Filed By Filing Services Canada Inc. 403-717-3898

FORM 6-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934

For the month of August 11, 2003

Pan American Silver Corp

(Translation of registrant’s name into English)


1500-625 HOWE STREET
VANCOUVER BC CANADA V6C 2T6

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F_X__   Form 40-F        

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes .....  No ..X...

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  82-________

 









EXHIBITS

Exhibit 1

Press Release dated August 11, 2003 - Pan American Silver Increases Production 12% in Second Quarter






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NEWS RELEASE

 

August 11, 2003


PAN AMERICAN SILVER INCREASES PRODUCTION 12% IN SECOND QUARTER

(all amounts in US Dollars unless otherwise stated)


SECOND QUARTER HIGHLIGHTS



FINANCIAL RESULTS


Pan American Silver Corp. (NASDAQ: PAAS; TSX: PAA) reported a net loss for the second quarter of $442,000 ($0.01 per share) compared to a net loss of $1.25 million ($0.03 per share) for the second quarter of 2002. Consolidated revenue for the quarter was $12.6 million, 8% greater than revenue in the second quarter of 2002 primarily due to increased silver production, offset by a lower realized silver price.


Consolidated silver production for the second quarter totalled 2,180,607 ounces, a 12% increase over the second quarter of 2002. The increase was due primarily to the addition of the high-grade pyrite stockpiles operation in Peru and higher tonnage and grade processed at La Colorada. Zinc metal production of 7,838 tonnes was 17% lower while lead production of 4,692 tonnes was 9% lower than in the second quarter of 2002, due to the lower grade of both metals at Quiruvilca. However, higher copper content in ore from Quiruvilca resulted in production of 1,017 tonnes of copper in the second quarter – 43% higher than in 2002.


Cash costs of $4.42/oz in the second quarter remained stable versus cash costs of $4.39/oz in the corresponding period of 2002.  Cash costs are expected to decline in the latter part of the year as the La Colorada mine reaches full production. Total production costs declined by 8% to $4.82/oz reflecting the higher production rate and reduced depreciation and amortization costs following the write-down of the carrying value of the Quiruvilca mine in the second half of 2002.


For the six months ended June 30, 2002 consolidated silver production was 4,330,659 ounces, an 8% increase over the first six months of 2002.  Zinc production of 17,181 tonnes was 12% lower than in 2002.  Lead production was flat at 10,504 tonnes and copper production of 1,784 tonnes was 29% higher. Although cash costs for the first six months increased 4% to $4.28/oz, total production costs declined 4% to $4.71.

 

Working capital at June 30, including cash of $11.14 million, improved to $5.9 million, an increase of $3.5 million from December 31, 2002. During the quarter, $0.4 million was repaid against the Huaron project loan, while $4.0 million was drawn from the La Colorada mine expansion project loan from the International Finance Corporation. Capital spending totalled $4.2 million, primarily for the expansion of the La Colorada mine. Working capital increased by $83.7 million when the proceeds (net of underwriters’ commissions) from the issuance of the convertible debentures were received on July 30 and August 9, 2003.

 



OPERATIONS AND DEVELOPMENT HIGHLIGHTS


MEXICO

The La Colorada mine increased production in the second quarter by 25%, rising to 229,557 ounces of silver. Operating results continued to be treated as pre-production revenue. The $20 million expansion of the mine was completed in June, slightly ahead of schedule and 5% under budget. The expansion included the construction of a 600 tonne/day oxide mill added to the existing 200 tonne/day sulphide mill. The expanded mine is expected to reach an annualized production rate of 3.8 million ounces of silver early in the fourth quarter and to become Pan American’s lowest cost mine with a cash cost of less than $3.00/oz. With more than 90% of its revenues derived from silver, La Colorada is one of the purest silver mines in the world.


The Company is currently updating the feasibility study on the Alamo Dorado silver project, acquired in early 2003 with the purchase of Corner Bay Silver. AMEC E&C Services Inc. has been retained to evaluate the economic benefits of adding a conventional mill circuit to a small-scale heap leach operation. The original heap leach feasibility study prepared by Corner Bay projected average annual production of 6 million ounces at an average cash cost of $3.25 per equivalent ounce of silver starting in 2005. A conventional mill will improve recoveries, thereby reducing cash costs and expanding the mineable reserves. A production decision is expected by the end of this year.

 

PERU

While production at the Huaron mine remained steady at 1,151,012 ounces of silver, cash and total costs were affected negatively by lower than expected equipment availability as well as expenditures for additional development and ground support. The cash cost in the quarter rose to $4.20/ounce, up from $3.64/oz in the year-earlier period and the total cost rose from $4.09/oz to $4.75/oz. The Company is currently working with the contractor to address the equipment issue and cash costs are expected to decrease in the third quarter.  In July, the Company initiated a third-party evaluation of the potential to expand production at Huaron. As part of the feasibility study due at the end of the year, drilling has begun to convert known mineral resources into proven and probable reserves.


Production from the Quiruvilca mine remained steady at 614,274 ounces of silver, versus 610,444 ounces in the corresponding period of 2002. The mine continues to struggle with a high  cash cost of $5.56/oz and declining ore grades. Starting in the third quarter, production is expected to be reduced from 40,000 tonnes per month to 25,000 tonnes per month and cash costs are expected to improve as the higher-cost North zone is closed and decommissioned.


The Silver Stockpile Operation continued to generate excellent cash flow, producing 185,764 ounces of silver at a cash cost of just $2.02/oz. With a total production cost of only $2.69/oz, the Stockpile contributed $0.3 million to second quarter earnings.


ARGENTINA

In the second quarter, drill results from the 50% owned Manantial Espejo silver-gold joint venture confirmed the size of the deposit and increased the Company’s confidence in its geological model, leading the joint venture to accelerate the commissioning of a feasibility study on the property. The study will be initiated in the fourth quarter for completion in early 2005. Over the remainder of the year, geotechnical and environmental work will proceed to facilitate permitting. Initial scoping work indicates that at a rate of 1,500 tonnes per day, Manantial Espejo would produce 4 million ounces of silver and 70,000 ounces of gold annually.


BOLIVIA

Limited scale mining operations of 200 tonnes per day continued at the San Vicente project, under the operatorship of EMUSA, a Bolivian mining company that is extracting ore from the mine under a lease agreement with Pan American. The Company has an option to earn 100% of this property and expects to resume exploration and development work in the fourth quarter.



OTHER DEVELOPMENTS


Pan American is pleased to announce the addition of two new members to its senior operating team to help manage the Company’s continuing growth. Steven Busby joins as Senior Vice-President, Project Development to manage the Company’s portfolio of growth projects. Andrew Pooler joins as Senior Vice-President, Mining Operations responsible for Pan American’s producing mines.


Mr. Busby brings more than 20 years of mining experience to his new position, most recently as a consultant providing engineering expertise to projects around the world. He has served in senior roles with Coeur d’Alene Mines, Amax Gold, Meridian and others. Mr. Pooler has also held senior executive positions in the mining industry throughout the Americas for more than 16 years.


SILVER MARKETS


The silver price declined in the second quarter, dropping to a low of $4.37 on April 3 and rebounding to $4.86 on May 15 briefly, before settling back down to the $4.50 level where it closed out the quarter on June 30. This marked the start of a steady rise, however, as prices climbed throughout July, breaking the $5.00 barrier on July 24. Prices appeared to be driven up by an increase in physical demand and speculative interest, marked by rising lease rates and increasing short-term futures contract prices.


According to Chairman and CEO Ross Beaty, “The Company has never been stronger or better positioned to reach its goal of becoming the world’s pre-eminent silver company. We now have the portfolio of projects and the financial strength to double our production to 20 million ounces of silver over the next 24 months. We also expect to reduce our cash costs significantly over this period. I am very excited about our future growth, our new financial strength and the great new team we’ve assembled, which together will allow us to deliver on our mandate of providing the best possible equity vehicle for those investors seeking exposure to silver.”


Pan American will host a conference call on Tuesday, August 12th at 8:00 a.m. Pacific time (11:00 a.m. Eastern time) to discuss the second quarter financial and operational results.  North American participants please call toll-free 1-800-387-6216. International participants please dial 1-800-7664-7664. The conference may also be accessed live from the investor relations section of the Pan American website at www.panamericansilver.com. To listen to a playback for two weeks after the call, dial 1-800-408-3053 and enter the pass code 1465722.  


For More Information, please contact:


Brenda Radies, Vice-President Corporate Relations (604) 806-3158

Geoff Burns, President (604) 684-1175


www.panamericansilver.com

- End -


CAUTIONARY NOTE

Some of the statements in this news release are forward-looking statements, such as estimates of future production levels, expectations regarding mine production costs, expected trends in mineral prices and statements that describe Pan American's future plans, objectives or goals.  Actual results and developments may differ materially from those contemplated by these statements depending on such factors as changes in general economic conditions and financial markets, changes in prices for silver and other metals , technological and operational hazards in Pan American's mining and mine development activities, uncertainties inherent in the calculation of mineral reserves, mineral resources and metal recoveries, the timing and availability of financing, governmental and other approvals, political unrest or instability in countries where Pan American is active, labor relations and other risk factors listed from time to time in Pan American’s Form 40-F.





3


Financial & Operating Highlights                        
                         
    Three Months ended     Six Months ended  
    June 30      June 30  
    2003     2002     2003     2002  
                         
Consolidated Financial Highlights (in thousands of US dollars)                    
                         
Net income (loss) $ (442)   $ (1,247)   $ (1,546)   $ (2,550)  
Earnings (loss) per share   (0.01)     (0.03)     (0.03)     (0.06)  
Contribution from mining operations   1,220     808     1,613     1,805  
Capital spending   4,424     1,316     9,015     2,630  
Exploration expense   492     260     988     343  
Cash   11,138     21,025     11,138     21,025  
Working capital $ 5,875   $ 17,482     5,875   $ 17,482  
                         
Consolidated Ore Milled & Metals Recovered to Concentrate                      
                         
                         
Tonnes milled   310,214     288,681     615,883     588,552  
Silver metal - ounces   2,180,607     1,939,397     4,330,659     4,004,900  
Zinc metal - tonnes   7,838     9,472     17,181     19,579  
Lead metal - tonnes   4,692     5,142     10,504     10,583  
Copper metal - tonnes   1,017     713     1,784     1,382  
                         
Net smelter return per tonne milled $ 36.75   $ 41.07   $ 38.57   $ 41.20  
Cost per tonne   37.95     41.50     38.19     39.71  












 
Margin (loss) per tonne $ (1.19)   $ (0.43)   $ 0.38   $ 1.49  












 
                         
Consolidated Cost per Ounce of Silver (net of by-product credits)                    
                         
Total cash cost per ounce $ 4.42   $ 4.39   $ 4.28   $ 4.11  
Total production cost per ounce $ 4.82   $ 5.24   $ 4.71   $ 4.92  
                         
In thousands of US dollars                        
Direct operating costs & value of metals lost                        
in smelting and refining   12,154     12,640     24,563     25,174  
By-product credits   (3,531)     (4,122)     (7,866)     (8,715)  












 
Cash operating costs   8,623     8,518     16,697     16,459  
Depreciation, amortization & reclamation   784     1,638     1,686     3,256  












 
Production costs   9,407     10,156     18,383     19,716  












 
                         
Ounces used in cost per ounce calculations   1,951,050     1,939,397     3,904,390     4,004,900  
                         
Average Metal Prices                        
Silver - London Fixing $ 4.59   $ 4.71   $ 4.63   $ 4.60  
Zinc - LME Cash Settlement per pound $ 0.35   $ 0.35   $ 0.35   $ 0.36  
Lead - LME Cash Settlement per pound $ 0.21   $ 0.21   $ 0.21   $ 0.21  
Copper - LME Cash Settlement per pound $ 0.74   $ 0.73   $ 0.75   $ 0.72  
                         
Average Prices Realized                        
Silver - per ounce (note) $ 4.29   $ 4.40   $ 4.33   $ 4.27  
Zinc - per pound $ 0.35   $ 0.36   $ 0.35   $ 0.36  
Lead - per pound $ 0.21   $ 0.21   $ 0.21   $ 0.22  
Copper - per pound (note) $ 0.66   $ 0.56   $ 0.67   $ 0.59  

Note - Pan American pays a refining charge for silver and copper

4


Mine Operations Highlights   Three Months ended     Six Months ended  
    June 30      June 30  
Huaron Mine   2003     2002     2003     2002  
                         
Tonnes milled   154,900     150,565     312,940     299,665  
Average silver grade - grams per tonne   258     265     261     267  
Average zinc grade - percent   3.68%     3.98%     3.87%     4.05%  
Silver - ounces   1,151,012     1,145,755     2,350,713     2,292,064  
Zinc - tonnes   4,781     5,034     10,283     10,155  
Lead - tonnes   3,614     3,422     8,030     6,937  
Copper - tonnes   423     482     688     863  
                         
Net smelter return per tonne $ 42.91   $ 45.20   $ 44.28   $ 45.01  
Cost per tonne   41.04     39.25     40.83     37.42  












 
Margin (loss) per tonne $ 1.87   $ 5.95   $ 3.45   $ 7.59  












 
                         
Total cash cost per ounce $ 4.20   $ 3.64   $ 4.00   $ 3.40  
Total production cost per ounce $ 4.75   $ 4.09   $ 4.55   $ 3.85  
                         
In thousands of US dollars                        
Direct operating costs & value of metals lost                        
in smelting and refining $ 6,956   $ 6,372   $ 13,960   $ 12,335  
By-product credits   (2,126)     (2,202)     (4,558)     (4,531)  












 
Cash operating costs   4,830     4,170     9,402     7,804  
Depreciation, amortization and reclamation   640     512     1,287     1,019  












 
Production costs $ 5,470   $ 4,682   $ 10,689   $ 8,822  












 
                         
Ounces for cost per ounce calculations   1,151,012     1,145,755     2,350,713     2,292,064  
                         
Quiruvilca Mine                        
                         
Tonnes milled   123,924     122,906     245,269     258,054  
Average silver grade - grams per tonne   180     177     181     185  
Average zinc grade - percent   2.82%     3.96%     3.17%     4.00%  
Silver - ounces   614,274     610,444     1,234,028     1,339,063  
Zinc - tonnes   2,940     4,344     6,680     9,232  
Lead - tonnes   983     1,631     2,286     3,450  
Copper - tonnes   594     231     1,096     519  
                         
Net smelter return per tonne $ 29.70   $ 35.31   $ 32.10   $ 36.16  
Cost per tonne   38.71     41.92     38.94     40.07  












 
Margin (loss) per tonne $ (9.01)   $ (6.61)   $ (6.84)   $ (3.91)  












 
                         
Total cash cost per ounce $ 5.56   $ 5.62   $ 5.38   $ 4.98  
Total production cost per ounce $ 5.60   $ 7.27   $ 5.53   $ 6.47  
                         
In thousands of US dollars                        
Direct operating costs & value of metals lost                        
in smelting and refining $ 4,822   $ 5,354   $ 9,949   $ 10,839  
By-product credits   (1,405)     (1,923)     (3,308)   $ (4,176)  












 
Cash operating costs   3,417     3,431     6,640     6,663  
Capital spending expensed and reclamation   20     1,008     184     1,995  












 
Production costs $ 3,438   $ 4,439   $ 6,824   $ 8,658  












 
                         
Ounces for cost per ounce calculations   614,274     610,444     1,234,028     1,339,063  

5


La Colorada Mine                        
                         
Tonnes milled   16,002     15,210     30,830     30,833  
Average silver grade - grams per tonne   489     426     500     430  
Silver - ounces   229,557     183,198     426,269     373,773  
Zinc - tonnes   117     94     218     192  
Lead - tonnes   95     89     188     196  
                         
Net smelter return per tonne $ -   $ 46.64   $ -   $ 46.36  
Cost per tonne   -     60.37     -     58.96  












 
Margin (loss) per tonne $ -   $ (13.73)   $ -   $ (12.60)  












 
                         
Total cash cost per ounce $ -   $ 5.01   $ -   $ 5.33  
Total production cost per ounce $ -   $ 5.65   $ -   $ 5.98  
                         
In thousands of US dollars                        
Direct operating costs & value of metals lost                        
in smelting and refining $ -   $ 914   $ -   $ 2,001  
By-product credits         4         $ (8)  












 
Cash operating costs   -     918     -     1,993  
Depreciation, amortization and reclamation   -     118     -     243  












 
Production costs $ -   $ 1,035   $ -   $ 2,236  












 
                         
Ounces for cost per ounce calculations         183,198           373,773  
                         
Pyrite Stockpile Sales                        
                         
Tonnes sold   15,388     -     26,844     -  
Average silver grade - grams per tonne   375     -     370     -  
Silver ounces   185,764     -     319,649     -  
                         
Net smelter return per tonne $ 31.51   $ -   $ 31.22   $ -  
Cost per tonne   0.55     -     0.63     -  












 
Margin (loss) per tonne $ 30.96   $ -   $ 30.59   $ -  












 
                         
Total cash cost per ounce $ 2.02   $ -   $ 2.05   $ -  
Total production cost per ounce $ 2.69   $ -   $ 2.72   $ -  
                         
In thousands of US dollars                        
Value of metals lost in smelting and refining $ 375   $ -   $ 654   $ -  
By-product credits   -     -     -     -  












 
Cash operating costs   375     -     654     -  
Depreciation, amortization and reclamation   123     -     215     -  












 
Production costs $ 499   $ -   $ 870   $ -  












 
                         
Ounces for cost per ounce calculations   185,764     -     319,649     -  

6


 

PAN AMERICAN SILVER CORP.

Consolidated Balance Sheets

(In thousands of U.S. dollars)

   

June 30

December 31

   

2003

2002

   

(unaudited)

 

CURRENT

    

Cash and cash equivalents

  

$

11,138

$

10,185

Short-term investments

  

13

13

Accounts receivable

  

6,631

4,598

Inventories

  

6,965

4,637

Prepaid expenses

  

1,968

3,197

Total Current Assets

  

26,715

22,630

Mineral property, plant and equipment, net

  

69,320

59,447

Investment and other properties

  

82,908

4,193

Direct smelting ore

  

4,135

4,303

Other assets

  

4,294

4,393

Total Assets

  

$

187,372

$

94,966

     

LIABILITIES

    

Current

    

Operating line of credit

  

$

-

$

125

Accounts payable and accrued liabilities (note 3)

 

13,333

15,227

Advances for metal shipments

  

4,724

2,158

Current portion of bank loans and capital lease

  

1,700

1,638

Current portion of severance indemnity and commitments

953

953

Current portion of deferred revenue

 

130

130

Total Current Liabilities

  

20,840

20,231

Deferred revenue

  

993

923

Bank loans and capital lease (note 4)

  

10,992

3,942

Provision for reclamation

  

13,128

12,971

Provision for future income tax

 

19,035

-

Severance indemnities

 

1,519

1,407

Total Liabilities

  

66,507

39,474

     

SHAREHOLDERS’ EQUITY

    

Share capital

    

Authorized:

    

100,000,000 common shares of no par value

  

Issued:

    

December 31, 2002 – 43,883,454 common shares

  

June 30, 2003 – 52,127,284 common shares

217,918

161,024

Additional paid in capital

  

11,117

1,092

Deficit

  

(108,170)

(106,624)

Total Shareholders’ Equity

  

120,865

55,492

Total Liabilities and Shareholders’ Equity

 

$

187,372

$

94,966

     

See accompanying notes to consolidated financial statements




7


 

PAN AMERICAN SILVER CORP.

Consolidated Statements of Operations and Deficit

(Unaudited – in thousands of U.S. dollars, except for shares and per share amounts)

   
 

Six months ended

Three months ended

 

June 30,

June 30,

 

2003

2002

2003

2002

     

Revenue

$

20,375

$

21,814

$

12,553

$

11,615

Expenses

    

Operating

18,762

20,009

11,333

10,807

General and administration

983

857

582

498

Depreciation and amortization

933

2,864

462

1,435

Reclamation

156

419

77

221

Exploration

988

343

492

260

Interest expense

337

515

178

249

 

22,159

25,007

13,124

13,470

     

Net loss from operations

(1,784)

(3,193)

(571)

(1,855)

Other income

238

403

129

368

Income tax recovery

-

240

-

240

Net loss for the period

(1,546)

(2,550)

(442)

(1,247)

Deficit, beginning of period

(106,624)

(72,966)

(107,728)

(74,269)

Deficit, end of period

$

(108,170)

$

(75,516)

$

(108,170)

$

(75,516)

     

Basic and fully diluted loss per share

($0.03)

($0.06)

($0.01)

($0.03)

Weighted average shares outstanding


50,849,874


41,740,111


51,947,530


42,461,597

 

See accompanying notes to consolidated financial statements



8



PAN AMERICAN SILVER CORP.

Consolidated Statements of Cash Flows – Direct Method

(Unaudited – in thousands of U.S. dollars)

 
 

Six months ended

Three months ended

 

June 30,

June 30,

 

2003

2002

2003

2002

Operating activities


   

  Sales proceeds

$

21,727

$

23,403

$

9,769

$

11,023

  Hedging activities

308

470

144

157

  Interest paid

(337)

(515)

(267)

(249)

  Other income and expenses

239

643

220

607

  Products and services purchased

(21,656)

(22,948)

(11,071)

(12,542)

  Exploration

(1,090)

(365)

(585)

(288)

  General and administration

(1,414)

(769)

(910)

(421)

 

(2,223)

(81)

(2,700)

(1,713)

     

Financing activities

    

  Shares issued for cash

2,698

22,618

1,975

5,367

  Share issue costs

(7)

(956)

(7)

(164)

  Repayment of line of credit

(125)

(180)

-

(290)

  Capital lease payments

(75)

-

-

-

  Proceeds from bank loans

8,000

-

4,000

-

  Repayment of bank loans

(813)

(998)

(406)

(740)

 

9,678

20,484

5,562

4,173

     

Investing activities

    

  Mineral property, plant and equipment

  expenditures

$

(8,638)

$

(1,868)

$

(4,169)

$

(1,158)

  Investment and other property expenditures

(377)

(762)

(255)

(158)

  Acquisition of cash of subsidiary

2,393

-

-

-

  Other

120

(79)

139

(40)

 

(6,502)

(2,709)

(4,285)

(1,356)

     

Increase (decrease) in cash and cash equivalents during the period


953


17,694


(1,423)


1,104

Cash and cash equivalents, beginning of period


10,185


3,331


12,561


19,921

Cash and cash equivalents, end of period

$

11,138

$

21,025

$

11,138

$

21,025

     

Supplemental disclosure of non-cash transactions

   

  Shares issued for acquisition of mineral

  property


$

-


$

1,250


$

 -


$

-

  Shares, warrants and stock options issued

  for acquisition of subsidiary


64,228

-

-

-

 

$

   64,228

$

1,250

$

-

$

-

See accompanying notes to consolidated financial statements





9



 

PAN AMERICAN SILVER CORP.

Consolidated Statements of Cash Flows – Indirect Method

(Unaudited – in thousands of U.S. dollars)

     
 

Six months ended

Three months ended

 

June 30,

June 30,

 

2003

2002

2003

2002

Operating activities

    

Net loss for the period

$

(1,546)

$

(2,550)

$

(442)

$

(1,247)

Items not involving cash

    

  Depreciation and amortization

933

2,864

462

1,435

  Reclamation provision

156

419

77

221

  Operating cost provisions

499

(183)

146

77

  Future income taxes

-

(240)

-

(240)

  Changes in non-cash operating working

  capital items

(2,265)

(391)

(2,943)

(1,959)

 

(2,223)

(81)

(2,700)

(1,713)

     

Financing activities

    

  Shares issued for cash

2,698

22,556

1,975

5,367

  Share issue costs

(7)

(956)

(7)

(226)

  Changes in non-cash working capital items

-

(171)

75

(171)

  Capital lease

(75)

233

(75)

233

  Repayment of line of credit

(125)

(180)

-

(290)

  Proceeds from bank loans

8,000

-

4,000

-

  Repayment of bank loans

(813)

(998)

(406)

(740)

 

9,678

20,484

5,562

4,173

     

Investing activities

    

  Mineral property, plant and equipment

  expenditures


     (8,063)

  

     (2,057)


     (3,648)


     (1,347)

  Investment and other property expenditures

(377)

(762)

(255)

(19)

  Changes in non-cash working capital items

(575)

189

(521)

50

  Acquisition of cash of subsidiary

2,393

-

-

  Other

120

(79)

139

(40)

 

(6,502)

(2,709)

(4,285)

(1,356)

     

Increase (decrease) in cash and cash equivalents during the period


953


17,694


(1,423)


1,104

Cash and cash equivalents, beginning of period


10,185


3,331


12,561


19,921

Cash and cash equivalents, end of period

$

11,138

$

21,025

$

11,138

$

21,025

     

Supplemental disclosure of non-cash transactions

   

  Shares issued for acquisition of mineral

  property


$

-


$

1,250


$

 -


$

-

  Shares, warrants and stock options issued

  for acquisition of subsidiary


64,228

-

-

-

 

$

64,228

$

1,250

$

 -

$

-

See accompanying notes to consolidated financial statements



10






PAN AMERICAN SILVER CORP.


Consolidated Statement of Shareholders’ Equity
For six months ended June 30, 2003
(in thousands of US dollars, except for shares)


 Additional

Common shares

Paid In

Shares            Amount         Capital        Deficit            Total


Balance, December 31, 2001

37,628,234

$130,723

$1,120

$(72,966)

$58,877

Exercise of stock options

1,445,400

6,102

-

-

6,102

Shares issued for cash, net of share

issue costs

         

3,450,000

15,599

-

-

15,599

Issued on acquisition of Manantial

Espejo

231,511

1,250

-

-

1,250

Issued on acquisition of royalty                 390,117               3,000                     -                    -             3,000
Issued as compensation                            69,000                  253                      -                    -                253

Issued to purchase silver stockpiles        636,942                4,000                     -                     -            4,000

Exercise of share purchase warrants        32,250                     97                     -                     -                 97
Foreign exchange translation

adjustment

-

-

(28)

-

(28)

Net loss for the year

-

-

-

(33,658)

(33,658)

Balance, December 31, 2002

43,883,454

161,024

1,092

(106,624)

55,492

Exercise of stock options

507,171

2,198

-

-

2,198

Share issue costs                                                -                    (7)                      -                    -                (7)

Issued on acquisition of Corner Bay      7,636,659             54,203                     -                    -            54,203

Fair value of stock options granted                       -                       -             1,136                    -              1,136

Fair value of warrants granted                               -                      -              8,889                   -             8,889

Exercise of share purchase warrants       100,000                  500                     -                    -                500

Net loss for the period                                           -                       -                     -            (1,546)         (1,546)

Balance, June 30, 2003                               52,127,284        $ 217,918    $     11,117     $ (108,170) $    120,865






See accompanying notes to consolidation financial statements




11


 

Notes to Unaudited Interim Consolidated Financial Statements

(As at June 30, 2003 and 2002 and for the three and six month periods then ended)


1.

Basis of and Responsibility for Presentation


These unaudited interim consolidated financial statements are expressed in United States dollars and are prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”), which are more fully described in the annual audited consolidated financial statements for the year ended December 31, 2002 which are included in the Company’s 2002 Annual Report.  These statements do not include all of the disclosures required by Canadian GAAP for annual financial statements.  Certain comparative figures have been reclassified to conform to the current presentation.  Significant differences from United States accounting principles are described in note 6.


In management’s opinion all adjustments necessary for fair presentation have been included in these financial statements.  



2.

Segmented Information


The Company operates in one industry, has three reporting segments and has activities in six countries. Segmented disclosures and enterprise-wide information are as follows:


 

For the six months ended June 30, 2003



Mining

Corporate

Office

Exploration & Development


Total

Revenue from external customers

$

20,067

$

308

$

-

$

20,375

Net loss

(322)

(615)

(609)

(1,546)

Segmented assets

$

93,409

$

7,673

$

86,290

$

187,372


 

For the six months ended June 30, 2002



Mining

Corporate

Office

Exploration & Development


Total

Revenue from external customers

$

21,344

$

470

$

-

$

21,814

Net loss

(2,102)

(282)

(166)

(2,550)

Segmented assets

$

88,132

$

20,835

$

3,719

$

112,686





12



 

For the three months ended June 30, 2003



Mining

Corporate

Office

Exploration & Development


Total

Revenue from external customers

$

12,409

$

144

$

-

$

12,553

Net income (loss)

223

(402)

(263)

(442)

Segmented assets

$

93,409

$

7,673

$

86,290

$

187,372


 

For the three months ended June 30, 2002



Mining

Corporate

Office

Exploration & Development


Total

Revenue from external customers

$

11,458

$

157

$

-

$

11,615

Net loss

(842)

(276)

(129)

(1,247)

Segmented assets

$

88,132

$

20,835

$

3,719

$

112,686




3.

Accounts payable and accrued liabilities


Accounts payable and accrued liabilities consist of:


  

June 30,

December 31,

  

2003

2002

Trade payables

 

$

10,590

$

13,528

Payroll and related benefits

 

1,001

1,242

Sales tax

 

768

237

Royalty

 

83

111

Other

 

891

109

  

$

13,333

$

15,227





13




4.

Bank loans and capital lease


During the first six months ended June 30, 2003, the Company reduced its Huaron loan by $813,000 to $4,333,000 of which $1,625,000 is current and drew down $8,000,000 of its $10,000,000 La Colorada project loan facility with International Finance Corporation (“IFC”).  The IFC loan bears interest at 6-month LIBOR plus 3.50% until certain technical and financial tests are achieved and 6-month LIBOR plus 3.25% thereafter and is repayable in semi-annual installments of $1,000,000 commencing November 14, 2004.  As at June 30, 2003, the Company had accrued $46,300 of interest, which has been deferred as part of the La Colorada development costs.  The Company’s interest in its wholly-owned subsidiary, Plata Panamericana S.A. de C.V. (“Plata”), and substantially all of the assets of Plata have been pledged as security for the IFC loan.  The Huaron loan bears interest at 6-month LIBOR plus 3% and is repayable at the rate of $135,000 per month.  Certain assets of the Company’s subsidiary, Compania Minera Huaron S.A., have been pledged as security for the Huaron loan.  The capital lease relates to mining equipment used at the La Colorada mine.  The outstanding capital lease commitment bears interest at the rate of 6% per annum and amounted to $359,000 of which $75,000 is current.



5.

Share capital


During the six-month period ended June 30, 2003 the Company:


1)

issued 507,171 Common Shares for proceeds of $2,198,000 pursuant to the exercise of stock options;

2)

issued 100,000 Common Shares for proceeds of $500,000 pursuant to the exercise of share purchase warrants;

3)

the Company purchased Corner Bay Silver Inc. by issuing 7,636,659 common shares valued at $54,203,000 net of a deemed 5% issue expense of $2,707,000 and 3,818,330 warrants of the Company.  Each warrant allows the holder to purchase one Common Share of the Company for a price of Cdn$12.00 up to and including February 20, 2008.  The Company also issued options (having exercise prices of between Cdn$4.55 and Cdn$12.00 and having exercise periods of between one and five years from the date of grant)  to purchase up to 553,846 Common Shares of the Company


The following table summarizes information concerning stock options outstanding as at March 31, 2003:


  

Options Outstanding

Options Exercisable

Range of Exercise Prices

Year of Expiry

Number Outstanding as at June 30, 2003

Weighted Average Remaining Contractual Life (months)

Number Exercisable as at June 30, 2003

Weighted Average Exercise Price

$3.38 - $6.86

2004

176,960

11.09

176,960

$5.72

$6.86 - $8.91

2005

270,185

22.64

270185

$8.11

$3.71

2006

280,300

34.52

280,300

$3.71

$6.31 - $7.50

2007

939,360

50.70

863,360

$7.42

$6.60 - $8.91

2008

339,231

55.73

99,231

$6.74

$3.71

2010

362,000

76.50

362,000

$3.71

  

2,368,036

27.61

2,052,036

$6.27


14




At June 30, 2003 there were warrants outstanding to allow the holder to purchase 3,818,329 Common Shares of the Company for Cdn$12.00 per share.  These warrants expire on February 20, 2008.  There were also warrants outstanding to allow the holder to purchase 537,110 Common shares of the Company for $4.94 per share.  These warrants expire on November 4, 2004.

 


6.

Differences between Canadian and United States Generally Accepted Accounting Principles


These financial statements are prepared in accordance with accounting principles generally accepted in Canada (“Canadian GAAP”). The differences between Canadian GAAP and accounting principles generally accepted in the United States (“US GAAP”) as they relate to these financial statements are summarized below and discussed in Note 16 of the Company’s annual audited consolidated financial statements included in the Company’s 2002 Annual Report.

FASB Statement No. 143, “Accounting for Asset Retirement Obligations (“SFAS 143”), addresses financial accounting and reporting for obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development or the normal operation of long-lived assets, except for certain obligations of leases.  SFAS 143 is effective for financial statements issued for financial years beginning after June 15, 2002.  Under SFAS 143, the Company’s accrued reclamation provision of $13,128,000 would be removed from the accounts with a credit to earnings.  This credit would be offset by a corresponding charge to earnings due to the impairment of the Quiruvilca mine that had been recognized in 2002.  Additionally, the expected fair value of future site restoration costs estimated at approximately $12,500,000 would be recorded as an asset and a liability.  Future period operations would be charged with amortization of this $12,500,000 amounting to $960,000 per year and would also be charged with $ 640,000 per year as an amount representing accretion of the liability for future restoration at a credit - adjusted interest rate.


Estimated amounts for future assets retirement obligations is uncertain due to assumptions regarding current and future costs, potential changes in legislative and regulatory requirements, technological developments, expected economic mine lives and other factors. Therefore, such estimates will be revised as additional information becomes available.  Changes in the estimated future asset retirement obligation will result in corresponding changes to the amount and timing of the related accretion and amortization charges.


In April 2003 FASB Statement No. 149 (“SFAS 149”) “Amendment of SFAS No. 133 on Derivative Instruments and Hedging Activities” was issued.   SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003, except for certain provisions that relate to SFAS No. 133 “Implementation Issues” that had been effective prior to June 15, 2003. This Statement amends and clarifies accounting for derivative financial instruments and for hedging activities.  In particular it clarifies the circumstances under which a contract with an initial net investment meets the characteristics of a derivative as contemplated in SFAS No. 133 and it clarifies when a derivative contains a financing component.  In addition, this Statement amends the definition of an underlying to make it conform to FASB Interpretation No. 45, “Guarantor Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” and also amends certain other existing accounting pronouncements.

The Company will adopt SFAS No. 149 in the third quarter of 2003.  The effect, on the Company’s consolidated financial position or results of operations, of adopting SFAS No. 149 is not determinable at this time.


15




In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”.  This Statement requires that three types of financial instruments be reported as liabilities by their issuers.  Those types of instruments include: mandatorily redeemable instruments;  forward purchase contracts, written put options and other financial instruments not in the form of shares that either obligate the issuer to repurchase its equity shares and settle its obligation for cash or by transferring other assets; and certain financial instruments that include an obligation that may be settled in a variable number of equity shares, has a fixed or benchmark tied value at inception and varies inversely with the fair value of the equity shares.  SFAS No. 150 is effective for instruments entered into or modified after May 31, 2003.  The Company will adopt the provisions of this Statement in the third quarter of 2003; however, the affect of applying SFAS No. 150 on the Company’s consolidated financial position or results of operations is not determinable at this time.



7.

Subsequent Event


On July 30, 2003 the Company issued $75 million of 5.25% convertible unsecured senior subordinated debentures due July 31, 2009 (the “Debentures”) to a syndicate of Underwriters.  As part of the underwriting agreement the Company granted the Underwriters an option exercisable for up to 30 days after July 30, 2003 to purchase up to an additional $11.25 million principal amount of Debentures on the same terms and conditions.  On August 8, 2003 this option was exercised and the Company issued an additional $11.25 million of Debentures.  After commissions and expenses the estimated net proceeds received from issuing the Debentures is $83.26 million.


Interest on the debentures is payable semi-annually beginning on January 31, 2004.  The Company has the option to fund interest payments from the proceeds of the sale of Common Shares issued, by the Company, to a trustee for the purpose of making such sales on the open market.


The Company also has the option to elect to satisfy its obligation to repay the principal amount of the outstanding Debentures by issuing, to the holders of the Debentures, Common Shares of the Company in an amount equal to the principal amount of the outstanding Debentures divided by 95% of the weighted average trading price of the Common Shares for the 20 consecutive trading days ending five days before the date fixed for redemption.





16



 


MANAGEMENT’S DISCUSSION AND ANALYSIS


Results of Operations (all amounts are expressed in US dollars)


For the three month period ended June 30, 2003 the Company’s net loss was $0.44 million ($0.01 per share) compared to a net loss of $1.25 million ($0.03 per share) for the three-month period ended June 30, 2002.  The net loss for the six-month period ended June 30, 2003 was $1.55 million ($0.03 per share) compared to $2.55 million ($0.06 per share) for the corresponding period in 2002.


The Company’s improved net loss for the three and six month periods of 2003 relative to the same periods in 2002 was due primarily to lower depreciation and amortization and reclamation expenses.  Depreciation and amortization and reclamation provisions are lower than in 2002 because of the write down and the reclamation provision taken in the second half of 2002 against the Quiruvilca mine.


The lower non-cash depreciation and amortization and reclamation expenses were partially offset by higher exploration expense.  Exploration expense is higher because of activities associated with the Company’s 50% owned Manantial Espejo project in Argentina and various projects in Mexico.


Resource modeling of the latest exploration drilling at the Manantial Espejo project has been encouraging and as a result the Company and Silver Standard Resources Inc. (owner of 50 per cent of the project) have decided to move forward with a feasibility study commencing in the fourth quarter of this year.  Consequently, expenditures at this project should increase slightly for the remainder of the year.

  

General and administration costs are modestly higher than they were in 2002 and will trend slightly higher for the rest of 2003 because of the addition of senior technical staff.  Staff additions are necessary to manage the Company’s portfolio of development and expansion projects.


Revenue was $12.55 million for the second quarter of 2003 which was 8 percent greater than revenue for the corresponding period of 2002.  Revenue increased because higher sales volumes offset slightly lower realized metal prices when compared to the corresponding period of last year.  Metals produced during the second quarter of 2003 included 2,180,607 ounces of silver (2002 – 1,939,397 ounces), 7,838 tonnes of zinc (2002- 9,472 tonnes), 4,692 tonnes of lead (2002 – 5,142 tonnes) and 1,017 tonnes of copper (2002 – 713 tonnes).


Revenue for the six months ended June 30, 2003 was 7 percent less than revenue for the corresponding period of 2002.  The decrease in revenue for the six-month period relative to last year was attributable to lower shipments, principally lead concentrate, when compared to the prior year.  Average metal prices in 2003 were about the same as in 2002 and were not a significant factor in the change in revenue between periods.  For the three months ended June 30, 2003 the London average metals prices were: silver $4.59 per ounce (2002 - $4.71 per ounce); zinc $0.35 per pound (2002 - $0.35 per pound); lead $0.21 per pound (2002 - $0.21 per pound); and copper $0.74 per pound (2001 - $0.73 per pound).


In order to partially protect against further declines in the zinc price and to take advantage of some recent price strengthening the Company sold forward 15,500 tonnes of zinc at an average price of $827 per tonne or $0.38 per pound.  These sales are to be settled during the period from July 2003 though July 2004.  Of these sales 9,000 tonnes are to be settled during 2003 at $827 per tonne.  The Company has no other forward sales, future contracts, options or derivative positions and is fully exposed to changes in the price of silver, lead, copper, currency exchange rates and interest rates.


17




Metals prices improved during July with London silver averaging $4.80, zinc averaged $827 per tonne, lead $515 per tonne and copper $1,710 per tonne.  This improving trend was continuing into August.  With apparent improvements in recent economic indicators, particularly in the United States, it appears as though metal prices for the third quarter will be higher than those of the first six months of the year.  The Company’s zinc forward sales will limit participation in higher zinc prices to about 35% of the Company’s expected production for the third quarter.  Any improvement in the prices of silver or other base metals will be fully reflected in the sales of the third quarter.


Operating costs for the second quarter and six months ended June 30, 2003 are comparable to the same periods of last year and differences between periods simply reflect differences in the volume of shipments.  The Company’s gross margin (the difference between revenue and operating costs divided by operating costs) was consistent from year to year at 9 per cent for the six-month periods ended June 30, 2003 and 2002.


Interest expense was slightly less this year than for the corresponding three- and six- month periods of 2002 as outstanding loan balances were paid down.  During 2003, the Company has drawn $8 million of the $10 million La Colorada project loan.  Interest on this loan will be capitalized until La Colorada achieves commercial production which is expected in the fourth quarter of 2003.  To date $46,000 of interest on this loan has been capitalized.


Cash Flow


Cash consumed by operating activities was $2.7 million for the second quarter of 2003.  For the corresponding period of 2002, cash consumed by operations was $1.71 million.  The $0.99 million increase in cash used for operating activities was primarily the result of changes in non-cash working capital items including a reduction of payables and an increase in receivables due to the timing of shipments and the subsequent collection of sales proceeds.


For the second quarter of 2003 debt repayments consumed $0.41 million ($0.94 million for the six months ended June 30, 2003).  Debt borrowed under the La Colorada loan during the quarter amounted to $4.0 million ($8.0 million for the six months ended June 30, 2003).  During the second quarter 342,556 common shares were issued upon the exercise of stock options for proceeds of $1.48 million and 100,000 common shares were issued on the conversion of share purchase warrants for proceeds of $0.5 million.  Net proceeds from financing activities were $5.56 million.  For the first six months of 2003 financing activities generated $9.68 million.  For the first two quarters of 2002 net financing activities generated $20.48 million including $21.66 million from the issue of shares offset by debt repayments of $1.18 million.


Investing activities, during the second quarter of 2003, included plant and equipment expenditures of $4.17 million. Expenditures were principally for the expansion of La Colorada.  The expansion project was substantially complete in July 2003 and commercial production levels are expected to be achieved early in the fourth quarter of 2003.  To the end of June 2002 investing activities totaled $2.71 million, including $1.87 million on plant and equipment, of which the majority was for La Colorada and $0.76 million was related to the acquisition of Manantial Espejo.  Other non-cash investments included the acquisition of the La Colorada royalty and the issue of 231,511 common shares as partial consideration for the Manantial Espejo property acquisition.

 


18





Liquidity and Capital Resources


Working capital, including cash of $11.14 million, was $5.88 million at June 30, 2003.  This is an increase of $3.48 million from December 31, 2002.  The increase is due to net proceeds from financing activities of $9.68 million of which a net $6.50 million were invested in plant and equipment.


On July 30, 2003, The Company received net proceeds of $72.75 million from the issuance, to a syndicate of underwriters, of $75.00 million of 5.25% convertible unsecured senior subordinated debentures.  As part of the underwriting agreement the Company granted the underwriters an option to purchase an additional $11.25 million of the debentures.  On August 6, 2003 the underwriters notified the Company of their intention to exercise such option and on August 8, 2003 the Company issued an additional $11.25 million of the debentures. The net proceeds of these offerings (estimated to be $83.26 million after fees and expenses) should be sufficient to fund the Company’s expansion plan for the Huaron mine and the likely mine construction at its Alamo Dorado property in Mexico, as well provide liquidity for the foreseeable future.




19




Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pan American Silver Corp

(Registrant)

By:/s/ Geoff Burns

(Signature)

Geoff Burns, President

Date: August 12, 2003