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Re:
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Pan American Silver Corp.
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Form 40-F for the Fiscal Year Ended December 31, 2012
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File No. 0-13727
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1)
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In the case of concentrate, the product contains several commodities or poly metallic products. The concentrate is sold as one unit containing varying amounts of silver, gold, copper, zinc and lead, with silver being the predominant value commodity. These materials are sold directly to smelters and traders to which the Company ships the concentrate.
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i)
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The Company’s mines produce multiple types of concentrate and the Company allocates and records direct and indirect production costs (including allocated overhead, depreciation, depletion and amortization) in a systematic and rational basis based on the equivalent silver ounces contained in each respective concentrate.
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ii)
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As noted above, the concentrate contains several commodities and as a result production costs allocated to inventory (including stockpile ore, in-process concentrate inventory and finished concentrate) also contain the by-product costs incurred at the various stages of production. The by-product costs included in inventory are part of the total cost of concentrate that has been allocated to inventory based on the equivalent silver ounces contained in the concentrate. The costs are removed from inventory and recognized as production costs and depreciation and amortization once sold.
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2)
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In the case of Dore, which is comprised of silver and gold, the finished product is split at the refinery, at which point the refined silver and refined gold is sold to third parties. The sale of the refined silver and gold occurs simultaneously in terms of existing contracts, and it is seldom, if ever that the Company holds refined silver or gold.
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i)
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In the unusual circumstance where the silver and gold cannot be sold simultaneously, the Company allocates direct and indirect production costs (including allocated overhead, depreciation, depletion and amortization), in a systematic and rationale basis based on the equivalent ounces of silver in the respective Dore.
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ii)
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At the various stages of production, the Dore contains silver and gold and is considered to be one product that is produced by the respective sites and delivered to the refinery. In the rare circumstance where the refined silver and gold are not sold simultaneously, the respective production costs would be allocated to by-products based on the silver equivalent value of gold that is contained in the Dore inventory.
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i)
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We apply paragraph 17 of IFRS 6 by assessing technical feasibility and commercial viability of a project before reclassifying the corresponding development expenditures from Exploration and Evaluation. We view the receipt of appropriate development approvals, as one of several components of technical feasibility and commercial viability. Other components include, but are not limited to, permitting, ownership, establishing the volume and grade of the deposit, determining mine optimization and processing methods and economic feasibility.
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ii)
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Since the receipt of development approvals is a key component of commercial viability, development expenditures on projects where such approvals are outstanding, would be considered exploration and evaluation assets and accounted for in accordance with IFRS 6. We have reviewed our portfolio of projects and are not able to identify instances of projects which have established reserves, but where development approvals have not been
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·
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It is responsible for the adequacy and accuracy of the disclosure in its Form 40-F filing;
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Staff comments or changes to disclosure in response to Staff comments do not foreclose the Commission from taking any action with respect to the Company’s Form 40-F filing; and
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It may not assert Staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
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Cash and Total Cost per Ounce Reconciliation
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Twelve Months ended
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(in thousands of US dollars)
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December 31, 2012
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Huaron
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Quiruvilca
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Morococha
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San Vicente
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La Colorada
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Manantial
Espejo
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Alamo
Dorado
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Dolores
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Other
Subsidiaries
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Consolidated
2012
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Production Costs
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$ | 72,322 | $ | 14,661 | $ | 70,962 | $ | 28,279 | $ | 46,647 | $ | 109,061 | $ | 60,288 | $ | 76,774 | $ | (4,993 | ) | $ | 474,001 | ||||||||||||||||||||||
Add / (Subtract)
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Royalites
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- | 181 | - | 28,913 | - | 3,820 | - | 2,163 | - | $ | 35,077 | ||||||||||||||||||||||||||||||||
Smelting, refining & transportation
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19,400 | 2,943 | 15,717 | 17,362 | 8,079 | 2,548 | 1,179 | 871 | - | $ | 68,097 | ||||||||||||||||||||||||||||||||
By-product credits
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(45,448 | ) | (8,486 | ) | (44,750 | ) | (9,644 | ) | (19,814 | ) | (72,139 | ) | (30,555 | ) | (72,199 | ) | - | $ | (303,035 | ) | |||||||||||||||||||||||
Worker's participation and voluntary payments
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(1,515 | ) | (58 | ) | (0 | ) | - | - | - | - | - | - | $ | (1,573 | ) | ||||||||||||||||||||||||||||
Change in inventories
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1,538 | (348 | ) | 5,356 | 2,669 | 618 | 11,920 | (2,351 | ) | 3,118 | - | $ | 22,521 | ||||||||||||||||||||||||||||||
Other
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(1,976 | ) | (161 | ) | (1,605 | ) | 418 | 1,399 | (1,098 | ) | (961 | ) | 254 | 1,255 | $ | (2,475 | ) | ||||||||||||||||||||||||||
Intersegment charges
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(428 | ) | - | (433 | ) | (472 | ) | (514 | ) | (1,017 | ) | (619 | ) | (254 | ) | 3,738 | $ | - | |||||||||||||||||||||||||
Non-controlling interest
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- | - | (3,538 | ) | (3,376 | ) | - | - | - | - | - | $ | (6,914 | ) | |||||||||||||||||||||||||||||
Cash Operating Costs
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A | 43,894 | 8,733 | 41,707 | 64,149 | 36,414 | 53,093 | 26,981 | 10,728 | (0 | ) | $ | 285,699 | ||||||||||||||||||||||||||||||
Add / (Subtract)
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Depreciation and amortization
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8,686 | 340 | 11,117 | 11,299 | 4,761 | 27,785 | 16,337 | 26,890 | 939 | $ | 108,153 | ||||||||||||||||||||||||||||||||
Closure and decommisioning provision
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632 | 302 | 474 | 279 | 226 | 694 | 185 | 106 | 100 | $ | 2,999 | ||||||||||||||||||||||||||||||||
Change in inventories
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(527 | ) | (371 | ) | 500 | (406 | ) | 584 | 839 | (986 | ) | 6,934 | (293 | ) | $ | 6,273 | |||||||||||||||||||||||||||
Other
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- | - | - | - | - | - | - | - | (746 | ) | $ | (746 | ) | ||||||||||||||||||||||||||||||
Non-controlling interest
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- | - | (945 | ) | (559 | ) | - | - | - | - | - | $ | (1,504 | ) | |||||||||||||||||||||||||||||
Total Costs
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B | 52,684 | 9,004 | 52,852 | 74,763 | 41,985 | 82,410 | 42,518 | 44,659 | (0 | ) | $ | 400,874 | ||||||||||||||||||||||||||||||
Payable Silver Production (oz.)
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C | 2,506,481 | 240,354 | 1,776,333 | 3,390,683 | 4,215,075 | 3,625,285 | 5,345,677 | 2,646,219 | - | 23,746,108 | ||||||||||||||||||||||||||||||||
Cash Costs per ounce
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(A*$1000)/C | $ | 17.51 | $ | 36.33 | $ | 23.48 | $ | 18.92 | $ | 8.64 | $ | 14.65 | $ | 5.05 | $ | 4.05 | N/A | $ | 12.03 | |||||||||||||||||||||||
Total Costs per ounce
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(B*$1000)/C | $ | 21.02 | $ | 37.46 | $ | 29.75 | $ | 22.05 | $ | 9.96 | $ | 22.73 | $ | 7.95 | $ | 16.88 | N/A | $ | 16.88 |