we had hope for when we completed construction a little over 18 months ago. As Steve mentioned we are facing some challenges. Energy in Peru is a growing concern, strengthening local currencies are adding to our cost. We’ve experienced some short-lived labor disruptions are Morococha related to a national labor issue that has nothing to do with how we are running our mine, and we had some critical gear stolen on its way to Manantial Espejo which has caused us a short and I repeat short delay in starting what is going to be a long term low cost cornerstone silver asset for Pan American. But most importantly we are managing through the issues and posted some very acceptable results. This is a testaments of the quality, experience and strength of the operating and financial team we have here at Pan American. I have said this before and I am steadfast in my conviction. We have the great step of operating and expertise of any company in the silver sector, we just do. We have to. We are the only company that is running seven mines and building an eight. We are 18.8 million ounces silver for 2008, 0.5 million ounces of silver for 2009, and if my view of silver and gold price is correct. We are perfectly poised to continue to deliver even better financial results. Thank you. And I would ask the operator to open the line for questions.

Thank you. (Operator Instructions). Our first question is from the line of Daniel Earle with TD Newcrest. Please go ahead.

Yeah, just a quick question with respect to your 2009 guidance. Is the increase there roughly to Manatial and San Vicente or you building in some increases at La Colorada?

No, it really relates directly to Manatial Espejo startup as well as commissioning of San Vicente which – its going to take four to five months in the first part of 2009, and that is really driving the increase to 25 million next year?

Okay. So I guess the higher grade ore body that Mike was talking about that’s not included in your mine schedule at this time?

Well, Daniel hi, its included in the mine program for 2009 and 2010, just included in the normal production so far.

Can you give us the grades then on that?

The grades, yeah, I have just talked about the grades in the call, just – we are looking at around eight grams of gold, its about 99,000 tons and about 630 grams of silver.

Okay, great. And then just finally with respect to your cost guidance is that byproduct metal prices as you released before?

Yes, cost guidance is based on our budgeted price which is $2100 per ton for zinc.

Okay guys thanks a lot.

Thanks Daniel.

(Operator Instructions). And our next question comes from the line Haytham Hodaly with Salman Partners. Please go ahead.

Good morning Jeff.

Hi Haytham.

Just a couple of quick question Geoff, maybe I will do the housekeeping – get the housekeeping question out of the way first, G&A guidance full year this year and next year has been second quarter number excluded in obviously unusual items – is that a good indication of what we should expect to see for the third and fourth quarters?

I think our second quarter – between our first and second quarter you can balance two together. I think we are a little bit light in that first quarter just where the accounting came out a little bit heavy in our second quarter and I will take that six month number and double it and you’re going to be pretty close what our annual forecast is for G&A. And I will put in for next year looking at maybe 4 to 5% escalation to that number for 2009.

Okay and then for expensed exploration where do you think you will end up throughout the year?

Our budget for this year I believe its expense exploration was about $6 million, and I think we will be pretty much bang on that target by the end of the year. Some of our programs, our drilling in some of our programs is a little behind on expensed exploration, that I think Michael fully expect to making that up over the next four to five months.

Okay. And one last question I guess, a little bit tougher, in terms of cost control initiatives, obliviously the escalation you’re seeing in energy power et cetera, et cetera. What can you do to train, control those cost at this point? Steve Busby Hi Haytham its Steve Busby. What we plan on doing more jumping on right away energy conservation initiatives, we are developing teams to go out and examine and look at our operations particularly stating Huaron and we are seeing a significant increase in energy and make sure we are using every ounce of energy we can as efficiently as possible, tha’s what we are going to focus on first. We continue to work on the labor to more mechanized some of our mines I will say. We have been putting the investments into a lot of our underground mines that hopefully will start and enjoy some of the benefits that that brings us in the long term. Those are really the highlights of what we are focusing on right way.

Okay, maybe one last question. Just with regards to DD&A from what I am looking at just roughly some of the DD&A have fluctuated with, with this quarter DD&A on a per ounce basis would be good indication and what we should expect in the latter part of the year?

Well, Haytham Rob Doyle here. The biggest contributor to DD&A is Alamo Dorado as we amortize the purchase and construction cost there. So yes we had a particularly strong sales quarter from Alamo Dorado in Q2 and my suggest that’s what we’re going to do I mean, that’s what we’re going to do I mean for a long way. So if you take Q2 as representative, I think that would e a fair assumption.

Perfect. Thank you gentlemen, I appreciate.

Thank you.

Thank you. Our next question comes from the line of Barry Cooper with CIBC, please go ahead.

Good day after one. I am just wondering if you could rundown what your realized prices were in the quarter for all of your commodities?

Just give us one second.

And then Geoff if you don’t mind give us the zinc for your budget number but what would be copper and lead as well?

Sorry, pardon me Barry. Can you say that again?

You gave us the 2100 for your budget for lead, Pardon me for zinc, what would it be for lead and copper?

For copper it was $6000 per ton and for lead it was $1800 per ton.

Great. Okay, thanks.

(Inaudible) make sure that is to realize that is 58 for the quarter which is about the 17 average. Then for our zinc hedge program which allowed us to realize 2547 on average and I guess the market average is 2015. Lead prices realized a 24 and was 2016. Copper came in right at average which is a 1447 and gold is little above average of 902 realized versus.

And what you do with respect to kind of the provisional pricing that you have to take in terms of the late payments that you’ve got from smelters and what not? How do you treat that from an accounting standpoint which is what I thought it might been difficult to get the zinc and the lead prices as high as what they were relative to what either have expected in terms of downward pricing pressure for both those commodities?

Yes, the provision in sales – have been provisionally priced by accounting convention are essentially marked to market so we use closing prices at the end of the period to value those sales. And as the actual come in and we true those sales up. So given the downward action in the process of the base metals and sliver we could expect some negative cost coming through Q3.

Right, okay. Good enough and thanks a lot.

Thanks Barry.

Thank you. Our next question is from the line Craig West with GMP Securities. Please go ahead.

Hi thanks Geoff, most of my questions have been answered. But maybe you just want to comment on hedging strategy going forward with respect to both the metals and our opportunities to hedge energy cost?

Well thanks Craig. I guess first and foremost I have got to start by saying we are not going to be hedging silver production and we are no planning on hedging our gold production either. We have added some positions to our zinc book that are in and around 1,900 to $2,000 a ton. On average, our zinc book is still somewhat higher than that because of some positions we put in place. At the moment, I don’t see us jumping much more into either zinc or lead, I think we are seeing personally some extreme downward pressure that has a lot to deal with some seasonality right now and I do expect to see some rebound in prices of both of those commodities in the fall. We will look at what happens in that period of time and if we do see some opportunities in and around the $2,000 a ton level, we probably will add to our position.

So I guess instead of having sort of a fixed strategy, if you will, of hedging X%, 20%, if you will, for total zinc production, it's more opportunistic would you say then?

Absolutely. We try to apply, I guess, two aspects down one that is certainly a discipline. The discipline part of our program has some moments on how much zinc we will hedge and how we actually will do it through either counterparties or actually purchasers of our product, smelting or trading purchasers of our product, so that’s the disciplined part but we do try and actively monitor the market and trade where we think there are some opportunities.

Okay, great. That’s all for me. Thank you.

Thanks Greg.

Thank you. Our next question comes from the line of Chris Martin with Oaktree Asset Management. Please go ahead.

Question mostly for Geoff. Geoff, just curious how things may have changed since I first asked you after the presentation at the end of March regarding possible acquisition, the acquisition towards the end of this year, next year. You were more recently quoted on Reuters at the end of July sort of confirming what you said now. Since the shares of so many silver companies have come down so much, even just since July 25th. Has that changed how you might approach what you might be looking for? In other words, might you sacrifice a little upside in terms of tonnage and silver if you attempted to look at a company which has been in production for a couple of years or would you still prefer to try to get the less profitable property even if it's a few years in production?

Two pieces to your question, Chris. I will try and take them in the order I think I heard them. The first one is and you are quite correct, there has been quite a revaluation in the sector particularly over the last couple of months. And that has -- those valuations have changed, I guess our view of our properties that a point in time seemed extremely expensive and now are seeming to be much more reasonably priced. So that’s the first thing. In terms of the ideal asset for Pan American, I believe that ideal asset is one that provides a continuing growth profile where we can bring in the play the expertise and the operating and development that we have within the company. I think that’s where the best valuation increment still exists, well that’s two parts. The third part is would that preclude looking at a transaction with an operating mine, absolutely not, but that transaction would still have to bring value to Pan American shareholders. It has to -- there has to be something that we are seeing within the ore body, within the growth potential, something within that asset where I can talk to our shareholders and say, this is what you are getting from making that acquisition. My comments that were recently published in Reuters, I mean they are correct. I think there are many more opportunities there today than there really were back in March, Chris. They just are. And we are very aware of the companies and asset in our sector and we are going to be working very hard to continue to bring growth and value to Pan American.

Thanks very much.

Thanks Chris.

Thank you. (Operator Instructions). And our next question is from the line of [Edwin Handverger] with [Rico Investors]. Please go ahead.

Hello. I have several questions please. Many forecasters are predicting that worldwide deflation in such a case, what would the impact be on our company? Two, is there any dividend policy established by the company, what we are seeing by the company? Three, institutional activity has insufficient fund activity, has there been any decline or addition to institutional and fund holdings? Four, insider buying or selling, has there been any activity on that front? Five, merger or takeover possibilities here? And sixth, the cash position of the company? Thank you.

Well, that’s quite a list of question s, Edwin. The cash position and as Rob mentioned before, we have almost 217, $218 million in working capital, more than 100 million of that is in cash and short term investments. We are well cashed. We are generating big cash flow and fully funded to execute our growth and complete our growth programs at both Manantial and San Vicente. In terms of insider buying, we file all our insider reports for any insider buying of SEDAR. I would suggest you have a look on SEDAR. It has a complete listing of anything that’s been going on with respect to senior officers or directors and buying or selling. I am not aware of any significant changes to our institutional holdings. We get that information through a public source about three months in arrears when the institutions publish what stocks they are holding during different periods of time. There has been some changes in terms of which the institutions are, but in general we are still seeing about 45% of our common shares held by institutions. In terms of dividends, we have no formal dividend policy at this time. It has been a question that has come up on several occasions. My response to that question is as follows. When we have Manantial Espejo up and running and when the San Vicente is also up and running, we will be generating significant cash flow on a quarterly basis and we will look first to reinvest that cash in growth opportunities. If those growth opportunities do not exist then at a Board level we have discussed returning money to shareholders in the form of dividends. I can see that happening probably in 2009 but I am going to leave that decision with our complete Board. And the last question is a much more difficult question to answer in terms of worldwide deflation. I think it would be safe to say under those conditions that we would see drop in prices of oil and commodities in general, I am not sure silver or gold would be immune to that although their precious metal status I think would make them still a very favorable investment relative to currencies. Having said that that is not my view of what we are going to see at full over the next little while. I think our own view is that the emerging part or emerging part of the world economy, particularly China and India, are going to continue to grow perhaps at slightly lower rate than we have seen over the last two years and that that growth to a large extent is going to offset what we are seeing in United States right now and overall I see the world economy continuing to grow. So under that scenario, as I mentioned earlier in my comments, I am very optimistic of gold and silver prices.

Would you clarify rather than refer us through a Internet site as to actual insider holdings in the company?

Edwin, I am not going to do that. I don’t have the numbers in front of me. It's all clearly published in our filings and it's on SEDAR website and I am not going to try and do something off the top of my head.

So it's not your intention to purchase more shares on the open market at this attractive price?

Personally I see this is a very attractive price. At the moment, we are in a blackout period because of our insider knowledge relative to the earnings that we are just publishing and putting out to everybody right now. I can't comment for the rest of senior management or the Board of Directors and I think it is a very attractive price.

All right. Thank you. And finally, is there any merger or takeover contemplation here?

Edwin, I can't comment specifically on that question. That would be outside of what I will be able to say. I will repeat we are very actively looking at opportunities within our sector to add value and growth to Pan American and I think there are more opportunities available and priced and the right category than there have been for quite a period of time.

Finally, if deflation does occur, does the larger amount of dollar that we are holding decline in that aspect and lose value as well?

I mean, I think our currency holdings actually, Edwin, are somewhat diversified and so far as and I don’t have the percentages in front of me but we do hold currency in Mexican pesos, the old currency in, we hold Canadian dollars as well as US dollars. So my expectation would be that we might see one currency de-value at the time as another one may increase in value such that the overall impact would be negligible.

Okay. Thank you.

Thank you.

Thank you very much. And at this time, Mr. Burns there are no further questions. I would like to turn back to you for any closing remarks.

Thank you, operator. Well, thanks ladies and gentlemen for joining us today for our second quarter conference call. I look forward to updating you again in another three months time and hopefully at that time we will be able to tell you about the first order that we are putting at Manantial Espejo. Thank you and good day.

Thank you, sir. Ladies and gentlemen, this does conclude the Pan American Silver's second quarter 2008 earnings conference call. We would like to thank you for your participation and you may now disconnect.