Exhibit 10.1
This is the form of a material change report required under section 85(1) of the
Securities Act and section 151 of the Securities Rules.
BC FORM 53-901F
(PREVIOUSLY FORM 27)
SECURITIES ACT
MATERIAL CHANGE REPORT UNDER
SECTION 85(1) OF THE SECURITIES ACT (BRITISH COLUMBIA)
AND SIMILAR PROVISIONS OF OTHER APPLICABLE LEGISLATION
ITEM 1. REPORTING ISSUER
Pan American Silver Corp. (the "COMPANY")
1500 - 625 Howe Street
Vancouver, BC V6E 2T6
ITEM 2. DATE OF MATERIAL CHANGE
November 18, 2002
ITEM 3. PRESS RELEASE
A press release was issued by the Company on November 18, 2002
at Vancouver, British Columbia and distributed through the
facilities of Canada NewsWire.
ITEM 4. SUMMARY OF MATERIAL CHANGE
The Company announced its third quarter financial and
operations results for the quarter ended September 30, 2002.
All amounts are expressed in U.S. dollars. The Company
reported a third quarter net loss (before a write down) of
$2.26 million ($0.05 loss per share) compared to a net loss
(before an unusual gain) of $2.80 million ($0.07 loss per
share) for the third quarter of 2001. During the third
quarter, the Company wrote down its investment in the
Quiruvilca mine by $15.13 million. Management determined that
the recovery of its investment in Quiruvilca was unlikely
unless realized metal prices were significantly higher than
those of the recent past. The net loss, including the
Quiruvilca write down, was $17.39 million ($0.40 per share)
for the third quarter compared to net income of $0.70 million
($0.02 per share) after a $3.50 million unusual gain on the
sale of land for the third quarter of 2001.
ITEM 5. FULL DESCRIPTION OF MATERIAL CHANGE
HIGHLIGHTS
- Gained overwhelming shareholder approval for
acquisition of Corner Bay Silver.
- Began construction of full-scale operation at La
Colorada silver mine in Mexico, which will quadruple
the mine's silver production in mid-2003.
- Wrote down carrying value of Quiruvilca mine due to
lack of profitability at current metal prices.
- Began expansion of Huaron mine in Peru due to
exploration success, which will result in a 10
percent production increase starting in 2003.
FINANCIAL (all amounts are expressed in US dollars)
The Company reported a third quarter net loss (before a write
down) of $2.26 million ($0.05 loss per share) compared to a
net loss (before an unusual gain) of $2.80 million ($0.07 loss
per share) for the third quarter of 2001. During the third
quarter, the Company wrote down its investment in the
Quiruvilca mine by $15.13 million. Management determined that
the recovery of its investment in Quiruvilca was unlikely
unless realized metal prices were significantly higher than
those of the recent past. The net loss, including the
Quiruvilca write down, was $17.39 million ($0.40 per share)
for the third quarter compared to net income of $0.70 million
($0.02 per share) after a $3.50 million unusual gain on the
sale of land for the third quarter of 2001.
Revenue for the quarter was $11.20 million or 19 percent less
than revenue for the third quarter of 2001. This decrease is
principally due to the timing of zinc, lead and copper
concentrate shipments from the Quiruvilca and Huaron mines.
Consolidated silver production was 1,750,467 ounces for the
third quarter (2001 - 2,140,802 ounces). Production of zinc
and copper were all higher for the third quarter when compared
to 2001. Silver production was lower at La Colorada because
milling operations were temporarily suspended in order to
focus on preparation for the mine expansion and at Quiruvilca
because of lower production levels and lower silver grade.
Base metal production was higher because of higher base metal
grades. The La Colorada mine is now back in operation.
For the nine months ended September 2002 consolidated silver
production was 5,755,367 ounces or 19 per cent higher than for
the first three quarters of 2001 due to three quarters of full
production from Huaron more than offsetting the decrease in
production at Quiruvilca and La Colorada.
During the third quarter operating activities generated cash
flow of $1.17 million. Investing activities, virtually all of
which consisted of plant and equipment expenditures at La
Colorada, consumed $3.22 million and financing activities
consumed $1.00 million including loan repayments of $0.60
million. Working capital, including cash of $17.96 million,
amounted to $13.70 million at September 30, 2002.
CORNER BAY SILVER ACQUISITION
In early September shareholders of both the Company and Corner
Bay voted in favour of the Company acquiring Corner Bay.
Closing of the merger has been delayed while efforts have been
made to secure a source of water for a potential mining
operation. A water rights agreement with a local agricultural
cooperative has been entered into and is in the process of
being ratified and approved by a regional water users
association and necessary Mexican authorities. The Company and
Corner Bay have extended the date for
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procurement of water from November 15 to December 17 and it is
hoped the merger can then be completed. This will result in
the Company acquiring 100 percent of the Alamo Dorado silver
deposit. It is expected that Alamo Dorado will produce in
excess of 6 million ounces per year for at least 8 years at a
total cash cost of $3.25. Construction could commence soon
after completion of the La Colorada expansion project now
underway.
HUARON MINE, PERU
The Huaron mine continued to operate well during the quarter,
producing 1,101,005 ounces of silver and 5,285 tonnes of zinc
at a total cash cost of $4.17 per ounce of silver net of
by-product credits. As a result of exploration success to date
in 2002, the mine has begun an expansion project that will
increase production nearly 10 percent by late-2003. This cost
is being funded from operating cash flow and expensed as part
of the cash cost of production reported from the mine. Huaron
has outperformed the Company's expectations for 2002 and has
contributed $2.85 million in cash flow in the year to date,
despite very low metal prices.
QUIRUVILCA MINE, PERU
The Quiruvilca mine continues to struggle under existing low
metal prices. During the quarter, the mine produced 594,463
ounces of silver and 4,622 tonnes of zinc at a total cash cost
of $5.20 per ounce of silver net of by-product credits. Since
the third quarter of 2001 operating costs per tonne have
decreased from $43.36 to $38.46, however revenue during the
same period has decreased from $38.09 to $32.42 due to lower
metal prices and a drop in silver grades as the more
silver-rich veins in the upper parts of the mine are exhausted
and production comes from the deeper, zinc-rich veins. Despite
extraordinary efforts by the Company's employees to reduce all
possible costs, Quiruvilca simply cannot make money at current
metal prices. All options continue to be examined to remedy
this situation. Quiruvilca has operated continuously since
1925, and so closure (either temporary or permanent) would be
very costly in financial and social terms. Higher metal prices
will allow the mine to contribute to the Company's cash flow,
as it did most recently in 2000, but it is impossible to
predict when this will occur. Using current metal prices, the
mine will not return its carrying value, and as a prudent
accounting policy, $15.13 million of the mine's book value was
written down during the quarter.
LA COLORADA MINE, MEXICO
The third quarter was a transition period at the La Colorada
mine as construction began on the mine expansion that will
quadruple silver production to 3.8 million ounces annually
beginning in mid-2003. This work required the small-scale
existing operation to close for six weeks during the quarter.
Production resumed in mid-September. During the quarter,
54,999 ounces of silver were produced. So far, construction is
on schedule and budget. The construction team is complete, the
oxide mill equipment is on site and being assembled and most
of the new underground equipment has been delivered.
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SAN VICENTE MINE, BOLIVIA
Small-scale operation by EMUSA, the Bolivian company that
operates this mine under a short term toll-mining agreement
with the Company, continued during the quarter with production
of 350,000 ounces of silver and a cash flow contribution to
the Company of about $0.10 million. In light of the successful
operation to date that has been possible using EMUSA's nearby
milling facility, the Company is discussing with EMUSA other
options that would increase silver production from San Vicente
to the benefit of both companies and the Bolivian state mining
company COMIBOL.
EXPLORATION
The Company was active during the quarter in four exploration
programs, three of which continue. Near La Colorada, a small
drilling program was carried out without significant results.
At Huaron, drilling was successful in increasing reserves in
the wide zones discovered in late 2001 that have contributed
to the mine's successful operation this year. At Manantial
Espejo in Argentina, drilling began in the 6,000 meter program
designed to move the project forward to the pre-feasibility
stage in 2003, and initial results have been very promising.
Finally, in Mexico, surface exploration concluded at the
Ocotlan project and drilling has now begun on the most
attractive targets.
SILVER MARKETS
Silver prices deteriorated in the third quarter, along with
most other metal prices. Zinc dropped to a new record low in
real dollar terms. These price declines are due to a drop in
industrial demand that began in mid-2000 and no accompanying
change in supply. Silver is widely used in the electronics and
high-tech sectors where demand remains very weak. Little
speculative buying was apparent during the quarter, in
contrast to earlier in 2002. However, strong physical buying
is reported at current silver prices, mine supply of silver is
likely to decrease in 2002 for the first time in six years,
and it is believed that Chinese sales of silver inventories
have been curtailed for the time being. While some reports
argue that silver prices are being manipulated downward by
bullion traders, we believe silver prices can be well
explained by demand and supply fundamentals, which provide a
solid base to current prices and good support for a higher
price trend in the near future.
ITEM 6. RELIANCE ON SECTION 85(2) OF THE ACT
This report is not being filed on a confidential basis.
ITEM 7. OMITTED INFORMATION
There are no significant facts required to be disclosed herein
which have been omitted.
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ITEM 8. SENIOR OFFICERS
For Further information, please contact:
Name: Gordon Jang
Office: Controller and Corporate Secretary
Telephone: (604) 684-1175
ITEM 9. STATEMENT OF SENIOR OFFICER
The foregoing accurately discloses the material change
referred to herein.
DATED at Vancouver, British Columbia, this 21st day of
November, 2002.
/s/ Gordon Jang
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Signature of a senior officer of the
reporting issuer
Gordon Jang, Controller and Corporate Secretary
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