Pan American Silver Corp.
TSX : PAA
NASDAQ : PAAS

Pan American Silver Corp.

February 19, 2009 02:37 ET

Pan American Silver Announces Fourth Quarter and 2008 Year End Results

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 19, 2009) - Pan American Silver Corp. (TSX:PAA)(NASDAQ:PAAS) -

(All amounts in US dollars unless otherwise stated and all production figures are approximate)

Pan American Silver Corp. today reported unaudited financial and operating results for the fourth quarter and fiscal year ended December 31, 2008. The Company also provided an update on its mining operations and an outlook for 2009.

This earnings release should be read in conjunction with the Company's unaudited financial statements for the corresponding period, which are available on the Company's website at www.panamericansilver.com, and have been posted on SEDAR at www.sedar.com.

Fourth Quarter 2008 Highlights (unaudited)(1)

- 4.6 million ounces of silver produced

- Cash costs of $8.24(2) per payable ounce of silver

- Net loss of $33.3 million or $0.41 per share, including $35.4 million in atypical charges for the write down of the Quiruvilca mine, pricing adjustments, severance costs and currency losses

- Cash flow used by operations was $(4.9) million

- Adjusted cash flow from operations(3) was positive $4.2 million

- Manantial Espejo commenced silver-gold dore production December 29, 2008

- San Vicente expansion 92% complete at year end

2008 Year-End Highlights (unaudited)(1)

- Record annual silver production of 18.7 million ounces, 13th consecutive year of growth

- Cash costs of $5.96(2) per payable ounce of silver

- Net earnings of $24.6 million or $0.31 per share

- Record cash flows generated by operating activities of $93.0 million

- Adjusted cash flow from operations(3) of $95.6 million

- Record sales of $338.6 million

- Proven and probable reserves of 223.7 million ounces of silver and 701,000 ounces of gold at year end

2009 Outlook

- Silver production to increase by 15% to 21.5 million ounces

- Gold output to more than double to 85,000 ounces

- Manantial Espejo to reach commercial production during the first quarter

- San Vicente expansion to be commissioned and ramp up to full capacity by end of the 2nd quarter

- $103.5 million raised in February through 6.4 million equity share financing

(1) Financial information in this news release is based on Canadian GAAP

(2) Cash costs per payable ounce of silver is a non GAAP measure. The Company believes that, in addition to cost of sales, cash costs per ounce is a useful and complementary benchmark for performance and is well understood and widely reported in the silver mining industry. However, cash costs per ounce does not have a standardized meaning prescribed by Canadian GAAP. Investors are cautioned that cash costs per ounce should not be construed as an alternative to cost of sales determined in accordance with Canadian GAAP as an indicator of performance. The Company's method of calculating cash costs per ounce may differ from the methods used by other entities and, accordingly, the Company's cash costs per ounce may not be comparable to similarly titled measures used by other entities. See "Financial and Operating Highlights" below for a reconciliation of this measure to the Company's cost of sales.

(3) Adjusted cash flow from operations is a non-GAAP measure. The Company believes that, in addition to cash flow, adjusted cash flow is a useful and complementary performance measure. However, adjusted cash flow does not have a standardized meaning prescribed by Canadian GAAP. Investors are cautioned that adjusted cash flow should not be construed as an alternative to cash flow determined in accordance with Canadian GAAP as an indicator of performance. The Company's method of calculating adjusted cash flow may differ from the methods used by other entities and, accordingly, the Company's adjusted cash flow may not be comparable to similarly titled measures used by other entities. See "Financial and Operating Highlights" below for a reconciliation of this measure to the Company's cash flow (used in) generated by operating activities.

Commenting on today's announcement, Geoff Burns, President and CEO said: "As announced in early January, the fourth quarter of 2008 was a very challenging period for the mining industry and for Pan American. We found ourselves on the wrong side of a strengthening US dollar, base metal prices fell precipitously and consequently operating costs reached all-time highs. However, we responded accordingly and made some difficult decisions with respect to our assets and our people and we are already starting to see the benefits of these actions. I'm happy to be able to report that in January of this year we produced 1.7 million ounces of silver at a cash cost of $5.97 per ounce. That's a 28% improvement over our fourth quarter's cash costs and in line with what we are expecting in 2009."

Financial Results

During the fourth quarter of 2008, Pan American reported a consolidated net loss of ($33.3) million or ($0.41) per share. As previously announced, a number of atypical charges registered during the quarter negatively affected the Company's financial results. These include (i) a one-time non-cash charge of $15.1 million for the write down of the Quiruvilca mine, (ii) an $8.8 million charge for final price adjustments of concentrate shipments made during the third quarter, but where final pricing was settled during the fourth quarter, (iii) a $5.8 million loss on currency positions, partially offset by gains in zinc and lead contracts, (iv) a $4.7 million charge for severance and other expenses of a non-recurring nature and (v) a $1.0 million foreign exchange loss.

Consolidated mine operating earnings for the year 2008 were $93.2 million, down 11% from 2007, while consolidated net income for the year was $24.6 million, or $0.31 per share compared to $88.9 million or $1.16 per share for 2007.

Sales during the quarter were $46.3 million, a 46% decline compared to the fourth quarter of 2007. Sales were negatively affected by lower quantities sold and shipped, the deterioration of silver and base metals prices and an $8.8 million negative pricing adjustment described above. At the end of October silver reached its lowest price since late 2005, while average zinc and lead prices were also significantly down at 55% and 62%, respectively, compared to a year ago. Despite lower sales during the fourth quarter, the Company posted annual record sales of $338.6 million, a 12% increase year over year.

Cash flow used by operating activities for the quarter ended December 31, 2008 were $(4.9) million. However, adjusted cash flow from operations(3) remained positive at $4.2 million. During the fourth quarter the Company invested $60.2 million in capital expenditures, of which $28.5 million were invested in the final stages of construction and commissioning of Manantial Espejo and $22.1 million in San Vicente's expansion. During the full year 2008, the Company generated $93.0 million in cash flow from operating activities, a 37% increase year over year.

At December 31, 2008 Pan American had $30.1 million in cash and short term investments and $95.1 million in working capital. The Company remains debt-free and has not drawn on the $70 million revolving facility announced in October 2008. With Manantial Espejo now in production and San Vicente's expansion nearing commissioning, the Company remains fully funded to complete its current short term growth strategy.

Production and Operations

2008 was the Company's thirteenth consecutive year of production growth with annual production of 18.7 million ounces of silver, a 9% increase over 2007. The Company also produced 25,146 ounces of gold, which represents an 8% increase from the previous year.

Pan American's operations produced 4.6 million ounces of silver during the fourth quarter of 2008. Alamo Dorado and La Colorada had good quarters, contributing 1.4 million and 0.9 million ounces of silver, respectively. In Peru, Huaron milling was slowed by mechanical problems, now rectified, which reduced quarterly production to 0.8 million ounces of silver, while Morococha and Quiruvilca produced 0.6 million and 0.3 million ounces of silver, respectively.

Consolidated cash costs for the fourth quarter of 2008 rose to $8.24 per ounce of silver net of by-product credits, from $4.54 in the fourth quarter of 2007. Cash costs for the year increased to $5.96 per ounce of silver produced net of by-product credits, from $3.42 during 2007. The increase was a direct result of lower base metal by-product credits coupled with increased costs for materials, energy and labour, which escalated significantly throughout 2008.

The Company expects its cash costs to decline going into 2009, as a consequence of the proactive measures implemented in November of 2008, the addition of lower cost production from Manantial Espejo, the weakening of local currencies and clear indications that last year's cost escalations are beginning to reverse. In fact, during January 2009, the Company produced 1.7 million ounces of silver at a cash cost of $5.97 per ounce, a 28% reduction as compared to the fourth quarter of 2008.

Outlook

In 2009, Pan American expects to increase silver production by another 15% to 21.5 million ounces, excluding production from the Quiruvilca mine, which the Company is preparing for a period of care and maintenance.



------------------------------------------------------
Silver Production Cash Costs
Million ounces Per Ounce US$
------------------------------------------------------
Huaron 4.2 8.14
------------------------------------------------------
Morococha 2.7 7.82
------------------------------------------------------
Silver Stockpiles 0.2 2.93
------------------------------------------------------
San Vicente 1.9 6.98
------------------------------------------------------
La Colorada 3.4 8.01
------------------------------------------------------
Alamo Dorado 4.8 6.32
------------------------------------------------------
Manantial Espejo 4.3 2.25
------------------------------------------------------
TOTAL 21.5 6.28
------------------------------------------------------


New silver production form the Company's recently commissioned Manantial Espejo mine and additional silver production from the expanded San Vicente mine should fuel 2009's production growth.

The Company also expects to more than double its gold production and is forecasting 85,000 ounces of gold in 2009. With the anticipated increase in both silver and gold production, the Company expects to significantly reduce its exposure to base metals and estimates that in 2009 58% of its revenue will come from the sale of silver and 16% from the sale of gold.

Consolidated cash costs for 2009 are expected to increase modestly to $6.28 per payable ounce of silver net of by-product credits, compared to the $5.96 per ounce posted in 2008. Higher costs are expected during the first half of the year reflecting the ramp up of both Manantial Espejo and San Vicente and should decrease as 2009 progresses. To calculate the by-product credits included in the 2009 projected cash costs, the Company has assumed average zinc and gold prices of US$1,150 per tonne and US$725 per ounce, respectively.

Pan American expects to invest $29.5 million in capital expenditures during 2009. $5.5 million will be spent in development and construction capital to finalize San Vicente's expansion and $24.0 million in sustaining capital at its other operations.

Recent Developments

On February 12, 2009, Pan American closed a public offering of 6,371,000 common shares to raise gross proceeds of approximately $103.5 million. As indicated in the final prospectus supplement, the Company expects to use the net proceeds of the offering for potential acquisitions, development of acquired mineral properties, working capital and other general corporate purposes. Including the public offering, the Company now has approximately $125 million in cash and short term investments and in excess of $195 million in working capital.

Commenting on the quarterly results and 2009's outlook, Geoff Burns added: "As difficult as the fourth quarter was, I could not be more optimistic about our future. We took some tough steps and the results are already starting to show. Our newest and lowest cost mine is ramping up better than expected. Our increased exposure to silver and now gold could not be more timely, as the price of both precious metals has increased significantly in response to an economic crisis of global proportions. Silver is again above US$ 14.00 per ounce and gold is closing in on US$ 1,000 per ounce. I think there is ample reason to believe they will push higher in 2009 and Pan American is again, well positioned to reap the benefits."

About Pan American Silver

Pan American Silver's mission is to be the world's largest and lowest cost primary silver mining company by increasing its low cost silver production and silver reserves. The Company has eight operating mines in Mexico, Peru, Bolivia and Argentina.

Technical information contained in this news release has been reviewed by Michael Steinmann, P.Geo., Executive Vice President Geology & Exploration, and Martin Wafforn, P.Eng., VP Technical Services, who are the Company's Qualified Persons for the purposes of NI 43-101.

Pan American will host a conference call to discuss financial and operating results on Thursday, February 19, 2009 at 11:00 am ET (08:00 am PT). North American and International participants dial 1-480-629-9572. The call will also be broadcast live on the Internet at http://www.investorcalendar.com/IC/CEPage.asp?ID=141069. Listeners may also gain access by logging on at www.panamericansilver.com. The call will be available for replay for one week after the call by dialing 1-303-590-3030 (for North American and International callers) and entering replay pin number 3984271.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

THIS NEWS RELEASE CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE UNITED STATES PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 AND "FORWARD-LOOKING INFORMATION" WITHIN THE MEANING OF APPLICABLE CANADIAN SECURITIES LEGISLATION. SUCH FORWARD-LOOKING STATEMENTS AND INFORMATION INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS AS TO SILVER, GOLD AND BASE METALS PRODUCTION IN 2009, TIMING AND EXPENDITURES TO REACH COMMERCIAL PRODUCTION AT MANANTIAL ESPEJO AND TO COMMISSION THE EXPANSION OF, AND RAMP UP CAPACITY AT, SAN VICENTE, SILVER GRADES AT HUARON, TRANSITION FROM THE PHASE ONE PIT TO THE PHASE TWO PIT AT ALAMO DORADO, ZINC GRADES AT HUARON AND MOROCOCHA, CASH COSTS PER OUNCE IN 2009, BY-PRODUCT CREDITS IN 2009, BASE METALS PRICES IN 2009, CAPITAL EXPENDITURES AND SUSTAINING CAPITAL IN 2009 AND THE USE OF PROCEEDS FROM THE COMPANY'S RECENT PUBLIC OFFERING. THE COMPANY DOES NOT INTEND, AND DOES NOT ASSUME ANY OBLIGATION TO, UPDATE SUCH FORWARD-LOOKING STATEMENTS OR INFORMATION, OTHER THAN AS REQUIRED BY APPLICABLE LAW.

FORWARD-LOOKING STATEMENTS OR INFORMATION INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE THE ACTUAL RESULTS, LEVEL OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS OF PAN AMERICAN AND ITS OPERATIONS TO BE MATERIALLY DIFFERENT FROM THOSE EXPRESSED OR IMPLIED BY SUCH STATEMENTS. SUCH FACTORS INCLUDE, AMONG OTHERS: FLUCTUATIONS IN THE SPOT AND FORWARD PRICE OF SILVER, GOLD, BASE METALS OR CERTAIN OTHER COMMODITIES (SUCH AS NATURAL GAS, FUEL OIL AND ELECTRICITY); FLUCTUATIONS IN THE CURRENCY MARKETS (SUCH AS THE PERUVIAN SOLE, MEXICAN PESO, ARGENTINE PESO AND BOLIVIAN BOLIVIANO VERSUS THE U.S. DOLLAR); CHANGES IN NATIONAL AND LOCAL GOVERNMENT, LEGISLATION, TAXATION, CONTROLS, REGULATIONS AND POLITICAL OR ECONOMIC DEVELOPMENTS IN CANADA, PERU, MEXICO, ARGENTINA, BOLIVIA, THE UNITED STATES OR OTHER COUNTRIES IN WHICH THE COMPANY MAY CARRY ON BUSINESS IN THE FUTURE; OPERATING OR TECHNICAL DIFFICULTIES IN CONNECTION WITH MINING OR DEVELOPMENT ACTIVITIES; RISKS AND HAZARDS ASSOCIATED WITH THE BUSINESS OF MINERAL EXPLORATION, DEVELOPMENT AND MINING (INCLUDING ENVIRONMENTAL HAZARDS, INDUSTRIAL ACCIDENTS, UNUSUAL OR UNEXPECTED GEOLOGICAL FORMATIONS, PRESSURES, CAVE-INS AND FLOODING); INADEQUATE INSURANCE, OR INABILITY TO OBTAIN INSURANCE, TO COVER THESE RISKS AND HAZARDS; EMPLOYEE RELATIONS; AVAILABILITY AND INCREASING COSTS ASSOCIATED WITH MINING INPUTS AND LABOR; THE SPECULATIVE NATURE OF MINERAL EXPLORATION AND DEVELOPMENT, INCLUDING THE RISKS OF OBTAINING NECESSARY LICENSES AND PERMITS; DIMINISHING QUANTITIES OR GRADES OF MINERAL RESERVES AS PROPERTIES ARE MINED; BUSINESS OPPORTUNITIES THAT MAY BE PRESENTED TO, OR PURSUED BY, THE COMPANY; THE COMPANY'S ABILITY TO SUCCESSFULLY INTEGRATE ACQUISITIONS; AND CHALLENGES TO THE COMPANY'S TITLE TO PROPERTIES; AS WELL AS THOSE FACTORS DESCRIBED IN THE SECTION "RISK RELATED TO PAN AMERICAN'S BUSINESS" CONTAINED IN THE COMPANY'S MOST RECENT FORM 40F/ANNUAL INFORMATION FORM FILED WITH THE SEC AND CANADIAN SECURITIES REGULATORY AUTHORITIES. ALTHOUGH THE COMPANY HAS ATTEMPTED TO IDENTIFY IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTAINED IN FORWARD-LOOKING STATEMENTS OR INFORMATION, THERE MAY BE OTHER FACTORS THAT CAUSE RESULTS TO BE MATERIALLY DIFFERENT FROM THOSE ANTICIPATED, DESCRIBED, ESTIMATED, ASSESSED OR INTENDED. THERE CAN BE NO ASSURANCE THAT ANY FORWARD-LOOKING STATEMENTS OR INFORMATION WILL PROVE TO BE ACCURATE AS ACTUAL RESULTS AND FUTURE EVENTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH STATEMENTS OR INFORMATION. ACCORDINGLY, READERS SHOULD NOT PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS OR INFORMATION.



Financial & Operating Highlights

Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
--------------------------------------------------------------------------

Consolidated Financial Highlights (in thousands of US dollars)
(Unaudited)

Net (loss) income for the
period $ (33,316) $ 26,062 $ 24,602 $ 88,860
Basic (loss) income per
share $ (0.41) $ 0.34 $ 0.31 $ 1.16
Mine operating (losses)
earnings $ (9,884) $ 28,859 $ 93,219 $ 104,275
Cash (used in) generated
by operations $ (4,895) $ 26,708 $ 92,985 $ 67,361
Adjusted cash flow from
operations(3) $ 4,191 $ 26,944 $ 95,646 $ 66,377
Capital spending and
purchase of mineral
interests $ 60,167 $ 34,545 $ 243,800 $ 123,415
Cash and short-term
investments $ 30,139 $ 107,315 $ 30,139 $ 107,315
Net working capital $ 95,082 $ 186,337 $ 95,082 $ 186,337


Tonnes milled 850,371 983,688 3,630,200 3,276,301
Silver - ounces 4,604,560 5,128,959 18,672,939 17,113,027
Gold - ounces 5,068 7,824 25,146 23,580
Zinc - tonnes 10,809 9,373 39,811 39,075
Lead - tonnes 3,732 4,376 15,974 16,284
Copper - tonnes 1,608 1,538 6,069 5,650

Consolidated Cost per Ounce of Silver (net of by-product credits)

Total cash cost per
ounce(2) $ 8.24 $ 4.54 $ 5.96 $ 3.42
Total production cost per
ounce(2) $ 10.95 $ 7.11 $ 8.76 $ 5.69

Payable ounces of silver 4,327,214 4,819,255 17,542,831 15,911,734

Average Metal Prices
Silver - London Fixing
per ounce $ 10.21 $ 14.21 $ 14.99 $ 13.38
Zinc - LME Cash
Settlement per tonne $ 1,189 $ 2,646 $ 1,870 $ 3,250
Lead - LME Cash
Settlement per tonne $ 1,251 $ 3,262 $ 2,085 $ 2,595
Copper - LME Cash
Settlement per tonne $ 3,940 $ 7,126 $ 6,952 $ 7,239
Gold - London Fixing per
ounce $ 795 $ 786 $ 872 $ 695

(2) and (3) Refer to footnote on page 1 of this press release


Mine Operations Highlights

Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
--------------------------------------------------------------------------

Huaron Mine

Tonnes milled 159,066 191,867 732,146 750,799
Average silver grade - grams
per tonne 206 198 194 196
Average zinc grade 2.52% 2.31% 2.31% 2.54%
Silver - ounces 832,556 999,738 3,628,490 3,827,105
Zinc - tonnes 2,591 2,785 11,047 12,064
Lead - tonnes 1,254 1,838 5,903 6,985
Copper - tonnes 472 479 1,707 1,658
Gold - ounces 287 819 1,552 3,496

Total cash cost per
ounce(2) $ 10.73 $ 4.20 $ 8.06 $ 2.78
Total production cost per
ounce(2) $ 12.00 $ 5.35 $ 9.38 $ 3.97

Payable ounces of silver 754,718 908,221 3,280,053 3,453,409

Morococha Mine(i)

Tonnes milled 148,867 165,285 599,174 609,540
Average silver grade - grams
per tonne 153 175 153 172
Average zinc grade 3.84% 3.01% 3.34% 3.36%
Silver - ounces 605,245 806,493 2,475,516 2,870,379
Zinc - tonnes 4,749 4,142 16,677 17,133
Lead - tonnes 1,365 1,720 6,266 6,085
Copper - tonnes 576 500 2,026 2,088
Gold - ounces 248 649 1,191 1,306

Total cash cost per
ounce(2) $ 8.17 $ 2.74 $ 2.84 $ (2.16)
Total production cost per
ounce(2) $ 10.37 $ 4.38 $ 4.98 $ (0.44)

Payable ounces of silver 539,108 725,013 2,214,316 2,580,837

(i) Production and cost figures are for Pan American's share only. Pan
American's ownership changed from 89.4% to 92.2% in December 2008.

Quiruvilca Mine

Tonnes milled 82,707 93,063 349,022 362,141
Average silver grade - grams
per tonne 148 141 145 162
Average zinc grade 3.25% 2.34% 2.84% 2.46%
Silver - ounces 339,172 349,544 1,382,990 1,569,351
Zinc - tonnes 2,307 1,750 8,263 7,234
Lead - tonnes 815 609 2,793 2,528
Copper - tonnes 512 543 2,185 1,805
Gold - ounces 384 374 1,807 1,566

Total cash cost per
ounce(2) $ 13.88 $ 5.15 $ 6.61 $ 2.43
Total production cost per
ounce(2) $ 16.30 $ 6.91 $ 9.05 $ 3.97

Payable ounces of silver 309,476 320,697 1,267,679 1,445,185


Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
--------------------------------------------------------------------------

Pyrite Stockpiles
Tonnes sold 9,353 12,006 38,712 52,547
Average silver grade -
grams per tonne 210 258 228 269
Silver - ounces 63,226 99,745 284,194 454,202

Total cash cost per
ounce(2) $ 3.03 $ 3.52 $ 4.41 $ 3.24
Total production cost
per ounce(2) $ 3.03 $ 3.52 $ 4.41 $ 3.24

Payable ounces of silver 31,977 53,128 146,982 243,998

Alamo Dorado Mine(i)

Tonnes milled 339,236 420,336 1,478,423 1,139,899
Average silver grade -
grams per tonne 149 122 149 127
Silver - ounces 1,441,797 1,689,648 6,115,836 3,809,003
Gold - ounces 3,180 5,032 16,822 13,335

Total cash cost per
ounce(2) 6.18 3.62 4.38 4.41
Total production cost
per ounce(2) 10.80 7.98 9.02 8.96

Payable ounces of silver 1,438,193 1,685,424 6,100,546 3,799,480

(i) Commercial production commenced on April 1, 2007.

La Colorada Mine

Tonnes milled 93,518 95,778 377,844 331,067
Average silver grade -
grams per tonne 370 407 371 437
Silver - ounces 961,720 1,077,901 3,910,830 3,964,074
Zinc - tonnes 586 371 1,835 943
Lead - tonnes 299 209 1,012 686
Gold - ounces 969 950 3,773 3,877

Total cash cost per
ounce(2) $ 8.50 $ 6.97 $ 8.06 $ 6.88
Total production cost
per ounce(2) $ 10.54 $ 8.89 $ 10.09 $ 8.68

Payable ounces of silver 923,422 1,032,071 3,742,934 3,834,685

San Vicente Mine(i)

Tonnes milled 26,977 17,359 93,591 82,855
Average silver grade -
grams per tonne 472 279 348 296
Average zinc grade 2.74% 2.77% 2.72% 2.82%
Silver - ounces 360,846 105,890 875,083 618,913
Zinc - tonnes 576 325 1,989 1,701
Copper - tonnes 48 16 152 99
Total cash cost per
ounce(2) $ 6.10 $ 10.12 $ 7.57 $ 5.41
Total production cost
per ounce(2) $ 6.99 $ 12.56 $ 8.75 $ 7.47

Payable ounces of silver 330,319 94,701 790,320 554,140

(i) The production statistics represent Pan American's interest in the
mine. Pan American's ownership was approximately 55% through May 22,
2007 and increased to 95% subsequently.


Cash Costs per Ounce of Payable Silver

Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
------------------------ -----------------------
Cost of sales $ 43,613 $ 48,803 $ 199,032 $ 167,797

Add/(Subtract)

Smelting, refining, and
transportation charges 12,096 21,088 58,378 87,019
By-product credits (25,564) (52,607) (160,276) (210,701)
Mining royalties 671 1,537 4,843 5,761
Workers participation
and voluntary payments 1,660 (1,256) (1,700) (6,304)
Change in inventories 1,113 4,635 1,419 8,595
Other 2,681 (54) 3,980 (579)
Minority interest
adjustment (611) (265) (1,043) 172
Alamo Dorado
Commissioning Costs - - - 2,719
----------------------- ------------------------ -----------------------
Cash Operating Costs A $ 35,659 $ 21,882 $ 104,663 $ 54,478

Add/(Subtract)
Depreciation and
amortization 12,550 8,227 46,349 28,992
Asset retirement and
reclamation 672 674 2,687 2,860
Change in inventories (1,270) 3,719 839 4,081
Other (98) (48) (232) (175)
Minority interest
adjustment (146) (192) (605) (933)
Alamo Dorado
Commissioning Costs - - - 1,304
----------------------- ------------------------ -----------------------
Production Costs B $ 47,367 $ 34,262 $ 153,671 $ 90,607

Payable Ounces of
Silver C 4,327,214 4,819,255 17,542,831 15,911,734
------------------------ -----------------------
------------------------ -----------------------
Total Cash Cost
per Ounce A/C $ 8.24 $ 4.54 $ 5.96 $ 3.42
------------------------ -----------------------
------------------------ -----------------------
Total Production
Costs per Ounce B/C $ 10.95 $ 7.11 $ 8.76 $ 5.69
------------------------ -----------------------
------------------------ -----------------------


Adjusted cash flow from operations

Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
------------------------ -----------------------
Cash flow (used by)/from
operating activities $ (4,895) $ 26,708 $ 92,985 $ 67,361

Add/(Subtract)
Realized losses/(gains)
on foreign exchange CAD $ 7,050 $ (631)$ 8,916 $ (928)
Realized losses/(gains)
on commodity and
foreign currency
contracts $ 997 $ 867 $ (7,294)$ (56)
Reductions in Force $ 1,039 $ - $ 1,039 $ -
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Adjusted cash flow from
operations $ 4,191 $ 26,944 $ 95,646 $ 66,377
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------


Pan American Silver Corp.
Consolidated Balance Sheets
As at December 31, 2008
(In thousands of U.S. dollars)
2008 2007
--------------------------------------------------------------------------
Assets
Current
Cash $ 26,789 $ 51,915
Short-term investments 3,350 55,400
Accounts receivable 51,067 68,600
Inventories 72,650 51,737
Unrealized gain on commodity contracts 10,829 5,502
Future income taxes 5,602 8,388
Prepaid expenses 4,076 3,376
--------------------------------------------------------------------------
Total Current Assets 174,363 244,918

Mineral property, plant and equipment, net 697,061 500,284
Other assets 1,959 17,701
--------------------------------------------------------------------------
Total Assets $ 873,383 $ 762,903
--------------------------------------------------------------------------
--------------------------------------------------------------------------

Liabilities
Current
Accounts payable and accrued liabilities $ 49,208 $ 53,736
Taxes payable 9,892 1,771
Unrealized loss on foreign currency contracts 14,267 27
Other current liabilities 5,914 3,047
--------------------------------------------------------------------------
Total Current Liabilities 79,281 58,581

Provision for asset retirement obligation and
reclamation 57,323 50,370
Future income taxes 45,392 48,698
Other liabilities and provisions - 151
--------------------------------------------------------------------------
Total Liabilities 181,996 157,800
--------------------------------------------------------------------------

Non-controlling interests 5,746 5,486

Shareholders' Equity
Share capital (authorized: 200,000,000 common shares
of no par value) 655,517 592,402
Contributed surplus 4,122 14,233
Accumulated other comprehensive loss (232) (8,650)
Retained earnings 26,234 1,632
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Total Shareholders' Equity 685,641 599,617
--------------------------------------------------------------------------
Total Liabilities, non-controlling interests and
Shareholders' Equity $ 873,383 $ 762,903
--------------------------------------------------------------------------
--------------------------------------------------------------------------


PAN AMERICAN SILVER CORP.
Consolidated Statements of Operations
(Unaudited In thousands of US dollars, except for share and per share
amounts)
Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
--------------------------------------------------------------------------

Sales $ 46,278 $ 85,889 $ 338,600 $ 301,064
Cost of sales 43,613 48,803 199,032 167,797
Depreciation and
amortization 12,549 8,227 46,349 28,992
--------------------------------------------------------------------------
Mine operating
(losses) earnings (9,884) 28,859 93,219 104,275

General and administrative 2,783 3,120 10,435 9,522
Exploration and
project development 2,265 1,992 5,494 3,362
Accretion of asset
retirement obligation 672 674 2,687 2,860
Write-down of
mining assets 15,117 - 15,117 -
--------------------------------------------------------------------------
Operating (losses)
earnings (30,721) 23,073 59,486 88,531
Interest and
financing expenses (168) (246) (951) (660)
Investment and
other income 306 131 2,704 5,371
Foreign exchange
gains (losses) (1,045) 631 (6,147) 928
Other expenses (4,702) (370) (4,674) (370)
Net (losses) gains on
commodity and foreign
currency contracts (5,814) 4,005 (1,619) 5,345
(Losses) Gains on
sale of assets (6) (75) 998 12,425
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(Loss) Income before
taxes and non-controlling
interest (42,150) 27,149 49,797 111,570
Income tax recovery
(provision) 8,506 (599) (24,430) (19,605)
Non-controlling interest 328 (488) (765) (3,105)
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Net (loss) income
for the period $ (33,316) $ 26,062 $ 24,602 $ 88,860
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(Loss) Earnings per share:

Basic (loss) income
per share $ (0.41) $ 0.34 $ 0.31 $ 1.16
Diluted (loss) income
per share $ (0.41) $ 0.33 $ 0.30 $ 1.12

Weighted average number of
shares outstanding
(in thousands)
Basic 80,786 76,521 80,236 76,453
Diluted 80,786 79,434 80,773 79,174


PAN AMERICAN SILVER CORP.
Consolidated Statements of Cash Flows
(Unaudited In thousands of US dollars)

Three months ended Twelve months ended
December 31, December 31,
2008 2007 2008 2007
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Operating activities
Net (loss) income
for the period $ (33,316) $ 26,062 $ 24,602 $ 88,860
Reclamation expenditures - (54) (167) (767)
Items not affecting cash:
Depreciation and
amortization 12,549 8,227 46,349 28,992
Write-down of mineral
property 15,117 - 15,117 -
Asset retirement and
reclamation accretion 672 674 2,687 2,860
Losses (gains) on
sale of assets 6 75 (998) (12,425)
Future income taxes (5,828) (3,994) 3,210 (1,448)
Unrealized losses (gains)
on foreign exchange (6,005) - (2,769) -
Non-controlling interests (328) 488 765 3,105
Unrealized losses (gains)
on commodity and foreign
currency contracts 4,818 (4,863) 8,913 (5,290)
Stock-based compensation 747 702 2,223 2,052
Changes in non-cash
operating working capital 6,673 (609) (6,947) (38,578)
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Cash (used in) generated
by operating activities (4,895) 26,708 92,985 67,361
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Investing activities
Mining property, plant and
equipment expenditures
(net of accruals) (60,167) (34,545) (243,800) (117,170)
Purchase of additional 40
percent interest in San
Vicente (net of cash
acquired of $1.9 million) - - - (6,245)
Proceeds from sale of
short-term investments 23,298 (2,031) 62,779 24,931
Proceeds from
sale of assets 2,589 17 12,199 10,267
Purchase of other assets - (3,590) - (11,272)
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Cash (used in)
investing activities (34,280) (40,149) (168,822) (99,489)
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Financing activities
Proceeds from issuance
of common shares - 1,810 50,843 5,164
Dividends paid by
subsidiaries to non
controlling interests - - (2,626) (2,347)
Contributions received/
receipts (payments) of
debt 1,539 (2,294) 2,494 879
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Cash generated by (used in)
financing activities 1,539 (484) 50,711 3,696
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(Decrease) in cash
during the period (37,636) (13,925) (25,126) (28,432)
Cash, beginning of period 64,425 65,840 51,915 80,347
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Cash, end of period $ 26,789 $ 51,915 $ 26,789 $ 51,915
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