Pan American MD&A 2009
La Preciosa Joint Venture
On April 14, 2009, Pan American and Orko Silver Corp. (“Orko”) announced that they had reached an
agreement outlining the terms under which they may jointly develop the La Preciosa silver project in the state
of Durango, Mexico. Pan American agreed to spend a minimum of $5.0 million in the first 12 months of the
development program to maintain its interest in the joint venture, of which a minimum of $2.5 million will be
spent to continue to explore the highly prospective land package that Orko brought to the joint venture. At
the date of this MD&A, Pan American has already spent 5.6 million. In order to maintain its 55% interest in
the joint venture, Pan American has agreed to conduct resource definition drilling, acquire necessary surface
rights, obtain permits, prepare and deliver a feasibility study within 36 months and ultimately be responsible
for capital expenditures required for the construction of a mine at La Preciosa
Capital Expenditure Forecasts
We are planning to invest $45.9 million in sustaining capital in 2010.
Capital budget
(in millions)
Huaron $8.2
Morococha $8.6
Alamo Dorado $1.8
La Colorada $6.3
Manantial Espejo $10.9
San Vicente $7.9
La Preciosa $1.7
Other
.5
Total $45.9
EXPLORATION AND PROJECT DEVELOPMENT
Exploration and project development expenses in 2009 were $9.9 million compared to $5.5 million incurred in
2008. The expenses recorded in 2009 primarily represented the costs associated with exploration activities
at the La Preciosa project, drilling at La Colorada and Manantial Espejo and the Company’s business
development activities. 2008’s expenses related mostly to due diligence expenses associated with the
Company’s business development activities and drilling expenses at La Colorada and Alamo Dorado.
Pan American’s project exploration activities in 2010 will be focused primarily on our development properties;
Navidad and La Preciosa. We are budgeting to drill approximately 94,000 meters in our project exploration
program for 2010, of which 80,000 meters will be at La Preciosa and Navidad. The budget for project
exploration in 2010 is expected to be $15.4 million, which will be expensed.
In addition to exploration activities at Navidad and La Preciosa, we plan to progress both projects towards
permitting and feasibility in 2010. Major areas of activity include environmental baseline work, permit
preparation, geology evaluation, metallurgical studies, government relations, tailings site and geotechnical
evaluation, water exploration and land reviews. We anticipate spending approximately $10 million on these
activities at Navidad and an additional $3.9 million at La Preciosa in 2010. The majority of these
expenditures will be expensed.
Corporate Development Activities
An element of the Company’s business strategy is to make selected acquisitions. The Company expects to
continue to evaluate acquisition opportunities on a regular basis and intends to pursue those opportunities
that it believes are in its long-term best interests.
Joint Venture with Orko Silver Inc. (La Preciosa Project, Durango, Mexico)
On April 13, 2009, Pan American and Orko Silver Corp. (‘‘Orko’’) entered into an agreement (the ‘‘Joint
Venture Letter Agreement’’), pursuant to which Pan American and Orko agreed to form a joint venture (the
‘‘Joint Venture’’) to develop the La Preciosa silver project located in the State of Durango, Mexico (the ‘‘La
Preciosa Project’’). Under the terms of the Joint Venture Letter Agreement, in order to retain its 55%
interest in the Joint Venture: (a) the Company must, in addition to contributing its mine development
expertise, spend a minimum of $5 million in the first 12 months from the date of the Joint Venture Letter
Agreement and conduct resource definition drilling, acquire necessary surface rights, obtain permits, and
prepare a feasibility study over the following 24 month period; and (b) following a positive construction
decision, the Company must contribute 100% of the funds necessary for practical completion of an
operating mine. In exchange for its 45% interest in the Joint Venture, Orko agreed to contribute its
exploration expertise and the La Preciosa Project and related concessions.
The Company has assessed the operating company of the La Preciosa project to be a variable interest
entity as contemplated under AcG-15 and as such it is consolidated in the financial statements of the
Company. Until such time as an economic analysis is completed and proven and probable reserves are
established, costs incurred through the joint venture company will be expensed and no value has been
attributed to the property contributed by the joint venture party. For the twelve months ended December 31,
2009, the exploration expense recognized arising from the Orko joint venture is $4.0 million.